<PAGE>
 
                                                                    EXHIBIT 99.2

FEDERAL INCOME TAX AND ERISA CONSIDERATIONS

     The following discussion addresses the material federal tax considerations
relevant to the taxation of the Company and summarizes the material federal
income tax consequences relevant to certain shareholders. This discussion is for
general information only, is not exhaustive of all possible tax considerations
and is not intended as and should not be construed as tax advise. The actual tax
consequences of holding particular securities being issued by the Company may
vary in light of a prospective holder's particular facts and circumstances.
Certain holders, such as tax-exempt entities, insurance companies and financial
institutions, are generally subject to special rules which are not addressed
fully herein. In addition, the following discussion does not discuss issues
under any foreign, state or local tax laws except as expressly stated. The tax
treatment of a holder of any of the securities offered by the Company will vary
depending upon the terms of the particular securities acquired by such holder,
as well as his particular situation, and this discussion does not attempt to
address aspects of federal income taxation relating to holders of particular
securities. Any additional federal income tax considerations relevant to holders
of particular securities will be provided in the applicable Prospectus and/or
Prospectus Supplement relating thereto.

     The following general summary of the federal income tax rules governing a
REIT and its shareholders is based on the Code, Treasury Regulations, generally
available judicial decisions, rulings and other administrative interpretations,
all of which are subject to change, and possibly retroactively. Because many
provisions of the Code have been revised substantially by recent legislation,
including the Taxpayer Relief Act of 1997 (the "1997 Act") and the Internal
Revenue Service Restructuring and Reform Act of 1998 (the "1998 Act"), very
few Treasury Regulations, judicial decisions, rulings or other administrative
pronouncements have been issued interpreting many of the revisions to the Code.
Waller Lansden Dortch & Davis, A Professional Limited Liability Company
("WLDD"), has acted as tax counsel to the Company and has reviewed this summary
and has rendered an opinion that the description of the law and the legal
conclusions contained herein are correct in all material respects, and that the
discussion hereunder fairly summarizes the federal income tax considerations
that are likely to be material to the Company and a holder of securities of the
Company. However, investors should be aware that Congress continues to consider
new tax bills. Accordingly, no assurance can be given that future legislation,
administrative regulations, rulings, or interpretations or court decisions will
not alter significantly the tax consequences described below or that such
changes or decisions will not be retroactive. The Company has not requested, nor
does it presently intend to request, a ruling from the Internal Revenue Service
(the "IRS") with respect to any of the matters discussed below. An opinion of
counsel is not binding on the IRS, and no assurance can be given that the IRS
will not challenge the Company's eligibility for taxation as a REIT. Because the
provisions governing REITs are highly technical and complex, no attempt is made
in the following discussion to discuss in detail all of the possible tax
consequences applicable to the Company or its shareholders.

                                       
<PAGE>
 
     It is also important to note that the application of federal income tax 
laws and applicable regulations may be subject to varying interpretations and
could result in a charge to the Company at a later date upon final determination
by taxing authorities.

     ACCORDINGLY, THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL
TAX PLANNING AND EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT THE APPLICABLE
PROSPECTUS AND/OR PROSPECTUS SUPPLEMENT, AS WELL AS WITH HIS OWN TAX ADVISOR,
REGARDING THE TAX CONSEQUENCES TO HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF
THE COMPANY'S SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.

     It is the opinion of WLDD that the Company is organized and is operating in
conformity with the requirements for qualification and taxation as a REIT
commencing with the Company's taxable year ending December 31, 1994, and its
method of operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters including, but not
limited to, those set forth below in this discussion and those concerning its
business and properties as set forth in any applicable Prospectus and/or
Prospectus Supplement. Moreover, such qualification and taxation as a REIT
depends upon the Company's ability to meet, through actual annual operating
results, the various income, asset, distribution, stock ownership and other
tests discussed below, the results of which will not be reviewed by WLDD.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any one taxable year will satisfy such requirements.

     If the Company ceases to qualify as a REIT, and the relief provisions do
not apply, the Company's income that is distributed to shareholders would be
subject to the "double taxation" on earnings (once at the corporate level and
again at the shareholder level) that generally results from investment in a
corporation. Failure to maintain qualification as a REIT would force the Company
to reduce significantly its distributions and possibly incur substantial
indebtedness or liquidate substantial investments in order to pay the resulting
corporate taxes. In addition, the Company, once having obtained REIT status and
having lost such status, would not be eligible to elect REIT status for the four
subsequent taxable years, unless its failure to maintain its qualification was
due to reasonable cause and not willful neglect, and certain other requirements
were satisfied. In order to elect to again be taxed as a REIT, just as with the
original election, the Company would be required to distribute all of its
earnings and profits accumulated in any non-REIT taxable year.

     The Company intends to conduct its affairs so that the assets of the
Company will not be deemed to be "plan assets" of any individual retirement
account, employee benefit plan subject 

                                       2
<PAGE>
 
to Title I of ERISA, or other qualified retirement plan subject to Section 4975
of the Code which acquires its shares.


TAXATION OF THE COMPANY

     The Company elected to be taxed as a REIT for federal income tax purposes
commencing with the taxable year ending December 31, 1994. The Company has
continued its REIT election since that time and intends to continue such
election. The Company believes that it is organized and has operated in a manner
so as to qualify for taxation as a REIT, and the Company intends to continue to
operate in such a manner. However, no assurance can be given that the Company
has operated in a manner so as to qualify for taxation as a REIT or that it will
continue to operate in such a manner.

     Generally, if the Company continues to qualify for taxation as a REIT, it
will not be subject to federal income tax on income or capital gains that it
distributes in a timely manner to shareholders. However, notwithstanding the
Company's qualification as a REIT, the Company will be subject to federal income
tax as follows: First, the Company will be taxed at regular corporate rates on
any undistributed "real estate investment trust taxable income," including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference, if any. Third, if the Company has (i) net income from the sale or
other disposition of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business, or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax on such income at the
highest corporate rate. Fourth, any net income that the Company has from
prohibited transactions (which are, in general, certain sales or other
dispositions of property other than foreclosure property held primarily for sale
to customers in the ordinary course of business) will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy either the 75% or 95% gross income
tests (as discussed below), and has nonetheless maintained its qualification as
a REIT because certain other requirements have been met, it will be subject to a
100% tax on the net income attributable to the greater of the amount by which
the Company fails the 75% or 95% gross income tests. Sixth, if the Company fails
to distribute during each year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) (subject to the Section 857(b) election) 95% of its
REIT capital gain net income for such year, and (iii) any undistributed taxable
income from preceding periods, then the Company will be subject to a 4% federal
excise tax on the excess of such required distribution over the amounts actually
distributed. Seventh, to the extent that the Company recognizes gain from the
disposition of an asset with respect to which there existed "built-in gain" as
of January 1, 1994 and such disposition occurs within a 10-year recognition
period beginning January 1, 1994, the Company will be subject to federal income
tax at the highest regular corporate rate on the amount of its "net recognized
built-in gain." The Company estimates that on January 1, 1994, the aggregate
"built-in gain" was approximately $12.1 million. The Company may offset any net
recognized built-in gain by available net operating loss carryforwards. On
January 1, 1994, the Company had approximately $2.7 million in net operating
loss carryforwards which expire at various dates through 2007. Management of the

                                      3
<PAGE>
 
Company will consider this tax effect when determining whether it is in the best
interest of the Company to sell a specific piece of real property. Eighth, the
Company could be subject to tax in certain situations and on certain
transactions not presently contemplated.

REQUIREMENTS FOR QUALIFICATION AS A REIT

     To qualify as a REIT for a taxable year under the Code, the Company must
have no earnings and profits accumulated in any non-REIT year. The Company also
must have in effect an election to be taxed as a REIT and must meet other
requirements, some of which are summarized below, including percentage tests
relating to the sources of its gross income, the nature of the Company's assets
and the distribution of its income to shareholders. Such election, if properly
made and assuming continuing compliance with the qualification tests described
herein, will continue in effect for subsequent years.

ORGANIZATIONAL REQUIREMENTS AND SHARE OWNERSHIP TESTS

     Section 856(a) of the Code defines a REIT as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable,
but for Sections 856 through 859 of the Code, as a domestic corporation; (4)
which is neither a financial institution nor an insurance company, subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons, determined without reference to any rules of attribution
(the "share ownership test"); (6) that during the last half of each taxable year
not more than 50% in value of the outstanding stock of which is owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) (the "five or fewer test"); and (7) which meets certain other
tests, described below, regarding the nature of its income and assets. Section
856(b) of the Code provides that conditions (1) through (4), inclusive, must be
met during the entire taxable year, and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of fewer than 12 months. The five or fewer test and the share
ownership test do not apply to the first taxable year for which an election is
made to be treated as a REIT.

     The Company has issued sufficient shares to a sufficient number of people
pursuant to its initial public offering to allow it to satisfy the share
ownership test and the five or fewer test. In addition, to assist in complying
with the five or fewer test on an ongoing basis, the Company's Charter contains
certain provisions restricting share transfers where the transferee (other than
the Nichols, members of their families and certain affiliates, and certain
exceptions specified in the Charter) would, after such transfer, own (a) more
than 8% either in number or value of the outstanding Common Stock of the Company
or (b) more than 8% either in number or value of the outstanding Preferred Stock
of the Company. Pension plans and certain other tax exempt entities will have
different restrictions on ownership. If, despite this prohibition, stock is
acquired increasing a transferee's ownership to over 8% in value of either the
outstanding Common Stock of the Company or Preferred Stock of the Company, the
stock in excess of the 8% is deemed to be held in trust for transfer at a price
which does not exceed what the purported transferee paid for the stock and,
while held in trust, the stock is not entitled to receive dividends or to 
vote. In

                                      4
<PAGE>
 
addition, under these circumstances, the Company also has the right to redeem
such stock. For purposes of determining whether the five or fewer test (but not
the share ownership test) is met, any stock held by a qualified trust (generally
pension plans, profit-sharing plans and other employee retirement trusts)
generally is treated as held directly by the trust's beneficiaries in proportion
to their actuarial interests in the trust, and not held by the trust.

     The Company is required to maintain records of the actual and constructive
beneficial ownership of its shares. The 1997 Act added certain provisions to the
Code that provide that if the Company timely mails demand letters to certain
shareholders requesting stock ownership information be provided to the Company
or the IRS, unless the Company does not know, or exercising reasonable due
diligence would not have known, that the five or fewer test has in fact not been
satisfied, the Company shall be deemed to have satisfied the five or fewer test.
Pursuant to the 1997 Act, if the Company fails to comply with the Treasury
Regulations to ascertain its ownership it will be subject to a penalty for
failing to do so and will void the possible application of the deemed
satisfaction of the five or fewer test of ownership. The penalty is $25,000
($50,000 for intentional violations) for any year in which the Company does not
comply with the ownership Treasury Regulations. The Company will also be
required, when requested by the IRS, to send curative demand letters. In
accordance with the Treasury Regulations, the Company must and will demand from
certain shareholders written statements concerning the actual and constructive
beneficial ownership of shares. The Company's Bylaws require such record holders
to respond to such requests for information. Any shareholder who does not
provide the Company with requested information concerning share ownership will
be required to include certain information relating thereto with his income tax
return. A list of shareholders failing to fully comply with the demand for the
written statements shall be maintained as part of the Company's records required
under the Code.

INCOME TESTS

     In order to maintain qualification as a REIT, two gross income requirements
must be satisfied annually by the Company. First, at least 75% of the Company's
gross income (other than from certain "prohibited transactions") in each taxable
year must consist of certain types of income identified in the Code, including
qualifying "rents from real property"; qualifying interest on obligations
secured by mortgages on real property or interests in real property; gain from
the sale or other disposition of real property (including interests in real
property and mortgages on real property) held for investment and not primarily
for sale to customers in the ordinary course of business; income and gain from
certain properties acquired by the Company through foreclosure; and income
earned from certain types of qualifying temporary investments. When the Company
receives new capital in exchange for its shares (other than dividend
reinvestment amounts) or in a public offering of debt instruments with
maturities of five years or longer, income attributable to the temporary
investment of such new capital, if received or accrued within one year of the
Company's receipt of the new capital, is qualified temporary investment income
under the 75% gross income test.

     Second, at least 95% of the Company's gross income (other than from certain
"prohibited transactions") in each taxable year must consist of income which
qualifies under the 75% gross 

                                      5
<PAGE>
 
income test as well as dividends and interest from any other source, gain from
the sale or other disposition of shares and other securities which are not
dealer property, any payment to the Company under an interest rate swap or cap
agreement entered into as a hedge against variable rate indebtedness incurred to
acquire or carry real estate assets, and any gain from the disposition of such
an agreement.

     In order to qualify as "rents from real property" in satisfying the gross
income requirements for a REIT described above, several conditions must be met
related to the identity of the tenant, the computation of the rent payable, and
the nature of the property leased. The Company does not anticipate receiving
rents that fail to meet these conditions. In addition, the Company must not
manage its properties or furnish or render services to the tenants of its
properties, except through an independent contractor from whom the Company
derives no income. There is an exception to this rule permitting a REIT to
perform directly certain "usually or customarily rendered" tenant services of
the sort which a tax-exempt organization could perform without being considered
in receipt of "unrelated business taxable income." The Company self-manages the
properties, but does not provide services to tenants which it believes are
outside the exception. The 1997 Act added certain provisions to the Code that
permit the Company to render a de minimis amount (1% of rents) of nonqualifying
services to tenants, or in connection with the management of the property, and
still treat other amounts received as "rents from real property." For these
purposes, the value of nonqualifying services shall not be less than 150% of the
Company's direct cost of providing the services.

     If rent attributable to personal property leased in connection with a lease
of real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as rents from real property. Generally, this 15% test is applied separately to
each lease. The portion of rental income treated as attributable to personal
property is determined according to the ratio of the tax basis of the personal
property to the total tax basis of the property which is rented.  The
determination of what fixtures and other property constitute personal property
for federal tax purposes is difficult and imprecise. Based upon allocations of
value as found in the purchase agreements and/or upon review by employees of the
Company, the Company believes that it currently does not have and does not
believe that is likely in the future to have 15% in value of any significant
portion of its real properties classified as personalty. WLDD, in rendering its
opinion as to the qualification of the Company as a REIT, is relying on the
conclusions of the Company and its senior management as to the proportionate
value of the personalty. If, however, rent payments do not qualify, for reasons
discussed above, as rents from real property for purposes of Section 856 of the
Code, it will be more difficult for the Company to meet the 95% or 75% gross
income tests and continue to qualify as a REIT.

     In order to qualify as "interest on obligations secured by mortgages on
real property," the amount of interest received generally must not be based on
the income or profits of any person, but may be based on a fixed percentage or
percentages of receipts or sales.

     The Company may temporarily invest its working capital in short-term
investments, including shares in other REITs or interests in REMICs. Although
the Company will use its best efforts to ensure that its income generated by
these investments will be of a type which satisfies 

                                      6
<PAGE>
 
the 75% and 95% gross income tests, there can be no assurance in this regard.
The Company has analyzed its gross income through December 31, 1998 and has
determined that it has met and expects in the future to meet the 75% and 95%
gross income tests, and for 1998 and prior years has met the 30% gross income
test, which has been repealed for 1998 and subsequent years.

     The Company is and expects to continue performing third-party management
services. Such income does not qualify for the 95% or 75% gross income test and
the Company will continue to monitor the volume of such income to avoid
violating the 95% and 75% gross income tests. The Company may, if necessary,
provide such services through a non-controlled affiliated entity to avoid
failing to satisfy either the 95% or 75% gross income test. The Company
presently has a non-controlled affiliated entity which is engaged in development
activities.

     If the Company fails to meet the requirements of either or both the 75% or
95% gross income tests for any taxable year, it may nevertheless qualify as a
REIT for such year if it is entitled to relief under certain provisions of the
Code. These relief provisions will be generally available if the Company's
failure to meet such tests was due to reasonable cause and not to willful
neglect, the Company attaches a schedule of the sources of its income to its
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to know whether the Company
would be entitled to the benefit of these relief provisions as the application
of the relief provisions is dependent on future facts and circumstances. If
these relief provisions apply, a special tax generally equal to 100% is imposed
upon the net income attributable to the greater of the amount by which the
Company failed the 75% or 95% gross income tests.

ASSET TESTS

     At the close of each quarter of the Company's taxable year, it must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must consist of "real estate assets"
(including interests in real property, interests in mortgages on real property,
shares in other qualified REITs, and certain temporary investments), cash, cash
items and government securities. Second, not more than 25% of the Company's
total assets may be represented, in whole or in part, by securities other than
those includable in the 75% asset class. Finally, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of the Company's total assets, and the
Company may not own more than 10% of any one issuer's outstanding voting
securities.

     If the Company meets the above requirements at the close of any quarter, it
will not lose its status as a REIT because of the change in value of its assets
during a subsequent quarter unless the discrepancy exists immediately after the
acquisition of any security or other property which is wholly or partly the
result of such acquisition. Where a failure to satisfy the above requirements
results from an acquisition of securities or other property during a quarter,
the failure can be cured by disposition of sufficient nonqualifying assets
within 30 days after the close of such quarter. While the Company intends to
meet the requirements of the asset tests described above, no assurance can be
given that the Company will be able to do so.

                                      7
<PAGE>
 
     The Company may own 100% of the stock of a corporation if such corporation
is a "qualified REIT subsidiary." For federal tax purposes, a qualified REIT
subsidiary is ignored and the assets, liabilities, income, deductions and other
attributes are treated as being owned or generated directly by the Company. The
Company currently has four qualified REIT subsidiaries. If the Company acquires
100% of an existing corporation, the acquired corporation will be deemed to
liquidate and all of its built-in gain will be taxable. In addition, the Company
would have to make distributions sufficient to eliminate any "C" corporation
earnings and profits as well as sufficient distributions to meet the
distribution requirements described below.

DISTRIBUTION REQUIREMENTS

     In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
equal to or greater than the excess of (A) the sum of (i) 95% of the Company's
"real estate investment trust taxable income," computed without regard to the
dividends paid deduction and the Company's net capital gain ("net investment
income") and (ii) 95% of the net income, if any, (after tax) from foreclosure
property, over (B) the sum of certain non-cash income (from certain imputed
rental income and income from transactions inadvertently failing to qualify as
like-kind exchanges). These requirements may be waived by the IRS if the REIT
establishes that it failed to meet them by reason of distributions previously
made to meet the requirements of the 4% federal excise tax described below.

     Unlike net investment income, the Company's net capital gain need not be
distributed in order for the Company to maintain its status under the Code as a
REIT; however, the Company will be taxed on any net capital gain which it fails
to distribute in a timely manner. A REIT may elect to retain and pay income tax
on net long-term capital gains that it receives during a taxable year. If the
Company makes this election, shareholders are required to include in their
income as long-term capital gain their proportionate share of the undistributed
long-term capital gains so designated by the Company. A shareholder will be
treated as having paid his or her share of the tax paid by the Company in
respect of long-term capital gains so designated by the Company, for which the
shareholder will be entitled to a credit or refund. In addition, the
shareholder's basis in his or her Company shares will be increased by the amount
of the Company's designated undistributed long-term capital gains that are
included in the shareholder's long-term capital gains, reduced by the
shareholder's proportionate share of tax paid by the Company on those gains that
the shareholder is treated as having paid. The earnings and profits of the
Company will be reduced, and the earnings and profits of any corporate
shareholder of the Company will be increased, to take into account amounts
designated by the Company pursuant to this rule. The Company must pay its tax on
its designated long-term capital gains within 30 days of the close of any
taxable year in which it designates long-term capital gains pursuant to this
rule, and it must mail a written notice of its designation to its shareholders
within 60 days of the close of the taxable year.

     Should the Company distribute a capital gain dividend while Preferred
Shares are outstanding, it will be required to designate a portion of dividends
entitled to be received by holders of the Preferred Shares as capital gain
dividends, thereby reducing the portion of total 

                                      8
<PAGE>
 
distributions paid to holders of the Company's Common Shares which would
otherwise be characterized as capital gains dividends.


     The Company will be subject to a nondeductible 4% federal excise tax to the
extent it fails within a calendar year to make "required distributions" to its
shareholders of 85% of its ordinary income and, unless the 1997 Act election is
made, 95% of its capital gain net income plus the excess, if any, of the
"grossed up required distribution" for the preceding calendar year over the
amount treated as distributed for such preceding calendar year. For this
purpose, the term "grossed up required distribution" for any calendar year is
the sum of the taxable income of the Company for the taxable year (without
regard to the deduction for dividends paid) and all amounts from earlier years
that are not treated as having been distributed under the provision. Dividends
declared in the last quarter of the year and paid during the following January
will be treated as having been paid and received on December 31. The Company
intends to make distributions to shareholders so that it will not incur this tax
but, as noted below, various situations could make it impractical to meet the
prescribed distribution schedule.

     It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirements due to
timing differences between actual receipt of income and actual payment of
deductible expenses or dividends on the one hand and the inclusion of such
income and deduction of such expenses or dividends in arriving at "real estate
investment trust taxable income" of the Company on the other hand. The 1997 Act
eliminated certain items of phantom income from the 95% distribution
requirement. The problem of inadequate cash to make required distributions could
also occur as a result of the repayment in cash of principal amounts due on the
Company's outstanding debt, particularly in the case of "balloon" repayments or
as a result of capital losses on short-term investments of working capital.
Therefore, the Company might find it necessary to arrange for short-term, or
possibly long-term borrowing, or new equity financing. If the Company were
unable to arrange such borrowing or financing as might be necessary to provide
funds for required distributions, its REIT status could be jeopardized.

     Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. The Company may be able to
avoid being taxed on amounts distributed as deficiency dividends; however, the
Company may in certain circumstances remain liable for the 4% federal excise tax
described above.

COMPANY'S OWNERSHIP OF PARTNERSHIP INTERESTS

     In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the partnership's assets and to earn its proportionate share of the
partnership's income. In addition, the assets and gross income of the
partnership retain the same character in the hands of the REIT for purposes of
the gross income and asset tests applicable to REITs as described above. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of the partnerships and limited liability companies in 

                                      9
<PAGE>
 
which it has ownership interests will be treated as assets, liabilities and
items of income of the Company for purposes of applying the REIT requirements
described herein.

FEDERAL INCOME TAX TREATMENT OF LEASES

     The availability to the Company of, among other things, depreciation
deductions with respect to the facilities owned and leased by the Company
depends upon the treatment of the Company as the owner of the facilities and the
classification of the leases of the facilities as true leases, rather than as
sales or financing arrangements, for federal income tax purposes. The Company
has not requested nor received an opinion that it will be treated as the owner
of the portion of the facilities constituting real property and the leases will
be treated as true leases of such real property for federal income tax purposes.
Based on the conclusions of the Company and its senior management as to the
values of personalty, the Company has met and plans to meet in the future its
compliance with the 95% distribution requirement (and the required distribution
requirement) by making distributions on the assumption that it is not entitled
to depreciation deductions for that portion of the leased facilities which it
believes constitutes personal property, but to report the amount of income
taxable to its shareholders by taking into account such depreciation. The value
of real and personal property and whether certain fixtures are real or personal
property are factual evaluations that cannot be determined with absolute
certainty under current IRS regulations and therefore are somewhat uncertain.

INCOME FROM PROHIBITED TRANSACTIONS

     A REIT is subject to a 100% tax on the net income derived from "prohibited
transactions." A prohibited transaction is the sale or other disposition of
property "held primarily for sale to customers in the ordinary course of
business" which is not foreclosure property. The Company intends to hold its
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning and operating its properties and
to make occasional sales of its properties as are consistent with the Company's
investment objectives. Whether property is held primarily for sale to customers
in the ordinary course of business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction.

     A safe harbor exception is provided for which certain sales of "real estate
assets" will be deemed not to constitute a prohibited transaction.  Generally,
the following requirements must be met for the sale to fall within this safe
harbor:

     -  the REIT must have held the property for at least four years;

     -  the total expenditures made by the REIT during the four-year period
        preceding the date of sale which are includable in the basis of the
        property must not exceed 30% of the net selling price of the property;

     -  during the taxable year, (i) the REIT does not make more than seven
        sales of property (other than sales of foreclosure property or
        property that was involuntarily converted), or (ii) the total adjusted
        bases of property (other than sales of foreclosure property or
        property that was involuntarily converted) sold 

                                      10
<PAGE>
 
        must not exceed 10% of the total bases of all of the assets of the REIT
        as of the beginning of the taxable year;

     -  if the REIT makes more than seven sales of property (other than sales of
        foreclosure property or property that was involuntarily converted)
        during the taxable year, substantially all of the marketing and
        development expenditures with respect to the property must be made
        through an "independent contractor" from whom the REIT itself does not
        derive or receive any income; and

     -  if the property consists of land or improvements, not acquired through
        foreclosure (or deed in lieu of foreclosure), or lease termination, the
        REIT will not be considered to have held the property for at least four
        years for production of rental income.

     The Company may from time to time sell or exchange some of its properties
for various reasons. If the above safe harbor is not met, the Company will
consider all of the facts and circumstances of the particular transaction and
the possible applicability of the 100% tax. The simultaneous exercise of options
to acquire leased property that may be granted to certain lessees or other
events could result in sales of properties by the Company that exceed the safe
harbor. However, the Company believes that in such event, based on all of the
facts and circumstances, it will not have held such properties primarily for
sale to customers in the ordinary course of business.

OTHER ISSUES

     With respect to property acquired from and leased back to the same or an
affiliated party, the IRS could assert that the Company realized prepaid rental
income in the year of purchase to the extent that the value of the leased
property exceeds the purchase price paid by the Company for that property. In
litigated cases involving sale-leasebacks which have considered this issue,
courts have concluded that buyers have realized prepaid rent where both parties
acknowledged that the purported purchase price for the property was
substantially less than fair market value and the purported rents were
substantially less than the fair market rentals. Because of the lack of clear
precedent and the inherently factual nature of the inquiry, complete assurance
cannot be given that the IRS could not successfully assert the existence of
prepaid rental income in such circumstances. The value of property and the fair
market rent for properties involved in sale-leasebacks are inherently factual
matters and always subject to challenge.

     Additionally, it should be noted that Section 467 of the Code (concerning
leases with increasing rents) may apply to those leases of the Company which
provide for rents that increase from one period to the next. Section 467
provides that in the case of a so-called "disqualified leaseback agreement,"
rental income must be accrued at a constant rate. If such constant rent accrual
is required, the Company would recognize rental income in excess of cash rents
and as a result, may fail to meet the 95% dividend distribution requirement.
"Disqualified leaseback agreements" include leaseback transactions where a
principal purpose of providing increasing rent under the agreement is the
avoidance of federal income tax. The IRS has issued proposed regulations under
Section 467 relating to the treatment of rent and interest provided for in
certain 

                                      11
<PAGE>
 
leases. The proposed regulations apply to rental agreements that provide
for increasing or decreasing rent. A rental agreement has increasing or
decreasing rent if it requires the payment of contingent rent, other than rent
that is contingent due to (1) a provision computing rent based on a percentage
of the lessee's gross or net receipts; (2) adjustments based on a reasonable
price index; or (3) a provision requiring the lessee to pay third-party costs.
Therefore, additional rent provisions of leases containing such clauses should
not be "disqualified leaseback agreements." The proposed regulations also
provide that if the rent allocated to each calendar year does not vary from the
average rent allocated to all calendar years by more than 10%, the lease will be
deemed not motivated by tax avoidance and thus should not be a "disqualified
leaseback agreement." It should be noted, however, that leases involved in sale-
leaseback transactions are subject to special scrutiny under this Section. The
Company, based on its evaluation of the value of the property and the terms of
the leases, does not believe it has or will have in the future rent subject to
the provisions of Section 467.

DEPRECIATION OF PROPERTIES

     For tax purposes, the Company's real property acquired subsequent to its
initial public offering is being depreciated over 39 years utilizing the
straight-line method of depreciation and personal property is being depreciated
over 5 to 15 years in accordance with applicable laws and regulations relating
to different classifications of personal property.

FAILURE TO QUALIFY AS A REIT

     If the Company fails to qualify for federal income tax purposes as a REIT
in any taxable year, and the relief provisions do not apply, the Company will be
subject to tax on its taxable income at regular corporate rates (plus any
applicable alternative minimum tax). Distributions to shareholders in any year
in which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current or
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the following four taxable
years. It is not possible to state whether in all circumstances the Company
would be entitled to statutory relief from such disqualification. Failure to
qualify for even one year could result in the Company's incurring substantial
indebtedness (to the extent borrowings are feasible) or liquidating substantial
investments in order to pay the resulting taxes.

TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS

     As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
that they do not exceed the Company's actual net capital gain for the taxable
year) without regard to 

                                      12
<PAGE>
 
the period for which the shareholder has held his or her stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income.

     Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares in respect of which the distributions
were made, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a shareholder's
shares in respect of which the distributions were made, they will be included in
income as capital gain provided that the shares are a capital asset in the hands
of the shareholder.

     As a result of the 1997 Act and that 1998 Act, the maximum rate of tax on
net capital gains recognized by individuals and other non-corporate shareholders
upon the sale or disposition of shares of the Company held for more than 12
months has been reduced to 20%, and such maximum rate is further reduced to 18%
for shares sold after December 31, 2000, and held for more than five years. For
15% bracket taxpayers, the maximum rate on net capital gains is reduced to 10%,
and such maximum rate is further reduced to 8% for shares sold after December
31, 2000, and held for more than five years. The maximum rate for net capital
gains attributable to the sale of depreciable real property held for more than
12 months is 25% to the extent of the deductions for depreciation with respect
to such property. Long-term capital gain that the Company allocates to domestic
shareholders will be subject to the 25% rate to the extent that the gain does
not exceed depreciation on real property that the Company sold.

     Capital losses recognized by a shareholder upon the disposition of shares
of the Company held for more than one year at the time of disposition will be a
long-term capital loss. In addition, any loss upon a sale or exchange of shares
of the Company by a shareholder who has held such shares for six months or less
(after applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from the Company required to be
treated by such shareholder as long-term capital gain.

     All or a portion of any loss realized upon a taxable disposition of shares
of the Company may be disallowed if other shares of the Company are purchased
(under a dividend reinvestment plan or otherwise) within 30 days before or after
the disposition.

     A redemption of Preferred Shares of the Company will be treated under
Section 302 of the Code as a dividend subject to tax at ordinary income tax
rates (to the extent of the Company's current or accumulated earnings and
profits), unless the redemption satisfies certain tests set forth in Section
302(b) of the Code enabling the redemption to be treated as a sale or exchange
of the Preferred Shares. The redemption will satisfy such test if it (i) is
"substantially disproportionate" with respect to the holder, (ii) results in a
"complete termination" of the holder's stock interest in the Company, or (iii)
is "not essentially equivalent to a dividend" with respect to the holder, all
within the meaning of Section 302(b) of the Code. In determining whether any of
these tests have been met, shares considered to be owned by the holder by reason
of certain constructive ownership rules set forth in the Code, as well as shares
actually owned, must generally be taken into account. Because the determination
as to whether any of the alternative tests of Section 302(b) of the Code is
satisfied with respect to any particular holder of the Preferred Shares will
depend upon the facts and circumstances as of the time the determination is
made, prospective investors are advised to consult their own tax advisors to
determine such tax treatment. If a redemption of the Preferred Shares is treated
as a distribution that is taxable as a dividend, the amount of the distribution
would be measured by the amount of cash and the fair market value of any
property received by the stockholders. The stockholder's adjusted tax basis in
such redeemed Preferred Shares would be transferred to the holder's remaining
stockholdings in the Company. If, however, the stockholder has no remaining
stockholdings in the Company, such basis may, under certain circumstances, be
transferred to a related person or it may be lost entirely.

                                      13
<PAGE>
 
     The Company may be required to withhold and remit to the IRS 31% of the
dividends paid to any shareholder who (a) fails to furnish the Company with a
properly certified taxpayer identification number, (b) has under reported
dividend or interest income to the IRS or (c) fails to certify to the Company
that he or she is not subject to backup withholding. Any amount paid as backup
withholding will be creditable against the shareholder's income tax liability.
The Company will report to its shareholders and the IRS the amount of dividends
paid during each calendar year and the amount of any tax withheld.

TAXATION OF TAX-EXEMPT SHAREHOLDERS

     Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the IRS has ruled that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the shares of the REIT are not otherwise used in an
unrelated trade or business of the exempt employee pension trust. Based on that
ruling, amounts distributed by the Company to Exempt Organizations should
generally not constitute UBTI. However, if an Exempt Organization finances its
acquisition of its shares with debt, a portion of its income from the Company
will constitute UBTI pursuant to the "debt-financed property" rules. In
addition, in certain circumstances, a pension trust that owns more than 10% of
the Company's stock is required to treat a percentage of the dividends from the
Company as UBTI (the "UBTI Percentage"). The UBTI Percentage is the gross income
derived by the Company from an unrelated trade or business (determined as if the
Company were a pension trust) divided by the gross income of the Company for the
year in which the dividends are paid. The UBTI rule applies to a pension trust
holding more than 10% of the Company's stock only if (1) the UBTI Percentage is
at least 5%, (2) the Company qualifies as a REIT only because the pension trust
is not treated as a single issuer for purposes of the five or fewer rule, and
(3) either (A) one pension trust owns more than 25% of the value of the
Company's stock or (B) a group of pension trusts each individually holding more
than 10% of the value of the Company's stock collectively owns more that 50% of
the value of the Company's stock. The Company currently does not expect that
this rule will apply.

TAXATION OF FOREIGN SHAREHOLDERS

     The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "non-U.S. shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules.  Non-U.S.
shareholders should consult with their own tax advisers to determine the impact
of federal, state and local income tax laws with regard to an investment in
shares of the Company, including any reporting requirements.

     Distributions that are not attributable to gain from sales or exchanges by
the Company of "United States Real Property Interests" and not designated by the
Company as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of 

                                      14
<PAGE>
 
current or accumulated earnings and profits of the Company. Generally, such
distributions will be subject to a U.S. withholding tax equal to 30% of the
gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the shares of the
Company is treated as effectively connected with the non-U.S. shareholder's
conduct of a United States trade or business, the non-U.S. shareholder generally
will be subject to a tax at graduated rates, in the same manner as U.S.
shareholders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax in the case of a shareholder that is a foreign
corporation). Any distributions in excess of current and accumulated earnings
and profits of the Company will not be taxable to a non-U.S. shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's shares,
but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a non-U.S. shareholder's shares
in the Company, they will give rise to tax liability if the non-U.S. shareholder
would otherwise be subject to tax on any gain from the sale or disposition of
his or her shares, as described below. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distributions will be subject
to withholding at the same rate as dividends. However, amounts thus withheld are
refundable if it subsequently is determined that such distribution was, in fact,
in excess of current and accumulated earnings and profits of the Company.

     Under currently applicable Treasury Regulations, withholding agents are
required to determine the applicable withholding rate pursuant to the
appropriate tax treaty, and withhold the appropriate amount. New Treasury
Regulations, however, have been adopted that revise in certain respects the
rules applicable to non-U.S. shareholders (the "New Treasury Regulations"). The
IRS has recently announced that the New Treasury Regulations are effective
generally for payments made after December 31, 1999, subject to certain
transition rules.

     Currently, dividends paid to an address in a foreign country are presumed
to be paid to a resident of that country (unless the payor has knowledge to the
contrary) for purposes of the 30% U.S. withholding tax applicable to certain
non-U.S. shareholders and for purposes of determining the applicability of a tax
treaty rate. Under the New Treasury Regulations, however, a non-U.S. shareholder
who wishes to claim the benefit of an applicable treaty rate will be required to
provide Form W-8 which satisfies applicable certification and other
requirements, including a representation as to the holder's foreign status, the
holder's name and permanent residence address, and the relevant tax treaty. Such
information is subject to being reported to the IRS. A permanent residence
address for this purpose generally is the address in the country where the
person claims to be a resident for purposes of the country's income tax. If the
beneficial holder is a corporation, then the address is where the corporation
maintains its principal office in its country of incorporation. The New Treasury
Regulations also provide special rules to determine whether, for purposes of
determining the applicability of a tax treaty and for purposes of the 30%
withholding tax described above, dividends paid to a non-U.S. shareholder that
is an entity should be treated as paid to the entity or those holding an
interest in that entity. In particular, in the case of a foreign partnership,
the certification requirement will generally be applied to the partners of the
partnership. In addition, the New Treasury Regulations will also require the
partnership to provide certain information, including a United States taxpayer
identification number, and will provide look-through rules for tiered
partnerships. A non-U.S. shareholder that 

                                      15
<PAGE>
 
is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax
treaty may obtain a refund of any excess amount withheld by filing an
appropriate claim for refund with the IRS. The New Treasury Regulations contain
detailed rules governing tax certifications during the transition period prior
to and immediately following the effectiveness of the New Treasury Regulations.

     For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of "United
States Real Property Interests" will be taxed to a non-U.S. shareholder under
the provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a non-U.S.
shareholder as if such gain were effectively connected with a United States
trade or business. Non-U.S. shareholders would be subject to U.S. income tax at
the rates applicable to U.S. individuals or corporations, without regard to
whether such distribution is designated as a capital gain dividend. Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate shareholder not entitled to treaty exemption.
The Company is required to withhold 35% of any distribution that could be
designated by the Company as a capital gain dividend to the extent that such
capital gain dividends are attributable to the sale or exchange by the Company
of "United States Real Property Interests." This amount is creditable against
the non-U.S. shareholder's federal tax liability.

     Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains would be treated with respect to non-U.S. shareholders in the
manner outlined in the preceding paragraph for actual distributions by the
Company of capital gain dividends. Under that approach, the non-U.S.
shareholders would be able to offset as a credit against their U.S. federal
income tax liability resulting therefrom their proportionate share of the tax
paid by the Company on such undistributed capital gains (and to receive from the
IRS a refund to the extent their proportionate share of such tax paid by the
Company were to exceed their actual U.S. federal income tax liability).

     Gain recognized by a non-U.S. shareholder upon a sale of Company shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which, at all times during a
specified testing period, less than 50% in value of the shares were held
directly or indirectly by non-U.S. persons. The Company believes that it is, and
it expects to continue to be a domestically controlled REIT and, therefore, the
sale of Company shares should not be subject to taxation under FIRPTA. Because
the Company's stock is publicly traded, however, no assurance can be given that
the Company will continue to be a domestically controlled REIT.

     If the Company does not constitute a domestically controlled REIT, a non-
U.S. shareholder's sale of Company shares generally will still not be subject to
tax under FIRPTA as a sale of U.S. Real Property Interests provided that (i) the
stock is "regularly traded" (as defined by applicable Treasury Regulations) on
an established securities market and (ii) the selling non-

                                      16
<PAGE>
 
U.S. shareholder held 5% or less of the Company's outstanding stock at all times
during a specified testing period.

     If gain on the sale of shares of the Company were subject to taxation under
FIRPTA, the non-U.S. shareholder would be subject to the same treatment as a
U.S. shareholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals) and the purchaser of the stock could be required to withhold
10% of the purchase price and remit such amount to the IRS.

     Gain from the sale of Company shares that would not otherwise be subject to
FIRPTA will nonetheless be taxable in the United States to a non-U.S.
shareholder in two cases: (i) if the non-U.S. shareholder's investment in the
Company's stock is effectively connected with a U.S. trade or business conducted
by such non-U.S. shareholder, the non-U.S. shareholder will be subject to the
same treatment as a U.S. stockholder with respect to such gain, or (ii) if the
non-U.S. shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, the nonresident alien individual will be subject to a 30%
tax on the individual's capital gain.

                                      17