Filed pursuant to Rule 424(b)(3)
Registration No. 333-63619
Prospectus Supplement
(To prospectus dated September 30, 1998)
[LOGO OF FEDERAL REALTY INVESTMENT TRUST]
$175,000,000
8 3/4% Notes due December 1, 2009
We will pay interest on the notes on a semi-annual basis on June 1 and Decem-
ber 1 of each year, beginning June 1, 2000. Interest will accrue from November
30, 1999.
We may redeem the notes in whole or in part at any time before maturity at the
redemption price described on page S-21.
The notes will be unsecured and will rank equally with all of our other
unsecured senior indebtedness.
Neither the Securities and Exchange Commission nor any state securities com-
mission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
- -------------------------------------------------------------------------------
Price to Discounts and Proceeds to
Public(1) Commissions us
- -------------------------------------------------
Per note 99.416% .650% 98.766%
- -------------------------------------------------
Total $173,978,000 $1,137,500 $172,840,500
- -------------------------------------------------
(1)Plus accrued interest from November 30, 1999, if settlement occurs after
that date.
The notes will be ready for delivery in book-entry form only through The De-
pository Trust Company on or about November 30, 1999.
Goldman, Sachs & Co. J.P. Morgan & Co.
First Union Securities, Inc.
PNC Capital Markets, Inc.
Warburg Dillon Read LLC
November 23, 1999
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriters have not, authorized any other person to
provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement and the accompanying
prospectus is accurate as of their dates. Our business, financial condition,
results of operations and prospects may have changed since then.
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Federal Realty Investment Trust.......................................... S-3
Recent Developments...................................................... S-4
Ratios of Earnings to Fixed Charges...................................... S-5
Use of Proceeds.......................................................... S-5
Capitalization........................................................... S-6
Selected Consolidated Financial Data..................................... S-7
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-8
Business Strategy........................................................ S-12
Management............................................................... S-15
Property Information..................................................... S-16
Description of Notes..................................................... S-21
Federal Income Tax Considerations........................................ S-25
Underwriting............................................................. S-27
Legal Matters............................................................ S-27
Prospectus
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
The Trust................................................................ 3
Use of Proceeds.......................................................... 4
Ratios of Earnings to Fixed Charges...................................... 4
Description of Debt Securities........................................... 4
Description of Preferred Shares.......................................... 16
Description of Common Shares............................................. 22
Federal Income Tax Considerations........................................ 23
Plan of Distribution..................................................... 24
Legal Opinions........................................................... 25
Experts.................................................................. 25
S-2
FEDERAL REALTY INVESTMENT TRUST
Founded in 1962, we are a self-administered equity real estate investment
trust that owns, manages, develops and redevelops prime retail properties in
the Northeast, Mid-Atlantic and West Coast regions. At September 30, 1999, we
owned 123 retail properties and one apartment complex. We have traditionally
focused our investment efforts on undervalued community and neighborhood
shopping centers anchored by supermarkets, drug stores or high volume, value
oriented retailers providing consumer goods. After acquiring these types of
properties, we have significantly enhanced their operating performance through
renovation, expansion, reconfiguration and retenanting programs. With our
investment in late 1993 in four city blocks of downtown Bethesda, Maryland, we
began the expansion of our traditional investment focus to include "Main
Street Retail" properties--retail buildings and mixed-use properties in prime
urban shopping areas. Recognizing a trend of consumer shopping preferences and
retailer expansion to main streets, in 1994, we formed a wholly owned
subsidiary, Street Retail Inc., to pursue this investment strategy. Today, we
are the largest landlord on a number of dynamic main streets. We also have an
inventory of land parcels under our control for the purpose of developing
multi-use projects that center around the retail component.
We have traditionally operated the company as a single business segment.
During the fourth quarter of 1998, however, we changed our operating structure
to an asset management model, where small, focused teams are responsible for a
portfolio of assets. As a result, we have divided our portfolio of properties
into three operating regions: the Northeast, the Mid-Atlantic and the West
Coast. Each region is operated under the direction of a regional chief
operating officer, with dedicated leasing, property management and financial
staffs.
We continually evaluate our properties for renovation, retenanting and
expansion opportunities. Similarly, we regularly review our portfolio and from
time to time consider selling certain of our properties. Our operating results
are affected by general economic and real estate conditions, including
conditions specific to the markets where our properties are located.
We have benefited, and expect to continue to benefit, from the following
characteristics of our operations:
. Contractual rents. During the twelve months ended September 30, 1999,
97.6% of our retail rental income was contractual minimum rent plus
expense recoveries and was not derived from percentage rents.
. Diverse tenant base. In 1998, our retail rental income was derived from
approximately 2,300 tenants, with no single tenant or corporate entity
accounting for more than 3% of our retail rental income.
. Internal growth. Property net operating income (rental income plus other
property income, less rental expenses and real estate taxes) increased at
an annual average rate of 7.4% over the past five years, increasing from
$83 million in 1994 to $110 million in 1998 for properties owned during
all of the periods.
. Favorable lease structure. Our typical shopping center lease includes
provisions for at least partial recapture of property operating expenses
and real estate taxes. Through September 30, 1999, we recovered 81% of
property operating expenses and 73% of real estate taxes.
. Strong demand for our assets. During the twelve months ended September
30, 1999, we signed leases for 1,444,000 square feet of retail space. On
a same space basis, we re-leased 1,075,000 square feet of retail space at
an average increase in rent per square foot of 20%.
. Excellent demographics. Our properties tend to be located in densely
populated, affluent markets where limited land availability and zoning
restrictions limit the development of new competitive products.
. Long term operating history. Since we were founded, our revenues have
increased consistently through many real estate and economic cycles. As a
result, we have been able to increase our common dividend each and every
year for the past 32 years.
We are organized as a Maryland real estate investment trust. Our executive
offices are located at 1626 East Jefferson Street, Rockville, Maryland 20852
and our telephone number is (301) 998-8100.
S-3
RECENT DEVELOPMENTS
Third Quarter Operating Results
On November 3, 1999, we announced our operating results for the third
quarter of 1999. Our track record of increasing operating results continued as
funds from operations for the third quarter of 1999 increased 14% to $24.4
million from $21.4 million in the third quarter of 1998. Funds from operations
also improved for the first nine months of 1999, increasing 14% to $72.3
million from $63.6 million in 1998. At September 30, 1999, our overall
stabilized occupancy was 95%. Excluding a property that has been sold since
September 30, 1999, the overall stabilized occupancy was 96%. During the third
quarter of 1999, we signed leases for 430,000 square feet of retail space. On
a same space basis, we re-leased 324,000 square feet of retail space at an
average increase in rent per square foot of 27%. The weighted average rent on
these leases was $20.34 per square foot compared to the previous average rent
of $16.02 per square foot. A comparison of property operations for the third
quarter of 1999 versus the third quarter of 1998 shows the following:
. Rental income increased 12% to $62.0 million in 1999 from $55.4 million
in 1998. When adjusted to exclude properties acquired and sold during
1998 and 1999, rental income increased 7% to $57.9 million in 1999 from
$54.2 million in 1998.
. Net operating income increased 17% to $47.8 million in 1999 from $40.9
million in 1998. On a same center basis, net operating income increased
11% to $44.4 million in 1999 from $39.9 million in 1998.
. Operating margins, defined as property net operating income as a
percentage of property revenues, improved from 68.8% for the third
quarter of 1998 to 70.2% for the third quarter of 1999.
Also during the third quarter of 1999, in continuing to explore strategic
alternatives to maximize shareholder value, we considered spinning off certain
of our assets (primarily those related to the development and operation of our
Main Street Retail program) in a taxable transaction to shareholders. Shortly
thereafter, our remaining assets were to be merged with another publicly
traded shopping center company in exchange for cash and stock consideration.
On September 24, 1999, we announced that the merger negotiations were
terminated and that the spin off was being reevaluated. Although there are
currently no plans to consummate a spin off or merger transaction, management
continues to evaluate ways to maximize shareholder values and has renewed its
focus on maximizing the profitability of our operating portfolio.
Creation of Chief Operating Officer Position
On November 3, 1999, we announced the appointment of Donald C. Wood as
Chief Operating Officer. Our regional asset management approach, which was
implemented in 1998, coupled with a compensation program tied to achievement
of regional goals, has been recognized as an effective way to reduce
bureaucracy and empower and develop key managers. The Chief Operating Officer
will have direct responsibility for the operating and financial performance
and the long-term value enhancement of our operating properties.
Acquisitions and Redevelopments
During the first nine months of 1999, we acquired a 90% interest in three
buildings in Hollywood, California for a total cash investment by us of $23.7
million. The first two buildings contain 120,000 and 64,000 leasable square
feet, respectively. The third building is vacant pending redevelopment. In
addition, during the first nine months of 1999, we invested $7.2 million in
mortgage notes receivable with an average weighted interest rate of 10%.
Though we believe that current market conditions generally do not favor
acquisitions, we will continue to purchase assets that support favorable risk-
adjusted returns.
We intend to continue our practice of redeveloping and expanding properties
within our portfolio. During the first nine months of 1999, we spent $45
million for the renovation and redevelopment of certain properties. We believe
that the risk-adjusted returns on these projects are beneficial to
shareholders in addition to enhancing the long-term value of these properties.
Recent Financings
We primarily utilize our $300 million unsecured line of credit to fund
acquisitions and capital expenditures. As of November 1, 1999, there was
$205.0 million outstanding under our credit facility. Our credit facility was
entered into in December 1997 for a term of five years. Borrowings under the
credit facility bear interest at 65 basis points over the London Interbank
Offered Rate ("LIBOR"). The weighted average interest rate on borrowings for
the nine months ended
S-4
September 30, 1999 was 5.9%. Our credit facility requires fees and has various
covenants including maintenance of a minimum shareholders' equity and maximum
ratio of debt to net worth.
In October 1999, we sold Northeast Plaza Shopping Center in Atlanta,
Georgia for $19.6 million in cash, realizing a loss of $6.4 million.
Separately, mortgage notes receivable of $5.3 million were repaid in October
1999. The cash proceeds from these transactions were used to pay down our
credit facility.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratios of earnings to fixed
charges for the periods shown:
Nine Months Ended
Year Ended December 31, September 30,
1994 1995 1996 1997 1998 1998 1999
- ---- ---- ---- ---- ---- -------- --------
1.61x 1.55x 1.59x 1.70x 1.65x 1.63x 1.71x
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income before gain on
sale of real estate and fixed charges. Fixed charges consist of interest
expense (including interest costs capitalized) and the portion of rent expense
representing an interest factor. The ratio of earnings to combined fixed
charges and preferred dividends was 1.64x and 1.46x for the years ended
December 31, 1997 and 1998 and 1.43x and 1.54x for the nine months ended
September 30, 1998 and 1999. There were no preferred dividends paid prior to
1997; as a result, the ratio of earnings to combined fixed charges and
preferred dividends for the years ended December 31, 1994 through 1996 are
unchanged from the ratios presented above.
USE OF PROCEEDS
The net proceeds to us from the sale of the notes offered hereby are
estimated to be $172.8 million less expenses of this offering. We intend to
use $100 million of the proceeds to repay our senior notes that mature on
January 15, 2000 and the remainder to pay down our credit facility.
At September 30, 1999, the interest rate on our credit facility was 5.9%
and at November 1, 1999, there was $205.0 million outstanding. Affiliates of
First Union Securities, Inc., PNC Capital Markets, Inc. and Warburg Dillon
Read LLC, three of the underwriters of the offering, are lenders on our credit
facility and, upon application of the net proceeds from the offering of the
notes, will receive their proportionate share of the amount of the credit
facility to be repaid.
S-5
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999,
and as adjusted to give effect to the sale of the notes offered hereby and
application of a portion of the proceeds therefrom to repay $100 million of
senior notes that mature on January 15, 2000.
September 30, 1999
As
Historical Adjusted
-------------- ----------
(in thousands)
Debt:
Mortgages payable................................ $ 50,684 $ 50,684
Obligations under capital leases................. 122,124 122,124
Notes payable, primarily bank lines and
notes(1)........................................ 341,805 268,964
Senior notes..................................... 335,000 410,000
Convertible subordinated debentures.............. 75,289 75,289
-------------- ----------
Total debt..................................... 924,902 927,061
-------------- ----------
Shareholders' equity
Preferred shares................................. 100,000 100,000
Common shares of beneficial interest............. 404 404
Additional paid in capital....................... 712,434 712,434
Accumulated distributions in excess of Trust net
income.......................................... (280,143) (280,143)
Other............................................ ( 22,986) ( 22,986)
-------------- ----------
Total shareholders' equity..................... 509,709 509,709
-------------- ----------
Total capitalization......................... $1,434,611 $1,436,770
============== ==========
- -------
(1) Consists of $213 million drawn on the credit facility, $125 million on a
term note with banks and $3.8 million in miscellaneous notes payable.
S-6
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data and
should be read in conjunction with the consolidated financial statements and
notes incorporated by reference in the accompanying prospectus. Our selected
operating, other and balance sheet data for the years ended through December
31, 1998 and for the periods then ended have been derived from financial
statements audited by Grant Thornton LLP, independent accountants. The
unaudited financial data for the nine months ended September 30, 1999 and 1998
includes all adjustments, consisting of normal recurring accruals, which we
consider necessary for the fair presentation of our financial position and the
results of operations for such period. The results for the nine month period
may not be indicative of the results to be expected for the full year.
(in thousands, except Nine months ended
ratio September 30, Year ended December 31,
information and per share 1999 1998 1998 1997 1996 1995 1994
data) ---------- ---------- ---------- ---------- ---------- ---------- --------
(unaudited)
Operating Data
Revenues
Rental income........... $ 181,078 $ 162,041 $ 222,186 $ 188,529 $ 164,887 $ 142,841 $128,133
Other property income... 8,176 7,613 10,347 9,705 9,816 7,435 5,698
Interest................ 5,779 3,928 5,945 6,037 4,352 4,113 3,933
---------- ---------- ---------- ---------- ---------- ---------- --------
195,033 173,582 238,478 204,271 179,055 154,389 137,764
Expenses
Interest................ 45,507 39,736 55,125 47,288 45,555 39,268 31,462
Depreciation and
amortization........... 37,313 33,384 46,047 41,399 38,154 34,901 29,801
Property expenses....... 57,398 52,549 72,761 62,369 57,098 49,564 47,927
General, administrative
and other.............. 10,888 13,401 16,461 11,744 9,100 7,305 7,716
---------- ---------- ---------- ---------- ---------- ---------- --------
151,106 139,070 190,394 162,800 149,907 131,038 116,906
---------- ---------- ---------- ---------- ---------- ---------- --------
Income before investors'
share of operations and
gain on sale of real
estate.................. 43,927 34,512 48,084 41,471 29,148 23,351 20,858
Investors' share of
operations.............. (2,322) (2,335) (3,124) (1,342) (394) 304 (392)
---------- ---------- ---------- ---------- ---------- ---------- --------
Income before gain (loss)
on sale of real estate.. 41,605 32,177 44,960 40,129 28,754 23,655 20,466
Gain (loss) on sale of
real estate............. (7,050) -- -- 6,375 (12) (545) --
---------- ---------- ---------- ---------- ---------- ---------- --------
Net income............... 34,555 32,177 44,960 46,504 28,742 23,110 20,466
Dividends on preferred
stock................... (5,963) (5,963) (7,950) (1,877) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- --------
Net income available for
common shareholders..... $ 28,592 $ 26,214 $ 37,010 $ 44,627 $ 28,742 $ 23,110 $ 20,466
========== ========== ========== ========== ========== ========== ========
Weighted average shares
Basic................... 39,534 39,115 39,174 38,475 33,175 31,481 30,267
Diluted................. 40,639 39,953 40,080 38,988 33,573 31,860 30,679
Distributions declared on
common shares........... $ 59,487 $ 57,827 $ 69,512 $ 66,636 $ 56,607 $ 51,392 $ 48,196
Distributions declared
per common share........ $ 1.33 $ 1.30 $ 1.74 $ 1.70 $ 1.66 $ 1.61 $ 1.57
Other Data
Net cash provided by
operating
activities(1)........... $ 74,681 $ 61,641 $ 90,427 $ 72,170 $ 65,648 $ 65,117 $ 45,199
Net cash provided by
financing
activities(1)........... $ 20,666 $ 88,052 $ 97,406 $ 213,175 $ 96,691 $ 75,769 $ 39,626
Net cash used in
investing
activities(1)........... $ 97,487 $ 156,784 $ 187,646 $ 279,343 $ 161,819 $ 134,360 $ 90,465
Funds from
operations(2)........... $ 72,278 $ 63,617 $ 86,536 $ 79,733 $ 65,254 $ 57,034 $ 50,404
Ratio of earnings to
fixed charges(3)(4)..... 1.71x 1.63x 1.65x 1.70x 1.59x 1.55x 1.61x
Ratio of funds from
operations to fixed
charges(2)(4)........... 2.42x 2.46x 2.46x 2.50x 2.35x 2.35x 2.52x
Ratio of earnings to
combined fixed charges
and preferred
dividends(3)(4)......... 1.54x 1.43x 1.46x 1.64x -- -- --
Ratio of funds from
operations to combined
fixed charges and
preferred
dividends(2)(4)......... 2.17x 2.17x 2.18x 2.42x -- -- --
Balance Sheet Data
Real estate assets, at
cost.................... $1,729,174 $1,616,271 $1,642,136 $1,453,639 $1,147,865 $1,009,682 $852,722
Total assets............. 1,541,882 1,457,307 1,484,317 1,316,573 1,035,306 886,154 751,804
Total debt............... 924,902 818,828 846,928 670,890 585,584 512,586 372,877
Total liabilities........ 1,032,173 922,279 954,370 762,763 646,421 558,686 408,582
Redeemable preferred
shares.................. 100,000 100,000 100,000 100,000 -- -- --
Shareholders equity...... 509,709 535,028 529,947 553,810 388,885 327,468 343,222
Number of common shares
outstanding............. 40,312 40,003 40,080 39,148 35,886 32,160 31,609
(1) Determined in accordance with Financial Accounting Standards Board
Statement No. 95. See Consolidated Statements of Cash Flows incorporated
by reference in the accompanying prospectus.
(2) Defined by the National Association of Real Estate Investment Trusts
("NAREIT") as income available for common shareholders before depreciation
and amortization of real estate assets and before extraordinary items and
significant non-recurring events plus or minus losses or gains on sale of
real estate. Funds from operations differs from net cash provided by
operating activities primarily because funds from operations does not
include changes in operating assets and liabilities. Funds from operations
is a supplemental measure of performance that does not replace net income
as a measure of performance or net cash provided by operating activities
as a measure of liquidity.
(3) For purposes of computing this ratio, earnings consist of income before
gain (loss) on sale of real estate plus fixed charges.
(4) Fixed charges consist of interest on borrowed funds (including capitalized
interest), amortization of debt discount and expenses and the portion of
rent expense representing an interest factor.
S-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto incorporated by reference
into the accompanying prospectus. Certain statements made in this discussion
contain forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially
different from the results of operations or plans expressed or implied by such
forward-looking statements. Such factors include, among others, general
economic and business conditions which will affect credit-worthiness of
tenants, financing availability and cost, retailing trends and rental rates;
risks of real estate development and acquisitions; governmental and
environmental regulations; and competition with other real estate companies
and technology. Portions of this discussion include certain forward-looking
statements about our and management's intentions and expectations. Although
these intentions and expectations are based upon reasonable assumptions, many
factors, such as general economic conditions, local and national real estate
conditions, increases in interest rates and operating costs, may cause actual
results to differ materially from current expectations.
Strategic Transactions
In exploring strategic alternatives to maximize shareholder value, we
considered spinning off certain of our assets (primarily those related to the
development and operation of our Main Street Retail program) in a taxable
transaction to shareholders. Shortly thereafter, our remaining assets were to
be merged with another publicly traded shopping center company in exchange for
cash and stock consideration. On September 24, 1999, we announced that merger
negotiations were terminated and that the spin off was being reevaluated.
In preparing for these transactions, we incurred expenses of approximately
$2.5 million related to legal, accounting, tax and other advisory services
related to the spin off and the merger. Such costs have been expensed in their
entirety in the third quarter of 1999 and are reflected as administrative
expenses in the consolidated statement of operations.
While management continues to evaluate alternatives to maximize shareholder
value, there are currently no plans to consummate a spin off or merger
transaction.
Liquidity and Capital Resources
We meet our liquidity requirements through net cash provided by operating
activities, along with traditional debt and equity funding alternatives
available to us. A significant portion of cash provided by operating
activities is distributed to common and preferred shareholders in the form of
dividends. Accordingly, capital outlays for property acquisitions, major
renovation and development projects and balloon debt repayments require debt
or equity funding.
Net cash provided by operating activities was $74.7 million in the first
nine months of 1999 and $61.6 million in the first nine months of 1998, of
which $57.1 million and $55.3 million, respectively, was distributed to
shareholders. Contributions from newly acquired properties and from retenanted
and redeveloped properties, as more fully described below, were the primary
sources of these increases.
Net cash used in investing activities was $97.5 million during the first
nine months of 1999 and $156.8 million during the first nine months of 1998.
We purchased real estate totaling $26.3 million during the first nine months
of 1999 and $123.1 million in the first nine months of 1998, requiring cash
outlays of $23.7 million and $92.9 million, respectively. During these two
periods, we expended an additional $65.0 million and $46.3 million,
respectively, in capital improvements to our properties. We invested $7.2
million during the first nine months of 1999 and $17.5 million during the
first nine months of 1998 in mortgage notes receivable with an average
weighted interest rate of 10%.
During the first nine months of 1999, we acquired a 90% interest in three
buildings in Hollywood, California for a total cash investment by us of $23.7
million. The first two buildings contain 120,000 and 64,000 leasable square
feet, respectively. The third building is vacant pending redevelopment.
We invested approximately $26.0 million during the first nine months of
1999 in predevelopment and development projects in Bethesda, Maryland; Los
Gatos, California; San Antonio, Texas; and Arlington, Virginia. We continue to
identify additional development opportunities.
S-8
In October 1999, we sold Northeast Plaza Shopping Center in Atlanta,
Georgia for $19.6 million in cash, realizing a loss of $6.4 million.
Separately, mortgage notes receivable of $5.3 million were repaid in October
1999. The cash from these transactions was used to pay down our line of
credit.
Net cash provided by financing activities, before dividend payments, was
$77.8 million in the first nine months of 1999 and $143.4 million in the first
nine months of 1998. We utilized our $300 million unsecured line of credit to
fund acquisitions and capital expenditures in 1999. At September 30, 1999,
there was $213.0 million outstanding under this credit facility, which also
represents the maximum drawn during the first nine months of the year. At
November 1, 1999 borrowings under the line were $205.0 million. The weighted
average interest rate on borrowings for the nine months ended September 30,
1999 was 5.9%. The credit facility requires fees and has various covenants,
including the maintenance of a minimum shareholders' equity and a maximum
ratio of debt to net worth.
Capital requirements for the remainder of 1999 relate to our new
development efforts, improvements and redevelopments on existing properties,
and tenant work and allowances. Initial funding for such projects is expected
to be provided under the credit facility.
Contingencies
We are involved in various lawsuits and environmental matters arising in
the normal course of business. Management believes that such matters will not
have a material effect on our financial condition or results of operations.
Pursuant to the provisions of the Congressional Plaza partnership
agreement, in the event of the exercise of put options by another partner, we
would be required to purchase a 37.5% interest of Congressional Plaza at its
then fair market value. Based on management's current estimate of fair market
value, our estimated liability upon exercise of the put option is
approximately $27 million. On January 1, 1999, the Loehmann's Plaza limited
partnership agreement was amended to extend the partnership to December 31,
2000 and to delete the put and call options.
Under the terms of certain other partnership agreements, if certain leasing
and revenue levels are obtained for the properties owned by the partnerships,
the limited partners may require us to purchase their partnership interests at
a formula price based upon net operating income. The purchase price may be
paid in cash or our common shares at the election of the limited partners. In
certain of these partnerships, if the limited partners do not redeem their
interests, we may choose to purchase the limited partnership interest upon the
same terms.
Under the terms of other partnership agreements, the partners may exchange
their 814,589 operating units into cash or the same number of our common
shares, at our option.
We have reviewed the software and hardware systems used internally to
operate our business, in order to assess their ability to handle the "year
2000 issue" which generally refers to the inability of systems hardware and
software to correctly identify two-digit references to specific calendar
years, beginning with 2000. The year 2000 issue can affect us directly by
impairing our internal data-based operations or processing and indirectly by
impairing our suppliers' and tenants' data-based operations or processing. We
have identified and evaluated the year 2000 compliance of our internal
systems. We believe that the remediation of all accounting systems and other
systems of high priority is complete; however, testing is still ongoing. In
addition, we have requested information concerning and reviewed the equipment
at our properties, including the use of embedded chips in machinery. Based on
the review and since we primarily own shopping centers and street retail
buildings with limited use of technology, we believe we are year 2000
compliant.
We have requested information from our major banks, tenants and suppliers
to determine their year 2000 compliance in order to assess the possibility of
any major year 2000 risk to us related to these parties' year 2000
noncompliance. Based on their responses, we do not believe there is any
material risk to us in these areas.
In addition, we are developing, with the aid of an outside consultant, a
business continuity plan for our critical internal systems, which is to be
completed during the fourth quarter. Management does not anticipate needing to
employ the plan. Costs spent to date and projections of future costs are not
expected to exceed $75,000.
Results of Operations
Net income and funds from operations have been affected by our recent
acquisition, redevelopment and financing activities. We have historically
reported our funds from operations in addition to our net income and net cash
provided by operating activities. Funds from operations is a supplemental
measure of real estate companies' operating performance.
S-9
NAREIT defines funds from operations as follows: income available for common
shareholders before depreciation and amortization of real estate assets and
before extraordinary items and significant non-recurring events plus or minus
losses or gains on sale of real estate. Effective January 1, 2000, the NAREIT
definition of funds from operations will change to include significant non-
recurring events. Following the effective date of the change, we will comply
with the new NAREIT definition and restate our funds from operations for any
required prior periods. Funds from operations does not replace net income as a
measure of performance or net cash provided by operating activities as a
measure of liquidity. Rather, funds from operations has been adopted by real
estate investment trusts to provide a consistent measure of operating
performance in the industry.
The reconciliation of net income to funds from operations is as follows (in
thousands):
Nine months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- --------- ---------
Net income available for common
shareholders--basic.................... $ 28,592 $ 26,214 $ 12,198 $ 5,532
Estimated loss on sale of real estate... 7,050 -- -- --
Nonrecurring charge..................... -- 4,665 -- 4,665
Depreciation and amortization of real
estate assets.......................... 33,849 30,229 11,232 10,323
Amortization of initial direct costs of
leases................................. 2,235 1,827 775 646
Income attributable to operating
partnership units...................... 552 682 191 268
-------- -------- --------- ---------
Funds from operations................... $ 72,278 $ 63,617 $ 24,396 $ 21,434
======== ======== ========= =========
Nine Months Ended September 30, 1999 and 1998
Consolidated Results
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 12% from $162.0 million in the first nine months of 1998
to $181.1 million in the first nine months of 1999. If properties acquired in
1999 and 1998 are excluded, rental income increased 6%, due primarily to the
favorable impact of redeveloped and retenanted centers.
Other property income includes items such as utility reimbursements,
telephone income, merchant association dues, late fees, lease termination fees
and temporary tenant income. Other property income increased 7% from $7.6
million in the first nine months of 1998 to $8.2 million in the first nine
months of 1999. Increases in temporary tenant income, an area identified by us
as one with additional growth opportunity, and lease termination fees
surpassed decreases in telephone income and decreases in marketing dues, as we
discontinued marketing funds at certain shopping centers in 1999.
Rental expenses increased 11% from $35.3 million in the first nine months
of 1998 to $39.1 million in the first nine months of 1999. If rental expenses
are adjusted for properties acquired in 1999 and 1998, rental expenses
increased 5% from $35.1 million in 1998 to $36.9 million in 1999. There was a
decrease in marketing expenses consistent with the decrease in marketing dues,
but this decrease was outweighed by increases in snow removal costs and the
write off of tenant work and lease costs associated with several stores
operated by a bankrupt tenant.
Real estate taxes increased 6% from $17.3 million in the first nine months
of 1998 to $18.3 million in the first nine months of 1999. If real estate
taxes are adjusted for properties acquired in 1999 and 1998, real estate taxes
remained relatively constant. Increased taxes on recently redeveloped
properties were offset by a refund resulting from the reassessment of a 1997
acquisition.
Depreciation and amortization expenses increased 12% from $33.4 million in
the first nine months of 1998 to $37.3 million in the first nine months of
1999 reflecting the impact of property acquisitions and recent tenant work and
property improvements.
During the first nine months of 1999, we incurred interest expense of $50.3
million, of which $4.8 million was capitalized, as compared to 1998's $44.0
million, of which $4.2 million was capitalized. The increase in interest
expense reflects the additional debt issued to fund our acquisition and
capital improvement programs. This combination of higher leverage with low
interest rates has positively impacted our net income and funds from
operations. The ratio of earnings to combined fixed charges and preferred
dividends was 1.54x and 1.43x for the first nine months of 1999 and 1998,
S-10
respectively. The ratio of earnings to fixed charges was 1.71x and 1.63x
during the first nine months of 1999 and 1998, respectively. The ratio of
funds from operations to combined fixed charges and preferred dividends was
2.17x for both the first nine months of 1999 and 1998.
Administrative expenses decreased from $13.4 million in the first nine
months of 1998 to $10.9 million in the first nine months of 1999. During the
third quarter of 1998, we recorded a $4.7 million charge related to a
comprehensive restructuring program. During the third quarter of 1999, we
incurred expenses of approximately $2.5 million related to legal, accounting,
tax and other advisory services related to the spin off and the merger
transactions discussed under "Strategic Transactions" above. Such costs have
been expensed in their entirety in the third quarter of 1999. There are
currently no plans to consummate a spin off or merger transaction.
During the second quarter of 1999, we recorded a $7.1 million charge,
representing the estimated loss on a potential sale of certain assets,
principally Northeast Plaza in Atlanta, Georgia, thereby valuing the assets at
their estimated fair value less estimated costs to sell. On October 18, 1999,
we sold the 448,000 square foot Northeast Plaza shopping center for $19.6
million, realizing a loss of $6.4 million.
As a result of the foregoing items, net income before estimated loss on the
sale of real estate increased from $32.2 million in the first nine months of
1998 to $41.6 million in the first nine months of 1999, with net income
increasing from $32.2 million during the first nine months of 1998 to $34.6
million during the first nine months of 1999 and net income available for
common shareholders increasing from $26.2 million to $28.6 million.
We expect growth in net income before loss on sale of real estate and funds
from operations during the remainder of 1999 both from contributions of our
recent acquisitions and from contributions of our portfolio, primarily the
properties undergoing redevelopment and retenanting. However, growth of net
income from the portfolio is, in part, dependent on controlling expenses, some
of which are beyond our complete control, such as snow removal, changes in the
retailing environment and the potential impact of the internet. We currently
expect that demand for our retail space should remain at levels similar to
those in 1998. A weakening of the retail environment could, however, adversely
impact us by increasing vacancies and decreasing rents. In past weak retail
and real estate environments, we have been able to replace weak and bankrupt
tenants with stronger tenants; management believes that due to the quality of
our properties there will continue to be demand for our space. Growth in net
income is also dependent on interest rates and controlling administrative
costs. If interest rates increase, net income and funds from operations, as
well as the ultimate cost of our development projects will be negatively
impacted due to the variable interest rates on our revolving credit
facilities. We are aggressively managing our administrative expenses through
our reorganization efforts.
S-11
BUSINESS STRATEGY
Our Portfolio
An important part of our strategy is to own older, well-located properties
in prime, densely populated and affluent areas and to enhance their operating
performance through a program of renovation, expansion, reconfiguration and
retenanting. This strategy has enabled us to increase revenues for each of the
past ten years as shown in the following chart:
Revenues
(in millions)
[BAR GRAPH SHOWING PORTFOLIO REVENUES BY YEAR FROM 1990
THROUGH SEPTEMBER 30, 1999]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
$ 91 $ 98 $100 $115 $138 $154 $179 $204 $238 $260
Our portfolio has a track record of consistently increasing cash flow. We
continually review all of our assets to assess their long-term value and their
vulnerabilities in the future. We expect to selectively sell certain assets in
a tax-efficient manner. Proceeds from any dispositions will be used to retire
debt or to reinvest in operating or development assets which we believe offer
strong risk-adjusted returns.
The properties have demonstrated their quality through their occupancy
levels and rental growth over the past several years. Since 1991, the
portfolio occupancy has ranged from 94%-96%, as shown on the chart below:
Portfolio Occupancy Levels
[BAR GRAPH SHOWING PORTFOLIO OCCUPANCY LEVELS FROM 1991
THROUGH SEPTEMBER 30, 1999]
1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
94% 96% 95% 95% 95% 94% 96% 95% 95%
S-12
For the five years through September 30, 1999, minimum rent per square foot
has increased from $9.53 to $14.60, an 8.9% compounded annual growth rate. By
acquiring older assets, the portfolio is able to generate internal growth
through the re-leasing of below-market leases. Since 1992, on a comparable
space basis, we have produced an average 20% increase in new base rent from
the previous base rent as shown in the following chart:
Lease Rollovers
Square Feet Increase over
Year Leased Prior Rent
- ---- ----------- -------------
Nine Months Ended September 30, 1999.................. 761,000 23%
1998.................................................. 1,090,000 17%
1997.................................................. 1,121,000 17%
1996.................................................. 1,300,000 21%
1995.................................................. 1,300,000 18%
1994.................................................. 770,000 24%
1993.................................................. 880,000 19%
1992.................................................. 851,000 26%
Shopping Center Portfolio
We have always strived to own the highest quality assets in terms of long-
term value appreciation. By focusing our acquisition efforts on properties
with superior demographics, barriers to entry and in major metropolitan
markets, the properties are able to achieve impressive operating results. In
1998, our reporting tenants' sales averaged over $280 per square foot,
approximately 50% greater than the average sales at community and neighborhood
centers throughout the United States of $190 per square foot, according to the
National Research Bureau Shopping Center Database and Research Model. The
shopping center assets are primarily located in infill locations in major
metropolitan markets with superior demographics. The shopping center assets
have an average density of 278,750 people within a five-mile radius with an
average household income of approximately $72,000, as compared to the United
States average of approximately $50,000.
Main Street Retail Program
Over the past several years, consumers and retailers alike have returned in
force to America's premier main streets. Consumers are increasingly seeking
the convenience, entertainment and vitality main streets can provide. In 1994,
we established a program to seize opportunities created by the growing trend
of the revitalization of main street shopping districts and launched a program
to selectively acquire and redevelop prime properties in established main
street shopping districts. We intend to continue this strategy of targeting
properties where the potential to generate immediate cash flow growth or the
ability to add significant value through thoughtfully selected remerchandizing
or redevelopment programs is available.
We are a dominant landlord on some of the most successful and dynamic
streets in the United States. As of September 30, 1999, we owned 62 main
street retail properties in 12 states and the District of Columbia. In
nationally known retail districts from Greenwich, Connecticut, to Third Street
Promenade in Santa Monica, California, we intend to continue to transform
underutilized buildings into vibrant properties and put exciting retail and
entertainment concepts on great streets. By creating value for the cities and
communities these properties serve and the people who live in them, we believe
we will not only enhance the communities but will enhance the value and
stability of our portfolio. As population shifts continue and the growth in
metropolitan markets increases demand for reinvigorated main streets, we
believe that we are well positioned to lead in the creation and revitalization
of urban retail landscapes.
S-13
The following table summarizes the growth of the Main Street Retail
portfolio through September 30, 1999 (in thousands, except square feet):
Main Street Retail Portfolio
Nine Months
Ended
December 31, September 30,
1995 1996 1997 1998 1999
-------- --------- --------- --------- -------------
Real Estate Assets(1)...... $107,910 $ 164,931 $ 288,020 $ 365,874 $ 432,580
Revenues................... $ 9,310 $ 20,555 $ 31,998 $ 42,643 $ 37,000
Net Operating Income....... $ 3,994 $ 12,538 $ 20,345 $ 28,660 $ 25,341
Square Feet(2)............. 532,944 1,122,737 1,502,807 1,601,849 1,798,181
- -------
(1) At September 30, 1999, includes $98 million related to new development in
progress. The balance is comprised of both stabilized assets and assets
which are in various stages of redevelopment.
(2) Excludes square footage for the third and fourth phases of Bethesda Row,
Pentagon Row, Santana Row and San Antonio--Houston Street.
Main Street Retail Development
We intend to complete the development of our existing development projects
and to pursue future opportunities to acquire land or other non-operating real
estate in urban and suburban business districts for development of mixed-use
projects with retail as a primary focus. Our efforts are focused on the
creation of new main street, mixed-use districts in urban and close in,
densely populated and affluent suburban markets. In addition to the retail
component, these properties will contain a significant residential, hotel or
office component or a combination thereof. As of September 30, 1999, we had
approximately $98 million invested in our development projects.
Bethesda Row
Bethesda Row in Bethesda, Maryland consists of eight buildings totaling
more than 280,000 square feet encompassing five contiguous city blocks in the
heart of downtown Bethesda's business district. With a blend of specialty
retail totaling approximately 205,000 square feet and local office tenants
totaling approximately 75,000 square feet, Bethesda Row is undergoing the
fourth phase of a ten-year master redevelopment plan. Comprehensive
streetscape improvements, including brick sidewalks, curbside landscaping,
storefront enhancements and cafe-style seating, comprise an integral part of
the master redevelopment plan. Currently, the third phase (Elm Street) and the
fourth phase (Woodmont East) are under construction. Elm Street and Woodmont
East are expected to be completed in the first quarter of 2000 and the second
quarter of 2001, respectively.
Pentagon Row
Located on an 18-acre parcel of land adjacent to the Fashion Centre at
Pentagon City mall, Pentagon Row is a multi-level, mixed-use development that
will feature more than 300,000 square feet of street-level retail, over 500
mid-rise apartment homes above the retail pedestal, and will include an array
of specialty and convenience shops, innovative restaurants and entertainment
venues. The development is convenient to public transit and major interstate
arteries. The apartments will be developed by Post Properties, Inc., another
publicly traded real estate investment trust. Construction on Pentagon Row
began in July 1999 and we anticipate completion in the second quarter of 2001.
Santana Row
Santana Row, located in San Jose, California, is a forty-two acre mixed-use
development site in the heart of Silicon Valley. The development plan includes
over 575,000 square feet of retail space centered around Santana Drive, the
main street of the development. In addition, the project will include 1,200
residential units and a 200-room boutique hotel. Upon completion, Santana
Drive will feature a central park lined with street-side cafes and a diverse,
cosmopolitan mix of tenants.
San Antonio--Houston Street
We own 11 properties in the three blocks of Houston Street in downtown San
Antonio, Texas. Our development plan will remerchandise and redevelop the
properties to create 250,000 square feet of retail space, 80,581 square feet
of office or residential space, and two hotels containing approximately 400
rooms. A tiered promenade is planned to connect Houston Street to the River
Walk, the number one tourist attraction in the State of Texas.
S-14
MANAGEMENT
Our Executive Officers and Trustees
As of September 30, 1999, our executive officers and trustees were:
Name Age Position with Trust
- ---- --- --------------------------------------------------------------------------
Steven J. Guttman....... 53 President, Chief Executive Officer and Trustee
Howard S. Biel.......... 52 Senior Vice President and Chief Development Officer
Nancy J. Herman......... 35 Vice President--General Counsel and Secretary
Ron D. Kaplan........... 36 Senior Vice President--Capital Markets and Chief Investment Officer
Cecily A. Ward.......... 53 Vice President--Controller and Treasurer
Donald C. Wood.......... 39 Senior Vice President, Chief Operating Officer and Chief Financial Officer
Mark S. Ordan........... 40 Trustee
Kenneth D. Brody........ 56 Trustee
A. Cornet de Ways 66
Ruart.................. Trustee
Walter F. Loeb.......... 75 Trustee
Dennis L. Berman........ 48 Trustee
Kristin Gamble.......... 53 Trustee
Steven J. Guttman has been our President and Chief Executive Officer since
April 1980 and serves on our Board of Trustees. Mr. Guttman joined us in 1972.
In 1975, he became Director of Acquisitions and in 1975 was promoted to Chief
Operating Officer and became Managing Trustee in 1979. Mr. Guttman is
currently serving his third term on the Board of Governors of NAREIT, where he
previously served as Chairman and currently serves as a member of the
Executive Committee. He has held active membership in the International
Council of Shopping Centers since 1972 and served as Trustee from 1991-1997.
Mr. Guttman is also a member of the Real Estate Center Advisory Board of the
Wharton School of the University of Pennsylvania, is a member of the Executive
Committee, and is Chairman of the Membership/Program Committee. Additionally,
Mr. Guttman is a member of the Board of Advisors of the George Washington
University Law School.
Howard S. Biel joined us in January 1998. He is currently Senior Vice
President and Chief Development Officer. From 1991 through 1997, Mr. Biel was
Regional Partner for Faison, where he was responsible for development in the
Mid-Atlantic and Northeast regions. From 1986 through 1990, Mr. Biel was
Executive Vice President for Western Development Corporation (now The Mills
Corporation), where he oversaw the development and management of value
oriented super-regional shopping malls. From 1979 through 1985, he was Senior
Vice President for Development at the Edward J. DeBartolo Corporation.
Nancy J. Herman became our Vice President--General Counsel and Secretary in
December 1998. In this position, Ms. Herman has overall responsibility for our
legal affairs, human resources and administration. Ms. Herman joined us in
1990 as a staff attorney. Prior to joining us in 1990, Ms. Herman practiced
real estate law at Hogan & Hartson L.L.P.
Ron D. Kaplan joined us in November 1992. Mr. Kaplan is Senior Vice
President--Capital Markets and Chief Investment Officer, and is responsible
for our investment policies, strategic planning, capital raising and capital
market transactions in addition to the maintenance of our relationships with
institutional shareholders, lending institutions and the financial community.
From its formation in 1994 through 1998, Mr. Kaplan was charged with managing
Street Retail, Inc., a wholly owned subsidiary of ours specializing in the
acquisition and development of main street retail properties. Mr. Kaplan was
formerly a Vice President of Salomon Brothers Inc where he was responsible for
capital raising and financial advisory services for public and private real
estate companies.
Cecily A. Ward joined us in April 1987. Ms. Ward is currently Vice
President--Controller and Treasurer. She oversees our accounting practices,
maintains our financial records and prepares our financial reports. Prior to
joining us, Ms. Ward, a certified public accountant, was with Grant Thornton
LLP.
Donald C. Wood joined us in May 1998. He is currently Senior Vice
President, Chief Financial Officer and Chief Operating Officer. Mr. Wood was
promoted to Chief Operating Officer in November 1999, where he has direct
responsibility for the operating and financial performance of our operating
properties. Prior to joining us, Mr. Wood was Senior Vice President and Chief
Financial Officer for Caesars World, Inc., a wholly owned subsidiary of ITT
Corporation, where he was responsible for all aspects of finance throughout
the company including strategic planning, process re-engineering, capital
allocation and financial analysis. Prior to joining ITT in 1990, Mr. Wood was
employed at Arthur Andersen & Co. from 1982 where he served in numerous
positions including audit manager.
S-15
Mark S. Ordan has been a trustee since 1996. Mr. Ordan is currently
Partner, Bethesda Retail Partners, a retail venture capital and operating
firm; Former Chief Executive Officer, Chartwell Health Management Inc.; Former
Chairman, President and Chief Executive Officer, Fresh Fields Markets, Inc., a
healthy foods supermarket; Trustee, Vassar College; and Director, Center for
Science in the Public Interest. Mr. Ordan's term as a trustee will expire in
2002.
Kenneth D. Brody has been a trustee since 1997. Mr. Brody is Founding
Partner, Winslow Partners LLC, a private equity investment firm; Former
President and Chairman, Export-Import Bank of the United States; Director,
Quest Diagnostics, Inc.; and Director, American Red Cross. Mr. Brody's term as
a trustee will expire in 2000.
A. Cornet de Ways Ruart has been a trustee since 1983. Mr. Ruart is
Director of SIPEF S.A., an international holding company principally of
agricultural interests; and Director of Interbrew S.A., an international
brewery. Mr. Ruart's term as a trustee will expire in 2000.
Walter F. Loeb has been a trustee since 1991. Mr. Loeb is President, Loeb
Associates Inc., a management consulting firm. Publisher, Loeb Retail Letter;
Director, The Gymboree Corp.; Director, Mothers Work, Inc.; Director, Wet
Seal, Inc., a women's apparel retailer; Director, Hudson's Bay Company, a
Canadian chain of retail department stores and discount stores; Director, The
Warnaco Group, Inc.; and Retired Principal and Senior Retail Analyst, Morgan
Stanley & Co., Inc. Mr. Loeb's term as a trustee will expire in 2000.
Dennis L. Berman has been a trustee since 1989. Mr. Berman is General
Partner, Berman Enterprises, Vingarden Associates, GDR Partnerships,
builders/developers; and Director, Beco Management, office building
owners/managers. Mr. Berman's term as a trustee will expire in 2001.
Kristin Gamble has been a trustee since 1995. Ms. Gamble is President,
Flood, Gamble Associates, Inc., an investment counseling firm; and Director,
Ethan Allen Interiors, Inc., a furniture manufacturer and retailer. Ms.
Gamble's term as a trustee will expire in 2001.
PROPERTY INFORMATION
As of September 30, 1999, we owned 123 retail properties and one apartment
complex located in the Northeast, the Mid-Atlantic and the West Coast regions.
Set forth below is specified information relating to our properties.
A summary of our operations by geographic region is presented below (in
thousands):
Nine months ended
September 30, 1999
Mid- West
Northeast Atlantic Coast Other Total
--------- -------- -------- -------- ----------
Rental income............ $ 75,596 $ 82,710 $ 22,772 -- $ 181,078
Percentage of total
rental income......... 42% 46% 12% -- 100%
Other income............. 4,419 2,719 1,038 -- 8,176
Interest income.......... -- -- -- 5,779 5,779
Rental expense........... (15,217) (18,160) (5,677) -- (39,054)
Real estate tax.......... (9,538) (6,744) (2,062) -- (18,344)
--------- -------- -------- -------- ----------
Net operating income... 55,260 60,525 16,071 5,779 137,635
Interest expense......... -- -- -- (45,507) (45,507)
Administrative expense... -- -- -- (10,888) (10,888)
Depreciation and
amortization............ (16,784) (17,024) (2,879) (626) (37,313)
--------- -------- -------- -------- ----------
Income before investors'
share of operations..... $ 38,476 $ 43,501 $ 13,192 ($51,242) $ 43,927
--------- -------- -------- -------- ----------
Capital expenditures..... $ 24,407 $ 17,401 $ 53,160 -- $ 94,968
--------- -------- -------- -------- ----------
Real estate assets....... $707,982 $687,134 $334,058 -- $1,729,174
--------- -------- -------- -------- ----------
Percentage of real
estate assets......... 41% 40% 19% -- 100%
========= ======== ======== ======== ==========
S-16
The following table sets forth information concerning our properties as of
September 30, 1999:
Northeast Operating Region
Total Cost as of Occupancy as of
Year Square Acquisition September 30, September 30, Principal
Property Acquired Feet Cost 1999 1999 Tenants
- -------- -------- --------- ------------ ---------------- --------------- ------------------------
Shopping Centers
Allwood 1988 52,000 $ 3,920,000 $ 4,167,000 100% Grand Union; Mandee's
Clifton, NJ(1)
Andorra 1988 259,000 14,778,000 18,023,000 96% Acme Markets; AMC
Philadelphia, PA Andorra Theater; Kohl's
Bala Cynwyd 1993 279,000 18,031,000 20,956,000 100% Lord & Taylor; Acme
Bala Cynwyd, PA Markets
Blue Star 1988 394,000 29,922,000 34,877,000 89% Kohl's; Shop-Rite; Toys
Watchung, NJ(1) "R" Us
Brick Plaza 1989 402,000 24,715,000 49,610,000 100% A & P Supermarket;
Brick, NJ(1) Sports Authority; The
Bon Ton
Bristol 1995 296,000 19,815,000 20,677,000 88% Bradlees; Super Stop &
Bristol, CT Shop; T.J. Maxx
Brunswick 1988 261,000 12,456,000 15,064,000 (2) A & P Supermarket; Rite-
North Brunswick, NJ(1) Aide
Clifton 1988 80,000 3,646,000 4,590,000 91% Acme Markets; Drug Fair
Clifton, NJ
Crossroads 1993 173,000 16,246,000 21,339,000 93% Comp USA; Binny's
Highland Park, IL Beverage Golfsmith
Dedham Plaza 1993 250,000 25,287,000 26,867,000 92% Ames; Cherry & Webb
Dedham, MA
Ellisburg Circle 1992 258,000 15,337,000 25,086,000 88% Bed, Bath & Beyond; Ross
Cherry Hill, NJ Dress for Less; Shop
Rite
Feasterville 1980 116,000 3,031,000 11,466,000 100% Office Max; Genuardi's
Feasterville, PA Market
Finley 1995 313,000 18,796,000 24,939,000 93% Bed, Bath & Beyond
Downers Grove, IL Service Merchandise
Sports Authority
Flourtown 1980 191,000 5,288,000 8,352,000 100% Kmart; Genuardi's Market
Flourtown, PA
Fresh Meadows 1997 410,000 49,880,000 52,764,000 98% Cineplex Odeon; Filene's
Queens, NY Basement; Kmart
Garden Market 1994 134,000 7,506,000 8,206,000 88% Dominick's
Western Springs, IL
Gratiot Plaza 1973 215,000 2,126,000 16,275,000 99% Bed, Bath & Beyond
Roseville, MI Farmer Jack
Drug Emporium
Hamilton 1988 190,000 5,405,000 7,555,000 99% Shop-Rite; Steven's
Hamilton, NJ(1) Furniture; A.C. Moore
Hauppauge 1998 131,000 24,053,000 25,613,000 100% Shop-Rite; Office Max
Hauppauge, NY
Huntington 1988 279,000 16,008,000 21,332,000 100% Bed, Bath & Beyond;
Huntington, NY(1) Filene's Basement; Toys
"R" Us
Lancaster 1980 107,000 2,103,000 4,635,000 94% Giant Food; A.C. Moore
Lancaster, PA(1)
Langhorne Square 1985 200,000 3,694,000 16,738,000 96% Redner's Supermarket;
Levittown, PA Drug Emporium; Marshalls
Lawrence Park 1980 338,000 12,883,000 22,058,000 93% Acme Markets; Jefferson
Broomall, PA HealthCARE; Quest/CHI
Northeast 1983 297,000 11,748,000 20,745,000 88% Burlington Coat Factory;
Philadelphia, PA Marshalls Bally's Total
Fitness
North Lake Commons 1994 129,000 11,133,000 12,752,000 98% Dominick's
Lake Zurich, IL
Queen Anne Plaza 1994 149,000 11,776,000 14,191,000 100% T.J. Maxx; Victory
Norwell, MA Supermarket
Rutgers 1988 216,000 14,429,000 15,758,000 98% Edwards Super Food
Franklin, NJ(1) Store; Kmart
Saugus Plaza 1996 171,000 12,674,000 12,964,000 100% Kmart; Edwards Super
Saugus, MA Food Store
Troy 1980 202,000 8,319,000 20,241,000 100% Comp USA; Pathmark; A.C.
Parsippany-Troy, NJ Moore
Willow Grove 1984 213,000 8,142,000 24,913,000 100% Barnes & Noble;
Willow Grove, PA Marshalls; Toys "R" Us
Wynnewood 1996 257,000 21,814,000 33,303,000 98% Bed, Bath & Beyond;
Wynnewood, PA Borders Books & Music;
--------- ------------ ---------------- Genuardi's Market
6,962,000 $434,961,000 $616,056,000
S-17
Total Cost as of Occupancy as of
Year Square Acquisition September 30, September 30, Principal
Property Acquired Feet Cost 1999 1999 Tenants
- -------- --------- --------- ------------ ---------------- --------------- ------------------------
Main Street Retail
Properties
Central Avenue 1995 11,000 $ 2,203,000 $ 3,259,000 100% Legg Mason; Imaginarium
Westfield, NJ
Coolidge Corner 1995 13,000 3,757,000 3,983,000 100% Best Cellars Wine
Brookline, MA
Evanston (two buildings) 1995 19,000 3,616,000 4,157,000 79% The Gap
Evanston, IL Food Stuffs
Forest Hills (four 1997 92,000 15,453,000 21,318,000 97%(3) Duane Reade
buildings)
Forest Hills, NY
Greenwich Avenue (four 1995-1996 81,000 27,650,000 29,080,000 100% Saks Fifth Avenue;
buildings) Banana Republic
Greenwich, CT
Oak Street 1997 5,000 4,205,000 4,222,000 100% Versace
Chicago, IL
West Hartford (seven 1995 103,000 15,492,000 16,014,000 98% Charles Schwab;
buildings) Blockbuster Video
West Hartford, CT
Westport (two buildings) 1995 26,000 9,658,000 9,893,000 100% Pottery Barn; Eddie
Westport, CT Bauer
--------- ------------ ----------------
350,000 $ 82,034,000 $ 91,926,000
--------- ------------ ----------------
Total Northeast
operating properties 7,312,000 $516,995,000 $707,982,000
========= ============ ================
Mid-Atlantic Operating Region
Shopping Centers
Barracks Road 1985 483,000 $ 20,822,000 $ 37,182,000 99% Harris Teeter; Kroger;
Charlottesville, VA Bed Bath & Beyond; Old
Navy
Congressional Plaza 1965 341,000 10,217,000 45,380,000 97% Buy Buy Baby; Fresh
Rockville, MD Fields; Tower Records
Courthouse Center 1997 38,000 3,619,000 3,656,000 86% Rockville Interiors
Rockville, MD
Eastgate 1986 159,000 7,383,000 11,925,000 94% Food Lion; A Southern
Chapel Hill, NC Season
Falls Plaza 1967 69,000 1,265,000 8,185,000 100% Giant Food
Falls Church, VA
Falls Plaza--East Falls 1972 71,000 1,073,000 3,344,000 100% CVS Pharmacy; Staples
Church, VA
Federal Plaza 1989 242,000 28,111,000 60,478,000 99% Comp USA; T. J. Maxx;
Rockville, MD Ross Dress for Less
Gaithersburg Square 1993 208,000 12,972,000 23,126,000 94% Borders Books & Music;
Gaithersburg, MD Bed, Bath & Beyond; Ross
Dress for Less
Governor Plaza 1985 252,000 6,973,000 17,150,000 100% Office Depot; Syms; Comp
Glen Burnie, MD USA
Idylwood Plaza 1994 73,000 14,334,000 14,928,000 100% Fresh Fields
Falls Church, VA
Laurel 1986 384,000 29,983,000 44,187,000 88% Giant Food; Marshalls;
Laurel, MD Toys "R" Us
Leesburg Plaza 1998 247,000 18,906,000 19,681,000 99% Kmart; Giant Food;
Leesburg, VA Peebles
Loehmann's Plaza 1983 242,000 16,333,000 21,913,000 98% Loehmann's; Linens N
Fairfax, VA Things
Magruder's Center 1997 109,000 9,413,000 9,632,000 100% Magruder's; Tuesday
Rockville, MD Morning
Mid-Pike Plaza 1982 315,000 10,335,000 16,332,000 100% Bally's Total Fitness;
Rockville, MD(1) Filene's Basement; G
Street Fabrics
Northeast Plaza 1986 448,000 33,166,000 31,899,000 67% Mars Music Superstore;
Atlanta, GA(4) Publix
Old Keene Mill 1976 92,000 1,636,000 4,896,000 93% Fresh Fields; One Stop
Springfield, VA Pet & Aquarium
Pan Am 1993 218,000 21,623,000 24,276,000 93% Micro Center; Safeway;
Fairfax, VA Michael's
Perring Plaza 1985 412,000 9,261,000 23,914,000 100% Burlington Coat Factory;
Baltimore, MD Home Depot; Metro Foods
Pike 7 1997 163,000 32,508,000 32,907,000 97% Staples; T. J. Maxx
Tysons Corner, VA
Quince Orchard 1993 240,000 11,146,000 16,741,000 99% Circuit City; Magruder's
Gaithersburg, MD Supermarket; Staples
Rollingwood Apartments 1971 282 units 2,798,000 6,632,000 100%
Silver Spring, MD
S-18
Total Occupancy
Cost as of as of
Year Square Acquisition September September Principal
Property Acquired Feet Cost 30, 1999 30, 1999 Tenants
- -------- --------- --------- ------------ ------------ --------- ------------------------
Tower 1998 109,000 17,688,000 17,810,000 95% Virginia Fine Wines;
Springfield, VA Talbots
Tysons Station 1978 50,000 841,000 3,379,000 100% Trader Joe's
Falls Church, VA
Wildwood 1969 85,000 10,172,000 15,448,000 100% CVS Pharmacy; Sutton
Bethesda, MD Place Gourmet
Williamsburg 1986 251,000 9,918,000 13,326,000 96% Food Lion; Peebles;
Williamsburg, VA Rose's
Willow Lawn 1983 449,000 10,915,000 55,363,000 92% Regal Cinema; Dillard's;
Richmond, VA Hannaford Brothers
--------- ------------ ------------
5,750,000 $353,411,000 $583,690,000
Main Street Retail
Properties
Bethesda Row 1993 284,000 $ 21,965,000 $ 35,208,000 99% Barnes & Noble; Giant
Bethesda, MD (1) Food; Giant Pharmacy
Sam's Park N Shop 1995 50,000 11,159,000 11,694,000 100% Petco; Pizzeria Uno
Washington, D.C.
Winter Park (two 1996 28,000 6,837,000 6,854,000 90% Limited Express
buildings)
Winter Park, FL
The Village at 1995 362,000 24,569,000 27,683,000 92% Carlyle Grand Cafe;
Shirlington Cineplex Odeon
Shirlington, VA
--------- ------------ ------------
724,000 $ 64,530,000 $ 81,439,000
--------- ------------ ------------
Total Mid-Atlantic
operating properties 6,474,000 $417,941,000 $665,129,000
========= ============ ============
West Coast Operating Region
Shopping Centers
Escondido 1996 221,000 23,652,000 24,308,000 98% Toys "R" Us; T. J. Maxx
Escondido, CA
Kings Court 1998 78,000 10,714,000 10,620,000 100% Lunardi's
Los Gatos, CA(5) Long's Drug Store
Peninsula 1997 296,000 44,168,000 45,572,000 97% Von's Pavilion
Palos Verdes, CA T. J. Maxx
Uptown 1997 100,000 16,103,000 16,348,000 98% Elephant's Deli
Portland, OR Zupan's Market
--------- ------------ ------------
695,000 $ 94,637,000 $ 96,848,000
Main Street Retail
Properties
Colorado Boulevard (two 1996-1998 67,000 $9,394,000 $12,829,000 100%(3) Pottery Barn
buildings)
Pasadena, CA
Fifth Avenue (five 1996 64,000 5,196,000 9,080,000 100%(3) Urban Outfitters
buildings)
San Diego, CA
Hermosa Avenue/ 1997 6,000 1,323,000 1,788,000 (2)
Hermosa Beach, CA
Hollywood Boulevard 1999 196,000 26,355,000 26,432,000 (2)
(three buildings)
Hollywood, CA
Mill Avenue (two 1998 40,000 10,438,000 10,626,000 100% Beeloe's
buildings)
Tempe, Arizona
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Total Occupancy
Cost as of as of
Year Square Acquisition September 30, September 30, Principal
Property Acquired Feet Cost 1999 1999 Tenants
- -------- --------- --------- ------------ -------------- ------------- ---------------------
Old Town Center 1997 101,000 6,185,000 26,730,000 (2)
Los Gatos, CA
Post Street 1997 96,000 20,866,000 23,546,000 77% Williams Sonoma
San Francisco, CA
Third Street Promenade 1996-1998 153,000 32,764,000 48,781,000 100%(3) Banana Republic
(eight buildings) Abercrombie & Fitch
Santa Monica, CA
--------- ------------ --------------
723,000 $112,521,000 $ 159,812,000
--------- ------------ --------------
Total West Coast
operating properties 1,418,000 $207,158,000 $ 256,660,000
========= ============ ==============
Development
Total
Cost as of
Year September 30,
Property Acquired 1999(6)
- -------- --------- --------------
Bethesda Row Bethesda,
MD 1993 $ 15,449,000
Houston Street (eleven
properties)
San Antonio, TX 1998 20,332,000
Pentagon Row Arlington,
VA 1999 6,556,000
Santana Row San Jose, CA 1997 57,066,000
--------------
Total development 99,403,000
--------------
Total real estate $1,729,174,000
==============
- -------
(1) We have a leasehold interest in this center.
(2) This property is under redevelopment.
(3) Certain of these buildings are under redevelopment. These buildings are not
included in occupancy.
(4) This property was sold in October 1999. At September 30, 1999, its cost had
been decreased to its estimated fair value.
(5) We purchased an additional interest in this property at a discount to the
original cost of the interest.
(6) Includes acquisition cost and construction in process.
S-20
DESCRIPTION OF NOTES
The following description of the particular terms of the notes offered
hereby supplements the description of the general terms and provisions of Debt
Securities set forth in the accompanying prospectus under the caption
"Description of Debt Securities."
General
We are offering $175 million of our 8 3/4% notes maturing on December 1,
2009. The notes are to be issued as a separate series of Debt Securities under
the Senior Indenture, which is more fully described in the accompanying
prospectus. Certain terms used herein are defined in the accompanying
prospectus.
We will pay interest on the notes semi-annually in arrears on June 1 and
December 1 of each year, commencing June 1, 2000, to the registered holders of
the notes on the preceding May 15 or November 15.
The defeasance and covenant defeasance provisions of the Senior Indenture
apply to the notes.
Optional Redemption
We may redeem the notes at any time in whole or from time to time in part
at a redemption price equal to the greater of (1) 100% of the principal amount
of the notes being redeemed, and (2) as determined by the Quotation Agent (as
defined below), the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including any portion of such
payments of interest accrued as of the redemption date) discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined below) plus 25
basis points plus, in each case, accrued interest thereon to the redemption
date.
As used herein:
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per year equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the
remaining term of the notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to
the remaining term of such notes.
"Comparable Treasury Price" means, with respect to any redemption date,
(1) the average of the Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (2) if the Trustee obtains fewer than three
such Reference Treasury Dealer Quotations, the average of all such
Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by us.
"Reference Treasury Dealer" means (1) each of Goldman, Sachs & Co., J.P.
Morgan Securities Inc., First Union Securities, Inc., PNC Capital Markets,
Inc. and Warburg Dillon Read LLC and their respective successors; provided,
however, that if any of the foregoing cease to be a primary U.S. Government
securities dealer (a "Primary Treasury Dealer"), we will substitute
therefor another Primary Treasury Dealer; and (2) any other Primary
Treasury Dealer selected by us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as
determined by us, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00
p.m., New York City time, on the third Business Day preceding such
redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the notes or portions
thereof called for redemption.
Covenants
Limitations on Incurrence of Debt. The notes will provide that we will not,
and will not permit any subsidiary to, incur any Debt (as defined below) if,
immediately after giving effect to the incurrence of such Debt and the
application of
S-21
the proceeds thereof, the aggregate principal amount of all of our outstanding
Debt and our subsidiaries on a consolidated basis determined in accordance
with generally accepted accounting principles is greater than 65% of the sum
of (without duplication) (1) our Total Assets as of the end of the calendar
quarter covered in our annual report on Form 10-K or quarterly report on Form
10-Q, as the case may be, most recently filed with the Commission (or, if such
filing is not permitted under the Securities Exchange Act of 1934, with the
Trustee) prior to the incurrence of such additional Debt and (2) the purchase
price of any real estate assets or mortgages receivable acquired, and the
amount of any securities offering proceeds received (to the extent such
proceeds were not used to acquire real estate assets or mortgages receivable
or used to reduce Debt), by us or any subsidiary since the end of such
calendar quarter, including those proceeds obtained in connection with the
incurrence of such additional Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
notes will provide that we will not, and will not permit any subsidiary to,
incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of our or any of our subsidiary's
property if, immediately after giving effect to the incurrence of such Debt
and the application of the proceeds thereof, the aggregate principal amount of
all of our and our subsidiaries' outstanding Debt on a consolidated basis
which is secured by any mortgage, lien, charge, pledge, encumbrance or
security interest on our or our subsidiaries' property is greater than 40% of
our Total Assets; provided that for purposes of this limitation, the amount of
obligations under capital leases shown as a liability on our consolidated
balance sheet shall be deducted from Debt and from Total Assets.
In addition to the foregoing limitations on the incurrence of Debt, the
notes will provide that we will not and will not permit any subsidiary to,
incur any Senior Debt if the ratio of Consolidated Income Available for Senior
Debt Service (as defined below) to the Annual Senior Debt Service Charge (as
defined below) for the four consecutive fiscal quarters most recently ended
prior to the date on which such Senior Debt is to be incurred shall have been
less than 1.5 to 1, on an unaudited pro forma basis after giving effect
thereto and to the application of the proceeds therefrom, and calculated on
the assumption that (1) such Senior Debt and any other Senior Debt incurred by
us and our subsidiaries since the first day of such four-quarter period and
the application of the proceeds therefrom, including to refinance other Senior
Debt, had occurred at the beginning of such period; (2) the repayment or
retirement of any other Senior Debt by us and our subsidiaries since the first
day of such four-quarter period had been incurred, repaid or retired at the
beginning of such period (except that, in making such computation, the amount
of Senior Debt under any revolving credit facility shall be computed based
upon the average daily balance of such Senior Debt during such period); (3) in
the case of Acquired Debt (as defined below) or Senior Debt incurred in
connection with any acquisition since the first day of such four-quarter
period, the related acquisition had occurred as of the first day of such
period with the appropriate adjustments with respect to such acquisition being
included in such unaudited pro forma calculation; and (4) in the case of any
acquisition or disposition by us or our subsidiaries of any asset or group of
assets since the first day of such four-quarter period, whether by merger,
stock purchase or sale, or asset purchase or sale, such acquisition or
disposition or any related repayment of Senior Debt had occurred as of the
first day of such period with the appropriate adjustments with respect to such
acquisition or disposition being included in such unaudited pro forma
calculation.
Furthermore, the notes also will provide that we will not, and will not
permit any subsidiary to, incur any Debt if the ratio of Consolidated Income
Available for Debt Service (as defined below) to the Annual Debt Service
Charge (as defined below) for the four consecutive fiscal quarters most
recently ended prior to the date on which such additional Debt is to be
incurred shall have been less than 1.3 to 1, on an unaudited pro forma basis
after giving effect thereto and to the application of the proceeds therefrom,
and calculated on the assumption that (1) such Debt and any other Debt
incurred by us and our subsidiaries since the first day of such four- quarter
period and the application of the proceeds therefrom, including to refinance
other Debt, had occurred at the beginning of such period; (2) the repayment or
retirement of any other Debt by us and our subsidiaries since the first day of
such four-quarter period had been incurred, repaid or retired at the beginning
of such period (except that, in making such computation, the amount of Debt
under any revolving credit facility shall be computed based upon the average
daily balance of such Debt during such period); (3) in the case of Acquired
Debt or Debt incurred in connection with any acquisition since the first day
of such four-quarter period, the related acquisition had occurred as of the
first day of such period with the appropriate adjustments with respect to such
acquisition being included in such unaudited pro forma calculation; and (4) in
the case of any acquisition or disposition by us or our subsidiaries of any
asset or group of assets since the first day of such four-quarter period,
whether by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments with respect to
such acquisition or disposition being included in such unaudited pro forma
calculation.
S-22
As used herein,
"Acquired Debt" means Debt (or Senior Debt, as the case may be) of a
Person (1) existing at the time such Person becomes a subsidiary or (2)
assumed in connection with the acquisition of assets from such Person, in
each case, other than Debt (or Senior Debt, as the case may be) incurred in
connection with, or in contemplation of, such Person becoming a subsidiary
or such acquisition. Acquired Debt shall be deemed to be incurred on the
date of the related acquisition of assets from any Person or the date the
acquired Person becomes a subsidiary.
"Annual Debt Service Charge" as of any date means the maximum amount
which is payable in any period for interest on, and original issue discount
of, our and our subsidiaries' Debt and the amount of dividends which are
payable in respect of any Disqualified Stock (as defined below).
"Annual Senior Debt Service Charge" as of any date means the maximum
amount which is payable in any period for interest on, and original issue
discount of, our and our subsidiaries' Senior Debt.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights
(other than debt securities convertible into or exchangeable for corporate
stock), warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" and "Consolidated
Income Available for Senior Debt Service" for any period means our and our
subsidiaries' Funds from Operations (as defined below) plus amounts which
have been deducted for interest on our and our subsidiaries' Debt.
"Debt" means any of our or any of our subsidiaries' indebtedness,
whether or not contingent, in respect of (without duplication) (1) borrowed
money or evidenced by bonds, notes, debentures or similar instruments, (2)
indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by us or any subsidiary,
(3) the reimbursement obligations, contingent or otherwise, in connection
with any letters of credit actually issued or amounts representing the
balance deferred and unpaid of the purchase price of any property or
services, except any such balance that constitutes an accrued expense or
trade payable, or all conditional sale obligations or obligations under any
title retention agreement, (4) the principal amount of all of our or any of
our subsidiaries' obligations with respect to redemption, repayment or
other repurchase of any Disqualified Stock or (5) any lease of property by
us or any subsidiary as lessee which is reflected on our consolidated
balance sheet as a capitalized lease in accordance with generally accepted
accounting principles to the extent, in the case of items of indebtedness
under (1) through (3) above, that any such items (other than letters of
credit) would appear as a liability on our consolidated balance sheet in
accordance with generally accepted accounting principles, and also
includes, to the extent not otherwise included, any obligation of us or any
subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of business
or for the purposes of guaranteeing the payment of all amounts due and
owing pursuant to leases to which we are a party and has assigned our
interest, provided that such assignee of ours is not in default of any
amounts due and owing under such leases), Debt of another Person (other
than us or any subsidiary) (it being understood that Debt shall be deemed
to be incurred by us or any subsidiary whenever we or such subsidiary shall
create, assume, guarantee or otherwise become liable in respect thereof).
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which by the terms of such Capital Stock (or by the
terms of any security into which it is convertible or for which it is
exchangeable or exercisable), upon the happening of any event or otherwise
(1) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, (2) is convertible into or exchangeable or
exercisable for Debt or Disqualified Stock or (3) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior
to the Stated Maturity of the notes.
"Funds from Operations" for any period means income before depreciation
and amortization and extraordinary items less gain on sale of real estate.
"Senior Debt" means Debt other than subordinated Debt and payments under
our Disqualified Stock.
"Total Assets" as of any date means the sum of (1) our Undepreciated
Real Estate Assets and (2) all of our other assets determined in accordance
with generally accepted accounting principles (but excluding goodwill).
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of our and our subsidiaries' real
estate assets on such date, before depreciation and amortization determined
on a consolidated basis in accordance with generally accepted accounting
principles.
See "Description of Debt Securities--Certain Covenants" in the accompanying
prospectus for a description of additional covenants applicable to us.
S-23
Book-Entry Form
We have established a depositary arrangement with The Depository Trust
Company with respect to the notes, the terms of which are summarized below.
Upon issuance, the notes will be represented by a single Global Security and
will be deposited with, or on behalf of, the Depositary and will be registered
in the name of the Depositary or a nominee of the Depositary. No Global
Security may be transferred except as a whole by a nominee of the Depositary
to the Depositary or to another nominee of the Depositary, or by the
Depositary or such nominee to a successor of the Depositary or a nominee of
such successor.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be
the sole Holder of the notes for all purposes under the Senior Indenture.
Except as otherwise provided in this section, the Beneficial Owners of the
Global Security or Securities representing the notes will not be entitled to
receive physical delivery of Certificated notes and will not be considered the
Holders thereof for any purpose under the Senior Indenture, and no Global
Security representing the notes shall be exchangeable or transferable.
Accordingly, each Beneficial Owner must rely on the procedures of the
Depositary and, if such Beneficial Owner is not a Participant (as defined
below), on the procedures of the Participant through which such Beneficial
Owner owns its interest in order to exercise any rights of a Holder under such
Global Security or the Senior Indenture. The laws of some jurisdictions
require that certain purchasers of securities take physical delivery of such
securities in certificated form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Security representing the
notes.
The Global Security representing the notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations aggregating a like principal amount, only if (1) the Depositary
notifies us that it is unwilling or unable to continue as Depositary for the
Global Securities or the Depositary ceases to be a clearing agency registered
under the Exchange Act (if so required by applicable law or regulation) and,
in each case, a successor Depositary is not appointed by us within 90 days
after we receive such notice or becomes aware of such unwillingness, inability
or ineligibility, (2) we, in our discretion, determine that the Global
Security shall be exchangeable for Certificated Notes or (3) there shall have
occurred and be continuing an Event of Default under the Senior Indenture with
respect to the notes and Beneficial Owners representing a majority in
aggregate principal amount of the notes represented by the Global Security
advise the Depositary to cease acting as depositary. Upon any such exchange,
the Certificated Notes shall be registered in the names of the Beneficial
Owners of the Global Security or Securities representing the notes, which
names shall be provided by the Depositary's relevant Participants (as
identified by the Depositary) to the Securities Registrar.
The information below concerning the Depositary and the Depositary's system
has been furnished by the Depositary, and we take no responsibility for the
accuracy thereof. The Depositary will act as securities depository for the
notes. The notes will be issued as fully registered securities registered in
the name of Cede & Co. (the Depositary's partnership nominee). One fully
registered Global Security will be issued for the notes, in the aggregate
principal amount of such issue, and will be deposited with the Depositary.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of the Depositary ("Direct
Participants") include securities brokers and dealers (including the Agents),
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary's system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Participants are on file with
the Commission.
Purchases of notes under the Depositary's system must be made by or through
Direct Participants, which will receive a credit for such notes on the
Depositary's records. The ownership interest of each actual purchaser of each
note represented by a Global Security ("Beneficial Owner") is in turn to be
recorded on the Direct Participants' and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchase, but
S-24
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct Participants or Indirect Participants through which such
Beneficial Owner entered into the transaction. Transfers of ownership
interests in a Global Security representing the notes are to be accomplished
by entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners of a Global Security representing the notes will not
receive Certificated Notes representing their ownership interests therein,
except in the event that use of the book-entry system for such notes is
discontinued.
To facilitate subsequent transfers, the Global Security representing the
notes which are deposited with, or on behalf of, the Depositary are registered
in the name of the Depositary's partnership nominee, Cede & Co. The deposit of
the Global Security with, or on behalf of, the Depositary and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners of
the Global Security representing the notes; the Depositary's records reflect
only the identity of the Direct Participants to whose accounts such notes are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Global Security representing the notes. Under its usual procedures, the
Depositary mails an Omnibus Proxy to us as soon as possible after the
applicable record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the notes are
credited on the applicable record date (identified in a listing attached to
the Omnibus Proxy).
Principal, premium, if any, and/or interest payments on the Global Security
representing the notes will be made to the Depositary. The Depositary's
practice is to credit Direct Participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the Depositary's
records unless the Depositary has reason to believe that it will not receive
payment on such date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
the Depositary, the Trustee or us, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
premium, if any, and/or interest to the Depositary is the responsibility of us
or the Paying Agent, disbursement of such payments to Direct Participants
shall be the responsibility of the Depositary, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct
Participants and Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the notes within an issue are being redeemed, the Depositary's practice
is to determine by lot the amount of the interest of each Direct Participant
in such issue to be redeemed.
The Depositary may discontinue providing its services as securities
depository with respect to the notes at any time by giving reasonable notice
to us or the Trustee. Under such circumstances, in the event that a successor
securities depository is not obtained, Certificated Notes are required to be
printed and delivered. We may decide to discontinue use of the system of book-
entry transfers through the Depositary (or a successor securities depository).
In that event, Certificated Notes will be printed and delivered.
FEDERAL INCOME TAX CONSIDERATIONS
Proposed changes to REIT qualification requirements. Two legislative
proposals, one made by the Clinton Administration and the other passed by
Congress, seek to change some of the requirements that a REIT must meet in
order to qualify as a REIT. The Clinton Administration's fiscal year 2000
budget proposal, announced February 1, 1999, includes a proposal that would
change the 10% voting securities test to a 10% vote or value test. Under the
proposal, a REIT would not be able to own more than 10% of the vote or value
of the outstanding securities of any issuer, except for a qualified REIT
subsidiary or another REIT. The proposal also contains an exception to the 5%
and 10% asset tests that would allow a REIT to have "taxable REIT
subsidiaries," including both "qualified independent contractor subsidiaries,"
which could perform noncustomary and other currently prohibited services for
tenants and other customers, and "qualified business subsidiaries," which
could undertake third-party management and development activities as well
S-25
as other non-real estate related activities. Under the Administration's
proposal, no more than 15% of a REIT's total assets could consist of taxable
REIT subsidiaries and no more than 5% of a REIT's total assets could consist
of qualified independent contractor subsidiaries. Under the Administration's
proposal, a taxable REIT subsidiary would not be entitled to deduct any
interest on debt funded directly or indirectly by the REIT. This proposal
would be effective after the date of enactment and a REIT would be allowed to
combine and convert existing corporate subsidiaries into taxable REIT
subsidiaries tax-free prior to a certain date. A transition period would allow
for conversion of existing corporate subsidiaries before the 10% vote or value
test would become effective. For the REIT's taxable years after the effective
date of the proposal and after any applicable transition period, the 10% vote
or value test would apply to the REIT's ownership in any of the non-controlled
subsidiaries that are not converted into taxable REIT subsidiaries.
The Work Incentives Improvement Act of 1999 was recently passed by Congress
and is currently before the President for signature. The Work Incentives
Improvement Act contains several provisions regarding REITs, which are similar
to the Administration's REIT proposals in several respects. Like the
Administration's proposal, the bill will create "taxable REIT subsidiaries"
that will not be subject to the 5% asset test, but that will be subject to a
20% asset test and to a 100% excise tax on certain excess amounts to ensure an
arm's-length relationship between a REIT and its "taxable REIT subsidiary."
The "taxable REIT subsidiaries" will also be subject to "earnings stripping"
limitations on the deductibility of interest. Under the bill, a REIT will be
able to rent up to 10% of a property to a taxable REIT subsidiary and
generally have the rent qualify as good income. The bill will also change the
10% voting securities test to a 10% vote or value test unless the corporation
elects to be a taxable REIT subsidiary or the "grandfather rule" or certain
other exceptions applies. In general, the "grandfather rule" will apply to
securities of a corporation in which the REIT owned an interest as of July 12,
1999 (such as the subsidiaries in which we currently own only non-voting
stock). Securities of a corporation will lose their "grandfathered" status if
the corporation acquired any substantial asset or engaged in a substantial new
line of business after July 12, 1999 (other than pursuant to a binding
contract in effect on that date). We have made no decision at this time with
regard to any actions we might take if and when the Work Incentives
Improvement Act becomes law and there can be no assurance as to how the
enactment of these changes would affect our business in the future.
S-26
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among Goldman, Sachs & Co., J.P. Morgan Securities Inc., First Union
Securities, Inc., PNC Capital Markets, Inc. and Warburg Dillon Read LLC, as
underwriters, and us, we have agreed to sell to the underwriters, and the
underwriters have severally agreed to purchase, the principal amounts of the
notes set forth opposite their respective names below.
Principal
amount of
Underwriter notes
- ----------- ------------
Goldman, Sachs & Co. ............................................. $ 65,625,000
J.P. Morgan Securities Inc. ...................................... 65,625,000
First Union Securities, Inc. ..................................... 26,250,000
PNC Capital Markets, Inc. ........................................ 8,750,000
Warburg Dillon Read LLC........................................... 8,750,000
------------
Total........................................................... $175,000,000
============
Under the terms and conditions of the underwriting agreement, if the
underwriters take any of the notes, then the underwriters are obligated to
take and pay for all of the notes.
The notes are a new issue of securities with no established trading market
and will not be listed on any national securities exchange. The underwriters
have advised us that they intend to make a market in the notes, but they have
no obligation to do so and may discontinue market making at any time without
providing any notice. No assurance can be given as to the liquidity of any
trading market for the notes. Expenses associated with this offering, to be
paid by us, are estimated to be $1.7 million.
The underwriters initially propose to offer part of the notes directly to
the public at the offering price described on the cover page and part to
certain dealers at a price that represents a concession not in excess of 0.40%
of the principal amount of the notes. Any underwriter may allow, and any such
dealers may reallow, a concession not in excess of 0.25% of the principal
amount of the notes to certain other dealers. After the initial offering of
the notes, the underwriters may from time to time vary the offering price and
other selling terms.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments which the underwriters may be required
to make in respect of any such liabilities.
In connection with the offering of the notes, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of the
notes. Specifically, the underwriters may overallot in connection with the
offering of the notes, creating a syndicate short position. In addition, the
underwriters may bid for, and purchase, notes in the open market to cover
syndicate short positions or to stabilize the price of the notes. Finally, the
underwriting syndicate may reclaim selling concessions allowed for
distributing the notes in the offering of the notes, if the syndicate
repurchases previously distributed notes in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the notes above independent market levels. The
underwriters are not required to engage in any of these activities, and may
end any of them at any time.
From time to time, the underwriters and certain of their affiliates have
engaged, and may in the future engage, in transactions with, and perform
investment banking and/or commercial banking services for, us and our
affiliates in the ordinary course of business. Affiliates of First Union
Securities, Inc., PNC Capital Markets, Inc. and Warburg Dillon Reed LLC are
lenders on our credit facility. These affiliates will receive their
proportionate share of the amount of the credit facility to be repaid. Because
the amount to be repaid to affiliates of the underwriters will exceed 10% of
the net proceeds from the sale of the notes, this offering is being made
pursuant to the provisions of Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc.
LEGAL MATTERS
The legality of the notes and certain tax matters will be passed upon for
Federal Realty Investment Trust by Hogan & Hartson L.L.P., Washington, D.C.
Brown & Wood LLP, New York, New York, will act as counsel to the underwriters.
S-27
[LOGO OF FEDERAL REALTY INVESTMENT TRUST APPEARS HERE]
$500,000,000
Debt Securities, Preferred Shares and Common Shares
Federal Realty Investment Trust (the "Trust") may from time to time offer in
one or more series (i) its unsecured debt securities (the "Debt Securities"),
(ii) its preferred shares (the "Preferred Shares"), and (iii) its common
shares of beneficial interest, no par or stated value (the "Common Shares"),
with an aggregate public offering price of up to $500,000,000 (or its
equivalent based on the exchange rate at the time of sale) in amounts, at
prices and on terms to be determined at the time of offering. The Debt
Securities, Preferred Shares, and Common Shares (collectively, the
"Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement").
The Debt Securities will be direct unsecured obligations of the Trust and
may be either senior Debt Securities (the "Senior Securities") or subordinated
Debt Securities (the "Subordinated Securities"). The Senior Securities will
rank equally with all other unsecured and unsubordinated indebtedness of the
Trust. The Subordinated Securities will be subordinated to all existing and
future Senior Debt of the Trust, as defined. See "Description of Debt
Securities."
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the
specific title, aggregate principal amount, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Trust or repayment at the
option of the Holder, terms for sinking fund payments, terms for conversion
into Preferred Shares or Common Shares, covenants and the initial public
offering price; (ii) in the case of Preferred Shares, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and the initial public offering price; and (iii) in the case of
Common Shares, the initial public offering price. In addition, such specific
terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Securities, in each case as may be appropriate
to preserve the status of the Trust as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Trust, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their
names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable
from the information set forth, in the applicable Prospectus Supplement. See
"Plan of Distribution." No Securities may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the
offering of such Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Prospectus is September 30, 1998.
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the Public Reference Section
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and Northeast Regional Office, 7 World Trade Center,
New York, New York 10048. The Commission also maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including the Trust, that file
electronically with the Commission. Such reports, proxy statements and other
information concerning the Trust can also be inspected at the office of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Trust will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon their written or oral request, a copy of any or
all of the documents incorporated herein by reference (other than exhibits to
such documents). Written requests for such copies should be addressed to Kathy
Klein, Vice President, Corporate Communications, Federal Realty Investment
Trust, 1626 East Jefferson Street, Rockville, Maryland 20852-4041 (telephone
301/998-8100).
The Trust has filed with the Commission a registration statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), of which this Prospectus forms a part, with respect to
the Securities offered hereby. For further information with respect to the
Trust and the Securities offered hereby, reference is made to the Registration
Statement and exhibits thereto. Statements contained in this Prospectus as to
the contents of any contract or other documents are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or
documents filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Trust with the Commission are
incorporated in this Prospectus by reference and are made a part hereof:
1. The Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. The Trust's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
3. The Trust's Current Reports on Form 8-K filed with the Commission on
February 24, 1998, March 10, 1998, March 11, 1998, May 11, 1998 and August
7, 1998.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be a part
hereof from the date of filing of such document.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement herein, in any
accompanying Prospectus Supplement relating to a specific offering of
Securities or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information
appearing in the documents incorporated by reference.
2
THE TRUST
Federal Realty Investment Trust (the "Trust") is an owner, operator and
redeveloper of retail properties. Founded in 1962 as a District of Columbia
business trust of unlimited duration, the Trust is a self-administered equity
real estate investment trust ("REIT"). The Trust consolidates the financial
statements of various entities which it controls. At June 30, 1998 the Trust
owned 114 retail properties and one apartment complex.
An important part of the Trust's strategy is to acquire older, well-located
properties in prime, densely populated and affluent areas and to enhance their
operating performance through a program of renovation, expansion,
reconfiguration and retenanting. The Trust's traditional focus has been on
community and neighborhood shopping centers that are anchored by supermarkets,
drug stores or high volume, value oriented retailers that provide consumer
necessities. Late in 1994 the Trust expanded this strategy to include retail
buildings and shopping centers in prime established main street shopping
areas. In addition, the Trust amended its by-laws in 1996 to permit
investments west of the Mississippi River. The Trust continually evaluates its
properties for renovation, retenanting and expansion opportunities. Similarly,
the Trust regularly reviews its portfolio and from time to time considers
selling certain of its properties. For several years the Trust has been
seeking sites in its core markets suitable for the construction of new retail
properties. Several sites have been identified and beginning in 1998 the Trust
is focusing considerable time and resources on ground up development.
The Trust's portfolio of properties has grown from 42 as of January 1, 1993
to 115 at June 30, 1998. During this period the Trust acquired 78 retail
properties for approximately $675 million. During this same period five
shopping centers were sold. Also during this period the Trust spent over
$250 million to renovate, expand, improve and retenant its properties. The
majority of the acquisitions were funded with cash. Of the properties not
fully acquired by cash, one was acquired by means of capital and ground
leases, one was acquired for Common Shares and the assumption of a mortgage,
one was acquired for cash and the assumption of a municipal bond issue and the
others were acquired for cash with minority investments by third parties. This
growth was financed through borrowing and equity offerings, since each year
the Trust has distributed all or the majority of its cash provided by
operating activities to its shareholders.
The Trust's 114 retail properties, consisting of 55 shopping centers and 59
main street retail properties, are located in 16 states and the District of
Columbia. Twenty-one of the properties are located in the Washington, D.C.
metropolitan area; twenty are in California; fourteen are in Connecticut;
eleven are in Pennsylvania, primarily in the Philadelphia area; ten are in New
Jersey; ten are in Texas; seven are in Illinois; three are in Virginia; four
are in Massachusetts; six are in New York; two are in Florida; two are in
Arizona; and there is one in each of the following states: Georgia, Michigan,
North Carolina and Oregon.
The Trust continues to seek older, well-located shopping centers and retail
buildings to acquire and then to enhance their revenue potential through a
program of renovation, retenanting and remerchandising. The Trust has also
located sites where it intends to develop new retail properties.
The Trust has made 144 consecutive quarterly distributions and has increased
its distribution rate for each of the last 31 years. This is the longest
record of annual distribution increases in the REIT industry. The current
annual indicated distribution rate is $1.76 per share.
The Trust maintains its offices at 1626 East Jefferson Street, Rockville,
Maryland 20852-4041 (telephone 301/998-8100).
3
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for any
offering of Securities, the Trust intends to use the majority of the net
proceeds from the sale of Securities offered by the Trust to repay debt
(including repayments of amounts drawn on lines of credit for property
acquisitions), make improvements to properties, acquire additional properties
and for working capital.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Trust's consolidated ratios of earnings
to fixed charges for the periods shown:
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
----- ----- ----- ----- ----- ------- -------
1.50x 1.61x 1.55x 1.59x 1.70x 1.70x 1.74x
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income before gain on
sale of real estate and extraordinary items and fixed charges. Fixed charges
consist of interest expense (including interest costs capitalized) and the
portion of rent expense representing an interest factor. In October 1997, the
Trust issued $100 million of 7.95% Series A Cumulative Redeemable Preferred
Shares ("Series A Preferred Shares"). The ratio of earnings to combined fixed
charges and preferred dividends was 1.64x for the year ended December 31,
1997, and 1.54x for the six month period ended June 30, 1998. There were no
preferred dividends paid by the Trust prior to 1997; as a result, the ratio of
earnings to combined fixed charges and preferred dividends for the years ended
December 31, 1993 through December 31, 1996, and the six months ended June 30,
1997, are unchanged from the ratios presented in this section.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Senior Securities are to be issued under an indenture dated as of
September 1, 1998, as supplemented from time to time (the "Senior Indenture"),
between the Trust and First Union National Bank, Trustee, and the Subordinated
Securities are to be issued under an indenture dated as of December 1, 1993,
as supplemented from time to time (the "Subordinated Indenture"), between the
Trust and First Union National Bank, Trustee. The term "Trustee" as used
herein shall refer to First Union National Bank as appropriate for Senior
Securities or Subordinated Securities. The forms of the Senior Indenture and
the Subordinated Indenture (being sometimes referred to herein collectively as
the "Indentures" and individually as an "Indenture") are filed as exhibits to
the registration statement. The Indentures are subject to and governed by the
Trust Indenture Act of 1939, as amended (the "TIA"). The statements made under
this heading relating to the Debt Securities and the Indentures are summaries
of the provisions thereof and do not purport to be complete and are qualified
in their entirety by reference to the Indentures and such Debt Securities.
Parenthetical references below are to the Indentures and capitalized terms
used but not defined herein shall have the respective meanings set forth in
the Indentures.
TERMS
The Debt Securities will be direct, unsecured obligations of the Trust. The
indebtedness represented by the Senior Securities will rank equally with all
other unsecured and unsubordinated indebtedness of the Trust. The indebtedness
represented by the Subordinated Securities will be subordinated in right of
payment to the prior payment in full of the Senior Debt of the Trust as
described under "Subordination."
4
Each Indenture provides that the Debt Securities may be issued without limit
as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Trustees of the Trust or as established in one or
more indentures supplemental to such Indenture. All Debt Securities of one
series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series (Section 301 of each Indenture).
Any Trustee under either Indenture may resign or be removed with respect to
one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series (Section 608 of each Indenture).
In the event that two or more persons are acting as Trustee with respect to
different series of Debt Securities, each such Trustee shall be a Trustee of a
trust under the applicable Indenture separate and apart from the trust
administered by any other Trustee (Section 609 of each Indenture), and, except
as otherwise indicated herein, any action described herein to be taken by each
Trustee may be taken by each such Trustee with respect to, and only with
respect to, the one or more series of Debt Securities for which it is Trustee
under the applicable Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the portion
of the principal amount thereof payable upon declaration of acceleration of
the maturity thereof, or (if applicable) the portion of the principal
amount of such Debt Securities that is convertible into Common Shares or
Preferred Shares, or the method by which any such portion shall be
determined;
(4) if convertible, in connection with the preservation of the Trust's
status as a REIT, any applicable limitations on the ownership or
transferability of the Common Shares or Preferred Shares into which such
Debt Securities are convertible;
(5) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(7) the date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the Interest Payment Dates on
which any such interest will be payable, the Regular Record Dates for such
Interest Payment Dates, or the method by which such Dates shall be
determined, the Persons to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a 360-
day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and where notices or demands to or upon the Trust in respect of
such Debt Securities and the applicable Indenture may be served;
(9) the period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Trust, if the Trust
is to have such an option;
5
(10) the obligation, if any, of the Trust to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which,
the price or prices at which and the other terms and conditions upon which
such Debt Securities will be redeemed, repaid or purchased, as a whole or
in part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(14) whether such Debt Securities will be issued in certificated or book-
entry form;
(15) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article XIV of the applicable Indenture;
(17) the terms, if any, upon which such Debt Securities may be
convertible into Common Shares or Preferred Shares of the Trust and the
terms and conditions upon which such conversion will be effected,
including, without limitation, the initial conversion price or rate and the
conversion period;
(18) whether and under what circumstances the Trust will pay Additional
Amounts as contemplated in the applicable Indenture on such Debt Securities
in respect of any tax, assessment or governmental charge and, if so,
whether the Trust will have the option to redeem such Debt Securities in
lieu of making such payment; and
(19) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301 of each Indenture).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities") (Section 502 of each Indenture).
Special U.S. federal income tax, accounting and other considerations
applicable to Original Issue Discount Securities will be described in the
applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the ability of the Trust to
incur indebtedness or that would afford Holders of Debt Securities protection
in the event of a highly leveraged or similar transaction involving the Trust
or in the event of a change of control. Restrictions on ownership and
transfers of the Trust's Common Shares and Preferred Shares are designed to
preserve its status as a REIT and, therefore, may act to prevent or hinder a
change of control. See "Description of Common Shares" and "Description of
Preferred Shares." Reference is made to the applicable Prospectus Supplement
for information with respect to any deletions from, modifications of, or
additions to, the Events of Default or covenants of the Trust that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
6
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302 of each Indenture).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of
Debt Securities will be payable at the corporate trust office of the Trustee,
initially located at First Union National Bank, 230 S. Tryon Street, 9th
Floor, Charlotte, North Carolina 28288-1179 in the case of the Senior
Securities and the Subordinated Securities, provided that, at the option of
the Trust, payment of interest may be made by check mailed to the address of
the Person entitled thereto as it appears in the Security Register or by wire
transfer of funds to such Person at an account maintained within the United
States (Sections 301, 305, 306, 307, and 1002 of each Indenture).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof shall be given to each Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described
in the applicable Indenture (Section 307 of each Indenture).
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee referred to
above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer thereof at the
corporate trust office of the applicable Trustee referred to above. Every Debt
Security surrendered for conversion, registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer. No
service charge will be made for any registration of transfer or exchange of
any Debt Securities, but the Trust may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith
(Section 305 of each Indenture). If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the applicable Trustee) initially
designated by the Trust with respect to any series of Debt Securities, the
Trust may at any time rescind the designation of any such transfer agent or
approve a change in the location through which any such transfer agent acts,
except that the Trust will be required to maintain a transfer agent in each
Place of Payment for such series. The Trust may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002 of each Indenture).
Neither the Trust nor either Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption; (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security
being redeemed in part; or (iii) issue, register the transfer of or exchange
any Debt Security that has been surrendered for repayment at the option of the
Holder, except the portion, if any, of such Debt Security not to be so repaid
(Section 305 of each Indenture).
7
Merger, Consolidation or Sale
The Trust may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other
corporation or trust or entity provided that (a) either the Trust shall be the
continuing corporation, or the successor corporation (if other than the Trust)
formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall expressly assume payment of
the principal of (and premium, if any) and interest on all of the Debt
Securities and the due and punctual performance and observance of all of the
covenants and conditions contained in each Indenture; (b) immediately after
giving effect to such transaction and treating any indebtedness that becomes
an obligation of the Trust or any Subsidiary as a result thereof as having
been incurred by the Trust or such Subsidiary at the time of such transaction,
no Event of Default under the Indenture, and no event which, after notice or
the lapse of time, or both, would become such an Event of Default, shall have
occurred and be continuing; and (c) an officers' certificate and legal opinion
covering such conditions shall be delivered to each Trustee (Sections 801 and
803 of each Indenture).
Certain Covenants
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Trust will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights (charter and statutory)
and franchises; provided, however, that the Trust shall not be required to
preserve any right or franchise if it determines that the preservation thereof
is no longer desirable in the conduct of its business (Section 1004 of each
Indenture).
Maintenance of Properties. The Trust will cause all of its material
properties used or useful in the conduct of its business or the business of
any Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Trust may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times (Section 1005 of each Indenture).
Insurance. The Trust will, and will cause each of its Subsidiaries to, keep
all of its insurable properties insured against loss or damage at least equal
to their then full insurable value with insurers of recognized responsibility
and having a rating of at least A-:XII in Best's Key Rating Guide (Section
1006 of each Indenture).
Payment of Taxes and Other Claims. The Trust will pay or discharge or cause
to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Trust or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Trust or
any Subsidiary; provided, however, that the Trust shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith (Section 1007 of each Indenture).
Provision of Financial Information. Whether or not the Trust is subject to
Section 13 or 15(d) of the Exchange Act, the Trust will within 15 days of each
of the respective dates by which the Trust would have been required to file
annual reports, quarterly reports and other documents with the Commission if
the Trust were so subject (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders copies of the annual reports, quarterly reports
and other documents that the Trust would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Trust
were subject to such Sections, (ii) file with the applicable Trustee copies of
the annual reports, quarterly reports and
8
other documents that the Trust would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Trust
were subject to such Sections and (iii) promptly upon written request and
payment of the reasonable cost of duplication and delivery, supply copies of
such documents to any prospective Holder (Section 1008 of each Indenture).
Additional Covenants. Any additional covenants of the Trust with respect to
any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
Events of Default, Notice and Waiver
Each Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default
for 30 days in the payment of any installment of interest on any Debt Security
of such series; (b) default in the payment of the principal of (or premium, if
any, on) any Debt Security of such series at its Maturity; (c) default in
making any sinking fund payment as required for any Debt Security of such
series; (d) default in the performance or breach of any other covenant or
warranty of the Trust contained in the Indenture (other than a covenant added
to the Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), continued for 60 days after written notice
as provided in the applicable Indenture; (e) a default under any bond,
debenture, note or other evidence of indebtedness for money borrowed by the
Trust (including obligations under leases required to be capitalized on the
balance sheet of the lessee under generally accepted accounting principles but
not including any indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $5,000,000
or under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by the Trust (including such leases but not including such
indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $5,000,000 by the
Trust, whether such indebtedness now exists or shall hereafter be created
which default shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Trust or any Significant Subsidiary or either of
its properties; and (g) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 501 of each Indenture). The term
"Significant Subsidiary" means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Trust.
If an Event of Default under either Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing,
then in every such case the applicable Trustee or the Holders of not less than
25% in principal amount of the Outstanding Debt Securities of that series may
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or Indexed Securities, such portion of the
principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Trust (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding
under either Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Trustee, the Holders of not less than a majority in principal
amount of Outstanding Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) the
Trust shall have deposited with the applicable Trustee all required payments
of the principal of (and premium, if any) and interest on the Debt Securities
of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of the
9
applicable Trustee and (b) all Events of Default, other than the non-payment
of accelerated principal (or specified portion thereof), with respect to Debt
Securities of such series (or of all Debt Securities then Outstanding under
the applicable Indenture, as the case may be) have been cured or waived as
provided in each Indenture (Section 502 of each Indenture). Each Indenture
also provides that the Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series (or of all Debt Securities
then Outstanding under the applicable Indenture, as the case may be) may waive
any past default with respect to such series and its consequences, except a
default (x) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or (y) in respect of a covenant
or provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security
affected thereby (Section 513 of each Indenture).
Each Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the applicable Indenture unless such default
shall have been cured or waived; provided, however, that such Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal
of (or premium, if any) or interest on any Debt Security of such series or in
the payment of any sinking fund installment in respect of any Debt Security of
such series) if the Responsible Officers of such Trustee consider such
withholding to be in the interest of such Holders (Section 601 of each
Indenture).
Each Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507 of each Indenture). This provision will not
prevent, however, any Holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest
on such Debt Securities at the respective due dates thereof (Section 508 of
each Indenture).
Subject to provisions in each Indenture relating to its duties in case of
default, neither Trustee is under an obligation to exercise any of its rights
or powers under such Indenture at the request or direction of any Holders of
any series of Debt Securities then Outstanding under such Indenture, unless
such Holders shall have offered to the Trustee thereunder reasonable security
or indemnity (Section 602 of each Indenture). The Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under each Indenture, as the case
may be) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Trustee,
or of exercising any trust or power conferred upon such Trustee. However, each
Trustee may refuse to follow any direction which is in conflict with any law
or the applicable Indenture, which may involve such Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 512 of each Indenture).
Within 120 days after the close of each fiscal year, the Trust must deliver
to each Trustee a certificate, signed by one of several specified officers,
stating whether or not such officer has knowledge of any default under the
applicable Indenture and, if so, specifying each such default and the nature
and status thereof (Section 1009 of each Indenture).
Modification of the Indentures
Modifications and amendments of either Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities issued under such Indenture which are affected by
such modification or amendment; provided, however, that no
10
such modification or amendment may, without the consent of the Holder of each
such Debt Security affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest (or premium, if any) on, any such
Debt Security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium payable on redemption of, any such Debt Security,
or reduce the amount of principal of an Original Issue Discount Security that
would be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any right of
repayment of the Holder of any such Debt Security; (c) change the Place of
Payment, or the coin or currency, for payment of principal of, premium, if
any, or interest on any such Debt Security; (d) impair the right to institute
suit for the enforcement of any payment on or with respect to any such Debt
Security; (e) reduce the above-stated percentage of Outstanding Debt
Securities of any series necessary to modify or amend the applicable
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions
may not be modified or waived without the consent of the Holder of such Debt
Security (Section 902 of each Indenture).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities issued under either Indenture have the right to waive
compliance by the Trust with certain covenants in such Indenture (Section 1011
of each Indenture).
Modifications and amendments of either Indenture may be made by the Trust
and the respective Trustee thereunder without the consent of any Holder of
Debt Securities for any of the following purposes: (i) to evidence the
succession of another Person to the Trust as obligor under such Indenture;
(ii) to add to the covenants of the Trust for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Trust in such Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to
add or change any provisions of either Indenture to facilitate the issuance
of, or to liberalize certain terms of, Debt Securities in bearer form, or to
permit or facilitate the issuance of Debt Securities in uncertificated form,
provided that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series in any material respect; (v) to
change or eliminate any provisions of either Indenture, provided that any such
change or elimination shall become effective only when there are no Debt
Securities Outstanding of any series created prior thereto which are entitled
to the benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Shares or Preferred Shares of the Trust; (viii) to
provide for the acceptance of appointment by a successor Trustee or facilitate
the administration of the trusts under either Indenture by more than one
Trustee; (ix) to cure any ambiguity, defect or inconsistency in either
Indenture, provided that such action shall not adversely affect the interests
of Holders of Debt Securities of any series issued under such Indenture; or
(x) to supplement any of the provisions of either Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of
such Debt Securities, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series (Section 901 of
each Indenture).
Each Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon declaration of acceleration of the maturity thereof, (ii) the principal
amount of a Debt Security denominated in a Foreign Currency that shall be
deemed outstanding shall be the
11
U.S. dollar equivalent, determined on the issue date for such Debt Security,
of the principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of such Debt Security
of the amount determined as provided in (i) above), (iii) the principal amount
of an Indexed Security that shall be deemed outstanding shall be the principal
face amount of such Indexed Security at original issuance, unless otherwise
provided with respect to such Indexed Security pursuant to Section 301 of each
Indenture, and (iv) Debt Securities owned by the Trust or any other obligor
upon the Debt Securities or any Affiliate of the Trust or of such other
obligor shall be disregarded (Section 101 of each Indenture).
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501 of each Indenture). A meeting may be
called at any time by the applicable Trustee, and also, upon request, by the
Trust or the Holders of at least 10% in principal amount of the Outstanding
Debt Securities of such series, in any such case upon notice given as provided
in the Indenture (Section 1502 of each Indenture). Except for any consent that
must be given by the Holder of each Debt Security affected by certain
modifications and amendments of either Indenture, any resolution presented at
a meeting or adjourned meeting duly reconvened at which a quorum is present
may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except as referred to above, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the Holders of a specified
percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or
adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of such specified percentage in principal
amount of the Outstanding Debt Securities of that series. Any resolution
passed or decision taken at any meeting of Holders of Debt Securities of any
series duly held in accordance with either Indenture will be binding on all
Holders of Debt Securities of that series. The quorum at any meeting called to
adopt a resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders
of not less than a specified percentage in principal amount of the Outstanding
Debt Securities of a series, the Persons holding or representing such
specified percentage in principal amount of the Outstanding Debt Securities of
such series will constitute a quorum (Section 1504 of each Indenture).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that either Indenture expressly provides may be made, given or taken by
the Holders of a specified percentage in principal amount of all Outstanding
Debt Securities affected thereby, or of the Holders of such series and one or
more additional series: (i) there shall be no minimum quorum requirement for
such meeting and (ii) the principal amount of the Outstanding Debt Securities
of such series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under such
Indenture (Section 1504 of each Indenture).
Subordination
Upon any distribution to creditors of the Trust in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
the Subordinated Securities will be subordinated to the extent provided in the
Subordinated Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Trust to make payment of the principal and interest on the
Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). No payment of principal or interest may be made on
the Subordinated
12
Securities at any time if a default on Senior Debt exists that permits the
holders of such Senior Debt to accelerate its maturity and the default is the
subject of judicial proceedings or the Trust receives notice of the default
(Section 1603 of the Subordinated Indenture). After all Senior Debt is paid in
full and until the Subordinated Securities are paid in full, holders will be
subrogated to the rights of holders of Senior Debt to the extent that
distributions otherwise payable to holders have been applied to the payment of
Senior Debt (Section 1607 of the Subordinated Indenture). By reason of such
subordination, in the event of a distribution of assets upon insolvency,
certain general creditors of the Trust may recover more, ratably, than holders
of the Subordinated Securities.
Senior Debt is defined in the Subordinated Indenture as the principal of and
interest on, or substantially similar payments to be made by the Trust in
respect of, the following, whether outstanding at the date of execution of the
Subordinated Indenture or thereafter incurred, created or assumed:
(a) indebtedness of the Trust for money borrowed or represented by purchase-
money obligations, (b) indebtedness of the Trust evidenced by notes,
debentures, or bonds, or other securities issued under the provisions of an
indenture, fiscal agency agreement or other instrument, (c) obligations of the
Trust as lessee under leases of property either made as part of any sale and
leaseback transaction to which the Trust is a party or otherwise,
(d) indebtedness of partnerships and joint ventures which is included in the
consolidated financial statements of the Trust, (e) indebtedness, obligations
and liabilities of others in respect of which the Trust is liable contingently
or otherwise to pay or advance money or property or as guarantor, endorser or
otherwise or which the Trust has agreed to purchase or otherwise acquire, and
(f) any binding commitment of the Trust to fund any real estate investment or
to fund any investment in any entity making such real estate investment, in
each case other than (1) any such indebtedness, obligation or liability
referred to in clauses (a) through (f) above as to which, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding,
it is provided that such indebtedness, obligation or liability is not superior
in right of payment to the Subordinated Securities or ranks pari passu with
the Subordinated Securities, (2) any such indebtedness, obligation or
liability which is subordinated to indebtedness of the Trust to substantially
the same extent as or to a greater extent than the Subordinated Securities are
subordinated, and (3) the Subordinated Securities (Section 101 of the
Subordinated Indenture). At June 30, 1998, Senior Debt aggregated
approximately $648 million. There are no restrictions in the Subordinated
Indenture upon the creation of additional Senior Debt.
Discharge, Defeasance and Covenant Defeasance
Under each Indenture, the Trust may discharge certain obligations to Holders
of any series of Debt Securities issued thereunder that have not already been
delivered to the applicable Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal (and premium, if any) and
interest to the date of such deposit (if such Debt Securities have become due
and payable) or to the Stated Maturity or Redemption Date, as the case may be
(Section 401 of each Indenture).
Each Indenture provides that, if the provisions of Article Fourteen thereof
are made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Trust may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay Additional Amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge
with respect to payments on such Debt Securities and the obligations to
register the transfer or exchange of such Debt Securities, to replace
temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain
an office or agency in respect of such Debt Securities and to hold moneys for
payment in trust) ("defeasance") (Section 1402 of each
13
Indenture) or (b) to be released from its obligations with respect to such
Debt Securities under Sections 1004 to 1008, inclusive, of each Indenture
(being the restrictions described under "Certain Covenants") or, if provided
pursuant to Section 301 of each Indenture, its obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to such Debt
Securities ("covenant defeasance") (Section 1403 of each Indenture), in either
case upon the irrevocable deposit by the Trust with the applicable Trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest
on such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor (Section 1404 of each Indenture).
Such a trust may only be established if, among other things, the Trust has
delivered to the applicable Trustee an Opinion of Counsel (as specified in
each Indenture) to the effect that the Holders of such Debt Securities will
not recognize income, gain or loss for U.S. federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such Opinion of Counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable U. S. federal income tax law occurring after the date of
the Indenture (Section 1404 of each Indenture).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the Foreign Currency in which the Debt Securities of such series are
payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Trust has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to Section 301 of either Indenture or the terms of such
Debt Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of
such Debt Security, or (b) a Conversion Event (as defined below) occurs in
respect of the currency, currency unit or composite currency in which such
deposit has been made, the indebtedness represented by such Debt Security
shall be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of such Debt Security into the
currency, currency unit or composite currency in which such Debt Security
becomes payable as a result of such election or such cessation
14
of usage based on the applicable market exchange rate (Section 1405 of each
Indenture). "Conversion Event" means the cessation of use of (i) a currency,
currency unit or composite currency both by the government of the country
which issued such currency and for the settlement of transactions by a central
bank or other public institutions of or within the international banking
community, (ii) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Communities or (iii) any currency unit or composite currency other than the
ECU for the purposes for which it was established. Unless otherwise provided
in the applicable Prospectus Supplement, all payments of principal of (and
premium, if any) and interest on any Debt Security that are payable in a
Foreign Currency that ceases to be used by its government of issuance shall be
made in U.S. dollars (Section 101 of each Indenture).
In the event the Trust effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default
described in clause (d) under "Events of Default, Notice and Waiver" with
respect to Sections 1004 to 1008, inclusive, of each Indenture (which Sections
would no longer be applicable to such Debt Securities) or described in clause
(g) under "Events of Default, Notice and Waiver" with respect to any other
covenant as to which there has been covenant defeasance, the amount in such
currency, currency unit or composite currency in which such Debt Securities
are payable, and Government Obligations on deposit with the applicable
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Trust would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Shares or Preferred Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Shares or Preferred
Shares, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of the Holders or the Trust, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Debt Securities.
Global Securities
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global
Securities may be issued in either registered or bearer form and in either
temporary or permanent form. The specific terms of the depositary arrangement
with respect to a series of Debt Securities will be described in the
applicable Prospectus Supplement relating to such series.
15
DESCRIPTION OF PREFERRED SHARES
General
The Trust is authorized to issue an unlimited number of preferred shares
(the "Preferred Shares"). On October 6, 1997, the Trust issued 4,000,000
shares of 7.95% Series A Cumulative Redeemable Preferred Shares (liquidation
preference $25.00 per share); no other Preferred Shares are outstanding.
The following description of the Preferred Shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate. The statements below describing the Preferred Shares
are in all respects subject to and qualified in their entirety by reference to
the applicable provisions of the Trust's Third Amended and Restated
Declaration of Trust (the "Declaration of Trust") and Bylaws and applicable
statement of designations (the "Statement of Designations").
Terms
Subject to the limitations prescribed by the Declaration of Trust, the Board
of Trustees is authorized to fix the number of shares constituting each series
of Preferred Shares and the designations and powers, preferences and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the Board of Trustees. The Preferred
Shares will, when issued, be fully paid and nonassessable by the Trust (except
as described under "Shareholder Liability" below) and will have no preemptive
rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Shares;
(2) The number of such Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Trust, including the
conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(11) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(12) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Trust;
(13) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Trust; and
16
(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Trust as a REIT.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Trust, rank (i) senior to all classes or
series of Common Shares or other capital shares of the Trust, and to all
equity securities ranking junior to such Preferred Shares; (ii) on a parity
with all equity securities issued by the Trust the terms of which specifically
provide that such equity securities rank on a parity with the Preferred
Shares; and (iii) junior to all equity securities issued by the Trust the
terms of which specifically provide that such equity securities rank senior to
the Preferred Shares. The term "equity securities" does not include
convertible debt securities.
Dividends
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Trust, out of assets
of the Trust legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement.
Each such dividend shall be payable to holders of record as they appear on the
share transfer books of the Trust on such record dates as shall be fixed by
the Board of Trustees of the Trust.
Dividends on any series of the Preferred Shares may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Trust fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are noncumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend
in respect of the dividend period ending on such dividend payment date, and
the Trust will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no dividends will be
declared or paid or set apart for payment on the Preferred Shares of the Trust
of any other series ranking, as to dividends, on a parity with or junior to
the Preferred Shares of such series for any period unless (i) if such series
of Preferred Shares has a cumulative dividend, full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Preferred Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of
Preferred Shares ranking on a parity as to dividends with such Preferred
Shares shall be declared pro rata so that the amount of dividends declared per
Preferred Share of such series and such other series of Preferred Shares shall
in all cases bear to each other the same ratio that accrued dividends per
share on the Preferred Shares of such series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
Preferred Shares do not have a cumulative dividend) and such other series of
Preferred Shares bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Preferred Shares of such series which may be in arrears.
17
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period and (ii) if such series of Preferred Shares
does not have a cumulative dividend, full dividends on the Preferred Shares of
such series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period, no dividends (other than in Common Shares or
other capital shares ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common
Shares, or any other capital shares of the Trust ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation, nor shall any Common Shares, or any other capital shares of the
Trust ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for
a sinking fund for the redemption of any such shares) by the Trust (except by
conversion into or exchange for other capital shares of the Trust ranking
junior to the Preferred Shares of such series as to dividends and upon
liquidation).
Any dividend payment made on shares of a series of Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Trust, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred
Shares that shall be redeemed by the Trust in each year commencing after a
date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Shares do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Shares of any series is payable only
from the net proceeds of the issuance of capital shares of the Trust, the
terms of such Preferred Shares may provide that, if no such capital shares
shall have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares shall automatically and mandatorily be converted into the
applicable capital shares of the Trust pursuant to conversion provisions
specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Shares shall have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart
for payment for all past dividend periods and the then current dividend period
and (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, no shares of any series of Preferred Shares shall be redeemed unless
all outstanding Preferred Shares of such series are simultaneously redeemed;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series to preserve the REIT status of
the Trust or pursuant to
18
a purchase or exchange offer made on the same terms to holders of all
outstanding Preferred Shares of such series, and, unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends on all
outstanding shares of any series of Preferred Shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period and (ii) if such series of Preferred Shares
does not have a cumulative dividend, full dividends on the Preferred Shares of
any series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period, the Trust shall not purchase or otherwise
acquire directly or indirectly any Preferred Shares of such series (except by
conversion into or exchange for capital shares of the Trust ranking junior to
the Preferred Shares of such series as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series to preserve the REIT status of
the Trust or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Trust and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by the Trust.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the share transfer books
of the Trust. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Shares are to be surrendered for payment of the redemption price;
(v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the Preferred
Shares of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of Preferred Shares to be redeemed from
each such holder. If notice of redemption of any Preferred Shares has been
given and if the funds necessary for such redemption have been set aside by
the Trust in trust for the benefit of the holders of any Preferred Shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Shares, and all rights of the holders of
such shares will terminate, except the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Trust, then, before any distribution or payment shall be
made to the holders of any Common Shares, excess shares or any other class or
series of capital shares of the Trust ranking junior to the Preferred Shares
in the distribution of assets upon any liquidation, dissolution or winding up
of the Trust, the holders of each series of Preferred Shares shall be entitled
to receive out of assets of the Trust legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Shares do not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Shares will have no right or claim to any
of the remaining assets of the Trust. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the available
assets of the Trust are insufficient to pay the amount of the liquidating
distributions on all outstanding Preferred Shares and the corresponding
amounts payable on all shares of other classes or series of capital shares of
19
the Trust ranking on a parity with the Preferred Shares in the distribution of
assets, then the holders of the Preferred Shares and all other such classes or
series of capital shares shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Trust shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Shares upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Trust with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Trust, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Trust.
Voting Rights
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any Preferred Shares shall be in arrears for six
consecutive quarterly periods, the holders of such Preferred Shares (voting
separately as a class with all other series of Preferred Shares upon which
like voting rights have been conferred and are exercisable) will be entitled
to vote for the election of two additional Trustees of the Trust at the next
annual meeting of shareholders and at each subsequent meeting until (i) if
such series of Preferred Shares has a cumulative dividend, all dividends
accumulated on such shares of Preferred Shares for the past dividend periods
and the then current dividend period shall have been fully paid or declared
and a sum sufficient for the payment thereof set aside for payment or (ii) if
such series of Preferred Shares does not have a cumulative dividend, four
consecutive quarterly dividends shall have been fully paid or declared and a
sum sufficient for the payment thereof set aside for payment. In such case,
the entire Board of Trustees of the Trust will be increased by two Trustees.
Unless provided otherwise for any series of Preferred Shares, so long as any
Preferred Shares remain outstanding, the Trust will not, without the
affirmative vote or consent of the holders of at least two-thirds of the
shares of each series of Preferred Shares outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital shares ranking prior to such
series of Preferred Shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital shares of the Trust into any such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or
repeal the provisions of the Trust's Declaration of Trust or the Statement of
Designations for such series of Preferred Shares, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Shares or the holders thereof; provided, however, with respect to
the occurrence of any of the Events set forth in (ii) above, so long as the
Preferred Shares remain outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event, the Trust
may not be the surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of Preferred Shares and provided further that
(x) any increase in the amount of the authorized Preferred Shares or the
creation or issuance of any other series of Preferred Shares, or (y) any
increase in the amount of authorized shares of such series or any other series
of Preferred Shares, in each case ranking on a parity with or junior to the
Preferred Shares of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
20
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
Conversion Rights
The terms and conditions, if any, upon which any series of Preferred Shares
are convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Common Shares into which the Preferred Shares are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Shares or the Trust, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
such series of Preferred Shares.
Shareholder Liability
As discussed below under "Description of Common Shares--Shareholder
Liability," the Declaration of Trust provides that no shareholder, including
holders of Preferred Shares, shall be personally liable for the acts and
obligations of the Trust and that the funds and property of the Trust shall be
solely liable for such acts or obligations. The Declaration of Trust provides
that, to the extent practicable, each written instrument creating an
obligation of the Trust shall contain a provision to that effect. The
Declaration of Trust also provides that the Trust shall indemnify and hold
harmless shareholders against all claims and liabilities and related
reasonable expenses to which they may become subject by reason of their being
or having been shareholders. In some jurisdictions, however, with respect to
tort and contract claims where shareholder liability is not so negated, claims
for taxes and certain statutory liability, shareholders may be personally
liable to the extent that such claims are not satisfied by the Trust. The
Trust carries public liability insurance that the Trustees consider adequate.
Thus, any risk of personal liability to shareholders is limited to situations
in which the Trust's assets plus its insurance coverage would be insufficient
to satisfy the claims against the Trust and its shareholders.
Restrictions on Ownership
As discussed below under "Description of Common Shares--Restrictions on
Ownership," for the Trust to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), not more than 50% in value of its
outstanding capital shares may be owned, directly or constructively, by five
or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Trust in meeting this
requirement, the Trust may take certain other actions to limit the beneficial
ownership, directly or indirectly, by a single person of more than 9.8% of the
Trust's outstanding equity securities, including any Preferred Shares of the
Trust. Therefore, the Statement of Designations for each series of Preferred
Shares will contain certain provisions restricting the ownership and transfer
of the Preferred Shares. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to a series of Preferred Shares.
21
DESCRIPTION OF COMMON SHARES
General
The Common Shares are issued pursuant to the Declaration of Trust. The
Common Shares (no par or stated value) are equal with respect to distribution
and liquidation rights, are not convertible, have no preemptive rights to
subscribe for additional Common Shares, are nonassessable (except as described
under "Shareholder Liability" below) and are transferable in the same manner
as shares of a corporation. Each shareholder is entitled to one vote in person
or by proxy for each Common Share registered in his name and has the right to
vote on the election or removal of Trustees, amendments to the Declaration of
Trust, proposals to terminate, reorganize, merge or consolidate the Trust or
to sell or dispose of substantially all of the Trust's property and with
respect to certain business combinations. The Trust will have perpetual
existence unless and until dissolved and terminated. Except with respect to
the foregoing matters, no action taken by the shareholders at any meeting
shall in any way bind the Trustees. The Common Shares offered by the Trust
will be, when issued, fully paid and nonassessable (except as described under
"Shareholder Liability" below).
Without shareholder approval, the Trust may issue an unlimited number of
securities, warrants, rights, or other options to purchase Common Shares and
other securities convertible into Common Shares.
Several provisions in the Declaration of Trust may have the effect of
deterring a takeover of the Trust. These provisions (i) establish the
percentage of outstanding Common Shares required to approve certain matters,
including removal of a Trustee, amendment of any section of the Declaration of
Trust that provides for a shareholder vote, the reorganization, merger,
consolidation, sale or termination of the Trust and a sale of substantially
all of the assets of the Trust, at 80% unless the matter to be acted upon is
approved or recommended by the Board of Trustees in which event the percentage
is 66 2/3%; (ii) restrict ownership of the Trust's outstanding capital shares
by a single person to 9.8% of such capital shares unless otherwise approved by
the Board of Trustees to assist in protecting and preserving the qualification
of the Trust as a real estate investment trust under the Code; and (iii)
include a "fair price" provision that would deter a "two-stage" takeover
transaction by requiring an 80% vote of outstanding Common Shares for certain
defined "business combinations" with shareholders owning more than 9.8% of
Common Shares or their affiliates if the transaction is neither approved by
the Board of Trustees nor meets certain price and procedural conditions.
In addition, the Declaration of Trust includes provisions for (i) the
classification of Trustees into three classes serving three year staggered
terms and (ii) the authorization of Trustees to issue an unlimited number of
Common Shares and to issue additional classes of equity securities in
unlimited numbers with such rights, qualifications, limitations or
restrictions as are stated in the Board of Trustees' resolution establishing
such class of securities.
In 1989, the Trustees adopted a Shareholder Rights Plan (the "Plan"). Under
the Plan, one right was issued for each outstanding Common Share and a right
will be attached to each Share issued in the future. The rights authorize the
holders to purchase Common Shares at a price below market upon the occurrence
of certain events, including, unless approved by the Board of Trustees,
acquisition by a person or group of certain levels of beneficial ownership of
the Trust or a tender offer. The rights are redeemable by the Trust for $.01
and expire in 1999.
Restrictions on Ownership
For the Trust to qualify as a REIT under the Code, not more than 50% in
value of the outstanding capital shares, including in some circumstances
capital shares into which outstanding securities (including the Securities)
might be converted, may be owned actually or constructively by five or fewer
individuals or certain other entities at any time during the last half of the
Trust's taxable year. To assist
22
the Trust in meeting this requirement, the Trust (a) by lot or other equitable
means, may prevent the transfer of and/or may call for redemption a number of
capital shares sufficient for the continued qualification of the Trust as a
REIT and (b) may refuse to register the transfer of capital shares and may
take certain other actions to limit the beneficial ownership, directly or
indirectly, by a single person of more than 9.8% of the Trust's outstanding
equity securities. Capital shares reserved for issuance upon conversion of any
class of then outstanding convertible securities of the Trust may be
considered outstanding capital shares for purposes of this provision if the
effect thereof would be to cause a single person to own or to be deemed to own
more than 9.8% of the Trust's outstanding capital shares. Without shareholder
approval, the Trust may issue an unlimited number of securities, warrants,
rights or other options to purchase Common Shares and other securities
convertible into Common Shares.
Shareholder Liability
The Declaration of Trust provides that no shareholder shall be personally
liable in connection with the Trust's property or the affairs of the Trust.
The Declaration of Trust further provides that the Trust shall indemnify and
hold harmless shareholders against all claims and liabilities and related
reasonable expenses to which they may become subject by reason of their being
or having been shareholders. In addition, the Trust is required to, and as a
matter of practice does, insert a clause in its contracts that provides that
shareholders shall not be personally liable thereunder. However, in respect to
tort claims and contract claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, the shareholders may, in
some jurisdictions, be personally liable to the extent that such claims are
not satisfied by the Trust. The Trust carries public liability insurance that
the Trustees consider adequate. Thus, any risk of personal liability to
shareholders is limited to situations in which the Trust's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Trust and its shareholders.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Common Shares is American Stock
Transfer & Trust Company, New York, New York.
FEDERAL INCOME TAX CONSIDERATIONS
The Trust believes it has operated, and the Trust intends to continue to
operate, in such manner as to qualify as a REIT under the Code, but no
assurance can be given that it will at all times so qualify. The provisions of
the Code pertaining to REITs are highly technical and complex. The following
is a brief and general summary of certain provisions that currently govern the
federal income tax treatment of the Trust and its shareholders. For the
particular provisions that govern the federal income tax treatment of the
Trust and its shareholders, reference is made to Sections 856 through 860 of
the Code and the treasury regulations promulgated thereunder. The following
summary is qualified in its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income
that it distributes to its shareholders. If the Trust fails to qualify during
any taxable year as a REIT, unless certain relief provisions are available, it
will be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates, which could have a material
adverse effect upon its shareholders.
To qualify as a REIT, the Trust must comply with a number of annual
requirements regarding its income, assets and distributions. These
requirements impose a number of restrictions on the Trust's operations. For
example, the Trust may not lease property if the lease has the effect of
giving the Trust a share of the net income of the lessee. The amount of
personal property that may be included under
23
a lease may not exceed a defined, low level, and the Trust may not provide
services to its tenants, other than customary services and de minimis non-
customary services. The Trust's ability to acquire non-real estate assets is
restricted, and a 100% tax is imposed on any gain that the Trust realizes from
sales of property to customers in the ordinary course of business (other than
property acquired by reason of certain foreclosures), effectively preventing
the Trust from participating directly in condominium projects and other
projects involving the development of property for resale. Minimum
distribution requirements also generally require the Trust to distribute at
least 95% of its taxable income each year (excluding any net capital gain).
In any year in which the Trust qualifies to be taxed as a REIT,
distributions made to its shareholders out of current or accumulated earnings
and profits will be taxed to shareholders as ordinary income except that
distributions of net capital gains designated by the Trust as capital gain
dividends will be taxed as long-term capital gain income to the shareholders.
A portion of such gains may be taxed at the 25% rate applicable to "Section
1250" gains. To the extent that distributions exceed current or accumulated
earnings and profits, they will constitute a return of capital, rather than
dividend or capital gain income, and will reduce the basis for the
shareholder's Securities with respect to which the distribution is paid or, to
the extent that they exceed such basis, will be taxed in the same manner as
gain from the sale of those Securities.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax
consequences of an investment in the Trust, including the possibility of
United States income tax withholding on Trust distributions.
PLAN OF DISTRIBUTION
The Trust may sell Securities to or through underwriters, and also may sell
Securities directly to other purchasers or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Trust or from purchasers of Securities, for whom they
may act as agents, in the form of discounts, concessions, or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions, or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers, and agents that participate in the
distribution of Securities may be deemed to be underwriters, and any discounts
or commissions they receive from the Trust, and any profit on the resale of
Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Trust will be
described, in the Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each series
of Securities will be a new issue with no established trading market, other
than the Common Shares which are listed on the New York Stock Exchange. Any
Common Shares sold pursuant to a Prospectus Supplement will be listed on such
exchange, subject to official notice of issuance. The Trust may elect to list
any series of Debt Securities or Preferred Shares on an exchange, but is not
obligated to do so. It is possible
24
that one or more underwriters may make a market in a series of Securities, but
will not be obligated to do so and may discontinue any market making at any
time without notice. Therefore, no assurance can be given as to the liquidity
of the trading market for the Securities.
Under agreements the Trust may enter into, underwriters, dealers, and agents
who participate in the distribution of Securities may be entitled to
indemnification by the Trust against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be customers of, the Trust in the ordinary course of
business.
If so indicated in the Prospectus Supplement, the Trust will authorize
underwriters or other persons acting as the Trust's agents to solicit offers
by certain institutions to purchase Securities from the Trust pursuant to
contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Trust. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the Securities
shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
LEGAL OPINIONS
The legality of the Securities offered hereby is being passed upon for the
Trust by Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800. Certain REIT tax matters relating to the Trust
are being passed upon by Goodwin, Procter & Hoar LLP, Exchange Place, Boston,
Massachusetts 02109. Brown & Wood LLP, One World Trade Center, New York, New
York 10048-0557 will act as counsel to any underwriters, dealers or agents.
EXPERTS
The Consolidated Financial Statements and Schedules of the Trust as of
December 31, 1997 and 1996 and for each of the years in the three year period
ended December 31, 1997 incorporated herein by reference have been
incorporated herein in reliance on the reports dated February 5, 1998 of Grant
Thornton LLP, independent certified public accountants, also incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
With respect to the unaudited interim financial information included in the
Trust's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998
and June 30, 1998 which are incorporated herein by reference, Grant Thornton
LLP has applied limited procedures in accordance with professional standards
for a review of such information. However, as stated in their reports dated
May 5, 1998 and August 5, 1998 included in the Trust's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 and
incorporated by reference herein, they did not audit and they do not express
an opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Grant Thornton LLP is not
subject to the liability provisions of Section 11 of the Securities Act of
1933 for their reports on the unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act.
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