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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1999
REGISTRATION NO. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PHILIPS INTERNATIONAL REALTY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
MARYLAND 13-3963667
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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417 FIFTH AVENUE
NEW YORK, NEW YORK 10016
(212) 545-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES)
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MR. PHILIP PILEVSKY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
PHILIPS INTERNATIONAL REALTY CORPORATION
417 FIFTH AVENUE
NEW YORK, NEW YORK 10016
(212) 545-1100
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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Copies to:
JONATHAN A. BERNSTEIN, ESQ.
BLAKE HORNICK, ESQ.
PRYOR CASHMAN SHERMAN & FLYNN LLP
410 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 421-4100
(212) 326-0806 (FACSIMILE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
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CALCULATION OF REGISTRATION FEE
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TITLE OF SHARES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock(2)........................................... (8) N/A
Preferred Stock(3)........................................ (8) N/A
Warrants(4)............................................... (8) N/A
Depositary Shares(5)...................................... (8) N/A
Total..................................................... $200,000,000(6) $60,606.06(7)
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(Footnotes continued on next page)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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(Footnotes continued from previous page)
(1) Estimated solely for the purpose of calculating the registration fee.
(2) There are being registered hereunder an indeterminate number of shares of
common stock of the Registrant as may be sold, from time to time, by the
Registrant.
(3) There are being registered hereunder an indeterminate number of shares of
preferred stock of the Registrant as may be sold, from time to time, by the
Registrant.
(4) There are being registered hereunder an indeterminate number of warrants to
purchase either preferred stock or common stock of the Registrant as may be
sold, from time to time, by the Registrant.
(5) There are being registered hereunder an indeterminate number of depositary
shares as may be sold, from time to time, by the Registrant.
(6) In no event will the aggregate maximum offering price of all securities
registered under this Registration Statement exceed $200,000,000 or an
equivalent amount in another currency or currencies or as determined by
reference to an index or, if the securities are to be offered at a discount,
the approximate proceeds to the Registrant.
(7) Calculated in accordance with Rule 457(o) under the Securities Act of 1933.
(8) Not specified as to each class of securities to be registered, pursuant to
General Instruction II.D of Form S-3 under the Securities Act of 1933.
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SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1999
PROSPECTUS
PHILIPS INTERNATIONAL REALTY CORP.
$200,000,000
COMMON STOCK, PREFERRED STOCK, DEPOSITARY SHARES AND WARRANTS
We, Philips International Realty Corp., may from time to time offer in one
or more series the following:
o shares of our common stock
o shares or fractional shares of our preferred stock,
o shares of our preferred stock represented by depositary shares, and/or
o warrants to purchase shares of our common stock or preferred stock.
We will offer such securities at an aggregate initial public offering price
of up to $200,000,000 on terms we will determine at the time we offer such
securities. We may offer our preferred stock, common stock, warrants and
depositary shares separately or together, in separate series, in amounts, at
prices and on terms that we will provide in a supplement to this prospectus. We
will provide the specific terms of each offering in an applicable prospectus
supplement to this prospectus and will include, where applicable, the following:
o in the case of preferred stock and depositary shares, the specific title
and stated value, any dividend, liquidation, redemption, conversion,
voting and other rights and the initial public offering price;
o in the case of common stock, the offering price; and
o in the case of warrants, which such warrants may be exercised, the
duration, offering price, exercise price and detachability.
We also may include limitations on direct or beneficial ownership and
restrictions on transfer of the securities being offered that we believe are
appropriate to preserve our status as a real estate investment trust for United
States federal income tax purposes.
We may offer the preferred stock, common stock, warrants and depositary
shares directly, through agents that we may designate from time to time, or
through underwriters or dealers. If any agents or underwriters participate in
the sale of any of the securities, we will provide their names and any
applicable purchase price, fee, commission or discount arrangement between or
among them, in the applicable supplement.
Our common stock is listed on the New York Stock Exchange under the ticker
symbol "PHR." The closing price of our common stock on February 8, 1999, was
$14.375 per share. We will not sell any of the securities being offered without
delivery of the applicable prospectus supplement describing the method and terms
of the offering of such series of securities being offered.
SEE "RISK FACTORS" AT PAGE 4 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
MATERIAL FACTORS WHICH YOU SHOULD CONSIDER BEFORE INVESTING IN THE SECURITIES
OFFERED BY THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February , 1999.
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TABLE OF CONTENTS
Available Information .......................................... 2
Incorporation of Certain Documents by Reference ................ 2
Information About Philips International Realty Corp. ........... 3
Risk Factors ................................................... 4
Use of Proceeds ................................................11
Descriptions of Common Stock ...................................12
Description of Preferred Stock .................................14
Description of Depositary Shares ...............................19
Description of Warrants ........................................23
Restrictions on Ownership of The Securities Being Offered ......24
Certain United States Federal Income Tax Considerations
To The Company of its REIT Election ..........................25
Plan of Distribution ...........................................36
Experts ........................................................37
Legal Matters ..................................................37
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AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document at the Securities and Exchange Commission's public reference room
located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Securities and Exchange Commission: Seven
World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You
also can request copies of such documents, upon payment of a duplicating fee, by
writing to the public reference section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain such
copies from the Securities and Exchange Commission's web site is:
http://www.sec.gov.
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus is a part) under the Securities Act of 1933,
as amended, with respect to the securities being offered. This prospectus does
not contain all of the information set forth in the registration statement. We
have omitted certain portions as permitted by the rules and regulations of the
Securities and Exchange Commission. Statements contained in this prospectus as
to the contents of any contract or other document are not necessarily complete,
and in each instance we refer you to the copy of such contract or other document
filed as an exhibit to the registration statement. Each such statement is
qualified in all respects by such reference and the exhibits and schedules to
the registration statement. For further information regarding us and the
securities being offered, please read the registration statement and such
exhibits and schedules which may be obtained from the Securities and Exchange
Commission at its principal office in Washington, D.C. upon payment of the fees
prescribed by the Securities and Exchange Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information we incorporate by reference is considered to be part of this
prospectus, and information that we file later with the Securities and Exchange
Commission automatically will update and supersede such information. We
incorporate by reference the documents listed below and any future filings we
make with the Securities and Exchange Commission under Sections 13(a), 13(c) 14
or 15(d) of the Securities Exchange Act of 1934, as amended.
a. Our Annual Report on Form 10-K (File No. 0-23463) for the fiscal year
ended December 31, 1997;
b. Our Quarterly Reports on Form 10-Q (File No. 1-14095) for the fiscal
quarters ended March 31, 1998, June 30, 1998 and September 30, 1998;
c. Our Current Reports on Form 8-K and (File No. 1-14095), dated July 31,
1998; and
d. The description of the common stock and the description of certain
provisions of Maryland Law and our articles of incorporation and bylaws,
both contained in our registration statement on Form 8-A dated May 6,
1998.
You may request a copy of these filings (including the exhibits to such
filings that we have specifically incorporated by reference in such filings), at
no cost, by writing or telephoning our executive offices at the following
address:
Philips International Realty Corp.
Office of the President
417 Fifth Avenue
New York, New York 10016
(212) 545-1100
You should rely only on the information provided or incorporated by
reference in this prospectus or any related supplement. We have not authorized
anyone else to provide you with different information. We will not make an offer
of these shares in any state that prohibits such an offer. You should not assume
that the information in this prospectus or any supplement is accurate as of any
date other than the date on the cover page of such documents.
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All references in this prospectus to "common stock" refer to our common
stock, par value $.01 per share, and all references to "preferred stock" refer
to our preferred stock, par value $.01 per share. All references in this
prospectus to "common units" refer to the common units of limited partnership
interest in Philips International Realty, L.P.
INFORMATION ABOUT PHILIPS INTERNATIONAL REALTY CORP.
We, Philips International Realty Corp., are a self-advised real estate
investment trust formed to continue and expand the shopping center business of
certain affiliated companies owned or controlled by Philip Pilevsky known as the
Philips Group. We own, acquire for redevelopment, and develop neighborhood and
community shopping centers predominantly located in two major, densely
populated, east coast metropolitan regions: (i) the New York, northern New
Jersey, Long Island and Connecticut consolidated metropolitan statistical area
(the "New York CMSA") and (ii) the Miami-Fort Lauderdale consolidated
metropolitan statistical area (the "Miami CMSA").
Philip Pilevsky, Chairman of the Board of Directors and Chief Executive
Officer, leads our management team whose executive officers have an average of
approximately 16 years experience in acquiring, redeveloping and developing
retail properties. The Philips International Realty Corp. and Philips Group have
acquired, redeveloped and/or developed a total of 70 retail properties
encompassing over 5.4 million square feet within the New York CMSA and Miami
CMSA markets. Mr. Pilevsky and the other executive officers and directors
beneficially own, in the aggregate, approximately 22.6 percent of our
outstanding common stock (or units redeemable therefor).
On May 13, 1998, we completed a primary public stock offering of 7,200,000
shares of common stock at $17.50. Our common stock is listed on the New York
Stock Exchange under the ticker symbol "PHR."
Our strategy is to acquire for redevelopment and develop quality
neighborhood and community shopping centers, located in demographically strong,
under-stored markets which serve the daily needs of the surrounding community.
Twenty-one (21) of our properties anchored by national or regional supermarkets
or discount department stores such as Publix Supermarkets, Inc., Winn-Dixie
Stores, Inc., Wauldbaum/APW Supermarkets, Inc., and Kmart. Our portfolio
consists of interests in 26 properties encompassing 3.8 million square feet of
gross leasable area. Approximately 70% of our gross leasable area is located in
the New York CMSA and the Miami CMSA markets. We believe the strength of these
grocery and discount retailers, as well as other key anchor tenants, provide our
properties with consistent consumer traffic and enables us to attract additional
quality anchor retailers, as well as quality national, regional and local
non-anchor retailers. As of December 31, 1998, our properties were 94% leased to
392 tenants.
To ensure that we qualify as a REIT, the transfer of shares of our capital
stock including the common stock, is subject to certain restrictions. Ownership
of capital stock by any single person is limited to 8.0 percent of the value of
such capital stock, subject to certain exceptions. Our articles of incorporation
provide that any purported transfer in violation of the above-described
ownership limitations shall be void ab initio.
All of our interests in our properties are held by, and our operations are
conducted through, Philips International Realty, L.P., a Delaware limited
partnership. As of December 31, 1998, we were the beneficial owners of
approximately 74.8 percent of Philips International Realty, L.P., and are its
sole general partner.
We were incorporated in Maryland on July 16, 1997. Our executive offices
are located at 417 Fifth Avenue, New York, New York 10016, and our telephone
number is (212) 545-1100.
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RISK FACTORS
An investment in our securities involves various risks. You should
carefully consider the following risk factors and other information in this
prospectus before deciding to invest in our securities.
DEPENDENCE ON CERTAIN MARKET REGIONS AND PROPERTIES.
Dependence on Certain Market Regions. Nine of our properties are located
in either of the following major east coast metropolitan regions: (1) the New
York, northern New Jersey, Long Island and Connecticut metropolitan market area
or (2) the Miami-Fort Lauderdale metropolitan market area. As of December 31,
1998, the total weighted average annualized base rent due under leases with
tenants at properties located in such areas represented 84% of our total
annualized base rents due under all of our leases. Adverse economic developments
in these states could adversely impact the operations of our properties and,
therefore, our profitability. Since our portfolio consists primarily of retail
properties (as compared to a more diversified portfolio), a decline in the
economy or a decline in the demand for retail space may adversely affect our
ability to make distributions.
Dependence on Certain Properties. As of December 31, 1998, the total
annualized base rent due under leases with tenants at four of our properties
located in Hialeah, Florida represented 35% of our total annualized base rents
due under all of our leases. Adverse economic developments or a decline in
consumer demand for shopping centers in this area or at these four properties
could disproportionately and adversely affect our ability to make distributions.
CONFLICTS OF INTEREST.
Potential Conflicts With Management. Our executive officers, including
Mr. Philip Pilevsky and Ms. Sheila Levine, direct our day-to-day operations.
Philips International Holding Corp., a corporation that Mr. Pilevsky and
Ms. Levine own, manages such day-to-day operations pursuant to a management
agreement dated December 31, 1997 among us, Philips International Realty. L.P.
and Philips International Holding Corp. Mr. Pilevsky also has several other real
estate holdings and activities that are not part of our company. A limited
number of such holdings are retail properties that may compete with our
properties. Personnel of Philips International Holding Corp. will spend some of
their time managing the holdings of Mr. Pilevsky. This will prevent such
personnel from devoting their efforts full-time to managing our properties. The
failure of the such personnel to adequately serve us could adversely affect our
business.
Potential Conflicts With Other Real Estate Activities. In connection with
our and Philip International Realty, L.P.'s formation in December 1997, we
acquired twelve of our thirteen properties from holders of units of the Philips
International Realty, L.P. Certain of these holders, including Mr. Pilevsky and
Ms. Levine, continue to hold significant interests in real properties (including
retail properties that may compete with our properties) that they owned but did
not transfer to us at such time. While an amended and restated non-competition
agreement dated as of December 31, 1997 among us, Philips International Realty,
L.P., Philips International Holding Co., Mr. Pilevsky and Ms. Levine prevents
Mr. Pilevsky, Ms. Levine and Philips International Holding Corp. from acquiring,
operating and managing or developing certain retail shopping center properties
other than through us, it does not restrict their activities with respect to
retail properties they owned but did not transfer to us at the time of our
formation. As a result, Mr. Pilevsky will devote his professional time to
overseeing the management of our properties as well as overseeing the management
of other properties. The failure of Mr. Pilevsky to adequately serve us could
adversely affect our business.
Potential Conflicts With Holders of Units of Philips International Realty,
L.P. Holders of units of Philips International Realty, L.P., including
Mr. Pilevsky and Ms. Levine, may have interests that conflict with our and our
shareholders' interests. If we (1) sell or refinance certain properties or (2)
reduce indebtedness encumbering such properties, holders of units (particularly
Mr. Pilevsky and Ms. Levine who previously held interests in our properties) may
suffer worse tax consequences than we or our shareholders may suffer. To avoid
such consequences, Mr. Pilevsky and Ms. Levine, as executive officers and
directors of our company, could (1) influence our board of directors not to sell
or refinance a property even though such
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sale or refinancing might otherwise benefit us or (2) cause us to refinance a
property at a higher level of debt than would be in our best interest.
REAL ESTATE INVESTMENT CONSIDERATIONS.
General. Our ability to make distributions to our shareholders depends on
the ability of our properties to generate funds (including earned income and
capital appreciation) in excess of operating expenses (including scheduled
principal payments on debt and capital expenditure requirements). Events or
conditions that are beyond our control may adversely affect funds from
operations and the value of our properties. Such events or conditions could
include:
o changes in the general economic climate;
o material and adverse changes in capital market availability of debt
and/or equity;
o changes in local conditions such as oversupply of space or a reduction in
demand for rental space;
o decreased attractiveness of our properties to potential tenants;
o competition from other available space;
o our inability to provide adequate maintenance;
o increased operating costs, including insurance premiums and real estate
taxes, due to inflation and other factors which may not necessarily be
offset by increased rents;
o changes in laws and regulations (including tax, environmental and housing
laws and regulations) and agency or court interpretations of such laws
and regulations and the related costs of compliance;
o changes in interest rate levels and the availability of financing;
o the inability of a significant number of tenants to pay rent;
o our inability to rent space on favorable terms; and
o civil unrest, earthquakes and other natural disasters that may result in
uninsured losses.
Financially Distressed Tenants May Reduce Our Cash Flow. A tenant may
default or file for bankruptcy at any time. If a tenant defaults, we may
experience delays and incur substantial costs in enforcing our rights as
landlord and protecting our investments. If a tenant files for bankruptcy, a
potential court judgment rejecting and terminating such tenant's lease could
reduce our cash flow available for distribution. Two of our anchor tenants,
Caldor Inc. and Bradlees Stores Inc., currently operate under the protection of
the bankruptcy laws. Caldor Inc. leases 94,393 square feet at Elm Plaza Shopping
Center and 86,830 square feet at Branhaven Plaza and Bradlees Stores Inc. leases
60,000 square feet at Foxboro Plaza. Termination of any of such leases could
temporarily interrupt our rental income from (1) the tenant of the affected
space and (2) other tenants at the property whose income depends upon the
tenant's presence as an anchor store at such property.
Illiquidity of Real Estate Limits Our Ability to Act Quickly. Real estate
investments are relatively illiquid. Such illiquidity may limit our ability to
vary our portfolio quickly in response to changes in economic and other
conditions. If we want to sell a property, we might not be able to dispose of
such property in the time period we desire, and the sales price of such property
might not recoup or exceed the amount of our investment. The prohibition in the
Internal Revenue Code of 1986, as amended, and related regulations on a REIT
holding property for sale also may restrict our ability to sell property. Such
limitations on our ability to sell our investments could adversely affect our
ability to make distributions.
Americans With Disabilities Act Compliance Could Be Costly. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
and commercial facilities must meet certain federal requirements related to
access and use by disabled persons. Compliance with the ADA requirements could
involve removal of structural barriers to certain disabled persons' accesses.
Other federal, state and local laws may require modifications to or restrict
further renovations of our properties with respect to such accesses. Although we
believe that our properties are substantially in compliance with present
requirements,
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noncompliance with the ADA or related laws or regulations could result in the
United States government imposing fines or private litigants being awarded
damages against us. Such costs may adversely affect our ability to make
distributions.
Environmental Regulations Could Subject Us to Liability. Various federal,
state and local laws and regulations subject property owners or operators to
liability for the costs of removal or remediation of certain hazardous or toxic
substances located on or in the property. These laws often impose liability
without regard to whether the owner or operator was responsible for or even knew
of the presence of such substances. The presence of or failure to properly
remediate hazardous or toxic substances may adversely affect our ability to
rent, sell or borrow against contaminated property. Various laws and regulations
also impose on persons who arrange for the disposal or treatment of hazardous or
toxic substances at another location liability for the costs of removal or
remediation of such substances at the disposal or treatment facility. These laws
often impose liability whether or not the person arranging for such disposal
ever owned or operated the disposal facility. Certain other environmental laws
and regulations impose liability on owners or operators of property for injuries
relating to the release of asbestos-containing materials into the air. As owners
and operators of property and as potential arrangers for hazardous substance
disposal, we may be liable under such laws and regulations for removal or
remediation costs, governmental penalties, property damage, personal injuries
and related expenses. Payment of such costs and expenses could adversely affect
our ability to make distributions.
Within the last two years, independent environmental consultants completed
a "Phase I" environmental assessment of our properties. Although this
environmental assessment did not reveal any environmental liability that could
materially affect our financial condition or results of operations, you should
consider that (1) such assessment involved general inspections without soil
sampling or ground water analysis and may not have revealed all environmental
liabilities, (2) future laws, ordinances or regulations could impose material
environmental liability on us and (3) acts by tenants or other third parties and
the condition of land near our properties (such as the presence of underground
storage tanks) could adversely affect the condition of our properties and
subject us to environmental liability.
Competition Within Our Markets Could Reduce Our Cash Flow. Retailers at
our properties face increasing competition from other forms of retailing such as
catalogues, discount shopping clubs and telemarketing. We face increasing
competition for prospective tenants with landlords of shopping center properties
that may be newer in appearance, better located or better maintained than our
properties. Such competition may reduce our cash flow and adversely affect our
ability to make distributions by:
o interfering with our ability to attract and retain tenants in our
properties or in properties we develop or acquire;
o increasing vacancies which lowers market rental rates and limits our
ability to negotiate rental rates; and
o adversely affecting our ability to minimize expenses of operation.
Risks of Redevelopment and Development Projects. As part of our strategy,
we actively pursue (1) redevelopment projects and (2) development projects. In
addition to the risks involved in the ownership and operation of established
retail properties, included among the risks of redevelopment or development
projects that may adversely affect our cash available for distribution are the
following:
o failure to complete construction on schedule or within budget may
increase debt service expense and construction costs;
o we may incur predevelopment costs for projects we do not complete;
o inadequate occupancy or rental rates of a completed project may affect
our ability to pay operating expenses or earn our targeted rate of return
on our investment;
o an unsuccessful project could cause our losses to exceed our investment
in such project;
o financing for redevelopment and newly developed projects may not be
available to us on favorable terms;
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o long-term financing may not be available upon completion of construction;
and
o our distribution of 95 percent of our real estate investment trust
taxable income (to maintain our qualification as a real estate investment
trust) will limit our ability to finance acquisitions or new developments
with income or cash flow from operations.
Risks of Uninsured Losses. We carry comprehensive liability, fire, flood,
extended coverage and rental loss insurance. Our insurance policies contain
specifications, limits and deductibles comparable to those typically contained
in policies covering similar properties. We also carry owner's title insurance
policies on all of our properties for amounts that may be less than the full
value of our properties. If an uninsured loss or a loss from a title defect to a
property in excess of insured limits occurs, we could lose all or part of our
investment in and anticipated profits and cash flows from such property. In the
case of a title defect, we could remain obligated for any recourse mortgage
indebtedness or other financial obligations related to such property. Any of
such losses could adversely affect our ability to make distributions.
REAL ESTATE FINANCING RISKS.
Debt Financing and Debt Maturities. We are subject to the risks normally
associated with debt financing, including the following:
o our cash flow may be insufficient to meet required payments of principal
and interest;
o payments of principal and interest on borrowings may leave us with
insufficient cash resources to pay operating expenses;
o we may not be able to refinance indebtedness on our properties at
maturity;
o the terms of refinancing may not be as favorable as the terms of the
related indebtedness; and
o we could become more highly leveraged (because our policies and
organizational documents do not limit the amount of debt, ratio of debt
to total market capitalization or percentage of indebtedness we may
incur) and, therefore, default on our obligations and debt service
requirements.
As of December 31, 1998, we had outstanding an aggregate of approximately
$137.5 million of primarily mortgage indebtedness (including borrowings under
our senior revolving credit facility with Prudential Securities Credit
Corporation). As of December 31, 1998, we had outstanding an aggregate of
approximately $52.5 million under our senior revolving credit facility with
Prudential Securities Credit Corporation.
Inability to Refinance Indebtedness May Reduce Cash Flow. Because we may
not be able to pay all of our mortgage indebtedness prior to maturity with our
internally generated cash, we may need to repay such debt through refinancings
and/or equity offerings. If we are unable to refinance our indebtedness on
acceptable terms, or at all, events or conditions that may adversely affect our
cash flow and ability to make distributions include the following:
o we may need to dispose of one or more of our properties upon
disadvantageous terms;
o prevailing interest rates or other factors at the time of refinancing
could increase interest rates and, therefore, our interest expense;
o if we mortgage property to secure payment of indebtedness and are unable
to meet mortgage payments, the mortgagee could foreclose upon such
property or appoint a receiver to receive an assignment of our rents and
leases;
o certain of our mortgages encumbering properties have "cross default" or
"cross collateralization" provisions that entitle the secured lender to
certain remedies (including foreclosure) against more than one property;
and
o foreclosures upon mortgaged property could create taxable income without
accompanying cash proceeds and, therefore, hinder our ability to meet the
REIT distribution requirements of the Internal Revenue Code.
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Risk of Rising Interest Rates May Increase Costs. Advances under our
$100 million senior revolving credit facility with Prudential Securities Credit
Corporation will bear interest at rates ranging from 1.25 percent to 1.75
percent over the 30-day London Interbank Offered Rate based on the level of
borrowings outstanding relative to collateral value. We may incur additional
debt in the future that also bears interest at variable rates. Variable rate
debt creates higher debt service requirements if market interest rates increase.
Higher debt service requirements could adversely affect our cash flow and
ability to make distributions or cause us to default under certain debt
covenants.
DEPENDENCE ON KEY PERSONNEL. We are dependent upon our executive officers
for strategic business direction and real estate experience. While we believe
that we could find replacements for these key personnel, loss of their services
could adversely affect our operations. We cannot assure you that any of our
executive officers will remain with us. We have entered into employment
agreements with Louis J. Petra, Sheila Levine and Brian J. Gallagher. Although
we do not expect to enter into an employment agreement with Philip Pilevsky,
Mr. Pilevsky has a significant ownership interest in our company. We also have
entered into a non-competition agreement with each of Mr. Pilevsky and
Ms. Levine that prevents them from engaging in certain retail real estate
activities.
DISRUPTION IN OPERATIONS DUE TO YEAR 2000 PROBLEMS. The Year 2000 issue
concerns the potential exposures related to the automated generation of business
and financial misinformation resulting from the application of computer programs
which have been written using two digits, rather than four, to define the
applicable year of business transactions. We recognize the importance of
minimizing the frequency and significance of any disruptions in our business and
financial affairs that may occur as a result of Year 2000, and have adopted a
comprehensive compliance program designed to achieve this objective.
Our program encompasses the following:
o the assessment and modification, as necessary, of our internal
information technology systems that may be affected by the Year 2000
problem;
o the identification and interrogation of third parties, including tenants,
vendors, contractors and joint venture partners, to enable us to evaluate
and appropriately respond to the state of preparedness by such parties to
address Year 2000 problems; and
o the assessment of property operating systems to avert operational
malfunctions associated with Year 2000.
Our execution of our Year 2000 program is proceeding on schedule. Our
principal property management systems are licensed from and maintained by a
third party software development company which has modified its real estate
products to address the Year 2000 issue. Our expenditures on the initiatives to
date have been nominal, and our management does not anticipate any significant
future costs or problems associated with becoming Year 2000 compliant.
The failure to correct a material Year 2000 problems could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third parties, we are unable to determine at this time
whether the consequences of failing to adequately address all Year 2000 concerns
will have a material impact on our results of operations, liquidity or financial
condition. We expect our Year 2000 program to significantly reduce our level of
uncertainty about the Year 2000 problem. We believe that, with appropriate
modification of our information and operating systems and completion of the
program as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
Certain statements in this Year 2000 issue discussion regarding our efforts
to become Year 2000 compliant, the timing thereof and costs associated therewith
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although we believe the statements and
projections are based upon reasonable assumptions, actual results may differ
from those that we have projected.
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INABILITY TO MAKE REQUIRED DISTRIBUTIONS TO SHAREHOLDERS COULD AFFECT REIT
STATUS. For the Internal Revenue Service to treat us as a real estate
investment trust under the Internal Revenue Code, we must distribute to our
shareholders at least 95 percent of our real estate investment trust taxable
income each year. We cannot assure you that we will satisfy the annual
distribution requirement to qualify as a real estate investment trust.
Reliance on Board of Directors to Determine Distributions. Much of our
income will consist of our allocable share of the income of Philips
International Realty, L.P. and much of our cash flow will consist of
distributions from Philips International Realty, L.P. Our board of directors
will determine distributions by Philips International Realty, L.P. In making
such determination, the board of directors may consider many factors, including
the following:
o the amount of cash available for distribution;
o Philips International Realty, L.P.'s financial condition;
o Philips International Realty, L.P.'s capital expenditure requirements;
o the annual distribution requirement under the real estate investment
trust provisions of the Internal Revenue Code; and
o such other factors as our board of directors deems relevant.
Risk of Borrowing Funds to Meet Distribution Requirements. We may need to
borrow funds on a short-term or long-term basis to meet the distribution
requirements for real estate investment trust qualification even if the then
prevailing market conditions are not favorable for borrowings. Our need to
borrow such funds depends on (1) differences in timing between the receipt of
income and the payment of expenses in arriving at taxable income (of us or
Philips International Realty, L.P.) and (2) the effect of nondeductible capital
expenditures, the creation of reserves or required debt amortization payments.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION. Our failure to qualify as a real estate investment trust
for federal income tax purposes could adversely affect our financial and other
conditions.
Tax Liabilities as a Consequence of Failure to Qualify as a REIT. We have
operated so as to qualify as a real estate investment trust for federal income
tax purposes since our taxable year ended December 31, 1997. Although we believe
we will continue to operate in such manner, we cannot guarantee you that we
will. Qualification as a real estate investment trust depends on our meeting
various requirements (some on an annual and quarterly basis) established under
highly technical and complex tax provisions of the Internal Revenue Code.
Because few judicial or administrative interpretations of such provisions exist
and qualification determinations are fact sensitive, we cannot assure you that
we will qualify as a real estate investment trust for any taxable year.
If we fail to qualify as a real estate investment trust in any taxable
year, we will be subject to the following:
o we will not be allowed a deduction for distributions to shareholders;
o we will be subject to federal income tax at regular corporate rates,
including any alternative minimum tax, if applicable; and
o unless we are entitled to relief under certain statutory provisions, we
will not be permitted to qualify as a real estate investment trust for
the four taxable years following the year during which we were
disqualified.
A loss of real estate investment trust status would reduce our net earnings
available for investment or distribution to our shareholders. Failure to qualify
as a real estate investment trust also would eliminate the requirement that
distributions to our shareholders be made.
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Other Tax Liabilities. Even if we qualify as a real estate investment
trust, we are subject to certain federal, state and local taxes on our income
and property and, in some circumstances, certain other state taxes.
Risk of Changes in the Tax Law Applicable to REITs. Since the Internal
Revenue Service, the United States Treasury Department and Congress frequently
review federal income tax legislation, we cannot predict whether, when or to
what extent new federal tax laws, regulations, interpretations or rulings will
be adopted. Any of such legislative action may prospectively or retroactively
modify our tax treatment and, therefore, may adversely affect taxation of us or
our shareholders.
CERTAIN PROVISIONS MAY INHIBIT CHANGES IN CONTROL. Certain provisions of
the Maryland General Corporation Law, our articles of incorporation, our by-laws
and Philips International Realty, L.P.'s partnership agreement may (1) inhibit a
change in control of our company, (2) inhibit the removal of existing management
or (3) prevent us from paying you a premium for your shares of our common stock
over the then-prevailing market prices.
Staggered Board of Directors. We divide our board of directors into three
classes serving staggered three-year terms. This may inhibit a change in control
of our company.
New Classes and Series. Under our articles of incorporation, our board of
directors may create new classes and series of securities and establish
preferences and rights of such classes and series. Our issuance of additional
classes or series of our capital stock may inhibit a change of control of our
company.
Ownership Limit. Under our articles of incorporation and certain
resolutions of our board of directors, no one may acquire or own more than
8.0 percent of the outstanding shares of our capital stock (except for
Mr. Pilevsky who may own up to 17.5 percent of such shares) and no one may own
or acquire shares of any class of our capital stock that would (1) cause five or
fewer persons to own more than 50 percent in value of our shares of capital
stock or (2) otherwise cause us to fail to qualify as a real estate investment
trust. See "Description of Securities--Ownership Limit." Such ownership limit
may:
o discourage a change of control of our company;
o deter tender offers for our capital stock that you may find attractive;
or
o limit your opportunity to receive a premium for your capital stock that
might otherwise exist if an investor attempted to assemble a block of
capital stock in excess of the ownership limit or to effect a change in
control of our company.
Rights of Limited Partners. Under Philips International Realty, L.P.'s
partnership agreement, we may not engage in any of the following transactions
unless all limited partners of Philips International Realty, L.P. will receive
(or have the right to receive) for each unit an amount of cash, securities or
other property equal to the product of (1) the number of shares of our common
stock for which each unit is redeemable and (2) the greatest amount of cash,
securities or other property paid to the holder of shares of common stock
pursuant to the terms of such transaction:
o a merger, consolidation or other combination with or into another person
o a sale of all or substantially all of our assets; or
o any reclassification, recapitalization or change of our outstanding
equity interests.
If, in connection with any of the above transactions, the holders of outstanding
shares of our common stock accepts a purchase, tender or exchange offer, each
holder of units of Philips International Realty, L.P. will receive (or have the
right to receive) the greatest amount of cash, securities or other property
which such holder would have received had it (1) exercised its right to
redemption and (2) received shares of common stock in exchange for its units
immediately prior to the expiration of such purchase, tender or exchange offer
and then accepted such purchase, tender or exchange offer.
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OUR BOARD OF DIRECTORS MAY CHANGE INVESTMENT AND FINANCING POLICIES WITHOUT YOUR
VOTE.
General. Our board of directors determines (1) our investment and
financing policies, (2) our growth strategy, and (3) our debt, capitalization,
distribution and operating policies. At any time and without your approval, the
board of directors may revise or amend these policies and strategies. Such
changes could adversely affect our financial condition or results of operations,
and, therefore, our ability to make distributions.
Issuance of Additional Securities. You do not have any preemptive right to
acquire any common stock or other equity or debt securities we may offer. Any
such issuance of securities could dilute your investment.
Risks Involved in Acquisitions Through Partnerships or Joint Ventures. We
may invest in properties through partnerships or joint ventures. Partnership or
joint venture investments may involve risks not involved with direct
acquisitions that include the following:
o a co-venturer or partner in an investment may become bankrupt;
o a co-venturer's or partner's economic or business interests or goals may
conflict with our interests or goals;
o a co-venturer or partner may act contrarily to our instructions,
requests, policies or objectives; and
o our articles of incorporation do not limit the amount we may invest in
such joint ventures or partnerships.
Risks of Investing in Securities of Entities Owning Real Estate. We may
acquire securities of entities that own real estate. Because of ownership limits
and gross income requirements we must meet to maintain our real estate
investment trust qualification, we may not be able to control (1) the ownership,
operation and management of the underlying real estate or (2) the distributions
with respect to such securities. Our lack of control could adversely affect our
ability to make required distributions.
Risks of Investing in Mortgages. We may invest in mortgages. Investments
in mortgages may include the following risks that may adversely affect our
ability to make distributions:
o borrowers may be unable to make debt service payments or pay principal
when due;
o the principal of the mortgage note securing a property may exceed the
value of the mortgaged property; and
o interest rates payable on the mortgages may be lower than our cost of
funds to acquire such mortgages.
ADVERSE EFFECT OF INCREASING MARKET INTEREST RATE LEVELS ON PRICE OF COMMON
STOCK. The annual distribution rate on the price paid for shares of our common
stock (compared to rates on alternative investments) may influence the public
market price of our common stock. An increase in general interest rate levels
may lead purchasers of our common stock to demand a higher annual distribution
rate. Such demands could adversely affect the market price of our common stock.
USE OF PROCEEDS
We are required by the terms of the Amended and Restated Agreement of
Limited Partnership of Philips International Realty, L.P. to invest the net
proceeds of any sale of common stock or preferred stock in Philips International
Realty, L.P. in exchange for additional units of limited partnership interest.
We will state the specific amount and intended use of net proceeds from the sale
of any securities offered by this prospectus supplement relating to such a sale.
Unless we describe otherwise in the applicable prospectus supplement, we intend
to use the net proceeds from the sale of the securities being offered for
general corporate purposes. These general corporate purposes include the
acquisition for redevelopment and development of neighborhood and community
shopping centers as suitable opportunities arise, the expansion and improvement
of certain properties in our portfolio and the repayment of indebtedness.
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DESCRIPTION OF COMMON STOCK
AUTHORIZED CAPITAL STOCK
Pursuant to our articles of incorporation, we have the authority to issue
150,000,000 shares of common stock, par value $0.01 per share. At February 8,
1999, 7,340,474 shares of common stock were issued and outstanding.
VOTING, DIVIDEND AND OTHER RIGHTS
Each outstanding share of common stock entitles the holder to one vote on
all matters presented to shareholders for a vote, subject to the provisions of
our articles of incorporation regarding the restrictions on transfer of such
stock, discussed in "Restrictions on Transfer" below. Holders of shares of
common stock do not have any cumulative voting rights. This means that the
holders of a majority of the outstanding shares of common stock can elect all of
the directors then standing for election and the holders of the remaining shares
will not be able to elect any directors. Holders of shares of common stock do
not have preemptive rights to subscribe for any of our securities. All shares of
common stock will, when issued, be duly authorized, fully paid, and
nonassessable. We may pay distributions to the holders of shares of common stock
if and when our board of directors declares such dividends out of legally
available funds.
RIGHTS UPON LIQUIDATION
Under Maryland law, our shareholders generally are not liable for our debts
or obligations. Upon our liquidation, subject to the right of any holders of
preferred stock to receive preferential distributions, each holder of common
stock may participate pro rata in the assets remaining after payment of, or
adequate provision for, all of our known debts and liabilities. Such debts and
liabilities may arise from our status of general partner of Philips
International Realty, L.P.
OWNERSHIP LIMIT
Pursuant to our articles of incorporation and resolutions of our board of
directors, with certain exceptions, no person may own, or be deemed to own by
virtue of the attribution rules of the Internal Revenue Code, more than
8.0 percent of the value of our issued and outstanding shares of capital stock.
See "Restrictions on Transfer" below.
TRANSFER AGENT
Boston EquiServe is the registrar and transfer agent for our common stock.
RESTRICTIONS ON TRANSFER
Ownership Limit. For us to qualify as a real estate investment trust under
the Internal Revenue Code, we must meet the following requirements concerning
the ownership of outstanding shares of our capital stock:
o five or fewer individuals (as defined in the Internal Revenue Code to
include certain entities) may not collectively own, directly or
indirectly, more than 50 percent of the value of our outstanding capital
stock during the last half of a taxable year; and
o at least 100 persons during at least 335 days of a taxable year or during
a proportionate part of a shorter taxable year must beneficially own our
capital stock.
Further, under our articles of incorporation, subject to certain exceptions, no
holder of shares of our capital stock may own, or be deemed to own by virtue of
the attribution rules of the Internal Revenue Code, more than 6.5 percent by
value of our outstanding capital stock. Our articles of incorporation authorizes
our board of directors to, by resolution, increase such percentage up to
9.8 percent. Our board of directors has by resolution set the ownership limit at
8.0 percent of the issued and outstanding shares of capital stock. Such limit
will be referred to in this prospectus as the "Ownership Limit."
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Exemption from Ownership Limit Upon Waiver by Board of Directors. Our
board of directors may exempt a person from the Ownership Limit if the board of
directors or our tax counsel is satisfied that such ownership will not then or
in the future jeopardize our status as a real estate investment trust. To obtain
such exemption, the intended transferee of shares of our capital stock must
(1) give us written notice of the proposed transfer and (2) furnish such
opinions of counsel, affidavits, undertakings, agreements and information as the
board of directors may require no later than the 15th day before any transfer
which could cause the intended transferee's direct or beneficial ownership of
shares to exceed the Ownership Limit. If the board of directors decides that it
is no longer in our best interests to continue to qualify as a real estate
investment trust, then the restrictions on transferability and ownership will
not apply.
Exemption from Ownership Limit for Philip Pilevsky. Our board of directors
has exempted Mr. Pilevsky from the Ownership Limit. The board of directors has
set Mr. Pilevsky's ownership limit at 17.5 percent of the issued and outstanding
shares of our capital stock.
Null and Void Transfers. A transfer of shares of capital stock shall be
null and void and the intended transferee of such shares will not acquire any
rights in such shares if the transfer would:
o create a direct or indirect ownership of shares of stock in excess of the
Ownership Limit;
o result in the shares of stock being owned by fewer than 100 persons; or
o result in our being "closely held" within the meaning of
Section 856(h) of the Internal Revenue Code.
Shares Transferred in Excess of Ownership Limit. We will automatically
deem shares of capital stock transferred to a shareholder in excess of the
Ownership Limit as shares of excess stock. By operation of law, we will
automatically transfer such shares to the trustee of a trust for the exclusive
benefit of one or more charitable organizations (as described in 170(b)(1)(A),
170(c)(2) and 501(c)(3) of the Internal Revenue Code) that we select. We will
deem the trustee of such trust to own such shares for the benefit of the
charitable beneficiary on the date of the violative transfer to the original
transferee-shareholder. Any such transfer is subject to several provisions,
including but not limited to the following:
o we will rescind as void ab initio any dividend or distribution we have
authorized and declared but not paid to the original
transferee-shareholder and we will pay such sum to the trustee for the
benefit of the charitable beneficiary;
o we will rescind as void ab initio any vote cast by an original
transferee-shareholder prior to the discovery of the violative transfer;
o while the excess shares are held in trust and subject to the restriction
that we have not already taken irreversible action, we will deem the
original transferee-shareholder as having given an irrevocable proxy to
the trustee to vote such shares for the benefit of the charitable
beneficiary; and
o we may require the trustee to sell, subject to certain pricing and timing
restrictions, the excess stock to a person or entity whose ownership of
the shares of our capital stock would be permitted or to us.
Certificate Legend Referring to Restrictions. All certificates
representing shares of our common stock will bear a legend referring to the
restrictions described in the above section entitled "Restrictions on
Transfer--Null and Void Transfer."
Required Disclosures by Shareholders. Every shareholder must, upon our
demand, provide in writing information that we may request to determine the
effect of such shareholder's direct, indirect and constructive ownership of such
shares on our status as a real estate investment trust.
Effect of Ownership Limits on Control of Our Company. The ownership
limitations set forth in this prospectus may prevent, defer or delay the
acquisition of control of our company without the consent of the board of
directors.
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DESCRIPTION OF PREFERRED STOCK
AUTHORIZED CAPITAL STOCK
Pursuant to our articles of incorporation, we have the authority to issue
up to 30,000,000 shares of preferred stock, par value $.01 per share. We do not
have any outstanding shares of preferred stock as of the date of this
prospectus.
Under our articles of incorporation, we may issue shares of preferred stock
from time to time, in one or more series, as authorized by our board of
directors. Prior to our issuing preferred stock, our board of directors is
required by the Maryland General Corporation Law and our articles of
incorporation to adopt resolutions and file articles supplementary with the
State Department of Assessments and Taxation of Maryland. Such articles
supplementary will state the designations, powers, preferences and rights of the
shares of the series of preferred stock and any qualifications, limitations or
restrictions. These include, among other things, dividend rights, dividend rate
or rates, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences as are permitted by Maryland law. Because our board of
directors establishes the terms and conditions of each series of preferred
stock, it may give the holders of any series of preferred stock power,
preferences and rights, voting or otherwise, which are senior to the rights of
holders of shares of our common stock. The issuance of preferred stock could
delay or prevent a change in our control.
We are providing a description of the preferred stock which sets forth
certain general terms and provisions to which any prospectus supplement may
relate. The statements below describing the preferred stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of our articles of incorporation (including the applicable articles
supplementary) and bylaws.
GENERAL
Subject to limitations in Maryland law and our articles of incorporation
and bylaws, our board of directors is authorized to fix the number of shares
constituting each series of preferred stock and the applicable designations,
powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions. This includes provisions
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and other subjects or matters as decided by
resolution of our board of directors or a duly authorized committee of the board
of directors. The preferred stock will be fully paid and nonassessable when
issued.
We refer you to the prospectus supplement for specific terms relating to
the series of preferred stock offered by such prospectus supplement, including:
(1) the title and stated value of such preferred stock;
(2) the number of shares of such preferred stock offered, the
liquidation preference per share and the offering price of such preferred
stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such preferred stock;
(4) whether dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which dividends on such preferred stock will
accumulate;
(5) the procedures for any auction and remarketing, if any, for such
preferred stock;
(6) the provisions for a sinking fund, if any, for such preferred
stock;
(7) any voting rights of such preferred stock;
(8) the provisions for redemption, if applicable, of such preferred
stock;
(9) any listing of such preferred stock on any securities exchange;
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(10) the terms and conditions, if applicable, upon which such
preferred stock will be convertible into our common stock, including the
conversion price (or manner of calculation) and conversion period;
(11) if appropriate, a discussion of United States federal income tax
considerations applicable to such preferred stock;
(12) any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
our status as a real estate investment trust;
(13) the relative ranking and preferences of such preferred stock as
to dividend rights and rights upon the liquidation, dissolution or winding
up of our affairs;
(14) any limitations on our issuance of any series of preferred stock
which is senior or equal to such series of preferred stock as to dividend
rights and rights upon the liquidation, dissolution or winding up of our
affairs; and
(15) any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock.
RANK
Unless otherwise stated in the prospectus supplement, the preferred stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up, rank:
o senior to all classes or series of our common stock, and to all equity
securities ranking junior to the preferred stock;
o equal to all of our equity securities whose terms specifically provide
that the equity securities rank equal to the preferred stock; and
o junior to all of our equity securities whose terms specifically provide
that the equity securities rank senior to the preferred stock.
For these purposes, the term "equity securities" as used in our articles of
incorporation, does not include convertible debt securities.
DIVIDENDS
Unless we specify otherwise in the prospectus supplement, you, as the
holders of the preferred stock will have the rights to receive dividends as set
forth below.
You, as holders of shares of the preferred stock of each series, will be
entitled to receive cash dividends, when, as and if declared and authorized by
our board of directors. We will pay these dividends out of our assets legally
available for such payment, at such rates and on such dates as stated in the
applicable prospectus supplement. We shall pay each dividend to holders of
record as they appear on our stock transfer books on the record dates fixed by
our board of directors.
Dividends on any series of our preferred stock may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement. If
cumulative, the dividends will accumulate from the date stated in the applicable
prospectus supplement. If our board of directors fails to declare a dividend
payable on a dividend payment date on any series of the preferred stock which
has noncumulative dividends, then you, as holders of such series of the
preferred stock, will not have the right to receive a dividend for the dividend
period ending on such dividend payment date. We will not have the obligation to
pay the dividend accrued for such period, whether or not our board of directors
declares dividends on such series payable on any future dividend payment date.
If any shares of our preferred stock of any series are outstanding, we
shall not declare or pay full dividends or set apart for payment on our
preferred stock of any other series which ranks equal or junior to the preferred
stock of such series for any period unless:
o if such series of preferred stock has a cumulative dividend, we have
declared and paid full cumulative dividends or declared and irrevocably
set apart a sufficient sum for the payment of full cumulative
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dividends on the preferred stock of such series for all past dividend
periods and the current dividend period; or
o if such series of preferred stock does not have a cumulative dividend, we
have declared and paid full dividends for the then current dividend
period or declared and irrevocably set apart a sufficient sum for the
payment of the full dividends for such payment on the preferred stock we
have of such series.
When we do not pay dividends in full (or we do not irrevocably set apart a
sufficient sum for such full payment) upon the shares of preferred stock of any
series and the shares of any other series of preferred stock ranking equal as to
dividends, we shall declare all dividends previously declared upon shares of
preferred stock of such series and any other series of preferred stock ranking
equal as to dividends pro rata so that the amount of dividends we have declared
per share on the preferred stock of such series and such other series of
preferred stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of preferred stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such preferred stock does not have a cumulative
dividend) and such other series of preferred stock bear to each other. Except as
may otherwise be set forth in the applicable prospectus supplement, we will not
pay interest, or a sum of money in lieu of interest, in respect of any dividend
payment or payments on preferred stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, if:
(1) such series of preferred stock has a cumulative dividend, and we
have declared and paid full cumulative dividends on the preferred stock of
such series or we have irrevocably set apart a sum sufficient for the
payment of full cumulative dividends for all past dividend periods and the
current dividend period; or
(2) such series of preferred stock does not have a cumulative
dividend, we have declared and paid full dividends on the preferred stock
of such series or we have irrevocably set apart a sum sufficient for the
payment of full dividends for the current dividend period,
then, we shall not pay or set aside for payment any dividends (other than in
common stock or other capital stock ranking junior to the preferred stock of
such series as to dividends and upon liquidation, dissolution or winding up)
upon the common stock or any other of our capital stock ranking junior to or
equal to the preferred stock of such series as to dividends or upon liquidation,
dissolution or winding up, nor shall we redeem, purchase or otherwise acquire
for any consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) any common stock or any
of our other capital stock ranking junior to or equal to the preferred stock of
such series as to dividends or upon liquidation, dissolution or winding up
(except by conversion into or exchange for our other capital stock ranking
junior to the preferred stock of such series as to dividends and upon
liquidation, dissolution or, winding up).
We shall first credit any dividend payment made on shares of a series of
preferred stock against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If we provide in the applicable prospectus supplement, the shares of
preferred stock will be subject to mandatory redemption or redemption at our
option. We may redeem the shares of preferred stock as a whole or in part,
pursuant to the term, times and redemption prices set forth in such prospectus
supplement.
The prospectus supplement relating to a series of preferred stock that is
subject to mandatory redemption will state the number of shares of such
preferred stock that we will redeem in the year specified. The prospectus
supplement will also state the redemption price per share, together with an
amount equal to all accrued and unpaid dividends (which shall not, if such
preferred stock does 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.
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Notwithstanding the foregoing:
(1) if such series of preferred stock has a cumulative dividend and we
have declared and paid full cumulative dividends on all shares of any
series of preferred stock or we have declared and irrevocably set apart a
sufficient amount for the payment of full cumulative dividends for all past
dividend periods and the current dividend period; or
(2) if such series of preferred stock does not have a cumulative
dividend and we have declared and paid full dividends on the preferred
stock of any series or we have declared and irrevocably set apart a
sufficient amount for the payment of full dividends for the current
dividend period,
then we will not redeem any shares of any series of preferred stock unless all
outstanding shares of preferred stock of such series are simultaneously
redeemed. However, this will not prevent the purchase or acquisition of shares
of preferred stock of such series pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of preferred stock of
such series.
In addition:
(1) if such series of preferred stock has a cumulative dividend and we
have declared and paid full cumulative dividends on all outstanding shares
of any series of preferred stock or we have declared and irrevocably set
apart a sufficient amount for the payment of full cumulative dividends for
all past dividend periods and the then current dividend period; and
(2) if such series of preferred stock does not have a cumulative
dividend and we have declared and paid full dividends on the preferred
stock of any series or we have declared and irrevocably set apart a
sufficient amount for the payment of full dividends for the current
dividend period,
then unless items 1 and 2 above have occurred, we shall not purchase or
otherwise acquire directly or indirectly any shares of preferred stock of such
series (except by conversion into or exchange for our capital stock ranking
junior to the preferred stock of such series as to dividends and upon
liquidation, dissolution or winding up). However, this shall not prevent the
purchase or acquisition of shares of preferred stock of such series to preserve
our real estate investment trust status or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of preferred
stock of such series.
If fewer than all of the outstanding shares of preferred stock of any
series will be redeemed, we will determine the number of shares to be redeemed
and we may redeem such shares 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 any other equitable
method we determine that will not violate the ownership limitations set forth in
our articles of incorporation.
We will mail a notice of redemption at least 30 days but not more than
60 days before the redemption date to you, as holder of record of a share of
preferred stock at the address shown on our stock transfer books. Each notice
shall state:
o the redemption date;
o the number of shares and series of the preferred stock to be redeemed;
o the redemption price;
o the place or places where certificates for such preferred stock are to be
surrendered for payment of the redemption price;
o that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and
o the date upon which the holder's conversion rights, if any, as to such
shares shall terminate.
If less all the shares of preferred stock of any series are to be redeemed,
we will state in the notice the number of shares of preferred stock to be
redeemed from each holder. If we give notice of redemption of any
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shares of preferred stock and if we have irrevocably set apart funds necessary
for such redemption in trust, then from the redemption date forward:
o dividends will cease to accrue on such shares of preferred stock;
o the shares of preferred stock shall no longer be deemed outstanding; and
o all rights of the holders of such shares will terminate, except the right
to receive the redemption price.
LIQUIDATION PREFERENCE
If we liquidate, dissolve or wind up our affairs, you, as the holders of
each series of preferred stock shall be entitled to receive out of our assets
legally available for distribution to stockholders, the following distributions
before any distribution or payment shall be made to the holders of any common
stock or any other class or series of our capital stock ranking junior to the
preferred stock:
o liquidating distributions in the amount of the liquidation preference per
share (set forth in the applicable prospectus supplement and articles
supplementary);
o plus an amount equal to all accrued and unpaid dividends (which shall not
include any accumulation of unpaid dividends for prior dividend periods
if such preferred stock does not have a cumulative dividend).
Except as we may otherwise provide in the applicable prospectus supplement,
you, as the holders of preferred stock will have no right or claim to any of our
remaining assets after payment of the full amount of the liquidating
distributions to which they are entitled. If, upon any such voluntary or
involuntary liquidation, dissolution or winding up, we do not have enough
legally available assets to pay the amount of the liquidating distributions on
all outstanding shares of preferred stock and the corresponding amounts payable
on all shares of other classes or series of our capital stock ranking equal with
the preferred stock, then the holders of the preferred stock and all other such
classes or series of capital stock 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 we have made full liquidating distributions to all holders of shares of
preferred stock, our remaining assets shall be distributed among the holders of
any other classes or series of capital stock ranking junior to such preferred
stock upon liquidation, dissolution or winding up, according to their respective
rights and preferences and their respective number of shares. For this purpose,
our consolidation or merger with or into any other corporation, or the sale,
lease, transfer or conveyance of all or substantially all of our property or
business shall not be deemed to constitute a liquidation, dissolution or winding
up.
VOTING RIGHTS
You, as holders of the preferred stock, will not have any voting rights,
except as set forth below or as otherwise from time to time required by law or
as indicated in the applicable prospectus supplement.
Except as we may otherwise set forth in the applicable prospectus
supplement, whenever dividends on any shares of preferred stock shall remain
unpaid for the equivalent of six or more quarterly periods, you, as the holders
of such shares of preferred stock (voting separately as a class with all other
series of preferred stock upon which equal voting rights have been conferred and
are exercisable) will be entitled to vote for the election of two of our
additional directors at the next annual meeting of stockholders, and at each
subsequent annual meeting, until:
(1) if such series of preferred stock has a cumulative dividend, we
have fully paid all dividends accumulated on such shares of preferred stock
for the past dividend periods and the current dividend period or we have
declared and irrevocably set apart a sufficient sum for the payment of the
dividends; or
(2) if such series of preferred stock does not have a cumulative
dividend, we have fully paid four consecutive quarterly dividends or we
have declared and irrevocably set apart a sufficient sum for the payment of
the dividends. In this case, our entire board of directors will be
increased by two directors.
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Unless provided otherwise, for any series of preferred stock, so long as
any shares of preferred stock remain outstanding, we shall not, without the
affirmative vote or consent of the holders of at least 66 percent of the shares
of each series of preferred stock (each such series voting separately as a
class):
(1) authorize or increase the authorized or issued amount of, any
class or series of capital stock ranking senior to such series of preferred
stock with respect to payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up or reclassify any authorized
capital stock 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
(2) amend, alter or repeal the provisions of our articles of
incorporation (including the articles supplementary for such series of
preferred stock), whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference, privilege or voting
power of such series of preferred stock or the holders thereof.
However, any increase in the amount of the authorized preferred stock or the
creation or issuance of any other series of preferred stock, or any increase in
the amount of authorized shares of such series or any other series of preferred
stock, in each case ranking equal or junior to the preferred stock of such
series with respect to payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of preferred stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
preferred stock are convertible into common stock will be set forth in the
applicable prospectus supplement. These terms will include the number of shares
of common stock into which the preferred stock is convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at our option or at the option of the holders of
the preferred stock, the events requiring an adjustment of the conversion price
and provisions affecting conversion in the event of the redemption of such
preferred stock.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, our articles of incorporation provide that no
person may own, or be deemed to own by virtue of the attribution rules of the
Internal Revenue Code, more than 8.0 percent of the value of our issued and
outstanding shares of capital stock. See "Restrictions on Ownership of the
Securities Being Offered" on page 24. These ownership limitations could have the
effect of discouraging a takeover or other transaction in which holders of some,
or a majority, of shares of our capital stock might receive a premium for their
shares over the then prevailing market price or which such holders might believe
to be otherwise in their best interest.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
We may issue receipts for depositary shares, each representing a fractional
interest of a share of a particular class or series of preferred stock, as
specified in the applicable prospectus supplement. We shall deposit shares of a
class or series of preferred stock represented by depositary shares under a
separate deposit agreement among us and the depositary named in the deposit
agreement. Subject to the terms of the deposit agreement, you, as the owner of a
depositary receipt, will be entitled to all the rights and preferences of the
class or series of the preferred stock represented by such depositary shares
(including dividend, voting, conversion, redemption and liquidation rights) in
proportion to the fractional interest of a share of a particular class or series
of preferred stock represented by the depositary shares evidenced by such
depositary receipt.
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The depositary shares will be evidenced by depositary receipts issued
pursuant to the applicable deposit agreement. Immediately following our issuance
and delivery of the preferred stock to a preferred stock depositary, we will
cause the preferred stock depositary to issue on our behalf, the depositary
receipts. You may obtain copies of the applicable form of deposit agreement and
depositary receipt from the us upon request. The statements made relating to the
deposit agreement and the depositary receipt to be issued are summaries of
certain anticipated provisions and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable deposit agreement and related depositary receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The preferred stock depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of preferred stock
to the record holders of depositary receipts evidencing the related depositary
shares in proportion to the number of the such depositary receipts owned by the
holders. This distribution is subject to the holders' obligations to file
proofs, certificates and other information and to pay certain charges and
expenses to the preferred stock depositary.
In the event of a non-cash distribution, the preferred stock depositary
will distribute property received by it to the record holders of depositary
receipts, unless such preferred stock depositary determines that it is not
feasible to make such distribution. In that case the preferred stock depositary
may, with our approval, sell such property and distribute the net proceeds from
such sale to the holders. This non-cash distribution is subject to the holders'
obligations to file proofs, certificates and other information and to pay
certain charges and expenses to the preferred stock depositary.
The preferred stock depositary will not make any distribution in respect of
any depositary share to the extent that it represents any class or series of
preferred stock that has been converted or exchanged.
WITHDRAWAL OF STOCK
When you surrender the depositary receipts at the corporate trust office of
the preferred stock depositary (unless the related depositary shares have
previously been called for redemption or converted), you, as the holders, will
be entitled to receive the number of whole or fractional shares of the class or
series of preferred stock and any money or other property represented by the
depositary shares evidenced by such depositary receipts. You, as holders of
depositary receipts, will be entitled to receive whole or fractional shares of
the related class or series of preferred stock on the basis of the proportion of
preferred stock represented by each depositary share as specified in the
applicable prospectus supplement. Holders of such shares of preferred stock will
not thereafter be entitled to receive depositary shares therefor. If the
depositary receipts delivered by the holder show a number of depositary shares
greater than the number of depositary shares representing the number of shares
of preferred stock to be withdrawn, the preferred stock depositary will deliver
to such holder at the same time a new depositary receipt evidencing the greater
number of depositary shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever we redeem shares of preferred stock held by the preferred stock
depositary, the preferred stock depositary will redeem as of the same redemption
date, the number of the depositary shares representing shares of such class or
series of preferred stock redeemed. Such redemption will be made provided that
we have paid in full to the preferred stock depositary the redemption price of
the preferred stock plus an amount equal to any accrued and unpaid dividends to
the redemption date. The redemption price per depositary share will be equal to
the corresponding proportion of the redemption price and any other amounts per
share payable with respect to such class or series of preferred stock. If less
all the depositary shares are to be redeemed, the depositary shares to be
redeemed will be selected pro rata (as nearly as may be practicable without
creating fractional depositary shares) or by any other equitable method
determined by the depositary.
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After the redemption date,
o all dividends in respect of the shares of a class or series of preferred
stock called for redemption will stop accruing;
o the depositary shares called for redemption will no longer be deemed to
be outstanding; and
o all rights of the holders of the depositary receipts evidencing the
depositary shares called for redemption will end, except the right to
receive any moneys payable upon such redemption and any money or other
property to which the holders of the depositary receipts were entitled
upon such redemption upon surrender to the preferred stock depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which you, as the holders of a
class or series of preferred stock deposited with the preferred stock depositary
are entitled to vote, the preferred stock depositary will mail the information
contained in such notice of meeting to the record holders of the depositary
receipts evidencing the depositary shares which represent such class or series
of preferred stock. Each record holder of depositary receipts evidencing
depositary shares on the record date (which will be the same date as the record
date for such class or series of preferred stock) will be entitled to instruct
the preferred stock depositary as to the exercise of the voting rights
pertaining to the amount of preferred stock represented by such holder's
depositary shares. The preferred stock depositary will vote the amount of such
class or series of preferred stock represented by such depositary shares
according to your instructions. We agree to take all reasonable action required
by the preferred stock depositary in order to enable the preferred stock
depositary to do so. The preferred stock depositary will not vote the amount of
preferred stock represented by such depositary shares to the extent it does not
receive specific instructions from you, as the holder.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up, whether
voluntary or involuntary, the holders of each depositary receipt will be
entitled to the fraction of the liquidation preference accorded each share of
preferred stock represented by the depositary share evidenced by such depositary
receipt as set forth in the applicable prospectus supplement
CONVERSION OF PREFERRED STOCK
The depositary shares will not be convertible into common stock or any
other of our securities or property except in connection with certain
conversions in connection with the reservation of our status as a real estate
investment trust. See "Restrictions on Ownership of the Securities Being
Offered" on page 24. Nevertheless, if we so specify in the applicable prospectus
supplement relating to an offering of depositary shares, you, as the holder may
surrender the depositary receipts to the applicable preferred stock depositary
with written instructions to instruct us to cause conversion of a class or
series of preferred stock represented by the depositary shares evidenced by such
depositary receipts into whole shares of common stock, other shares of a class
or series of our preferred stock or other shares of stock. We have agreed that
upon receipt of such instructions and any amounts payable, we will cause the
conversion using the same procedures as those provided for delivery of preferred
stock to effect such conversion. If the depositary shares evidenced by a
depositary receipt are to be converted in part only, a depositary receipt or
receipts will be issued for any depositary shares not to be converted. We will
not issue fractional shares of common stock upon conversion. If such conversion
will result in a fractional share being issued, we will pay an amount in cash
equal to the value of the fractional interest based upon the closing price of
our common stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
We and the preferred stock depositary may amend by agreement, the form of
depositary receipt evidenced in depositary shares which represent the preferred
stock and any provision of the deposit agreement. However, any amendment that
materially and adversely alters the rights of the holders of depositary receipts
or that would be materially and adversely inconsistent with the rights granted
to the
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holders of the related preferred stock will not be effective unless approved by
the existing holders of at least two-thirds of the applicable depositary shares
evidenced by the applicable depositary receipts then outstanding. No amendment
shall impair the right, subject to certain anticipated exceptions in the deposit
agreements, of any holder of depositary receipts to surrender any depositary
receipt with instructions to deliver to the holder the related class or series
of preferred stock and all money and other property, if any, except in order to
comply with law. Every holder of an outstanding depositary receipt at the time
any such amendment becomes effective shall be deemed, by continuing to hold such
depositary receipt, to consent and agree to such amendment and to be bound by
the applicable deposit agreement as amended.
We may terminate the deposit agreement upon at least 30 days' prior written
notice to the preferred stock depositary if termination is necessary to preserve
our status as a real estate investment trust. We have agreed that if the deposit
agreement is terminated to preserve our status as a real estate investment
trust, then we will use our best efforts to list each class or series of
preferred stock issued upon surrender of the related depositary shares. In
addition, the deposit agreement will automatically terminate if:
o all outstanding depositary shares shall have been redeemed,
o there shall have been a final distribution in respect of each class or
series of preferred stock in connection with any liquidation, dissolution
or winding up and such distribution shall have been distributed to the
holders of the depositary receipts evidencing the depositary shares
representing such class or series of preferred stock or
o each share of the related preferred stock shall have been converted into
common stock or other of our preferred stock not so represented by
depositary shares or has been exchanged for debt securities.
CHARGES OF A PREFERRED STOCK DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. In addition, we will
pay the fees and expenses of the preferred stock depositary in connection with
the performance of its duties under the deposit agreement. However, you, as the
holders of depositary receipts will pay the fees and expenses of the preferred
stock depositary for any duties requested by such holders to be performed which
are outside of those expressly provided for in the deposit agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The preferred stock depositary may resign at any time by delivering to us
notice of its election to do so. We may at any time remove the preferred stock
depositary. Any such resignation or removal will take effect upon the
appointment of a successor preferred stock depositary. We must appoint a
successor preferred stock depositary within 60 days after delivery of the notice
of resignation or removal. The preferred stock depositary must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least the amount set forth in the deposit
agreement.
MISCELLANEOUS
The preferred stock depositary will forward to you, as the holders of
depositary receipts, any reports and communications from us which are received
by the preferred stock depositary with respect to the related preferred stock.
Neither we nor the preferred stock depositary will be liable if we are
prevented from or delayed in performing our obligations under the deposit
agreement by law or any circumstances beyond our control. Our obligations and
those of the preferred stock depositary under the deposit agreement, will be
limited to performing our duties in good faith and without negligence (in the
case of any action or inaction in the voting of a class or series of preferred
stock represented by the depositary shares), gross negligence or willful
misconduct. Neither we, nor the preferred stock depositary will be obligated to
prosecute or defend any legal proceeding in respect of any depositary receipts,
depositary shares or shares of a class or series of preferred stock represented
thereby unless satisfactory indemnity is furnished. We and the preferred stock
depositary may rely on written advice of counsel or accountants, or information
provided by persons presenting shares
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of preferred stock represented thereby for deposit, holders of depositary
receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in, good faith to be genuine and signed
by a proper party.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of preferred stock or common stock.
We may issue warrants independently or together with any securities being
offered, and such warranties may be attached to or separate from such
securities. Each series of warrants will be issued under a separate warrant
agreement to be entered into between us and a warrant agent specified in the
warrant agreement. The warrant agent will act solely as our agent in connection
with the warrants of such series. The warrant agent will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of warrants.
The applicable prospectus supplement will describe the following terms,
where applicable, of the warrants in respect of which this prospectus is being
delivered:
(1) the title of such warrants;
(2) the aggregate number of such warrants;
(3) the price or prices at which such warrants will be issued;
(4) the currencies in which the price or prices of such warrants may
be payable;
(5) the designation, amount and terms of the securities being offered
purchasable upon exercise of such warrants;
(6) the designation and terms of the other securities being offered,
if any, with which such warrants are issued and the number of such warrants
issued with each such security;
(7) if applicable, the date on and after which such warrants and the
securities being offered purchasable upon exercise of such warrants will be
separately transferable;
(8) the price or prices at which and currency or currencies in which
the securities purchasable upon exercise of such warrants may be purchased;
(9) the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire;
(10) the minimum or maximum amount of such warrants which may be
exercised at any one time;
(11) information with respect to book-entry procedures, if any;
(12) a discussion of certain federal income tax considerations; and
(13) any other material terms of such warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
warrants.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, our articles of incorporation provide that no
person may own, or be deemed to own by virtue of the attribution rules of the
Internal Revenue Code, more than 8.0 percent of the value of our issued and
outstanding shares of capital stock. See "Restrictions on Ownership of the
Securities Being Offered" on page 24. These ownership limitations could
discourage a takeover or other transaction in which holders of some, or a
majority, of shares of our capital stock might receive a premium for their
shares over the then prevailing market price or which such holders might believe
to be otherwise in their best interest.
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RESTRICTIONS ON OWNERSHIP OF THE SECURITIES BEING OFFERED
Ownership Limit. For us to qualify as a real estate investment trust under
the Internal Revenue Code of 1986, as amended, we must meet the following
requirements concerning the ownership of outstanding shares of our capital
stock:
o five or fewer individuals (as defined in the Internal Revenue Code to
include certain entities) may not collectively own, directly or
indirectly, more than 50 percent of the value of our outstanding capital
stock during the last half of a taxable year; and
o at least 100 persons during at least 335 days of a taxable year or during
a proportionate part of a shorter taxable year must beneficially own our
capital stock.
Further, under our articles of incorporation, subject to certain exceptions, no
holder of shares of our capital stock may own, or be deemed to own by virtue of
the attribution rules of the Internal Revenue Code, more than 8.0 percent by
value of our outstanding capital stock. Such limit will be referred to in this
prospectus as the "Ownership Limit."
Exemption from Ownership Limit. Our board of directors may exempt a person
from the Ownership Limit if the board of directors or our tax counsel is
satisfied that such ownership will not then or in the future jeopardize our
status as a real estate investment trust. To obtain such exemption, the intended
transferee of shares of our capital stock must (1) give us written notice of the
proposed transfer and (2) furnish such opinions of counsel, affidavits,
undertakings, agreements and information as the board of directors may require
no later than the 15th day before any transfer which could cause the intended
transferee's direct or beneficial ownership of shares to exceed the Ownership
Limit. If the board of directors decides that it is no longer in our best
interests to continue to qualify as a real estate investment trust, then the
restrictions on transferability and ownership will not apply.
The board of directors waived the 8.0 percent ownership limitation with
respect to Mr. Pilevsky so that he may actually or constructively own up to 17.5
percent of our outstanding capital stock.
Null and Void Transfers. A transfer of shares of capital stock shall be
null and void and the intended transferee of such shares will not acquire any
rights in such shares if the transfer would:
o create a direct or indirect ownership of shares of stock in excess of the
Ownership Limit;
o result in the shares of stock being owned by fewer than 100 persons; or
o result in our being "closely held" within the meaning of
Section 856(h) of the Internal Revenue Code.
Certificate Legend Referring to Restrictions. All certificates representing
shares of our common stock will bear a legend referring to the restrictions
described in the above section entitled "Restrictions on Transfer--Null and Void
Transfer."
Required Disclosures by Stockholders. Every owner of more than 5 percent
(or such lower percentage as the Internal Revenue Code or related regulations
require) of our issued and outstanding shares of capital stock must give us
written notice containing the information specified in our articles of
incorporation no later than January 31 of each year. In addition, every
stockholder must, upon our demand, provide in writing information that we may
request to determine the effect of such stockholder's direct, indirect and
constructive ownership of such shares on our status as a real estate investment
trust.
Effect of Ownership Limits on Control of Our Company. The ownership
limitations set forth in this prospectus may prevent the acquisition of control
of our company without the consent of the board of directors.
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CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION
Pryor Cashman Sherman & Flynn LLP, which has acted as our tax counsel in
connection with our formation and our election to be taxed as a real estate
investment trust (a "REIT"), has reviewed the following discussion and is of the
opinion that it fairly summarizes the federal income tax considerations relevant
to our status as a REIT. The following summary of certain federal income tax
considerations is based on current law, is for general information only, and is
not tax advice. The tax treatment of a holder of any of the securities being
offered will vary depending upon the terms of the specific securities acquired
by such holder, as well as his particular situation and this discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
holder of the securities being offered in light of their personal investment or
tax circumstances or to certain types of stockholders (including insurance
companies, financial institutions, or broker-dealers, tax-exempt organizations,
foreign corporations, and persons who are not citizens or residents of the
United States) subject to special treatment under the United States federal
income tax laws.
The REIT provisions of the Internal Revenue Code are highly technical and
complex. The following discussion summarizes the material aspects of the
sections of the Internal Revenue Code that govern the federal income tax
treatment of a REIT. This summary is qualified in its entirety by the applicable
Internal Revenue Code provisions, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof, all of which are
subject to change (which change may apply retroactively).
WE ADVISE YOU TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS WELL AS
YOUR OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND SALE OF THE SECURITIES BEING OFFERED BY THIS PROSPECTUS AND ANY
SUPPLEMENT TO THIS PROSPECTUS, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ended December 31,
1997. We believe that we have been organized and operated in such a manner as to
qualify for taxation as a REIT under the Internal Revenue Code for such taxable
year and for all subsequent taxable years ending prior to the date of this
prospectus and we intend to continue to operate in such a manner in the future,
but we can not assure you that we will operate in a manner so as to qualify or
remain qualified.
In the opinion of Pryor Cashman Sherman & Flynn LLP, we have been organized
in conformity with the requirements for qualification and taxation as a REIT,
commencing with our initial taxable year ended December 31, 1997, and for all
subsequent taxable years to date, and our method of operation will enable us to
continue to meet the requirements for qualification and taxation as a REIT under
the Internal Revenue Code. We must emphasize that this opinion is based on
various assumptions and is conditioned upon such assumptions and certain
representations made by us to Pryor Cashman Sherman & Flynn LLP as to factual
matters. Pryor Cashman Sherman & Flynn LLP is not aware of any facts or
circumstances that are inconsistent with these representations and assumptions.
Moreover, such qualification and taxation as a REIT depends upon our ability to
meet, through actual annual operating results, distribution levels and diversity
of stock ownership, the various qualification tests imposed under the Internal
Revenue Code and discussed below, the results of which will not be reviewed by
Pryor Cashman Sherman & Flynn LLP. Accordingly, no assurance can be given that
the actual results of our operation of any particular taxable year will satisfy
such requirements. See "Failure to Qualify" on page 30. The opinion of Pryor
Cashman Sherman & Flynn LLP is based upon current law and is not binding upon
the Internal Revenue Service and no assurance can be given that the Internal
Revenue Service will not challenge our eligibility as a REIT.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to stockholders. This treatment substantially eliminates the "double taxation"
(at the corporate and stockholder levels) that generally results from investment
in a regular corporation. However, we will be subject to federal income tax as
follows: first, we will be taxed at regular
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corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains (although shareholders will receive an
offsetting credit against their own federal income liability for federal income
taxes paid by us with respect to any such undistributed net capital gain).
Second, under certain circumstances, we may be subject to the "corporate
alternative minimum tax" on its items of tax preference. Third, if we have
(i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying net income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income. Fourth, if we have
net income from prohibited transactions (which are, in general, certain sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than certain involuntary conversions or
foreclosure property), such income will be subject to a 100 percent tax. Fifth,
if we should fail to satisfy the 75 percent gross income test or the 95 percent
gross income test (as discussed below), but we nonetheless maintain our
qualification as a REIT because certain other requirements have been met, we
will be subject to a 100 percent tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which we fail the 75 percent or 95
percent test, multiplied by (b) a fraction intended to reflect our
profitability. Sixth, if we should fail to distribute during each calendar year
at least the sum of (i) 85 percent of our REIT ordinary income for such year,
(ii) 95 percent of our REIT capital gain net income for such year, and
(iii) any undistributed taxable income from prior years, we would be subject to
a 4 percent excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, with respect to an asset (a "Built-In
Gain Asset") acquired by us from a corporation which is or has been a C
corporation (i.e., generally, a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in our hands is
determined by reference to the basis of the asset in the hands of the C
corporation, if we recognize gain on the disposition of such asset during the
ten-year period (the "Recognition Period") beginning on the date on which we
acquired such asset, then, to the extent of the Built-In Gain (i.e., the excess
of (a) the fair market value of such asset over (b) our adjusted basis in such
asset, determined as of the beginning of the Recognition Period), such gain will
be subject to tax at the highest corporate tax rate pursuant to Internal Revenue
Service regulations that have not yet been promulgated. The results described
above with respect to the recognition of Built-In Gain assume that we will make
an election pursuant to Internal Revenue Service Notice 88-19.
Requirements for Qualification. The Internal Revenue Code defines a REIT as
a corporation, trust or association (1) which is managed by one or more trustees
or directors, (2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest, (3) which would
be taxable as a domestic corporation, but for Internal Revenue Code
Sections 856 through 859, (4) which is neither a financial institution nor an
insurance company subject to certain provisions of the Internal Revenue Code,
(5) the beneficial ownership of which is held by 100 or more persons (determined
without reference to any rules of attribution), (6) during the last half of each
taxable year, not more than 50 percent in value of the outstanding stock of
which is owned, directly or constructively, by five or fewer individuals (as
defined in the Internal Revenue Code to include certain entities) and (7) which
meets certain other tests, described below, regarding the matter of its income
and assets. The Internal Revenue Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months.
We previously have issued sufficient shares to allow us to satisfy
conditions (5) and (6). In addition, our Articles of Incorporation provide for
restrictions regarding ownership and transfer of our capital stock, which
restrictions are intended to assist us in continuing to satisfy the share
ownership requirements described in (5) and (6) above. The ownership and
transfer restrictions are described in "Restrictions on Ownership of the
Securities Being Offered" on page 24. Prior to 1998, our failure to comply with
the Treasury regulations for ascertaining ownership of our stock (the "Stock
Ownership Regulations") could have resulted in our disqualification as a REIT
for the taxable year of the failure. Pursuant to the Taxpayer Relief Act of 1997
(the "Act"), effective for our current and all future taxable years, so long as
we comply with the Stock Ownership Regulations, we will not lose our
qualifications as a REIT as a result of a violation of the foregoing requirement
if we neither know nor upon exercising reasonable diligence would have known of
such violation. Effective for our current and all future taxable years, instead
of being disqualified as a REIT, we would be subject to a financial penalty of
$25,000 ($50,000 for intentional violations) for any year in
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which we fail to comply with the Stock Ownership Regulations. Furthermore, if we
can establish that our failure to comply was due to reasonable cause and not to
willful neglect, no penalty would be imposed.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. From inception, our taxable year has been the
calendar year.
We currently own and operate the majority of our properties through
partnerships in which Philips International Realty, L.P. and direct,
wholly-owned subsidiaries (the "Company Subs") are partners. Internal Revenue
Code Section 856(i), as amended by the Act, provides that a corporation, 100% of
whose stock is held by a REIT, is a "qualified REIT subsidiary." A "qualified
REIT subsidiary" is not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" are treated as assets, liabilities and such items (as the case may
be) of the REIT. Thus, in applying the requirements described herein, our
"qualified REIT subsidiaries" will be ignored, and all assets, liabilities and
items of income, deduction, and credit of such subsidiaries will be treated as
assets, liabilities and items of the Company. We have not, however, sought or
received a ruling from the Internal Revenue Service that any of the Company Subs
are "qualified REIT subsidiaries."
In the case of a REIT that is a partner in a partnership, either directly,
or indirectly through a "qualified REIT subsidiary," Treasury regulations
provide that the REIT will be deemed to own its proportionate share of the
assets of the partnership and will be deemed to be entitled to the income of the
partnership attributable to such share. In addition, the character of the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of Internal Revenue Code Section 856, including
satisfying the gross income tests and the asset tests. Thus, our proportionate
share of the assets, liabilities and items of income of the partnerships in
which we are a partner, directly or indirectly, will be treated as our assets,
liabilities and items of income for purposes of applying the requirements
described herein.
Income Tests. For taxable years beginning on or after January 1, 1998, we
must satisfy two gross income requirements annually in order to maintain our
qualification as a REIT. First, at least 75 percent of our gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments (the
"75% Test"). Second, at least 95 percent of our gross income (excluding gross
income from "prohibited transactions") for each taxable year must be derived
from such real property investments, dividends, interest and gain from the sale
or disposition of stock or securities, or from any combination of the foregoing
(the "95% Test" and, together with the 75% Test, the "Gross Income Tests"). For
taxable years beginning on or after January 1, 1998, "qualifying income" for
purposes of the 95% test, except to the extent provided by regulations, includes
payments made to us under any interest rate swap, cap agreement, option, futures
contract, forward rate agreement, or any similar financial instrument entered
into by us to hedge our indebtedness as well as any gain from the disposition of
any of the foregoing instruments.
The rents we receive will qualify as "rents from real property" in
satisfying the Gross Income Tests only if several conditions are met. First, the
amount of rent must not be based in whole or in part on the income or profits
derived by any person from the property. However, an amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Second, the Internal Revenue Code provides that, for taxable years
beginning before August 5, 1997, rents received from a tenant will not qualify
as "rents from real property" in satisfying the Gross Income Tests if the REIT,
or a direct or constructive owner of 10 percent or more of the REIT, directly or
constructively owns 10 percent or more of such tenant (a "Related Tenant").
Effective for our current and all future taxable years the constructive
ownership rules for determining whether a tenant is a Related Tenant are
modified with respect to partners and partnerships to provide that attribution
between partners and partnerships only occurs when a partner owns, directly
and/or indirectly, a 25 percent-or-greater interest in the partnership. Thus, a
tenant will not be treated as a Related Tenant shares are owned by a
partnership, and a partner that owns, directly and indirectly, a less-than-25
percent interest in such partnership also owns an interest in the tenant. A
tenant will also not be a Related Tenant with respect to us if our shareholders
and owners of such tenant are partners in a partnership in which neither own,
directly and/or indirectly, a 25 percent-or-greater interest in such
partnership. Third, if rent
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attributable to personal property leased in connection with a lease of real
property is greater than 15 percent of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as "rents from real property" (the "15% Limitation"). We have not and will not
(i) charge rent for any property that is based in whole or in part on the income
or profits of any person (except by reason of being based on a fixed percentage
of receipts or sales, as described above), (ii) rent any property to a Related
Party Tenant, or (iii) derive rental income attributable to personal property
(other than personal property leased in connection with the lease of real
property, the amount of which is less than 15 percent of the total rent received
under the lease). Finally, for rents received to qualify as "rents from real
property," we generally must not operate or manage the property or furnish or
render services to tenants, other than through an "independent contractor" from
whom we derive no revenue. The "independent contractor" requirement, however,
does not apply to the extent the services provided by us are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant." Philips
International Realty, L.P. will provide certain services with respect to our
properties that are intended to comply with the "usually or customarily
rendered" requirement. We intend to employ independent contractors to perform
any services that are not "usual and customary" under the foregoing rules
("Impermissible Services").
Pursuant to the Act, beginning with our current and for all future taxable
year, we may render a de minimis amount of Impermissible Services to tenants, or
in connection with the management of a property, without having otherwise
qualifying rents from the property being disqualified as "rents from real
property". In order to qualify for this de minimis exception, the value of such
Impermissible Services may not exceed 1% of our gross income from the property,
and such Impermissible Services may not be valued at less than 150% of our
direct cost of such services. Notwithstanding the foregoing, the amount of any
income we receive from performing impermissible services ("Impermissible
Services Income") will not be treated as "rents from real property" for purposes
of the Gross Income Tests. Finally, for rents received to qualify as "rents from
real property," a REIT generally must not operate or manage the property or
furnish or render services to the tenants of such property, other than through
an independent contractor from whom the REIT derives no revenue; provided,
however, that a REIT like us may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property.
Philips International Realty, L.P. may receive fees in consideration of the
performance of management and administrative services with respect to the
properties that are not owned entirely by it. Although a portion of such
management and administrative fees generally will not qualify under the Gross
Income Tests, we believe that the aggregate amount of such fees (and any other
non-qualifying income) in any taxable year will not cause us to exceed the
limits on non-qualifying income under the Gross Income Tests.
If we fail to satisfy one or both of the Gross Income Tests for any taxable
year, we may nevertheless qualify as a REIT for such year if we are entitled to
relief under certain provisions of the Internal Revenue Code. These relief
provisions will generally be available if our failure to meet such tests is due
to reasonable cause and not due to willful neglect, we attach a schedule of the
sources of our income to our federal income tax return, and any incorrect
information on the schedule is not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. As discussed above in
"General", even if these relief provisions were to apply, a tax would be imposed
with respect to the excess net income.
Sales or Dispositions of Certain Assets. As a REIT, we are generally
subject to restrictions that limit our ability to sell real property. We are
subject to a tax of 100 percent on our gain (i.e., the excess, if any, of the
amount realized over our adjusted basis in the property) from each sale of
property (excluding certain property obtained through foreclosure and property
that is involuntarily converted in a transaction that is subject to Internal
Revenue Code Section 1033) in which we are a dealer. In calculating our gains
subject to the 100 percent tax, we are not allowed to offset gains on sales of
property against losses on other sales of property in which we are a dealer.
Under the Internal Revenue Code, we would be deemed to be a dealer in any
property that we held primarily for sale to customers in the ordinary course of
our business. Such determination is a factual inquiry,
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and absolute legal certainty of our status generally cannot be provided.
However, we will not be treated as a dealer in real property if (i) we have held
the property for at least four years for the production of rental income,
(ii) capitalized expenditures on the property in the four years preceding sale
do not exceed 30 percent of the net selling price of the property, and (iii) we
either (a) have seven or fewer sales of property (excluding involuntarily
converted property subject to Internal Revenue Code Section 1033 or certain
property obtained through foreclosure) for the year or (b) the aggregate tax
bases (as determined for purposes of computing earnings and profits) of property
sold during the taxable year is 10 percent or less of the aggregate tax basis of
all of our assets (as so determined) as of the beginning of the taxable year and
(iv) if the requirement in clause (iii)(a) is not satisfied, substantially all
of the marketing and development expenditures with respect to the property sold
are made through an independent contractor from whom we derive no income. The
sale of more than one property to one buyer as part of one transaction
constitutes one sale. However, our failure to meet these "safe harbor"
requirements does not necessarily mean that we are a dealer in real property for
purposes of the 100 percent tax.
Beginning with our current taxable years and going forward, property that
is involuntarily converted will be excluded from the "prohibited transaction"
rules.
Asset Tests. We must also satisfy three tests relating to the nature of its
assets at the close of each quarter of our taxable year. First, at least 75
percent of the value of our total assets must be represented by real estate
assets (including (i) assets held by us or our qualified REIT subsidiaries, and
our allocable share of real estate assets held by partnerships in which we own
an interest directly and/or indirectly and (ii) stock or debt instruments held
for not more than one year purchased with the proceeds of a stock offering or
long-term (at least five years) debt offering by us), cash, cash items and
government securities. Second, not more than 25 percent of our total assets may
be represented by securities other than those in the 75 percent asset class.
Third, of the investments included in the 25 percent asset class, the value of
any one issuer's securities owned by us may not exceed (at the end of the
quarter in which such securities are acquired) 5 percent of the value of our
total assets and we may not own more than 10 percent of any one issuer's
outstanding voting securities.
A REIT which meets the foregoing asset tests at the close of any quarter
will not lose its status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter (including as a result of the REIT increasing
its interest in any partnership in which the REIT is a partner), the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. We intend to maintain adequate records of the value
of our assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance. If we failed to cure noncompliance with the asset tests
within such time period, we would cease to qualify as a REIT.
Annual Distribution Requirements. In order to qualify as a REIT, we are
required to distribute dividends (other than capital gain dividends) to our
stockholders in an amount at least equal to (A) the sum of (i) 95 percent of our
"REIT taxable income" (computed without regard to the dividends paid deduction
and our net capital gain, if any) and (ii) 95 percent of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. In addition, if we dispose of any Built-In Gain Asset during
its Recognition Period, we will be required, pursuant to Treasury regulations
which have not yet been promulgated, to distribute at least 95 percent of the
Built-in Gain (after tax), if any, recognized on the disposition of such asset.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our tax return for
such prior year and if paid on or before the first regular dividend payment
after such declaration. To the extent that we do not distribute all of our net
capital gain or distributes at least 95 percent, but less than 100 percent, of
our "REIT taxable income," as adjusted, we will be subject to tax thereon at
regular ordinary and capital gain corporate tax rates. As discussed below,
beginning with our current taxable year and moving forward, our shareholders
would receive a tax credit for the corporate level taxes paid by us on any
undistributed capital gains. See "Taxation of Domestic Shareholders" below.
Furthermore, if we should fail to distribute during each calendar year at least
the sum of (i) 85 percent of our REIT ordinary income for such year, (ii) 95
percent of our REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, we
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would be subject to a 4 percent excise tax on the excess of such required
distribution over the amounts actually distributed.
As discussed more completely below under "Taxation of Domestic
Shareholders," we may elect for its taxable years beginning on or after
January 1, 1998, to retain any long-term capital gain recognized during a
taxable year ("Retained Gains") and pay a corporate level tax on such Retained
Gains. The Retained Gains are then considered to have been distributed to
holders of common stock, who will then receive a credit for the corporate level
taxes we have paid on the Retained Gains.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, the partnership agreement of Philips
International Realty, L.P. authorizes us, as general partner, to take such steps
as may be necessary to cause Philips International Realty, L.P. to distribute to
its partners an amount sufficient to permit us to meet these distribution
requirements. It is possible, however, that, from time to time, we may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement
due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of such income and deduction of
such expenses in arriving at our taxable income, or if the amount of
nondeductible expenses such as principal amortization or capital expenditures
exceed the amount of non-cash deductions. In the event that such timing
differences occur, in order to meet the 95% distribution requirement, we may, or
may cause Philips International Realty, L.P. to, arrange for short-term, or
possibly long-term, borrowing to permit the payment of required dividends. If
the amount of nondeductible expenses exceeds non-cash deductions, Philips
International Realty, L.P. may refinance its indebtedness to reduce principal
payments and borrow funds for capital expenditures.
In the opinion of Pryor Cashman Sherman & Flynn LLP, we have satisfied the
annual distribution requirements for taxable years ended prior to the date of
this prospectus. We intend to continue to make timely distributions sufficient
to satisfy this annual distribution requirement in the future. It is possible
that, from time to time, we may not have sufficient cash or other liquid assets
to meet the 95 percent distribution requirement due to timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses in
arriving at our taxable income, or if the amount of nondeductible expenses, such
as principal amortization or capital expenditures exceeds the amount of noncash
deductions. In the event that such timing differences occur, in order to meet
the 95 percent distribution requirement, we may find it necessary to arrange for
short-term, or possibly long-term, borrowing or to pay dividends in the form of
taxable stock dividends.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying to stockholders in a later
year "deficiency dividends", which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, we will be required to
pay interest to the Internal Revenue Service based upon the amount of any
deduction taken for deficiency dividends.
Failure to Qualify. If we fail to qualify for taxation as a REIT in any
taxable year, and the relief provisions do not apply, we will be subject to tax
(including any applicable corporate alternative minimum tax) on our taxable
income at regular corporate rates. Such a failure could have an adverse effect
on the market value and marketability of the Offered Securities. Distributions
to stockholders in any year in which we fail to qualify will not be deductible
by us nor will they be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all distributions to stockholders
will be taxable as ordinary income and, subject to certain limitations of the
Internal Revenue Code, corporate distributees may be eligible for the dividends
received deduction. Unless entitled to relief under specific statutory
provisions, we will also be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances we would be entitled to such
statutory relief.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as we qualify as a REIT,
distributions made to our taxable domestic stockholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will be taken into account by them as ordinary income and will not be eligible
for the
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dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed our actual net capital gain for the taxable year)
without regard to the period for which the stockholder has held its stock.
However, corporate stockholders may be required to treat up to 20 percent of
certain capital gain dividends as ordinary income.
Pursuant to the provisions of the Act and the Internal Revenue Service
Restructuring and Reform Act of 1998 (the "1998 Act" and, together with the Act,
the "Acts"), the portion of any such capital gain dividends attributable to gain
recognized with respect to capital assets held by us for more than 12 months on
the date of sale will be treated as long-term capital gain taxable to the
stockholders at a maximum rate of 20 percent (or 25 percent to the extent any
such gain arises from the recapture of straight-line depreciation deductions
reflected in the basis of real property that has been held by us for more than
12 months as of the date of sale). However, corporate stockholders may be
required to treat up to 20 percent of certain capital gain dividends as ordinary
income.
Pursuant to the Act, we may elect to retain the net long term capital gains
we recognize during a taxable year ("Retained Gains") and pay a corporate-level
tax on such Retained Gains. Corporations are currently subject to a maximum 35%
tax rate on recognized capital gains. A stockholder owning shares of our stock
on December 31st of a taxable year in which we have Retained Gains would be
required to include in gross income such stockholder's proportionate share of
the Retained Gains (as designated by us in a notice mailed to stockholders
within 60 days following the end of the taxable year). The amount of any
corporate-level tax paid by us in respect of the Retained Gains (the "Company
Tax") would be treated as having been paid by our stockholders and each
stockholder would receive a credit or refund for such stockholder's share of the
Company Tax. A stockholder's basis in his/her shares of our stock would increase
by the excess of such stockholder's proportionate share of the Retained Gains
over the stockholder's share of the Company Tax.
Distributions (not designated as capital gain dividends) in excess of
current and accumulated earnings and profits will not be taxable to a domestic
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a domestic
stockholder's shares, they will be included in income as capital gains (provided
that the shares have been held as a capital asset). Any such distribution in
excess of a stockholder's adjusted basis in his shares of our stock will be
included in income as long-term capital gain subject to a maximum tax rate of 20
percent if the shares have been held for more than 12 months at the time of
distribution, and short-term capital gain subject to a maximum rate of up to
39.6 percent if the shares were held for no more than one year at the time of
the distribution. In addition, any dividend declared by us in October, November
or December of any year payable to a stockholder of record on a specific date in
any such month shall be treated as both paid by us and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by us during January of the following calendar year. Stockholders may not
include in their individual income tax returns any of our net operating losses
or capital losses.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from us required to be treated by such stockholder as long-term
capital gain.
Backup Withholding. We will report to both our domestic stockholders and
the Internal Revenue Service the amount of dividends paid during each calendar
year, and the amount of tax withheld, if any, with respect thereto. Under the
backup withholding rules, a stockholder may be subject to backup withholding at
the rate of 31 percent with respect to dividends paid unless such holder (a) is
a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
A stockholder who does not provide us with its correct taxpayer identification
number may also be subject to penalties imposed by the Internal Revenue Service.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions made to any stockholders who fail to
certify their non-foreign status to us. See "Taxation of Foreign Stockholders"
on page 32.
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Taxation of Tax-Exempt Stockholders. In applying the REIT stock ownership
test under the Internal Revenue Code, a pension trust generally is not treated
as a single individual as it would have been under prior law. Rather,
beneficiaries of certain pension trusts are treated as holding the shares of a
REIT in proportion to their actuarial interests in such trust, and thus
permitting certain pension trusts to acquire more concentrated ownership of a
REIT.
In addition, a pension fund owning more than 10 percent of a REIT must
treat a percentage of dividends from the REIT as "unrelated business taxable
income" ("UBTI"). The percentage is determined by dividing the REIT's gross
income derived from an unrelated trade or business for the year by the gross
income of the REIT for the year in which the dividends are paid. If this
percentage is less than five percent, however, dividends are not treated as
UBTI. In general, the UBTI rule applies to a REIT where the REIT qualifies as a
REIT by reason of the above modification of the stock ownership test and (i) one
pension trust owns more than 25 percent of the value of the REIT; or (ii) a
group of pension trusts individually holding more than 10 percent of the value
of the REIT collectively own more than 50 percent of the value of the REIT.
Taxation of Foreign Stockholders. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Accordingly, the discussion does not
address all aspects of U.S. federal income tax and does not address state, local
or foreign tax consequences (including treaty benefits, if any, that may be
available in certain instances) that may be relevant to a Non-U.S. Stockholder
in light of its particular circumstances. Prospective Non-U.S. Stockholders
should consult with their own tax advisors to determine the impact of U.S.
federal, state and local income tax laws with regard to an investment in the
securities being offered, including any reporting requirements.
Distributions made by us to a Non-U.S. Stockholder that are neither
attributable to gain from sales or exchanges by us of U.S. real property
interests and not designated by us as capital gain dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of us. Such distributions will ordinarily be
subject to a withholding tax equal to 30 percent of the gross amount of the
distribution unless an applicable tax treaty reduces that tax. However, if
income from the investment in the securities being offered is treated as
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade or
business, the Non-U.S. Stockholder generally will be subject to a tax at
graduated rates, in the same manner as U.S. stockholders are taxed with respect
to such and are generally not subject to withholding. Any such effectively
connected distributions received by a Non-U.S. Stockholder that is a corporation
may also be subject to an additional branch profits tax at a 30 percent rate or
such lower rate as may be specified by an applicable income tax treaty. We
expect to withhold U.S. income tax at the rate of 30 percent on the gross amount
of any dividends paid to a Non-U.S. Stockholder unless (i) a lower treaty rate
applies and the required form evidencing eligibility for that reduced rate is
filed with us or (ii) the Non-U.S. Stockholder files an Internal Revenue Service
Form 4224 with us claiming that the distribution is "effectively connected"
income. Distributions in excess of our current and accumulated earnings and
profits will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's shares, but rather will reduce
the adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Stockholder's shares, they will give rise to
tax liability if the Non-U.S. Stockholder would otherwise be subject to tax on
any gain from the sale or disposition of his shares, as described below. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Stockholder may seek a refund of such amounts
from the Internal Revenue Service if it is subsequently determined that such
distribution was, in fact, in excess of our current and accumulated earnings and
profits.
Under recently adopted Treasury regulations, withholding procedures for
distributions made after December 31, 1998 would be revised. Withholding
generally will be at either 31 percent or 30 percent unless a new Form W-8 is
filed with us by the beneficial owner to establish entitlement to treaty
benefits or exemption based upon the income being "effectively connected". In
some instances, additional documentation may be required from the beneficial
owner, including an individual taxpayer identification
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number from the Internal Revenue Service and a certification of tax status from
the tax authorities of the beneficial owner's country of residence.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders would be
taxed at the normal capital gain rates applicable to U.S. stockholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Also, distributions subject to
FIRPTA may be subject to a 30 percent branch profits tax in the hands of a
corporate Non-U.S. Stockholder not entitled to treaty relief or exemption. We
are required by applicable Treasury regulations to withhold 35 percent of any
distribution to a Non-U.S. Stockholder that could be designated by us as a
capital gain dividend. This amount is creditable against the Non-U.S.
Stockholder's U.S. federal income tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of stock generally
will not be taxed under FIRPTA if a REIT is a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50 percent in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that we will be a
"domestically controlled REIT," and therefore the sale of stock will not be
subject to taxation under FIRPTA. Notwithstanding the foregoing, gain not
subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) investment in
the stock is "effectively connected" with the Non-U.S. Stockholder's U.S. trade
or business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain (a Non-U.S. Stockholder
that is a foreign corporation may also be subject to a 30 percent branch profits
tax, as discussed above), or (ii) the Non-U.S. Stockholder is a nonresident
alien individual who was present in the U.S. for 183 days or more during the
taxable year and has a "tax home" in the U.S., in which case the nonresident
alien individual will be subject to a 30 percent tax on the individual's capital
gains. If the gain on the sale of stock were to be subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax, possible withholding tax and a special alternative minimum tax in
the case of nonresident alien individuals).
If we are not or cease to be, a "domestically-controlled REIT," whether
gain arising from the sale or exchange of shares of stock by a Non-U.S.
Stockholder would be subject to U.S. taxation under FIRPTA as a sale of a "U.S.
real property interest" will depend on whether the shares are "regularly traded"
(as defined by applicable Treasury regulations) on an established securities
market (e.g., the New York Stock Exchange) and on the size of the selling
Non-U.S. Stockholder's interest in us. In the case where we are not or cease to
be a "domestically-controlled REIT" and the common stock is "regularly traded"
on an established securities market at any time during the calendar year, a sale
of shares of common stock by a Non-U.S. Stockholder will only be treated as a
sale of a "United States real property interest" (and thus subject to taxation
under FIRPTA) if such selling shareholder beneficially owns (including by
attribution) more than 5 percent of the total fair market value of the common
stock at any time during the five-year period ending either on the date of such
sale or other applicable determination date. If gain on the sale or exchange of
shares of stock were subject to taxation under FIRPTA, the Non U.S. Stockholder
would be subject to regular United States income tax with respect to such gain
in the same manner as a U.S. Stockholder (subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals); provided, however, that deductions otherwise allowable will
be allowed as deductions only if the tax returns were filed within the time
prescribed by law. In general, the purchaser of the stock would be required to
withhold and remit to the Internal Revenue Service, 10 percent of the amount
realized by the seller on the sale of such stock.
New Withholding Regulations. Final regulations pertaining to withholding
tax on income paid to foreign persons and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997 and
published in the Federal Register on October 14, 1997. In general, the New
Withholding Regulations do not significantly alter the substantive withholding
and information reporting requirements, but unify current certification
procedures and forms and clarify reliance standards. For example, as described
above in "Taxation of Foreign Stockholders," the New Withholding Regulations
adopt a
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certification rule which was in the proposed regulations, under which a foreign
shareholder who wishes to claim the benefit of an applicable treaty rate with
respect to dividends received from a U.S. corporation will be required to
satisfy certain certification and other requirements. In addition, the New
Withholding Regulations require a corporation that is a REIT to treat as a
dividend the portion of a distribution that is not designated as a capital gain
dividend or return of basis and apply the 30% withholding tax (subject to any
applicable deduction or exemption) to such portion, and to apply the FIRPTA
withholding rules (discussed above) with respect to the portion of the
distribution designated by the REIT as capital gain dividend. The New
Withholding Regulations will generally be effective for payments made after
December 31, 1998, subject to certain transition rules. Except as noted, the
discussion set forth above in the section entitled "Taxation of Foreign
Shareholders" does not take the new withholding regulations into account. We
strongly urge prospective foreign shareholders to consult their own tax advisors
with respect to the new withholding regulations.
OTHER TAX CONSIDERATIONS
Effect on REIT Qualification of Tax Status of Operating Partnership and
Other Partnerships. Substantially all of our investments will be made through
Philips International Realty, L.P., which in turn will hold interests in other
partnerships. In general, partnerships are "pass-through" entities which are not
subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. We will
include in its income our proportionate share of the foregoing partnership items
for purposes of the Gross Income Tests and in the computation of our REIT
taxable income. Moreover, for purposes of the REIT asset tests, we will include
its proportionate share of assets held by Philips International Realty, L.P. See
"Taxation of the Company as a REIT" on page 25.
The ownership of an interest in a partnership may involve special tax
risks. Such risks include the possible challenge by the Internal Revenue Service
of (i) allocations of income and expense items, which could affect the
computation of our taxable income, and (ii) the status of the partnerships as
partnerships (as opposed to associations taxable as corporations) for income tax
purposes. This partnership status risk should be substantially diminished by
Treasury regulations issued on December 17, 1996, permitting election of
partnership status effective January 1, 1997, by the filing of Form 8823 or in
certain other ways specified in the new election regulations. With respect to
our existing partnership investments, the new election regulations provide that
(1) previously claimed partnership status, if supported by a reasonable basis
for classification, will generally be respected for all periods prior to January
1,1997; and (2) previously claimed partnership status will generally be retained
after January 1, 1997, unless an entity elects to change its status by filing a
formal election. We believe that we have a reasonable basis for the
classification of Philips International Realty, L.P., the contributing
partnerships and the Property Partnerships as partnerships for federal income
tax purposes and have neither filed nor do we intend to file an election to be
treated otherwise. If any of the partnerships elected to be treated as an
association, they would be taxable as corporations. In such a situation, if our
ownership interest in any of the partnerships exceeded 10% of the partnership's
voting interests or the value of such interest exceeded 5% of the value of our
assets, we would cease to qualify as a REIT. Furthermore, in such a situation,
distributions from any of the partnerships would be treated as dividends, which
are not taken into account in satisfying the 75% "gross income test" described
above and which could therefore make it more difficult for us to meet the 75%
asset test described above. Finally, in such a situation, we would not be able
to deduct our share of losses generated by any of the Partnerships in computing
our taxable income. See "Taxation of the Company as a REIT-Failure to Qualify"
on page for a discussion of the effect of our failure to meet such tests for a
taxable year. We believe that the partnerships in which we own interests have
been and will continue to be treated as partnerships (rather than as
associations taxable as corporations) for federal income tax purposes. However,
no assurance can be given that the Internal Revenue Service may not successfully
challenge the status of any partnerships.
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply
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with the provisions of Internal Revenue Code Section 704(b) and the Treasury
Regulations promulgated thereunder. Generally, Internal Revenue Code
Section 704(b) and the Treasury Regulations promulgated thereunder require that
partnership allocations respect the economic arrangement of the partners.
If an allocation is not. recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. Philips International Realty, L.P.'s
allocations of taxable income and loss are intended to comply with the
requirements of Internal Revenue Code Section 704(b) and the Treasury
regulations promulgated thereunder.
The Partnership Agreement provides that net income or net loss of Philips
International Realty, L.P. will generally be allocated to us and the limited
partners in accordance with each of the parties' respective percentage interests
in Philips International Realty, L.P In addition, allocations of net income or
net loss will be subject to compliance with the provisions of Internal Revenue
Code Sections 704(b) and 704(c) and the Treasury regulations promulgated
thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to
Section 704(c) of the Internal Revenue Code, income, gain, loss, and deduction
attributable to appreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner ensuring that the contributor is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed Property at the time of contribution and the
adjusted tax basis of such property at the time of contribution (the "Book-Tax
Difference"). In general, the fair market value of certain properties (or
interests in the various Property Partnerships) contributed to Philips
International Realty, L.P. will be substantially in excess of their adjusted tax
bases. The partnership agreements of Philips International Realty, L.P. and each
of the Property Partnerships require that allocations attributable to each item
of contributed property be made so as to allocate the tax depreciation available
with respect to such property first to the partners other than the partner that
contributed the property, to the extent of, and in proportion to. their book
depreciation, and then, if any tax depreciation remains, to the partner that
contributed the property. Upon the disposition of any item of contributed
property, any gain attributable to an excess at such time of basis for book
purposes over basis for tax purposes would be allocated for tax purposes to the
contributing partner. These allocations are intended to be consistent with the
Treasury regulations under Section 704(c) of the Internal Revenue Code.
In general, certain persons who acquired interests in Philips International
Realty, L.P. in connection with the contribution of property (including
interests in the Property Partnerships) to Philips International Realty, L.P.
are allocated disproportionately lower amounts of depreciation deductions for
tax purposes relative to their percentage interests in Philips International
Realty, L.P., and disproportionately greater shares relative to their percentage
interests in Philips International Realty, L.P. of the taxable income and gain
on the sale by the partnerships of one or more of the contributed properties.
These tax allocations will tend to reduce or eliminate the Book-Tax Difference
over the life of the partnerships. The partnership agreements of the Operating
and Property Partnerships will adopt the "traditional method" of allocating
items under Section 704(c) of the Internal Revenue Internal Revenue Code, unless
otherwise agreed to between us and the contributing partner. Under the
traditional method the amounts of the special allocations of depreciation and
gain under the special rules of Section 704(c) of the Internal Revenue Code have
been and will continue to be limited by the so-called "ceiling rule" which will
not always eliminate the Book-Tax Difference on an annual basis or with respect
to a specific transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the partnerships will cause us to be
allocated less depreciation than would be available for newly purchased
properties. As a result of the above described Book-Tax Difference, we will
require to distribute more dividends in order to satisfy the 95% distribution
requirement than we would have had we purchased the assets for cash in a taxable
transaction. See "Taxation of the Company as a REIT-Annual Distribution
Requirement," for a discussion of distribution requirements. Finally, the amount
of tax-free return of capital to each domestic shareholder will be less than the
amount such shareholder would have realized had we purchased assets for cash in
a taxable transaction.
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State and Local Taxes. Both we and our shareholders may be subject to state
or local taxation in various state or local jurisdictions, including those in
which we or they transact business or reside. Both our own and our shareholders'
state and local tax treatment may differ from the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax law
on an investment in the Capital Stock.
PLAN OF DISTRIBUTION
We may sell the securities being offered by this prospectus and any related
supplemental prospectus to one or more underwriters for public offering and sale
by them or may sell the securities being offered to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the securities being offered will be named in the applicable prospectus
supplement.
Underwriters may offer and sell the securities being offered at a fixed
price or prices, which may be changed, at prices related to the prevailing
market prices at the time of sale or at negotiated prices. We also may, from
time to time, authorize underwriters acting as our agents to offer and sell the
securities being offered upon the terms and conditions as are set forth in the
applicable prospectus supplement. In connection with the sale of securities
being offered we will compensate underwriters in the form of underwriting
discounts or commissions and may also receive commissions from any entity for
whom they may act as agent. Underwriters may sell securities being offered to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of securities being offered, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Underwriters, dealers
and agents participating in the distribution of the securities being offered may
be deemed to be underwriters, and any discounts, concessions and commissions
received by them and any profit realized by them on resale of the securities
being offered may be deemed to be underwriting discounts and commissions, under
the Securities Act. Under agreements entered into with us, underwriters, dealers
and agents may be entitled to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
If so indicated in the applicable prospectus supplement, we will authorize
dealers acting as our agents to solicit offers by certain institutions to
purchase securities being offered from us at the public offering price set forth
in such prospectus supplement pursuant to delayed delivery contracts providing
for payment and delivery on the date or dates stated in such prospectus
supplement. Each delayed delivery contract will be for an amount not less than,
and the aggregate principal amount of securities being offered sold pursuant to
delayed delivery contracts shall be not less nor more than, the respective
amounts stated in the applicable prospectus supplement. Institutions with whom
delayed delivery contracts, when authorized, may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions, and other institutions but will in all
cases be subject to our approval. Delayed delivery contracts will not be subject
to any conditions except (i) the purchase by an institution of the securities
being offered covered by its delayed delivery contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject, and (ii) if the securities being offered
are being sold to underwriters, we shall have sold to such underwriters the
total principal amount of the securities being offered less the principal amount
thereof covered by delayed delivery contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for us and our subsidiaries in
the ordinary course of business.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited (i) our financial
statements and schedule as of December 31, 1997 and for the period from July 16,
1997 (inception) to December 31, 1997; (ii) the balance sheet of Philips
International Realty, L.P. as of December 31, 1997; (iii) the balance sheet of
the Property Partnerships as of December 31, 1997; (iv) the combined financial
statements of the Philips Company as of December 31, 1996 and for each of the
three years in the period ended December 31, 1997; and (v) the combined
statement of revenue and certain expenses of the Merrick Commons and Mill Basin
Properties, included in our Annual report on form 10-K for the year ended
December 31,1997, as set forth in their report which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements and schedule are incorporated by reference in reliance on
Ernst & Young LLP's reports, given on their authority as experts in accounting
and auditing. We have incorporated by reference in this prospectus the combined
financial statements of the Munsey Park Shopping Center, for the year ended
December 31, 1997, in our Current Report on Form 8-K, dated July 31, 1998, in
reliance on the reports of Gentile, Pismeny & Brengel, LLP, independent
auditors, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
Pryor Cashman Sherman & Flynn LLP, New York, New York will issue an opinion
to us regarding certain legal matters in connection described under "Certain
United States Federal Income Tax Considerations to the Company of its REIT
Election" on page 25. Ballard Spahr Andrews & Ingersoll, LLP, Baltimore,
Maryland will issue an opinion to us regarding certain other matters of Maryland
law in connection with this offering, including the validity of the issuance of
the shares of common stock offered by this prospectus.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses to be paid by us in
connection with the issuance and distribution of the securities being
registered.
<TABLE>
<S> <C>
Commission Registration Fee............................................................. $ 60,606.06
Printing and Engraving Expenses......................................................... $ 10,000.00
Legal Fees and Expenses................................................................. $ 25,000.00
Accounting Fees and Expenses............................................................ $ 5,000.00
------------
Total.............................................................................. $ 100,606.06
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our officers and directors are indemnified under Maryland law, our articles
of incorporation and the amended and restated agreement of limited partnership
of Philips International Realty, L.P., against certain liabilities. We are
required under the articles of incorporation to indemnify our directors and
officers to the fullest extent permitted from time to time by the laws of the
State of Maryland. The bylaws contain provisions which implement the
indemnification provisions of our articles of incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those capacities unless it is established that the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the director or officer actually received an improper
personal benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful, or the director or officer was adjudged to be liable
to the corporation for the act or omission. No amendment of our articles of
incorporation shall limit or eliminate the right to indemnification provided
with respect to acts or omissions occurring prior to such amendment or repeal.
We are permitted under Maryland law to provide indemnification to an officer to
the same extent as a director, although additional indemnification may be
provided if such officer is not also a director.
The MGCL permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, with specified exceptions.
The MGCL does not, however, permit the liability of directors and officers to
the corporation or its stockholders to be limited to the extent that (1) it is
proved that the person actually received an improper benefit or profit in money,
property or services (to the extent such benefit or profit was received) or
(2) a judgment or other final adjudication adverse to such person is entered in
a proceeding based on a finding that the person's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. Our articles of incorporation contain a
provision consistent with the MGCL. No amendment of the articles of
incorporation shall limit or eliminate the limitation of liability with respect
to acts or omissions occurring prior to such amendment or repeal.
The partnership agreement of the Philips International Realty, L.P. also
provides for indemnification of us and our officers and directors to the same
extent indemnification is provided to our officers and directors in our articles
of incorporation, and limits our liability and our officers and directors to the
Philips International Realty, L.P. and its partners to the same extent liability
of our officers and directors to our stockholders is limited under our articles
of incorporation.
II-1
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We have entered into indemnification agreements with each of our directors
and officers. The indemnification agreements require, among other things, that
we indemnify our directors and officers to the fullest extent permitted by law,
and advance to the directors and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. We also must indemnify and advance all expenses incurred by directors
and officers seeking to enforce their rights under the indemnification
agreements, and cover directors and officers under our directors' and officers'
liability insurance. Although the form of indemnification agreement offers
substantially the same scope of coverage afforded by provisions of our articles
of incorporation and the bylaws and the partnership agreement of the Philips
International Realty, L.P., it provides greater assurance to directors and
officers that indemnification will be available, because, as a contract, it
cannot be modified unilaterally in the future by our board of directors or by
the stockholders to eliminate the rights it provides.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C>
4.1 Form of Common Stock Certificate(1)
4.2 Form of Common Stock Warrant Agreement(2)
4.3 Form of Articles Supplementary for the Preferred Stock(2)
4.4 Form of Preferred Stock Certificate(2)
4.7 Form of Preferred Stock Warrant Agreement(2)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the validity of the Common Stock,
Preferred Stock, Depositary Shares and Warrants being registered
8.1 Opinion of Pryor, Cashman, Sherman & Flynn LLP regarding tax matters
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as part of Exhibit 5.1)
23.2 Consent of Pryor Cashman Sherman & Flynn LLP (included as part of Exhibit 8.1)
23.3 Consent of Ernst & Young LLP
23.4 Consent of Gentile, Pismeny & Brengel LLP
</TABLE>
- ------------------
(1) Incorporated herein by reference to Exhibit 3.5 to our registration
statement on Form S-11 filed with the Securities and Exchange Commission on
April 17, 1998.
(2) To be filed by amendment or incorporated by reference in connection with the
offering of the applicable securities.
ITEM 17. UNDERTAKINGS.
We, the undersigned Registrant, hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in this registration statement or any material
change to such information in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
We hereby further undertake that, for the purposes of determining any
liability under the Securities Act of 1933, each filing of our annual reports
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
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of 1934 that is incorporated by reference in this registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
We hereby further undertake that:
(1) For the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance under Rule 430A and
contained in a form of prospectus filed by us pursuant to
Rule 424(b)(1) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement at the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by
one of our directors, officers or controlling persons in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify that
we have reasonable grounds to believe that we meet all the requirements for
filing on Form S-3 and have duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on this 10th day of February, 1999.
PHILIPS INTERNATIONAL REALTY CORP.
By: /s/ PHILIP PILEVSKY
----------------------------------
Philip Pilevsky
Chairman of the board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Philip Pilevsky, his or her
attorneys-in-fact and agents, each with full power of substitution and
resubstitution for him or her in any and all capacities, to sign any or all
amendments or post-effective amendments to this registration statement or a
registration statement prepared in accordance with Rule 462 of the Securities
Act of 1933, as amended, and to file the same, with exhibits thereto and other
documents in connection herewith or in connection with the registration of the
offered securities under the Securities Exchange Act of 1934, as amended, with
the Securities and Exchange Commission, granting unto each of such
attorneys-in-fact and agents full power to do and perform each and every act and
thing requisite and necessary in connection with such matters and hereby
ratifying and confirming all that each of such attorneys-in-fact and agents or
his or her substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ PHILIP PILEVSKY Director, Chief Executive Officer February 10, 1999
- ------------------------------------------ and Chairman of the board
Philip Pilevsky
/s/ LOUIS J. PETRA Director and President February 10, 1999
- ------------------------------------------
Louis J. Petra
/s/ SHEILA LEVINE Director, Chief Operating Officer, February 10, 1999
- ------------------------------------------ Executive Vice President and
Sheila Levine Secretary
/s/ BRIAN J. GALLAGHER Chief Financial Officer, Acquisitions February 10, 1999
- ------------------------------------------ Director and Treasurer
Brian J. Gallagher
/s/ ARNOLD S. PENNER Director February 10, 1999
- ------------------------------------------
Arnold S. Penner
/s/ A.F. PETROCELLI Director February 10, 1999
- ------------------------------------------
A.F. Petrocelli
/s/ ELISE JAFFE Director February 10, 1999
- ------------------------------------------
Elise Jaffe
/s/ ROBERT GRIMES Director February 10, 1999
- ------------------------------------------
Robert Grimes
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ----------- ------------
<S> <C> <C>
4.1 Form of Common Stock Certificate (Incorporated herein by reference to Exhibit 3.5 to
our registration statement on Form S-11 filed with the Securities and Exchange
Commission on April 17, 1998.
4.2 Form of Common Stock Warrant Agreement(1)
4.3 Form of Articles Supplementary for the Preferred Stock(1)
4.4 Form of Preferred Stock Certificate(1)
4.7 Form of Preferred Stock Warrant Agreement(1)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the validity of the Common
Stock, Preferred Stock, Depositary Shares and Warrants being registered
8.1 Opinion of Pryor Cashman Sherman & Flynn LLP regarding tax matters
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included as part of Exhibit 5.1)
23.2 Consent of Pryor, Cashman, Sherman & Flynn (included as part of Exhibit 8.1)
23.3 Consent of Ernst & Young LLP
23.4 Consent of Gentile, Pismeny & Brengel LLP
</TABLE>
- ------------------
(1) To be filed by amendment or incorporated by reference in connection with the
offering of the applicable securities.
<PAGE>
Exhibit 5.1
(LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP)
February 10, 1999
Philips International Realty Corp.
417 Fifth Avenue
New York, New York 10016
Re: Philips International Realty Corp. (the "Company")
Registration Statement on Form S-3 pertaining to
$200,000,000 maximum aggregate initial offering price of (i)
shares of common stock of the Company, par value $.01 per
share ("Common Stock"); (ii) shares of preferred stock of
the Company, par value $.01 per share ("Preferred Stock");
(iii) shares or fractional shares of Preferred Stock
represented by depositary shares ("Depositary Shares"); and
(iv) warrants to purchase shares of Common Stock or shares
of Preferred Stock ("Warrants")
Ladies and Gentlemen:
In connection with the registration of shares of Common Stock, shares
of Preferred Stock, Depositary Shares and Warrants (collectively, the
"Securities") under the Securities Act of 1933, as amended (the "Act"), by the
Company on Form S-3 to be filed with the Securities and Exchange Commission
(the "Commission") on or about February 8, 1999 (the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Registration Statement.
We have acted as special Maryland corporate counsel to the Company in
connection with the matters described herein. In our
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Philips International Realty Corp.
February 10, 1999
Page 2
capacity as special Maryland corporate counsel to the Company, we have
reviewed and are familiar with the charter of the Company (the "Charter"),
consisting of Articles of Incorporation filed with the Maryland State
Department of Assessments and Taxation (the "Department") on July 16, 1997,
Articles of Amendment and Restatement filed with the Department on December
30, 1997 and Articles Supplementary filed with the Department on December 30,
1997; the Amended and Restated Bylaws of the Company (the "Bylaws"), which
were duly adopted by the Board of Directors of the Company on January 26, 1997
and are currently in effect; and certain resolutions adopted and actions taken
by the Board of Directors of the Company (the "Board of Directors") on or
before the date hereof and in full force and effect on the date hereof
including, but not limited to, those certain resolutions adopted by the Board
of Directors on January 26, 1999. We have also examined the Registration
Statement, other documents, corporate and other records of the Company and
certificates of public officials and officers of the Company including,
without limitation, a status certificate of recent date issued by the
Department to the effect that the Company is duly incorporated and existing
under the laws of the State of Maryland, and a Certificate of Officer of the
Company of recent date to the effect that, among other things, the Charter and
Bylaws of the Company and the resolutions and actions by the Board of
Directors which we have examined are true, correct and complete, have not been
rescinded or modified and are in full force and effect on the date of such
Certificate. We have also made such further legal and factual examinations as
we have deemed necessary or appropriate to provide a basis for the opinion set
forth below.
In reaching the opinions set forth below, we have assumed the
following: (a) each person executing any instrument, document or agreement on
behalf of any party (other than the Company) is duly authorized to do so; (b)
each natural person
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Philips International Realty Corp.
February 10, 1999
Page 3
executing any instrument, document or agreement is legally competent to do so;
(c) all documents submitted to us as originals are authentic; all documents
submitted to us as certified, facsimile or photostatic copies conform to the
original document; all signatures on all documents submitted to us for
examination are genuine; and all public records reviewed are accurate and
complete; (d) the resolutions adopted and to be adopted, and the actions taken
and to be taken by the Board of Directors including, but not limited to, the
adoption of all resolutions and the taking of all action necessary to
authorize the issuance and sale of the Securities in accordance with the
procedures set forth in paragraphs 1, 2, 3 and 4 below, have occurred or will
occur at duly called meetings at which a quorum of the incumbent directors of
the Company were or are present and acting throughout, or by unanimous written
consent of all incumbent directors, all in accordance with the Charter and
Bylaws of the Company and applicable law; (e) the number of shares of
Preferred Stock (including, without limitation, any shares of Preferred Stock
evidenced by Depositary Shares) and the number of shares of Common Stock to be
offered and sold under the Registration Statement, together with the number of
shares of Preferred Stock and the number of shares of Common Stock issuable
upon exercise of the Warrants, will not, in the aggregate, exceed the number
of shares of Preferred Stock, and the number of shares of Common Stock,
respectively, authorized in the Charter of the Company, less the number of
shares of Preferred Stock and the number of shares of Common Stock,
respectively, authorized and reserved for issuance and issued and outstanding
on the date on which the Securities are authorized, the date on which the
Securities are issued and delivered, the date on which the Warrants are
exercised and the date on which shares of Preferred Stock and shares of Common
Stock, respectively, are issued pursuant to exercise of Warrants; (f) none of
the terms of any Security to be established subsequent to the date hereof, nor
the
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Philips International Realty Corp.
February 10, 1999
Page 4
issuance and delivery of such Security nor the compliance by the Company
with the terms of such Security will violate any applicable law or will
conflict with, or result in a breach or violation of, the Charter or Bylaws of
the Company, or any instrument or agreement to which the Company is a party or
by which the Company is bound or any order or decree of any court,
administrative or governmental body having jurisdiction over the Company; (g)
the form of certificate or other instrument or document representing the
Securities will conform in all respects to the requirement applicable under
Maryland law; (h) all certificates reviewed by us are true and correct, both
when made and on the date hereof; and (i) none of the Securities, and none of
the shares of Preferred Stock or shares of Common Stock issuable upon exercise
of the Warrants, or the Depositary Shares or related depositary receipts, will
be issued or sold to an Interested Stockholder of the Company or an Affiliate
thereof, all as defined in Subtitle 6 of Title 3 of the Maryland General
Corporation Law, or in violation of the provisions of Article VI of the
Charter of the Company entitled "Restrictions on Transfer, Acquisition and
Redemption of Shares".
Based on the foregoing, and subject to the assumptions and
qualifications set forth herein, it is our opinion that:
1. Upon due authorization by the Board of Directors of a designated
number of shares of Common Stock for issuance at a minimum price or value of
consideration to be set by the Board of Directors, all necessary corporate
action on the part of the Company will have been taken to authorize the
issuance and sale of such shares of Common Stock, and when such shares of
Common Stock are issued and delivered against payment of the consideration
therefor as set by the Board of Directors, such shares of Common Stock will be
validly issued, fully paid and non-assessable.
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Philips International Realty Corp.
February 10, 1999
Page 5
2. Upon: (a) designation by the Board of Directors of one or more
series of Preferred Stock to distinguish each such series from other then
outstanding series of Preferred Stock; (b) setting by the Board of Directors
of the number of shares of Preferred Stock to be included in each such series;
(c) establishment by the Board of Directors of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of each such series of
Preferred Stock; (d) filing by the Company with the Department of articles
supplementary setting forth a description of each such series of Preferred
Stock, including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as set by the Board of Directors and a statement that
the Preferred Stock has been classified by the Board of Directors under the
authority contained in the Charter, and the acceptance for record by the
Department of such Articles Supplementary; and (e) due authorization by the
Board of Directors of a designated number of shares of each such series of
Preferred Stock for issuance at a minimum price or value of consideration to
be set by the Board of Directors, all necessary corporate action on the part
of the Company will have been taken to authorize the issuance and sale of such
shares of Preferred Stock and when such shares of Preferred Stock are issued
and delivered against payment of the consideration therefor as set by the
Board of Directors, such shares of Preferred Stock will be validly issued,
fully paid and non-assessable.
3. Upon: (a) designation and titling by the Board of Directors of the
Depositary Shares; (b) setting by the Board of Directors of the number of
Depositary Shares to be issued; (c) establishment by the Board of Directors of
the terms, conditions
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Philips International Realty Corp.
February 10, 1999
Page 6
and provisions of the Depositary Shares and any related agreements; (d) due
authorization by the Board of Directors of the execution, delivery and
performance of the depositary agreement relating to the Depositary Shares and
the issuance of the Depositary Shares at a minimum price or value of
consideration; and (e) due authorization and issuance by the Corporation of the
shares of Preferred Stock of the Company to be evidenced by the Depositary
Shares in accordance with the procedures set forth in Paragraph 2 above, all
necessary corporate action on the part of the Company will have been taken to
authorize the issuance and sale of the Depositary Shares, and when certificates
representing the shares of Preferred Stock to be represented by the Depositary
Shares are duly executed and delivered by the Company to the depositary named in
the depositary agreement against payment therefor in accordance with the
depositary agreement in the manner contemplated by the Registration Statement
and/or the applicable prospectus supplement, such shares of Preferred Stock
represented by the Depositary Shares will be validly issued, fully paid and
nonassessable.
4. Upon: (a) designation and titling by the Board of Directors of the
Warrants; (b) setting by the Board of Directors of the number of Warrants to
be issued; (c) establishment by the Board of Directors of the terms,
conditions and provisions of the Warrants; (d) due authorization by the Board
of Directors of the Warrants for sale, issuance and delivery at a minimum
price or value of consideration to be set by the Board of Directors; (e) due
authorization by the Board of Directors of the execution, delivery and
performance by the Company of the warrant agreement relating to the Warrants;
and (f) reservation and due authorization by the Board of Directors of the
shares of Common Stock and the shares of Preferred Stock of the Company
issuable upon exercise of such Warrants in accordance with the procedures
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Philips International Realty Corp.
February 10, 1999
Page 7
set forth in paragraphs 1 and 2 above, at a minimum price or value of
consideration to be set by the Board of Directors, all necessary corporate
action on the part of the Company will have been taken to authorize the
execution, delivery and performance by the Company of the warrant agreement
and the sale, issuance and delivery of the Warrants pursuant thereto.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the filing of this opinion as an
exhibit to applications to the securities commissioners of the various states
of the United States for registration of the Securities. We also consent to
the identification of our firm as Maryland counsel to the Company in the
section of the Prospectus (which is a part of the Registration Statement)
entitled "Legal Matters."
This opinion is limited to the present corporate laws of the State of
Maryland and we express no opinion with respect to the laws of any other
jurisdiction. Furthermore, the opinions presented in this letter are limited
to the matters specifically set forth herein and no other opinion shall be
inferred beyond the matters expressly set forth herein. Without limiting the
generality of the foregoing, we express no opinion with respect to any
securities laws.
The opinions set forth in this letter are rendered as of the date
hereof and are necessarily limited to laws now in effect and facts and
circumstances presently existing and brought to our attention. We assume no
obligation to supplement this opinion if any applicable law is changed after
the date hereof or if we become aware of any facts or circumstances which now
exist or which occur or arise in the future and may change the opinions
expressed herein after the date hereof.
<PAGE>
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Philips International Realty Corp.
February 10, 1999
Page 8
The opinions expressed in this letter are for your use and the use of
your securities counsel, Pryor Cashman Sherman & Flynn LLP, in connection with
the filing of the Registration Statement and the rendering of opinions by
Pryor Cashman Sherman & Flynn LLP in connection therewith, and may not be
relied upon by you or Pryor Cashman Sherman & Flynn LLP for any other purpose,
without our prior written consent.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
<PAGE>
Exhibit 8.1
[Letterhead of Pryor Cashman Sherman & Flynn LLP]
February 10, 1999
Philips International Realty Corp.
417 Fifth Avenue
New York, NY 10016
Re: Certain Federal Income Tax Matters
Ladies and Gentlemen:
We have acted as tax counsel to Philips International Realty Corp. (the
"Company") in connection with the Prospectus included as part of that certain
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission and as amended through the date hereof (the "Registration
Statement"). In connection therewith, you have requested our opinion with
respect to the qualification of the Company as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") and
the accuracy of the discussion included in the Registration Statement under the
heading "Certain United States Federal Income Tax Considerations to the Company
of its REIT Election."
We hereby consent to the use of our opinions as an Exhibit to the
Registration Statement and to any and all references to our firm in the
Prospectus that is a part of the Registration Statement, which Prospectus will
be delivered to prospective purchasers of securities of the Company, and we
hereby consent to such use of our opinion. All defined terms used herein shall
have the same meaning as used in the Registration Statement.
FACTS AND ASSUMPTIONS RELIED UPON
In rendering the opinions expressed herein, we have examined the
Articles of Incorporation and Bylaws of the Company, and such other records,
certificates and documents as we have deemed necessary or appropriate for
purposes of rendering the opinions set forth herein.
<PAGE>
Philips International Realty Corp.
February 10, 1999
Page 2
In our examination of documents, we have assumed, with your consent,
that all documents submitted to us are authentic originals, or if submitted as
photocopies, that they faithfully reproduce the originals thereof, that all such
documents have been or will be duly executed to the extent required, that all
representations and statements set forth in such documents are true and correct,
and that all obligations imposed by any such on the parties thereto have been or
will be performed or satisfied in accordance with their terms. We have also
assumed, without investigation, that all documents, certificates, warranties and
covenants on which we have relied in rendering the opinions set forth below and
that were given or dated earlier than the date of this letter continue to remain
accurate, insofar as relevant to the opinions set forth herein, from such
earlier date through and including the date of this letter.
We have reviewed the Registration Statement and the descriptions set
forth therein of the Company and its investments and activities. We have relied
upon factual representations of the Company and its affiliates regarding the
manner in which the Company has been and will continue to be owned and operated.
We have also relied upon the representations of the accountants for the Company
and certification from the Company regarding the type and amount of income
received by the Company during its taxable year ended December 31, 1998, the
character and amount of distributions made with respect to its taxable year
ended December 31, 1998, and the Company's operations and the representations
similarly made with respect to prior years of the Company. We have neither
independently investigated nor verified such representations, and we assume that
such representations are true, correct and complete and that all representations
made "to the best of the knowledge and belief" of any person(s) or party(ies)
are and will be true, correct and complete as if made without such
qualification. We assume that the Company has been and will be operated in
accordance with applicable laws and the terms and conditions of applicable
documents, and the descriptions of the Company and its investments, and the
proposed investments, activities, operations and governance of the Company set
forth in the Registration Statement continue to be true. In addition, we have
relied on certain additional facts and assumptions described below.
The foregoing representations are all contained in letters to us dated
as of the date hereof (the "Certificates"). No facts have come to our attention
that are inconsistent with the facts and representations set forth in the
Certificates.
OPINIONS
Based upon and subject to the foregoing, we are of the following
opinions:
1. The Company has been organized in conformity with the requirements for
qualification as a REIT under the Code commencing with its initial taxable year
ended December 31, 1997, and for all subsequent taxable years to date, and its
method of operation as described in the representations referred to above, will
enable it to continue to meet the requirements for qualification and taxation as
a REIT under the Code.
<PAGE>
Philips International Realty Corp.
February 10, 1999
Page 3
2. The discussion contained in that portion of the Registration Statement under
the caption "Certain United States Federal Income Tax Considerations to the
Company of its REIT Election" fairly summarizes the material federal income tax
considerations relevant to the Company's status as a REIT.
The opinions expressed herein are based upon the Code, the Treasury
Regulations promulgated thereunder, current administrative positions of the
Internal Revenue Service, and existing judicial decisions, any of which could be
changed at any time, possibly on a retroactive basis. Any such changes could
adversely affect the opinions rendered herein and the tax consequences to the
Company and investors in the Company's common stock. In addition, as noted
above, our opinions are based solely on the documents that we have examined, the
additional information that we have obtained, and the representations that are
being made to us, and cannot be relied upon if any of the facts contained in
such documents or in such additional information are, or later become,
inaccurate or if any of the representations made to use are, or later become,
inaccurate.
We express no opinion with respect to the Registration Statement other
than those expressly set forth herein. Furthermore, the Company's qualification
as a REIT will depend on the Company meeting, in its actual operations, the
applicable asset composition, source of income, shareholder diversification,
distribution, record-keeping and other requirements of the Code necessary for a
corporation to qualify as a REIT. We will not review these operations, and no
assurance can be given that the actual operations of the Company and its
affiliates will meet these requirements or the representations made to us with
respect thereto.
Finally, our opinion is limited to the tax matters specifically covered
hereby, and we have not been asked to address, nor have we addressed, any other
tax consequences of an investment in the Company's common stock.
Very truly yours,
/s/ Pryor Cashman Sherman & Flynn LLP
<PAGE>
Exhibit 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 6, 1998, in the Registration Statement Form S-3
No. and the related Prospectus of Philips International Realty
Corp. (the "Company") for the registration of shares of its common stock,
preferred stock, warrants and depository shares.
We also consent to the incorporation by reference therein of our reports dated
(i) March 6, 1998, with respect to the financial statements and schedule of
Philips International Realty Corp. for the period of July 16, 1997 (inception)
to December 31, 1997; (ii) March 6, 1998, with respect to the balance sheet of
Philips International Realty, L.P. as of December 31, 1997, (iii) March 6, 1998,
with respect to the balance sheet of the Property Partnerships as of December
31, 1997; (iv) March 6, 1998, with respect to the combined financial statements
of the Philips Company as of December 31, 1996 and for the related combined
statements of income, owners deficit and cash flows for each of the three years
in the period ended December 31, 1997; and (v) March 6, 1998, with respect to
the combined statements of revenues and certain expenses of the Merrick Commons
and Mill Basin Plaza Properties included in the Annual Report (Form 10-K) for
1997 filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
- ---------------------
Ernst & Young LLP
New York, New York
February 10, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form S-3, File No. __________, and the related prospectus
of Philips International Realty Corp. for the registration of $200,000,000 of
Common Stock, Preferred Stock, Depositary Shares and Warrants and to the
incorporation by reference therein of our report dated August 27, 1998, with
respect to the statement of revenue and certain operating expenses of Munsey
Park Shopping Center.
/s/ GENTILE, PISMENY & BRENGEL, LLP
- -----------------------------------
Gentile, Pismeny & Brengel, LLP
Great Neck, New York
February 10, 1999
