| RISK FACTORS There are a number of risk factors that could cause our actual results to differ materially from those that are indicated by forward-looking statements |
| Those factors include, without limitation, those listed below and elsewhere in this Annual Report on Form 10-K Real Estate Industry Risks We face risks associated with local real estate conditions in areas where we own properties |
| We may be affected adversely by general economic conditions and local real estate conditions |
| For example, an oversupply of retail space or apartments in a local area or a decline in the attractiveness of our properties to shoppers, tenants or residents would have a negative effect on our ability to lease and re-lease our properties and therefore on our revenues, cash flows, financial condition and ability to make distributions to our stockholders |
| Other factors that may affect general economic conditions or local real estate conditions include: • population and demographic trends; • employment and personal income trends; • income tax laws; • changes in interest rates and availability and costs of financing; • construction costs; • hurricanes and other natural disasters that could damage our facilities, cause service interruptions and result in uninsured damages; and • other weather conditions that may increase or decrease energy costs |
| We may be unable to compete with our larger competitors and other alternatives available to tenants or potential tenants of our properties |
| The real estate business is highly competitive |
| We compete for interests in properties with other real estate investors and purchasers, many of whom have greater financial resources, revenues, and geographical diversity than we have |
| Furthermore, we compete for tenants with other property owners |
| All of our shopping center and apartment properties are subject to significant local competition |
| We also compete with a wide variety of institutions and other investors for capital funds necessary to support our investment activities and asset growth |
| In addition, our portfolio of retail properties faces competition from other properties within each submarket where they are located |
| Our apartment portfolio competes with providers of other forms of housing, such as single family housing |
| Competition from single family housing increases when low interest rates make mortgages more affordable |
| Competition at any of our properties could make it difficult for us to rent space at our properties and could require us to lower rents or make the terms of renewal or re-lease (including the cost of required renovations or concessions to tenants) less favorable to us |
| 6 ______________________________________________________________________ [7]Index to Financial Statements We are subject to significant regulation that inhibits our activities |
| Local zoning and land use laws, environmental statutes and other governmental requirements restrict our expansion, rehabilitation and reconstruction activities |
| These regulations may prevent or impede us from taking advantage of economic opportunities |
| Legislation such as the Americans with Disabilities Act may require us to modify our properties |
| In many instances, the applicability and requirements of the ADA are not clear |
| Future legislation may impose additional requirements |
| Accordingly, the cost of compliance with the ADA or future legislation is not currently ascertainable, and such costs could be substantial and adversely affect our returns on particular properties |
| We cannot predict what requirements may be enacted or what changes may be implemented to existing legislation |
| Risks Associated with our Properties We may be unable to renew leases or relet space as leases expire |
| With respect to our retail properties in particular, our inability to renew a lease of space to an anchor tenant, or relet the space quickly to another tenant, could have a material adverse effect on the retail center |
| We attempt to manage our retail space to anticipate and minimize the impact of loss of major tenants, but have not always been successful in this, and cannot assure you that we will be successful in the future |
| We have established an annual budget for renovation and reletting expenses that we believe is reasonable in light of each property’s operating history and local market characteristics |
| This budget, however, may not be sufficient to cover these expenses |
| Failure to obtain anchor and other major tenant lease renewals or to promptly replace lost anchor or major tenants could adversely affect our ability to lease and re-lease our properties and therefore affect our revenues, cash flows, financial condition and ability to make distributions |
| We have been and may continue to be affected negatively by tenant bankruptcies and leasing delays |
| Similarly, a general decline in the economy may result in a decline in the demand for apartments |
| As a result, our commercial and residential tenants may delay lease commencement, fail to make rental payments when due, or declare bankruptcy |
| These events could adversely affect our ability to lease and re-lease our properties and therefore affect our revenues, cash flows, financial condition and ability to make distributions |
| We receive a substantial portion of our shopping center income as rents under long-term leases |
| If retail tenants are unable to comply with the terms of their leases because of rising costs or falling sales, we may deem it advisable to modify lease terms to allow tenants to pay a lower rental or a smaller share of operating costs, taxes and insurance |
| If a tenant becomes insolvent or bankrupt, we cannot be sure that we could recover the premises from the tenant promptly or from a trustee or debtor-in-possession in any bankruptcy proceeding relating to the tenant |
| We also cannot be sure that we would receive rent in the proceeding sufficient to cover our expenses with respect to the premises |
| If a tenant becomes bankrupt, the federal bankruptcy code will apply and, in some instances, may restrict the amount and recoverability of our claims against the tenant |
| A tenant’s default on its obligations to us could adversely affect our financial condition and ability to make distributions |
| Our operations were significantly impacted by hurricanes in 2005 and may be impacted by hurricanes or other natural disasters in the future |
| During the third quarter 2005, our properties sustained storm damages from the succession of Hurricanes Dennis, Katrina and Rita |
| We incurred costs in preparation for these storms in addition to losses from actual damages, including loss of rents, as well as storm clean-up |
| While we have insurance to cover a substantial portion of the cost of such events, our insurance includes deductible amounts and certain items may not be covered by insurance |
| We currently estimate our cash exposure to the deductible under our insurance policies as well as non-covered costs to be approximately dlra4dtta3 million |
| After taking into consideration existing book values of assets and capitalization policies, an expense of approximately dlra1dtta4 million has been recorded for costs actually incurred as of December 31, 2005 |
| The final charge to expense, however, is subject to the Company’s final cost assessment of required repairs as well as settlement of the insurance claim |
| The above described 2005 hurricane-related costs compare to an estimated cash exposure in the third quarter of 2004 from Hurricane Ivan of approximately dlra1dtta5 million and a recorded expense of approximately dlra762cmam000 in that quarter |
| In additional, our operations and properties may be significantly impacted by future hurricanes or other natural disasters |
| Future hurricanes or other natural disasters may cause us to lose rent and incur additional storm clean-up costs |
| Any of these events might have a material adverse impact on our results of operations and financial condition |
| The long-term economic impact of these hurricanes to the Gulf Coast region has yet to be determined |
| Coverage under our existing insurance policies may be inadequate to cover losses and may adversely affect operations |
| We generally maintain insurance policies related to our business, including casualty, general liability and 7 ______________________________________________________________________ [8]Index to Financial Statements other policies covering our business operations, employees and assets |
| However, we would be required to bear all losses that are not adequately covered by insurance as well as any insurance deductibles |
| In the event of a substantial property loss, the insurance coverage may not be sufficient to pay the full current market value or current replacement cost of the property |
| In the event of an uninsured loss, we could lose some or all of our capital investment, cash flow and anticipated profits related to one or more properties |
| Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it not feasible to use insurance proceeds to replace a property after it has been damaged or destroyed |
| Under such circumstances, the insurance proceeds might not be adequate to restore our economic position with respect to such property |
| Although we believe that our insurance programs are adequate, we cannot assure you that we will not incur losses in excess of our insurance coverage, or that we will be able to obtain insurance in the future at acceptable levels and reasonable cost |
| We may be unable to renew our current insurance policies when they expire, or may be unable to renew them on commercially reasonable terms |
| Certain events such as the terrorist attacks on September 11, 2001 and Hurricanes Dennis, Katrina and Rita in 2005 have made it more difficult and expensive to obtain property and casualty insurance, including coverage for terrorism |
| When our current insurance policies expire, we may encounter difficulty in obtaining or renewing property or casualty insurance on our properties at the same levels of coverage and under similar terms |
| Such insurance may be more limited and for some catastrophic risks (eg, earthquake, flood and terrorism) may not be generally available to fully cover potential losses |
| Even if we are able to renew our policies or to obtain new policies at levels and with limitations consistent with our current policies, we cannot be sure that we will be able to obtain such insurance at premium rates that are commercially reasonable |
| If we were unable to obtain adequate insurance on our properties for certain risks, it could cause us to be in default under specific covenants on certain of our indebtedness or other contractual commitments we have which require us to maintain adequate insurance on our properties to protect against the risk of loss |
| If this were to occur, or if we were unable to obtain adequate insurance and our properties experienced damages, which would otherwise have been covered by insurance, it could adversely affect our financial condition and the operations of our properties |
| We face risks due to lack of geographic diversity |
| All of our properties are located in Louisiana, Florida and Alabama |
| A downturn in general economic conditions and local real estate conditions in these geographic regions could have a material adverse effect on our ability to lease and re-lease our properties and therefore on our revenues, cash flows, financial condition and ability to make distributions |
| We face possible environmental liabilities |
| Current and former real estate owners and operators may be required by law to investigate and clean up hazardous substances released at the properties they own or operate |
| They may also be liable to the government or to third parties for substantial property damage, investigation costs and cleanup costs |
| In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with the contamination |
| Contamination may affect adversely the owner’s ability to sell or lease real estate or to borrow using the real estate as collateral |
| We have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of unknown environmental conditions or violations with respect to the properties we formerly owned |
| Environmental laws today can impose liability on a previous owner or operator of a property that owned or operated the property at a time when hazardous or toxic substances were disposed of, or released from, the property |
| A conveyance of the property, therefore, does not relieve the owner or operator from liability |
| We are not currently aware of any environmental liabilities relating to our existing properties which would have a material adverse effect on our business, assets or results of operations |
| However, we cannot assure you that future environmental liabilities will not occur, the costs of which could adversely affect our operations and ability to make distributions |
| Development and construction risks could impact our profitability |
| If we engage in the development of apartment communities or retail properties, any development activities would be conducted through wholly-owned affiliated companies or through joint ventures with unaffiliated parties |
| Any development and construction activities may be exposed to the following risks: • we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, which could result in increased development costs; • we may incur construction costs for a property that exceed original estimates due to increased materials, labor or other costs, which could make completion of the property uneconomical, and we may not be able to increase rents to compensate for the increase in construction costs; 8 ______________________________________________________________________ [9]Index to Financial Statements • we may abandon development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring those opportunities; • we may be unable to complete construction and lease-up of a property on schedule and meet financial goals for development projects; • because occupancy rates and rents at a newly developed property may fluctuate depending on a number of factors, including market and economic conditions, we may be unable to meet our profitability goals for that property; and • construction costs have been increasing in our existing markets, and may continue to increase in the future and, in some cases, the costs of upgrading existing or newly acquired properties may exceed original estimates and we may be unable to charge rents that would compensate for these increases in costs |
| Our current and future joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and any disputes that may arise between us and our joint venture partners |
| As of December 31, 2005, one of our properties, Southwood Shopping Center, is owned through a joint venture |
| We may not be in a position to exercise sole decision-making authority regarding the properties owned through joint ventures |
| Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including our reliance on our joint venture partners and the possibility that joint venture partners might become bankrupt or fail to fund their share of required capital contributions, thus exposing us to liabilities in excess of our share of the investment |
| Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives |
| Any disputes that may arise between us and joint venture partners may result in litigation or arbitration that would increase our expenses |
| Financing Risks We face risks generally associated with our debt |
| We finance a portion of our investments in real estate through debt |
| Although we have never missed a required payment of principal or interest or otherwise defaulted on a required payment related to our indebtedness, this debt creates risks, including: • in the event we fail to comply with the restrictive covenants in our credit lines requiring minimum net worth, debt to equity ratios, dividends to funds from operations ratios, committed bank lines to funds from operations ratios, and other measures of financial performance, there may be limits on the amount we may borrow under the credit lines or credit lines may be unavailable; • rising interest rates on our floating rate debt; • failure to repay or refinance existing debt as it matures, which may result in forced disposition of properties on disadvantageous terms; • refinancing terms less favorable than the terms of existing debt; and • failure to meet required payments of principal and/or interest |
| As a result of these risks, the value of our shares and distributions to investors may decrease |
| We face risks related to “balloon payments |
| ” Certain of our mortgages will have significant outstanding principal balances due on their maturity dates, commonly known as “balloon payments |
| ” There is no assurance whether we will be able to refinance such balloon payments on the maturity of the loans, which may force disposition of properties on disadvantageous terms or require replacement with debt with higher interest rates, either of which could adversely affect our financial condition and ability to make distributions |
| We face risks associated with the use of debt to fund acquisitions and developments, including refinancing risk |
| We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest |
| A portion of the principal of our debt may not be repaid prior to maturity |
| Therefore, we will likely need to refinance at least a portion of our outstanding debt as it matures |
| We may not be able to refinance existing debt or the terms of any refinancing may not be as favorable as the terms of the existing debt |
| If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital or sales of properties, our cash flow will not be sufficient to repay all maturing debt in years when significant “balloon” payments on outstanding mortgage debt and our outstanding convertible debentures come due |
| Fluctuations in interest rates may adversely affect our operations and value of our stock |
| As of December 31, 2005, we had approximately dlra26dtta0 million of variable interest rate debt |
| As of December 31, 2005, the weighted average 9 ______________________________________________________________________ [10]Index to Financial Statements interest rate on our variable rate debt was 5dtta90prca |
| We may also incur indebtedness in the future that bears interest at a variable rate or we may need to refinance our existing debt at higher rates |
| Accordingly, increases in interest rates could adversely affect our financial condition, our ability to make distributions and the value of our stock |
| We may amend our investment strategy and business policies without your approval |
| Our Board of Directors determines our growth, investment, financing, capitalization, borrowing, REIT status, operating and distribution policies |
| Although the Board of Directors has no present intention to amend or revise any of these policies, these policies may be amended or revised without notice to and approval from stockholders |
| Accordingly, stockholders may not have control over changes in our policies |
| We cannot assure you that changes in our policies will serve fully the interests of all stockholders |
| Other Risks Our exploration of strategic alternatives may not be successful |
| In January 2006, we announced that we retained Wachovia Capital Markets, LLC to assist us in analyzing potential strategic alternatives, including a sale of our company or some or all of our assets in one or more transactions, a merger or other business combination with another entity, a recapitalization, reorganization or restructuring |
| We are uncertain as to what strategic alternatives may be available to us, whether we will elect to pursue any such strategic alternatives or what impact any particular strategic alternative will have on our stock price if accomplished |
| There are numerous uncertainties and risks relating to our exploration of strategic alternatives, including: • the exploration of strategic alternatives may disrupt operations and distract management, which could have a material adverse effect on our operating results; • we may not be able to successfully achieve the benefits of the strategic alternative undertaken by us; • the process of exploring strategic alternatives may be more time consuming and expensive than we currently anticipate; and • perceived uncertainties as to the future direction of the Company may result in the loss of employees or business partners |
| The market value of our common stock could decrease based on our performance and the investment market’s perception and conditions |
| The market value of our common stock may be based primarily upon the market’s perception of our growth potential and current and future cash dividends, and may be secondarily based upon the real estate market value of our underlying assets |
| The market price of our common stock is influenced by the dividend on our common stock relative to market interest rates |
| Rising interest rates may lead potential buyers of our common stock to expect a higher dividend rate, which would adversely affect the market price of our common stock |
| We are subject to restrictions that may impede our ability to effect a change in control |
| Certain provisions contained in our Charter and Bylaws, our Shareholder Rights Agreement, certain provisions of Maryland law and severance agreements with our executive officers may have the effect of discouraging a third party from making an acquisition proposal for us and thereby inhibit a change in control, whether or not holders of a majority of our stock would favor such a change in control |
| Our Charter provides for an ownership limit of our stock that may adversely affect the value of stockholders’ stock |
| Our Charter generally limits any holder from acquiring more than 9dtta9prca (in value or in number, whichever is more restrictive) of our outstanding equity stock (defined as all of our classes of capital stock, except our excess stock) |
| While this provision is intended to assure our ability to remain a qualified REIT for Federal income tax purposes, the ownership limit may also limit the opportunity for stockholders to receive a premium for their shares of common stock that might otherwise exist if an investor were attempting to assemble a block of shares in excess of 9dtta9prca of the outstanding shares of equity stock or otherwise effect a change in control |
| We have adopted a shareholder rights plan that may make a change in control difficult |
| In August 1998, our Board of Directors adopted a Shareholder Rights Plan |
| Under the terms of the plan, we declared a dividend of rights on our common stock |
| The rights issued under the plan will be triggered, with certain exceptions, if and when any person or group acquires, or commences a tender offer to acquire, 20prca or more of our shares |
| The rights plan is intended to prevent partial, coercive takeover attempts by requiring a potential acquirer to negotiate the terms with our Board of Directors |
| However, it could have the effect of deterring or preventing our acquisition, even if a majority of our stockholders were in favor of such acquisition, and could have the effect of making it more difficult for a person or group to gain control of us or to change existing management |
| 10 ______________________________________________________________________ [11]Index to Financial Statements We have agreements with our executives that may deter changes of control of the Company |
| We have entered into agreements with each of our executives providing for the payment of money to these executives upon the occurrence of a change of control of the Company as defined in these agreements |
| If, within 24 months following a change of control, the Company terminates the executive’s employment other than for cause, or if the executive elects to terminate his employment with the Company for reasons specified in the agreement, we will make a severance payment equal to three times the executive’s base salary, together with the executive’s bonus, deferred compensation and medical and other benefits |
| These agreements may deter changes of control of the Company because of the increased cost for a third party to acquire control of the Company |
| Our Board of Directors may authorize and issue securities without stockholder approval |
| Under our Charter, the board has the power to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as the board of directors may determine |
| The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of us, even if a majority of our stockholders favored the transaction |
| Maryland business statutes may limit the ability of a third party to acquire control of us |
| As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging certain offers to acquire control of our company, even if a majority of our stockholders favored the transaction |
| The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10prca or more of the voting power without our Board of Directors’ prior approval |
| Any such business combination transaction could not be completed until five years after the person became an interested stockholder under the statute, and then generally only with the approval of stockholders representing 80prca of all votes entitled to be cast and 66^ 2/3prca of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price to all stockholders |
| Maryland law also provides generally that a person who acquires shares of our voting stock that exceed certain thresholds of the voting power in electing directors (namely, one-tenth, one-third and a majority) will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote |
| Our bylaws currently exempt the Company from this provision of Maryland law |
| Maryland law also provides that directors are not required to accept, recommend or respond to an acquisition proposal, redeem or modify shareholder rights, make certain other elections or take certain other actions |
| The statute further specifies that an act of a director relating to or affecting an acquisition or potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director |
| We may fail to qualify as a REIT If we fail to qualify as a REIT, we will not be allowed to deduct distributions to stockholders in computing our taxable income and will be subject to Federal income tax, including any applicable alternative minimum tax, at regular corporate rates |
| In addition, we might be barred from qualification as a REIT for the four years following disqualification |
| The additional tax incurred at regular corporate rates would reduce significantly the cash flow available for distribution to stockholders and for debt service |
| Also, failure to qualify as a REIT would negatively affect the value of our stock |
| Furthermore, if we failed to qualify as a REIT, we would no longer be required by the Internal Revenue Code of 1986, as amended (the “Code”) to make any distributions to our stockholders as a condition to REIT qualification |
| In that case, any distributions to stockholders that otherwise would have been subject to tax as capital gain dividends would be taxable as ordinary dividends to the extent of our current and accumulated earnings and profits although, through 2008, dividends received by individuals generally will be subject to a maximum federal tax rate of 15prca, the same rate applicable to capital gain dividends received by individuals during the same period |
| To qualify as a REIT, we must comply with certain highly technical and complex requirements |
| We cannot be certain we have complied with these requirements because there are few judicial and administrative interpretations of these provisions |
| In addition, facts and circumstances that may be beyond our control may affect our ability to qualify as a REIT We cannot assure you that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to our qualification as a REIT or with respect to the federal income tax consequences of qualification |
| We believe that we have qualified as a REIT since our inception and intend to continue to qualify as a REIT However, we cannot assure you that we are qualified or will remain qualified |
| We may be unable to comply with the strict income distribution requirements applicable to REITs |
| To obtain the favorable tax treatment associated with qualifying as a REIT, among other requirements, we are required each year to distribute to our stockholders at least 90prca of our REIT taxable income |
| We will be subject to corporate income tax on 11 ______________________________________________________________________ [12]Index to Financial Statements any undistributed REIT taxable income |
| In addition, we will incur a 4prca nondeductible excise tax on the amount by which our distributions in any calendar year are less than the sum of (i) 85prca of our ordinary income for the year, (ii) 95prca of our capital gain net income for the year, and (iii) any undistributed taxable income from prior years |
| We could be required to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT (and to avoid corporate income tax and the 4prca excise tax), even if conditions were not favorable for borrowing |
| As of this date, we have not needed to incur such borrowings |
| Notwithstanding our status as a REIT, we are subject to various federal, state and local taxes on our income and property |
| For example, we will be taxed at regular corporate rates on any undistributed taxable income, including undistributed net capital gains, provided, however, that properly designated undistributed capital gains will effectively avoid taxation at the stockholder level |
| We may also have to pay some state income or franchise taxes because not all states treat REITs in the same manner as they are treated for federal income tax purposes |
| Loss of key personnel could harm operations |
| Our future success depends to a significant extent on the continued services of members of our senior management team |
| Our senior management team’s experience in real estate acquisition, development, leasing and property management and finance are critical elements of future success |
| If one or more of our key executives were to die, become disabled or otherwise leave the company’s employ, we may not be able to replace this person with an executive officer of equal skill, ability, and industry expertise |
| Until persons could be identified and hired, our operations and financial condition could be impaired |
| The market value of our securities can be adversely affected by many factors |
| As with any public company, a number of factors may adversely influence the price of our equity securities, many of which are beyond our control |
| These factors include: level of institutional interest in us; perception of REITs generally and REITs with portfolios similar to ours, in particular, by market professionals; attractiveness of securities of REITs in comparison to other companies; our financial condition and performance; the market’s perception of our growth potential and potential future cash dividends; increases in market interest rates, which may lead investors to demand a higher annual yield from our distributions in relation to the price paid for our stock; and relatively low trading volume of shares of REITs in general, which tends to exacerbate a market trend with respect to our stock |
| Sales of a substantial number of shares of our stock, or the perception that such sales could occur, also could adversely affect prevailing market prices for our equity securities |
| At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended |
| Any of those new laws or interpretations may take effect retroactively and could adversely affect us or you as a stockholder |
| On May 28, 2003, the President signed into law legislation that, for individual taxpayers, will generally reduce the tax rate on corporate dividends to a maximum of 15prca for tax years from 2003 through 2008 |
| REIT dividends will not qualify for this reduced tax rate because REIT income generally is not subject to corporate level tax |
| This new law could cause stock in non-REIT corporations to be a more attractive investment to individual investors than stock in REITs and could have an adverse effect on the market price of our equity securities |