PROSPECTUS SUPPLEMENT
NOVEMBER 15, 2002
(TO PROSPECTUS DATED MAY 20, 2002)
3,500,000 Shares
[GRAPHIC]
Chelsea Property Group, Inc.
Common Stock
-----------------
Chelsea Property Group is offering 3,500,000 shares of its common stock to
be sold at an offering price of $34.65 per share. Our common stock is listed on
the New York Stock Exchange under the symbol "CPG." The last reported sale price
for the common stock on November 14, 2002, was $35.40 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS.
------------------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
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PER SHARE TOTAL
======================================================================================
Public offering price....................................... $ 34.65 $121,275,000
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Underwriting discount....................................... $ 0.5775 $ 2,021,250
--------------------------------------------------------------------------------------
Proceeds to Chelsea (before expenses)....................... $34.0725 $119,253,750
======================================================================================
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The underwriter also may purchase up to an additional 525,000 shares from
Chelsea at the public offering price, less the underwriting discount, within
30 days from the date of this prospectus supplement to cover over-allotments.
The shares will be ready for delivery on or about November 20, 2002.
Banc of America Securities LLC
TABLE OF CONTENTS
PAGE
--------
PROSPECTUS SUPPLEMENT
Forward-Looking Statements.................................. S-3
The Company................................................. S-4
Recent Developments......................................... S-4
Use of Proceeds............................................. S-5
Common Stock Price Range and Distributions.................. S-6
Capitalization.............................................. S-7
Underwriting................................................ S-8
Legal Matters............................................... S-9
Experts..................................................... S-9
Financial Statements........................................ F-1
PROSPECTUS
About this Prospectus....................................... 2
Incorporation of Certain Documents by Reference............. 2
The Company and the Operating Partnership................... 4
Risk Factors................................................ 5
Use of Proceeds............................................. 9
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends............... 10
Description of Debt Securities.............................. 11
Description of Preferred Stock.............................. 24
Description of Depositary Shares............................ 30
Description of Common Stock................................. 34
Plan of Distribution........................................ 35
Legal Matters............................................... 35
Experts..................................................... 35
Where You Can Find More Information......................... 36
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You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not, and the underwriter has not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference is accurate only as of their respective
dates. Our business, financial condition, results of operations and prospects
may have changed since those dates.
S-2
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus (and the
documents that are incorporated by reference) contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 that are subject to risks and uncertainties. You are cautioned not to
place undue reliance on such statements that only speak as of a certain date.
Forward-looking statements include information concerning possible or assumed
future results of our operations, including any forecasts, projections and plans
and objectives for future operations. You can identify forward-looking
statements by the use of forward-looking expressions such as "may," "will,"
"should," "expect," "anticipate," "estimate," or "continue" or any negative or
other variations on such expressions. Many factors could affect our actual
financial results and could cause actual results to differ materially from those
in the forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus supplement and the accompanying
prospectus (and the documents that are incorporated by reference) might not
occur.
S-3
THE COMPANY
Chelsea Property Group, Inc. is a self-administered and self-managed real
estate investment trust. We are the managing general partner of CPG Partners,
L.P., an operating partnership that specializes in owning, developing, leasing,
marketing and managing upscale and fashion-oriented manufacturers' outlet
centers. As of September 30, 2002, we wholly or partially owned 54 centers in 28
states and Japan containing approximately 12.5 million square feet of gross
leasable area. Our portfolio is comprised of 27 premium outlet centers
containing 8.4 million square feet of gross leasable area and 27 other retail
centers containing approximately 4.1 million square feet of gross leasable area.
Our premium outlet centers generally are located near metropolitan areas,
including New York City, Los Angeles, Boston, Washington, D.C., San Francisco,
Sacramento, Cleveland, Atlanta, Dallas, Portland (Oregon), Tokyo and Osaka,
Japan. Some Premium Properties are also located within 20 miles of major tourist
destinations, including Palm Springs, Napa Valley, Orlando and Honolulu.
We are organized under the laws of the State of Maryland. Our principal
executive office is located at 103 Eisenhower Parkway, Roseland, New Jersey
07068, telephone (973) 228-6111. Our Web site is www.cpgi.com.
RECENT DEVELOPMENTS
On April 1, 2002, CPG Partners, L.P. became the sole owner of Orlando
Premium Outlets by acquiring Simon Property Group, Inc.'s 50% undivided
ownership interest for $46.6 million in cash and the assumption of
$29.7 million of existing mortgage debt and the related guarantee. On June 16,
2002, we repaid the outstanding balance of $59.4 million and extinguished the
mortgage. Also on April 1, 2002, CPG Partners purchased a 305,000 square-foot
center located in Edinburgh, Indiana, for $27.0 million in cash.
In June 2002, CPG Partners and Simon entered into a new 50/50 joint venture
to develop and operate Simon-Las Vegas, a 430,000 square-foot single-phase
premium outlet center located in Las Vegas, Nevada, scheduled to open in the
summer of 2003. On June 20, 2002, Simon-Las Vegas purchased a 40-acre site and
commenced construction. We will be responsible for financing our 50% share of
development costs, which are expected to be approximately $48.0 million.
On August 20, 2002, CPG Partners became the sole owner of four premium
outlets by acquiring Fortress Registered Investment Trust's 51% undivided
ownership interest in a joint venture. CPG Partners paid $58.9 million in cash
and assumed $86.5 million of existing mortgage debt.
In August 2002, CPG Partners and Simon entered into a new 50/50 joint
venture to develop and operate Simon-Chicago, a 435,000 square-foot single-phase
premium outlet center located in Aurora, Illinois, near Chicago. The center is
scheduled to open in mid-2004. On September 23, 2002, Simon-Chicago purchased a
140-acre site, including 80 acres of conservation area, and commenced
construction. CPG Partners will be responsible for financing its 50% share of
the development costs, which are expected to be approximately $46.0 million.
On September 27, 2002, we signed an agreement with JMJ Properties, Inc. to
acquire two outlet centers, or the JMJ Properties, a 305,000 square-foot center
located in Albertville, Minnesota, and a 278,000 square-foot center located in
Johnson Creek, Wisconsin, for a total purchase price of approximately
$89.5 million. The transaction is expected to be financed by issuing
approximately $45.5 million of limited partnership units in CPG Partners and the
balance from our senior credit facility. Subject to certain conditions, the
transaction is expected to close before year-end 2002; however, we cannot assure
you that the transaction will close.
On November 12, 2002, we announced that we had signed a definitive agreement
to acquire four outlet centers from New Plan Excel Realty Trust, Inc. for an all
cash aggregate price of $193 million. The four properties, or the NPXL
Properties, total 1.3 million square feet of gross leasable area and
S-4
consist of a 293,000 square-foot center located in Jackson, New Jersey; a
400,000 square-foot center located in Osage Beach, Missouri; a 329,000
square-foot center located in St. Augustine, Florida; and a 317,000 square-foot
center located in Branson, Missouri. Subject to certain conditions, the
transaction is expected to close on or before December 31, 2002; however, we
cannot assure you that the transaction will close. If New Plan Excel Realty
Trust does not consummate its recently announced transaction to acquire 58
shopping centers from Equity Investment Group and willfully and intentionally
defaults on its agreement to sell us the NPXL Properties, we would be entitled
to $10 million in damages from New Plan. If Chelsea willfully and intentionally
defaults, New Plan would have the right to receive $10 million in damages from
Chelsea.
USE OF PROCEEDS
The net proceeds to us from the offering will be approximately $119.3
million, before expenses (approximately $137.1 million, before expenses, if the
over-allotment option is exercised in full). All of the net proceeds will be
used to finance the acquisition of the four outlet centers from New Plan. The
balance of funds needed to finance the New Plan acquisition will come from our
$200 million senior unsecured bank credit facility and from additional bank
borrowings or from future public market offering proceeds. Pending the closing
of the acquisition from New Plan, the net proceeds will be used to repay
indebtedness presently outstanding under our bank credit facility. If such
acquisition is not consummated, then all of the net proceeds will be used to
repay existing indebtedness presently outstanding under our bank credit
facility. The credit facility expires March 31, 2005, and we have the right to
extend the maturity until March 31, 2006. The credit facility bears interest on
the outstanding balance payable monthly at the London Interbank Offered Rate, or
LIBOR, plus 1.05% or the prime rate, at our option. The LIBOR spread ranges from
0.85% to 1.50%, depending on our senior debt rating. The interest rate on our
credit facility was 2.88% at September 30, 2002. At September 30, 2002,
$92 million was outstanding under such facility.
S-5
COMMON STOCK PRICE RANGE AND DISTRIBUTIONS
Our common stock is listed on the New York Stock Exchange under the symbol
"CPG." The following table sets forth for the periods indicated the high and low
sale prices per share of our common stock as reported on the NYSE Composite
Tape, together with the distributions declared by us per share. All share and
per share data have been adjusted to reflect a two-for-one stock split that was
paid as a stock dividend on May 28, 2002 to shareholders of record on May 14,
2002.
SALES PRICE DISTRIBUTIONS
------------------- PER SHARE
HIGH LOW ($)
-------- -------- -------------
YEAR ENDED DECEMBER 31, 2000:
First Quarter......................................... $15.72 $12.91 $0.375
Second Quarter........................................ 18.00 14.31 0.375
Third Quarter......................................... 18.31 16.16 0.375
Fourth Quarter........................................ 19.22 18.25 0.375
YEAR ENDED DECEMBER 31, 2001:
First Quarter......................................... $21.13 $18.47 $0.390
Second Quarter........................................ 23.47 20.78 0.390
Third Quarter......................................... 26.38 21.50 0.390
Fourth Quarter........................................ 25.44 22.13 0.390
YEAR ENDING DECEMBER 31, 2002:
First Quarter......................................... $27.40 $23.93 $0.405
Second Quarter........................................ 35.03 26.80 0.485
Third Quarter......................................... 34.59 26.40 0.485
Fourth Quarter (through November 14, 2002)............ 35.91 30.29 --
At September 30, 2002, there were approximately 487 holders of record of our
common stock.
A recent reported last sale price per share for our common stock on the New
York Stock Exchange is set forth on the cover page of this prospectus
supplement.
We have paid a regular quarterly cash distribution on our common stock since
inception. Holders of our common stock are entitled to receive distributions
from legally available funds, when, as and if declared by our board of
directors, subject to restrictions contained in our credit facility. Our common
stock dividend payout ratio as a percentage of net income before minority
interest, depreciation and amortization (exclusive of amortization of deferred
financing costs) was 66.8% for the nine months ended September 30, 2002. Our
credit facility limits aggregate dividends and distributions to the lesser of
(a) 90% of net income before minority interest, depreciation and amortization
(exclusive of amortization of deferred financing costs) on an annual basis or
(b) 100% of net income before minority interest, depreciation and amortization
(exclusive of amortization of deferred financing costs) for any two consecutive
quarters.
S-6
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2002
and as adjusted to give effect to the (a) offering and the anticipated use of
the proceeds from the offering as described under "Use of Proceeds,"
(b) acquisition of outlet centers located in Albertville, Minnesota, and Johnson
Creek, Wisconsin, and (c) acquisitions of four outlet centers from New Plan
Excel Realty Trust, Inc.
SEPTEMBER 30, 2002
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HISTORICAL AS ADJUSTED
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(IN THOUSANDS)
DEBT:
Unsecured bank debt....................................... $ 97,035 $ 216,781 (1)
Unsecured notes........................................... 472,647 472,647
Mortgage debt............................................. 307,677 307,677
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Total debt.................................................. $ 877,359 $ 997,105
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MINORITY INTEREST........................................... 114,472 159,972 (2)
STOCKHOLDERS' EQUITY
8.375% series A cumulative redeemable preferred stock, $0.01
par value, authorized 5,000 shares, issued and outstanding
797 shares at September 30, 2002.......................... $ 8 $ 8
Common stock, $0.01 par value, authorized 50,000 shares,
issued and outstanding 37,957 shares at September 30,
2002, as adjusted--41,457 shares.......................... 380 415 (3)
Paid-in-capital............................................. 440,317 559,536 (3)
Distributions in excess of net income....................... (84,724) (84,724)
Officer loan................................................ (488) (488)(4)
Accumulated other comprehensive loss........................ (6,087) (6,087)
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Total stockholders' equity.................................. $ 349,406 $ 468,660
---------- ----------
---------- ----------
Total capitalization........................................ $1,341,237 $1,625,737
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(1) Includes a $5.0 million term loan due March 31, 2005 and the balance
outstanding under our $200 million bank senior credit facility as of
September 30, 2002 of $92.0 million, adjusted for borrowings of
approximately $46.0 million to finance the JMJ Properties acquisition and
approximately $62.0 million to finance the NPXL Properties acquisition and
additional bank borrowings of approximately $11.7 million to finance the
balance of the NPXL Properties acquisition. We are currently in negotiations
regarding the additional bank borrowings.
(2) Represents approximately $45.5 million of limited partnership units issued
for the acquisition of JMJ Properties.
(3) Represents proceeds from common stock offering of approximately
$119.3 million to be used to finance the NPXL Properties acquisition.
(4) Represents a loan to an officer/unitholder in March 2002 that was used to
exercise stock options. Effective June 1, 2002, we changed our policy to
eliminate new loans to directors and officers.
S-7
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, Banc of America Securities LLC, as
the underwriter, has agreed to purchase, and we have agreed to sell to the
underwriter, 3,500,000 shares of our common stock.
The underwriting agreement provides that the obligations of the underwriter
to purchase the shares included in this offering are subject to approval of
legal matters by counsel and to other conditions. The underwriter is obligated
to purchase all the shares, other than those covered by the over-allotment
option described below, if it purchases any of the shares.
The underwriter proposes to offer the shares directly to the public at the
public offering price set forth on the cover page of this prospectus supplement.
If all of the shares are not sold at the initial offering price, the underwriter
may change the public offering price and the other selling terms.
We have granted to the underwriter an option, exercisable for 30 days from
the date of this prospectus supplement, to purchase up to 525,000 additional
shares of our common stock at the public offering price less the underwriting
discount. The underwriter may exercise the option solely for the purpose of
covering over-allotments, if any, in connection with this offering.
We have agreed, with exceptions, that for a period of 90 days from the date
of this prospectus supplement we will not, without the prior written consent of
the underwriter, directly or indirectly offer, sell, contract to sell or
otherwise issue any common stock, sell any option or contract to purchase any
common shares, grant any option, right or warrant for the sale of any common
stock, or enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock, whether any
such swap or transaction is to be settled by delivery of shares or other
securities, in cash or otherwise. In addition, certain of our executive officers
and directors have agreed, with exceptions, that for a period of 60 days from
the date of this prospectus supplement they will not, without the prior written
consent of the underwriter, which consent shall not be unreasonably withheld,
directly or indirectly offer or sell our common stock, or engage in any of the
other transactions referenced in the preceding sentence with regard to our
common stock. These lockup provisions apply to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. Our common stock is listed on the New York Stock Exchange under the
symbol "CPG."
The following table shows the underwriting discounts and commissions that we
are to pay to the underwriter in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriter's
option to purchase additional shares of our common stock.
PAID BY US
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per share................................................ $ 0.5775 $ 0.5775
Total.................................................... $2,021,250 $2,324,438
In connection with this offering, the underwriter may purchase and sell
shares of our common stock in the open market. These transactions may include
short sales, syndicate covering transactions and stabilizing transactions. Short
sales involve syndicate sales in excess of the number of shares to be purchased
by the underwriter in this offering, which creates a syndicate short position.
"Covered" short sales are sales made in an amount up to the number of shares
represented by the underwriter's over-allotment option. In determining the
source of shares to close out the covered syndicate short position, the
underwriter will consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which it may purchase
shares through the over-allotment option. Transactions to close out the covered
syndicate short position involve either purchases of shares
S-8
in the open market after the distribution has been completed or the exercise of
the over-allotment option. The underwriter also may make "naked" short sales of
shares in excess of the over-allotment option. The underwriter must close out
any naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriter is concerned that there
may be downward pressure on the price of the shares in the open market after
pricing that will adversely affect investors who purchase in the offering.
Stabilizing transactions consist of bids for or purchases of shares in the open
market while this offering is in progress.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of our common stock. They also may cause the price
of our common stock to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriter may
conduct these transactions on the New York Stock Exchange or in the
over-the-counter market, or otherwise. If the underwriter commences any of these
transactions, it may discontinue them at any time.
We estimate that our portion of the total expenses of this offering will be
$250,000.
In the ordinary course of business, the underwriter and its affiliates have
provided, and may in the future provide, investment banking, financial advisory
and other services to us for which they have received, and may in the future
receive, customary fees.
Affiliates of Banc of America Securities LLC are lead and/or administrative
agents and lenders under our senior credit facility and an unsecured credit
facility relating to our joint venture in Japan and will receive a portion of
the proceeds of this offering in repayment of amounts outstanding under our
senior credit facility.
We have agreed to indemnify the underwriter against certain liabilities,
including civil liabilities under the Securities Act of 1933.
LEGAL MATTERS
The validity of the shares will be passed upon for us by Stroock &
Stroock & Lavan LLP, New York, New York and for the underwriter by Sidley Austin
Brown & Wood LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the three years ended December 31, 2001, the statement of revenues and certain
expenses for F/C Acquisition Holdings LLC - Portfolio Properties included in our
Current Report on Form 8-K/A, dated October 7, 2002, for the three years ended
December 31, 2001 and the statement of revenues and certain expenses for Orlando
Premium Outlets included in our Current Report on Form 8-K/A, dated October 7,
2002, for the two years ended December 31, 2001, as set forth in their reports,
which are incorporated by reference in this prospectus supplement. Ernst & Young
LLP also have audited the statement of revenues and certain expenses for
Albertville Factory Outlets and Johnson Creek Factory Outlets for the year ended
December 31, 2001 and the statement of revenues and certain expenses for New
Plan Properties for the year ended December 31, 2001, as set forth in their
reports appearing in this prospectus supplement. Our financial statements and
schedule are incorporated by reference and included in this prospectus
supplement in reliance on Ernst & Young LLP's reports, given on their authority
as experts in accounting and auditing.
S-9
Index to Financial Statements
Pro Forma Consolidating Financial Statements (unaudited).... F-2
Pro Forma Consolidating Income Statement
For the year ended December 31, 2001 and for the nine
months ended September 30, 2002......................... F-3
Pro Forma Consolidating Balance Sheet
As of September 30, 2002.................................. F-7
Report of Independent Auditors (New Plan Properties)........ F-8
New Plan Properties Combined Statements of Revenues and
Certain Expenses
For the year ended December 31, 2001 and for the nine
months ended
September 30, 2002 (unaudited).......................... F-9
Notes to New Plan Properties Combined Statements of Revenues
and Certain Expenses...................................... F-10
Report of Independent Auditors (Albertville and Johnson
Creek).................................................... F-12
Albertville Factory Outlets and Johnson Creek Factory
Outlets Combined Statements of Revenues and Certain
Expenses
For the year ended December 31, 2001 and for the nine
months ended
September 30, 2002 (unaudited).......................... F-13
Notes to Albertville Factory Outlets and Johnson Creek
Factory Outlets Combined Statements of Revenues and
Certain Expenses.......................................... F-14
F-1
CHELSEA PROPERTY GROUP, INC.
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
(Unaudited)
The unaudited pro forma condensed consolidating balance sheet of Chelsea
Property Group, Inc. (the "Company") as of September 30, 2002 has been prepared
as if the Company's purchase of two properties from JMJ Properties, Inc. ("JMJ
Properties") and four properties from New Plan Excel Realty Trust, Inc. ("NPXL
Properties") had been consummated on September 30, 2002. The pro forma condensed
consolidating income statements for the nine months ended September 30, 2002 and
for the year ended December 31, 2001 are presented as if the purchases of the
six aforementioned centers, the remaining 51% interest in the F/C Properties
(acquired August 20, 2002), the remaining 50% interest in Simon/Chelsea Orlando
Development, LP ("OPO") (acquired April 1, 2002) and the Konover Property Trust
Portfolio ("KPT") (acquired September 25, 2001) (collectively the "Acquisition
Properties") occurred at January 1, 2001 and the effect thereof was carried
forward. Additionally, the pro forma financial statements give effect to the
sale of common stock in conjunction with the NPXL Properties purchase and the
issuance of limited partnership units in conjunction with the JMJ Properties
purchase.
The Company acquired KPT for a total purchase price of approximately
$180 million, including the assumption of approximately $131 million of
non-recourse mortgage debt using available cash of approximately $25 million and
borrowings on the senior bank credit facility of approximately $17 million. The
Company acquired OPO for a total purchase price of approximately $76 million,
including the assumption of approximately $30 million of non-recourse mortgage
debt, using borrowings on the senior bank credit facility of approximately
$46 million. The Company acquired F/C Properties for a total purchase price of
approximately $146 million, including the assumption of approximately
$87 million of non-recourse mortgage debt using borrowings on the senior bank
credit facility of approximately $59 million. The Company plans to acquire JMJ
Properties for $91.5 million (which amount includes transaction costs),
including an option to acquire land for $7.2 million, by issuing approximately
$45.5 million of limited partnership units and the balance from borrowings on
the senior bank credit facility. The Company plans to acquire NPXL Properties
for $193 million through the sale of common stock of approximately
$119.3 million and the balance of $73.7 million from borrowings on the senior
bank credit facility and from additional bank borrowings or from future public
market offering proceeds.
The pro forma condensed consolidating financial statements do not purport to
represent what the Company's financial position or results of operations would
have been assuming the purchase of the Acquisition Properties had occurred at
the beginning of the period indicated, nor do they purport to project the
Company's financial position or results of operations at any future date or for
any future period. The pro forma condensed consolidating financial statements
should be read in conjunction with the Company's consolidated financial
statements for the year ended December 31, 2001 included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
F-2
CHELSEA PROPERTY GROUP, INC.
PRO FORMA CONSOLIDATING INCOME STATEMENT
YEAR ENDED DECEMBER 31, 2001
(in thousands)
THE F/C JMJ NPXL PRO FORMA PRO FORMA
COMPANY KPT OPO PROPERTIES PROPERTIES PROPERTIES ADJUSTMENTS CONSOLIDATED
--------- -------- -------- ---------- ---------- ---------- ----------- ------------
(A) (B) (C) (D) (E) (F)
Revenues:
Base rent................. $127,229 $26,445 $12,538 $28,689 $8,158 $20,228 $ 618(g) $223,905
Percentage rent........... 18,049 587 2,901 1,054 324 1,763 24,678
Expense reimbursements.... 50,559 8,310 4,156 9,994 3,312 6,917 83,248
Other income.............. 11,018 530 1,186 453 239 562 (888)(h) 13,100
-------- ------- ------- ------- ------ ------- -------- --------
Total revenues.............. 206,855 35,872 20,781 40,190 12,033 29,470 (270) 344,931
Expenses:
Operating and
maintenance............. 57,791 13,313 4,212 10,496 3,515 8,288 97,615
Depreciation and
amortization............ 48,554 19,989(i) 68,543
General and
administrative.......... 4,611 726(j) 5,337
Other..................... 2,819 371 220 873 161 149 4,593
-------- ------- ------- ------- ------ ------- -------- --------
Total expenses.............. 113,775 13,684 4,432 11,369 3,676 8,437 20,715 176,088
Income before unconsolidated
investments, interest
expense and minority
interest.................. 93,080 22,188 16,349 28,821 8,357 21,033 (20,985) 168,843
Income from unconsolidated
investments............... 15,642 (11,570)(k) 4,072
Loss from Chelsea
Interactive............... (5,337) (5,337)
Interest expense............ (36,865) (36,681)(l) (73,546)
-------- ------- ------- ------- ------ ------- -------- --------
Income before minority
interest.................. 66,520 22,188 16,349 28,821 8,357 21,033 (69,236) 94,032
Minority interest........... (14,706) (7,056)(m) (21,762)
-------- ------- ------- ------- ------ ------- -------- --------
Net income.................. 51,814 22,188 16,349 28,821 8,357 21,033 (76,292) 72,270
Preferred dividend.......... (4,188) (4,188)
-------- ------- ------- ------- ------ ------- -------- --------
Net income to common
shareholders.............. $ 47,626 $22,188 $16,349 $28,821 $8,357 $21,033 $(76,292) $ 68,082
======== ======= ======= ======= ====== ======= ======== ========
Basic:
Net income per common
share..................... $ 1.41 $ 1.83
Weighted average common
shares outstanding........ 33,678 3,500(n) 37,178
Diluted:
Net income per common
share..................... $ 1.37 $ 1.78
Weighted average common
shares and equivalents
outstanding............... 34,710 3,500(n) 38,210
------------
Notes to Pro Forma Consolidating Income Statement:
(a) As reported in the audited financial statements of Chelsea Property Group,
Inc. for the year ended December 31, 2001. Shares and per share data
adjusted to reflect the two-for-one stock split.
(b) Derived from the unaudited Combined Statement of Revenues and Certain
Expenses of KPT for the six months ended June 30, 2001.
(c) Derived from the audited Statement of Revenues and Certain Expenses of OPO
for the year ended December 31, 2001.
(d) Derived from the audited Combined Statement of Revenues and Certain Expenses
of F/C Properties, a joint venture between Fortress Registered Investment
Trust and Chelsea, for the year ended December 31, 2001.
(e) Derived from the audited Combined Statement of Revenues and Certain Expenses
of JMJ Properties for the year ended December 31, 2001.
(f) Derived from the audited Combined Statement of Revenues and Certain Expenses
of NPXL Properties for the year ended December 31, 2001.
(g) To adjust straight-line minimum rent of $0.6 million in connection with the
property acquisitions.
F-3
CHELSEA PROPERTY GROUP, INC.
PRO FORMA CONSOLIDATING INCOME STATEMENT (Continued)
YEAR ENDED DECEMBER 31, 2001
(in thousands)
(h) Reduced interest income on cash of $24.8 million invested at 4.73% used to
acquire the KPT Properties.
(i) To reflect depreciation on KPT based on acquisition price of $194.5 million
(including transaction costs and market value debt premium of
$6.9 million), of which $38.2 million is land and $156.3 million is
buildings, depreciation on JMJ Properties based on acquisition price of
$91.5 million (including transaction costs of approximately $2 million and
option to acquire land for $7.2 million), of which $12.6 million is land and
$71.7 million is buildings, and depreciation on NPXL Properties based on
acquisition price of $193 million, of which $29 million is land and $164
million is buildings. To also reflect depreciation on the stepped up basis
of OPO and F/C Properties acquired (OPO basis of $115.3 million, of which
$17.9 million is land and $97.4 million is building and improvements), (F/C
Properties basis of $266.1 million, of which $36.3 million is land and
$229.8 million is building and improvements).
(j) To reflect adjustment for additional corporate overhead.
(k) To eliminate income from unconsolidated investments of $5.1 million for OPO
and $6.5 million for F/C Properties, which are consolidated as of the
acquisition date.
(l) To reflect interest expense on $17 million of senior bank credit facility
borrowing and non-recourse assumed debt with a face value of $131 million
and a market value of $137.9 million for KPT, $46.3 million of senior bank
credit facility borrowing and assumed debt with a face value of $59.4
million for OPO, $58.9 million of senior bank credit facility borrowing and
non-recourse assumed debt with a face value of $169.6 million for F/C
Properties, $46 million of senior bank credit facility borrowing for JMJ
Properties and $73.7 million of senior bank credit facility borrowing and
from additional bank borrowings or from future public market offering
proceeds for NPXL Properties.
(m) To adjust minority interest in net income as a result of the expected
issuance of 1.3 million limited partnership units in conjunction with the
JMJ Properties acquisition.
(n) To reflect sale of common stock used to finance a portion of the NPXL
Properties acquisition.
F-4
CHELSEA PROPERTY GROUP, INC.
PRO FORMA CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2002
(in thousands)
THE F/C JMJ NPXL PRO FORMA PRO FORMA
COMPANY OPO PROPERTIES PROPERTIES PROPERTIES ADJUSTMENTS CONSOLIDATED
--------- -------- ---------- ---------- ---------- ----------- ------------
(A) (B) (C) (D) (E)
Revenues:
Base rent............................ $128,776 $3,115 $18,597 $6,555 $15,533 $ 326(f) $172,902
Percentage rent...................... 12,952 697 852 292 1,166 15,959
Expense reimbursements............... 43,265 975 6,229 2,897 5,195 58,561
Other income......................... 8,207 229 253 154 144 8,987
-------- ------ ------- ------ ------- -------- --------
Total revenues......................... 193,200 5,016 25,931 9,898 22,038 326 256,409
Expenses:
Operating and maintenance............ 53,779 944 6,516 2,916 6,476 70,631
Depreciation and amortization........ 42,229 816 8,850(g) 51,895
General and administrative........... 4,996 4 5,000
Other................................ 3,221 115 806 73 91 4,306
-------- ------ ------- ------ ------- -------- --------
Total expenses......................... 104,225 1,059 8,142 2,989 6,567 8,850 131,832
Income before unconsolidated
investments, interest expense and
minority interest.................... 88,975 3,957 17,789 6,909 15,471 (8,524) 124,577
Income from unconsolidated
investments.......................... 8,784 (634) (4,673)(h) 3,477
Loss from Chelsea Interactive.......... (10,266) (10,266)
Gain on sale of unconsolidated
investment........................... 10,911 10,911
Interest expense....................... (33,691) (1,634) (10,490)(i) (45,815)
-------- ------ ------- ------ ------- -------- --------
Income before minority interest........ 64,713 3,957 15,521 6,909 15,471 (23,687) 82,884
Minority interest...................... (12,607) (4,536)(j) (17,143)
-------- ------ ------- ------ ------- -------- --------
Net income............................. 52,106 3,957 15,521 6,909 15,471 (28,223) 65,741
Preferred dividend..................... (2,588) (2,588)
-------- ------ ------- ------ ------- -------- --------
Net income to common shareholders...... $ 49,518 $3,957 $15,521 $6,909 $15,471 $(28,223) $ 63,153
======== ====== ======= ====== ======= ======== ========
Basic:
Net income per common share............ $ 1.31 $ 1.53
Weighted average common shares
outstanding.......................... 37,799 3,500(k) 41,299
Diluted:
Net income per common share............ $ 1.26 $ 1.48
Weighted average common shares and
equivalents outstanding.............. 39,253 3,500(k) 42,753
------------
Notes to Pro Forma Consolidating Income Statement:
(a) As reported in the unaudited financial statements of Chelsea Property Group,
Inc. for the nine months ended September 30, 2002. Shares and per share data
adjusted to reflect the two-for-one stock split.
(b) Derived from the unaudited Statement of Revenues and Certain Expenses of OPO
for the three months ended March 31, 2002.
(c) Derived from the unaudited Combined Statement of Revenues and Certain
Expenses of F/C Properties for the period January 1, 2002 to August 20,
2002.
(d) Derived from the unaudited Combined Statement of Revenues and Certain
Expenses of JMJ Properties for the nine months ended September 30, 2002.
(e) Derived from the unaudited Combined Statement of Revenues and Certain
Expenses of NPXL Properties for the nine months ended September 30, 2002.
(f) To adjust straight-line minimum rent of $0.3 million in connection with the
property acquisitions.
(g) To reflect depreciation on KPT based on acquisition price of $194.5 million
(including transaction costs and market value debt premium of $6.9 million),
of which $38.2 million is land and $156.3 million is buildings, depreciation
on JMJ Properties
F-5
CHELSEA PROPERTY GROUP, INC.
PRO FORMA CONSOLIDATING INCOME STATEMENT (Continued)
NINE MONTHS ENDED SEPTEMBER 30, 2002
(in thousands)
based on acquisition price of $91.5 million (including transaction costs of
approximately $2 million and option to acquire land for $7.2 million), of
which $12.6 million is land and $71.7 million is buildings and depreciation
on NPXL Properties based on acquisition price of $193 million, of which $29
million is land and $164 million is buildings. To also reflect depreciation
on the stepped up basis of OPO and F/C Properties acquired (OPO basis of
$115.3 million, of which $17.9 million is land and $97.4 million is building
and improvements), (F/C Properties basis of $266.1 million, of which $36.3
million is land and $229.8 million is building and improvements).
(h) To eliminate income from unconsolidated investments of $1.3 million for OPO
and $4.0 million for F/C Properties, which are consolidated as of the
acquisition date.
(i) To reflect interest expense on $17 million of senior bank credit facility
borrowing and non-recourse assumed debt with a face value of $131 million
and a market value of $137.9 million for KPT, $46 million of senior bank
credit facility borrowing and assumed debt with a face value of $59.4
million for OPO, $58.9 million of senior bank credit facility borrowing and
non-recourse assumed debt with a face value of $169.6 million for F/C
Properties, $46 million of senior bank credit facility borrowing for JMJ
Properties and $73.7 million of senior bank credit facility borrowing and
from additional bank borrowings or from future public market offering
proceeds for NPXL Properties.
(j) To adjust minority interest in net income as a result of the expected
issuance of 1.3 million limited partnership units in conjunction with the
JMJ Properties acquisition.
(k) To reflect sale of common stock used to finance a portion of the NPXL
Properties acquisition.
F-6
CHELSEA PROPERTY GROUP, INC
PRO FORMA CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(in thousands)
THE JMJ NPXL PRO FORMA
COMPANY PRO FORMA PRO FORMA CONSOLIDATED
---------- ----------- ----------- -------------
(A)
ASSETS
Rental properties:
Land.................................................. $ 216,763 $12,651(b) $ 28,950(c) $ 258,364
Depreciable property.................................. 1,324,535 71,689(b) 164,050(c) 1,560,274
---------- ------- -------- ----------
Total rental property................................... 1,541,298 84,340 193,000 1,818,638
Accumulated depreciation................................ (269,849) (269,849)
---------- ------- -------- ----------
Rental properties, net.................................. 1,271,449 84,340 193,000 1,548,789
Cash and cash equivalents............................... 13,693 13,693
Restricted cash--escrows................................ 4,212 4,212
Investments in unconsolidated affiliates................ 74,093 74,093
Notes receivable--related parties....................... 2,746 2,746
Deferred costs, net..................................... 15,835 15,835
Other assets............................................ 48,656 7,160(b) 55,816
---------- ------- -------- ----------
Total assets............................................ $1,430,684 $91,500 $193,000 $1,715,184
========== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unsecured bank debt................................... $ 97,035 $46,000(d) $ 73,746(e) $ 216,781
Unsecured notes....................................... 472,647 472,647
Mortgage debt......................................... 307,677 307,677
Construction payables................................. 8,034 8,034
Accounts payable and accrued expenses................. 36,026 36,026
Accrued dividend and distributions.................... 22,711 22,711
Other liabilities..................................... 22,676 22,676
---------- ------- -------- ----------
Total liabilities....................................... 966,806 46,000 73,746 1,086,552
Minority interest....................................... 114,472 45,500(f) 159,972
Stockholders' equity
Preferred stock....................................... 8 8
Common stock.......................................... 380 35(g) 415
Paid-in-capital....................................... 440,317 119,219(g) 559,536
Officer loan.......................................... (488) (488)
Distributions in excess of net income................. (84,724) (84,724)
Accumulated other compensation loss................... (6,087) (6,087)
---------- ------- -------- ----------
Total stockholders equity............................... 349,406 0 119,254 468,660
---------- ------- -------- ----------
Total liabilities and stockholders' equity.............. $1,430,684 $91,500 $193,000 $1,715,184
========== ======= ======== ==========
------------
Notes to Pro Forma Consolidating Balance Sheet:
(a) As reported in the unaudited financial statements of Chelsea Property Group,
Inc. as of September 30, 2002.
(b) To reflect acquisition of JMJ Properties for $91.5 million (including
transaction costs of approximately $2 million and an option to acquire land
for $7.2 million), to be financed by issuing approximately $45.5 million of
limited partnership units and the balance from borrowings on the bank line
of credit.
(c) To reflect acquisition of NPXL Properties for $193 million to be financed
through the issuance of approximately $119.3 million of common stock and the
balance from borrowings on the bank line of credit and additional bank
borrowings.
(d) To reflect borrowings on the Company's bank line of credit to finance the
JMJ Properties acquisition.
(e) To reflect borrowings on the Company's bank line of credit and additional
bank borrowings to finance the NPXL Properties acquisition.
(f) To reflect the expected issuance of approximately $45.5 million of limited
partnership units to finance the JMJ Properties acquisition.
(g) To reflect the issuance of approximately $119.3 million of common stock to
finance the NPXL Properties acquisition.
F-7
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Chelsea Property Group, Inc.
We have audited the accompanying combined statement of revenues and certain
expenses of the New Plan Properties (the "Properties"), as described in Note 1,
for the year ended December 31, 2001. The financial statement is the
responsibility of the Properties' management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purposes of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Prospectus Supplement of
Chelsea Property Group, Inc. and is not intended to be a complete presentation
of the Properties' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the combined revenues and certain expenses of the New
Plan Properties, as described in Note 1, for the year ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
November 11, 2002
F-8
NEW PLAN PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(Amounts in thousands)
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
(UNAUDITED)
REVENUES:
Base rent.......................................... $15,533 $20,228
Percentage rent.................................... 1,166 1,763
Tenant reimbursements.............................. 5,195 6,917
Other.............................................. 144 562
------- -------
TOTAL REVENUES....................................... 22,038 29,470
------- -------
CERTAIN EXPENSES:
Property expenses.................................. 5,367 6,857
Real estate taxes.................................. 1,109 1,431
Other.............................................. 91 149
------- -------
TOTAL CERTAIN EXPENSES............................... 6,567 8,437
------- -------
REVENUES IN EXCESS OF CERTAIN EXPENSES............... $15,471 $21,033
======= =======
See accompanying notes.
F-9
NEW PLAN PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(Amounts in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION
Presented herein is the combined statements of revenues and certain expenses
related to the operations of four factory outlet center properties which are
known as Jackson Outlet Village, Factory Merchants Branson, Factory Outlet
Village Osage Beach, and St. Augustine Outlet Center (collectively, the
"Properties"). The Properties, which are currently owned and managed by New Plan
Excel Realty Trust Inc., are not legal entities, but rather a combination of
properties which are under contract for purchase by Chelsea Property
Group, Inc.
Jackson Outlet Village has 292,563 square feet of gross leasable area that
is located in Jackson, New Jersey. Factory Merchants Branson has 317,706 square
feet of gross leasable area that is located in Branson, Missouri. Factory Outlet
Village Osage Beach has 400,428 square feet of gross leasable area that is
located in Osage Beach, Missouri. St. Augustine Outlet Center has 329,362 square
feet of gross leasable area that is located in St. Augustine, Florida.
The accompanying combined statements of revenues and certain expenses has
been prepared in accordance with the applicable rules and regulations of the
Securities and Exchange Commission for the acquisition of real estate
properties. Accordingly, the financial statements exclude certain expenses that
may not be comparable to those expected to be incurred in the future operations
of the aforementioned properties. Items excluded consist of interest,
depreciation and amortization.
2. USE OF ESTIMATES
The preparation of the statements of revenues and certain expenses in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the statements of revenues and certain expenses and accompanying
notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
Leases with tenants are accounted for as operating leases. Base rent is
recognized on a straight-line basis over the lease term according to the
provisions of the lease. The excess of amounts contractually due over rents
recognized was $93 for the year ended December 31, 2001 and $29 for the nine
months ended September 30, 2002 (unaudited). Certain lease agreements contain
provisions for rents, which are calculated on a percentage of sales and recorded
on the accrual basis. These rents are accrued monthly once the required
thresholds per the lease agreement are exceeded. Substantially all lease
agreements contain provisions for additional rents representing reimbursement of
real estate taxes, insurance, advertising and common area maintenance costs.
4. RISKS AND UNCERTAINTIES
The Properties' results of operations are significantly dependent on the
overall health of the retail industry. The Properties' tenant base is comprised
almost exclusively of merchants in the retail industry. The retail industry is
subject to external factors such as inflation, consumer confidence, unemployment
rates and consumer tastes and preferences. A decline in the retail industry
could reduce merchant sales, which could adversely affect the operating results
of the Properties. A number of merchants occupied space in more than one of the
Properties; however, no single merchant accounts for more than 10% of the
Properties' base rents and no one tenant occupies more than 10% of the
Properties' total gross leasable area for both the year ended December 31, 2001
and the nine months ended September 30, 2002 (unaudited).
F-10
NEW PLAN PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (Continued)
(Amounts in thousands)
5. LEASE AGREEMENTS
The Properties lease and sub-lease retail stores under operating leases with
term expiration dates ranging from 2002 to 2015. Most leases are renewable for
five years after expiration of the initial term at the lessee's option. Future
minimum lease receipts under non-cancelable operating leases as of December 31,
2001, exclusive of renewal option periods, were as follows (in thousands):
2002....................................................... $19,825
2003....................................................... 18,720
2004....................................................... 13,821
2005....................................................... 10,816
2006....................................................... 8,263
Thereafter................................................. 11,771
-------
$83,216
=======
6. GROUND LEASE
Ground rent expense is recognized on a straight-line basis over the initial
term of the lease.
The property located in Branson, Missouri is encumbered by a ground lease
with the City of Branson. The rent expense for 2001 was $149. The lease payments
for 2002 to 2006 will be $113 annually. Lease payments will increase every five
years based on increases in the Consumer Price Index. The lease will expire on
November 30, 2021.
7. MANAGEMENT FEES
New Plan Excel Realty Trust charges the Properties management fees. For the
year ended December 31, 2001 and the nine months ended September 30, 2002
(unaudited), the Properties incurred such fees in the amount of approximately
$816 and $630 (unaudited), respectively. Such fees are included in property
expenses in the accompanying combined statements of revenues and certain
expenses.
8. COMMITMENTS AND CONTINGENCIES
The Properties are not presently involved in any material litigation nor, to
management's knowledge, is any material litigation threatened against the
Properties, other than routine litigation arising in the ordinary course of
business. Management believes the costs, if any, incurred by the Properties
related to any of this litigation will not materially affect the operating
results of the Properties.
9. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the nine months ended September 30, 2002 is
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal, recurring adjustments) necessary for the fair presentation of
the financial statement for the interim period have been included. The results
of the interim period are not necessarily indicative of the results to be
obtained for a full fiscal year.
F-11
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Chelsea Property Group, Inc.
We have audited the accompanying combined statement of revenues and certain
expenses of the properties known as Albertville Factory Outlets and Johnson
Creek Factory Outlets (collectively, the "Properties"), as described in Note 1,
for the year ended December 31, 2001. The financial statement is the
responsibility of the Properties' management. Our responsibility is to express
an opinion on the financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purposes of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Prospectus Supplement of
Chelsea Property Group, Inc. and is not intended to be a complete presentation
of the Properties' revenues and expenses.
In our opinion, the combined statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the combined
revenues and certain expenses of Albertville Factory Outlets and Johnson Creek
Factory Outlets, as described in Note 1, for the year ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
October 18, 2002
F-12
ALBERTVILLE FACTORY OUTLETS AND JOHNSON CREEK FACTORY OUTLETS
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(in thousands)
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
(UNAUDITED)
REVENUES:
Base rent.......................................... $6,555 $8,158
Percentage rent.................................... 292 324
Tenant reimbursements.............................. 2,897 3,312
Other.............................................. 154 239
------ ------
TOTAL REVENUES....................................... 9,898 12,033
------ ------
CERTAIN EXPENSES:
Property expenses.................................. 2,044 2,645
Real estate taxes.................................. 872 870
Other.............................................. 73 161
------ ------
TOTAL CERTAIN EXPENSES............................... 2,989 3,676
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES............... $6,909 $8,357
====== ======
See accompanying notes.
F-13
ALBERTVILLE FACTORY OUTLETS AND JOHNSON CREEK FACTORY OUTLETS
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(Amounts in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION
Presented herein are the combined statements of revenues and certain
expenses related to the operations of two factory outlet center properties which
are known as Albertville Factory Outlets ("Albertville") and Johnson Creek
Factory Outlets ("Johnson Creek") (collectively, the "Properties"). The
Properties, which are managed by JMJ Properties Inc. and are under common
ownership, are not legal entities but rather two individual operating retail
centers which are under contract to be purchased by Chelsea Property
Group, Inc.
Albertville has 305,290 square feet of gross leasable area and is located in
Albertville, Minnesota. Johnson Creek has 277,517 square feet of gross leasable
area and is located in Johnson Creek, Wisconsin.
The accompanying combined statements of revenues and certain expenses have
been prepared in accordance with the applicable rules and regulations of the
Securities and Exchange Commission for the acquisition of real estate
properties. Accordingly, the combined statements of revenues and certain
expenses exclude certain expenses that may not be comparable to those expected
to be incurred in the future operations of the aforementioned properties. Items
excluded consist of interest, ground rent expense, depreciation, amortization
and management fees.
2. USE OF ESTIMATES
The preparation of the combined statements of revenues and certain expenses
in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the combined statement of revenues and certain expenses and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
Leases with tenants are accounted for as operating leases. Base rent is
recognized on a straight-line basis over the lease term according to the
provisions of the lease. The excess of rents recognized over amounts
contractually due was $78 for the year ended December 31, 2001 and $91 for the
nine months ended September 30, 2002 (unaudited). Certain lease agreements
contain provisions for rents, which are calculated on a percentage of sales and
recorded on the accrual basis. These rents are accrued monthly once the required
thresholds per the lease agreement are exceeded. Substantially all lease
agreements contain provisions for additional rents representing reimbursement of
real estate taxes, insurance, advertising and common area maintenance costs.
4. RISKS AND UNCERTAINTIES
The Properties' results of operations are significantly dependent on the
overall health of the retail industry. The Properties' tenant base is comprised
almost exclusively of merchants in the retail industry. The retail industry is
subject to external factors such as inflation, consumer confidence, unemployment
rates and consumer tastes and preferences. A decline in the retail industry
could reduce merchant sales, which could adversely affect the operating results
of the Properties. A number of merchants occupied space in each of the
Properties; however, no single merchant accounts for more than 10% of the
Properties' base rents and no one tenant occupies more than 10% of the
Properties' total gross leasable area for both the year ended December 31, 2001
and the nine months ended September 30, 2002 (unaudited).
F-14
ALBERTVILLE FACTORY OUTLETS AND JOHNSON CREEK FACTORY OUTLETS
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (Continued)
(Amounts in thousands)
5. LEASE AGREEMENTS
The Properties lease retail stores under operating leases with term
expiration dates ranging from 2002 to 2013. Most leases are renewable for five
years after expiration of the initial term at the lessee's option. Future
minimum lease receipts under non-cancelable operating leases as of December 31,
2001, exclusive of renewal option periods, were as follows (in thousands):
2002....................................................... $ 8,527
2003....................................................... 7,834
2004....................................................... 6,723
2005....................................................... 4,482
2006....................................................... 2,197
Thereafter................................................. 4,297
-------
$34,060
=======
6. COMMITMENTS AND CONTINGENCIES
The Properties are not presently involved in any material litigation nor, to
management's knowledge, is any material litigation threatened against the
Properties, other than routine litigation arising in the ordinary course of
business. Management believes the costs, if any, incurred by the Properties
related to any of this litigation will not materially affect the operating
results of the Properties.
7. RELATED PARTY TRANSACTIONS
For the year ended December 31, 2001 and the nine months ended
September 30, 2002 (unaudited), the Properties incurred administrative overhead
and marketing fees payable to JMJ Properties, Inc. in the amount of
approximately $829 and $665 (unaudited), respectively.
8. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the nine months ended September 30, 2002 is
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal, recurring adjustments) necessary for the fair presentation of
the financial statement for the interim period have been included. The results
of the interim period are not necessarily indicative of the results to be
obtained for a full fiscal year.
F-15
PROSPECTUS
$634,930,000
CHELSEA PROPERTY GROUP, INC.
COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
CPG PARTNERS, L.P.
DEBT SECURITIES
------------
Chelsea may offer and issue from time to time up to $184,930,000 of:
- shares of common stock,
- shares of preferred stock,
- shares of preferred stock represented by depositary shares.
Chelsea's common stock is traded on the New York Stock Exchange under the
symbol CPG.
Chelsea Property Group's operating partnership, CPG Partners, L.P., may
offer and issue from time to time in one or more series unsecured nonconvertible
debt securities with an aggregate public offering price of up to $450,000,000.
If any debt securities are rated below investment grade at the time of issuance,
they will be fully and unconditionally guaranteed by Chelsea.
The securities to be offered by us will be in amounts, at prices and on
terms to be determined at the time of offering.
When we sell a particular series of securities, we will prepare a prospectus
supplement describing the offering and the terms of that series of securities.
Such terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the securities, in each case as may be appropriate
to preserve our status as a real estate investment trust for federal income tax
purposes.
Where necessary, the applicable prospectus supplement will contain
information about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the securities covered
by such prospectus supplement.
SEE "RISK FACTORS" BEGINNING AT PAGE 5 OF THIS PROSPECTUS FOR A DESCRIPTION
OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER PRIOR TO PURCHASING THE SECURITIES.
We may offer the securities directly or through agents or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of the securities their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying prospectus
supplement. We can sell the securities through agents, underwriters or dealers
only with delivery of a prospectus supplement describing the method and terms of
the offering of such securities. See "Plan of Distribution."
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is May 20, 2002.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration or continuous
offering process. We may from time to time sell any combination of the
securities offered in this prospectus in one or more offerings up to a total
dollar amount of $634,930,000.
This prospectus provides you with a general description of the securities we
may offer. Each time we sell securities we will provide you with a prospectus
supplement containing specific information about the terms of the securities
being offered. The prospectus supplement which contains specific information
about the terms of the securities being offered may also include a discussion of
certain U.S. Federal income tax consequences and any risk factors or other
special considerations applicable to those securities. The prospectus supplement
may also add, update or change information in this prospectus. If there is any
inconsistency between the information in the prospectus and the prospectus
supplement, you should rely on the information in the prospectus supplement. You
should read both this prospectus and any prospectus supplement together with
additional information described under the heading "Where You Can Find More
Information" beginning on page 36 of this prospectus.
Unless otherwise indicated or unless the context otherwise requires, all
references in this prospectus to Chelsea refers to Chelsea Property
Group, Inc., all references to the Operating Partnership refers to CPG Partners,
L.P. and all references to "we," "us," or similar references mean both Chelsea
Property Group, Inc. and the Operating Partnership.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and the information that 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 we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the securities:
1. Chelsea's Annual Report on Form 10-K for the year ended December 31,
2001, SEC File Number: 001-12328.
2. The Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 2001, SEC File Number: 033-98136-01.
3. Chelsea's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, SEC File Number: 001-12328.
4. The Operating Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002, SEC File Number: 033-98136-01.
5. The description of Chelsea's common stock which is contained in Item 1
of our registration statement on Form 8-A, as amended, filed
September 8, 1993 pursuant to Section 12 of the Exchange Act, SEC File
Number: 001-12328.
6. The information contained in the section "Policies With Respect to
Certain Activities" contained in the Registration Statement on Form S-11
filed on August 25, 1993, as amended, SEC File Number: 33-67870.
2
You may request a copy of these filings, at no cost, by writing or
telephoning us at our principal executive offices at the following address:
Investor Relations
Chelsea Property Group, Inc.
103 Eisenhower Parkway
Roseland, New Jersey 07068
Telephone: (973) 228-6111
http://www.cpgi.com
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. Do not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of these documents.
3
THE COMPANY AND THE OPERATING PARTNERSHIP
GENERAL
The Operating Partnership is 85.6% owned and managed by its sole general
partner, Chelsea, a self-administered and self-managed real estate investment
trust that specializes in owning, developing, redeveloping, leasing, marketing
and managing upscale and fashion-oriented manufacturers' outlet centers known as
premium properties. On September 25, 2001, as part of a transaction with Konover
Property Trust Inc. and affiliates, we acquired 32 retail centers, one of which
is a premium property, containing 4.3 million square feet of gross leasable
area, or GLA. As of December 31, 2001, we wholly or partially owned 57 centers
in 29 states and Japan containing approximately 12.6 million square feet of GLA
represented by more than 700 tenants in approximately 2,900 stores. Our premium
properties include 27 properties containing 8.3 million square feet of GLA.
These centers generally are located near metropolitan areas including New York
City, Los Angeles, Boston, Washington, D.C., San Francisco, Sacramento,
Cleveland, Atlanta, Dallas, Portland (Oregon), Tokyo and Osaka, Japan, which
have a population of at least one million people within a 30-mile radius, with
average annual household income of greater than $50,000. Some premium properties
are also located within 20 miles of major tourist destinations including Palm
Springs, the Napa Valley, Orlando, and Honolulu. During 2001, our premium
properties generated weighted average tenant sales of $379 per square foot,
defined as total sales reported by tenants divided by their gross leasable area
weighted by months in operation.
Chelsea is organized under the laws of the state of Maryland. The Operating
Partnership is a Delaware limited partnership. Our principal executive office is
located at 103 Eisenhower Parkway, Roseland, New Jersey 07068, telephone
(973) 228-6111.
RECENT DEVELOPMENTS
In March 2002, we completed two unrelated acquisitions of interests in
outlet centers having a combined purchase price of $103.3 million.
We acquired the 50% interest in Orlando Premium Outlets owned by Simon
Property Group, a 430,000 square-foot center located between Disney World and
Sea World developed jointly by us and Simon in 2000. The purchase price was
$76.3 million, which was paid $46.6 million in cash, with the balance
represented by the assumption of Simon's share of existing mortgage indebtedness
on the property. The remaining 50% interest in this center is already owned by
us.
We acquired from Prime Retail, Inc. for $27 million of cash Prime Outlets at
Edinburgh, a 305,000 square-foot outlet center located in Edinburgh, Indiana, 40
miles south of Indianapolis. This center is currently 98% leased to tenants,
including Eddie Bauer, GAP, Nautica, Nike and Tommy Hilfiger.
4
RISK FACTORS
Your investment in the securities involves risks. In consultation with your
own financial and legal advisors, you should carefully consider, among other
factors, the matters described below before deciding whether an investment in
the securities is suitable for you.
WE COULD INCUR ADDITIONAL DEBT, WHICH COULD ADVERSELY AFFECT THE FUNDS WE
RECEIVE FROM OPERATIONS
Our organizational documents do not contain any limitation on the amount or
percentage of indebtedness that we can incur. The Indenture, however, will
contain limits on our ability to incur indebtedness. Our board of directors
could alter current debt-to-market capitalization and coverage ratios at its
discretion. At December 31, 2001, our debt-to-market capitalization was
approximately 31%, while our interest coverage ratio was approximately 4.3
times. Debt-to-market capitalization is the ratio of our total outstanding debt
to the market value of our outstanding common stock including conversion of
operating partnership units to common stock plus the liquidation preference
value of outstanding preferred stock and units and total debt outstanding as of
December 31, 2001. Interest coverage is the ratio of operating income before
interest expense and depreciation expense to interest expense for the twelve
months ended December 31, 2001. If our policy limiting borrowing were changed,
we could become more highly leveraged. This could result in an increase in debt
service that could adversely affect the funds we receive from operations. An
increase in debt service could also affect our ability to make expected
distributions to stockholders and result in an increased risk of default on our
obligations.
LOSS OF ONE OF OUR PRIME REVENUE GENERATING CENTERS OR REGIONAL ECONOMIC
DOWNTURNS COULD ADVERSELY IMPACT OUR REVENUES
Approximately 21% and 23% of our revenues for the years ended December 31,
2001 and 2000 were derived from Woodbury Common Premium Outlets located in New
York. The loss of this center or a material decrease in the revenues received
from this center could have a material adverse effect on us. In addition,
approximately 28% of our revenues for the years ended December 31, 2001 and 2000
were derived from our centers in California. The loss of Woodbury Common Premium
Outlets or the effects of an economic downturn in New York or California could
cause our revenues to decrease significantly.
CHELSEA'S GUARANTEES ARE EFFECTIVELY SUBORDINATED TO THE EXISTING AND FUTURE
LIABILITIES OF THE OPERATING PARTNERSHIP
The Operating Partnership conducts Chelsea's operations. Chelsea's only
asset is its interest in the Operating Partnership. As a result, Chelsea depends
upon the receipt of distributions or other payments from the Operating
Partnership to meet its financial obligations, including obligations under any
Guarantees. Any Guarantees will be effectively subordinated to existing and
future liabilities of the Operating Partnership. At December 31, 2001, the
Operating Partnership had approximately $700 million of indebtedness outstanding
including the Operating Partnership's share of the joint venture construction
activities and guarantees of other affiliates' debt, all but $295 million of
which was unsecured. The guarantees totaled approximately $48.4 million at
December 31, 2001. The Operating Partnership is a party to a $160 million
unsecured credit facility which contains financial and operational covenants and
other restrictions with which we must comply. These include the following:
- the value of our unencumbered property must be at least 175% of the amount
of our outstanding unsecured debt
- the maintenance of a net worth of at least $348 million
- our total liabilities may not exceed 55% of the value of our assets
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- our secured debt may not exceed 30% of the value of our assets
- our occupancy rate must not be less than 90%
In addition, there are limits on:
- the amount of indebtedness we can incur
- our guarantees of debt of others
- distributions in excess of our funds from operations
- our no longer being an owner, operator or developer of retail properties
Although the Operating Partnership presently is in compliance with the
credit facility, we cannot assure you that it will continue to be in compliance
and that it will be able to continue to make distributions to Chelsea.
THE INDENTURE DOES NOT PROTECT INVESTORS WITH RESPECT TO TRANSACTIONS IN WHICH
WE MAY PARTICIPATE
The Indenture does not afford you protection in the event of the following
- a highly leveraged or similar transaction involving us, our management, or
any of our affiliates,
- a change of control, or
- certain reorganizations, restructurings, mergers or similar transactions
involving us.
OWNERSHIP LIMITATIONS AND MARYLAND LAW MAY PRECLUDE THE ATTEMPTS OF THIRD
PARTIES TO ACQUIRE CONTROL OF CHELSEA, EVEN THOUGH SUCH ACQUISITIONS MAY BE
BENEFICIAL TO CERTAIN STOCKHOLDERS
In order to qualify as a REIT, not more than 50% in value of our stock may
be owned by five or fewer individuals. In order to maintain our status as a
REIT, Chelsea's Articles of Incorporation prohibit ownership of more than 7% of
our outstanding common stock by any person. Such restriction will likely
preclude a third party's attempt to acquire control of us without the consent of
our Board of Directors. This would be the case even if a change in control were
in the interest of stockholders.
Maryland law contains restrictions on third party attempts to acquire
control of us, including the following:
- prohibits us from engaging in a merger or business combination with a 10%
or greater stockholder, unless our board approves the transaction in
advance
- eliminates the voting rights of persons who acquire 20% or more of our
stock unless approved by holders of at least two-thirds of our voting
rights
- requires approval by holders of at least two-thirds of our voting rights
for mergers or business combinations
THE REQUIRED CONSENT OF THE OPERATING PARTNERSHIP FOR MERGERS OR OTHER
SIGNIFICANT CORPORATE ACTION MAY PRECLUDE A CHANGE IN CONTROL
So long as the limited partners own 10% of the capital of the Operating
Partnership, the Operating Partnership may merge, consolidate or engage in any
combination with another person or sell all or substantially all of its assets
only if approved by the holders of a majority of the limited partnership units.
The limited partners currently own 14.4% of the capital of the Operating
Partnership.
6
OUR STAGGERED BOARD OF DIRECTORS COULD DISCOURAGE A THIRD PARTY FROM MAKING A
TENDER OFFER OR OTHERWISE ATTEMPTING TO OBTAIN CONTROL OF US
Chelsea's articles of incorporation and by-laws require that Chelsea's Board
of Directors be comprised of three classes of directors. The terms of the three
classes of directors will expire in 2002, 2003 and 2004. Directors for each
class will be chosen for a three-year term. As the directors only can be removed
for cause, the staggered terms for directors may affect the stockholders'
ability to effect a change in our control even if a change in control were in
the stockholders' interest.
THE ISSUANCE OF OUR PREFERRED STOCK COULD ADVERSELY AFFECT THE RIGHTS OF HOLDERS
OF OUR COMMON STOCK AND DISCOURAGE TRANSACTIONS WHICH MIGHT OTHERWISE BE IN OUR
BEST INTERESTS
The issuance of preferred stock could adversely affect the voting power,
dividend rights and other rights of holders of common stock. When issuing
preferred stock, the Board could act in a manner that would discourage an
acquisition attempt or other transaction that some, or a majority, of the
stockholders might believe to be in our best interests or in which stockholders
might receive a premium for their shares over the then prevailing market price.
IF WE FAIL TO DISTRIBUTE TO STOCKHOLDERS 90% OF OUR NET TAXABLE INCOME, WE WILL
NO LONGER QUALIFY AS A REIT
To obtain the favorable tax treatment associated with REITs, each year
Chelsea is required to distribute to its stockholders at least 90% of its net
taxable income. Chelsea's ability to make such distributions depends upon the
receipt of distributions or other payments from the Operating Partnership.
IF WE FAIL TO CONTINUE TO QUALIFY AS A REIT, WE WOULD SUFFER ADVERSE TAX
CONSEQUENCES
We intend to operate in such a manner so as to qualify as a REIT under the
Internal Revenue Code. If we were to fail to qualify as a REIT, we would not be
allowed a deduction for distributions to stockholders in computing taxable
income. We also would be subject to federal income tax, including any applicable
alternative minimum tax, on our taxable income at regular corporate rates. In
any year in which we would not qualify as a REIT, the additional taxes imposed
upon us would significantly reduce the cash flow available for distribution to
stockholders. Additionally, unless we are entitled to relief under certain
statutory provisions, we would be unable to qualify as a REIT for four taxable
years following the year during which qualification was lost.
COMPETITION FROM OTHER MANUFACTURERS' OUTLET CENTERS MAY MAKE ACQUISITION OF
PROPERTY AND TENANTS DIFFICULT
Numerous developers and real estate companies are engaged in the development
or ownership of manufacturers' outlet centers and other commercial properties
and compete with us in seeking tenants for outlet centers. There are two public
companies, Prime Retail, Inc. and Tanger Factory Outlet Centers, Inc., who
compete with us, in addition to many privately-owned companies. According to
published sources, as of December 31, 2001, the manufacturer's outlet industry
contained approximately 55.3 million square feet of gross leaseable area. The
three publicly traded outlet companies, including us, owned or operated
approximately 55% of the industry's gross leaseable area. This creates
competition for the acquisition of prime properties and for tenants who will
lease space in the manufacturers' outlet centers that are owned or operated by
our competitors or by us.
7
THE ECONOMIC PERFORMANCE AND VALUE OF CENTERS IS DEPENDENT ON MANY FACTORS, SOME
OF WHICH ARE BEYOND OUR CONTROL
Real property investments are subject to varying degrees of risk. Many
factors can affect the economic performance and values of real estate. The
factors which are not within our control include:
- changes in the economic climate, which could cause customers to spend less
money
- local conditions such as an oversupply of space or a reduction in demand
for real estate in the area, which could cause us to reduce the rents we
charge our tenants
- competition from other available space, which could reduce the rents we
charge to tenants
The factors which are within our control include:
- attractiveness of properties to tenants which would induce tenants to
lease our space and the rents they are willing to pay
- increased operating costs, which could adversely affect our results of
operations.
IF WE ARE UNABLE TO PURSUE CERTAIN DEVELOPMENT ACTIVITIES, OUR FUTURE RESULTS OF
OPERATIONS COULD BE ADVERSELY AFFECTED
We intend to pursue manufacturers' outlet center development projects,
including the expansion of existing centers. These projects generally require
capital expenditures and various forms of government and other approvals. As of
December 31, 2001, we expect to complete approximately 127,000 square feet of
gross leaseable area over the next twelve months consisting of additional phases
of three existing centers (57,000 square feet) and Rinku Premium Outlets,
outside Osaka, Japan (70,000 square feet). The balance of our financial
commitment is approximately $11 million and is fully financed through internally
generated funds, specific secured financing or through our credit facility. We
will seek to obtain permanent financing once the projects are completed and
income has been stabilized, but there can be no assurances that we will be
successful in obtaining permanent financing. If we are unable to pursue these
activities, our results of operations could be adversely affected.
THE INABILITY OF A SIGNIFICANT NUMBER OF OUR TENANTS TO MEET THEIR OBLIGATIONS
TO US WOULD ADVERSELY IMPACT OUR INCOME AND AVAILABLE FUNDS
Since substantially all of our income is derived from rental income from
real property, our income and funds for distribution would be adversely affected
if a significant number of our tenants could not meet their obligations to us or
if we could not lease a significant amount of space in our properties on
favorable lease terms. In addition, we cannot assure you that any tenant whose
lease expires in the future will renew their lease or that we will be able to
re-lease space on advantageous terms.
CERTAIN ENVIRONMENTAL RISKS MAY CAUSE US TO BE LIABLE FOR COSTS ASSOCIATED WITH
HAZARDOUS OR TOXIC SUBSTANCES
Under various federal, state and local laws, ordinances and regulations, we
may be considered an owner or operator of real property or may have arranged for
the disposal or treatment of hazardous or toxic substances. As such, we may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in our property or disposed of by us. We could become
liable for other potential costs, including governmental fines and injuries to
persons and property, that could relate to hazardous or toxic substances. Such
liability may be imposed whether or not we knew of, or were responsible for, the
presence of such hazardous or toxic substances.
8
USE OF PROCEEDS
The net proceeds from the sale of the securities will be used for general
corporate purposes, which may include the repayment of existing indebtedness,
the development or acquisition of additional properties as suitable
opportunities arise and the renovation, expansion and improvement of our
existing properties. Any proceeds from the sale of common stock, preferred stock
or depositary shares must be invested in the Operating Partnership. The
Operating Partnership will use such proceeds for the above-described purposes.
The applicable prospectus supplement will contain further details on the use of
net proceeds.
9
RATIOS OF EARNINGS TO FIXED
CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth our ratio of earnings to fixed charges for
the periods shown:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------------------- -------- -------- -------- --------
2.6x 2.6x 2.5x 2.3x 2.4x
The following table sets forth our ratio of earnings to combined fixed
charges and preferred stock dividends for the periods shown:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------------------- -------- -------- -------- --------
2.3x 2.3x 2.2x 2.0x 2.3x
For purposes of computing the ratios, earnings consist of income from
continuing operations after depreciation and before minority interest and fixed
charges, exclusive of interest capitalized and amortization of loan costs
capitalized. Fixed charges consist of interest expense, including interest costs
capitalized, the portion of rent expense representative of interest and total
amortization of expensed and capitalized debt issuance costs. Preferred stock
includes dividends paid thereon.
10
DESCRIPTION OF DEBT SECURITIES
The debt securities will be issued under an Indenture among us and State
Street Bank and Trust Company, as trustee. The Indenture is an exhibit to the
Registration Statement and is incorporated herein by reference. You can inspect
the Indenture at the corporate trust office of the Trustee at 2 Avenue de
Lafayette, Boston, Massachusetts or as described under "Where You Can Find More
Information."
This section, along with the description in the applicable prospectus
supplement, is a summary of the material provisions of the Indenture and is not
complete. It does not restate the Indenture in its entirety. This section, along
with the description in the applicable prospectus supplement, are qualified in
their entirety by the provisions of the Indenture. We urge you to read the
Indenture because it, and not these descriptions, defines your rights as a
holder of the debt securities. Whenever defined terms are used, but not defined
in this prospectus, the terms have the meanings given them in the Indenture.
GENERAL
The debt securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. At December 31, 2001, the total
outstanding debt of the Operating Partnership was approximately $700 million
including the Operating Partnership's share of the joint venture construction
activities and guarantees of other affiliates' debt, all but $295 million of
which was unsecured debt. The guarantees totaled approximately $48.4 million at
December 31, 2001, Guarantees totaling approximately $11.8 million at
December 31, 2001 contain provisions which reduce the Operating Partnership's
obligation as certain conditions including cash flow coverages are achieved. The
Indenture permits:
(a) the debt securities to be issued without limit as to aggregate principal
amount;
(b) the debt securities to be issued in one or more series and at various
times;
(c) a series to be reopened, without the consent of the holders of the debt
securities of such series, for issuances of additional debt securities of
the series.
If any debt securities issued by the Operating Partnership are rated below
investment grade at the time of issuance, such debt securities will be fully and
unconditionally guaranteed by Chelsea as to payment of principal, premium, if
any, and interest.
There may be more than one trustee with respect to one or more series of
debt securities. Any trustee under the Indenture may resign or be removed with
respect to one or more series of debt securities. If a trustee is removed or
resigns from a series, a successor trustee may be appointed to act with respect
to the series. If two or more persons are acting as trustee with respect to
different series of debt securities, each trustee will be a trustee of a trust
separate and apart from the trust administered by any other trustee. Except as
otherwise indicated, any action described in this prospectus to be taken by a
trustee may be taken by each trustee with respect to the one or more series of
debt securities for which it is trustee under the Indenture.
Each prospectus supplement and any applicable pricing supplement will
describe the terms of any debt securities we issue. The terms may include:
(1) the title of the debt securities;
(2) the aggregate principal amount of the debt securities and any limit on
the aggregate principal amount;
(3) the percentage of the principal amount at which the debt securities will
be issued and, if other than the principal amount of the debt securities,
the portion of the principal amount of the debt securities payable upon
acceleration of their maturity;
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(4) the date or dates on which the principal of the debt securities will be
payable;
(5) the rate or rates, which may be fixed or variable, at which the debt
securities will bear interest, if any;
(6) the date or dates from which any interest will accrue, the interest
payment dates, the record dates for the interest payment dates, the
person to whom the interest will be payable, and how interest will be
calculated if other than that of a 360-day year of twelve 30-day months;
(7) the place or places where payments may be made on the debt securities
and the place or places where the debt securities may be presented for
registration of transfer or exchange and where notices or demands to or
upon the Operating Partnership in respect of the debt securities and the
Indenture may be served;
(8) if applicable, the period or periods within which, the price or prices
at which and the terms and conditions upon which the debt securities may
be redeemed at the option of the Operating Partnership;
(9) the obligation, if any, of the Operating Partnership to redeem, repay or
purchase the debt securities pursuant to any sinking fund or analogous
provision or at the option of a holder of the debt securities, and the
periods, prices, terms and conditions of such redemption or purchase;
(10) if other than U.S. dollars, the currency or currencies of principal and
any premium and interest payments on the debt securities;
(11) any index, formula or other method used to determine the amount of
principal, premium and interest payments on the debt securities and the
manner in which such amounts shall be determined;
(12) the events of default or covenants of the debt securities, to the
extent different from or in addition to those described herein;
(13) whether the debt securities will be issued in certificated and/or
book-entry form;
(14) whether the debt securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000 and
any integral multiple thereof and, if in bearer form, the denominations
thereof if other than $5,000 and terms and conditions relating thereto;
(15) with respect to any series of debt securities rated below investment
grade at the time of issuance, the Guarantees;
(16) if the Indenture's defeasance and covenant defeasance provisions are to
be inapplicable or any modification of such provisions;
(17) if the debt securities are to be issued upon the exercise of debt
warrants, the time, manner and place for the debt securities to be
authenticated and delivered;
(18) whether and under what circumstances the Operating Partnership will pay
additional amounts on the debt securities in respect of any tax,
assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem the debt securities instead of
making such payment;
(19) with respect to any debt securities that provide for optional
redemption or prepayment upon the occurrence of certain events, such as a
change of control of the Operating Partnership:
(a) the possible effects of such provisions on the market price of our
securities;
12
(b) the possible effects of such provisions in deterring certain mergers,
tender offers or other takeover attempts;
(c) the intention of the Operating Partnership to comply with the
requirements of Rule 14e-1 under the Exchange Act and any other
applicable securities laws in connection with such provisions;
(d) whether the occurrence of the specified events may give rise to
cross-defaults on other indebtedness that would effectively
subordinate the payment on such debt securities; and
(e) if there is any limit on the Operating Partnership's financial or
legal ability to repurchase the debt securities upon the occurrence
of a specified event and the impact under the Indenture of such a
failure, including whether and under what circumstances such a
failure may constitute an Event of Default;
(20) if other than the Trustee, the identity of each security registrar
and/or paying agent; and
(21) any other terms of the debt securities.
The Operating Partnership may issue debt securities that provide for less
than their entire principal amount to be payable upon the declaration of
acceleration of their maturities. If material or applicable, the applicable
prospectus supplement will describe any special U.S. Federal income tax,
accounting and other considerations applicable to these types of debt
securities.
We may enter into certain transactions, such as the sale of all or
substantially all of our assets or the merger or consolidation of us, that would
increase the amount of indebtedness or substantially reduce or eliminate the
Operating Partnership's assets. These types of transactions might adversely
affect the Operating Partnership's ability to service the debt securities.
Although the indenture does not presently contain any provisions that would
limit our ability to incur indebtedness, it is expected that upon the issuance
of debt securities limitations on indebtedness will be contained in a supplement
to the indenture which will be described in the applicable prospectus
supplement. The indenture does not afford holders protection in the event of
- a highly leveraged or similar transaction involving us
- a change of control
- a reorganization, restructuring, merger or similar transaction involving
us that may adversely affect holders of debt securities.
In addition, restrictions on ownership and transfers of our common stock and
preferred stock, which are designed to preserve our status as a REIT, could
prevent or hinder a change of control. You should review the applicable
prospectus supplement for information about any deletions from, modifications of
or additions to the events of default or the covenants that are described below.
Except as otherwise described in the applicable prospectus supplement,
Chelsea's Board of Directors or the Trustee can waive, with respect to a series
of debt securities, compliance with certain covenants, only if the holders of a
majority in principal amount of all outstanding debt securities of such series
consent to the waiver. These covenants may also be modified to the extent that
the defeasance and covenant defeasance provisions of the Indenture apply to such
series of debt securities.
GUARANTEES
Chelsea will fully, unconditionally and irrevocably guarantee the due and
punctual payment of principal of, premium, if any, and interest on any debt
securities rated below investment grade at the time of issuance by the Operating
Partnership, and the due and punctual payment of any sinking fund payments
thereon, when such payments become due and payable.
13
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless the applicable prospectus supplement states otherwise, the Operating
Partnership can issue any registered debt securities, other than registered
securities issued in global form, in denominations of $1,000 and any integral
multiple of $1,000. The Operating Partnership can issue debt securities that are
bearer securities, other than bearer securities issued in global form, in
denominations of $5,000. Debt securities issued in global form may be of any
denomination.
Unless the applicable prospectus supplement states otherwise, the principal
of and premium, if any, and interest on any series of debt securities will be
payable at the corporate trust office of the Trustee, initially located at 2
Avenue de Lafayette, Boston, Massachusetts. At the Operating Partnership's
option, payment of interest can be made by check mailed to the address of the
person entitled to the interest. Payment can also be made by wire transfer of
funds to such person at an account maintained within the United States.
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a debt security will cease to be payable to the
holder on the applicable record date. The interest may then either be paid to
the person in whose name such debt security is registered at the close of
business on a special record date for the payment of the defaulted interest
fixed by the Trustee, or may be paid at any time in any other lawful manner, as
more completely described in the Indenture.
Debt securities of any series, subject to limits on debt securities issued
in book-entry form, will be exchangeable for other debt securities of the same
series and of equal aggregate principal and type in any authorized
denominations. The holder of the debt securities can exchange the debt
securities upon surrender of such debt securities at the corporate trust office
of the Trustee.
In addition, subject to certain limitations imposed upon debt securities
issued in book-entry form, debt securities may be presented for registration of
transfer at the corporate trust office of the Trustee. Every debt security
presented for registration of transfer will be duly endorsed or accompanied by a
written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any debt securities. The Trustee or the
Operating Partnership may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection with any registration of
transfer or exchange. At any time we may change transfer agents or approve a
change in the location through which any transfer agent acts, except that we
will be required to maintain a transfer agent in each place of payment for each
series of debt securities. At any time, we may designate additional transfer
agents for any series of debt securities.
The Operating Partnership or the Trustee will not be required:
(a) to issue, exchange or register the transfer of any debt security of any
series to be redeemed for a period of 15 days after the selection of the
debt securities to be redeemed; or
(b) to exchange or register the transfer of any debt security that was
selected, called or is being called for redemption, except for the
unredeemed portion of any debt security being redeemed in part; or
(c) to exchange any bearer security so selected for redemption except that
such a bearer security may be exchanged for a registered debt security of
that series and like tenor, PROVIDED that such registered debt security
shall be simultaneously surrendered for redemption; or
(d) to issue, exchange or register the transfer of any debt security which
has been surrendered for repayment at the option of the holder, except
the portion, if any, of such debt security not to be so repaid.
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MERGER, CONSOLIDATION OR SALE
We may consolidate with, or sell, lease or convey all or substantially all
of our assets to, or merge with or into, any other entity, provided that:
(a) we shall be the continuing entity, or any other successor entity shall
expressly assume payment of the principal of, premium, if any, and
interest on all the debt securities and the due and punctual performance
and observance of all of the covenants and conditions contained in the
Indenture;
(b) immediately after giving effect to such transaction, no Event of Default
under the Indenture, and no event which, after notice or the lapse of
time, or both, would become such an Event of Default, shall have occurred
and be continuing; and
(c) an officer's certificate and legal opinion covering such conditions
shall be delivered to the Trustee.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any subsidiary, to:
(a) incur any debt, other than intercompany debt that is subordinate in
right of payment to the debt securities, if the incurrence of such
additional debt would cause the aggregate principal amount of all
outstanding debt of the Operating Partnership and its subsidiaries on a
consolidated basis to be greater than 60% of the sum of (i) the Operating
Partnership's total assets as of the end of the calendar quarter prior to
the incurrence of such additional debt and (ii) the increase in total
assets from the end of such quarter including, without limitation, any
increase in total assets resulting from the incurrence of such additional
debt.
(b) incur any debt secured by any mortgage, lien, charge, pledge,
encumbrance or security interest of any kind upon any of the property of
the Operating Partnership or any subsidiary, whether owned at, or
acquired after the date of the Indenture, if the incurrence of such
secured debt would cause the aggregate principal amount of all
outstanding secured debt of the Operating Partnership and its
subsidiaries on a consolidated basis to exceed 40% of the Operating
Partnership's adjusted total assets.
(c) incur any debt if the ratio of consolidated income available for debt
service to the annual service charge for the four consecutive fiscal
quarters most recently ended prior to the date on which such additional
debt is to be incurred shall have been less than 2.0 to 1, on a pro forma
basis after giving effect to the incurrence of such debt and to the
application of the proceeds from such debt, and calculated on the
assumption that:
(1) such debt and any other debt incurred by the Operating Partnership or
its subsidiaries since the first day of the four-quarter period and
the application of the proceeds from such debt, including to
refinance other debt, had occurred at the beginning of the
four-quarter period,
(2) the repayment or retirement of any other debt by the Operating
Partnership or its Subsidiaries since the first day of the
four-quarter period had been incurred, repaid or retired at the
beginning of the four-quarter period except that, in making such
computation, the amount of debt under any revolving credit facility
shall be computed based upon the average daily balance of such debt
during such period,
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(3) the income earned on any increase in adjusted total assets since the
end of the four-quarter period had been earned, on an annualized
basis, during the four-quarter period, and
(4) in the case of any acquisition or disposition by the Operating
Partnership or any subsidiary of any asset or group of assets since
the first day of the four-quarter period, including, without
limitation, by merger, stock purchase or sale, or asset purchase or
sale, such acquisition or disposition or any related repayment of
debt had occurred as of the first day of such period with the
appropriate adjustments with respect to the acquisition or
disposition being included in such pro forma calculation.
Debt is "incurred" by the Operating Partnership and its subsidiaries on a
consolidated basis whenever the Operating Partnership and its subsidiaries on a
consolidated basis shall create, assume, guarantee or otherwise become liable
for the debt.
LIMITATIONS ON DISTRIBUTIONS. Other than distributions payable in the
Operating Partnership's equity securities for the purpose of acquiring interests
in real property or otherwise, the Operating Partnership will make any
distribution only (a) if such distribution will not cause or continue a default
under the Indenture or event of default under any mortgage, indenture or
instrument under which there may be issued, or by which there may be secured or
evidenced, any of our debt and (b) the aggregate sum of all distributions made
after the date of the Indenture shall not exceed the sum of (x) 95% of the
aggregate cumulative funds from operations of the Operating Partnership accrued
on a cumulative basis from the date of the Indenture until the end of the last
fiscal quarter prior to the contemplated payment, and (y) the aggregate net cash
proceeds received by the Operating Partnership after the date of the Indenture
from the issuance and sale of our capital stock. If the aggregate principal
amount of all of our outstanding debt on a consolidated basis is less than 60%
of adjusted total assets, then the foregoing limitation will not apply to any
distribution or other action which is necessary to maintain our REIT status.
Notwithstanding the foregoing, the Operating Partnership can pay any
distribution within 30 days of the declaration of the distribution if, at the
date of declaration, the distribution would have complied with the provisions
listed above.
EXISTENCE. Except as expressly permitted, we must preserve and keep in full
force and effect our existence, rights and franchises; PROVIDED, HOWEVER, that
we are not required to preserve any right or franchise if we determine that such
preservation is no longer desirable in the conduct of our businesses and that
its loss is not materially disadvantageous to the holders of the debt
securities.
MAINTENANCE OF PROPERTIES. The Operating Partnership must maintain and keep
in good condition, repair and working order its material properties used or
useful in the conduct of its or any subsidiary's business. The Operating
Partnership will keep its material properties supplied with all necessary
equipment. The Operating Partnership will make all necessary repairs, renewals,
replacements, betterments and improvements to its material properties that, in
the Operating Partnership's judgment, are necessary for the business carried on
in connection with the material properties to be properly and advantageously
conducted at all times. The Operating Partnership and its subsidiaries will not
be prevented from selling or otherwise disposing for value their respective
properties in the ordinary course of business.
INSURANCE. The Operating Partnership must, and must cause each of its
subsidiaries to, keep all of its insurable properties insured against loss or
damage equal to their then full insurable value with financially sound and
reputable insurance companies.
PAYMENT OF TAXES AND OTHER CLAIMS. Before they become delinquent, we must
pay or discharge:
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(a) all taxes, assessments and governmental charges levied or imposed on us
or any subsidiary or upon our income, profits or property or that of any
subsidiary, and
(b) all lawful claims for labor, materials and supplies that, if unpaid,
might by law become a lien upon our property.
We are not required to pay or discharge any tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings.
PROVISION OF FINANCIAL INFORMATION. The Operating Partnership will provide
the holders of debt securities with copies of its annual reports and quarterly
reports. Whether or not the Operating Partnership is subject to Section 13 or
15(d) of the Exchange Act and for so long as any debt securities are
outstanding, the Operating Partnership will, to the extent permitted under the
Exchange Act, be required to file with the SEC the annual reports, quarterly
reports and other documents which the Operating Partnership would have been
required to file with the SEC pursuant to such Section 13 or 15(d) if the
Operating Partnership were so subject. The Operating Partnership will
(a) transmit by mail to all holders of debt securities without cost to such
holders, copies of the annual reports and quarterly reports which the Operating
Partnership would have been required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act if the Operating Partnership were
subject to such Sections and (b) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Operating Partnership
would have been required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act if the Operating Partnership were subject to such Sections. If
the Operating Partnership cannot file such documents with the SEC under the
Exchange Act, the Operating Partnership will, upon written request and payment
of duplication and delivery costs, supply copies of such documents to any
prospective holder of debt securities.
ADDITIONAL COVENANTS. Any additional or different covenants with respect to
any series of debt securities will be set forth in the prospectus supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The following events are "Events of Default" with respect to any series of
debt securities issued under the Indenture:
(a) failure to pay interest on any debt securities of a series within
30 days after the interest becomes due;
(b) failure to pay the principal or premium when due on any debt securities
of a series;
(c) failure to make any sinking fund payment as required for any debt
security of a series;
(d) default in the performance of any other of our covenants contained in
the Indenture applicable to the series of debt securities in question, if
such default has continued for 60 days after written notice as provided
in the Indenture;
(e) failure to pay an aggregate principal amount exceeding $5,000,000 of any
evidence of recourse indebtedness or any mortgage, indenture or other
instrument under which such indebtedness is issued or by which such
indebtedness is secured, if:
(x) the default occurred after the expiration of any applicable grace
period; and
(y) the default resulted in the acceleration of the maturity of such
indebtedness; and
(z) such indebtedness is not discharged or such acceleration is not
rescinded or annulled.
(f) certain events involving any bankruptcy, insolvency or reorganization of
us or any significant subsidiary as defined in Regulation S-X of the
Securities Act; and
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(g) any other Event of Default provided with respect to a particular series
of debt securities.
If an Event of Default occurs and is continuing, then the Trustee or the
holders of 25% in principal amount of the outstanding debt securities of that
series may declare the principal amount or, if the debt securities of that
series are Original Issue Discount Securities or Indexed Securities, a specified
portion of the principal amount of all of the debt securities of that series to
be due and payable immediately. The holders of a majority in principal amount of
the debt securities then outstanding or of such series affected may revoke and
cancel such declaration and its consequences if:
(a) we have deposited with the Trustee all required payments of the
principal of, premium if any, and interest on the debt securities then
outstanding or of such series affected, plus certain fees, expenses,
disbursements and advances of the Trustee; and
(b) all Events of Default, other than the non-payment of accelerated
principal of, or specified portion thereof, or premium or interest on the
debt securities of such series or of all outstanding debt securities have
been cured or waived as provided in the Indenture.
Holders of a majority in principal amount of the outstanding debt securities
of any series or of all debt securities then outstanding under the Indenture may
waive any past default with respect to such series and its consequences, except
a default:
(a) in the payment of the principal of, premium, or interest on any debt
security of such series; or
(b) in respect of a covenant or provision contained in the Indenture that
cannot be modified or amended without the consent of the holder of each
outstanding debt security affected thereby.
Unless the default has been cured or waived, the Trustee will notify the
holders of debt securities within 90 days of such default under the Indenture;
PROVIDED, HOWEVER, that the Trustee may withhold notice to the holders of any
series of debt securities of any default with respect to such series if
specified responsible officers of the Trustee consider such withholding to be in
the interest of such holders. The Trustee may not withhold notice of a default
in the payment of the principal, premium, or interest on any debt security or of
a default in the payment of any sinking fund installment relative to any debt
security.
If the Trustee fails to act for 60 days after it has received both a written
request to institute proceedings in respect of an Event of Default from the
holders of 25% in principal amount of the outstanding debt securities of the
affected series and an offer of reasonable indemnity, the holders of debt
securities of any series then can institute any proceedings with respect to the
Indenture or for any remedy under the Indenture. This provision will not prevent
any holder of debt securities from instituting suit for the enforcement of
payment of the principal of, premium, if any, and interest on such debt
securities when due.
If holders of any series of debt securities then outstanding have offered to
the Trustee reasonable security or indemnity, the Trustee must exercise any of
its rights or powers under the Indenture at the request or direction of such
holders. The holders of a majority in principal amount of the outstanding debt
securities of any series, or the holders of all debt securities then outstanding
under the Indenture, as the case may be, shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee. The
Trustee may refuse to follow any direction which is in conflict with any law or
the Indenture, or which may be unduly prejudicial to the holders of debt
securities of such series not joining in the proceeding.
Within 120 days after the close of each fiscal year, we must deliver to the
Trustee a certificate, signed by an officer, stating whether or not such officer
has knowledge of any default under the Indenture and, if so, specifying each
such default and the nature and status thereof.
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MODIFICATION OF THE INDENTURE
The Indenture may be modified and amended with the consent of the holders of
a majority in principal amount of all outstanding debt securities or series of
outstanding debt securities which are affected by such modification or
amendment. Only with the consent of each holder of any debt security affected,
may an amendment or modification to the Indenture:
(a) change the stated maturity of the principal of, premium, if any, or any
installment of interest on, the debt security;
(b) reduce the principal amount of, or the rate or amount of interest on, or
any premium payable upon redemption of, the debt security;
(c) reduce the amount of principal of an original issue discount security
that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect
any right of repayment of the holder of such debt security;
(d) change the place of payment, or currency for payment of principal of,
premium, if any, or interest on the debt security;
(e) impair the right to institute suit for the enforcement of any payment on
or with respect to the debt security;
(f) reduce the percentage of outstanding debt securities of any series
necessary to modify or amend the Indenture, to waive compliance with
certain provisions of the Indenture or certain defaults and consequences
under the Indenture or to reduce the quorum or voting requirements set
forth in the Indenture;
(g) modify or affect in any manner adverse to the holders the terms and
conditions of our obligations in respect of the payment of principal,
premium, if any, and interest on any Guaranteed Securities;
(h) modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect such action or to provide that
certain other provisions may not be modified or waived without the
consent of the holder of the debt security.
Holders of a majority in principal amount of a series of outstanding debt
securities may waive our compliance with certain covenants relating to any
series of debt securities in the Indenture.
We and the Trustee may modify or amend the Indenture without the consent of
any holder of debt securities for any of the following purposes:
(a) to evidence the succession of another person to the Operating
Partnership as obligor;
(b) to evidence our successor as the guarantor under the Indenture;
(c) to add to the covenants for the benefit of the holders of all or any
series of debt securities;
(d) to surrender any right or power conferred upon us in the Indenture;
(e) to add Events of Default for the benefit of the holders of all or any
series of debt securities;
(f) to add or change any provisions of the Indenture to facilitate the
issuance of, or to liberalize certain terms of, debt securities in bearer
form, or to permit or facilitate the issuance of debt securities in
uncertificated form, PROVIDED that such action shall not materially and
adversely affect the interests of the holders of the debt securities of
any series;
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(g) to amend or supplement any provisions of the Indenture, PROVIDED that no
such amendment or supplement shall materially adversely affect the
interests of the holders of any debt securities then outstanding;
(h) to secure the debt securities;
(i) to establish the form or terms of debt securities of any series;
(j) to provide for a successor Trustee's acceptance of appointment or
facilitate the administration of the trusts under the Indenture by more
than one trustee;
(k) to cure any ambiguity, defect or inconsistency in the Indenture,
PROVIDED that such action shall not materially and adversely affect the
interests of holders of debt securities of any series;
(l) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series
of such debt securities, PROVIDED that such action shall not materially
adversely affect the interests of the holders of the debt securities of
any series.
With respect to guaranteed securities, we or our subsidiaries may, without
the consent of any holder of debt securities, directly assume the payment of the
principal of and/or any premium and interest on all the guaranteed securities.
We or our subsidiaries may assume the performance of every covenant of the
Indenture required to be performed or observed by the Operating Partnership.
Upon assumption, we or our subsidiaries will succeed to, and be substituted for
and may exercise every right and power of, the Operating Partnership under the
Indenture. The Operating Partnership shall be released from all obligations and
covenants with respect to the Guaranteed Securities. We can enter into such
assumption only if we have delivered to the Trustee (a) an officers' certificate
and an opinion of counsel, stating, among other things, that the Guarantee and
all other of our covenants in the Indenture remain in full force and effect and
(b) an opinion of independent counsel that the holders of guaranteed securities
shall have no United States Federal tax consequences as a result of such
assumption, and that, if listed on the New York Stock Exchange, that such listed
debt securities shall not be delisted as a result of such assumption.
HOW A MAJORITY IS DETERMINED
To determine whether the holders of the requisite principal amount of
outstanding debt securities of a series have given any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or
whether a quorum is present at a meeting of holders of debt securities,
(a) the principal amount of an original issue discount security that shall
be deemed to be outstanding shall be the amount of the principal that
would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity of the original issue
discount security,
(b) the principal amount of a debt security denominated in a foreign
currency that shall be deemed outstanding shall be the U.S. dollar
equivalent, determined on the issue date for such debt security, of the
principal amount or, in the case of an original issue discount security,
the U.S. dollar equivalent on the issue date of such debt security of the
amount determined as provided in (a) above,
(c) the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of such Indexed Security
at original issuance, unless the Indenture otherwise provides; and
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(d) debt securities owned by the Operating Partnership or any other obligor
upon the debt securities or any affiliate of the Operating Partnership or
of such other obligor shall be disregarded.
MEETINGS OF THE HOLDERS OF DEBT SECURITIES
The Trustee can call a meeting of the holders of debt securities of any
series at any time. Upon request and notice, we, in respect of a series of
guaranteed securities, or the holders of 10% in principal amount of the
outstanding debt securities of such series can call a meeting. Except for any
consent that must be given by the holder of each debt security affected by
certain modifications and amendments of the Indenture, any resolution presented
at a meeting or adjourned meeting duly reconvened at which a quorum is present
will be permitted to be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding debt securities of that series;
PROVIDED, HOWEVER, that, except as referred to above, any resolution that may be
made, given or taken by the holders of a specified percentage, which is less
than a majority, in principal amount of the outstanding debt securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the holders of such specified
percentage. Any resolution passed or decision taken at any meeting of holders of
debt securities of any series duly held in accordance with the Indenture will be
binding on all holders of debt securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
outstanding debt securities of a series; PROVIDED, HOWEVER, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the holders of a specified percentage in principal amount of the
outstanding debt securities of a series, the persons holding or representing
such specified percentage will constitute a quorum.
Notwithstanding the foregoing provisions, if the Indenture expressly
provides that any action to be taken at a meeting of holders of debt securities
of any series may be taken by the holders of a specified percentage which is
less than a majority in principal amount of the outstanding debt securities of a
series, then such action may be taken at a meeting at which a quorum is present
by the affirmative vote of holders of such specified percentage in principal
amount of the outstanding debt securities of such series.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to holders of
any series of debt securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year, or will be scheduled for redemption
within one year, by irrevocably depositing with the Trustee, in trust, funds in
such currency or currencies, currency unit or units or composite currency or
currencies in which such debt securities are payable in an amount sufficient to
pay the entire indebtedness on such debt securities in respect of principal,
premium, if any, and interest to the date of such deposit, if such debt
securities have become due and payable, or to the stated maturity or redemption
date, as the case may be.
Unless the Indenture's defeasance provisions are made inapplicable to the
debt securities of or within any series, the Operating Partnership may elect
either (a) to defease and discharge itself and Chelsea, if such debt securities
are guaranteed securities, from any and all obligations with respect to such
debt securities or (b) to release itself and Chelsea, if such debt securities
are guaranteed securities, from obligations with respect to such debt securities
under the Indenture and, if provided under certain sections of the Indenture,
our obligations with respect to any other covenant. Any omission to comply with
such obligations shall not constitute a default or an Event of Default with
respect to such debt securities, a covenant defeasance, in either case upon the
irrevocable deposit by the Operating Partnership or Chelsea, if the debt
securities are guaranteed securities, with the Trustee,
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in trust, of funds, which may include government obligations which through the
scheduled payment of principal and interest, will provide money in an amount
sufficient to pay the principal of, and premium, if any, and interest on such
debt securities, and any mandatory sinking fund or analogous payments, when due.
Chelsea, if such debt securities are guaranteed securities, and the Operating
Partnership will be required to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on the debt securities. We will retain the obligations to
register the transfer or exchange of such debt securities, to replace temporary
or mutilated, destroyed, lost or stolen debt securities, to maintain an office
or agency in respect of such debt securities and to hold moneys for payment in
trust.
The Operating Partnership can establish such a trust if, among other things,
we have delivered to the Trustee an opinion of counsel stating that:
(a) the holders of such debt securities will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of such defeasance
or covenant defeasance, and
(b) will be subject to U.S. federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred.
The opinion of counsel, in the case of defeasance, must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
United States federal income tax law occurring after the date of the Indenture.
Unless the prospectus supplement otherwise provides, if, after the Operating
Partnership has effected defeasance or covenant defeasance with respect to debt
securities of any series, (a) the holder of a debt security of such series is
entitled to and elects to receive payment in a currency, currency unit or
composite currency other than that in which such deposit has been made in
respect of such debt security, or (b) a Conversion Event (as defined below)
occurs in respect of the currency, currency unit or composite currency in which
such deposit has been made, the indebtedness represented by such debt security
will be fully discharged and satisfied through the payment of the principal of
and premium, if any, and interest on such debt security as they become due out
of the proceeds yielded by converting the amount deposited in respect of such
debt security into the currency, currency unit or composite currency in which
such debt security becomes payable as a result of such election or such
Conversion Event. The conversion will be based on the applicable market exchange
rate.
"Conversion Event" means the cessation of use of (a) a currency, currency
unit or composite currency both by the government of the country which issued
such currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (b) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Community or
(c) any currency unit or composite currency other than the ECU for the purposes
for which it was established. Unless otherwise provided in the applicable
prospectus supplement, all payments of principal of, premium, if any, and
interest on any debt security that is payable in a foreign currency that ceases
to be used by its government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any debt securities and such debt securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Event of Default, Notice and Waiver"
with respect to sections no longer applicable to such debt securities or
described in clause (g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
and the funds we deposited with the Trustee are insufficient to pay the amount
declared due, Chelsea, if such debt securities are guaranteed securities, and
the
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Operating Partnership will remain liable to make payment of such amounts due at
the time of acceleration.
The applicable prospectus supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt
securities of or within a particular series.
NO CONVERSION RIGHTS
The debt securities will not be convertible into or exchangeable for any of
our capital stock or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The Operating Partnership may issue the debt securities of a series in whole
or in part in the form of one or more global securities. The global securities
will be deposited with, or on behalf of, a depositary identified in the
applicable prospectus supplement relating to such series. Global securities may
be issued in either registered or bearer form and in either temporary or
permanent form. The applicable prospectus supplement will describe the specific
terms of the depositary arrangement with respect to a series of debt securities.
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DESCRIPTION OF PREFERRED STOCK
GENERAL
Chelsea is authorized to issue 5,000,000 shares of preferred stock, $.01 par
value per share. At December 31, 2001, 1,000,000 shares of 8 3/8% Series A
Cumulative Redeemable Preferred Stock were issued and outstanding.
The statements below describing the preferred stock are in all respects
subject to and qualified by reference to the applicable provisions of our
Articles of Incorporation and Bylaws and any applicable articles supplementary
to the Articles of Incorporation designating terms of a series of preferred
stock.
The issuance of preferred stock could adversely affect the voting power,
dividend rights and other rights of holders of common stock. Issuance of
preferred stock could impede, delay, prevent or facilitate a merger, tender
offer or change in our control. Although the Board of Directors is required to
make a determination as to the best interests of our stockholders when issuing
preferred stock, the Board could act in a manner that would discourage an
acquisition attempt or other transaction that some, or a majority, of the
stockholders might believe to be in our best interests or in which stockholders
might receive a premium for their shares over the then prevailing market price.
Management believes that the availability of preferred stock will provide us
with increased flexibility in structuring possible future financing and
acquisitions and in meeting other needs that might arise.
TERMS
Subject to the limitations prescribed by the Articles of Incorporation, the
Board of Directors can fix the number of shares constituting each series of
preferred stock and the designations and powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, including such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolution of the Board of Directors. When issued, the preferred stock will be
fully paid and nonassessable by us. The preferred stock will have no preemptive
rights.
Reference is made to the prospectus supplement relating to the preferred
stock offered thereby for specific terms, including:
(1) the title and stated value of the preferred stock;
(2) the number of shares of the preferred stock offered, the liquidation
preference per share and the offering price of the preferred stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred stock;
(4) the date from which dividends on the preferred stock shall accumulate,
if applicable;
(5) the procedures for any auction and remarketing, if any, for the
preferred stock;
(6) the provision for a sinking fund, if any, for the preferred stock;
(7) the provision for redemption, if applicable, of the preferred stock;
(8) any listing of the preferred stock on any securities exchange;
(9) the terms and conditions, if applicable, upon which the preferred stock
will be convertible into our common stock, including the conversion
price, or the manner of calculation thereof;
(10) whether interests in the preferred stock will be represented by
depositary shares;
(11) any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock;
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(12) a discussion of federal income tax considerations applicable to the
preferred stock;
(13) the relative ranking and preferences of the preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
our affairs;
(14) any limitations on issuance of any series of preferred stock ranking
senior to or on a parity with the series of preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
our affairs; and
(15) any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status as a
REIT.
RANK
Unless otherwise specified in the prospectus supplement, the preferred stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or our winding up, rank:
(a) senior to all classes or series of our common stock;
(b) senior to all equity securities ranking junior to the preferred stock;
(c) equal with all equity securities issued by us, if the terms of such
securities specifically provide for equal treatment;
(d) junior to all equity securities the terms of which specifically provide
that the equity securities rank senior to the preferred stock.
The term "equity securities" excludes convertible debt securities.
DIVIDENDS
Holders of the preferred stock of each series will be entitled to receive,
when and if declared by our Board of Directors, out of assets legally available
for payment, cash dividends at rates and on dates set forth in the applicable
prospectus supplement. Each such dividend will be payable to holders of record
as they appear on our share transfer books on the applicable record dates. Our
Board of Directors will fix the record dates for dividend payments.
As provided in the applicable prospectus supplement, dividends on any series
of the preferred stock may be cumulative or non-cumulative. Cumulative dividends
will be cumulative from and after the date set forth in the applicable
prospectus supplement. If our Board of Directors fails to declare a dividend
payable on a dividend payment date on any series of the preferred stock for
which dividends are non-cumulative, then the holders of such series of the
preferred stock will have no right to receive a dividend for the dividend period
ending on such dividend payment date. We will have no obligation to pay the
dividend accrued for such dividend period, whether or not dividends on such
series are declared payable on any future dividend payment date.
If preferred stock of any series is outstanding, our Board of Directors will
not declare, pay or set apart for payment dividends on any of our capital stock
of any other series ranking, as to dividends, equally with or junior to the
preferred stock outstanding for any period unless:
(a) for preferred stock with cumulative dividends, we have declared and
paid, or declared and set apart a sum sufficient to pay, full cumulative
dividends on the preferred stock through the then current dividend
period; and
(b) for preferred stock lacking a cumulative dividend, we have declared and
paid or declared and set aside a sum sufficient to pay full dividends for
the then current dividend period;
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When dividends are not paid in full, or when a sum sufficient for such full
payment is not set apart, upon preferred stock of any series and the shares of
any other series of preferred stock ranking equally as to dividends with the
preferred stock of such series, all dividends declared upon preferred stock of
such series and any other series of preferred stock ranking equally as to
dividends with such preferred stock shall be declared pro rata so that the
amount of dividends declared per share of preferred stock of such series and
such other series of preferred stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the preferred stock of such
series, which shall not include any accumulation of unpaid dividends for prior
dividend periods if such preferred stock lacks a cumulative dividend, and such
other series of preferred stock bear to each other. No interest, or sum of money
instead of interest, shall be payable for any dividend payment or payments on
preferred stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless we have
paid dividends through the then current dividend period, including dividend
payments in arrears if dividends are cumulative, for such series of preferred
stock or unless our Board of Directors has declared such dividends and has set
aside a sum sufficient for such payment, our Board of Directors shall not
declare dividends, other than in shares of common stock or other capital shares
ranking junior to the preferred stock of such series as to dividends and upon
liquidation, or pay or set aside for payment or declare or make any other
distribution upon the common stock, or any other of our capital shares ranking
junior to or equally with the preferred stock of such series as to dividends or
upon liquidation. Additionally, we shall not redeem, purchase or otherwise
acquire for any consideration, or any moneys to be paid or made available for a
sinking fund for the redemption of any such shares, any shares of common stock,
or any other of our capital shares ranking junior to or equally with the
preferred stock of such series as to dividends or upon liquidation.
Notwithstanding the foregoing, we may convert such shares into or exchange such
shares for other of our capital shares ranking junior to the preferred stock of
such series as to dividends and upon liquidation.
REDEMPTION
If the applicable prospectus supplement so provides, the preferred stock
will be subject to mandatory redemption or redemption at our option, as a whole
or in part, in each case upon the terms, at the times and at the redemption
prices set forth in such prospectus supplement.
The prospectus supplement applicable to a series of preferred stock that is
subject to mandatory redemption will specify:
(a) the number of shares of such preferred stock that shall be redeemed by
us in each year,
(b) the year such redemption will commence,
(c) the redemption price per share, together with an amount equal to all
accrued and unpaid dividends thereon to the date of redemption,
(d) whether the redemption price is payable in cash or property.
If the redemption price for preferred stock of any series is payable only
from the net proceeds of the issuance of our capital shares, the terms of such
preferred stock may provide that, if we have not issued capital shares or to the
extent the net proceeds from any issuance are insufficient to pay in full the
aggregate redemption price then due, such preferred stock shall automatically be
converted into our capital shares pursuant to conversion provisions specified in
the applicable prospectus supplement.
We can not redeem, purchase or otherwise acquire shares of a series of
preferred stock unless:
(a) for preferred stock with cumulative dividends, we have declared and
paid, or declared and set apart a sum sufficient to pay, full cumulative
dividends on the preferred stock through the then current dividend
period; and
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(b) for preferred stock lacking a cumulative dividend, we have declared and
paid or declared and set aside a sum sufficient to pay full dividends for
the then current dividend period;
The foregoing shall not prevent the purchase or acquisition of preferred
stock of such series to preserve our REIT status or pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding preferred
stock of such series.
If fewer than all of the outstanding shares of preferred stock of any series
are to be redeemed, we will determine the number of shares to be redeemed. We
may redeem the shares on a pro rata basis from the holders of record of such
shares in proportion to the number of such shares held or for which redemption
is requested by such holder with adjustments to avoid redemption of fractional
shares, or by lot.
We will mail notice of redemption 30 to 60 days prior to the redemption date
to each holder of record of preferred stock of any series to be redeemed at the
address shown on our share transfer books. Each notice shall state:
(a) the redemption date;
(b) the number of shares and series of the preferred stock to be redeemed;
(c) the redemption price;
(d) the place or places where certificates for such preferred stock are to
be surrendered for payment of the redemption price;
(e) that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and
(f) the date upon which the holder's conversion rights, if any, as to such
shares shall terminate.
If we are to redeem fewer than all the shares of preferred stock of any
series, the notice we mail to each holder of preferred stock shall specify the
number of shares of preferred stock to be redeemed from each holder. If we have
given notice of redemption of any preferred stock and if we have set aside, in
trust for the benefit of the holders of any preferred stock called for
redemption, the funds necessary for such redemption, then from and after the
redemption date dividends will cease to accrue on the preferred stock to be
redeemed. Additionally all rights of the holders of the redeemable shares will
terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
our affairs, then the holders of each series of preferred stock shall be
entitled to receive out of our assets legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share, plus an amount equal to all dividends accrued and unpaid
on such series of preferred stock. Such preferred shareholders will receive
these distributions before any distribution or payment shall be made to the
holders of any common stock or any other class or series of our capital shares
ranking junior to the preferred stock in the distribution of assets upon our
liquidation, dissolution or winding up. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of preferred
stock will have no right or claim to any of our remaining assets. If our
available assets are insufficient to pay the amount of the liquidating
distributions on all outstanding preferred stock and the corresponding amounts
payable on all shares of other classes or series of our capital shares ranking
equally with the preferred stock in the distribution of assets, then the holders
of the preferred stock and all other such classes or series of capital shares
shall share on a pro rata basis in any such distribution of assets in proportion
to the full liquidating distributions to which they would otherwise be entitled.
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If liquidating distributions have been made in full to all holders of
preferred stock, our remaining assets will be distributed among the holders of
any other classes or series of capital shares ranking junior to the preferred
stock upon liquidation, dissolution or winding up, according to their rights and
preferences and in each case according to their number of shares. For such
purposes, our consolidation or merger with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of our
property or business, shall not be deemed to constitute our liquidation,
dissolution or winding up.
VOTING RIGHTS
Holders of the preferred stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable prospectus supplement.
Whenever dividends on any shares of preferred stock are in arrears for six
or more consecutive quarterly periods, the holders of such shares of preferred
stock, voting separately as a class with all other series of preferred stock
upon which like voting rights have been conferred and are exercisable, will be
entitled to vote for the election of two additional directors at a special
meeting called by the holders of record of ten percent (10%) of any series of
preferred stock so in arrears or at the next annual meeting of stockholders, and
at each subsequent annual meeting until (a) if such series of preferred stock
has a cumulative dividend, we have paid or our Board of Directors has declared
and set aside a sum sufficient for payment of all dividends accumulated on such
shares of preferred stock for the past dividend periods and the then current
dividend period or (b) if such series of preferred stock lacks a cumulative
dividend, we have fully paid or our Board of Directors has declared and set
aside a sum sufficient for payment of four consecutive quarterly dividends. In
such case, two directors will be added to our Board of Directors.
Unless provided otherwise for any series of preferred stock, so long as any
shares of preferred stock remain outstanding, we will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of preferred stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting with such series voting separately as a
class, (a) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such preferred stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up or reclassify any of our authorized capital stock into
such shares, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such shares; or
(b) amend, alter or repeal the provisions of our Articles of Incorporation or
the designating amendment for such series of preferred stock, whether by merger,
consolidation or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of such series of preferred stock or the
holders thereof. With respect to the occurrence of any of the events set forth
in (b) above so long as the preferred stock remains outstanding with the terms
thereof materially unchanged, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of preferred stock. Additionally, any increase in the
amount of the authorized preferred stock or the creation or issuance of any
other series of preferred stock, or any increase in the amount of authorized
shares of such series or any other series of preferred stock, in each case
ranking on a parity with or junior to the preferred stock of such series with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of preferred stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
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CONVERSION RIGHTS
The applicable prospectus supplement will set forth the terms and
conditions, if any, upon which any series of preferred stock is convertible into
shares of common stock. Such terms will include the number of shares of common
stock into which the shares of preferred stock are convertible, the conversion
price, or manner of calculation thereof, the conversion period, provisions as to
whether conversion will be at the option of the holders of the preferred stock
or us, the events requiring an adjustment of the conversion price and provisions
affecting conversion in the event of the redemption of such series of preferred
stock.
SHAREHOLDER LIABILITY
Maryland law provides that no shareholder, including holders of preferred
stock, shall be personally liable for our acts and obligations and that our
funds and property shall be the only recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
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 as defined in the Code to include certain entities,
during the last half of a taxable year. Therefore, the designating amendment for
each series of preferred stock may contain provisions restricting the ownership
and transfer of the preferred stock. The applicable prospectus supplement will
specify any additional ownership limitation relating to a series of preferred
stock.
REGISTRAR AND TRANSFER AGENT
The applicable prospectus supplement will set forth the Registrar and
Transfer Agent for the preferred stock.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
We may issue receipts for depositary shares, each of which will represent a
fractional interest of a share of a particular series of preferred stock, as
specified in the applicable prospectus supplement. Shares of preferred stock of
each series represented by the depositary shares will be deposited under a
separate deposit agreement between us, the depositary named therein and the
holders of the depositary receipts. Subject to the terms of the deposit
agreement, each depositary receipt owner will be entitled, in proportion to the
fractional interest of a share of a particular series of preferred stock
represented by the depositary shares evidenced by such depositary receipt, to
all the rights and preferences of the preferred stock represented thereby.
Depositary receipts issued pursuant to the applicable deposit agreement will
evidence the depositary shares. Immediately following our issuance and delivery
of the preferred stock to the depositary, we will cause the depositary to issue,
on our behalf, the depositary receipts. Upon request, we will provide you with
copies of the applicable form of deposit agreement and depositary receipt.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions received in respect of the preferred stock to the record holders
of depositary receipts evidencing the related depositary shares in proportion to
the number of depositary receipts owned by the holders.
If there is a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary receipts
entitled thereto. If the depositary determines that it is not feasible to make
such distribution, the depositary may, with our approval, sell the property and
distribute the net proceeds from such sale to the holders.
WITHDRAWAL OF STOCK
Upon surrender of the depositary receipts at the corporate trust office of
the depositary, unless the related depositary shares have previously been called
for redemption, the holders thereof will be entitled to delivery, to or upon
such holders' order, of the number of whole or fractional shares of the
preferred stock and any money or other property represented by the depositary
shares evidenced by the depositary receipts. Holders of depositary receipts will
be entitled to receive whole or fractional shares of the related preferred stock
on the basis of the proportion of preferred stock represented by each depositary
share as specified in the applicable prospectus supplement. Thereafter, holders
of such shares of preferred stock will not be entitled to receive depositary
shares for the preferred stock. If the depositary receipts delivered by the
holder evidence a number of depositary shares in excess of the number of
depositary shares representing the number of shares of preferred stock to be
withdrawn, the depositary will deliver to the holder a new depositary receipt
evidencing the excess number of depositary shares.
REDEMPTION OF DEPOSITARY SHARES
Provided we shall have paid in full to the depositary the redemption price
of the preferred stock to be redeemed plus an amount equal to any accrued and
unpaid dividends thereon to the redemption date, whenever we redeem shares of
preferred stock held by the depositary, the depositary will redeem as of the
same redemption date the number of depositary shares representing shares of the
preferred stock so redeemed. The redemption price per depositary share will be
equal to the redemption price and any other amounts per share payable with
respect to the preferred stock. If fewer than all the depositary shares are to
be redeemed, the depositary shares to be redeemed will be selected as nearly
30
as may be practicable without creating fractional depositary shares, pro rata,
or by any other equitable method we determine.
From and after the date fixed for redemption, all dividends in respect of
the shares of preferred stock so called for redemption will cease to accrue, the
depositary shares called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the depositary receipts evidencing
the depositary shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such depositary receipts were entitled to receive upon
such redemption upon surrender to the depositary of the depositary receipts
representing the depositary shares.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the preferred
stock are entitled to vote, the depositary will mail the information contained
in such notice of meeting to the record holders of the depositary receipts
evidencing the depositary shares that represent such preferred stock. Each
record holder of depositary receipts evidencing depositary shares on the record
date, which will be the same date as the record date for the preferred stock,
will be entitled to instruct the depositary as to the exercise of the voting
rights pertaining to the amount of preferred stock represented by such holder's
depositary shares. The depositary will vote the amount of preferred stock
represented by such depositary shares in accordance with such instructions, and
we will agree to take all reasonable action that may be deemed necessary by the
depositary in order to enable the depositary to do so. If the depositary does
not receive specific instructions from the holders of depositary receipts
evidencing such depositary shares, it will abstain from voting the amount of
preferred stock represented by such depositary shares. The depositary shall not
be responsible for any failure to carry out any instruction to vote, or for the
manner or effect of any such vote made, as long as any such action or non-action
is in good faith and does not result from the depositary's negligence or willful
misconduct.
LIQUIDATION PREFERENCE
Upon our liquidation, dissolution or winding up, whether voluntary or
involuntary, the holders of each depositary receipt will be entitled to the
fraction of the liquidation preference accorded each share of preferred stock
represented by the depositary share evidenced by such depositary receipt, as set
forth in the applicable prospectus supplement.
CONVERSION OF PREFERRED STOCK
Except in connection with certain conversions in connection with the
preservation of our REIT status, the depositary shares are not convertible into
our common stock or any other of our securities or property. Nevertheless, if
the applicable prospectus supplement so specifies, the holders of the depositary
receipts may surrender their depositary receipts to the depositary with written
instructions to the depositary to instruct us to cause conversion of the
preferred stock represented by the depositary shares evidenced by such
depositary receipts into whole shares of common stock, other shares of our
preferred stock or other shares of our capital stock, and we have agreed that
upon receipt of such instructions and any amounts payable in respect thereof, we
will cause the conversion of the depositary shares utilizing the same procedures
as those provided for delivery of preferred stock to effect such conversion. If
the depositary shares evidenced by a depositary receipt are to be converted in
part only, the depositary will issue a new depositary receipt for any depositary
shares not to be converted. No fractional shares of common stock will be issued
upon conversion, and if such conversion will result in a fractional share being
issued, we will pay an amount in cash equal to the value of the fractional
interest based upon the closing price of the common stock on the last business
day prior to the conversion.
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AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
By agreement, we and the depositary at any time can amend the form of
depositary receipt and any provision of the deposit agreement. However, any
amendment that materially and adversely alters the rights of the holders of
depositary receipts or that would be materially and adversely inconsistent with
the rights granted to holders of the related preferred stock will be effective
only if the existing holders of at least two-thirds of the depositary shares
have approved the amendment. No amendment shall impair the right, subject to
certain exceptions in the deposit agreement, of any holder of depositary
receipts to surrender any depositary receipt with instructions to deliver to the
holder the related preferred stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding depositary receipt at the time an amendment becomes effective shall
be deemed, by continuing to hold the depositary receipt, to consent and agree to
the amendment and to be bound by the deposit agreement as amended thereby.
Upon 30 days' prior written notice to the depositary, we may terminate the
deposit agreement if (a) such termination is necessary to preserve our status as
a REIT or (b) a majority of each series of preferred stock affected by such
termination consents to such termination. Upon the termination of the deposit
agreement, the depositary shall deliver or make available to each holder of
depositary receipts, upon surrender of the depositary receipts held by such
holder, such number of whole or fractional shares of preferred stock as are
represented by the depositary shares evidenced by the depositary receipts
together with any other property held by the depositary with respect to the
depositary receipt. If the deposit agreement is terminated to preserve our
status as a REIT, then we will use our best efforts to list the preferred stock
issued upon surrender of the related depositary shares on a national securities
exchange.
The deposit agreement will automatically terminate if (a) all outstanding
depositary shares shall have been redeemed, (b) there shall have been a final
distribution in respect of the related preferred stock in connection with our
liquidation, dissolution or winding up and such distribution shall have been
distributed to the holders of depositary receipts evidencing the depositary
shares representing such preferred stock or (c) each share of the related
preferred stock shall have been converted into our capital stock not so
represented by depositary shares.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the deposit agreement. In addition, we will pay the
fees and expenses of the depositary in connection with the performance of its
duties under the deposit agreement. However, holders of depositary receipts will
pay certain other transfer and other taxes and governmental charges. The holders
will also pay the fees and expenses of the depositary for any duties, outside of
those expressly provided for in the deposit agreement, the holders request to be
performed.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so. We may at any time remove the depositary, any such
resignation or removal will take effect upon the appointment of a successor
depositary. A successor depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of $50,000,000 or more.
MISCELLANEOUS
The depositary will forward to holders of depositary receipts any reports
and communications from us which are received by the depositary with respect to
the related Preferred Stock.
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We and the depositary will not be liable if either of us is prevented from
or delayed in, by law or any circumstances beyond its control, performing its
obligations under the deposit agreement. Our obligations and the depositary's
obligations under the deposit agreement will be limited to performing the duties
thereunder in good faith and without negligence, in the case of any action or
inaction in the voting of preferred stock represented by the depositary shares,
gross negligence or willful misconduct. If satisfactory indemnity is furnished,
we and the depositary will be obligated to prosecute or defend any legal
proceeding in respect of any depositary receipts, depositary shares or shares of
preferred stock represented thereby. We and the depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of preferred stock represented by depository receipts for deposit,
holders of depositary receipts or other persons believed in good faith to be
competent to give such information, and on documents believed in good faith to
be genuine and signed by a proper party.
In the event the depositary shall receive conflicting claims, requests or
instructions from any holders of depositary receipts, on the one hand, and us,
on the other hand, the depositary shall be entitled to act on our claims,
requests or instructions.
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DESCRIPTION OF COMMON STOCK
GENERAL
Chelsea's authorized capital stock includes 50 million shares of common
stock, $.01 par value per share. For each outstanding share of common stock
held, the holder is entitled to one vote on all matters presented to
stockholders for a vote. Cumulative voting is not permitted. Holders of the
common stock do not have preemptive rights. At February 27, 2002, there were
18,780,579 shares of common stock outstanding.
All shares of common stock issued and sold will be duly authorized, fully
paid, and non-assessable. Distributions may be paid to the holders of common
stock if and when declared by our Board of Directors. Dividends will be paid out
of funds legally available for dividend payment. We have paid quarterly
dividends, beginning with a dividend for the portion of the quarter from the
closing of our initial public offering in November 1993.
Under Maryland law, stockholders are generally not liable for our debts or
obligations. If we are liquidated, subject to the right of any holders of
preferred stock to receive preferential distributions, each outstanding share of
common stock will be entitled to participate pro rata in the assets remaining
after payment of, or adequate provision for, all of our known debts and
liabilities.
CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION
Our Board of Directors is divided into three classes of directors, with each
class constituting approximately one-third of the total number of directors. The
classes serve staggered terms. At each annual meeting of stockholders, the class
of directors to be elected at such meeting will be elected for a three-year term
and the directors in the other two classes will continue in office. We believe
that classified directors will help to assure the continuity and stability of
the Board of Directors and our business strategies and policies. The use of a
staggered board may make a change in our control and/or the removal of incumbent
management more difficult.
RESTRICTIONS ON OWNERSHIP
In order to qualify as a REIT under the Code, not more than 50% in value of
our outstanding common stock may be owned, directly or indirectly, by five or
fewer individuals, as defined in the Code, during the last half of a taxable
year and the common stock must be beneficially owned by 100 or more persons
during 335 days of a taxable year of 12 months, or during a proportionate part
of a shorter taxable year. To satisfy the above ownership requirements and
certain other requirements for qualification as a REIT, our Board of Directors
has adopted, and the stockholders approved, a provision in the Articles of
Incorporation restricting the ownership or acquisition of shares of common
stock.
REGISTRAR AND TRANSFER AGENT
EquiServe, Boston, Massachusetts is the Registrar and Transfer Agent for the
common stock.
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PLAN OF DISTRIBUTION
We may sell the securities to one or more underwriters for public offering
and sale by them or may sell the securities to investors directly or through
agents. We will name, in the applicable prospectus supplement, any such
underwriter or agent involved in the offer and sale of the securities.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. We may, from time to time, authorize
underwriters acting as our agents to offer and sell the securities upon the
terms and conditions as are set forth in the applicable prospectus supplement.
In connection with the sale of securities, underwriters may be deemed to have
received compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of securities for
whom they may act as agent. Underwriters may sell securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
We will set forth in the applicable prospectus supplement any underwriting
compensation either of us pays to underwriters or agents in connection with the
offering of securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers. Underwriters, dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with us, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If the applicable prospectus supplement so indicates, we will authorize
dealers acting as our agents to solicit offers by certain institutions to
purchase Securities from them at the public offering price set forth in such
prospectus supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on the date or dates stated in such
prospectus supplement. Each Contract will be for an amount not less than, and
the aggregate principal amount of securities sold pursuant to Contracts shall be
equal to, the respective amounts stated in the applicable prospectus supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to our approval. Contracts will not be subject to
any conditions except (a) the purchase by an institution of the securities
covered by its Contracts shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject, and (b) if the securities are being sold to underwriters, we shall have
sold to such underwriters the total principal amount of the securities less the
principal amount thereof covered by Contracts.
In the ordinary course of business, certain of the underwriters and their
affiliates may be customers of, engage in transactions with and perform services
for us.
LEGAL MATTERS
Stroock & Stroock & Lavan LLP of New York, New York will pass upon the
validity of the issuance of the securities offered hereby for us.
EXPERTS
The consolidated financial statements of Chelsea Property Group, Inc. and
CPG Partners, L.P. (the "Companies") appearing in the Companies' Annual Reports
(Form 10-K) for the year ended December 31, 2001, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. Such consolidated
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financial statements are incorporated herein by reference in reliance upon such
reports given on the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. You
may inspect and copy any document that we file at the public reference rooms
maintained by the SEC in Washington, D.C., New York, New York and Chicago,
Illinois. Any documents we file may also be available at the SEC's site on the
World Wide Web located at http://www.sec.gov. For a fee you can obtain the
documents by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549.
We have filed with the SEC a Registration Statement on Form S-3 under the
Securities Act of 1933. This prospectus does not contain all of the information
set forth in the registration statement.
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3,500,000 Shares
[GRAPHIC]
Chelsea Property Group, Inc.
Common Stock
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PROSPECTUS SUPPLEMENT
NOVEMBER 15, 2002
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Banc of America Securities LLC
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