As filed with the Securities and Exchange Commission on February 12, 2003
Registration No. 333-______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CAMDEN PROPERTY TRUST
(Exact name of registrant as specified in its charter)
TEXAS 76-6088377
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
THREE GREENWAY PLAZA, SUITE 1300
HOUSTON, TEXAS 77046
(713) 354-2500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD J. CAMPO
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CAMDEN PROPERTY TRUST
THREE GREENWAY PLAZA, SUITE 1300
HOUSTON, TEXAS 77046
(713) 354-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
BRYAN L. GOOLSBY
LOCKE LIDDELL & SAPP LLP
2200 ROSS AVENUE, SUITE 2200
DALLAS, TEXAS 75201
(214) 740-8000
FAX: (214) 740-8800
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this form are being offered
pursuant to divided or interest reinvestment plans, please check the following
box. | |
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. | |
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. | |
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. | |
CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------
Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Securities to be Amount to be Offering Price per Unit Aggregate Offering Registration Fee
Registered Registered (1) (2) Price (3) (4)
---------------------- ------------- ----------------------- ------------------ ----------------
Debt Securities
Preferred Shares $1,085,500,000 n/a $1,085,500,000 $99,866
Common Shares
Securities Warrants
(1) The amount to be registered consists of up to $1,085,500,000 of an
indeterminate amount of Debt Securities, Preferred Shares, Common Shares
and/or Securities Warrants as may be sold from time to time by the
Registrant. Pursuant to Rule 429 under the Securities Act of 1933, as
amended (the "Securities Act"), this amount includes $85,500,000 of
securities being carried forward from the earlier Registration Statement
on Form S-3 (No. 333-92959), which have not been previously sold. There is
also being registered hereunder such currently indeterminable number of
Common Shares and Preferred Shares issuable upon the conversion of the
Debt Securities or the Preferred Shares, as appropriate, or upon exercise
of Securities Warrants.
(2) The proposed maximum offering price per unit has been omitted pursuant to
Securities Act Release No. 6964.
(3) Estimated solely for the purpose of computing the registration fee. No
separate consideration will be received for Common Shares or Preferred
Shares that are issued upon conversion of Debt Securities or Preferred
Shares registered hereunder, as the case may be.
(4) Calculated pursuant to Rule 457(o) under the Securities Act. Pursuant to
Rule 429 under the Securities Act, the amount of $85,500,000 of securities
covered by the earlier Registration Statement on Form S-3 (No. 333-92959)
is being carried forward and the corresponding registration fee of $7,866
was previously paid at the time of filing. A registration fee of $92,000
is being paid herewith.
The Prospectus contained in this Registration Statement relates to and
constitutes a Post-Effective Amendment to the Registration Statement on Form S-3
(No. 333-92959) of the Registrant, and it is intended to be the combined
prospectus referred to in Rule 429 under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 2003
PROSPECTUS
CAMDEN PROPERTY TRUST
By this prospectus, we may offer up to We will provide the specific terms of these
$1,085,500,000 of our: securities in supplements to this prospectus. You
should read this prospectus and the supplements
carefully before you invest.
DEBT SECURITIES YOU SHOULD CAREFULLY CONSIDER THE RISKS SET FORTH
PREFERRED SHARES UNDER "RISK FACTORS" STARTING ON PAGE 1 OF THIS
COMMON SHARES PROSPECTUS.
WARRANTS
These securities have not been approved or We may offer the securities directly or through
disapproved by the SEC or any state securities underwriters, agents or dealers. The supplement
commission. None of those authorities has determined will describe the terms of that plan of
that this prospectus is accurate or complete. Any distribution. The section entitled "Plan of
representation to the contrary is a criminal offense. Distribution" below also provides more information
on this topic.
The date of this prospectus is ____________, 2003.
TABLE OF CONTENTS
PAGE
RISK FACTORS ........................................................... 1
WHERE YOU CAN FIND MORE INFORMATION .................................... 6
THE COMPANY ............................................................ 7
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS ............. 7
USE OF PROCEEDS ........................................................ 8
DESCRIPTION OF CAPITAL SHARES .......................................... 8
DESCRIPTION OF WARRANTS ................................................ 9
DESCRIPTION OF DEBT SECURITIES ......................................... 9
PLAN OF DISTRIBUTION ................................................... 15
RATIO OF EARNINGS TO FIXED CHARGES ..................................... 16
FEDERAL INCOME TAX CONSIDERATIONS AND CONSEQUENCES OF YOUR INVESTMENT .. 16
LEGAL MATTERS .......................................................... 31
EXPERTS ................................................................ 31
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RISK FACTORS
The following sets forth the most significant factors that make an
investment in our securities speculative or risky. You should carefully consider
the following information in conjunction with the other information contained or
incorporated by reference in this prospectus or any prospectus supplement before
making a decision to invest in our securities.
RISING INTEREST RATES WOULD INCREASE OUR COSTS AND COULD AFFECT THE MARKET PRICE
OF OUR SECURITIES
We have incurred and expect to continue to incur debt in the future. Some of
this debt has variable or floating interest rates. Accordingly, if interest
rates increase, our interest costs will also increase. In addition, an increase
in market interest rates may lead purchasers of our securities to demand a
higher annual yield, which could adversely affect the market price of our
outstanding equity or debt securities.
FAILURE TO GENERATE SUFFICIENT CASH FLOWS COULD LIMIT OUR ABILITY TO MAKE
REQUIRED PAYMENTS FOR DEBT SERVICE AND PAY DISTRIBUTIONS TO SHAREHOLDERS AND
COULD ADVERSELY AFFECT OUR ABILITY TO MAINTAIN OUR STATUS AS A REIT
The following factors, among others, may adversely affect the cash flows
generated by our properties:
- the national and local economic climates;
- local real estate market conditions, such as an oversupply of apartment
homes;
- the perceptions by prospective residents of the safety, convenience and
attractiveness of our properties and the neighborhoods in which they are
located;
- the need to periodically repair, renovate and relet space; and
- our ability to pay for adequate maintenance and insurance and increased
operating costs, including real estate taxes.
Some significant expenditures associated with each property, such as mortgage
payments, if any, real estate taxes and maintenance costs, are generally not
reduced when cash flows from operations from the property decreases.
UNFAVORABLE CHANGES IN MARKET AND ECONOMIC CONDITIONS COULD HURT OCCUPANCY OR
RENTAL RATES
The market and economic conditions may significantly affect apartment home
occupancy or rental rates. Occupancy and rental rates in the markets in which we
operate, in turn, may significantly affect our profitability and our ability to
satisfy our financial obligations and make distributions to shareholders. The
risks that may affect conditions in these markets include the following:
- the economic climate, which may be adversely impacted by plant closings,
industry slowdowns and other factors;
- local conditions, such as oversupply of apartments or a reduction in
demand for apartments in an area;
- a future economic downturn that simultaneously affects more than one of
our geographical markets;
- the inability or unwillingness of residents to pay their current rent or
rent increases;
- the potential effect of rent control or rent stabilization laws, or other
laws regulating housing, that could prevent us from raising rents; and
- competition from other available apartments and changes in market rental
rates.
DIFFICULTIES OF SELLING REAL ESTATE COULD LIMIT OUR FLEXIBILITY
Real estate investments can be hard to sell, especially if market conditions are
poor. This may limit our ability to vary our portfolio promptly in response to
changes in economic or other conditions. In addition, the Internal Revenue Code
limits our ability to sell properties that we have held for fewer than four
years, which may affect our
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ability to sell properties without adversely affecting our return.
DEVELOPMENT AND CONSTRUCTION RISKS COULD IMPACT OUR PROFITABILITY
We intend to continue to develop and construct multifamily apartment communities
for our own account. Our development and construction activities may be exposed
to a number of risks that may increase our construction costs. This could
adversely impact our profitability and our ability to satisfy our financial
obligations and make distributions to shareholders. These risks include the
following:
- we may be unable to obtain, or may face delays in obtaining, necessary
zoning, land-use, building, occupancy and other required permits and
authorizations, which could result in increased costs;
- we may incur construction costs for a property that exceed our original
estimates due to increased materials, labor or other costs, or due to
errors and omissions that occur in the design or construction process, and
we may not be able to increase rents to compensate for the increases in
these costs;
- occupancy rates and rents at a newly completed community may fluctuate
depending on a number of factors, including market and economic
conditions, and may result in the community not being profitable;
- we may not be able to obtain financing with favorable terms for the
development of a community, which may make us unable to proceed with its
development;
- we may not be able to complete construction and lease-up of a community on
schedule, which could result in increased costs;
- we may abandon development opportunities that we have already begun to
explore and, as a result, may fail to recover expenses already incurred in
exploring these development opportunities; and
- we rely on subcontractors to perform most of our construction activities
and poor performance or defaults by a major subcontractor, or our
inability to obtain adequate performance bonds for a major subcontractor,
may lead to project delays and unanticipated additional costs.
We also develop and construct properties for unrelated third parties pursuant to
guaranteed maximum price contracts. The terms of these contracts require us to
estimate the time and costs to complete a project. Based on these estimates, we
determine a time and the costs for completion of the project and assume the risk
that the time and costs associated with our performance may be greater than we
anticipated. As a result, our profitability on guaranteed maximum price
contracts is dependent on our ability to predict these factors accurately. The
time and costs may be affected by a variety of factors, including those listed
above, many of which are beyond our control. In addition, the terms of these
contracts generally require a warranty period, which may be up to 10 years long,
during which we may be required to repair, replace or rebuild a project in the
event of a material defect in the structure of the project. If we do not
accurately predict the time and costs of guaranteed maximum price contracts for
particular projects, or if the costs of the warranty work exceed the amounts
reserved for these matters, we could suffer losses on those projects and our
profitability could be less than anticipated.
FAILURE TO IMPLEMENT OUR PROPERTY ACQUISITION STRATEGY COULD IMPACT OUR
PROFITABILITY
In the normal course of our business, we continually evaluate a number of
potential acquisitions and may acquire additional operating properties. Our
inability to successfully implement our acquisition strategy could result in our
market penetration decreasing, which could adversely affect our profitability
and our ability to satisfy our financial obligations and make distributions to
shareholders. Our acquisition activities and their success may be exposed to a
number of risks, including the following:
- we may not be able to identify properties to acquire or effect the
acquisition;
- we may not be able to successfully integrate acquired properties and
operations;
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- our estimate of the costs of repositioning or redeveloping the acquired
property may prove inaccurate; and
- the acquired property may fail to perform as we expected in analyzing our
investment.
INSUFFICIENT CASH FLOW COULD AFFECT OUR DEBT FINANCING AND CREATE REFINANCING
RISK
As of September 30, 2002, we had outstanding mortgage indebtedness of
approximately $271.4 million and senior unsecured debt of approximately $1.1
billion, of which approximately $295.4 million was floating rate debt. This
indebtedness could have important consequences. For example:
- if a property is mortgaged to secure payment of indebtedness, and if we
are unable to meet our mortgage payments, we could sustain a loss as a
result of foreclosure on the mortgage;
- if funds from operations are less than the required principal and interest
payments on our existing indebtedness, which in all cases will not have
been fully amortized at maturity, we might not be able to refinance the
debt or the terms of such refinancing might not be as favorable as the
terms of our existing indebtedness;
- our vulnerability to general adverse economic and industry conditions
could be increased; and
- our flexibility in planning for, or reacting to, changes in our business
and industry could be limited.
ISSUANCES OF ADDITIONAL DEBT OR EQUITY MAY ADVERSELY IMPACT OUR FINANCIAL
CONDITION
Our capital requirements depend on numerous factors, including the occupancy
rates of our apartment properties, dividend payment rates to our shareholders,
development and capital expenditures, costs of operations and potential
acquisitions. We cannot accurately predict the timing and amount of our capital
requirements. If our capital requirements vary materially from our plans, we may
require additional financing sooner than anticipated. Accordingly, we could
become more leveraged, resulting in increased risk of default on our obligations
and in an increase in our debt service requirements, both of which could
adversely affect our financial condition and our ability to access debt and
equity capital markets in the future.
LOSSES FROM CATASTROPHES MAY EXCEED OUR INSURANCE COVERAGE
We carry comprehensive liability and property insurance on our properties, which
we believe is of the type and amount customarily obtained on real property
assets. We intend to obtain similar coverage for properties we acquire in the
future. However, some losses, generally of a catastrophic nature, such as losses
from floods or earthquakes, may be subject to limitations. We exercise our
discretion in determining amounts, coverage limits and deductibility provisions
of insurance, with a view to maintaining appropriate insurance on our
investments at a reasonable cost and on suitable terms. If we suffer a
substantial loss, our insurance coverage may not be sufficient to pay the full
current market value or current replacement value of our lost investment.
Inflation, changes in building codes and ordinances, environmental
considerations and other factors also might make it infeasible to use insurance
proceeds to replace a property after it has been damaged or destroyed.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION COULD RESULT IN SUBSTANTIAL
COSTS
Under various federal, state and local laws, ordinances and regulations, we are
liable for the costs to investigate and remove or remediate hazardous or toxic
substances on or in our properties, often regardless of whether we knew of or
were responsible for the presence of these substances. These costs may be
substantial. Also, if hazardous or toxic substances are present on a property,
or if we fail to properly remediate such substances, our ability to sell or rent
the property or to borrow using that property as collateral may be adversely
affected.
Additionally, we occasionally develop, manage, lease and/or operate various
properties for third parties. Consequently, we may be considered to have been or
to be an operator of these properties and, therefore, potentially liable for
removal or remediation costs or other potential costs that could relate to
hazardous or toxic substances.
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COMPLIANCE OR FAILURE TO COMPLY WITH LAWS REQUIRING ACCESS TO OUR PROPERTIES BY
DISABLED PERSONS COULD RESULT IN SUBSTANTIAL COST
The Americans with Disabilities Act, the Fair Housing Act of 1988 and other
federal, state and local laws generally require that public accommodations be
made accessible to disabled persons. Noncompliance could result in the
imposition of fines by the government or the award of damages to private
litigants. These laws may require us to modify our existing properties. These
laws may also restrict renovations by requiring improved access to such
buildings by disabled persons or may require us to add other structural features
that increase our construction costs. Legislation or regulations adopted in the
future may impose further burdens or restrictions on us with respect to improved
access by disabled persons. We cannot ascertain the costs of compliance with
these laws, which may be substantial.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE US TO BE TAXED AS A CORPORATION, WHICH
WOULD SIGNIFICANTLY LOWER FUNDS AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS
If we fail to qualify as a REIT for federal income tax purposes, we will be
taxed as a corporation for both current and past years. We cannot assure you
that the Internal Revenue Service will not challenge our qualification as a
REIT. We also cannot assure you that new legislation, regulations,
administrative interpretations or court decisions will not change the tax laws
with respect to qualification as a REIT or the federal tax consequences of such
qualification.
For any taxable year that we fail to qualify as a REIT, we would be subject to
federal income tax on our taxable income at corporate rates, plus any applicable
alternative minimum tax. In addition, unless entitled to relief under applicable
statutory provisions, we would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. This
treatment would reduce our net earnings available for investment or distribution
to shareholders because of the additional tax liability for the year or years
involved. In addition, distributions would no longer qualify for the dividends
paid deduction nor be required to be made. To the extent that distributions to
shareholders would have been made in anticipation of our qualifying as a REIT,
we might be required to borrow funds or to liquidate some of our investments to
pay the applicable tax.
SHARE OWNERSHIP LIMITS AND OUR ABILITY TO ISSUE ADDITIONAL EQUITY SECURITIES MAY
PREVENT TAKEOVERS BENEFICIAL TO SHAREHOLDERS
For us to maintain our qualification as a REIT, not more than 50% in value of
our outstanding shares may be owned, directly or indirectly, by five or fewer
individuals. As defined for federal income tax purposes, the term "individuals"
includes a number of specified entities. To minimize the possibility that we
will fail to qualify as a REIT under this test, our declaration of trust
includes restrictions on transfers of our shares and ownership limits. The
ownership limits, as well as our ability to issue other classes of equity
securities, may delay, defer or prevent a change in control. These provisions
may also deter tender offers for our shares, which may be attractive to you, or
limit your opportunity to receive a premium for your shares that might otherwise
exist if a third party were attempting to effect a change in control
transaction.
WE MAKE MEZZANINE LOANS THAT INVOLVE RISK OF LOSS
We have made and intend to continue to make mezzanine loans to various unrelated
third parties, which are typically secured by multifamily residential real
estate and are subordinate to senior mortgages. While these loans are
outstanding, we are subject to risks of borrower defaults, bankruptcies, fraud
and other losses. In the event of any default under mezzanine loans held by us,
we will bear the risk of loss of principal and non-payment of interest and fees
to the extent of any deficiency between the value of the loan collateral and the
principal amount of the loan. In addition, mezzanine loans involve a higher
degree of risk that we may not recover some or all of our investment than senior
mortgages due to a variety of factors, including the loan becoming unsecured as
a result of foreclosure by the senior lender.
INCREASED COMPETITION COULD LIMIT OUR ABILITY TO LEASE APARTMENTS OR INCREASE OR
MAINTAIN RENTS
Our apartment communities compete with numerous housing alternatives in
attracting residents, including other rental apartments, condominiums and
single-family homes that are available for rent or sale. Competitive residential
housing in a particular area could adversely affect our ability to lease
apartments and increase or maintain rents.
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ATTRACTIVE INVESTMENT OPPORTUNITIES MAY NOT BE AVAILABLE, WHICH COULD ADVERSELY
AFFECT OUR PROFITABILITY
We expect that other real estate investors will compete with us to acquire
existing properties and to develop new properties. These competitors, including
insurance companies, pension and investment funds, partnerships, investment
companies and other apartment REITs, may have greater resources than we do. This
completion could increase prices for properties of the type we would likely
pursue. As a result, we may not be able, or have the opportunity, to make
suitable investments on favorable terms in the future. This could adversely
affect our profitability.
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WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents by writing to
the SEC and paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330 for more information about the operation of the public reference
room. Our SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov. In addition, you may read and copy our SEC filings at the
office of the New York Stock Exchange at 20 Broad Street, New York, New York
10005. Our website address is http://www.camdenliving.com.
This prospectus is only part of a registration statement on Form S-3 that
we have filed with the SEC under the Securities Act of 1933 and therefore omits
some of the information contained in the registration statement. We have also
filed exhibits and schedules to the registration statement that are excluded
from this prospectus, and you should refer to the applicable exhibit or schedule
for a complete description of any statement referring to any contract or other
document. You may inspect or obtain a copy of the registration statement,
including the exhibits and schedules, as described in the previous paragraph.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and the information we file later with
the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future
filings made with the SEC (File No. 1-12110) under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 until this offering is completed:
- Annual Report on Form 10-K for the year ended December 31, 2001;
- Quarterly Reports on Form 10-Q for the quarters ended March 31,
2002, June 30, 2002 and September 30, 2002; and
- Current Reports on Form 8-K filed on June 4, 2002, August 14, 2002,
August 21, 2002 and November 25, 2002.
You may request a copy of these filings at no cost by writing or
telephoning G. Steven Dawson, Senior Vice President-Finance and Chief Financial
Officer, at the following address and telephone number:
Camden Property Trust
Three Greenway Plaza, Suite 1300
Houston, Texas 77046
(713) 354-2500
You should rely only on the information incorporated by reference or
provided in this prospectus or in the supplement. We have not authorized anyone
else to provide you with different information You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
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THE COMPANY
We are one of the largest real estate investment trusts in the nation,
with operations related to the ownership, development, construction and
management of multifamily apartment communities in nine states. As of September
30, 2002, we owned interests in, operated or were developing 149 properties
containing 53,542 apartment homes located in nine states. Three of our newly
developed multifamily properties containing 1,166 apartment homes were under
development at September 30, 2002. We also have several sites that we intend to
develop into multifamily apartment communities.
Our executive offices are located at Three Greenway Plaza, Suite 1300,
Houston, Texas 77046, and our telephone number is (713) 354-2500.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus and any supplement that are
"forward-looking" in that they do not discuss historical fact, but instead note
future expectations, projections, intentions or other items relating to the
future. These forward-looking statements include those made in the documents
incorporated by reference in this prospectus.
Reliance should not be placed on these forward- looking statements because
they are subject to known and unknown risks, uncertainties and other factors
that may cause our actual results or performance to differ materially from those
contemplated by the forward-looking statements. Many of those factors are noted
in conjunction with the forward-looking statements in the text. Other important
factors that could cause actual results to differ include:
- the results of our efforts to implement our property development and
acquisition strategies;
- the effects of economic conditions, including rising interest rates;
- our ability to generate sufficient cash flows;
- the failure to qualify as a real estate investment trust;
- the costs of our capital and debt;
- changes in our capital requirements;
- the actions of our competitors and our ability to respond to those
actions;
- the actions of borrowers under our mezzanine loans;
- changes in governmental regulations, tax rates and similar matters;
- environmental uncertainties and disasters; and
- other risks detailed in our other SEC reports or filings.
These forward-looking statements represent our estimates and assumptions
only as of the date of this prospectus.
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities for
general corporate purposes. Those purposes include the repayment or refinancing
of debt, property acquisitions and development in the ordinary course of
business, working capital, investment in financing transactions and capital
expenditures.
We will describe in the supplement any proposed use of proceeds other than
for general corporate purposes.
DESCRIPTION OF CAPITAL SHARES
Our declaration of trust provides that we may issue up to 110,000,000
shares of beneficial interest, consisting of 100,000,000 common shares and
10,000,000 preferred shares. At January 31, 2003, we had issued and outstanding
39,216,505 common shares.
COMMON SHARES
Holders of common shares are entitled to one vote per share. There is no
cumulative voting in the election of trust managers. The board may declare
dividends on common shares in its discretion if funds are legally available for
those purposes. On liquidation, common shareholders are entitled to receive pro
rata any of our remaining assets, after we satisfy or provide for the
satisfaction of all liabilities and obligations on our preferred shares, if any.
Common shareholders do not have preemptive rights to subscribe for or purchase
any of our capital shares or any other of our securities, except as may be
granted by the board.
PREFERRED SHARES
Under our declaration of trust, the board is authorized, without
shareholder approval, to issue preferred shares in one or more series, with the
designations, powers, preferences, rights, qualifications, limitations and
restrictions as the board determines. Thus, the board, without shareholder
approval, could authorize the issuance of preferred shares with voting,
conversion and other rights that could adversely affect the voting power and
other rights of common shareholders or that could make it more difficult for
another company to enter into a business combination with us.
RESTRICTIONS ON OWNERSHIP
In order for us to qualify as a REIT, under the Internal Revenue Code, not
more than 50% in value of our outstanding capital shares may be owned, directly
or indirectly, by five or fewer individuals or entities during the last half of
a taxable year. In addition, our capital shares must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a shorter taxable year.
Because our board believes it is essential for us to continue to qualify
as a REIT, our declaration of trust provides that in general no holder may own,
or be deemed to own by virtue of the attribution provisions of the Internal
Revenue Code, more than 9.8% of our total outstanding capital shares. Any
transfer of shares will not be valid if it would:
- create a direct or indirect ownership of shares in excess of 9.8% of
our total outstanding capital shares;
- result in shares being owned by fewer than 100 persons;
- result in our being "closely held" within the meaning of Section
856(h) of the Internal Revenue Code; or
- result in our disqualification as a REIT.
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If any person owns or is deemed to own more than 9.8% of our total
outstanding capital shares, the shares that exceed this ownership limit will
automatically be deemed to be transferred to us. We will act as trustee of a
trust for the exclusive benefit of the transferees to whom these shares may
ultimately be transferred without violating the 9.8% ownership limit. While in
trust, these shares will not be entitled to participate in dividends or other
distributions and, except as required by law, will not be entitled to vote. We
will have the right, for a period of 90 days during the time any securities are
held by us in trust, to purchase all or any portion of these securities from the
original shareholder at the lesser of the price paid for the shares and the
market price of the shares on the date we exercise our option to purchase. All
certificates representing capital shares will bear a legend referring to the
restrictions described above.
These restrictions on ownership may have the effect of precluding
acquisition of control unless the board and shareholders determine that
maintenance of REIT status is no longer in our best interests.
SHAREHOLDER LIABILITY
Our declaration of trust provides that no shareholder will be personally
or individually liable in any manner whatsoever for any debt, act, omission or
obligation incurred by us or our board. A shareholder will be under no
obligation to us or to our creditors with respect to such shares, other than the
obligation to pay to us the full amount of the consideration for which such
shares were issued or to be issued. By statute, the State of Texas provides
limited liability for shareholders of a REIT organized under the Texas Real
Estate Investment Trust Act.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company or its successor is the transfer
agent and registrar for our common shares.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of debt securities, preferred
shares or common shares. We may issue warrants independently or together with
debt securities, preferred shares or common shares or attached to or separate
from the offered securities. We will issue each series of warrants under a
separate warrant agreement between us and a bank or trust company as warrant
agent. The warrant agent will act solely as our agent in connection with the
warrants and will not act for or on behalf of warrant holders.
This summary of some of the provisions of the warrants is not complete.
You should refer to the provisions of the warrant agreement that will be filed
with the SEC as part of the offering of any warrants. To obtain a copy of this
document, see "Where You Can Find More Information" on page 6.
DESCRIPTION OF DEBT SECURITIES
The debt securities will be issued under an indenture between us and
SunTrust Bank, as trustee.
The following summary of some of the provisions of the indenture is not
complete. You should look at the indenture that is filed as an exhibit to the
registration statement of which this prospectus is a part. To obtain a copy of
the indenture or other documents that we file with the SEC, see "Where You Can
Find More Information" on page 6.
GENERAL
The debt securities will be direct, unsecured and unsubordinated
obligations and will rank equally with all other of our unsecured and
unsubordinated indebtedness. The indenture does not limit the amount of debt
securities that we can offer under it.
We may issue additional debt securities without your consent. We may issue
debt securities in one or more series. We are not required to issue all debt
securities of one series at the same time. Also, unless otherwise
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provided, we may open a series without the consent of the holders of the debt
securities of this series, for issuances of additional debt securities of this
series.
The supplement will address the following terms of the debt securities:
- their title;
- any limits on the principal amounts to be issued;
- the dates on which the principal is payable;
- the rates, which may be fixed or variable, at which they will bear
interest, or the method for determining rates;
- the dates from which the interest will accrue and be payable, or the
method of determining those dates, and any record dates for the
payments due;
- any provisions for redemption, conversion or exchange, at our option
or otherwise, including the periods, prices and terms of redemption
or conversion;
- any sinking fund or similar provisions, whether mandatory or at the
holder's option, along with the periods, prices and terms of
redemption, purchase or repayment;
- the amount or percentage payable if we accelerate their maturity, if
other than the principal amount;
- any changes to the events of default or covenants set forth in the
indenture;
- the terms of subordination, if any;
- whether the series may be reopened; and
- any other terms consistent with the indenture.
We may authorize and determine the terms of a series of debt securities by
resolution of our board of trust managers or one of its committees or through a
supplemental indenture.
FORM OF DEBT SECURITIES
Unless the supplement otherwise provides, the debt securities will be
issued in registered form. We will issue debt securities only in denominations
of $1,000 and integral multiples of that amount.
Unless the supplement otherwise provides, we will issue debt securities as
one or more global securities. This means that we will not issue certificates to
each holder. We generally will issue global securities in the total principal
amount of the debt securities in a series. Debt securities in global form will
be deposited with or on behalf of a depositary. Debt securities in global form
may not be transferred except as a whole among the depositary, a nominee of or a
successor to the depositary and any nominee of that successor. Unless otherwise
identified in the supplement, the depositary will be The Depository Trust
Company ("DTC").
We may determine not to use global securities for any series. In that
event, we will issue debt securities in certificated form.
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The laws of some jurisdictions require that some purchasers of securities
take physical delivery of securities in certificated form. Those laws and some
conditions on transfer of global securities may impair the ability to transfer
interests in global securities.
OWNERSHIP OF GLOBAL SECURITIES
So long as the depositary or its nominee is the registered owner of a
global security, that entity will be the sole holder of the debt securities
represented by that instrument. Both we and the trustee are only required to
treat the depositary or its nominee as the legal owner of those securities for
all purposes under the indenture.
Unless otherwise specified in this prospectus or the supplement, no actual
purchaser of debt securities represented by a global security will be entitled
to receive physical delivery of certificated securities or will be considered
the holder of those securities for any purpose under the indenture. In addition,
no actual purchaser will be able to transfer or exchange global securities
unless otherwise specified in this prospectus or the supplement. As a result,
each actual purchaser must rely on the procedures of the depositary to exercise
any rights of a holder under the indenture. Also, if an actual purchaser is not
a participant in the depositary, the actual purchaser must rely on the
procedures of the participant through which it owns its interest in the global
security.
THE DEPOSITORY TRUST COMPANY
The following is based on information furnished by DTC and applies to the
extent that it is the depositary, unless otherwise provided in the supplement.
Registered Owner. The debt securities will be issued as fully registered
securities in the name of Cede & Co., which is DTC's partnership nominee. The
trustee will deposit the global security with the depositary. The deposit with
the depositary and its registration in the name of Cede & Co. will not change
the nature of the actual purchaser's ownership interest in the debt securities.
DTC's Organization. DTC is a limited purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of that
law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act of
1934.
DTC is owned by a number of its direct participants and the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and some other
organizations who directly participate in DTC. Other entities may access DTC's
system by clearing transactions through or maintaining a custodial relationship
with direct participants. The rules applicable to DTC and its participants are
on file with the SEC.
DTC's Activities. DTC holds securities that its participants deposit with
it. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participant's accounts. Doing so
eliminates the need for physical movement of securities certificates.
Participants' Records. Except as otherwise provided in this prospectus or
a supplement, purchases of debt securities must be made by or through a direct
participant, which will receive a credit for the securities on the depositary's
records. The purchaser's interest is in turn to be recorded on the participants'
records. Actual purchasers will not receive written confirmations from the
depositary of their purchase, but they generally receive confirmations along
with periodic statements of their holdings from the participants through which
they entered into the transaction.
Transfers of interest in the global securities will be made on the books
of the participants on behalf of the actual purchasers. Certificates
representing the interest of the actual purchasers in the securities will not be
issued unless the use of global securities is suspended.
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The depositary has no knowledge of the actual purchasers of global
securities. The depositary's records only reflect the identity of the direct
participants, who are responsible for keeping account of their holdings on
behalf of their customers.
Notices Among the Depositary, Participants and Actual Owners. Notices and
other communications by the depositary, its participants and the actual
purchasers will be governed by arrangements among them, subject to any legal
requirements in effect.
Voting Procedures. Neither DTC nor Cede & Co. will give consents for or
vote the global securities. The depositary generally mails an omnibus proxy to
us just after the applicable record date. That proxy assigns Cede & Co.'s voting
rights to the direct participants to whose accounts the securities are credited
at that time.
Payments. Principal and interest payments made by us will be delivered to
the depositary. DTC's practice is to credit direct participants' accounts on the
applicable payment date unless it has reason to believe that it will not receive
payment on that date. Payments by participants to actual purchasers will be
governed by standing instructions and customary practices, as is the case with
securities held for customers in bearer form or registered in "street name."
Those payments will be the responsibility of that participant, not the
depositary, the trustee or us, subject to any legal requirements in effect at
that time.
We are responsible for payment of principal, interest and premium, if any,
to the trustee, who is responsible to pay it to the depositary. The depositary
is responsible for disbursing those payments to direct participants. The
participants are responsible for disbursing payment to the actual purchasers.
TRANSFER OR EXCHANGE OF DEBT SECURITIES
You may transfer or exchange debt securities other than global securities
without service charge at the corporate trust office of the trustee. You may
also surrender debt securities other than global securities for conversion or
registration of transfer without service charge at the corporate trust office of
the trustee. You must execute a proper form of transfer and pay any taxes or
other governmental charges resulting from that action.
TRANSFER AGENT
If we designate a transfer agent in addition to the trustee in a
supplement, we may at any time rescind this designation or approve a change in
the location through which the transfer agent acts. We will, however, be
required to maintain a transfer agent in each place of payment for a series of
debt securities. We may at any time designate additional transfer agents for a
series of debt securities.
COVENANTS
The following is a summary of some of the covenants we have made in the
indenture.
Existence. Except in connection with permitted mergers, consolidations or
sales of assets, we agreed to do or cause to be done all things necessary to
preserve and keep our corporate existence, rights and franchises in full force
and effect. We are not, however, required to preserve any right or franchise if
we determine that its preservation is no longer desirable in the conduct of our
business and that the loss is not disadvantageous in any material respect to the
holders of debt securities.
Maintenance of Properties. We agreed to maintain and keep in good
condition all of our material properties used or useful in the conduct of our
business. This does not, however, preclude us from disposing of our properties
in the ordinary course of business.
Insurance. We agreed to maintain with insurers of recognized
responsibility insurance concerning our properties against such casualties and
contingencies and of such types and in such amounts as is customary for the same
or similar businesses.
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Payment of Taxes and Other Claims. We agreed to pay or discharge before
they become delinquent all taxes and other governmental charges levied or
imposed on us and all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon our property. We are not, however,
required to pay or discharge any such charge whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
Provision of Financial Information. We agreed, whether or not we are
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, to
prepare the annual reports, quarterly reports and other documents that we would
have been required to file with the SEC pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 within 15 days of each of the respective
required filing dates and to:
- transmit by mail to all holders of debt securities, as their names
and addresses appear in the security register, copies of such annual
reports, quarterly reports and other documents;
- file with the trustee copies of such annual reports, quarterly
reports and other documents; and
- promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any
prospective holder.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of default under the indenture for any series of debt securities
include the following:
- failure for 30 days to pay interest on any debt securities of that
series;
- failure to pay principal or premium, if any, of any debt securities
of that series;
- default in the performance or breach of any of our covenants
contained in the indenture, other than a covenant added to the
indenture solely for the benefit of a series of debt securities
other than that series, which continues for 60 days after written
notice as provided in the indenture;
- default under any other of our debt instruments with an aggregate
principal amount outstanding of at least $10,000,000;
- entry by a court of competent jurisdiction of one or more judgments,
orders or decrees against us in an aggregate amount, excluding
amounts covered by insurance, over $10,000,000 and these judgments,
orders or decrees remain undischarged for a period of 30 consecutive
days; or
- specified events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee.
If an event of default occurs and continues, the trustee and the holders
of not less than 25% of the series may declare the principal amount of all of
the debt securities of that series to be immediately due and payable.
The rights of holders of a series to commence an action for any remedy is
subject to a number of conditions, including the requirement that the holders of
25% of that series request that the trustee take action and offer a reasonable
indemnity to the trustee against its liabilities incurred in doing so. This
provision will not, however, prevent any holder from instituting suit for the
enforcement of payment.
Subject to provisions in the indenture relating to the trustee's duties in
case of default, the trustee is under no obligation to exercise any of its
rights or powers under the indenture at the request or direction of any holder
unless the holder has offered to the trustee reasonable security or indemnity.
However, the trustee may refuse to follow any direction that is in conflict with
any law or the indenture, that may involve the trustee in personal liability or
that may be unduly prejudicial to holders.
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MODIFICATION OF THE INDENTURE
We must obtain the consent of holders of at least a majority in principal
amount of all outstanding debt securities affected by a change to the indenture.
The consent of holders of at least a majority in principal amount of each series
of outstanding debt securities is required to waive compliance by us with some
of the covenants in the indenture. We must obtain the consent of each holder
affected by a change to extend the maturity; reduce the principal, redemption
premium or interest rate; change the place of payment, or the coin or currency,
for payment; limit the right to sue for payment; reduce the level of consents
needed to approve a change to the indenture; or modify any of the foregoing
provisions or any of the provisions relating to the waiver of some past defaults
or covenants, except to increase the required level of consents needed to
approve a change to the indenture.
DEFEASANCE
We may defease the debt securities of a series, which means that we would
satisfy our duties under that series before maturity. We may do so by depositing
with the trustee, in trust for the benefit of the holders, sufficient funds to
pay the entire indebtedness on that series, including principal, premium, if
any, and interest. Some other conditions must be met before we may do so. We
must also deliver an opinion of counsel to the effect that the holders of that
series will have no federal income tax consequences as a result of that deposit.
CONVERSION
Debt securities may be convertible into or exchangeable for common shares,
preferred shares or debt securities of another series. The supplement will
describe the terms of any conversion rights. To protect our status as a REIT,
debt securities are not convertible if, as a result of a conversion, any person
would then be deemed to own, directly or indirectly, more than 9.8% of our
capital shares.
SUBORDINATION
The terms and conditions of any subordination of subordinated debt
securities to other of our indebtedness will be described in the supplement. The
terms will include a description of the indebtedness ranking senior to the
subordinated debt securities, the restrictions on payments to the holders of
subordinated debt securities while a default exists with respect to senior
indebtedness, any restrictions on payments to the holders of the subordinated
debt securities following an event of default and provisions requiring holders
of the subordinated debt securities to remit payments to holders of senior
indebtedness.
Because of the subordination, if we become insolvent, holders of
subordinated debt securities may recover less, ratably, than other of our
creditors, including holders of senior indebtedness.
LIMITATIONS ON INCURRENCE OF DEBT
The indenture imposes the following limitations on our ability to incur
debt if provided with respect to any series of debt securities.
We will not incur debt if as a result the aggregate principal amount of
all our outstanding debt would exceed 60% of the sum of our total assets as of
the end of the last fiscal quarter and the purchase price of any real estate
assets or mortgages receivable acquired, and the amount of any securities
offering proceeds we receive, to the extent that the proceeds were not used to
acquire real estate assets or mortgages receivable or used to reduce debt, since
the end of that quarter, including those proceeds obtained in connection with
the incurrence of this additional debt.
We will not incur debt secured by any mortgage, lien, charge, pledge or
security interest of any kind ("Lien") on any of our properties if as a result
the aggregate principal amount of all of our outstanding debt that is secured by
any Lien on our property would exceed 40% of the sum of our total assets as of
the end of our last fiscal quarter and the purchase price of any real estate
assets or mortgages receivable acquired, and the amount of any securities
offering proceeds received, to the extent that the proceeds were not used to
acquire real estate assets or
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mortgages receivable or used to reduce debt, since the end of that quarter,
including those proceeds obtained in connection with the incurrence of this
additional debt.
We will not at any time own unencumbered assets equal to less than 150% of
the aggregate outstanding principal amount of unsecured debt.
We will not incur debt if the ratio of Consolidated Income Available for
Debt Service (as defined in the indenture) to the Annual Service Charge (as
defined in the indenture) for the four consecutive fiscal quarters most recently
ended prior to the date on which this additional debt is to be incurred will
have been less than 1.5:1, on a pro forma basis and calculated as described in
the indenture.
MERGER, CONSOLIDATION AND SALE OF ASSETS
We cannot consolidate with, or sell, lease or convey all or substantially
all of our assets to, or merge with or into, any other corporation unless:
- we will be the surviving entity; or
- the successor corporation, if other than us, expressly assumes all
of our obligations under the debt securities and the indenture, and
immediately after that transaction no default under the indenture
will occur and be continuing.
PLAN OF DISTRIBUTION
We may offer securities directly or through underwriters, dealers or
agents. The supplement will identify those underwriters, dealers or agents and
will describe the plan of distribution, including commissions to be paid. If we
do not name a firm in the supplement, the firm may not directly or indirectly
participate in any underwriting of those securities, although it may participate
in the distribution of securities under circumstances entitling it to a dealer's
allowance or agent's commission.
An underwriting agreement will entitle the underwriters to indemnification
against specified civil liabilities under the federal securities laws and other
laws. The underwriters' obligations to purchase securities will be subject to
specified conditions and generally will require them to purchase all of the
securities if any are purchased.
Unless otherwise noted in the supplement, the securities will be offered
by the underwriters, if any, when, as and if issued by us, delivered to and
accepted by the underwriters and subject to their right to reject orders in
whole or in part.
We may sell securities to dealers, as principals. Those dealers then may
resell the securities to the public at varying prices set by those dealers from
time to time.
We may also offer securities through agents. Agents generally act on a
"best efforts" basis during their appointment, meaning that they are not
obligated to purchase securities.
Dealers and agents may be entitled to indemnification as underwriters by
us against some liabilities under the federal securities laws and other laws.
We or the underwriters or the agent may solicit offers by institutions
approved by us to purchase securities under contracts providing for further
payment. Permitted institutions include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others. Certain conditions apply to those purchases.
An underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves sales in
excess of the offering size, which creates a short position. Stabilizing
transactions permit bidders to
15
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Short covering transactions involve purchases of the
securities in the open market after the distribution is completed to cover short
positions. Penalty bids permit the underwriters to reclaim a selling concession
from a dealer when the securities originally sold by the dealer are purchased in
a covering transaction to cover short positions. Those activities may cause the
price of the securities to be higher than it would otherwise be. The
underwriters may engage in any activities on any exchange or other market in
which the securities may be traded. If commenced, the underwriters may
discontinue those activities at any time.
The supplement or pricing supplement, as applicable, will set forth the
anticipated delivery date of the securities being sold at that time.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred distributions for each of our last five
fiscal years and the nine months ended September 30, 2002 are presented below.
We computed our ratios of earnings to fixed charges by dividing earnings by
fixed charges. We computed our ratios of earnings to combined fixed charges and
preferred share dividends by dividing earnings by the sum of fixed charges and
preferred share dividend requirements. For these purposes, earnings have been
calculated by adding fixed charges to income from operations before income
taxes. Fixed charges consist of interest costs, the interest portion of rental
expense, other than on capital leases, estimated to represent the interest
factor in this rental expense and the amortization of debt discounts and issue
costs.
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------- SEPTEMBER 30,
2001(4) 2000(3) 1999(2) 1998 1997(1) 2002
------- ------- ------- ----- ------- -------------
Ratio of earnings to fixed charges 1.63x 1.63x 1.58x 1.81x 2.13x 1.42x
Ratio of earnings to combined
fixed charges and preferred share
dividends 1.61x 1.58x 1.52x 1.70x 2.13x 1.42x
(1) Earnings include a $10,170,000 impact related to gain on sales of
properties. Excluding this impact, these ratios would be 1.83x.
(2) Earnings include a $2,979,000 impact related to gain on sales of
properties. Excluding this impact, such ratios would be 1.55x and 1.49x.
(3) Earnings include a $18,323,000 impact related to gain on sales of
properties. Excluding this impact, such ratios would be 1.45x and 1.41x.
(4) Earnings include a $2,372,000 impact related to gain on sales of
properties. Excluding this impact, such ratios would be 1.60x and 1.59x.
FEDERAL INCOME TAX CONSIDERATIONS AND CONSEQUENCES OF YOUR INVESTMENT
The following is a general summary of the material federal income tax
considerations associated with an investment in the securities. The summary is
based on current law. It is not tax advice and presents general information
only. The summary does not deal with particular types of securityholders that
are subject to special treatment under the Internal Revenue Code, such as
insurance companies, financial institutions and broker-dealers. In addition, the
summary is not exhaustive of all possible tax considerations. Your actual tax
consequences as a taxpayer can be complicated and will depend on your specific
situation, including variables you cannot control. You should consult your own
tax advisor for a full understanding of the tax consequences of the purchase,
holding and sale of the securities. You should also consult your tax advisor to
determine the effect of any potential changes in applicable tax laws. The
Internal Revenue Code provisions governing the federal income tax treatment of
REITs are highly technical and complex, and the summary is qualified in its
entirety by the applicable Internal Revenue Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
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The following discussion is based upon current law and on representations from
us concerning our compliance with the requirements for qualification as a REIT.
WE URGE YOU, AS A PROSPECTIVE INVESTOR, TO CONSULT YOUR OWN TAX ADVISOR
WITH RESPECT TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO YOU OF THE PURCHASE, HOLDING AND SALE OF OUR SECURITIES.
We have elected to be taxed as a REIT under the Internal Revenue Code
since our taxable year ended December 31, 1993. We believe that we have been
organized and have operated in a manner that qualifies for taxation as a REIT
under the Internal Revenue Code. We also believe that we will continue to
operate in a manner that will preserve our status as a REIT. We cannot, however,
assure you that these requirements will be met in the future.
We have not requested a ruling from the Internal Revenue Service regarding
our REIT status. However, we have received an opinion from the law firm of Locke
Liddell & Sapp LLP to the effect that:
- we have met the requirements for qualification and taxation as a
REIT for each taxable year commencing with the taxable year ended
December 31, 1993;
- our diversity of equity ownership, operations through the date of
the opinion and proposed method of operation should allow us to
qualify as a REIT for the taxable year ending December 31, 2003; and
- the discussion regarding "Federal Income Tax Considerations and
Consequences of Your Investment" set forth in this section, to the
extent that it describes matters of law or legal conclusions, is
correct in all material respects.
The opinion is expressed as of its date and Locke Liddell & Sapp LLP has
no obligation to advise us of any change in applicable law or of any matters
stated, represented or assumed, after the date of this opinion.
You should be aware that opinions of counsel are not binding upon the
Internal Revenue Service or any court. Our opinion of counsel is based upon
factual representations and covenants made by us regarding the past, present and
future conduct of our business operations. Furthermore, our opinion of counsel
regarding our continued qualification as a REIT is conditioned upon, and our
continued qualification as a REIT will depend on, our ability to meet, through
actual annual operating results, the various REIT qualification tests under the
Internal Revenue Code.
In addition, we cannot assure you that new legislation, regulations or
administrative interpretations will not change the tax laws with respect to our
qualification as a REIT or any other matter discussed herein.
FEDERAL INCOME TAXATION OF THE COMPANY
As long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on that portion of our ordinary income
or capital gain that is currently distributed to shareholders. The REIT
provisions of the Internal Revenue Code generally allow us to deduct dividends
paid to our shareholders. The deduction for dividends paid to shareholders
substantially eliminates the federal "double taxation" of earnings generally
applicable to corporations. When we use the term "double taxation," we refer to
taxation of corporate income at two levels, taxation at the corporate level when
the corporation must pay tax on the income it has earned and taxation again at
the shareholder level when the shareholder pays taxes on the distributions it
receives from the corporation's income in the way of dividends. Additionally, a
REIT may elect to retain and pay taxes on a designated amount of its net
long-term capital gains, in which case the shareholders of the REIT will include
their proportionate share of the undistributed long-term capital gains in income
and receive a credit or refund for their share of the tax paid by the REIT.
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Even if we qualify for taxation as a REIT, we will be subject to federal
income tax as follows:
- We will be taxed at regular corporate rates on our undistributed
REIT taxable income, including undistributed net capital gain.
- Under some circumstances, we may be subject to the "alternative
minimum tax" as a consequence of our items of tax preference.
- We will be taxed at the highest corporate rate on our net income
from the sale or other disposition of "foreclosure property" that is
held primarily for sale to customers in the ordinary course of
business and other non-qualifying income from foreclosure property.
Foreclosure property is, in general, any real property and any
personal property incident to real property acquired through
foreclosure or deed in lieu of foreclosure.
- We will be subject to a 100% tax on any net income from prohibited
transactions, which are, in general, sales or other dispositions of
property held primarily for sale to customers in the ordinary course
of business, other than foreclosure property.
- If we fail to satisfy the 75% or 95% gross income test under the
REIT provisions of the Internal Revenue Code, but have maintained
our qualification as a REIT, we will be subject to a tax equal to
100% of the net income attributable to the greater of the amount by
which we fail the 75% test or the 95% test, multiplied by a fraction
intended to reflect our profitability.
- If we fail to distribute during each year at least the sum of (a)
85% of our ordinary income for such year, (b) 95% of our capital
gain net income for such year and (c) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax on
the excess of the required distribution over the amounts actually
distributed.
- If (a) we acquire any asset from a C corporation, which is a
corporation subject to full corporate level tax, in a
carryover-basis transaction, and (b) we subsequently recognize gain
on the disposition of this asset during the 10-year period beginning
on the date on which we acquire the asset, then the excess of the
fair market value of the asset as of the beginning of the 10-year
period over our adjusted basis in the asset at that time will be
subject to tax at the highest regular corporate rate, under
guidelines issued by the Internal Revenue Service.
REIT QUALIFICATION
Organizational Requirements. The Internal Revenue Code defines a REIT as a
corporation, trust or association that meets the following conditions:
1. it is managed by one or more trustees or directors;
2. its beneficial ownership is evidenced by transferable shares or by
transferable certificates of beneficial interest;
3. it would be taxable as a domestic corporation but for the REIT
requirements;
4. it is neither a financial institution nor an insurance company;
5. its beneficial ownership is held by 100 or more persons; and
6. during the last half of each taxable year, five or fewer individuals
do not own, directly or indirectly, more than 50% in value of its
outstanding stock, taking into account applicable attribution rules.
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In addition, other tests, described below, regarding the nature of income
and assets of the REIT also must be satisfied. The Internal Revenue Code
provides that conditions (1) through (4), inclusive, must be met during the
entire taxable year. Condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Conditions (5) and (6) will not apply until after the first
taxable year for which an election is made to be taxed as a REIT. For purposes
of conditions (5) and (6), pension funds and particular other tax-exempt
entities are treated as individuals, subject to an exception in the case of
condition (6) that looks through the fund or entity to actual participants of
the fund or beneficial owners of the entity in determining the number of owners
of the outstanding stock.
Our declaration of trust currently includes restrictions regarding
transfers of capital shares, which restrictions are intended, among other
things, to assist us in continuing to satisfy conditions (5) and (6). In
rendering its opinion that we have met the requirements for qualification and
taxation as a REIT, Locke Liddell & Sapp LLP is relying on our representations
that the ownership of our capital shares will satisfy conditions (5) and (6).
There can be no assurance, however, that the restrictions in our declaration of
trust will, as a matter of law, preclude us from failing to satisfy those
conditions or that a transfer in violation of those restrictions would not cause
us to fail these conditions.
If a REIT owns a qualified REIT subsidiary, the Internal Revenue Code
provides that the qualified REIT subsidiary is disregarded for federal income
tax purposes. Thus, all assets, liabilities and items of income, deduction and
credit of the qualified REIT subsidiary are treated as assets, liabilities and
these items of the REIT itself. When we use the term "qualified REIT
subsidiary," we mean a corporation, other than a taxable REIT subsidiary, in
which all of its shares are held by the REIT. We own, directly or indirectly,
100% of the shares of several corporations which constitute qualified REIT
subsidiaries. Thus, all of the assets, liabilities and items of income,
deduction and credit of these qualified REIT subsidiaries will be treated as our
assets and liabilities and our items of income, deduction and credit. Unless the
context requires otherwise, all references to "we," "us" and "our company" in
this "Federal Income Tax Considerations and Consequences of Your Investment"
section, refer to Camden Property Trust and its qualified REIT subsidiaries.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations issued by the United States Treasury Department provide that the
REIT will be deemed to own its proportionate share of the assets of the
partnership and will be deemed to be entitled to the income of the partnership
attributable to this share. A REIT's proportionate share of the assets of the
partnership will be determined based on the REIT's capital interest in the
partnership. In addition, the character of the assets and gross income of the
partnership will retain the same character in the hands of the REIT for purposes
of Section 856 of the Internal Revenue Code, including satisfying the gross
income tests and asset tests. Thus, our proportionate share of the assets,
liabilities and items of income of Camden Operating, L.P. and any other entity
taxable as a partnership for federal income tax purposes in which we hold an
interest will be treated as our assets and liabilities and our items of income
for purposes of applying the requirements described in this section. The assets,
liabilities and items of income of Camden Operating, L.P. and any other entity
taxable as a partnership for federal income tax purposes in which we hold an
interest include Camden Operating, L.P.'s and each such entity's share of the
assets and liabilities and items of income with respect to any entity taxable as
a partnership in which they hold an interest.
Income Tests. In general, in order to qualify as a REIT, we must derive at
least 95% of our gross income, excluding gross income from prohibited
transactions, from real estate sources and from dividends, interest and gain
from the sale or disposition of stock or securities or from any combination of
the foregoing. We must also derive at least 75% of our gross income, excluding
gross income from prohibited transactions, from investments relating to real
property or mortgages on real property including rents from real property,
interest on obligations secured by mortgages on real property and, in particular
circumstances, interest from particular types of temporary investments.
Additionally, with respect to each of our tax years beginning on or before
January 1, 1997, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain from the sale or other
disposition of real property held for less than four years apart from
involuntary conversions and sales of foreclosure property must have represented
less than 30% of our gross income including gross income from prohibited
transactions for each such taxable year.
Rent derived from leases will be qualifying income under the REIT
requirements, provided several requirements are satisfied. First, a lease may
not have the effect of giving us a share of the income or profits of the
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lessee. Second, the rent attributable to personal property that is leased in
connection with a lease of real property must not exceed 15% of the total rent
received under the lease. If so, the portion of rent attributable to the
personal property will not qualify as rents from real property. For taxable
years beginning after December 31, 2000, the test to determine the rent
attributable to personal property that is leased in connection with a lease of
real property is based on relative fair market values. Third, rents received
from a related party tenant will not qualify as rents from real property. For
these purposes, a tenant will be a related party tenant if the REIT, directly or
indirectly, actually or constructively, owns 10% or more of the tenant. As a
result of the passage of the Ticket to Work and Work Incentives Act of 1999 as
enacted on December 17, 1999 (we refer to this as the "REIT Modernization Act"),
for taxable years after December 31, 2000, we may lease property to a taxable
REIT subsidiary and the rents received from that subsidiary will not be
disqualified from being rents from real property by reason of our ownership
interest in the subsidiary. We can avail ourselves of this exception to the
related party rent rules so long as at least 90% of the leased space of the
property is rented to persons who are not related parties or taxable REIT
subsidiaries and the taxable REIT subsidiary pays commercially reasonable rent
which is substantially comparable to the rent paid by third parties. A taxable
REIT subsidiary includes a corporation other than a REIT in which a REIT
directly or indirectly holds stock and that has made a joint election with the
REIT to be treated as a taxable REIT subsidiary. A taxable REIT subsidiary will
be subject to federal income tax at regular corporate rates. Fourth, the REIT
generally must not operate or manage its property or furnish or render services
to tenants. However, the REIT may provide customary services or provide
non-customary services through an independent contractor who is adequately
compensated and from whom the REIT derives no income or a taxable REIT
subsidiary. Also, for tax years beginning after August 5, 1997, the REIT may
provide non-customary services with respect to its properties as long as the
income from the provision of these services with regard to each property does
not exceed 1% of all amounts received by the REIT from each property. For all
taxable years beginning after December 31, 2000 the REIT may provide or furnish
non-customary services through a taxable REIT subsidiary. Finally, all leases
must also qualify as "true" leases for federal income tax purposes, and not as
service contracts, joint ventures or other types of arrangements.
We have not charged, and do not anticipate charging, rent that is based in
whole or in part on the income or profits of any person. We have not derived,
and do not anticipate deriving, rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents.
We have provided and will provide services with respect to our multifamily
apartment communities. We believe that the services with respect to our
communities that have been and will be provided by us are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants; and, for tax years beginning after
August 5, 1997, income from the provision of other kinds of services with
respect to a given property has not and will not exceed 1% of all amounts
received by us from such property. Therefore, we believe that the provision of
such services has not and will not cause rents received with respect to our
communities to fail to qualify as rents from real property. We believe that
services with respect to our communities that we believe may not be provided by
us directly without jeopardizing the qualification of rent as rents from real
property have been and will be performed by independent contractors, or, for
taxable years beginning after December 31, 2000, taxable REIT subsidiaries.
The term "interest," as defined for purposes of both gross income tests,
generally excludes any amount that is based in whole or in part on the income or
profits of any person. However, interest generally includes the following:
- an amount that is based on a fixed percentage or percentages of
receipts or sales; and
- an amount that is based on the income or profits of a debtor, as
long as the debtor derives substantially all of its income from the
real property securing the debt from leasing substantially all of
its interest in the property, and only to the extent that the
amounts received by the debtor would be qualifying "rents from real
property" if received directly by a REIT.
If a loan contains a provision that entitles a REIT to a percentage of the
borrower's gain upon the sale of the real property securing the loan or a
percentage of the appreciation in the property's value as of a specific date,
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income attributable to that loan provision will be treated as gain from the sale
of the property securing the loan, which generally is qualifying income for
purposes of both gross income tests.
Interest on debt secured by mortgages on real property or on interests in
real property generally is qualifying income for purposes of the 75% gross
income test. However, if the highest principal amount of a loan outstanding
during a taxable year exceeds the fair market value of the real property
securing the loan as of the date that our commitment to make the loan becomes
binding, a portion of the interest income from such loan will not be qualifying
income for purposes of the 75% gross income test, but will be qualifying income
for purposes of the 95% gross income test. The portion of the interest income
that will not be qualifying income for purposes of the 75% gross income test
will bear the same relationship to the total interest income as the principal
amount of the loan that is not secured by real property bears to the total
amount of the loan.
Some of our mezzanine loans may not be secured by real property. Our
interest income from those loans is and will be qualifying income for purposes
of the 95% gross income test, but not the 75% gross income test. In addition,
the loan amount of a mortgage loan that we own may exceed the value of the real
property securing the loan. In that case, a portion of the income from the loan
will be qualifying income for purposes of the 95% gross income test, but not the
75% gross income test. It also is possible that, in some instances, the interest
income from a mortgage loan may be based in part on the borrower's profits or
net income. That scenario generally will cause the income from the loan to be
non-qualifying income for purposes of both gross income tests.
We will be subject to tax at the maximum corporate rate on any income from
foreclosure property, other than income that otherwise would be qualifying
income for purposes of the 75% gross income test, less expenses directly
connected with the production of that income. However, gross income from
foreclosure property will qualify for purposes of the 75% and 95% gross income
tests. Foreclosure property is any real property, including interests in real
property, and any personal property incident to such real property:
- that is acquired by a REIT as the result of the REIT having bid in
such property at foreclosure, or having otherwise reduced such
property to ownership or possession by agreement or process of law,
after there was a default or default was imminent on a lease of such
property or on indebtedness that such property secured;
- for which the related loan was acquired by the REIT at a time when
the default was not imminent or anticipated; and
- for which the REIT makes a proper election to treat the property as
foreclosure property.
However, a REIT will not be considered to have foreclosed on a property
where the REIT takes control of the property as a mortgagee-in-possession and
cannot receive any profit or sustain any loss except as a creditor of the
mortgagor. Property generally ceases to be foreclosure property at the end of
the third taxable year following the taxable year in which the REIT acquired the
property, or longer if an extension is granted by the Secretary of the Treasury.
This grace period terminates and foreclosure property ceases to be foreclosure
property on the first day:
- on which a lease is entered into for the property that, by its
terms, will give rise to income that does not qualify for purposes
of the 75% gross income test, or any amount is received or accrued,
directly or indirectly, pursuant to a lease entered into on or after
such day that will give rise to income that does not qualify for
purposes of the 75% gross income test;
- on which any construction takes place on the property, other than
completion of a building or any other improvement, where more than
10% of the construction was completed before default became
imminent; or
- which is more than 90 days after the day on which the REIT acquired
the property and the property is used in a trade or business which
is conducted by the REIT, other than through an independent
contractor from whom the REIT itself does not derive or receive any
income.
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We do not anticipate that we will receive any income from property
acquired through foreclosure that is not qualifying income for purposes of the
75% gross income test, but if we do receive any such income, we will make an
election to treat the related property as foreclosure property. In addition, we
anticipate that any income we receive with respect to property that is not
eligible for a foreclosure property election will be qualifying income for
purposes of both gross income tests.
We may recognize taxable income without receiving a corresponding cash
distribution if we foreclose on or make a significant modification to a loan, to
the extent that the fair market value of the underlying property or the
principal amount of the modified loan, as applicable, exceeds our basis in the
original loan.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for that year if we are
eligible for relief under the Internal Revenue Code. These relief provisions
generally will be available if:
- our failure to meet these tests was due to reasonable cause and not
due to willful neglect;
- we attach a schedule of the sources of our income to our federal
income tax return; and
- any incorrect information on the schedule is not due to fraud with
intent to evade tax.
It is not possible, however, to state whether, in all circumstances, we
would be entitled to the benefit of these relief provisions. For example, if we
fail to satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on such income, the Internal Revenue
Service could conclude that our failure to satisfy the tests was not due to
reasonable cause. As discussed above, even if these relief provisions apply, a
tax would be imposed with respect to the excess net income. No similar
mitigation provision provides relief if we failed the 30% gross income test in a
taxable year beginning on or before January 1, 1997, and any failure to so
qualify would have caused us to fail to qualify as a REIT.
Asset Tests. On the last day of each calendar quarter, we must meet four
tests concerning the nature of our assets. First, at least 75% of the value of
our total assets generally must consist of real estate assets, cash, cash items
and government securities. For this purpose, "real estate assets" include
interests in real property, interests in loans secured by mortgages on real
property or by certain interests in real property, shares in other REITs and
particular options, but exclude mineral, oil or gas royalty interests. The
temporary investment of new capital in debt instruments also qualifies under
this 75% asset test, but only for the one-year period beginning on the date we
receive the new capital. Second, no more than 25% of our total assets may be
represented by securities, other than securities in the 75% asset class. Third,
with regard to these securities, the value of any one issuer's securities owned
by us may not exceed 5% of the value of our total assets, unless the issuer is a
taxable REIT subsidiary, and we may not own more than 10% of the voting power or
value of any one issuer's outstanding securities, unless the issuer is a taxable
REIT subsidiary or we can avail ourselves of a safe harbor for "straight debt."
Fourth, no more than 20% of our total assets may be represented by securities of
one or more taxable REIT subsidiaries. We must satisfy the asset tests at the
close of each quarter. If we fail an asset test as of the close of the quarter
due to the acquisition of securities or other property during the quarter, we
may satisfy this test by disposing of the securities or other non-qualifying
property within the 30-day period following the close of that quarter. We cannot
assure you that the Internal Revenue Service will not challenge our compliance
with these tests. If we hold assets in violation of the applicable asset tests,
we would be disqualified as a REIT.
We currently own more than 10% of the total value of the outstanding
securities of several subsidiaries. Each of these subsidiaries has elected to be
a taxable REIT subsidiary. It should be noted that the Internal Revenue Code
contains two provisions that ensure that taxable REIT subsidiaries are subject
to an appropriate level of federal income taxation. First, taxable REIT
subsidiaries are limited in their ability to deduct interest payments made to an
affiliated REIT. Second, if a taxable REIT subsidiary pays an amount to a REIT
that exceeds the amount that would be paid to an unrelated party in an
arm's-length transaction, the REIT generally will be subject to an excise tax
equity to 100% of such excess.
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The term "securities" generally includes our debt securities issued by
another REIT or a partnership, except that debt securities of a partnership are
not treated as securities for purposes of the 10% value test if we own at least
a 20% profits interest in the partnership as long as such debt qualifies as
"straight debt," generally requiring that the interest rate not be based on
profits or certain discretionary factors and that the instrument not be
convertible into equity.
We believe that our mortgage loans are qualifying assets for purposes of
the 75% asset test. However, if the outstanding principal balance of a mortgage
loan exceeds the fair market value of the real property securing the loan, a
portion of such loan likely will not be a qualifying real estate asset under the
federal income tax laws. The non-qualifying portion of that mortgage loan will
be equal to the portion of the loan amount that exceeds the value of the
associated real property. Accordingly, our mezzanine loans will not be
qualifying assets for purposes of the 75% asset test to the extent that they are
not secured by mortgages on real property.
Other Restrictions. The REIT requirements impose a number of other
restrictions on our operations. For example, any net income that we derive from
sales of property in the ordinary course of business, other than inventory
acquired by reason of some foreclosures, is subject to a 100% tax unless
eligible under a safe harbor.
Distributions. Due to minimum distribution requirements, we must generally
distribute each year an amount at least equal to:
- the sum of (a) 90% (previously 95% for taxable years beginning
before December 31, 2000) of our REIT taxable income, as computed
without regard to the dividends-paid deduction or our capital gains,
and (b) 90% (previously 95% for taxable years beginning before
December 31, 2000) of our net income, if any, from foreclosure
property in excess of the special tax on income from foreclosure
property; minus
- the sum of specific items of noncash income.
This distribution must be paid in the taxable year to which it relates, or
in the following taxable year, if declared before we timely file our federal
income tax return for that year and if paid on or before the first regular
dividend payment after that declaration. Capital gain dividends are not included
in the calculation to determine whether we satisfy the above-described
distribution requirement. In general, a capital gain dividend is a dividend
attributable to net capital gain recognized by us and properly designated as
such.
Even if we satisfy the foregoing distribution requirement, to the extent
that we do not distribute all of our net capital gain or REIT taxable income as
adjusted, we will be subject to tax on this gain or income at a regular capital
gains or ordinary corporate tax rates. Furthermore, if we fail to distribute
during each calendar year at least the sum of:
- 85% of our ordinary income for that year;
- 95% of our capital gain net income for that year; and
- any undistributed taxable income from prior periods,
we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed. In addition, during our
recognition period, if we dispose of any asset subject to the rules regarding
built-in gain, under guidance issued by the Internal Revenue Service, we will be
required to distribute at least 95% of any after-tax built-in gain recognized on
the disposition of the asset. The term "built-in-gain" refers to the excess of
(a) the fair market value of the asset as of the beginning of the applicable
recognition period over (b) the adjusted basis in such asset as of the beginning
of such recognition period.
Typically, our REIT taxable income is less than our cash flow due to the
allowance of depreciation and other noncash charges in computing REIT taxable
income. Accordingly, we anticipate that we will generally have sufficient cash
or liquid assets to enable us to satisfy the 90% distribution requirement.
However, from time to time,
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we may not have sufficient cash or other liquid assets to meet this distribution
requirement or to distribute a greater amount as may be necessary to avoid
income and excise taxation. This may occur because of:
- timing differences between the actual receipt of income and the
actual payment of deductible expenses and the inclusion of this
income and the deduction of these expenses in arriving at our
taxable income, or
- as a result of nondeductible expenditures, such as principal
amortization or capital expenditures, including any reinvestment of
proceeds received from the sale of our properties, other than in a
tax-free exchange, in excess of noncash deductions.
If these timing differences occur, or if our nondeductible expenditures
exceed our noncash deductions, we may find it necessary to arrange for
borrowings or, if possible, pay taxable stock dividends in order to meet the
dividend requirement.
Under some circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying dividends to shareholders in a
later year, which may be included in our deduction for dividends paid for the
earlier year. We will refer to these dividends as "deficiency dividends." Thus,
we may be able to avoid being taxed on amounts distributed as deficiency
dividends. We will, however, be required to pay interest and any applicable
penalties based upon the amount of any deficiency.
Certain Income From Mortgage Loans. We will recognize taxable income in
advance of the related cash flow if any of our mortgage loans are deemed to have
original issue discount. We generally must accrue original issue discount based
on a constant yield method that takes into account projected prepayments but
that defers taking into account credit losses until they are actually incurred.
We may be required to recognize the amount of any payment projected to be
made pursuant to a provision in a mortgage loan that entitles us to share in the
gain from the sale of, or the appreciation in, the mortgaged property over the
term of the related loan, even though we may not receive the related cash until
the maturity of the loan.
FAILURE TO QUALIFY AS A REIT
If we fail to qualify for taxation as a REIT in any taxable year and
relief provisions do not apply, the following consequences will occur:
- we will be subject to tax, including any applicable alternative
minimum tax, on our taxable income at regular corporate rates;
- we will be unable to deduct distributions to our shareholders;
- we will not be required to make shareholder distributions;
- to the extent that we make distributions from our current and
accumulated earnings and profits, the distributions will be
dividends, taxable to our shareholders as ordinary income;
- subject to the limitations of the Internal Revenue Code, our
corporate shareholders may be eligible for the dividends-received
deduction; and
- unless we are entitled to relief under specific statutory
provisions, we will be disqualified from qualification as a REIT for
the four taxable years following the year during which qualification
is lost.
It is not possible to state whether in all circumstances we would be
entitled to statutory relief.
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TAXATION OF TAXABLE U.S. SHAREHOLDERS
As used below, the term "U.S. Shareholder" means a security holder who for
United States federal income tax purposes:
- is a citizen or resident of the United States;
- is a corporation created or organized in or under the laws of the
United States or of any state thereof or in the District of
Columbia; or
- is a partnership, trust or estate treated as a domestic partnership,
trust or estate.
Distributions Generally. As long as we qualify as a REIT, any
distributions that we make to our shareholders out of our current or accumulated
earnings and profits, other than capital gain dividends discussed below, will
constitute dividends taxable to our taxable U.S. Shareholders as ordinary
income. These distributions will not be eligible for the dividends-received
deduction in the case of U.S. Shareholders that are corporations. For purposes
of determining whether the distributions we make to holders of shares are out of
current or accumulated earnings and profits, our earnings and profits will be
allocated first to our outstanding preferred shares and then to common shares.
To the extent that we make a distribution to a U.S. Shareholder in excess
of our current and accumulated earnings and profits, these distributions will be
treated first as a tax-free return of capital with respect to the U.S.
Shareholder's common shares or preferred shares. This will reduce the U.S.
Shareholder's adjusted basis and, to the extent that the distribution exceeds
the U.S. Shareholder's adjusted basis in its shares, the excess portion of the
distribution will be taxable to the U.S. Shareholder as gain realized from the
sale of the shares.
The Internal Revenue Service will deem us to have sufficient earnings and
profits to treat as a dividend any distribution by us up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed
above. Moreover, any deficiency dividend will be treated as an ordinary or
capital gain dividend, as the case may be, regardless of our earnings and
profits. As a result, shareholders may be required to treat particular
distributions that would otherwise result in a tax-free return of capital as
taxable dividends.
If we make distributions to a shareholder in excess of the U.S.
Shareholder's adjusted basis in its common shares or preferred shares, and if
the applicable shares have been held as a capital asset, the distributions will
be taxable as capital gains. If held for more than one year, this gain will be
taxable as long-term capital gain.
If (a) we declare dividends in October, November, or December of any year
that are payable to shareholders of record on a specified date in any of these
months, and (b) we actually pay the dividend on or before January 31 of the
following calendar year, we will treat such dividends as both paid by us and
received by the shareholders on December 31 of that year. Shareholders may not
include in their own income tax returns any of our net operating losses or
capital losses.
Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends will be taxable to taxable U.S. Shareholders as long-term
capital gains to the extent that they do not exceed our actual net capital gain
for the taxable year without regard to the period for which the U.S. Shareholder
has held its shares. U.S. Shareholders that are corporations may, however, be
required to treat up to 20% of particular capital gain dividends as ordinary
income. Capital gain dividends are not eligible for the dividends-received
deduction for corporations.
Passive Activity Losses and Investment Interest Limitations. Distributions
we make and gain arising from the sale or exchange by a U.S. Shareholder of our
common shares or preferred shares will not be treated as passive activity
income. As a result, U.S. Shareholders generally will not be able to apply any
"passive losses" against this income or gain. Generally, our distributions that
do not constitute a return of capital will be treated as investment income for
purposes of computing the investment interest limitation. Gain arising from the
sale or other disposition of our common shares or preferred shares, however,
will generally not be treated as investment income.
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Retention of Net Long-Term Capital Gains. We may elect to retain, rather
than distribute as a capital gain dividend, our net long-term capital gains
received during the year. If we make this election, we would pay tax on our
retained net long-term capital gains. In addition, to the extent we elect to
retain net long-term capital gains, a U.S. Shareholder generally would:
- subject to limitations, include its proportionate share of our
undistributed long-term capital gains in computing its long-term
capital gains in its return for its taxable year in which the last
day of our taxable year falls;
- be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. Shareholder's long-term
capital gains;
- receive a credit or refund for the amount of tax deemed paid by it;
- increase the adjusted basis of its shares by the difference between
the amount of includable gains and the tax deemed to have been paid
by it; and
- in the case of a U.S. Shareholder that is a corporation,
appropriately adjust its earnings and profits for the retained
capital gains in accordance with Treasury Regulations to be
prescribed by the Internal Revenue Service.
Depreciation Recapture. The maximum tax rate imposed on the long-term
capital gains of non-corporate taxpayers is 20%, although a 25% maximum tax rate
is imposed on the portion of such gains attributable to the prior depreciation
claims in respect of depreciable real property held for more than one year and
not otherwise treated as ordinary "recapture" income under Section 1250 of the
Internal Revenue Code. The Secretary of the Treasury has the authority to
prescribe appropriate regulations on how the capital gains rates will apply to
sales and exchanges by partnerships and REITs and of interests in partnerships
and REITs. Under this authority, the Secretary of the Treasury issued
regulations relating to the taxation of capital gains in the case of sales and
exchanges of interests of partnerships, S corporation and trusts, but not of
interests in REITs. These regulations apply to transfers that occur on or after
September 21, 2000. Accordingly, you are urged to consult with your tax advisors
with respect to your capital gain tax liability resulting from a distribution or
deemed distribution of capital gains from us and a sale by you of our preferred
shares or common shares, as applicable.
SALE OF SECURITIES
U.S. Shareholders who sell or exchange securities will generally recognize
gain or loss for federal income tax purposes in an amount equal to the
difference between the amount of cash and the fair market value of any property
received on the sale or exchange and the holder's adjusted basis in the
securities for tax purposes. If the securities were held as a capital asset,
then this gain or loss will be capital gain or loss. If the securities were held
for more than one year, the capital gain or loss will be long-term capital gain
or loss. However, any loss recognized by a holder on the sale of common shares
or preferred shares held for not more than six months and with respect to which
capital gains were required to be included in such holder's income will be
treated as a long-term capital loss, to the extent the U.S. Shareholders
received distributions from us that were treated as long-term capital gains.
TAXATION OF DEBT SECURITIES
Stated Interest and Market Discount. Holders of debt securities will be
required to include stated interest on the debt securities in gross income for
federal income tax purposes in accordance with their methods of accounting for
tax purposes. Purchasers of debt securities should be aware that the holding and
disposition of debt securities may be affected by the market discount provisions
of the Internal Revenue Code. These rules generally provide that if a holder of
a debt security purchases it at a market discount and thereafter recognizes gain
on a disposition of the debt security, including a gift or payment on maturity,
the lesser of the gain or appreciation, in the case of a gift, and the portion
of the market discount that accrued while the debt security was held by the
holder will be treated as ordinary interest income at the time of the
disposition. For this purpose, a purchase at a market discount includes a
purchase after original issuance at a price below the debt security's stated
principal amount. The
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market discount rules also provide that a holder who acquires a debt security at
a market discount and who does not elect to include the market discount in
income on a current basis may be required to defer a portion of any interest
expense that may otherwise be deductible on any indebtedness incurred or
maintained to purchase or carry the debt security until the holder disposes of
the debt security in a taxable transaction.
A holder of a debt security acquired at a market discount may elect to
include the market discount in income as the discount on the debt security
accrues, either on a straight line basis, or, if elected, on a constant interest
rate basis. The current inclusion election, once made, applies to all market
discount obligations acquired by the holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without
the consent of the Securities and Exchange Commission or the Internal Revenue
Service. If a holder of a debt security elects to include market discount in
income in accordance with the preceding sentence, the foregoing rules with
respect to the recognition of ordinary income on a sale or particular other
dispositions of such debt security and the deferral of interest deductions on
indebtedness related to such debt security would not apply.
Amortizable Bond Premium. Generally, if the tax basis of a debt security
held as a capital asset exceeds the amount payable at maturity of the debt
security, the excess may constitute amortizable bond premium that the holder may
elect to amortize under the constant interest rate method and deduct the
amortized premium over the period from the holder's acquisition date to the debt
security's maturity date. A holder who elects to amortize bond premium must
reduce the tax basis in the related debt security by the amount of the aggregate
deductions allowable for amortizable bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each prospective
purchaser is urged to consult its tax advisor as to the consequences of the
treatment of this premium as an offset to interest income for federal income tax
purposes.
Disposition. In general, a holder of a debt security will recognize gain
or loss upon the sale, exchange, redemption, payment upon maturity or other
taxable disposition of the debt security. The gain or loss is measured by the
difference between (a) the amount of cash and the fair market value of property
received and (b) the holder's tax basis in the debt security as increased by any
market discount previously included in income by the holder and decreased by any
amortizable bond premium deducted over the term of the debt security. However,
the amount of cash and the fair market value of other property received excludes
cash or other property attributable to the payment of accrued interest not
previously included in income, which amount will be taxable as ordinary income.
Subject to the market discount and amortizable bond premium rules described
above, any gain or loss will generally be long-term capital gain or loss,
provided the debt security was a capital asset in the hands of the holder and
had been held for more than one year.
BACKUP WITHHOLDING ON DEBT SECURITIES AND SHARES
Under the backup withholding rules, a domestic holder of debt securities
or shares may be subject to backup withholding with respect to interest or
dividends paid on, and gross proceeds from the sale of, the securities unless
the holder (a) is a corporation or comes within other specific exempt categories
and, when required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of debt securities or shares who does not provide us
with its current taxpayer identification number may be subject to penalties
imposed by the Internal Revenue Service. Any amount paid as backup withholding
will be creditable against the holder's federal income tax liability.
We will report to holders of debt securities or shares and the Internal
Revenue Service the amount of any interest or dividends paid and any amount
withheld with respect to the debt securities or shares during the calendar year.
27
EFFECT OF TAX STATUS OF CAMDEN OPERATING, L.P. ON REIT QUALIFICATION
A substantial portion of our investments are through Camden Operating,
L.P. (formerly Paragon Group L.P.). Camden Operating, L.P. may involve special
tax considerations. These considerations include:
- the allocations of income and expense items of Camden Operating,
L.P., which could affect the computation of our taxable income;
- the status of Camden Operating, L.P. as a partnership, as opposed to
an association taxable as a corporation for income tax purposes; and
- the taking of actions by Camden Operating, L.P. that could adversely
affect our qualification as a REIT.
In addition, Camden Operating, L.P. owns properties through subsidiary
entities taxable as partnerships for federal income tax purposes. These entities
have been structured in a manner that is intended to qualify them for taxation
as partnerships for federal income tax purposes. If Camden Operating, L.P. or
any of the foregoing entities in which Camden Operating, L.P. has an interest
were treated as an association taxable as a corporation, we could fail to
qualify as a REIT.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
When property is contributed to a partnership in exchange for an interest
in the partnership, the partnership generally takes a carryover basis in that
property for tax purposes equal to the adjusted basis of the contributing
partner in the property, rather than a basis equal to the fair market value of
the property at the time of contribution. Under Section 704(c) of the Internal
Revenue Code, income, gain, loss and deduction attributable to this contributed
property must be allocated in a manner such that the contributing partner is
charged with, or benefits from, respectively, the unrealized gain or unrealized
loss associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of the contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution. We will refer to this allocation as the "book-tax difference."
These allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners.
In connection with the formation of Camden Operating, L.P., appreciated
property was contributed to Camden Operating, L.P. Consequently, the Third
Amended and Restated Agreement of Limited Partnership of Camden Operating, L.P.
requires tax allocations to be made in a manner consistent with Section 704(c)
of the Internal Revenue Code. The Treasury Regulations under Section 704(c) of
the Internal Revenue Code provide partnerships with a choice of several methods
of accounting for book-tax differences for property contributed on or after
December 21, 1993, including the retention of the traditional method that was
available under prior law or the election of particular alternative methods.
Camden Operating, L.P. has elected the traditional method of Section 704(c)
allocations. Under the traditional method, which is the least favorable method
from our perspective, the carryover basis of contributed interests in the
properties in the hands of Camden Operating, L.P. could cause us (a) to be
allocated lower amounts of depreciation deductions for tax purposes than would
be allocated to us if such properties were to have a tax basis equal to their
fair market value at the time of the contribution and (b) to be allocated
taxable gain in the event of a sale of such contributed interests in our
properties in excess of the economic or book income allocated to us as a result
of such sale, with a corresponding benefit to the other partners in Camden
Operating, L.P. These allocations possibly could cause us to recognize taxable
income in excess of cash proceeds, which might adversely affect our ability to
comply with REIT distribution requirements. However, we do not anticipate that
this adverse effect will occur.
Interests in the properties purchased by Camden Operating, L.P., other
than in exchange for interests in Camden Operating, L.P., were acquired with an
initial tax basis equal to their fair market value. Thus, Section 704(c) of the
Internal Revenue Code generally will not apply to these interests.
28
SPECIAL TAX CONSIDERATIONS OF NON-U.S. SHAREHOLDERS AND POTENTIAL TAX
CONSEQUENCES OF THEIR INVESTMENT
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders are complex and no attempt will be made herein to provide more than
a summary of such rules. IF YOU ARE A PROSPECTIVE NON-U.S. SHAREHOLDER, YOU
SHOULD CONSULT WITH YOUR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF FEDERAL,
STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO AN INVESTMENT BY YOU IN THE
SECURITIES, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions not Attributable to Gain from the Sale or Exchange of a U.S.
Real Property Interest. Distributions to non-U.S. Shareholders that are not
attributable to gain from sales or exchanges by us of U.S. real property
interests and are not designated by us as capital gains dividends will be
treated as dividends and result in ordinary income to the extent that they are
made out of our current or accumulated earnings and profits. These distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross amount
of the distribution unless an applicable tax treaty reduces or eliminates that
tax. However, if income from the investment in the common shares or preferred
shares is treated as effectively connected with the non-U.S. Shareholder's
conduct of a U.S. trade or business, the non-U.S. Shareholder generally will be
subject to federal income tax at graduated rates, in the same manner as U.S.
Shareholders are taxed with respect to these distributions. In the case of a
non-U.S. Shareholder that is a non-U.S. corporation, the holder may also be
subject to the 30% branch profits tax. Distributions in excess of our current
and accumulated earnings and profits will not be taxable to a non-U.S.
Shareholder to the extent that these distributions do not exceed the adjusted
basis of the non-U.S. Shareholder's common shares or preferred shares, but
rather will reduce the adjusted basis of these shares. To the extent that these
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a non-U.S. Shareholder's common shares or preferred
shares, these distributions will give rise to tax liability if the non-U.S.
Shareholder otherwise would be subject to tax on any gain from the sale or
disposition of its common shares or preferred shares.
Distributions Attributable to Gain from the Sale or Exchange of a U.S.
Real Property Interest. For any year in which we qualify as a REIT,
distributions that are attributable to gain from sales or exchanges by us of
U.S. real property interests will be taxed to a non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980. Under the
Foreign Investment in Real Property Tax Act, distributions attributable to gain
from sales of U.S. real property interests are taxed to a non-U.S. Shareholder
as if this gain were effectively connected with a U.S. business. Non-U.S.
Shareholders thus would be taxed at the normal capital gain rates applicable to
U.S. Shareholders, subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals.
Distributions subject to the Foreign Investment in Real Property Tax Act also
may be subject to a 30% branch profits tax in the hands of a non-U.S. corporate
shareholder not entitled to treaty relief or exemption.
Withholding Obligations from Distributions to Non-U.S. Shareholders.
Although tax treaties may reduce our withholding obligations, we generally will
be required to withhold from distributions to non-U.S. Shareholders, and remit
to the Internal Revenue Service, (a) 35% of designated capital gain dividends,
or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends and (b) 30% of ordinary dividends paid out of earnings
and profits. In addition, if we designate prior distributions as capital gain
dividends, subsequent distributions, up to the amount of such prior
distributions, will be treated as capital gain dividends for purposes of
withholding. A distribution in excess of our earnings and profits will be
subject to 30% dividend withholding if at the time of the distribution it cannot
be determined whether the distribution will be in an amount in excess of our
current or accumulated earnings and profits. If we withhold an amount of tax
with respect to a distribution to a non-U.S. Shareholder in excess of the
shareholder's U.S. tax liability with respect to this distribution, the non-U.S.
Shareholder may file for a refund of the excess from the Internal Revenue
Service. Furthermore, the U.S. Treasury Department has issued final Treasury
Regulations governing information reporting and certification procedures
regarding withholding and backup withholding on some amounts paid to non-U.S.
Shareholders.
Sales of Common Shares or Preferred Shares by a Non-U.S. Shareholder. Gain
recognized by a non-U.S. Shareholder upon a sale of its common shares or
preferred shares generally will not be taxed under the Foreign Investment in
Real Property Tax Act of 1980 if we are a domestically controlled REIT. A
domestically controlled REIT is defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by non-U.S. persons. It is currently anticipated
that we will be a
29
domestically controlled REIT, and, therefore, sales of common shares or
preferred shares will not be subject to taxation under the Foreign Investment in
Real Property Tax Act. However, because our common shares and preferred shares
will be traded publicly, we may not continue to be a domestically controlled
REIT. Furthermore, gain not subject to the Foreign Investment in Real Property
Tax Act will be taxable to a non-U.S. Shareholder if (a) investment in the
common shares or preferred shares is effectively connected with the non-U.S.
Shareholder's U.S. trade or business, in which case the non-U.S. Shareholder
will be subject to the same treatment as U.S. Shareholders with respect to such
gain, or (b) the non-U.S. Shareholder is a nonresident alien individual who was
present in the U.S. for 183 days or more during the taxable year and other
conditions apply, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's capital gains. If the gain on the sale of
common shares or preferred shares were to be subject to taxation under the
Foreign Investment in Real Property Tax Act, the non-U.S. Shareholder would be
subject to the same treatment as U.S. Shareholders with respect to this gain.
The non-U.S. Shareholder may, however, be subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals and the possible application of the 30% branch profits tax in the
case of non-U.S. corporations. In addition, a purchaser of common shares or
preferred shares subject to taxation under the Foreign Investment in Real
Property Tax Act would generally be required to deduct and withhold a tax equal
to 10% of the amount realized on the disposition by a non-U.S. Shareholder. Any
amount withheld would be creditable against the non-U.S. Shareholder's Foreign
Investment in Real Property Tax Act tax liability.
STATE AND LOCAL TAX
We and the holders of our securities may be subject to state and local tax
in various states and localities, including those in which we or you transact
business, own property or reside. Our and your tax treatment in these
jurisdictions may differ from the federal income tax treatment described above.
Consequently, as a prospective investor, you should consult your own tax
advisors regarding the effect of state and local tax laws on an investment in
our debt securities and shares.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
The Internal Revenue Service has ruled that amounts distributed as
dividends by a qualified REIT do not constitute unrelated business taxable
income when received by a tax-exempt entity. Based on that ruling, except for
the tax-exempt shareholders described below, if a tax-exempt shareholder does
not hold its shares as "debt financed property" within the meaning of the
Internal Revenue Code and the shares are not otherwise used in a trade or
business, then dividend income received from us will not be unrelated business
taxable income to the tax-exempt shareholder. Generally, shares will be "debt
financed property" if the exempt holder financed the acquisition of the shares
through a borrowing. Similarly, income from the sale of shares will not
constitute unrelated business taxable income unless a tax-exempt shareholder has
held its shares as "debt financed property" within the meaning of the Internal
Revenue Code or has used the shares in its trade or business.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, or qualified
group legal services plans exempt from federal income taxation under Internal
Revenue Code Section 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively,
income from an investment in our shares will constitute unrelated business
taxable income unless the organization is able to properly deduct amounts set
aside or placed in reserve for specified purposes so as to offset the income
generated by its investment in our shares. These prospective investors should
consult their own tax advisors concerning these "set aside" and reserve
requirements. However, a portion of the dividends paid by a "pension held REIT"
will be treated as unrelated business taxable income to any trust that:
- is described in Section 401(a) of the Internal Revenue Code;
- is tax-exempt under Section 501(a) of the Internal Revenue Code; and
- holds more than 10% by value of the interests in the REIT.
Tax-exempt pension funds that are described in Section 401(a) of the
Internal Revenue Code are referred to below as "qualified trusts."
30
A REIT is a "pension held REIT" if:
- it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Internal Revenue Code provides that stock owned by
qualified trusts will be treated, for purposes of the "not closely
held" requirement, as owned by the actual participants of the trust
rather than by the trust itself; and
- either, (1) at least one such qualified trust holds more than 25% by
value of the interests in the REIT, or (2) one or more such
qualified trusts, each of which owns more than 10% by value of the
interests in the REIT, hold in the aggregate more than 50% by value
of the interests in the REIT.
The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:
- the unrelated business taxable income earned by the REIT less
particular associated expenses, treating the REIT as if it were a
qualified trust and therefore subject to tax on its unrelated
business taxable income, to
- the total gross income, less particular associated expenses, of the
REIT.
A de minimus exception applies where the percentage is less than 5% for
any year. The provisions requiring qualified trusts to treat a portion of REIT
distributions as unrelated business taxable income will not apply if the REIT is
able to satisfy the "not closely held" requirement without relying upon the
"look-through" exception with respect to qualified trusts.
LEGAL MATTERS
Unless otherwise noted in a supplement, Locke Liddell & Sapp LLP, Dallas,
Texas, will pass on the legality of the securities offered through this
prospectus.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this prospectus by reference from Camden Property
Trust's Annual Report on Form 10-K for the year ended December 31, 2001 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
31
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the offering contemplated by this Registration Statement:
SEC Registration Fee ............................................... $ 99,866
Printing and Engraving Costs ....................................... 20,000
Accounting Fees and Expenses ....................................... 10,000
Legal Fees and Expenses ............................................ 20,000
Trustee and Registrar Fees ......................................... 15,000
Miscellaneous ...................................................... 5,134
--------
Total .............................................................. $170,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (B) of Section 9.20 of the Texas Real Estate Investment Trust
Act, as amended (the "Act"), empowers a real estate investment trust to
indemnify any person who was, is, or is threatened to be made a named defendant
or respondent in any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, any appeal in such an action, suit, or proceeding, or any inquiry
or investigation that can lead to such an action, suit or proceeding because the
person is or was a trust manager, officer, employee or agent of the real estate
investment trust or is or was serving at the request of the real estate
investment trust as a trust manager, director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another real
estate investment trust, corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise against
expenses (including court costs and attorney fees), judgments, penalties, fines
and settlements if he conducted himself in good faith and reasonably believed
his conduct was in or not opposed to the best interests of the real estate
investment trust and, in the case of any criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful.
The Act further provides that, except to the extent otherwise permitted by
the Act, a person may not be indemnified in respect of a proceeding in which the
person is found liable on the basis that personal benefit was improperly
received by him or in which the person is found liable to the real estate
investment trust. Indemnification pursuant to Subsection (B) of Section 9.20 of
the Act is limited to reasonable expenses actually incurred and may not be made
in respect of any proceeding in which the person has been found liable for
willful or intentional misconduct in the performance of his duty to the real
estate investment trust.
Subsection (C) of Section 15.10 of the Act provides that a trust manager
shall not be liable for any claims or damages that may result from his acts in
the discharge of any duty imposed or power conferred upon him by the real estate
investment trust, if, in the exercise of ordinary care, he acted in good faith
and in reliance upon information, opinions, reports, or statements, including
financial statements and other financial data, concerning the real estate
investment trust, that were prepared or presented by officers or employees of
the real estate investment trust, legal counsel, public accountants, investment
bankers, or certain other professionals, or a committee of trust managers of
which the trust manager is not a member. In addition, no trust manager shall be
liable to the real estate investment trust for any act, omission, loss, damage,
or expense arising from the performance of his duty to a real estate investment
trust, save only for his own willful misfeasance or gross negligence.
Article Sixteen of the Company's Amended and Restated Declaration of Trust
provides that the Company shall indemnify officers and trust managers, as set
forth below:
II-1
In this Article:
1. "Indemnitee" means (A) any present or former Trust Manager or officer
of the Trust, (B) any person who while serving in any of the capacities referred
to in clause (A) hereof served at the Trust's request as a trust manager,
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another real estate investment trust or foreign or
domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise and (C) any person nominated or
designated by (or pursuant to authority granted by) the Trust Managers or any
committee thereof to serve in any of the capacities referred to in clauses (A)
or (B) hereof.
2. "Official Capacity" means (A) when used with respect to a Trust
Manager, the office of Trust Manager of the Trust and (B) when used with respect
to a person other than a Trust Manager, the elective or appointive office of the
Trust held by such person or the employment or agency relationship undertaken by
such person on behalf of the Trust, but in each case does not include service
for any other real estate investment trust or foreign or domestic corporation or
any partnership, joint venture, sole proprietorship, trust, employee benefit
plan or other enterprise.
3. "Proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit or proceeding, and any inquiry
or investigation that could lead to such an action, suit or proceeding.
2. The Trust shall indemnify every Indemnitee against all judgments,
penalties (including excise and similar taxes), fines, amounts paid in
settlement and reasonable expenses actually incurred by the Indemnitee in
connection with any Proceeding in which he or she was, is or is threatened to be
named defendant or respondent, or in which he or she was or is a witness without
being named a defendant or respondent, by reason, in whole or in part, of his or
her serving or having served, or having been nominated or designated to serve,
in any of the capacities referred to in paragraph (a)(i) of this Article
Sixteen, to the fullest extent that indemnification is permitted by Texas law.
An Indemnitee shall be deemed to have been found liable in respect of any claim,
issue or matter only after the Indemnitee shall have been so adjudged by a court
of competent jurisdiction after exhaustion of all appeals therefrom. Reasonable
expenses shall include, without limitation, all court costs and all fees and
disbursements of attorneys for the Indemnitee.
3. Without limitation of paragraph (b) of this Article Sixteen and in
addition to the indemnification provided for in paragraph (b) of this Article
Sixteen, the Trust shall indemnify every Indemnitee against reasonable expenses
incurred by such person in connection with any Proceeding in which he or she is
a witness or a named defendant or respondent because he or she served in any of
the capacities referred to in paragraph (a)(i) of this Article Sixteen.
4. Reasonable expenses (including court costs and attorneys' fees)
incurred by an Indemnitee who was or is a witness or was, is or is threatened to
be made a named defendant or respondent in a Proceeding shall be paid or
reimbursed by the Trust at reasonable intervals in advance of the final
disposition of such Proceeding after receipt by the Trust of a written
undertaking by or on behalf of such Indemnitee to repay the amount paid or
reimbursed by the Trust if it shall ultimately be determined that he or she is
not entitled to be indemnified by the Trust as authorized in this Article
Sixteen. Such written undertaking shall be an unlimited obligation of the
Indemnitee but need not be secured and it may be accepted without reference to
financial ability to make repayment. Notwithstanding any other provision of this
Article Sixteen, the Trust may pay or reimburse expenses incurred by an
Indemnitee in connection with his or her appearance as a witness or other
participation in a Proceeding at a time when he or she is not named a defendant
or respondent in the Proceeding.
5. The indemnification provided by this Article Sixteen shall (i) not be
deemed exclusive of, or to preclude, any other rights to which those seeking
indemnification may at any time be entitled under the Trust's Bylaws, any law,
agreement or vote of shareholders or disinterested Trust Managers, or otherwise,
or under any policy or policies of insurance purchased and maintained by the
Trust on behalf of any Indemnitee, both as to action in his or her Official
Capacity and as to action in any other capacity, (ii) continue as to a person
who has ceased to be in the capacity by reason of which he or she was an
Indemnitee with respect to matters arising during the period
II-2
he or she was in such capacity, and (iii) inure to the benefit of the heirs,
executors and administrators of such a person.
6. The provisions of this Article Sixteen (i) are for the benefit of, and
may be enforced by, each Indemnitee of the Trust, the same as if set forth in
their entirety in a written instrument duly executed and delivered by the Trust
and such Indemnitee and (ii) constitute a continuing offer to all present and
future Indemnitees. The Trust, by its adoption of this Declaration of Trust, (x)
acknowledges and agrees that each Indemnitee of the Trust has relied upon and
will continue to rely upon the provisions of this Article Sixteen in becoming,
and serving in any of the capacities referred to in paragraph (a)(i) of this
Article Sixteen, (y) waives reliance upon, and all notice of acceptance of, such
provisions by such Indemnitee and (z) acknowledges and agrees that no present or
future Indemnitee shall be prejudiced in his or her right to enforce the
provisions of this Article Sixteen in accordance with their terms by any act or
failure to act on the part of the Trust.
7. No amendment, modification or repeal of this Article Sixteen or any
provision of this Article Sixteen shall in any manner terminate, reduce or
impair the right of any past, present or future Indemnitee to be indemnified by
the Trust, nor the obligation of the Trust to indemnify any such Indemnitee,
under and in accordance with the provisions of this Article Sixteen as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may be
asserted.
8. If the indemnification provided in this Article Sixteen is either (i)
insufficient to cover all costs and expenses incurred by any Indemnitee as a
result of such Indemnitee being made or threatened to be made a defendant or
respondent in a Proceeding by reason of his or her holding or having held a
position named in paragraph (a)(i) of this Article Sixteen or (ii) not permitted
by Texas law, the Trust shall indemnify, to the fullest extent that
indemnification is permitted by Texas law, every Indemnitee with respect to all
costs and expenses incurred by such Indemnitee as a result of such Indemnitee
being made or threatened to be made a defendant or respondent in a Proceeding by
reason of his or her holding or having held a position named in paragraph (a)(i)
of this Article Sixteen.
9. The indemnification provided by this Article Sixteen shall be subject
to all valid and applicable laws, including, without limitation, the Texas REIT
Act, and, in the event this Article Sixteen or any of the provisions hereof or
the indemnification contemplated hereby are found to be inconsistent with or
contrary to any such valid laws, such laws shall be deemed to control and this
Article Sixteen shall be regarded as modified accordingly, and, as so modified,
to continue in full force and effect.
ITEM 16. EXHIBITS.
*1.1 Form of Underwriting Agreement for Debt Securities
*1.2 Form of Underwriting Agreement for Equity Securities
4.1 Form of Indenture for Senior Debt Securities dated as of February
11, 2003 between the Company and SunTrust Bank, as trustee
4.2 Form of Senior Debt Security (included in Exhibit 4.1 hereto)
4.3 Amended and Restated Declaration of Trust, as amended (filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 (File No. 1-12110) and incorporated herein
by reference)
4.4 Second Amended and Restated Bylaws of the Company (filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for the year ended
December 3, 1997 (File No. 1-12110) and incorporated herein by
reference)
4.5 Specimen certificate for Common Shares (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-11 filed September 15,
1993 (No. 33-68736) and incorporated herein by reference)
*4.6 Form of Statement of Designation of Preferred Shares
*4.7 Form of Preferred Share Certificate
*4.8 Form of Securities Warrant Agreement
5.1 Opinion of Locke Liddell & Sapp LLP as to the legality of the
securities being registered
8.1 Opinion of Locke Liddell & Sapp LLP as to certain tax matters
II-3
12.1 Statement regarding computation of ratios
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Locke Liddell & Sapp LLP (included in Exhibit 5.1 hereto)
23.3 Consent of Locke Liddell & Sapp LLP (included in Exhibit 8.1 hereto)
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility of Trustee for Senior Debt Securities
(SunTrust Bank) on Form T-1
----------
* To be filed by amendment or incorporated by reference in connection with
the offering of the securities.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) The undersigned Registrant hereby further undertakes to supplement the
applicable prospectus supplement, after the expiration of the subscription
period, to set forth the results of the subscription offer, the transactions by
the underwriters during the subscription period, the amount of unsubscribed
securities to be purchased by the underwriters, and the terms of any subsequent
reoffering thereof. If any public offering by the underwriters is to be made on
terms differing from those set forth on the cover page of the prospectus, a
post-effective amendment will be filed to set forth the terms of such offering.
II-4
(d) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to trust managers, directors, officers and
controlling persons of the registrant pursuant to the provisions described in
Item 15 of this Registration Statement or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than in payment by the registrant of expenses
incurred or paid by a trust manager, director, officer or controlling person in
the successful defense of any action, suit or proceeding) is asserted against
the registrant by such trust manager, director, officer or controlling person in
connection with the securities being registered hereby, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on the 11th day of February,
2003.
CAMDEN PROPERTY TRUST
By: /s/ G. Steven Dawson
-------------------------------------
G. Steven Dawson, Senior Vice
President - Finance, Chief Financial
Officer and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Richard J. Campo, D. Keith Oden and G.
Steven Dawson, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him, and on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and file this Registration Statement under the Securities Act of 1933,
as amended, and any or all amendments (including, without limitation,
post-effective amendments), with all exhibits and any and all documents required
to be filed with respect thereto, with the Securities and Exchange Commission or
any regulatory authority, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Richard J. Campo Chairman of the Board of Trust Managers and Chief Executive Officer February 11, 2003
----------------------- (Principal Executive Officer)
Richard J. Campo
/s/ D. Keith Oden President, Chief Operating Officer and Trust Manager February 11, 2003
-----------------------
D. Keith Oden
/s/ G. Steven Dawson Senior Vice President-Finance, Chief Financial Officer and Secretary February 11, 2003
----------------------- (Principal Financial Officer)
G. Steven Dawson
/s/ Dennis M. Steen Vice President-Controller and Treasurer (Principal Accounting Officer) February 11, 2003
-----------------------
Dennis M. Steen
/s/ William R. Cooper Trust Manager February 11, 2003
-----------------------
William R. Cooper
/s/ George R. Hrdlicka Trust Manager February 11, 2003
-----------------------
George R. Hrdlicka
/s/ Scott S. Ingraham Trust Manager February 11, 2003
-----------------------
Scott S. Ingraham
II-6
/s/ Lewis A. Levey Trust Manager February 11, 2003
-----------------------
Lewis A. Levey
/s/ F. Gardner Parker Trust Manager February 11, 2003
-----------------------
F. Gardner Parker
/s/ Steven A. Webster Trust Manager February 11, 2003
-----------------------
Steven A. Webster
II-7
EXHIBIT INDEX
Exhibit
Number
-------
*1.1 Form of Underwriting Agreement for Debt Securities
*1.2 Form of Underwriting Agreement for Equity Securities
4.1 Form of Indenture for Senior Debt Securities dated as of February
11, 2003 between the Company and SunTrust Bank, as trustee
4.2 Form of Senior Debt Security (included in Exhibit 4.1 hereto)
4.3 Amended and Restated Declaration of Trust, as amended (filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 (File No. 1-12110) and incorporated herein
by reference)
4.4 Second Amended and Restated Bylaws of the Company (filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for the year ended
December 3, 1997 (File No. 1-12110) and incorporated herein by
reference)
4.5 Specimen certificate for Common Shares (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-11 filed September 15,
1993 (No. 33-68736) and incorporated herein by reference)
*4.6 Form of Statement of Designation of Preferred Shares
*4.7 Form of Preferred Share Certificate
*4.8 Form of Securities Warrant Agreement
5.1 Opinion of Locke Liddell & Sapp LLP as to the legality of the
securities being registered
8.1 Opinion of Locke Liddell & Sapp LLP as to certain tax matters
12.1 Statement regarding computation of ratios
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Locke Liddell & Sapp LLP (included in Exhibit 5.1 hereto)
23.3 Consent of Locke Liddell & Sapp LLP (included in Exhibit 8.1 hereto)
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility of Trustee for Senior Debt Securities
(SunTrust Bank) on Form T-1
----------
* To be filed by amendment or incorporated by reference in connection with
the offering of the securities.