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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1998
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LOEB REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
------------------------
521 FIFTH AVENUE
NEW YORK, NEW YORK 10175
(212) 883-0388
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOSEPH S. LESSER
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
LOEB REALTY CORPORATION
521 FIFTH AVENUE
NEW YORK, NEW YORK 10175
(212) 883-0360
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
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COPIES TO:
ALAN L. GOSULE, ESQ.
ROBERT E. KING, JR., ESQ. BRUCE M. MONTGOMERIE, ESQ.
ROGERS & WELLS LLP WILLKIE FARR & GALLAGHER
200 PARK AVENUE 153 EAST 53 STREET
NEW YORK, NEW YORK 10166 NEW YORK, NEW YORK 10022
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
------------------------
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
PROPOSED AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT TO MAXIMUM OFFERING OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED PRICE PER SHARE(a) PRICE(a) FEE
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Common Stock, par value $.001 per share 15,640,000(b) $21.00 $ 328,440,000 $ 96,890.00
</TABLE>
(a) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(b) Includes 2,040,000 shares being registered in connection with an
over-allotment option being granted to the Underwriters.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 12, 1998
PROSPECTUS
13,600,000 SHARES
LOEB REALTY CORPORATION
COMMON STOCK
------------------------
Loeb Realty Corporation (together with its subsidiaries, the 'Company') is
the successor to the real estate business of Loeb Partners Realty. For over 30
years, the Company and its predecessors have successfully followed a strategy of
making opportunistic investments in real estate and enhancing the value of their
properties through repositioning and intensive asset management. Upon completion
of the Offering, the Company will own interests in 31 properties located in 14
states. For the year ended December 31, 1997, the Company derived approximately
67% of its Adjusted Pro Forma Net Operating Income (as defined) from its
interests in office properties. During that same period, the Company derived
approximately 41% of its Adjusted Pro Forma Net Operating Income from its
interests in New York City office properties. The balance of the portfolio
includes interests in retail, residential and storage properties and
one hospitality/resort complex. The Company also controls approximately 974
acres of land held for development located in suburban Atlanta. The Company
intends to continue to make geographically diverse, opportunistic investments in
a variety of property types, with an initial focus on high quality Class B
office properties in New York City. The Company is self-administered and
self-advised and intends to elect to qualify as a real estate investment trust
('REIT') for federal income tax purposes.
All of the shares of common stock of the Company (the 'Common Stock')
offered hereby are being sold by the Company (the 'Offering'). Upon completion
of the Offering, the Company's directors and officers, and investors who owned
interests in the Company's properties prior to the Offering will beneficially
own, in the aggregate, 51.7% of the Company's equity interests on a fully
diluted basis.
The Company will apply to list the Common Stock on the New York Stock
Exchange under the symbol 'LRC.' Prior to the Offering, there has been no public
market for the Common Stock. It is estimated that the initial public offering
price will be between $19.00 and $21.00 per share. See 'Underwriting' for a
discussion of the factors that will be considered in determining the initial
public offering price.
SEE 'RISK FACTORS' BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK, WHICH INCLUDE:
Risks associated with the real estate industry generally and with the
concentration of the Properties in a limited number of markets, particularly
New York City;
The possibility that the consideration paid by the Company for the properties
and the Company's other assets may exceed their fair market value;
Conflicts of interest in connection with the Offering and the Formation
Transactions (as defined), including material benefits to certain officers,
directors and affiliates of the Company, and the lack of arm's-length
negotiations in connection with the Formation Transactions;
The Company's estimated initial annual distributions for the 12 months ending
September 30, 1999 represent % of its estimated cash available for
distribution, principally as a result of rent abatements and anticipated
capital expenditures during that period related to recent significant
redevelopment projects, resulting in the Company initially having to fund a
portion of its distributions from working capital or additional borrowings;
Dependence on key personnel;
Taxation of the Company as a regular corporation if it fails to qualify as a
REIT, and the resulting decrease in cash available for distribution; and
Limitations on stockholders' ability to change control of the Company,
including restrictions on ownership of more than 9.8% of the Common Stock.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share $ $ $
Total(3) $ $ $
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See 'Underwriting.'
(2) Before deducting estimated expenses of approximately $7,000,000 payable
by the Company.
(3) The Company has granted the Underwriters an option to purchase up to
2,040,000 additional shares of Common Stock to cover over-allotments. If
all such Common Stock is purchased, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See 'Underwriting.'
------------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if issued to and accepted by
them and subject to certain conditions. It is expected that delivery of the
shares of Common Stock offered hereby will be made on or about , 1998,
at the offices of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.
------------------------
SALOMON SMITH BARNEY
LAZARD FRERES & CO. LLC
PAINEWEBBER INCORPORATED
, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
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[MAP, PHOTOGRAPHS, ETC.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE 'UNDERWRITING.'
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a 'safe
harbor' for forward-looking statements. Information contained in or delivered in
connection with this Prospectus contains 'forward- looking statements' within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, relating to,
without limitation, future economic performance, plans and objectives of
management for future operations and projections of revenue and other financial
items, which can be identified by the use of forward-looking terminology such as
'may,' 'will,' 'should,' 'expect,' 'anticipate,' 'estimate' or 'continue' or the
negative thereof or other variations thereon or comparable terminology. The
cautionary statements set forth under the caption 'Risk Factors' and elsewhere
in this Prospectus identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY............................. 1
The Company............................... 1
Business and Growth Strategies............ 2
Risk Factors.............................. 6
The Properties............................ 8
Structure and Formation of the Company.... 10
Benefits to Related Parties............... 11
The Offering.............................. 12
Distributions............................. 12
Tax Status of the Company................. 13
Summary Selected Combined Financial and
Operating Information................... 14
RISK FACTORS................................... 16
The Company's Performance and Value Are
Subject to Risks Associated with the
Real Estate Industry.................... 16
Conflicts of Interest Could Adversely
Affect Stockholders..................... 19
Estimated Initial Cash Available for
Distribution Will Not Be Sufficient to
Make Distributions at Expected Levels... 21
The Company Relies on Key Personnel Whose
Continued Service Is Not Guaranteed..... 21
Failure to Qualify as a REIT Would Cause
the Company to Be Taxed as a
Corporation............................. 21
Limitations on Changes in Control and
Ownership Limit Could Adversely Affect
the Market for the Common Stock......... 23
The Company's Use of Debt Financing,
Increases in Interest Rates, Financial
Covenants and the Absence of Any Debt
Limitation Could Adversely Affect the
Company................................. 25
Competition in Its Marketplace Could Have
an Adverse Impact on the Company's
Results of Operations................... 26
The Company Will Substantially Depend on
External Sources of Capital............. 26
The Board of Directors Could Change
Policies Without Stockholder Approval... 26
Purchasers of Common Stock in the Offering
Will Experience Immediate and
Substantial Dilution.................... 26
Possible Environmental Liabilities Could
Adversely Affect the Company's Financial
Condition............................... 26
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Absence of Prior Public Market for Common
Stock Could Adversely Affect the Common
Stock Price............................. 28
Other Risks of Ownership of Common Stock
Could Adversely Affect the Common Stock
Price................................... 28
Contingent or Undisclosed Liabilities
Could Adversely Affect the Company's
Financial Condition..................... 29
Risks Relating to Year 2000 Issue......... 29
THE COMPANY.................................... 30
General................................... 30
Operational Structure..................... 31
BUSINESS AND GROWTH STRATEGIES................. 31
External Growth........................... 31
Internal Growth........................... 34
USE OF PROCEEDS................................ 35
DISTRIBUTIONS.................................. 36
CAPITALIZATION................................. 43
DILUTION....................................... 44
SELECTED COMBINED FINANCIAL AND OPERATING
INFORMATION.................................. 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 48
Results of Operations..................... 48
Pro Forma Operating Results............... 49
Liquidity and Capital Resources........... 50
Funds from Operations..................... 51
Inflation................................. 51
Year 2000................................. 51
BUSINESS AND PROPERTIES........................ 52
The Office Properties and the Company's
New York City Investment Thesis......... 54
The Retail Properties..................... 62
The Residential Properties................ 65
The Hospitality/Resort Complex............ 65
Lease Expirations of Office and Retail
Properties.............................. 66
Tenants................................... 73
Tenant Improvement and Leasing Commission
Costs................................... 74
Historical Lease Renewals................. 76
Lease Distribution........................ 76
Debt Financing............................ 77
Credit Facility........................... 77
Third-Party Property Management........... 77
Excluded Interests........................ 77
Litigation................................ 78
Insurance................................. 79
Environmental Matters..................... 79
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MANAGEMENT..................................... 80
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Committees of the Board of Directors...... 81
Compensation of Directors................. 81
Executive Compensation.................... 81
Stock Option and Incentive Plan........... 82
Employment Agreements..................... 82
Incentive Compensation.................... 83
Limitation of Liability and
Indemnification......................... 83
FORMATION TRANSACTIONS......................... 83
Benefits to Related Parties............... 85
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES.... 85
Investment Policies....................... 85
Financing Policies........................ 86
Conflict of Interest Policies............. 87
Policies with Respect to Other
Activities.............................. 88
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 88
Formation Transactions.................... 88
Operating Partnership Agreement........... 88
Registration Rights....................... 88
Longboat Key Club......................... 88
PRINCIPAL STOCKHOLDERS......................... 89
DESCRIPTION OF SECURITIES...................... 89
General................................... 89
Common Stock.............................. 89
Additional Classes of Stock............... 90
Restrictions on Transfer.................. 90
Limitation of Liability of Directors...... 91
Indemnification of Directors and
Officers................................ 91
SHARES AVAILABLE FOR FUTURE SALE............... 92
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S CHARTER AND BY-LAWS................ 93
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Certain Charter and By-law Provisions..... 93
Changes in Control Pursuant to Maryland
Law..................................... 94
THE OPERATING PARTNERSHIP AGREEMENT............ 95
General................................... 95
Fiduciary Duties.......................... 96
Amendments of the Operating Partnership
Agreement............................... 96
Transfer of Interests..................... 97
Redemption of Units....................... 97
Issuance of Additional Limited Partnership
Interests............................... 98
Extraordinary Transactions................ 98
Liability and Indemnification............. 99
Tax Matters............................... 99
Dissolution, Winding Up and Termination... 99
ERISA AND CERTAIN OTHER CONSIDERATIONS......... 100
General................................... 100
Status of the Company and the Operating
Partnership under ERISA................. 100
FEDERAL INCOME TAX CONSIDERATIONS.............. 102
General................................... 102
Taxation of the Company................... 102
Taxation of Stockholders.................. 109
Other Tax Considerations.................. 113
UNDERWRITING................................... 114
LEGAL MATTERS.................................. 116
EXPERTS........................................ 116
ADDITIONAL INFORMATION......................... 116
GLOSSARY....................................... 118
INDEX TO FINANCIAL STATEMENTS.................. F-1
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and related notes appearing elsewhere
in this Prospectus. Unless indicated otherwise, the information contained in
this Prospectus assumes (i) that the transactions detailed under 'Formation
Transactions' (the 'Formation Transactions') have been completed, (ii) an
initial public offering price of $20.00 per share, which is the midpoint of the
price range set forth on the cover page of this Prospectus, and (iii) that the
Underwriters' over-allotment option is not exercised. Unless the context
otherwise requires, all references to the 'Company' in this Prospectus include
Loeb Realty Corporation and its subsidiaries, including Loeb Realty, L.P., the
operating partnership through which the Company will own its real estate
interests (the 'Operating Partnership') and Loeb Property Services, Inc., the
subsidiary through which the Company will conduct its third party sales and
leasing brokerage business (the 'Real Estate Brokerage Subsidiary'). All
references in this Prospectus to the historical activities of the Company refer
to the activities of its predecessors including Loeb Partners Realty. See
'Glossary' for the definition of certain terms used in this Prospectus.
THE COMPANY
The Company is the successor to the real estate business of Loeb Partners
Realty. For over 30 years, the Company has successfully followed a strategy of
making opportunistic investments in real estate and enhancing the value of its
properties through repositioning and intensive asset management. Upon completion
of the Offering, the Company will own interests in 31 properties located in 14
states (the 'Properties'). For the year ended December 31, 1997, the Company
derived approximately 67% of its Adjusted Pro Forma Net Operating Income
from its interests in office Properties. During that same period, the Company
derived approximately 41% of its Adjusted Pro Forma Net Operating Income
from its interests in New York City office Properties. The
balance of the portfolio includes interests in retail, residential and storage
Properties and one hospitality/resort complex. The Company also controls 974
acres of land located in suburban Atlanta, which could support the development
of approximately 12 million net rentable square feet. The Company intends to
continue to make geographically diverse, opportunistic investments in a variety
of property types, with an initial focus on high quality Class B office
properties in New York City. The Company is self-administered and self-advised
and intends to elect to qualify as a REIT for federal income tax purposes.
The Company believes that there are attractive opportunities for asset
repositioning, redevelopment and value enhancement in select markets throughout
the United States. Most of the Company's acquisition activities in recent years
have focused on high quality Class B office properties in New York City and
other central business districts ('CBDs'). The Company generally seeks to
acquire office properties which may be considered Class B assets but which have
redevelopment or repositioning potential because of their large floor plates,
prime locations within their CBD, and suitability for institutional quality
tenants. In executing its opportunistic acquisition and asset management
strategy, the Company expects to benefit from (i) an extensive network of
relationships which the Company's management has developed over 30 years, (ii) a
focused strategy of identifying and acquiring underperforming assets at prices
which the Company believes are below the assets' potential value, (iii) its
integrated organization of employees with expertise in acquiring, repositioning
and managing properties, and (iv) its experience in employing a value
enhancement investment strategy through the complete market cycle, all of which
the Company believes are important competitive advantages in its business.
The Company's predecessor originated as the real estate business of Loeb
Rhoades & Co. Since the 1960's, the Company has invested in and managed real
estate assets for the Loeb family and for major domestic and foreign pension
funds, insurance companies and wealthy private investment groups. The Company's
largest investors include the Loeb family, C.V. Starr & Co., Inc. (whose
founders also started American International Group, Inc.) and Abercromby
Property International (an investment partnership whose investors include
Barclays Bank Pension Funds, London & Manchester Assurance Company and the
Shipbuilding Industries Pension Fund). These investors and certain
other investors who
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owned interests in the Properties prior to the Offering (including members of
the Company's management) are exchanging their interests in the Properties for
equity interests in the Company, and will beneficially own approximately 51.7%
of the Company's equity interests on a fully diluted basis upon completion of
the Offering.
As part of the Formation Transactions, the Company will acquire the assets
and property management business of George Comfort & Sons, Inc. ('Comfort').
Comfort, which was formed in 1919, specializes in the management and leasing of,
and investment in, commercial properties, particularly in New York City. Over
the past five years, Comfort has managed approximately 5.5 million net rentable
square feet of properties. Loeb Partners Realty and Comfort have been partners
in various real estate projects for over 30 years, and jointly purchased and
repositioned approximately 3.0 million square feet of commercial real estate in
metropolitan New York in the last five years. The Company believes that
Comfort's management and leasing expertise will complement the Company's
existing asset management and acquisition capabilities to create a fully
integrated, full service real estate organization.
The Company's management will continue to foster the creative and
disciplined corporate culture of its predecessors. The Company's management has
extensive experience with a wide variety of property types and geographic
regions throughout the United States, having acquired, financed, repositioned or
managed over 25 million square feet of real estate assets over the last 30
years. The key executives of the Company, Joseph S. Lesser, Alan L. Gordon,
Peter S. Duncan, Gary L. Naughton and Bernard B. Falk have been with the Company
or Comfort for an average of more than 20 years. Upon completion of the
Offering, the Company's officers and directors will own equity interests in the
Company representing approximately 9.3% of the Company's equity interests on a
fully diluted basis.
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objectives are to maximize growth in cash
available for distribution per share and to enhance the value of its portfolio
in order to maximize the long-term total return to stockholders. The Company
intends to achieve these objectives principally by executing the external and
internal growth strategies described below.
EXTERNAL GROWTH
Acquire Assets with Value Enhancement Potential. The Company will seek to
acquire assets which could benefit from the Company's value enhancement strategy
and provide favorable returns on the Company's invested capital. The Company
will focus on properties whose value can be enhanced through one or more of the
following: (i) asset repositioning, expansion or redevelopment, (ii) aggressive
leasing of vacant space, (iii) replacing expiring leases with leases at higher
rental rates or (iv) more intensive property management.
Reposition/Redevelop Assets. Management believes that value added
renovation and expansion of properties will continue to provide the Company with
attractive opportunities for increased cash flow and higher potential returns
than may be obtained from the purchase of stabilized properties. The Company has
found that the repositioning potential of high quality Class B office space is
driven in large part by the growth of smaller companies and the relocation of
large firms from Class A space to Class B space due to a present scarcity of
large blocks of space and the anticipated cost savings associated with such a
move. The Company's Class B Properties generally have the requisite large floor
plates and prime locations sought by institutional tenants, and offer the
opportunity to create, through renovation or expansion, the high quality
building premises and common areas which appeal to those tenants. The Company
believes that the economic and real estate fundamentals of commercial markets,
particularly New York City, provide a positive environment in which the Company
can seek to implement its repositioning strategy.
Acquire a Variety of Asset Types in Diverse Markets. The Company's
strategy is to invest in a variety of property types and markets, which the
Company believes provides it with flexibility to
2
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allocate capital and organizational resources in order to maximize the Company's
ability to realize growth, current income and stability through market cycles.
Unlike many of its competitors, the Company does not restrict its acquisitions
to any particular market or asset type.
The Company believes that its strategy of investing in diverse asset types
helps minimize the impact of oversupply from new construction or declining
demand in a particular property type. Although the Company believes that office
properties located in CBDs, particularly New York City, currently represent some
of the most attractive acquisition opportunities available to the Company, the
Company will continue selectively to pursue other asset types and markets in
order to expand and diversify its property portfolio.
In seeking opportunistic investments, the Company has operated with a
national focus over the last 30 years. The Company currently owns real estate
interests in 14 states. The Company believes that this geographic
diversification helps minimize the effects of a local or regional economic
downturn on the Company's property portfolio and its financial performance.
Acquire Distressed Assets at Attractive Prices. The Company believes that
there are opportunities to acquire properties at prices which do not reflect the
potential realizable value of the property to the Company. The Company has
realized positive returns in some instances by acquiring assets which were
subject to impediments such as defaulted loans or other financial distress,
bankruptcy, litigation or ownership conflict. In many cases these properties
suffer from inadequate property management and leasing efforts which the Company
is able to address rapidly by applying its intensive management and aggressive
leasing practices. Management has recently seen, and expects to continue to see,
opportunities to acquire assets whose owners are unable to meet their
obligations under mortgage loans.
The Company believes that due to its size, management strength, reputation
and ability to execute complex transactions, it is in an advantageous position
to acquire undervalued properties. The Company believes that it receives a
'first look' on many properties located in New York City because of the
Company's historical presence there and the number of transactions which the
Company has consummated in New York City in the past five years. During its more
than 30 years of operations, the Company has developed relationships with
numerous banks, insurance companies, brokers, attorneys, accountants, and other
intermediaries and principals, which provide the Company with opportunities to
acquire properties across the country, especially in markets where the Company
has long-standing relationships.
Acquire Properties on a Contrarian Basis at Appropriate Points in the
Real Estate Cycle. The Company's management team is experienced in operating
properties in markets suffering from adverse economic conditions or an excess
supply of available space. The Company believes that from time to time it will
have the opportunity to acquire assets at attractive prices in markets which are
economically depressed or in the early stages of recovery, where rental rates
are below the rates necessary to support new construction, resulting in
favorable supply and demand characteristics. The Company's presence in a variety
of markets enables it to identify depressed markets and allocate its capital to
the markets which the Company believes provide the best investment opportunities
at any given time.
Examples of the Company's Opportunistic External Growth Strategy. The 63
Madison Avenue, 498 Seventh Avenue and First NBC Center Properties are three
examples of how the Company has sought to execute its external growth strategy
in recent years. There can be no assurance that the Company's historical rates
of return at these Properties will continue. The following descriptions of those
Properties should not be considered indicative of how the Company has executed
its strategy at other Properties or of the performance that will result from its
strategy at other Properties.
The Company's acquisition of a controlling interest in the 63 Madison
Avenue Property is an example of the Company's strategy of acquiring assets
which the Company believes have significant repositioning potential, applying
its redevelopment skills and aggressively seeking tenants to occupy the
repositioned space. In December 1995, the Company and its partners acquired the
approximately 800,000 net rentable square foot Property from New York Life
Insurance Company ('New York Life')
3
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which was the building's sole tenant. The aggregate purchase price for this
Property was approximately $65.0 million, or approximately $81.25 per net
rentable square foot. New York Life entered into a 15 year lease for 460,000 net
rentable square feet and a short-term lease for the Property's remaining 340,000
net rentable square feet. The Company assumed the management of the Property and
initiated an extensive renovation of the Property at a cost of approximately
$6.0 million. In January 1998, Ziff-Davis, Inc. ('Ziff-Davis'), a multimedia
company, signed a 21 year lease for 400,000 net rentable square feet at this
Property, including 60,000 net rentable square feet which the Company took back
from New York Life. The Annualized Net Operating Income at acquisition of this
Property was approximately $9.7 million, of which $6.5 million was attributable
to New York Life's short-term lease which was due to expire in 1998. The
Annualized Net Operating Income of the Property based on leases currently in
place is approximately $11.9 million. 63 Madison Avenue is currently 100%
leased. The Company will own approximately a 50% interest in this Property upon
completion of the Offering.
The 498 Seventh Avenue Property represented an opportunity for the Company
to acquire an interest in a distressed asset at an attractive price, renovate
and redevelop the Property and aggressively seek new tenants to occupy vacant
space. The Company and its partner acquired the approximately 873,000 net
rentable square foot Property in March 1997 for an aggregate purchase price of
approximately $43.3 million, or approximately $49.60 per net rentable square
foot. This Property is located in New York City's 'garment district' and was 50%
vacant at the time of acquisition due in part to a downturn in the New York City
garment industry. The Company assumed the management of the Property and
initiated significant capital improvement work at the building at a cost of
approximately $7.0 million. In November 1997, the advertising firm Bates
Worldwide USA ('Bates') signed an approximately 200,000 net rentable square foot
lease at the Property. During the first three months of 1998, the Company leased
an additional 200,000 net rentable square feet to tenants including Caribiner
International ('Caribiner'), USN Communications ('USN') and Victoria's Secret,
bringing the occupancy level to approximately 90%. The Annualized Net Operating
Income of this Property at acquisition was approximately $2.0 million. The
Annualized Net Operating Income of 498 Seventh Avenue based on leases currently
in place is approximately $11.5 million. The Company will own a 50% interest in
this Property upon completion of the Offering.
The Company's acquisition of the First NBC Center in New Orleans is an
additional example of the Company opportunistically acquiring a high quality
asset, making significant capital improvements to reposition the Property and
installing an institutional quality tenant in the Property. In October 1994, the
Company acquired the Class A, approximately 1,000,000 net rentable square foot
building for an aggregate purchase price of approximately $63.0 million, or
approximately $63.00 per net rentable square foot. The purchase was partially
financed by an approximately $57.6 million loan from the seller of the Property,
which was a financial institution that had foreclosed on the developer of the
Property. Upon acquisition by the Company, the First NBC Center Property was
approximately 89% leased, but was only 60% occupied. The new lead tenant, the
First National Bank of Commerce, had executed a lease for 290,000 net rentable
square feet but had not yet moved in. The Company was required to undertake
capital improvement work and to fund and oversee substantial tenant improvements
in order to install this tenant at a cost of approximately $9.3 million. First
NBC Center was 92% occupied at December 31, 1997. The Annualized Net Operating
Income of the Property at acquisition was approximately $4.8 million. The
Annualized Net Operating Income of the Property based on leases currently in
place is approximately $9.2 million.
Financing Strategy. The Company expects initially to fund its
acquisitions with a combination of capital from an unsecured credit facility and
the issuance of partnership interests ('Units') in the Operating Partnership. In
addition, the Company has from time to time in the past obtained, and may seek
in the future, seller financing to fund acquisitions. The Company expects that
it will replace this financing over time with the issuance of equity and longer
term debt securities. The Company is in negotiations with several financial
institutions with regard to obtaining a $250 million senior unsecured credit
facility. The Company expects to have the credit facility in place upon
completion of the Offering. The unsecured line of credit will be used to
facilitate acquisition and development activities, to fund distribution
payments, if necessary, and for working capital purposes.
4
<PAGE>
<PAGE>
Upon completion of the Offering, the Company's Debt-to-Market
Capitalization Ratio will be approximately 24.6%. See "Business and
Properties--Debt Financing".
INTERNAL GROWTH
Intensive Property Management. The Company actively manages Properties
through its experienced staff. Additionally, in markets where it is more
efficient to do so, the Company outsources property management to a select group
of joint venture partners or third-party local managers with whom the Company
has established strong relationships. The Company will manage 22 of its 31
Properties upon completion of the Offering, which accounted for approximately
82% of the Company's Adjusted Pro Forma Net Operating Income for the year
ended December 31, 1997. The Company has established property management
offices in New York City and Albany, New York; Daytona Beach, Florida
and Atlanta, Georgia. The Company has significant expertise in managing
urban properties and will seek to capitalize on management's extensive
knowledge of the Class B New York City marketplace and certain other
CBDs throughout the United States as it acquires additional
properties in these markets. The Company's management philosophy embodies a
hands-on approach to adding value to its assets through the full economic cycle,
with a constant evaluation of the leasing, financing, capital improvements and
market repositioning opportunities for the assets.
Replace Expiring Leases at Higher Rents. The Company will seek to replace
expiring leases at its Properties with new leases at higher rental rates,
particularly at the office Properties. Leases with respect to approximately
9.5%, 5.7% and 11.2% of the net rentable square footage of the office Properties
are expiring in 1998, 1999 and 2000, at average rents of approximately $11.67,
$10.87 and $10.89, respectively. The weighted average of the Company's quoted
rent at the office Properties as of December 31, 1997 was $18.70, before
giving effect to tenant concessions. The Company generally
expects that leases expiring over the next three years will be renewed, or space
relet, at higher rents, particularly expiring leases at the New York City
Properties. However, there can be no assurance that the Company will be able to
replace expiring leases at higher rental rates or at all.
Lease-Up of Space. The Company will aggressively seek new tenants for
vacant space at the Properties. Specifically, the Company is seeking to lease
the remaining vacant space at the 498 Seventh Avenue (approximately 87,000 net
rentable square feet), 24 West 57th Street (approximately 11,700 net rentable
square feet), First NBC Center (approximately 80,430 net rentable square feet),
Riverview Center (approximately 322,670 net rentable square feet) and 38 Chauncy
Street (approximately 13,000 net rentable square feet) office Properties, as
well as the Easton Commons Plaza (approximately 19,200 net rentable square feet)
and Sunset Strip (approximately 20,500 net rentable square feet) retail
Properties. The Company believes that it has a competitive advantage in
attracting new tenants to its office Properties because the Company can offer
space in prime locations which may be suitable for institutional quality
tenants, and has rental rates which are lower than rates for properties
considered to be Class A assets. In addition, the Company believes that its
reputation for high quality services and tenant responsiveness may distinguish
it from its competitors.
Shenandoah Development. The Company has the right to acquire
approximately 974 acres of land at the Shenandoah Industrial Park Property,
which is located approximately 20 miles from Atlanta Hartsfield International
Airport, for a remaining option exercise price of approximately $700,000 plus
the payment of approximately $375,000 of accrued real estate taxes. The Company
intends to pursue build-to-suit development opportunities at this Property. The
Company estimates that this land could support the development of an additional
12 million net rentable square feet of light manufacturing and distribution
facilities under current zoning and entitlements. The Company estimates that the
cost of developing a typical distribution facility of approximately 200,000 net
rentable square feet with concrete and steel construction and loading docks
would be approximately $23.50 per net rentable square foot in
5
<PAGE>
<PAGE>
today's market. The Company believes that the current market rent for such a
facility would be approximately $2.75 per net rentable square foot on a triple
net basis. The Company has previously developed or provided development advisory
services for several industrial facilities at this Property.
Renovation and Expansions at Existing Properties. The Company seeks to
enhance the income potential of its Properties through a selective but
aggressive program of renovation and expansion. For example, the Company
recently completed an approximately $6.0 million renovation and expansion of the
Longboat Key Club. This project included the construction of a new restaurant,
club, fitness center, banquet facilities and meeting rooms. The Company believes
that these added amenities will help to attract additional guests and golf club
members to the Club and support possible future increases in rates at this
Property.
At the Outlet Park Shoppes at Waccamaw Property, the Company and its
partners are in the process of expanding this approximately 739,000 net rentable
square foot property by an additional 36,500 net rentable square feet. This
expansion is expected to be completed in 1998 at an aggregate cost to the
Company and its partners of approximately $4.0 million. The expansion is
expected to be fully leased by the end of 1998. In addition, the Company is
considering a potential additional expansion of this Property by approximately
27,000 net rentable square feet in 2000, although there can be no assurance
that the Company will complete this later expansion. The Company estimates
that rental rates will be approximately $13.00 per net rentable square foot
for space at this expansion.
The Company has budgeted approximately $6.5 million through the end of 1999
for expansion of the Manufacturers Outlet Center Property. This expansion is
currently in the planning stage and would include the development of a five acre
site owned by the Company which is adjacent to the Property. This expansion
project is subject to the receipt of governmental approvals.
As part of the Formation Transactions, the Company will acquire a 17.9 acre
parcel of land from a third party which is adjacent to the Company's Shoppes at
St. Lucie West Property. The Shoppes at St. Lucie West was approximately 99%
leased at December 31, 1997. The Company estimates that this land could support
approximately a 150,000 net rentable square foot expansion of the Shoppes at St.
Lucie West Property under current zoning and entitlements. The Company will
acquire this parcel for Units with a value of $2.25 million.
There can be no assurance that the Company will successfully complete the
expansion projects described above or that the Company's estimate of the cost of
any expansion will prove accurate.
RISK FACTORS
An investment in the Common Stock involves various risks and prospective
investors should carefully consider the matters discussed under 'Risk Factors'
prior to making an investment in the Common Stock. Those risks include:
the concentration of approximately 41% of the Properties (based on
Adjusted Pro Forma Net Operating Income) in New York City, and the
resulting dependence of the Company on economic conditions in New
York City;
the effect of economic and other conditions on Property cash flows and
values, the ability of tenants to make lease payments, the ability of a
Property to generate revenue sufficient to meet operating expenses
(including future debt service), and the illiquidity of real estate
investments, all of which could decrease cash available for distribution;
the absence of arm's length negotiations with respect to the Properties
and other assets contributed to the Company in its formation, so that the
consideration paid by the Company for its assets may exceed their fair
market value and the market value of the Common Stock may exceed the
stockholders' proportionate share of the aggregate fair market value of
those assets;
conflicts of interest in connection with the Offering and the Formation
Transactions, including an absence of arm's length negotiations in the
Formation Transactions, the receipt by certain officers, directors and
affiliates of the Company of material benefits as a result of the
Formation
6
<PAGE>
<PAGE>
Transactions and conflicts arising from the Company leasing its interests
in the Longboat Key Club complex to an affiliate (in which directors and
officers of the Company own approximately a 4% interest) in order to
maintain the Company's REIT status;
conflicts arising from officers, directors and affiliates of the Company
retaining interests or positions in real estate assets or companies which
are not being contributed to the Company, including the risk that
management time and attention may be diverted to these conflicting
interests;
the Company's estimated initial annual distributions for the 12 months
ending September 30, 1999 represent % of its estimated cash available
for distribution, principally as a result of rent abatements and
anticipated capital expenditures during that period related to recent
significant redevelopment projects, resulting in the Company initially
having to fund a portion of its distributions from working capital or
additional borrowings;
dependence on key personnel, including Joseph S. Lesser and Peter S.
Duncan;
taxation of the Company as a corporation if it fails to qualify as a REIT
for federal income tax purposes, the Company's liability for certain
federal, state and local income taxes in that event, and the resulting
decrease in cash available for distribution;
the possible anti-takeover effect of the Company's ability to limit, for
purposes of maintaining its REIT status, the actual or constructive
ownership of Common Stock to 9.8% of the outstanding shares of Common
Stock, and of certain other provisions of the organizational documents of
the Company and its subsidiaries and of Maryland law, which could have the
effect of delaying, deferring or preventing a transaction or change in
control of the Company that might involve a premium price for the Common
Stock or otherwise would be in the best interests of the Company's
stockholders;
the Company's policy of no limitation on debt could adversely affect the
Company's cash flow;
the inability to refinance outstanding indebtedness upon maturity or
refinance indebtedness on favorable terms which could result in
foreclosures on Properties pledged as collateral for indebtedness;
immediate dilution of $1.20 in the net tangible book value per share of
Common Stock purchased in the Offering (based on the assumed initial
public offering price);
absence of a prior public market for the Common Stock and no assurance
that a public market will develop or be sustained; and
possible liabilities under various federal, state and local environmental
laws could adversely affect the Company's financial condition.
7
<PAGE>
<PAGE>
THE PROPERTIES
The Properties are located in 14 states and consist of interests in 14
office Properties, 10 retail Properties, two storage Properties, three
residential Properties and one hospitality/resort complex. The office, retail,
storage and residential Properties contain an aggregate of approximately 8.6
million net rentable square feet and approximately 1,100 apartment units. These
Properties were approximately 90% leased at December 31, 1997. The Properties
also include approximately 974 acres of land held for development located in an
industrial park and an interest in the Longboat Key Club resort complex. Set
forth below is certain information regarding the Properties:
<TABLE>
<CAPTION>
COMPANY'S
PERCENT SHARE OF PERCENT
YEAR NET LEASED BASE RENT OF
PERCENT BUILT/ RENTABLE AS OF AS OF COMPANY'S
PROPERTY NAME MARKET OWNERSHIP RENOVATED SQUARE FEET 12/31/97 12/31/97(1) BASE RENT
- ----------------------------- --------------------------- ---------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
63 Madison Avenue............ New York, NY 50.5%(4) 1961/1997 797,377 100%(5) $ 6,004,532 9.0%
200 Madison Avenue........... New York, NY 31.5(6) 1927/1997 670,238 95 4,512,545 6.8
498 Seventh Avenue........... New York, NY 50.0(7) 1920/1997 873,137 90(8) 2,833,262 8.0
24 West 57th Street.......... New York, NY 100.0 1920/1997 97,312 88 2,599,083 3.9
529 Fifth Avenue............. New York, NY 32.6(9) 1959 266,772 94 2,316,450 3.5
307 West 38th Street......... New York, NY 100.0 1927/1996 273,819 91 1,992,376 3.0
First NBC Center............. New Orleans, LA 100.0 1985 1,005,357 92 7,852,291 11.8
Riverview Center............. Menands, NY 100.0 1929/1990 977,780 67 4,104,674 6.2
Marketplace Design Center.... Philadelphia, PA N/A(10) 1921/1974 302,541 89 3,060,902 4.6
38 Chauncy Street............ Boston, MA 100.0 1927/1982 130,142 90 1,835,136 2.8
First Union Bank Building.... Daytona Beach, FL 100.0 1972/1991 129,765 82 1,724,209 2.6
328 South Jefferson Street... Chicago, IL 100.0 1923 287,468 93 1,436,823 2.2
Winewood Office Park......... Tallahassee, FL 20.0(11) 1972/1997 332,030 100 1,039,322 1.6
GTE Property(12)............. Beaverton, OR 100.0 1980 65,000 100 1,016,760 1.5
Shenandoah Industrial Park... Coweta County, GA N/A(13) N/A N/A N/A N/A N/A
SUBTOTAL/WEIGHTED AVERAGE
FOR OFFICE
PROPERTIES............. N/A N/A 6,208,738 89% $42,328,365 63.6%
----------- -----------
----------- -----------
RETAIL PROPERTIES:
Princeton Shopping Center.... Princeton, NJ 100.0% 1957/1997 217,441 86% $ 2,905,545 4.4%
International Drive Value
Center..................... Orlando, FL 100.0 1995 185,953 100 2,298,644 3.5
Manufacturers Outlet
Center..................... Mt. Kisco, NY 100.0 1979/1994 203,121 92 1,894,694 2.8
Kendall Value Center......... Kendall, FL 100.0 1984/1993 173,302 100 1,669,956 2.5
Shoppes at St. Lucie West.... St. Lucie, FL 100.0 1992/1994 200,669 99 1,578,010 2.4
Outlet Park Shoppes at
Waccamaw................... Myrtle Beach, SC 25.0(14) 1981/1996 738,590 93 1,537,358 2.3
Easton Commons Shopping
Center..................... Houston, TX 100.0 1985 192,154 90 1,353,128 2.0
Kirby/Richmond Shopping
Center..................... Houston, TX 100.0 1972/1989 54,321 92 708,675 1.1
Sunset Strip Center.......... Kendall, FL 100.0 1984/1992 81,998 75 686,908 1.0
M&M Plaza.................... Menominee, MI 100.0 1967/1990 225,760 94 354,611 0.5
SUBTOTAL/WEIGHTED AVERAGE
FOR RETAIL
PROPERTIES............. N/A N/A 2,273,309 93% $14,987,529 22.5%
----------- -----------
----------- -----------
STORAGE PROPERTIES:
Public Storage Facility...... Alameda, CA 74.25%(9) -- 74,581 99% $ 688,583 1.1%
Public Storage Facility...... Glendale, CA 74.25(9) -- 57,690 93 482,655 0.7
SUBTOTAL/WEIGHTED AVERAGE
FOR STORAGE
PROPERTIES............. N/A N/A 132,271 96% $ 1,171,238 1.8%
----------- -----------
----------- -----------
<CAPTION>
BASE RENT
PER LEASED NET
SQUARE EFFECTIVE
PROPERTY NAME FOOT(2) RENT(3)
- ----------------------------- ---------- ---------
<S> <C> <C>
OFFICE PROPERTIES:
63 Madison Avenue............ $19.88 $ 8.45
200 Madison Avenue........... 22.43 22.61
498 Seventh Avenue........... 12.98 16.83
24 West 57th Street.......... 30.39 32.37
529 Fifth Avenue............. 28.45 22.35
307 West 38th Street......... 8.04 8.02
First NBC Center............. 8.49 8.55
Riverview Center............. 6.26 8.82
Marketplace Design Center.... 11.33 13.18
38 Chauncy Street............ 15.62 15.72
First Union Bank Building.... 16.15 14.07
328 South Jefferson Street... 5.37 5.12
Winewood Office Park......... 15.65 17.35
GTE Property(12)............. 15.64 15.64
Shenandoah Industrial Park... N/A N/A
SUBTOTAL/WEIGHTED AVERAGE
FOR OFFICE
PROPERTIES............. $14.63 N/A
RETAIL PROPERTIES:
Princeton Shopping Center.... $15.47 $ 12.82
International Drive Value
Center..................... 12.36 12.84
Manufacturers Outlet
Center..................... 10.16 11.34
Kendall Value Center......... 9.64 10.05
Shoppes at St. Lucie West.... 7.94 7.52
Outlet Park Shoppes at
Waccamaw................... 8.99 9.55
Easton Commons Shopping
Center..................... 7.49 7.48
Kirby/Richmond Shopping
Center..................... 14.19 12.76
Sunset Strip Center.......... 11.24 11.35
M&M Plaza.................... 2.68(15) 1.79
SUBTOTAL/WEIGHTED AVERAGE
FOR RETAIL
PROPERTIES............. $ 9.24 N/A
STORAGE PROPERTIES:
Public Storage Facility...... $12.60 $ 12.60
Public Storage Facility...... 12.14 12.14
SUBTOTAL/WEIGHTED AVERAGE
FOR STORAGE
PROPERTIES............. $12.41 $ 12.41
</TABLE>
8
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
NET RENTABLE PERCENT LEASED COMPANY'S SHARE COMPANY'S BASE
SQUARE FEET AS OF 12/31/97 OF BASE RENT AS OF 12/31/97 RENT
----------- ------------- ------------------------ --------------
<S> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE FOR OFFICE,
RETAIL AND STORAGE PROPERTIES........ 8,614,318 90% 58,487,132 88%
</TABLE>
<TABLE>
<CAPTION>
COMPANY'S
PERCENT SHARE OF
YEAR LEASED BASE RENT PERCENT OF
PERCENT BUILT/ NO. OF AS OF AS OF COMPANY'S
PROPERTY NAME MARKET OWNERSHIP RENOVATED APARTMENTS 12/31/97 12/31/97(1) BASE RENT
- ---------------------------------------- ---------------- --------- ---------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL PROPERTIES:
Park Hill Lane.......................... Menands, NY 100.0% 1962/1979 567 87% $ 3,955,779 4.3%
One Dartmouth Place..................... Denver, CO 100.0 1973/1993 418 98 2,828,592 5.9
Presidential Estates.................... Guilderland, NY 100.0 1967/1997 128 95 1,221,106 1.8
TOTAL/WEIGHTED AVERAGE FOR
RESIDENTIAL PROPERTIES............ 1,113 92% $ 8,005,477 12.0%
----- --- ----
----- --- ----
</TABLE>
<TABLE>
<CAPTION>
COMPANY'S PERCENT OF
NET RENTABLE SHARE OF COMPANY'S
SQUARE FEET NO. OF APARTMENTS BASE RENT BASE RENT
------------- ------------------ ------------ ----------
<S> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE FOR OFFICE,
RETAIL, STORAGE AND RESIDENTIAL
PROPERTIES........................ 8,614,318 1,113 $66,492,608 100.0%
</TABLE>
<TABLE>
<CAPTION>
PERCENT YEAR 1998 MINIMUM
PROPERTY NAME MARKET OWNERSHIP BUILT/RENOVATED LEASE PAYMENT(17)
- ---------------------------------------- ----------------- ---------- ---------------- -------------------
<S> <C> <C> <C> <C>
HOSPITALITY/RESORT COMPLEX:
Longboat Key Club(16)................... Longboat Key, FL (16) 1982/1991 $6,700,000
</TABLE>
- ------------
(1) Company's share of base rent represents the annual contractual rent in
effect under existing leases as of December 31, 1997 multiplied by the
Company's percentage ownership of the Property.
(2) The base rent per leased square foot information is calculated by dividing
100% of the Property's base rent by the net rentable square feet leased
as of December 31, 1997.
(3) As used throughout this Prospectus, net effective rent represents (a) for
leases in effect at the time an interest in the relevant property was first
acquired by the Company, the remaining lease payments under the lease
excluding operating expense pass-throughs, if any, divided by the number of
months remaining under the lease multiplied by 12 and (b) for leases
entered into after an interest in the relevant Property was first acquired
by the Company, all lease payments under the lease excluding operating
expense pass-throughs, if any, divided by the number of months in the lease
multiplied by 12, and, in the case of both (a) and (b), minus tenant
improvement costs and leasing commissions, if any, paid or payable, divided
by the number of months in the respective lease multiplied by 12, and
presented on a per leased square foot basis. Net effective rent includes
future contractual increases in rental payments and therefore, in certain
cases, may exceed base rent per leased square foot as a result of the
provision for future contractual increases in rental payments in the net
effective rent data.
(4) The Company owns the entire general partner interest in this Property and
49.5% of the limited partner interests.
(5) In January 1998, New York Life delivered approximately 60,000 net rentable
square feet back to the Company so that the Company could lease that space
together with an additional 340,000 net rentable square feet to Ziff-Davis
under a 21 year lease. After giving effect to this leasing activity, the
Property is 100% leased. See 'Business and Growth Strategies -- External
Growth.' The base rent information does not give effect to this leasing
activity.
(6) The Company owns the entire general partner interest in this Property and
30.5% of the limited partner interests.
(7) The Company owns a 50% managing member interest in this Property.
(8) The percent leased data for this Property reflects the execution of (i) a
lease with Bates in November 1997 with regard to approximately 200,000 net
rentable square feet which commences in June 1998 and (ii) leases with
regard to an additional 200,000 net rentable square feet at this Property
which were signed during the first three months of 1998. After giving
effect to these leases, the Property is 90% leased. See 'Business and
Growth Strategies -- External Growth.' The base rent information does not
give effect to this leasing activity.
(9) The Company owns a limited partnership interest in this Property.
(10) The Company holds the mortgage note on this Property with a participation
interest substantially equivalent to 100% economic ownership.
(11) The Company has a 20% co-tenant's interest in this Property.
(12) This Property is leased on a triple net basis to a subsidiary of GTE
Corporation.
(13) This Property consists of 973.7 acres of land being held for development.
The Company does not own fee title to this Property; rather, the Company
owns an option to purchase title to this Property. The option price
currently is approximately $700,000 plus the payment of approximately
$375,000 of accrued real estate taxes.
(14) The Company owns a 25.0% membership interest in the limited liability
company which owns this Property.
(15) Base rent per leased square foot has been adjusted to exclude 85,000 square
feet which is on land that has been ground leased at a rate of $10,000 per
year.
(16) The Longboat Key Club consists of two golf courses with 45 holes of golf,
two tennis centers with 38 Har-Tru tennis courts, two pro shops, a fitness
center and restaurants. The Club also currently operates 220 units at the
Resort at Longboat Key condominium hotel (the 'Hotel') which is located
within the Club's premises. The Hotel is owned by the condominium unit
owners. The Company will acquire the assets of the Club in the Formation
Transactions. The Operating Partnership will lease the assets of the Club
to an affiliated lessee (in which directors and officers of the Company own
approximately a 4% interest) in order to satisfy certain conditions for the
maintenance of the Company's REIT status. See 'Business and
Properties -- The Hospitality/Resort Complex.' The average occupancy of the
Hotel for the year ended December 31, 1997 was 76.8%, the average daily
rate was $212, and the revenue per available room was approximately $163.
(17) The 1998 minimum lease payment represents the fixed annual base rent
payable to the Operating Partnership by the lessee of the Club's assets.
Under the terms of the lease, the Operating Partnership may also
participate in the revenues of the lessee to the extent they exceed certain
base levels. See 'Business and Properties -- The Hospitality/Resort
Complex.'
9
<PAGE>
<PAGE>
STRUCTURE AND FORMATION OF THE COMPANY
STRUCTURE OF THE COMPANY
The Company will be the general partner of the Operating Partnership and
will contribute the proceeds of the Offering to the Operating Partnership in
exchange for a number of Units equal to the number of shares of Common Stock
sold in the Offering. The Company will conduct substantially all of its
business, and will hold its interests in the Properties, through the Operating
Partnership. As the sole general partner of the Operating Partnership, the
Company will have the exclusive power to manage and conduct the business of the
Operating Partnership. The chart below shows the ownership of the Company and
its principal subsidiaries after the completion of the Formation Transactions
and the Offering. The Company owns the golf courses, tennis centers and other
amenities at the Longboat Key Club and leases them to an affiliated entity. See
'Business and Properties -- The Hospitality/Resort Complex.'
<TABLE>
<CAPTION>
LOEB REALTY CORPORATION (THE COMPANY)
- -----------------------------------------------------------------------------------------------
PERCENTAGE BEFORE PERCENTAGE ASSUMING
OWNER EXCHANGE OF UNITS EXCHANGE OF UNITS
- ----- ----------------- -------------------
<S> <C> <C> <C>
Public Stockholder.............................. 92.2% 48.3% FORMER OWNERS OF
Directors, Officers and Contributors(1)......... 7.8% 51.7% LONGBOAT KEY CLUB(2)
</TABLE>
<TABLE>
<CAPTION>
LOEB REALTY, L.P. (THE OPERATING PARTNERSHIP)
- ------------------------------------------------------------------------------------------
PERCENTAGE BEFORE PERCENTAGE ASSUMING
OWNER EXCHANGE OF UNITS EXCHANGE OF UNITS
- ----- ----------------- -------------------
<S> <C> <C> <C> <C>
The Company..................................... 48.3%(3) 100% RENTAL LONGBOAT KEY CLUB, INC.
Other Partners.................................. 51.7% 0% PAYMENTS (LESSEE OF LONGBOAT KEY CLUB)
-----------
ON LONGBOAT
KEY CLUB
</TABLE>
<TABLE>
<CAPTION>
LOEB PROPERTY SERVICES, INC. (THE REAL ESTATE BROKERAGE SUBSIDIARY)
- -----------------------------------------------------------------------------------------------
OWNER VOTING INTEREST ECONOMIC INTEREST
- ----- --------------- --------------------
<S> <C> <C>
The Operating Partnership....................... 0% 95%
Brokerage Subsidiary............................ 100% 5%
</TABLE>
- ------------
(1) Includes 1,148,934 shares of Common Stock expected to be issued in the
Formation Transactions and 100 shares of Common Stock issued to Joseph S.
Lesser upon formation of the Company.
(2) Directors and officers of the Company own an aggregate of 4% of the
interests of the lessee of Longboat Key Club.
(3) The Company's ownership including public shareholders and continuing
investors is 52.3%.
10
<PAGE>
<PAGE>
BENEFITS TO RELATED PARTIES
Certain affiliates of the Company will realize material benefits as a
result of the Offering and the Formation Transactions, including the following:
Investors who owned interests in the Properties and the Company's property
management and real estate brokerage businesses immediately prior to the
Formation Transactions (including Joseph S. Lesser, Alan L. Gordon, Peter S.
Duncan, Gary H. Naughton and Bernard B. Falk) will receive 13,426,066 Units and
1,148,934 shares of Common Stock in consideration for the contribution of those
interests to the Operating Partnership. These Units and shares have an aggregate
value of approximately $291.5 million (based on the midpoint of the price range
set forth on the cover of this Prospectus), and represent approximately 51.7% of
the Company's equity interests on a fully diluted basis. The interests being
contributed have a book value of approximately $64.7 million.
Members of the management of Loeb Partners Realty and Comfort (Messrs.
Lesser, Gordon, Duncan, Naughton and Falk) will become executive officers and,
in the case of Messrs. Lesser, Duncan and Gordon, directors of the Company. Each
of the executive officers will enter into employment agreements with the
Company. See 'Management -- Employment Agreements.' Also, the Company will grant
to directors, officers and employees of the Company options to purchase an
aggregate of approximately 1,127,000 shares of Common Stock at the initial
public offering price under the Stock Option and Incentive Plan, subject to
certain vesting requirements. See 'Management -- Stock Option and Incentive
Plan.'
Investors who owned interests in the 63 Madison Avenue Property prior to
the Formation Transactions will receive approximately $5.8 million of the net
cash proceeds of the Offering in repayment of a loan previously made by those
investors to fund improvements at the Property. Messrs. Lesser, Gordon, Duncan,
Naughton and Falk will receive an aggregate of approximately $224,000 of these
proceeds.
The structure of the Formation Transactions will provide Unit recipients,
including members of management, with the opportunity to defer the tax
consequences of the contribution of their interests in the Properties and the
property management and real estate brokerage businesses.
The lease with regard to the facilities at the Longboat Key Club will
provide certain of the contributors of the Properties in the Formation
Transactions with potential economic benefits. Directors and officers of the
Company will own approximately a 4% interest in the lessee; the balance of the
interests in the lessee will be owned by the former owners of this Property,
none of whom is an officer, director or employee of the Company. See 'Business
and Properties -- The Hospitality/Resort Complex.'
Recipients of Units in the Formation Transactions will have registration
rights with respect to shares of Common Stock issued in exchange for Units. See
'Shares Available for Future Sales.'
Additional information regarding the benefits to related parties is set
forth under 'Formation Transactions,' 'Management' and 'Certain Relationships
and Related Transactions.'
11
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<PAGE>
THE OFFERING
All of the shares of Common Stock offered by this Prospectus are being
offered by the Company.
<TABLE>
<S> <C>
Shares of Common Stock Offered................. 13,600,000
Shares of Common Stock Outstanding after the
Offering(1).................................. 14,749,034
Shares of Common Stock and Units Outstanding
after the Offering(2)........................ 28,175,100
Use of Proceeds................................ To acquire interests in the Properties and other assets in the
Formation Transactions, to repay indebtedness and for working
capital.
NYSE Symbol.................................... 'LRC'
</TABLE>
- ------------
(1) Includes 1,148,934 shares of Common Stock expected to be issued in
connection with the Formation Transactions and 100 shares of Common Stock
issued to Joseph S. Lesser when the Company was incorporated.
(2) Units are exchangeable on a one-for-one basis for shares of Common Stock or,
at the option of the Company, cash, subject to certain exceptions. Includes
13,426,066 Units expected to be issued in connection with the Formation
Transactions that may be exchanged for cash or, at the option of the
Company, shares of Common Stock on a one-for-one basis generally commencing
one year after completion of the Offering. Excludes 2,040,000 shares that
are issuable upon the exercise of the Underwriters' overallotment option and
approximately 1,127,000 shares reserved for issuance upon the exercise of
stock options to be granted pursuant to the Company's Stock Option and
Incentive Plan concurrent with the Offering.
DISTRIBUTIONS
The Company intends to pay regular quarterly distributions to holders of
Common Stock. The Company estimates that the first distribution, for the period
commencing on the closing of the Offering and ending on September 30, 1998, will
be approximately $ per share, which is equivalent to a quarterly
distribution of approximately $.325 per share, and an annual distribution of
approximately $1.30 per share (or an annual distribution rate of approximately
6.50%, based on the midpoint of the estimated initial public offering prices
shown on the cover page of this Prospectus). See 'Distributions.'
The Company intends to initially distribute annually approximately % of
estimated cash available for distribution. The Company's estimate of the cash
available for distribution for the twelve months ending December 31, 1998, is
based upon pro forma funds from operations for the 12 months ended December 31,
1997, with certain adjustments as described in 'Distributions.' The actual
distributions made by the Company will be determined by the Board of Directors,
in its discretion, and will be affected by a number of factors, including the
gross revenues received from its Properties, the operating expenses of the
Company, the interest expense incurred through borrowing, and unanticipated
capital and other expenditures. No assurance can be given that the Company's
estimates will prove accurate or that any level of distributions will be made or
sustained. The Company does not expect to change its estimated distribution rate
per share if the Underwriters' over-allotment option is exercised.
The Company anticipates that cash flow available for distribution will
exceed earnings and profits for federal income tax purposes due to non-cash
expenses, primarily depreciation and amortization, to be incurred by the
Company. Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes, other than
capital gains dividends, generally will be taxable to stockholders as ordinary
dividend income. Capital gains dividends (other than any portion of such gains
attributable to certain depreciation recapture) generally will be taxable as
long-term capital gain for federal income tax purposes. Distributions in excess
of earnings and profits generally will be treated as non-taxable return of
capital and, therefore, will result in a reduction of a
12
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<PAGE>
stockholder's basis in the Common Stock, to the extent thereof, and thereafter
as taxable gain unless properly designated by the Company as capital gains
dividends. The Company anticipates that approximately % (or approximately
$. per share of Common Stock) of the distributions intended to be paid by
the Company in 1998 will represent a return of capital for federal income tax
purposes. See 'Distributions' and 'Federal Income Tax Considerations -- Taxation
of Stockholders.'
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the 'Code'),
commencing with its taxable year ending December 31, 1998. The Company believes,
and has obtained an opinion of Rogers & Wells LLP, counsel to the Company, to
the effect that, commencing with its taxable year ending December 31, 1998, the
Company will be organized in conformity with the requirements for qualification
as a REIT under the Code and that the Company's proposed method of operation
will enable it to meet the requirements for taxation as a REIT. This legal
opinion is based on various assumptions and factual representations by the
Company regarding the Company's ability to meet various requirements for
qualification as a REIT, and no assurance can be given that actual operating
results will meet these requirements. The legal opinion is not binding on the
Internal Revenue Service ('IRS') or any court.
To maintain REIT status, an entity must meet a number of organizational and
operational requirements. In addition, in order to maintain its qualification as
a REIT, the Company generally will be required each year to distribute at least
95% of its net taxable income. As a REIT, the Company generally will not be
subject to federal income tax on net income it distributes currently to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, it
will be subject to federal income tax at regular corporate rates. See 'Federal
Income Tax Considerations -- Taxation of the Company -- Failure to Qualify' and
'Risk Factors -- Failure to Qualify as a REIT would cause the Company to be
taxed as a corporation' for a more detailed discussion of the consequences of
the failure of the Company to qualify as a REIT. Even if the Company qualifies
for taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and federal income and excise taxes on its
undistributed income.
13
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<PAGE>
SUMMARY SELECTED COMBINED FINANCIAL AND OPERATING INFORMATION
The following table sets forth summary selected financial and operating
information on a pro forma basis for the Company and on a historical combined
basis for the Company's predecessor, which is referred to in the combined
historical financial statements as 'Loeb Real Estate.' Loeb Real Estate is
not a legal entity, but rather a combination of real estate partnerships and
limited liability companies which were under common management and control. The
following information should be read in conjunction with the combined financial
statements and notes thereto included elsewhere in this Prospectus. The balance
sheet data as of December 31, 1997 and 1996 and the operating data for the three
years ended December 31, 1997, of Loeb Real Estate have been derived from the
historical combined financial statements audited by Ernst & Young LLP,
independent auditors, whose report with respect thereto is included elsewhere in
this Prospectus. The balance sheet data as of December 31, 1995 and the
operating data for the years ended December 31, 1994 and 1993 has been derived
from the unaudited financial statements of Loeb Real Estate. In the opinion of
management, the unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, that management considers
necessary for a fair presentation of the financial position and results of
operations for the period. The summary pro forma information is presented as if
(i) the Offering and the other transactions contemplated herein under 'Formation
Transactions' had occurred as of the beginning of the period presented for
operating data and as of the balance sheet date for balance sheet data and (ii)
the Company qualified as a REIT, distributed all of its taxable income and,
therefore, incurred no income tax expense during the period presented
(see 'Risk Factors' and 'Federal Income Tax Considerations -- Taxation of the
Company -- Failure to Qualify'). In management's opinion, all adjustments
necessary to present fairly the effects of these transactions have been made.
The pro forma financial data is not necessarily indicative of what the actual
financial position and results of operations of the Company would have been as
of and for the periods indicated, nor does it purport to represent the Company's
future financial position or results of operations.
THE COMPANY (PRO FORMA) AND LOEB REAL ESTATE (COMBINED HISTORICAL)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF PROPERTIES DATA)
<TABLE>
<CAPTION>
PRO YEAR ENDED DECEMBER 31,
FORMA COMBINED HISTORICAL
----------- ----------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- -------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues:
Revenue from rental property................ $ 94,194 $ 51,306 $48,194 $29,461 $27,460 $17,906
Management fee income....................... 2,699 3,533 2,675 2,256 1,449 505
Other income................................ 5,357 3,221 4,581 1,755 2,825 2,924
----------- -------- ------- ------- ------- -------
Total revenue........................... $ 102,250 $ 58,060 $55,450 $33,472 $31,734 $21,335
----------- -------- ------- ------- ------- -------
Expenses:
Property operating expenses................. $ 31,420 $ 19,182 $18,280 $11,043 $11,679 $ 8,958
Real estate taxes........................... 11,783 7,456 6,784 4,407 4,047 2,494
Interest.................................... 16,599 17,712 13,343 8,015 6,396 4,491
Depreciation and amortization............... 18,042 7,078 6,013 4,108 3,164 2,709
General and administrative.................. 3,458 2,207 2,574 2,170 1,421 1,269
----------- -------- ------- ------- ------- -------
Total expenses.......................... $ 81,302 $ 53,635 $46,994 $29,743 $26,707 $19,921
----------- -------- ------- ------- ------- -------
Operating income.................................... $ 20,948 $ 4,425 $ 8,456 $ 3,729 $ 5,027 $ 1,414
Equity in (loss) income of investees................ (387) (303) 835 1,023 628 798
Income tax (expense) benefit........................ -- (259) 150 139 138 81
----------- -------- ------- ------- ------- -------
Income before minority interest and extraordinary
item.............................................. $ 20,561 $ 3,863 $ 9,441 $ 4,891 $ 5,793 $ 2,293
----------- -------- ------- ------- ------- -------
Minority interest in:
Operating partnership........................... (9,063) -- -- -- -- --
Real estate partnerships........................ (1,561) -- -- -- -- --
----------- -------- ------- ------- ------- -------
Income before extraordinary items................... $ 9,937 $ 3,863 $ 9,441 $ 4,891 $ 5,793 $ 2,293
----------- -------- ------- ------- ------- -------
Net income per share(1):
Basic........................................... $.67
----
----
Diluted......................................... $.67
----
----
</TABLE>
(table continued on next page)
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<PAGE>
(table continued from previous page)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF PROPERTIES DATA)
<TABLE>
<CAPTION>
PRO YEAR ENDED DECEMBER 31,
FORMA COMBINED HISTORICAL
----------- --------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
(at end of period)
Real properties, at cost before accumulated
depreciation.............................. $ 646,466 $242,748 $202,912 $179,699 $110,300 $ 79,426
Total assets................................ 755,969 269,977 231,136 199,128 127,273 101,627
Mortgage notes payable...................... 197,281 212,456 184,379 142,905 86,689 75,198
Owner's equity (deficit).................... 534,363 43,800 33,706 41,699 26,912 12,946
Other Data:
Fund from operations(2)..................... $ 34,424 -- -- -- -- --
Net cash provided by operating
activities(3)............................. -- 4,675 1,484 1,354 -- --
Net cash (used in) investing
activities(3)............................. -- (39,531) (21,670) (17,443) -- --
Net cash provided by financing activities... -- 32,088 25,559 14,610 -- --
Number of properties........................ 31 12 10 9 8 8
Square footage (excluding Longboat Key Club
and residential Properties)............... 8,614 2,529 2,246 1,990 1,193 523
Apartment units............................. 1,113 1,113 1,113 1,113 1,113 1,113
</TABLE>
- ------------
(1) Pro forma basic net income per share excludes any dilutive effect of options
outstanding. Pro forma diluted net income per share includes the dilutive
effect of the outstanding options calculated under the treasury stock
method. As each Unit is redeemable for one share of Common Stock, the
calculation of net income per share upon redemption of the outstanding Units
will be unaffected, as Unitholders and Common Stockholders are entitled to
equal distributions on a per Unit and per share basis in the net income of
the Company.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ('NAREIT') in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance
with standards established by NAREIT which may not be comparable to Funds
from Operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. Funds from Operations does
not represent cash generated from operating activities in accordance with
GAAP and should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions. For a reconciliation of net income
and Funds from Operations, see 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Funds from Operations.'
(3) Pro forma information relating to cash flow from operating and investing
activities has not been included because the Company believes that this
information would not be meaningful due to the number of assumptions
required in order to calculate this information.
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RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information before making a
decision to purchase Common Stock in the Offering.
THE COMPANY'S PERFORMANCE AND VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY
Concentration of Properties in a limited number of markets could adversely
affect the Company's financial performance. While the Properties are located in
various markets throughout the United States, Properties accounting for
approximately 41% of the total portfolio (based on the Company's Adjusted Pro
Forma Net Operating Income for the year ended December 31, 1997) are located in
New York City. The Company's revenue from, and the value of its Properties in,
New York City will be affected by a number of factors, including the local
economic climate (which may be adversely impacted by business layoffs or
downsizing, industry slowdowns, relocations of businesses, changing
demographics, increased telecommuting, New York State and New York City
budgetary commitments and priorities and other factors) and local real estate
conditions (such as oversupply of or reduced demand for office properties and
other competing commercial properties). Therefore, the Company's performance and
its ability to make distributions to stockholders will depend, in part, on the
economic conditions in New York City (as well as the economic conditions in its
other principal markets). Downturns in the New York City real estate market or
the Company's other principal markets could adversely affect the Company.
The Properties are subject to uncontrollable factors affecting performance
and value. Stockholders will bear risks associated with real property
investments. The yields available from equity investments in real estate depend
in large part on the amount of income generated and expenses incurred. The
economic performance and value of the Company's real estate assets will be
subject to all of the risks incident to the ownership and operation of real
estate. These include the risks normally associated with changes in general
national, regional and local economic and market conditions. Such local real
estate market conditions may include excess supply and intense competition for
tenants, including competition based on rental rates, attractiveness and
location of the property and quality of maintenance, insurance and management
services. Other factors that may adversely affect the performance and value of a
Property include changes in laws and governmental regulations (including those
governing usage, zoning and taxes), changes in interest rates, the availability
of financing and the possibility of bankruptcies of tenants at the Properties.
To the extent that the value and/or performance of the Properties are adversely
effected by any of the foregoing factors, the Company's financial condition and
results of operations would be adversely effected.
Operating costs could adversely affect the Company's cash flow. The
Properties will be subject to operating risks common to commercial real estate
in general, any and all of which may adversely affect occupancy or rental rates.
The Properties are subject to increases in operating expenses such as cleaning;
electricity; heating, ventilation and air conditioning ('HVAC'); elevator repair
and maintenance; insurance and administrative costs; and other general costs
associated with security, repairs and maintenance. While the Company's tenants
generally are currently obligated to pay all or a portion of these escalating
costs, there can be no assurance that tenants will agree to pay such costs upon
renewal or that new tenants will agree to pay such costs. If operating expenses
increase, the local rental market may limit the extent to which rents may be
increased to meet increased expenses without decreasing occupancy rates. While
the Company implements cost saving incentive measures at each of its Properties,
if any of the above occurs, the Company's ability to make distributions to
stockholders could be adversely affected.
The Company's financial condition could be adversely affected due to its
reliance on major tenants. On a pro forma basis as of December 31, 1997, New
York Life and Ziff-Davis each accounted for more than 3% of the Company's pro
forma total annualized base rent, as adjusted to give effect to the execution
and commencement of significant leases at the New York City Properties in 1998
(6.6% in the aggregate). See 'Business and Properties -- Tenants.' The Company
would be adversely affected in the event of a bankruptcy or insolvency of, or a
downturn in the business of, any major tenant which resulted in a failure or
delay in such tenant's rent payments.
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The Company expects to expend significant amounts on renovation, capital
improvements and leasing commissions, and to provide significant amounts of free
rent. The Company's business strategy requires intensive renovation and capital
expenditures, and often requires the Company to provide significant amounts of
free rent to tenants. Free rent is estimated to comprise an aggregate of
approximately $9.3 million and $4.3 million in 1998 and 1999, respectively. See
' -- Estimated Initial Cash Available for Distribution Will Not be sufficient to
Make Distributions at Expected Levels.' If that occurs, the incremental costs
could adversely affect cash available for distribution to the Company's
stockholders. In addition, renovations and other capital improvements entail
certain risks, including environmental risks, construction cost overruns and
delays, and unanticipated downturns in demand or unanticipated emergence of
competition in the affected market, which risks individually or in the aggregate
could give rise to a material adverse effect on the Company or its financial
condition or results of operations.
Failure to renew leases or relet space could adversely affect the Company's
cash flow or financial performance. The Company will be subject to the risks
that leases may not be renewed, space may not be relet or the terms of renewal
or reletting (including the cost of required renovations) may be less favorable
than current lease terms. Leases on a total of approximately 10.3%, 6.4% and
10.1% of the net rentable square feet at the office and retail Properties will
expire in 1998, 1999 and 2000, respectively. If the Company were unable promptly
to relet or renew the leases for all or a substantial portion of this space, if
the rental rates upon such renewal or reletting were significantly lower than
expected rates or if its reserves for these purposes proved inadequate, then the
Company's cash flow and ability to make expected distributions to stockholders
may be adversely affected.
The Company could be adversely affected by the Company's lack of sole
decision-making authority with respect to partially owned Properties. The
Company will own only partial interests in eight of its Properties and will
lease the assets of the Longboat Key Club to an affiliated entity. The lease
with regard to the Longboat Key Club will give substantial control over the
operations of the complex to the lessee. In the case of the Properties located
at 498 Seventh Avenue, 200 Madison Avenue and 63 Madison Avenue, the Company
will own the general partner or managing member interest of the entities which
own these assets and, as a result, will have control over the operation of the
Property, although consent of the other partners or members is required with
regard to extraordinary transactions. As a general partner or managing member,
the Company will have fiduciary responsibilities to third parties which it will
be required to consider when making decisions relating to such partially owned
Properties. In addition, the 498 Seventh Avenue Property is subject to a
customary buy-sell arrangement which may be exercised by the Company or its
partner, each of whom owns a 50% interest, and would require the other party to
sell or buy the corresponding interest. At the Winewood and Outlet Park Shoppes
at Waccamaw Properties the Company shares decision-making authority with its
partners, and at the 529 Fifth Avenue and two public storage Properties the
Company owns only a limited partner interest. Partial ownership entails certain
risks not present were a third party not involved, including the possibility
that the other partners in such partially owned Properties might become bankrupt
or otherwise fail to fund their share of required capital contributions, that
such partners might at any time have economic or other business interests or
goals which are inconsistent with the business interests or goals of the
Company, that buy/sell rights might exist with respect to such property, and
that such partners may be in a position to take action contrary to the
instructions or the requests of the Company and contrary to the Company's
policies or objectives. Such investments may also have the potential risk of
impasses on decisions, such as a sale, because neither the Company nor the
partner would have full control over the affected Property. Consequently,
actions by such partner might result in subjecting such partially owned
Properties to additional risk. In addition, the Company may in certain
circumstances be liable for the actions of such third-party partners. There is
no limitation under the Company's organizational documents as to the amount of
funds that may be invested in additional partially owned properties.
The Company could be adversely affected by a default under the Longboat Key
Club lease. The calculation of the minimum annual base rent under the lease for
the Longboat Key Club was based on the historical performance of the Club as
well as certain assumptions with regard to the future performance of the Club,
in light of, among other things, the significant renovations and expansion of
the Club in 1997. See 'The Company -- Internal Growth -- Renovation Expansions
at Existing
17
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Properties.' The Club is subject to operating risks common to the
hospitality/resort industry including, among other things, (i) competition for
guests from other providers, (ii) increases in operating costs due to inflation
and other factors, which increases may not be offset by increased rates, (iii)
dependence on business and commercial travelers and tourism, which business may
fluctuate and be seasonal and, in particular will be affected by weather
conditions; and (iv) adverse affects of general and local economic conditions.
These factors could adversely affect the ability of the Longboat Key Club to
generate revenues and for the lessee to make lease payments and, therefore, the
Company's ability to make expected distributions.
Prospective and recent acquisitions may not perform to expectations. The
Company intends actively to continue to acquire real estate assets. See
'Business and Growth Strategies.' Acquisitions of real estate assets entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, the general investment risks described above
under ' -- The Properties are subject to uncontrollable factors affecting
performance and value' are associated with any new real estate investment. The
Company's ability to manage future growth successfully will require it to
integrate successfully its new acquisitions and there can be no assurance that
the Company will be able to do that. Certain of the Properties, including 498
Seventh Avenue, 24 West 57th Street and 63 Madison Avenue, have relatively short
operating histories under the Company's management. Finally, the Company expects
that there will be significant competition for attractive investment
opportunities from other major real estate investors, many of whom have greater
capital resources than the Company, including both publicly traded REITs and
private institutional investment funds. The Company anticipates that future
acquisitions will be financed through secured or unsecured financing and
proceeds from equity or debt offerings by the Company or the Operating
Partnership. See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources.'
Illiquidity of real estate investments could adversely affect the Company's
financial condition. Because real estate investments are relatively illiquid,
the Company's ability to vary its portfolio promptly in response to economic or
other conditions will be limited. In addition, certain significant expenditures,
such as debt service, real estate taxes, and operating and maintenance costs
generally are not reduced in circumstances resulting in a reduction in income
from the investment. The foregoing and any other factor or event that would
impede the ability of the Company to respond to adverse changes in the
performance of its investments could have an adverse effect on the Company's
financial condition and results of operations, with a consequent adverse effect
on the Company's ability to make expected distributions to stockholders.
The cost of complying with the Americans with Disabilities Act or other
laws could adversely affect the Company's cash flow. The Properties are subject
to the requirements of the Americans with Disabilities Act (the 'ADA'), which
generally requires that public accommodations, including office buildings, be
made accessible to disabled persons. The Company believes that the Properties
are in substantial compliance with the ADA and that it will not be required to
make substantial capital expenditures to address the requirements of the ADA.
However, compliance with the ADA could require removal of access barriers and
noncompliance could result in the imposition of fines by the federal government
or the award of damages to private litigants. If, pursuant to the ADA, the
Company were required to make substantial alterations in one or more of the
Properties, the Company's financial condition and results of operations, as well
as the amount of funds available for distribution to stockholders, could be
adversely affected.
The Company may experience uninsured losses. The Company carries
comprehensive liability, fire, extended coverage and rental loss insurance
covering all of the Properties, with policy specifications and insured limits
which the Company believes are adequate and appropriate under the circumstances.
There are, however, certain types of losses that are not generally insured
because it is not economically feasible to do so. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its capital
invested in the Property, as well as the anticipated future revenue from the
Property and, in the case of debt which is recourse to the Company, the Company
would remain obligated for any
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mortgage debt or other financial obligations related to the Property. No
assurance can be given that material losses in excess of insurance proceeds will
not occur in the future.
The Company's title insurance policies covering each Property are generally
for an amount which is less than the current value of the Property. In the event
of a loss with respect to a Property relating to a title defect that is in
excess of the amount of such title insurance policy, the Company could lose both
its capital invested in and anticipated profits from such property.
Reassessment could adversely affect the Company. Certain local real
property tax assessors may seek to reassess certain of the Properties as a
result of the Formation Transactions. The Company would contest vigorously any
reassessment of this type. Subject to market conditions, current leases may
permit the Company to pass through to tenants a portion of the effect of any
increases in real estate taxes resulting from a reassessment. Those increases
could, however, adversely affect the Company's competitive position and
consequently have a negative impact on its financial condition.
CONFLICTS OF INTEREST COULD ADVERSELY AFFECT STOCKHOLDERS
Absence of arm's-length negotiations in the Formation Transactions may have
resulted in aspects of the Formation Transactions' being unfavorable to
stockholders. There have been no arm's-length negotiations or third-party
appraisals with respect to the valuation of the Properties and other assets
contributed to the Company in its formation. The amount of consideration to be
paid by the Company to acquire interests in the Properties was determined by the
Loeb Group and Comfort. No independent valuations or appraisals of the
Properties were obtained by the Company in connection with the Formation
Transactions. See 'Formation Transactions.' As a result, the consideration paid
by the Company for its assets may exceed their fair market value and the market
value of the Common Stock may exceed a stockholder's proportionate share of the
aggregate fair value of the Company's assets. Further, there were no
arm's-length negotiations with respect to other terms of the Formation
Transactions, in particular with respect to the representations and warranties
made by the contributors of properties to the Company in the Formation
Transactions, or the indemnification provided for breach of representations and
warranties. In addition, Messrs. Joseph Lesser, Alan Gordon and Peter Duncan,
who had significant influence in structuring the Formation Transactions, had
preexisting ownership interests in the Properties and will receive substantial
economic benefits as a result of the Formation Transactions. Further, in the
course of structuring the Formation Transactions, Messrs. Lesser, Gordon and
Duncan had the ability to influence the type and level of benefits that they and
the executive officers of the Company will receive from the Company.
Directors, officers and significant stockholders may influence the Company
not to act in the best interests of stockholders. Upon consummation of the
Offering, Messrs. Lesser, Gordon, Duncan, Naughton and Falk will be deemed
beneficially to own approximately 9.3% of the outstanding Common Stock (on a
fully diluted basis, i.e., including Common Stock issuable upon exchange of
Units). All of those Units will be exchangeable for Common Stock (subject to the
Ownership Limit) or, at the option of the Company, for the cash equivalent of
that number of shares of Common Stock, beginning on the first anniversary of the
Closing. See 'Formation Transactions.' In addition, executive officers of the
Company will receive options to purchase shares of Common Stock exercisable at
the initial offering price. See 'Management -- Executive Compensation.' Messrs.
Lesser, Gordon and Duncan are affiliated with the Company and, as directors,
will have influence on the management and operation of the Company and, as
stockholders, on the outcome of any matters submitted to a vote of the
stockholders. Such influence might be exercised in a manner that is inconsistent
with the interests of other stockholders. Although there is no understanding or
arrangement for these directors, officers and stockholders and their affiliates
to act in concert, these parties would be in a position to exercise significant
influence over the Company's affairs should they choose to do so. If all or a
substantial portion of the Units were exchanged for Common Stock and that Common
Stock were retained and not sold, subject to the Ownership Limit described under
'Description of Securities -- Restrictions on Transfer,' the influence of the
holders thereof over the affairs of the Company would increase, and the
influence of the remaining stockholders would be diminished accordingly. See
'Management' and 'Principal Stockholders.'
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In connection with the Formation Transactions, the contributors of
interests in the Properties and the property management and real estate
brokerage businesses will enter into contribution agreements with the Company
and the Operating Partnership. The contribution agreements generally contain
representations only with respect to the ownership of the interests by the
holders thereof and certain other limited matters. Pursuant to a Supplemental
Representations and Warranties Agreement, Messrs. Lesser, Gordon and Duncan (the
'Indemnitors') have agreed to provide additional representations and warranties
to the Company which are in some cases limited to the knowledge of the
Indemnitors. The maximum aggregate liability of the Indemnitors is limited and
may not be sufficient in all circumstances to recompense the Company in the
event of material breaches of these representations. See 'The Formation
Transactions for a discussion of these limitations.' Messrs. Lesser, Gordon,
Duncan, Naughton and Falk will enter into employment and noncompetition
agreements with the Company pursuant to which they will agree, among other
things, not to engage in certain business activities in competition with the
Company. See 'Management -- Employment Agreements.' To the extent that the
Company chooses to enforce its rights under any of the contribution, employment
and noncompetition agreements, it may determine to pursue available remedies,
such as actions for damages or injunctive relief, less vigorously than it
otherwise might because of its desire to maintain its ongoing relationship with
the individual involved.
Conflicts will exist with respect to the Operating Partnership. After the
Offering, the Company, as the general partner of the Operating Partnership and
the Company's directors and officers, acting on behalf of the Company in its
capacity as general partner, will have fiduciary obligations to the other
partners of the Operating Partnership, the discharge of which may conflict with
the interests of the Company's stockholders. In addition, those persons holding
Units, as limited partners, will have the right to vote on amendments to the
Partnership Agreement (most of which require approval by a majority in interest
of the limited partners, including the Company) and individually to approve
certain amendments that would adversely affect their rights, which may be
exercised in a manner that conflicts with the interests of the Company's
stockholders.
A sale of, or reduction in mortgage indebtedness on, any of the Properties
will have different effects on holders of Units than on stockholders. Certain
holders of Units, including Messrs. Lesser, Gordon and Duncan, may experience
different and more adverse tax consequences compared to those experienced by
holders of shares of Common Stock or other holders of Units upon the sale of, or
reduction of mortgage indebtedness on, any of the Properties. Therefore, such
holders and the Company, may have different objectives regarding the appropriate
pricing and timing of any sale of, or reduction of mortgage indebtedness on the
Properties, and regarding the appropriate characteristics of additional
properties to be considered for acquisition. Messrs. Lesser, Gordon, Duncan,
Naughton and Falk will be holders of 2,223,295 Units, and their status as
holders of Units may influence the Company not to sell particular properties, or
not to pay down mortgage indebtedness on particular properties, even though such
sales or debt paydowns might otherwise be financially advantageous to the
Company and its stockholders.
Outside interests of officers and directors could conflict with the
Company's interests. Certain officers and directors of the Company will continue
to own direct and indirect interests in office properties and other real estate
assets, which interests may give rise to certain conflicts of interest
concerning the fulfillment of their responsibilities as officers and directors
of the Company. See 'Business and Properties -- Excluded Interests.' For a
discussion of the role of the Company's disinterested directors and the
Company's policies and agreements designed to minimize any adverse effects from
these conflicts of interest, see 'Policies with Respect to Certain
Activities -- Conflict of Interest Policies.'
Interests of lessee and manager of Longboat Key Club could conflict with
Company's interests. Through their ownership of approximately 4% of the
interests of the lessee of Longboat Key Club, certain directors and officers of
the Company will derive benefits from the operation of the Longboat Key Club by
the lessee. Accordingly, they have faced conflicts of interest in structuring
the lease and the management contract with regard to the Club and may face
conflicts upon renewals of the lease or with respect to enforcing the provisions
of the lease. The Company believes that the influence of such officers and
directors, each of whom owes a fiduciary duty to the Company's stockholders,
over the lessee will enable the Company to maintain a degree of control over the
assets of Longboat Key Club;
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however, as a result of their ownership interests in the lessee Messrs. Lesser
and Gordon may face conflicts in operating the Longboat Key Club in a manner
that may maximize profits for the lessee and manager without necessarily
benefitting the Company.
ESTIMATED INITIAL CASH AVAILABLE FOR DISTRIBUTION WILL NOT BE SUFFICIENT TO MAKE
DISTRIBUTIONS AT EXPECTED LEVELS
The Company's estimated initial annual distributions represent % of the
Company's estimated initial cash available for distribution for the twelve
months ending September 30, 1999, principally due to rent abatements and
anticipated capital expenditures during that period related to recent
significant redevelopment projects. Accordingly, it is expected that the Company
initially will be unable to pay its estimated initial annual
distribution of $1.30 per share to stockholders out of cash available for
distribution as calculated under 'Distributions' below. Under such
circumstances, the Company will have to fund a portion of its distributions from
working capital or additional borrowings under its credit facilities, if
available. In the event the Underwriters' over-allotment is exercised, pending
investment of the proceeds therefrom, the Company's ability to pay such
distribution out of cash available for distribution may be further adversely
affected.
THE COMPANY RELIES ON KEY PERSONNEL WHOSE CONTINUED SERVICE IS NOT GUARANTEED
The Company is dependent on the efforts of its executive officers,
particularly Messrs. Lesser and Duncan. The loss of their services could have an
adverse effect on the operations of the Company. Each of these executive
officers will enter into an employment agreement with the Company. As described
herein, the Company will not acquire certain real estate assets in which Messrs.
Lesser, Gordon and Duncan and other members of management will retain an
interest. See 'Business and Properties -- Excluded Interests.' It is expected
that Messrs. Lesser and Duncan and such other members of management will not
devote a substantial amount of time to the management or operation of these
excluded properties. Prior to the completion of the Offering, each of the
executive officers, including Messrs. Lesser, Gordon and Duncan, will enter into
a multiyear employment and noncompetition agreement with the Company which will
provide, among other things, that each such person will devote substantially all
of their business time to the Company.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE THE COMPANY TO BE TAXED AS A
CORPORATION
The Company will be taxed as a corporation if it fails to qualify as a
REIT. The Company intends to operate so as to qualify as a REIT under the Code,
commencing with its taxable year ending December 31, 1998. Although management
believes that the Company will be organized and will operate in such a manner,
no assurance can be given that the Company will be organized or will be able to
operate in a manner so as to qualify or remain so qualified. Qualification as a
REIT involves the satisfaction of numerous requirements (some on an annual or
quarterly basis) established under highly technical and complex Code provisions
for which there are only limited judicial and administrative interpretations,
and involves the determination of various factual matters and circumstances not
entirely within the Company's control. For example, in order to qualify as a
REIT, at least 95% of the Company's gross income in any year must be derived
from qualifying sources, and the Company must pay distributions to stockholders
aggregating annually at least 95% of its REIT taxable income (excluding net
capital gains). The complexity of these provisions and of the applicable
Treasury regulations that have been promulgated under the Code is greater in the
case of a REIT, such as the Company, that holds its assets in partnership form.
No assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification.
Longboat Key Club, Inc. will lease from the Operating Partnership the
assets comprising the Longboat Key Club pursuant to a lease which generally
provides for payment of rent equal to the greater of fixed rent or percentage
rent. If the lease is recharacterized as a service contract, joint venture or
some other type of arrangement, rather than a true lease, for federal income tax
purposes, part or all of the payments that the Operating Partnership receives
from Longboat Key Club, L.P. would not be
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considered rent and would not otherwise satisfy the various requirements for
qualification as 'rents from real property.' In that case, the Company would not
be able to satisfy either the 75% or 95% gross income tests and, as a result,
would not qualify as a REIT. While the Company believes that the lease will be
respected as a true lease for federal income tax purposes, there can be no
assurance that the IRS will not assert a contrary position.
Rogers & Wells LLP, counsel to the Company, has rendered an opinion to the
effect that commencing with its taxable year ending December 31, 1998 the
Company will be organized in conformity with the requirements for qualification
as a REIT and its proposed method of operation, including the Company's interest
in the Real Estate Brokerage Subsidiary and the lease of the Longboat Key Club,
will enable it to meet the requirements for qualification and taxation as a
REIT. See 'Federal Income Tax Considerations -- Taxation of the Company.' Rogers
& Wells LLP's opinion, however, is based on various assumptions and factual
representations by the Company regarding the Company's ability to meet the
various requirements for qualification as a REIT, and no assurance can be given
that actual operating results will meet these requirements. The legal opinion is
not binding on the IRS or any court and only represents the view of counsel to
the Company based upon existing law, some of which contains no controlling
precedent. Moreover, the Company's qualification and taxation as a REIT will
depend upon the Company's ability to meet from time to time (through actual
annual operating results, distribution levels and diversity of stock ownership)
the various qualification tests imposed under the Code, the results of which
will not be reviewed by counsel.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income (calculated without a deduction
for distributions to shareholders) at regular corporate rates. Moreover, unless
entitled to relief under certain statutory provisions, the Company also would be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. This treatment would significantly
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to stockholders would no longer be
required to be made. See 'Federal Income Tax Considerations -- Taxation of the
Company -- Failure to Qualify.'
REIT Minimum Distribution Requirements: Possible Incurrence of Additional
Debt. In order to qualify as a REIT, the Company generally will be required each
year to distribute to its shareholders at least 95% of its net taxable income
(excluding any net capital gain). In addition, the Company will be subject to a
4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain
net income for that year and (iii) 100% of its undistributed taxable income from
prior years upon which the Company has not paid federal income tax. The Company
intends to make distributions to its shareholders to comply with the 95%
distribution requirement and to avoid the nondeductible excise tax. The
Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company to
its shareholders will consist of its share of cash distributions from the
Operating Partnership and funds available to it from borrowings. Differences in
timing 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 taxable income of the Company could require the Company, directly or
indirectly through the Operating Partnership, to borrow funds on a short-term
basis to meet the 95% distribution requirement and to avoid the nondeductible
excise tax.
A portion of the amounts used by the Operating Partnership to fund
distributions to stockholders is expected to come from the Real Estate Brokerage
Subsidiary through dividends on the non-voting stock of the Real Estate
Brokerage Subsidiary to be held by the Operating Partnership. The Real Estate
Brokerage Subsidiary will not qualify as a REIT and thus will pay federal, state
and local income taxes on its net income at normal corporate rates. To the
extent that the Real Estate Brokerage Subsidiary is required to pay federal,
state and local income taxes, the cash available for distribution to the
Company's stockholders will be reduced accordingly.
The value of the securities of the Real Estate Brokerage Subsidiary held by
the Company cannot exceed 5% of the value of the Company's total assets. See
'Federal Income Tax Considerations --
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Taxation of the Company -- Asset Tests.' This limitation may restrict the
ability of the Real Estate Brokerage Subsidiary to increase the size of its
business unless the value of the other assets of the Company is increasing at a
commensurate rate.
Potential Legislative Action Regarding REITs may adversely affect the
Company. On February 2, 1998, the Clinton Administration released a summary of
its proposed budget plan which contained several proposals affecting REITs. One
such proposal, if enacted in its present form, would prohibit a REIT from
holding securities representing more than 10% of the vote or value of all
classes of stock of a corporation, other than a qualified REIT subsidiary or
another REIT. If enacted in its present form, the proposal may limit the future
activities and growth of the Real Estate Brokerage Subsidiary. No prediction can
be made as to whether such proposal or any other proposal affecting REITs will
be enacted into legislation and the impact of any such legislation on the
Company.
Other Tax Liabilities will reduce the Company's cash available for
distribution. Even if the Company qualifies as a REIT, it will be subject to
certain federal, state and local taxes on its income and property. See 'Federal
Income Tax Considerations -- Other Tax Considerations.'
LIMITATIONS ON CHANGES IN CONTROL AND OWNERSHIP LIMIT COULD ADVERSELY AFFECT THE
MARKET FOR THE COMMON STOCK
The Articles of Incorporation and By-laws and provisions of the Operating
Partnership Agreement may inhibit changes of control. Certain provisions of the
Company's Articles of Incorporation (the 'Charter') and by-laws (the 'By-laws')
may have the effect of delaying, deferring or preventing a change in control of
the Company or other transaction that could provide the holders of Common Stock
with the opportunity to realize a premium over the then-prevailing market price
of such Common Stock or otherwise be in their best interest. The Ownership Limit
(described under ' -- The Company's Ownership Limit may have adverse
consequences for stockholders') also may have the effect of delaying, deferring
or preventing a change in control of the Company or other transaction even if
such a change in control or transaction were in the best interests of some, or a
majority, of the Company's stockholders. The Board of Directors will consist of
seven members as of the Closing of the Offering who will be classified into
three classes with each class serving a three-year term. The staggered terms of
the members of the Board of Directors may adversely affect the stockholders'
ability to effect a change in control of the Company, even if a change in
control were in the best interests of some, or a majority, of the Company's
stockholders. See 'Management.' The Charter authorizes the Board of Directors to
cause the Company to issue additional authorized but unissued Common Stock, and
to classify or reclassify any unissued Common Stock, and to establish the
preferences, rights and other terms of any such classified or unclassified
shares. See 'Description of Securities -- General.' Any such issuance could have
the effect of diluting existing stockholders' interests in the Company. Although
the Board of Directors has no such intention at the present time, it could
establish a series of preferred stock that could delay, defer or prevent a
change in control of the Company or other transaction that might involve a
premium price for the Common Stock or otherwise be in the best interest of the
stockholders. The Charter and By-laws also contain other provisions that may
delay, defer or prevent a change in control of the Company or other transaction
that might involve a premium price for the Common Stock or otherwise be in the
best interest of the stockholders. See 'Certain Provisions of Maryland Law and
of the Company's Charter and By-laws.'
The Operating Partnership Agreement provides that the Company may not
generally engage in any merger, consolidation or other combination with or into
another person or sale of all or substantially all of its assets, or any
reclassification, or any recapitalization or change of outstanding shares of
Common Stock (a 'Business Combination'), unless (i) the holders of Units will
receive, or have the opportunity to receive, on a per Unit basis, cash,
securities (which may be units exchangeable for shares of the surviving
corporation, rather than stock) or other property equal in value to the greatest
amount of consideration which the holders of Common Stock will receive for a
share of Common Stock in the Business Combination and (ii) the Business
Combination is structured so that the holders of Units will not suffer adverse
economic consequences from any gain recognized by the holders of Units for
federal income tax purposes as a result of their participation in the Business
Combination and the rights, preferences and privileges of the limited partners
are preserved. If holders of Units will not be treated
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in such manner in connection with a proposed Business Combination, the Company
may not engage in such transaction unless limited partners (other than the
Company) holding more than 50% of the Units held by limited partners vote to
approve the Business Combination. In addition, the Company, as general partner
of the Operating Partnership, has agreed in the Operating Partnership Agreement
with the limited partners that the Company will not consummate a Business
Combination in which the Company conducted a vote of the stockholders unless the
matter would have been approved had holders of Units been able to vote together
with the stockholders on the transaction. The foregoing provision of the
Operating Partnership Agreement would under no circumstances enable or require
the Company to engage in a Business Combination which required the approval of
the Company's stockholders if the Company's stockholders did not in fact give
the requisite approval. Rather, if the Company's stockholders did approve a
Business Combination, the Company would not consummate the transaction unless
(i) the Company as general partner first conducts a vote of holders of Units
(including the Company) on the matter, (ii) the Company votes the Units held by
it in the same proportion as the stockholders of the Company voted on the matter
in the stockholder vote, and (iii) the result of such vote of the Unit holders
(including the proportionate vote of the Company's Units) is that had such vote
been a vote of stockholders, the Business Combination would have been approved
by the stockholders. As a result of these provisions of the Operating
Partnership Agreement, a third party may be inhibited from making an acquisition
proposal that it would otherwise make, or the Company, despite having the
requisite authority under its Articles of Incorporation, may be prohibited from
engaging in a proposed business combination.
Maryland law imposes certain limitations on changes in control. Under
provisions of the Maryland General Corporation Law, as amended ('MGCL'), certain
'business combinations' (including certain issuances of equity securities)
between a Maryland corporation and any person who beneficially owns ten percent
or more of the voting power of the corporation's then outstanding shares or an
affiliate of the corporation who, at any time within the two-year period prior
to the date in question, was the beneficial owner of ten percent or more of the
voting power of the then outstanding voting shares of common stock of the
corporation (an 'Interested Stockholder'), or an affiliate of the Interested
Stockholder, are prohibited for five years after the most recent date on which
the Interested Stockholder becomes an Interested Stockholder. Thereafter, any
such business combination must be approved by two super-majority stockholder
votes unless, among other conditions, the corporation's common stockholders
receive a minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for its common shares. The Company has opted out of these
provisions of the MGCL, but the Board of Directors may elect to adopt these
provisions in the future.
The Company's Ownership Limit may have adverse consequences for
stockholders. To maintain its qualification as a REIT for federal income tax
purposes, not more than 50% in value of the outstanding shares of beneficial
interest of the Company may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code, to include certain entities). See 'Federal
Income Tax Considerations -- Taxation of the Company -- Requirements for
Qualification.' To facilitate maintenance of its qualification as a REIT for
federal income tax purposes, the Charter generally prohibits ownership, directly
or by virtue of the attribution provisions of the Code, by any single
stockholder of more than 9.8% (in value or number of shares, whichever is more
restrictive) of the issued and outstanding Common Stock and generally will
prohibit ownership, directly or by virtue of the attribution provisions of the
Code, by any single stockholder of more than 9.8% (in value) of the issued and
outstanding shares of any class or series of the Company's capital stock
(collectively, the 'Ownership Limit'). The Board of Directors has the power to
waive or modify the Ownership Limit with respect to one or more persons who
would not be treated as 'individuals' for purposes of the Code if it is
satisfied, based upon information required to be provided by the party seeking
the waiver, that ownership in excess of this limit will not cause a person who
is an individual to be treated as owning Common Stock or preferred stock in
excess of the Ownership Limit, applying the applicable constructive ownership
rules, and will not otherwise jeopardize the Company's status as a REIT for
federal income tax purposes. Absent any such exemption or waiver, Common Stock
or preferred stock acquired or held in violation of the Ownership Limit will be
transferred to a trust for the benefit of a designated charitable beneficiary,
with the person who acquired such Common Stock and/or preferred
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stock in violation of the Ownership Limit not entitled to receive any
distributions thereon, to vote such Common Stock or preferred stock, or to
receive any proceeds from the subsequent sale thereof in excess of the lesser of
the price paid therefor or the amount realized from such sale. A transfer of
Common Stock and/or preferred stock to a person who, as a result of the
transfer, violates the Ownership Limit may be void under certain circumstances.
See 'Description of Securities -- Restrictions on Transfer.' The Ownership Limit
may have the effect of delaying, deferring or preventing a change in control
and, therefore, could adversely affect the stockholders' ability to realize a
premium over the then-prevailing market price for the Common Stock in connection
with such transaction.
THE COMPANY'S USE OF DEBT FINANCING, INCREASES IN INTEREST RATES, FINANCIAL
COVENANTS AND THE ABSENCE OF ANY DEBT LIMITATION COULD ADVERSELY AFFECT THE
COMPANY
The required repayment of debt or interest thereon could adversely affect
the Company's financial position. The Company will be subject to risks normally
associated with debt financing, including the risk that the Company's cash flow
will be insufficient to pay distributions at expected levels and meet required
payments of principal and interest, and the risk that existing indebtedness on
the Properties (which will not in all cases have been fully amortized at
maturity) will not be able to be refinanced or that the terms of such
refinancing will not be as favorable as the terms of existing indebtedness. The
Company's pro forma indebtedness at December 31, 1997 was $197.3 million. See
'Business and Properties -- Debt Financing.' If principal payments due at
maturity cannot be refinanced, extended or paid with proceeds of other capital
transactions, such as new equity capital, the Company expects that its cash flow
will not be sufficient in all years to pay distributions at expected levels and
to repay all of its maturing debt. Furthermore, if prevailing interest rates or
other factors at the time of refinancing (such as the possible reluctance of
lenders to make commercial real estate loans) result in higher interest rates
upon refinancing, the interest expense relating to refinanced indebtedness would
increase, which would adversely affect the Company's cash flow and the amount of
distributions it can make to stockholders. If a Property is mortgaged to secure
payment of indebtedness and the Company is unable to meet mortgage payments, the
Property could be foreclosed upon by, or otherwise transferred to, the mortgagee
with a consequent loss of income and asset value to the Company. The Company's
mortgages contain customary negative covenants limiting, among other things, the
Company's ability, without the prior consent of the lender, to enter into new,
or materially modify existing, leases of a material nature, to transfer
interests in the mortgagor entity (including mortgage interests) and to
discontinue insurance coverage. None of the Company's mortgage loans is
cross-defaulted to, or cross-collateralized with, any other.
The Company's policy of no limitations on indebtedness could result in high
leverage. Upon completion of the Offering, the Company's Debt-to-Market
Capitalization Ratio (that is, the total consolidated and
unconsolidated debt of the Company as a percentage of the market value of
outstanding Common Stock and Units plus total consolidated and unconsolidated
debt) is expected to be 24.6%. See "Business and Properties--Debt Financing."
The Company does not have a policy limiting the amount of indebtedness
that the Company may incur, and the organizational documents of the Company
and the Operating Partnership will not contain any limitation on the amount
of indebtedness that may be incurred. The Company could become more highly
leveraged, resulting in an increase in debt service that could adversely
affect the Company's Funds from Operations and, consequently, the amount
of cash available for distribution to stockholders and could increase
the risk of default on the Company's indebtedness.
Rising interest rates and variable rate debt could adversely affect the
Company's ability to make expected distributions. Upon consummation of the
Offering, approximately 19.0% of the Company's total indebtedness will bear
interest at variable rates. The Company, which expects to incur indebtedness
through the Operating Partnership, may incur other variable rate indebtedness in
the future. Increases in interest rates on such indebtedness could increase the
Company's interest expense, which would adversely affect the Company's cash flow
and its ability to pay expected distributions to stockholders. Accordingly, the
Company may in the future engage in other transactions to further limit its
exposure to rising interest rates as appropriate and cost effective. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
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COMPETITION IN ITS MARKETPLACE COULD HAVE AN ADVERSE IMPACT ON THE COMPANY'S
RESULTS OF OPERATIONS
A substantial portion of the Properties are located in highly developed
areas of Manhattan that include a large number of other office properties.
Manhattan is by far the largest office market in the United States, with a total
commercial real estate inventory of approximately 390 million rentable square
feet. The number of competitive Class B office properties in Manhattan could
have a material adverse effect on the Company's ability to lease office space at
its Properties, and on the effective rents the Company is able to charge. The
Company also competes with numerous firms in the other markets where the
Properties are located.
Some of the other property owners with whom the Company competes have
greater resources than the Company. In particular, the Company may compete with
other REITs seeking to acquire properties of the type owned by the Company, some
of which may have or acquire greater financial, managerial and other resources
than the Company. The Company also will face competition from other real estate
companies that provide management, leasing, construction and other services
similar to those to be provided by the Company.
THE COMPANY WILL SUBSTANTIALLY DEPEND ON EXTERNAL SOURCES OF CAPITAL
In order to qualify as a REIT under the Code, the Company generally is
required each year to distribute to its stockholders at least 95% of its net
taxable income (excluding any net capital gain). See 'Federal Income Tax
Considerations -- Taxation of the Company -- Annual Distribution Requirements.'
Because of these distribution requirements, it is unlikely that the Company will
be able to fund all future capital needs, including capital needs in connection
with acquisitions, from cash retained from operations. As a result, to fund
future capital needs, the Company likely will have to rely on third-party
sources of capital which may or may not be available on favorable terms or at
all. The Company's access to third-party sources of capital will depend upon a
number of factors, including the market's perception of the Company's growth
potential and its current and potential future earnings and cash distributions
and the market price of the Common Stock. Moreover, additional equity offerings
may result in substantial dilution of stockholders' interests in the Company,
and additional debt financing may substantially increase the Company's leverage.
See 'Policies with Respect to Certain Activities -- Financing Policies.'
THE BOARD OF DIRECTORS COULD CHANGE POLICIES WITHOUT STOCKHOLDER APPROVAL
The Company's investment, financing and conflicts of interest policies and
its policies with respect to all other activities will be determined by the
Board of Directors. Although the Board of Directors has no present intention to
do so, it can amend, revise or eliminate these policies at any time and from
time to time at its discretion without a vote of the stockholders. A change in
any of these policies could adversely affect the Company's financial condition
or results of operations or the market price of the Common Stock.
PURCHASERS OF COMMON STOCK IN THE OFFERING WILL EXPERIENCE IMMEDIATE DILUTION
As set forth more fully under 'Dilution,' the pro forma net tangible book
value per share of the assets of the Company after the Offering will be
substantially less than the estimated initial public offering price per share in
the Offering. Accordingly, purchasers of the Common Stock offered hereby will
experience immediate dilution of $1.20 in the net tangible book value of the
Common Stock from the offering price (based on the assumed initial public
offering price). See 'Dilution.'
POSSIBLE ENVIRONMENTAL LIABILITIES COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION
Under federal, state and local laws and regulations relating to protection
of the environment or the impact of the environment on human health
('Environmental Laws'), a current or previous owner or operator of real estate
may be required to investigate and clean up hazardous or toxic substances or
petroleum product releases at such property and may be held liable to a
governmental entity or to third
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parties for property damage and for investigation and clean-up costs incurred by
such parties in connection with the contamination. Such laws typically impose
clean-up responsibility and liability without regard to whether the owner or
operator knew of or caused the presence of the contaminants, and the liability
under such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility. In
addition, the owner or operator of a site may be subject to claims by third
parties based on damages and costs resulting from environmental contamination
emanating from a site.
Other Environmental Laws impose on owners and operators certain
requirements regarding activities and conditions involving hazardous or toxic
materials and substances that may affect adversely human health or the
environment. Failure to comply with applicable requirements could delay or
hinder the lease or sale of any affected property or result in the imposition of
monetary penalties and liens, in addition to the costs required to achieve
compliance, or create potential liability for third party claims. The Company
may be potentially liable for such costs or claims in connection with ownership
and operation of the Properties and properties acquired by the Company in the
future.
Among other things, Environmental Laws also govern the presence,
maintenance and removal of asbestos-containing building materials ('ACBM').
These laws require that ACBM be properly managed and maintained, that those who
may come into contact with ACBM be adequately apprised or trained and that
special precautions, including removal or other abatement, be undertaken in the
event ACBM would be disturbed during renovation or demolition of a building.
These laws may impose fines and penalties on building owners or operators for
failure to comply with these requirements and may allow third parties to seek
recovery from owners or operators for personal injury or property damage
associated with exposure to asbestos fibers. ACBM has been detected through
sampling in certain of the Properties. Most of these buildings contain only
minor amounts of ACBM in good condition. The Company believes that ACBM is
currently being properly managed and maintained and other requirements relating
to ACBM are being followed, although some ACBM removal and disposal has been
recommended by recent environmental assessments at certain Properties. The cost
of this removal is expected by the Company to amount to less than $100,000. The
presence of ACBM should not present a significant risk as long as compliance
with requirements continues.
Additionally, certain Environmental Laws also impose requirements with
respect to wetlands. Pursuant to these laws, certain activities in and around
wetlands may require prior governmental approvals. Certain of the Properties,
including Shenandoah Industrial Park, contain wetlands, the presence of which
could delay or hinder the development of such Properties.
All but four of the Properties have been subject to varying degrees of
environmental assessments by independent environmental consultants since
December 1995. The environmental assessments typically included a visual
inspection of the Properties and the surrounding areas, an examination of
current and historical uses of the Properties and the surrounding areas and a
review of relevant state, Federal and historical documents. Where deemed
appropriate by the Company or the respective owners, on a property-by-property
basis, additional testing was conducted, including sampling for asbestos, for
lead in drinking water, for soil contamination where underground storage tanks
('USTs') are or were located or where other past site usages create a potential
for site impact, and for contamination in groundwater. The Company has not
obtained an environmental assessment with regard to the GTE Property and has not
obtained an environmental assessment more recent than March 1995 for the 529
Fifth Avenue Property. The Company has not been able to obtain any environmental
assessments at the two public storage Properties, because the Company owns only
a limited partnership interest in each of such Properties and does not have the
unilateral right to subject the Properties to environmental assessment.
Several of the Properties contain, or at one time contained, USTs used to
store petroleum products, including fuel oil, waste oil and gasoline.
Environmental assessments at the 38 Chauncy Street and Princeton Shopping Center
Properties have revealed soil and/or groundwater contamination associated with
USTs. In addition, an environmental assessment performed at the Winewood Office
Park, in which the Company owns a 20% co-tenant interest, has revealed
groundwater contamination associated with the migration of petroleum products
from an adjacent property. Certain other environmental assessments recommend
additional review of environmental conditions at adjacent properties from
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which contamination may migrate to the Properties. At certain of such
Properties, the contamination is being addressed by third-parties responsible
for the contamination who, in some cases, have indemnified the Company. There
can be no assurance, however, that if recourse to such indemnities becomes
necessary, such indemnity will be available or uncontested.
The Company is not aware of any environmental liabilities that the Company
believes would have a material adverse effect on the Company's business, assets,
financial condition or results of operations taken as a whole.
The Company believes that the Properties are in compliance in all material
respects with applicable Environmental Laws. The Company believes that the
issues identified in the environmental reports will not have a material adverse
effect on the Company if it continues to comply with Environmental Laws and with
the recommendations set forth in these reports. No assurance can be given,
however, that unidentified environmental liabilities will not arise at the
Properties or properties which the Company may acquire in the future which could
have an adverse effect on the Company's financial condition or results of
operations.
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK COULD ADVERSELY AFFECT THE
COMMON STOCK PRICE
Prior to the completion of the Offering, there has been no public market
for the Common Stock and there can be no assurance that an active trading market
will develop or be sustained or that Common Stock will be resold at or above the
initial public offering price. The offering price of the Common Stock was
determined by agreement among the Company and the Underwriters and may not be
indicative of the market price for the Common Stock after the completion of the
Offering. The market value of the Common Stock could be substantially affected
by general market conditions, including changes in interest rates. Moreover,
numerous other factors, such as governmental regulatory action and changes in
tax laws, could have a significant impact on the future market price of the
Common Stock.
OTHER RISKS OF OWNERSHIP OF COMMON STOCK COULD ADVERSELY AFFECT THE COMMON STOCK
PRICE
The availability of a substantial amount of common stock for future sale
could adversely affect the Common Stock price. Sales of a substantial number of
shares of Restricted Stock (as defined herein), or the perception that such
sales could occur, could adversely affect prevailing market prices of the Common
Stock. Subsequent to the Offering, 51.7% of the Company's outstanding equity
will be Restricted Stock or Units which may be converted into shares of
Restricted Stock. Common Stock issued upon redemption of Units may be sold in
the public market pursuant to registration rights (subject to the terms and
conditions thereof) that the Company has granted to all holders of Units, or
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
'Securities Act'), or other available exemptions from registration. In addition,
the Company intends to reserve a number of shares of Common Stock for issuance
pursuant to the Company's Employee Stock Option Plan, and these shares of Common
Stock will be available for sale from time to time pursuant to exemptions from
registration requirements or upon registration. Options to purchase additional
shares of Common Stock will be granted to certain executive officers, employees
and directors upon the completion of the Offering. See 'Management.' No
prediction can be made about the effect that future sales of Common Stock will
have on the market prices of the Common Stock. See 'Shares Available for Future
Sale.'
To the extent any future growth of the Company is accompanied by the
issuance of additional shares of Common Stock, any such issuance could have the
effect of diluting existing stockholders' interests in the Company.
Changes in market conditions could adversely affect the Common Stock price.
As with other publicly traded equity securities, the value of the Common Stock
will depend upon various market conditions, which may change from time to time.
Among the market conditions that may affect the value of the Common Stock are
the following: the extent to which a secondary market develops for the Common
Stock following the completion of the Offering; the extent of institutional
investor interest in the Company; the general reputation of REITs and the
attractiveness of their equity securities in
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comparison to other equity securities (including securities issued by other real
estate-based companies); the Company's financial performance; and general stock
and bond market conditions. There can be no assurance that the Common Stock will
not trade below the offering price following the completion of the Offering.
Growth potential and cash distributions could adversely affect the Common
Stock price. It is generally believed that the market value of the equity
securities of a REIT is based primarily upon the market's perception of the
REIT's growth potential and its current and potential future cash distributions,
whether from operations or sales or refinancings, and is secondarily based upon
the real estate market value of the underlying assets. For that reason, Common
Stock may trade at prices that are higher or lower than the net asset value per
share of Common Stock. To the extent the Company retains operating cash flow for
investment purposes, working capital reserves or other purposes, these retained
funds, while increasing the value of the Company's underlying assets, may not
correspondingly increase the market price of the Common Stock. The failure of
the Company to meet the market's expectation with regard to future earnings and
cash distributions likely would adversely affect the market price of the Common
Stock. If the market price of the Common Stock declined significantly, the
Company might breach certain covenants with respect to future debt obligations
which breach might adversely affect the Company's liquidity and the Company's
ability to make future acquisitions.
Changes in market interest rates could adversely affect the Common Stock
price. One of the factors that will influence the price of the Common Stock will
be the distribution rate on the Common Stock (as a percentage of the price of
the Common Stock) relative to market interest rates. Thus, an increase in market
interest rates may lead prospective purchasers of Common Stock to expect a
higher distribution rate, which would adversely affect the market price of the
Common Stock.
CONTINGENT OR UNDISCLOSED LIABILITIES COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION
As part of the Formation Transactions, the Company (through the Operating
Partnership) will acquire certain assets of the Loeb Group and Comfort subject
to existing liabilities, some of which may be unknown at the time the Offering
is consummated. Unknown liabilities might include liabilities for cleanup or
remediation of undisclosed environmental conditions, claims of tenants, vendors
or other persons dealing with the entities prior to the Offering (that had not
been asserted prior to the Offering), accrued but unpaid liabilities incurred in
the ordinary course of business. See ' -- Possible Environmental Liabilities
Could Adversely Affect the Company's Financial Condition' as to the possibility
of undisclosed environmental conditions potentially affecting the value of the
Properties.
RISKS RELATING TO YEAR 2000 ISSUE
Many existing computer programs were designed to use only two digits to
identify a year in the date field without considering the impact of the upcoming
change in the century. If not corrected, many computer applications could fail
or create erroneous results by or at the year 2000. The Company is addressing
the 'Year 2000' issue with respect to its operations and is in the process of
evaluating its potential exposure to the systems of its vendors, tenants,
clients and other third parties with whom the Company does business. There can
be no assurance that the systems of such third persons, on which the Company
relies for certain supporting administrative procedures and functions and
information, will be timely converted; however, the financial impact of becoming
year 2000 compliant has not to date been, and is not expected to be, material to
the Company's financial position or results of operations in a given year.
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THE COMPANY
GENERAL
The Company is the successor to the real estate business of Loeb Partners
Realty. For over 30 years, the Company has successfully followed a strategy of
making opportunistic investments in real estate and enhancing the value of its
properties through repositioning and intensive asset management. Upon completion
of the Offering, the Company will own interests in 31 Properties located in 14
states. For the year ended December 31, 1997, the Company derived approximately
67% of its Adjusted Pro Forma Net Operating Income from its interests in office
Properties. During that same period, the Company derived approximately 41% of
its Adjusted Pro Forma Net Operating Income from its interests in New York City
office Properties. The balance of the portfolio includes interests in retail,
residential and storage properties and one hospitality/resort complex. The
Company also controls approximately 974 acres of land located in suburban
Atlanta, which could support the development of approximately 12 million
net rentable square feet. The Company intends to continue to make
geographically diverse, opportunistic investments in a variety of property
types, with an initial focus on high quality Class B office properties in New
York City. The Company is self-administered and self-advised and intends to
elect to qualify as a REIT for federal income tax purposes.
The Company believes that there are attractive opportunities for asset
repositioning, redevelopment and value enhancement in select markets throughout
the United States. Most of the Company's acquisition activities in recent years
have focused on high quality Class B office properties in New York City and
other CBDs. The Company generally seeks to acquire office properties which may
be considered Class B assets but which have redevelopment or repositioning
potential because of their large floor plates, prime locations within their CBD,
and suitability for institutional quality tenants. In executing its
opportunistic acquisition and asset management strategy, the Company expects to
benefit from (i) an extensive network of relationships which the Company's
management has developed over 30 years, (ii) a focused strategy of identifying
and acquiring underperforming assets at prices which the Company believes are
below the assets' potential value, (iii) its integrated organization of
employees with expertise in acquiring, repositioning and managing properties,
and (iv) its experience in employing a value enhancement investment strategy
through the complete market cycle, all of which the Company believes are
important competitive advantages in its business.
The Company's predecessor originated as the real estate business of Loeb
Rhoades & Co. Since the 1960's, the Company has invested in and managed real
estate assets for the Loeb family and for major domestic and foreign pension
funds, insurance companies and wealthy private investment groups. The Company's
largest investors include the Loeb family, C.V. Starr & Co., Inc. (whose
founders also started American International Group, Inc.) and Abercromby
Property International (an investment partnership whose investors include
Barclays Bank Pension Funds, London & Manchester Assurance Company and the
Shipbuilding Industries Pension Fund). These investors and certain other
investors who owned interests in the Properties prior to the Offering (including
members of the Company's management) are exchanging their interests in the
Properties for equity interests in the Company, and will beneficially own
approximately 51.7% of the Company's equity interests on a fully diluted basis
upon completion of the Offering.
As part of the Formation Transactions, the Company will acquire the assets
and property management business of Comfort. Comfort, which was formed in 1919,
specializes in the management and leasing of, and investment in, commercial
properties, particularly in New York City. Over the past five years, Comfort has
managed approximately 5.5 million net rentable square feet of properties. Loeb
Partners Realty and Comfort have been partners in various real estate projects
for over 30 years, and jointly purchased and repositioned approximately 3.0
million square feet of commercial real estate in metropolitan New York in the
last five years. The Company believes that Comfort's management and leasing
expertise will complement the Company's existing asset management and
acquisition capabilities to create a fully integrated, full service real estate
organization.
The Company's management will continue to foster the creative and
disciplined corporate culture of its predecessors. The Company's management has
extensive experience with a wide variety of property types and geographic
regions throughout the United States, having acquired, financed,
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repositioned or managed over 25 million square feet of real estate assets over
the last 30 years. The key executives of the Company, Joseph S. Lesser, Alan L.
Gordon, Peter S. Duncan, Gary L. Naughton and Bernard B. Falk have been with the
Company or Comfort for an average of more than 20 years. Upon completion of the
Offering, the Company's officers and directors will own equity interests in the
Company representing approximately 9.3% of the Company's equity interests on a
fully diluted basis.
The Company was formed on February 9, 1998 as a Maryland corporation. The
Company's executive offices are located at 521 Fifth Avenue, New York, New York
and its telephone number is (212) 883-0360.
OPERATIONAL STRUCTURE
The Operating Partnership. The Operating Partnership is the entity through
which the Company will own its interests in the Properties. The ownership and
management structure of the Company is intended to (i) enable the Company to
acquire assets in transactions that may defer some or all of the sellers' tax
consequences, including in connection with the Company's formation and (ii)
enable the Company to comply with certain technical and complex requirements
under the federal tax rules and regulations relating to the assets and income
permitted for a REIT.
The Real Estate Brokerage Subsidiary. In order to maintain the Company's
qualification as a REIT while realizing income from third party sales and
leasing brokerage activities, those services will be conducted through the Real
Estate Brokerage Subsidiary. The Company, through the Operating Partnership,
will own 100% of the non-voting common stock (representing 95% of the total
equity) of the Real Estate Brokerage Subsidiary. Through dividends on its equity
interest, the Operating Partnership expects to receive substantially all of the
after-tax cash flow from the Real Estate Brokerage Subsidiary's operations. All
of the voting common stock of the Real Estate Brokerage Subsidiary (representing
5% of the total equity) will be held by directors and officers of the Real
Estate Brokerage Subsidiary.
Longboat Key Lease. In order to maintain the Company's qualification as a
REIT while realizing income from the Longboat Key Club, the Company leases the
Longboat Key Club's assets pursuant to a 10-year lease with a participation in
the gross receipts of the Club to a lessee ('Longboat Key Club, Inc.'), in which
directors and officers of the Company have approximately a 4% interest. The
lease provides for a participation in the gross receipts of the Club and 220
units of the condominium Hotel which is located within the Club's premises. The
terms of the participating lease are structured such that the Operating
Partnership expects to receive significant economic benefits from the
operations of the Club and the Hotel. See 'Business and Properties -- The
Hospitality/Resort Complex' for a description of the terms of the lease.
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objectives are to maximize growth in cash
available for distribution per share and to enhance the value of its portfolio
in order to maximize the long-term total return to stockholders. The Company
intends to achieve these objectives principally by executing the external and
internal growth strategies described below.
EXTERNAL GROWTH
Acquire Assets with Value Enhancement Potential. The Company will seek to
acquire assets which could benefit from the Company's value enhancement strategy
and provide favorable returns on the Company's invested capital. The Company
will focus on properties whose value can be enhanced through one or more of the
following: (i) asset repositioning, expansion or redevelopment, (ii) aggressive
leasing of vacant space, (iii) replacing expiring leases with leases at higher
rental rates or (iv) more intensive property management.
Reposition/Redevelop Assets. Management believes that value added
renovation and expansion of properties will continue to provide the Company with
attractive opportunities for increased cash flow and higher potential returns
than may be obtained from the purchase of stabilized properties. The
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Company has found that the repositioning potential of high quality Class B
office space is driven in large part by the growth of smaller companies and the
relocation of large firms from Class A space to Class B space due to a present
scarcity of large blocks of space and the anticipated cost savings associated
with such a move. The Company's Class B Properties generally have the requisite
large floor plates and prime locations sought by institutional tenants, and
offer the opportunity to create, through renovation or expansion, the high
quality building premises and common areas which appeal to those tenants. The
Company believes that the economic and real estate fundamentals of commercial
markets, particularly New York City, provide a positive environment in which the
Company can seek to implement its repositioning strategy.
Acquire a Variety of Asset Types in Diverse Markets. The Company's
strategy is to invest in a variety of property types and markets, which the
Company believes provides it with flexibility to allocate capital and
organizational resources in order to maximize the Company's ability to realize
growth, current income and stability through market cycles. Unlike many of its
competitors, the Company does not restrict its acquisitions to any particular
market or asset type.
The Company believes that its strategy of investing in diverse asset types
helps minimize the impact of oversupply from new construction or declining
demand in a particular property type. Although the Company believes that office
properties located in CBDs, particularly New York City, currently represent some
of the most attractive acquisition opportunities available to the Company, the
Company will continue selectively to pursue other asset types and markets in
order to expand and diversify its property portfolio.
In seeking opportunistic investments, the Company has operated with a
national focus over the last 30 years. The Company currently owns real estate
interests in 14 states. The Company believes that this geographic
diversification helps minimize the effects of a local or regional economic
downtown on the Company's property portfolio and its financial performance.
Acquire Distressed Assets at Attractive Prices. The Company believes that
there are opportunities to acquire properties at prices which do not reflect the
potential realizable value of the property to the Company. The Company has
realized positive returns in some instances by acquiring assets which were
subject to impediments such as defaulted loans or other financial distress,
bankruptcy, litigation or ownership conflict. In many cases these properties
suffer from inadequate property management and leasing efforts which the Company
is able to address rapidly by applying its intensive management and aggressive
leasing practices. Management has recently seen, and expects to continue to see,
opportunities to acquire assets whose owners are unable to meet their
obligations under mortgage loans.
The Company believes that due to its size, management strength, reputation
and ability to execute complex transactions, it is in an advantageous position
to acquire undervalued properties. The Company believes that it receives a
'first look' on many properties located in New York City because of the
Company's historical presence there and the number of transactions which the
Company has consummated in New York City in the past five years. During its more
than 30 years of operations, the Company has developed relationships with
numerous banks, insurance companies, brokers, attorneys, accountants, and other
intermediaries and principals, which provide the Company with opportunities to
acquire properties across the country, especially in markets where the Company
has long-standing relationships.
Acquire Properties on a Contrarian Basis at Appropriate Points in the
Real Estate Cycle. The Company's management team is experienced in operating
properties in markets suffering from adverse economic conditions or an excess
supply of available space. The Company believes that from time to time it will
have the opportunity to acquire assets at attractive prices in markets which are
economically depressed or in the early stages of recovery, where rental rates
are below the rates necessary to support new construction, resulting in
favorable supply and demand characteristics. The Company's presence in a variety
of markets enables it to identify depressed markets and allocate its capital to
the markets which the Company believes provide the best investment opportunities
at any given time.
Examples of the Company's Opportunistic External Growth Strategy. The 63
Madison Avenue, 498 Seventh Avenue and First NBC Center Properties are three
examples of how the Company has sought
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to execute its external growth strategy in recent years. There can be no
assurance that the Company's historical rates of return at these Properties will
continue. The following descriptions of those Properties should not be
considered indicative of how the Company has executed its strategy at other
Properties or of the performance that will result from its strategy at other
Properties.
The Company's acquisition of a controlling interest in the 63 Madison
Avenue Property is an example of the Company's strategy of acquiring assets
which the Company believes have significant repositioning potential, applying
its redevelopment skills and aggressively seeking tenants to occupy the
repositioned space. In December 1995, the Company and its partners acquired the
approximately 800,000 net rentable square foot Property from New York Life which
was the building's sole tenant. The aggregate purchase price for this Property
was approximately $65.0 million, or approximately $81.25 per net rentable square
foot. New York Life entered into a 15 year lease for 460,000 net rentable square
feet and a short-term lease for the Property's remaining 340,000 net rentable
square feet. The Company assumed the management of the Property and initiated an
extensive renovation of the Property at a cost of approximately $6.0 million. In
January 1998, Ziff-Davis signed a 21 year lease for 400,000 net rentable square
feet at this Property, including 60,000 net rentable square feet which the
Company took back from New York Life. The Annualized Net Operating Income at
acquisition of this Property by the Company was approximately $9.7 million, of
which $6.5 million was attributable to New York Life's short-term lease which
was due to expire in 1998. The Annualized Net Operating Income of the Property
based on leases currently in place was approximately $11.9 million. 63 Madison
Avenue is currently 100% leased. The Company will own approximately a 50%
interest in this Property upon completion of the Offering.
The 498 Seventh Avenue Property represented an opportunity for the Company
to acquire an interest in a distressed asset at an attractive price, renovate
and redevelop the Property and aggressively seek new tenants to occupy vacant
space. The Company and its partner acquired the approximately 873,000 net
rentable square foot Property in March 1997 for an aggregate purchase price of
approximately $43.3 million, or approximately $49.60 per net rentable square
foot. This Property is located in New York City's 'garment district' and was 50%
vacant at the time of acquisition due in part to a downturn in the New York City
garment industry. The Company assumed the management of the Property and
initiated significant capital improvement work at the building at a cost of
approximately $7.0 million. In November 1997, Bates signed an approximately
200,000 net rentable square foot lease at the Property. During the first three
months of 1998, the Company leased an additional 200,000 net rentable square
feet to tenants including Caribiner, USN and Victoria's Secret, bringing the
occupancy level to approximately 90%. The Annualized Net Operating Income of
this Property at acquisition was approximately $2.0 million. The Annualized Net
Operating Income of 498 Seventh Avenue based on leases currently in place is
approximately $11.5 million. The Company will own a 50% interest in this
Property upon completion of the Offering.
The Company's acquisition of the First NBC Center in New Orleans is an
additional example of the Company opportunistically acquiring a high quality
asset, making significant capital improvements to reposition the property and
installing an institutional quality tenant in the property. In October 1994, the
Company acquired the Class A, approximately 1,000,000 net rentable square foot
First NBC Center office building for an aggregate purchase price of
approximately $63.0 million, or $63.00 per net rentable square foot. The
purchase was partially financed by an approximately $57.6 million loan from the
seller of the Property, which was a financial institution that had foreclosed on
the developer of the Property. Upon acquisition by the Company, the First NBC
Center Property was approximately 89% leased, but was only 60% occupied. The new
lead tenant, the First National Bank of Commerce, had executed a lease for
290,000 net rentable square feet but had not yet moved in. The Company was
required to undertake capital improvement work and to fund and oversee
substantial tenant improvements in order to install the new lead tenant, the
First National Bank of Commerce, at a cost of approximately $9.3 million. First
NBC Center was 92% occupied at December 31, 1997. The Annualized Net Operating
Income of the Property at Acquisition was approximately $4.8 million. The
Annualized Net Operating Income of the Property based on leases currently in
place is approximately $9.2 million.
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Financing Strategy. The Company expects initially to fund its
acquisitions with a combination of capital from an unsecured credit facility and
the issuance of Units in the Operating Partnership. In addition, the Company has
from time to time in the past obtained, and may seek in the future seller
financing to fund acquisitions. The Company expects that it will replace this
financing over time with the issuance of equity and longer term debt securities.
The Company is in negotiations with several financial institutions with regard
to obtaining a $250 million senior unsecured credit facility. The Company
expects to have the credit facility in place upon completion of the Offering.
The unsecured line of credit will be used to facilitate acquisition and
development activities, to fund distribution payments, if necessary, and for
working capital purposes.
Upon completion of the Offering, the Company's Debt-to-Market
Capitalization Ratio will be approximately 24.6%. See "Business and Properties
- --Debt Financing."
INTERNAL GROWTH
Intensive Property Management. The Company actively manages Properties
through its experienced staff. Additionally, in markets where it is more
efficient to do so, the Company outsources property management to a select group
of joint venture partners or third-party local managers with whom the Company
has established strong relationships. The Company will manage 22 of its 31
Properties upon completion of the Offering, which account for approximately
82% of the Company's Adjusted Pro Forma Income for the year ended December 31,
1997. The Company has established property management offices in New York City
and Albany, New York; Daytona Beach, Florida; and Atlanta, Georgia. The Company
has significant expertise in managing urban properties and will seek to
capitalize on management's extensive knowledge of the Class B New York City
marketplace and certain other CBD's throughout the United States as it acquires
additional properties in these markets. The Company's management philosophy
embodies a hands-on approach to adding value to its assets through the full
economic cycle, with a constant evaluation of the leasing, financing, capital
improvements and market repositioning opportunities for the assets.
Replace Expiring Leases at Higher Rents. The Company will seek to replace
expiring leases at its Properties with new leases at higher rental rates,
particularly at the office Properties. Leases with respect to approximately
9.5%, 5.7% and 11.2% of the net rentable square footage of the office
Properties are expiring in 1998, 1999 and 2000, at average rents of
approximately $11.67, $10.87 and $10.89, respectively. The weighted average
of the Company's quoted rent at the office Properties as of December 31,
1997 was $18.70, before giving effect to tenant concessions. The Company
generally expects that leases expiring over the next three years will be
renewed, or space relet, at higher rents, particularly expiring leases at the
New York City Properties. However, there can be no assurance that the Company
will be able to replace expiring leases at higher rental rates or at all.
Lease-Up of Space. The Company will aggressively seek new tenants for
vacant space at the Properties. Specifically, the Company in particular is
seeking to lease the remaining vacant space at the 498 Seventh Avenue
(approximately 87,000 net rentable square feet), 24 West 57th Street
(approximately 11,700 net rentable square feet), First NBC Center (approximately
80,430 net rentable square feet), Riverview Center (approximately 322,670 net
rentable square feet) and 38 Chauncy Street (approximately 13,000 net rentable
square feet) office Properties, as well as the Easton Commons Plaza
(approximately 19,200 net rentable square feet) and Sunset Strip (approximately
20,500 net rentable square feet) retail Properties. The Company believes that it
has a competitive advantage in attracting new tenants to its office Properties
because the Company can offer space in prime locations which may be suitable for
institutional quality tenants, and has rental rates which are lower than rates
for properties considered to be Class A assets. In addition, the Company
believes that its reputation for high quality services and tenant responsiveness
may distinguish it from its competitors.
Shenandoah Development. The Company has the right to acquire
approximately 974 acres of land at the Shenandoah Industrial Park Property,
which is located approximately 20 miles from Atlanta
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Hartsfield International Airport, for a remaining option exercise price of
approximately $700,000 plus the payment of approximately $375,000 of accrued
real estate taxes. The Company intends to pursue build-to-suit development
opportunities at this Property. The Company estimates that this land could
support the development of an additional 12 million net rentable square feet of
light manufacturing and distribution facilities under current zoning and
entitlements. The Company estimates that the cost of developing a typical
distribution facility of approximately 200,000 net rentable square feet with
concrete and steel construction and loading docks would be approximately $23.50
per net rentable square foot in today's market. The Company believes that the
current market rent for such a facility would be approximately $2.75 per net
rentable square foot on a triple net basis. The Company has previously developed
or provided development advisory services for several industrial facilities at
this Property.
Renovation and Expansions at Existing Properties. The Company recently
completed an approximately $6.0 million renovation and expansion of the Longboat
Key Club. This project included the construction of a new restaurant, club,
fitness center, banquet facilities and meeting rooms. The Company believes that
these added amenities will help to attract additional guests and golf club
members to Longboat Key Club and support possible future increases in rates at
this Property.
At the Outlet Park Shoppes at Waccamaw Property, the Company and its
partners are in the process of expanding this 763,818 net rentable square foot
property by an additional 36,500 net rentable square feet. This expansion is
expected to be completed in 1998 at an aggregate cost to the Company and its
partners of approximately $4.0 million. The expansion is expected to be fully
leased by the end of 1998. In addition, the Company is considering a potential
additional expansion of this Property by approximately 27,000 net rentable
square feet in 2000, although there can be no assurance that the Company will
complete this later expansion. The Company estimates that rental rates will be
approximately $13.00 per net rentable square foot for space at this expansion.
The Company has budgeted approximately $6.5 million through the end of 1999
for expansion of the Manufacturer's Outlet Center Property. This expansion is
currently in the planning stage and would include the development of a five acre
site owned by the Company which is adjacent to the Property. This expansion
project is subject to the receipt of governmental approvals.
As part of the Formation Transactions, the Company will acquire a 17.9 acre
parcel of land from a third party which is adjacent to the Company's Shoppes at
St. Lucie West Property. The Shoppes at St. Lucie West were approximately 99%
leased at December 31, 1997. The Company estimates that this land could support
approximately a 150,000 net rentable square foot expansion of the Shoppes at St.
Lucie West Property under current zoning and entitlements. The Company will
acquire this parcel for Units with a value of $2.25 million.
There can be no assurance that the Company will successfully complete the
expansion projects described above or that the Company's estimate of the cost of
any expansion will prove accurate.
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after payment of
underwriting discounts and commissions and offering and organizational expenses,
are estimated to be approximately $248.0 million approximately ($286.3 million
if the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $20.00 per share (the midpoint of the range
shown on the cover of this Prospectus). The Company plans to use the proceeds of
the Offering to purchase its general partner interest in the Operating
Partnership. The Operating Partnership will in turn utilize such proceeds to (i)
retire approximately $201.7 million out of approximately $385.9 million in
existing mortgage indebtedness on the Properties and pay prepayment penalties
relating to such retirement of approximately $7.0 million; (ii) purchase
interests in the Properties for cash in the amount of approximately $17.9
million; (iii) repay an approximately $5.8 million loan made by the owners of
the 63 Madison Avenue Property to fund improvements at that Property; and (iv)
provide approximately $15.5 million to fund capital expenditures and for working
capital. As of December 31, 1997, the weighted average interest rate on the
indebtedness that will be retired with the proceeds of the Offering and the
weighted average maturity of such indebtedness was approximately 8.5% and
4.4 years, respectively. See 'Management's Discussion and Analysis of Financial
Condition and Results of
35
<PAGE>
<PAGE>
Operations -- Liquidity and Capital Resources.' Pending application of the net
proceeds of the Offering, the Company may invest such portion of the net
proceeds in interest-bearing accounts and/or short-term, interest-bearing
securities that are consistent with the Company's intention to qualify for
taxation as a REIT.
If the Underwriters' overallotment option to purchase 2,040,000 shares of
Common Stock is exercised in full, the Company will use the additional proceeds
(approximately $37.9 million) to acquire an additional interest in the Operating
Partnership. The Operating Partnership would use this additional contribution
for working capital purposes.
DISTRIBUTIONS
The Company intends to pay regular quarterly distributions to holders of
Common Stock. The Company estimates that the first distribution, for the period
commencing on the closing of the Offering and ending on September 30, 1998, will
be approximately $ per share, which is equivalent to a quarterly distribution
of approximately $0.325 per share, and an annual distribution of approximately
$1.30 per share (or an annual distribution rate of approximately 6.50%, based on
the midpoint of the estimated initial public offering prices shown on the cover
page of this Prospectus). The actual distributions made by the Company will be
determined by the Board of Directors, in its discretion, and will be affected by
a number of factors, including the gross revenues received from the Properties,
the operating expenses of the Company, the interest expense incurred in
borrowing, the ability of tenants to meet their obligations and unanticipated
capital expenditures. No assurance can be given that the Company's estimates
will prove accurate or that any level of distributions will be made or
sustained. The Company does not expect to change its estimated distribution rate
per share if the Underwriters' over-allotment option is exercised.
The Company intends to initially distribute annually approximately % of
estimated cash available for distribution. See 'Risk Factors -- Estimated
Initial Cash Available for Distribution Will Not Be Sufficient to Make
Distributions at Expected Levels.' The Company's estimate of the cash available
for distribution for the twelve months ending March 31, 1999, is based upon
pro forma Funds from Operations for the 12 months ended March 31, 1998,
adjusted (i) for certain known events and/or contractual commitments that either
have occurred or will occur subsequent to March 31, 1998 or during the 12
months ended March 31, 1998, but were not effective for the full 12 months or
will not recur, and (ii) for certain non-GAAP adjustments consisting of (A)
revisions from historical rent on a straight-line, GAAP basis to amounts
currently being paid or due from tenants based on contractual rents, (B)
estimates of amounts anticipated for recurring tenant improvements, leasing
commissions and capital expenditures, and (C) scheduled mortgage loan principal
payments. No effect was given to any changes in working capital resulting from
changes in current assets and current liabilities (which changes are not
anticipated to be material) or the amount of cash estimated to be used for (i)
investing activities for acquisition and other activities (other than a reserve
for capital expenditures, tenant improvements for renewing space and working
capital) and (ii) financing activities (other than scheduled mortgage loan
principal payments on existing mortgage indebtedness). The Company anticipates
that, except as reflected in the table below and the notes thereto, investing
and financing activities will not have a material effect on estimated cash
available for distribution. The Company's estimated pro forma Funds from
Operations, as adjusted as reflected in clause (A) above, is substantially
equivalent to the Company's estimated pro forma cash flows from operating
activities determined in accordance with GAAP. The estimate of cash available
for distribution is being made solely for the purpose of setting the initial
distribution and is not intended to be a projection or forecast of the Company's
results of operations or its liquidity, nor is the methodology upon which such
adjustments were made necessarily intended to be a basis for determining future
distributions.
The Company anticipates that cash flow available for distribution will
exceed earnings and profits for federal income tax purposes due to non-cash
expenses, primarily depreciation and amortization, to be incurred by the
Company. Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes, other than
capital gains dividends, generally will be taxable to stockholders as ordinary
dividend income. Capital gains dividends generally will be taxable as gain from
the sale or exchange of a capital asset for federal income tax purposes.
36
<PAGE>
<PAGE>
Distributions in excess of earnings and profits generally will be treated as
non-taxable return of capital and, therefore, will result in a reduction of a
stockholder's basis in the Common Stock, to the extent thereof, and thereafter
as taxable gain unless properly designated by the Company as capital gains
dividends. Any non-taxable distributions will have the effect of increasing the
gain or decreasing the loss recognized on a sale of such Common Stock. The
Company anticipates that approximately % (or approximately $. per share of
Common Stock) of the distributions intended to be paid by the Company for 1998
will represent a return of capital for federal income tax purposes. See 'Federal
Income Tax Considerations -- Taxation of Stockholders.' The percentage of
stockholder distributions that represents a nontaxable return of capital may
vary substantially from year to year.
The Code generally requires that a REIT distribute annually at least 95% of
its REIT taxable income. See 'Federal Income Tax Considerations -- Taxation of
the Company.' The amount of distributions on an annual basis necessary to
maintain the Company's REIT status based on pro forma taxable income of the
Company for the 12 months ended March 31, 1998, as adjusted for certain items
in the following table, would have been approximately $ million. The
estimated cash available for distribution is anticipated to be in excess of the
annual distribution requirements applicable to REITs under the Code. Under
certain circumstances, the Company may be required to make distributions in
excess of cash available for distribution in order to meet such distribution
requirements. For a discussion of the tax treatment of distributions to holders
of Common Stock, see 'Federal Income Tax Considerations -- Taxation of
Stockholders -- Taxation of Taxable Domestic Stockholders.'
The Company believes that its estimate of cash available for distributions
constitutes a reasonable basis for establishing the initial distribution rate,
and the Company expects to maintain its initial distribution rate for at least
the first 12 months following the completion of the Offering, unless actual
results of operations, economic conditions or other factors differ from the
assumptions used in calculating the estimate. The estimate of cash available for
distributions covers only the 12-month period following the closing of the
Offering and is being made solely for the purpose of setting the initial
distribution amount and is not intended to be a projection or prediction of the
Company's future results from operations. Pro forma results of operations do not
purport to present the actual results that can be expected for future periods.
Variations in the net proceeds from the Offering as a result of a change in the
initial public offering price or the exercise of the Underwriters'
over-allotment option may affect cash available for distribution, the payout
ratio based on cash available for distribution and available reserves. No
assurance can be given that the Company's estimate will prove accurate. Actual
results may vary substantially from the estimate. See 'Risk Factors' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended March 31, 1998 and the adjustments made to
pro forma Funds from Operations for the 12 months ended March 31, 1998 used in
estimating initial cash available for distribution for the 12 months following
the Offering and establishing its estimated initial annual distributions:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS,
EXCEPT FOR
SHARE DATA)
-----------
<S> <C>
Pro forma income before minority interest and extraordinary items for the 12
months ended December 31, 1997(1)........................................... $ 20,561
Plus: Pro forma real estate depreciation for the 12 months ended December
31, 1997............................................................... 16,404
Plus: Pro forma amortization (excluding financing costs) for the 12
months ended December 31, 1997......................................... 1,011
-----------
37,976
Less: Pro forma Funds from Operations attributed to minority interest in
real estate partnerships(2)............................................ (4,539)
Plus: The Company's share of pro forma depreciation and amortization
(excluding financing costs) attributable to investments in partnerships
and limited liability companies........................................ 987
-----------
</TABLE>
(table continued on next page)
37
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS,
EXCEPT FOR
SHARE DATA)
-----------
<S> <C> <C>
Pro forma Funds from Operations for the 12 months ended December 31,
1997(3)..................................................................... $ 34,424
Less: Pro forma Funds from Operations for the three months ended March
31, 1997...............................................................
Plus: Pro forma Funds from Operations for the three months ended March
31, 1998...............................................................
Pro forma Funds from Operations for the 12 months ended March 31, 1998........
Adjustments:
Net increases in rental income(4)........................................
Net change in rental income, assuming no renewals(5).....................
Interest adjustment(6)...................................................
-----------
Estimated adjusted pro forma Funds from Operations for the 12 months ending
March 31, 1999..............................................................
Net effect of straight-line rents(7).....................................
Pro forma amortization of financing costs for the 12 months ended March
31, 1998(8)............................................................
Less: Pro forma funds from operations for the 12 months ending March 31,
1999 attributable to investments in partnerships and limited liability
companies..............................................................
-----------
Estimated pro forma Cash Flow from Operating Activities for the 12 months
ending March 31, 1999.......................................................
Investment Activities:
Estimated recurring capitalized tenant improvements and leasing
commissions(9)......................................................... $
Estimated recurring capital expenditures(10).............................
-------
Estimated cash to be used in investing activities........................
Financing Activities:
Scheduled mortgage loan principal payments(11)...........................
-------
Estimated cash to be used in financing activities........................
-----------
Estimated Cash Available for Distribution for the 12 months ending March 31,
1999........................................................................
-----------
The Company's share of estimated Cash Available for Distribution(12)
Minority interest's share of estimated Cash Available for Distribution
Total estimated initial annual cash distributions
Estimated initial annual distribution per share(13)
Payout ratio based on estimated Cash Available for Distribution(14)...... %
</TABLE>
- ------------
(1) Pro forma income before minority interest and extraordinary items is based
on total revenue of $ , of which $ is derived from management,
leasing, and other activities relating to properties not owned by the
Company.
(footnotes continued on next page)
38
<PAGE>
<PAGE>
(footnotes continued from previous page)
(2) Pro forma Funds from Operation attributed to minority interest in real
estate partnership is calculated as follows:
<TABLE>
<S> <C>
Minority Interest in Real Estate Partnerships....................................... $
Plus: Pro forma real estate depreciation for the 12 months ended
December 31, 1997.................................................................
Plus: Pro forma amortization (excluding financing costs) for the 12 months ended
December 31, 1997.................................................................
------
$
------
</TABLE>
(3) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March, 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that Funds from Operations is helpful
to investors as a measure of the performance of an equity REIT because,
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds
from Operations does not represent cash generated from operating activities
in accordance with GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions. For a
reconciliation of net income and Funds from Operations, see 'Management's
Discussion and Analysis of Financial Condition and results of
Operations -- Funds from Operations.'
(4) Represents the increase in rental income resulting from new leases and
renewals that went into effect between April 1, 1998 and , 1998
($ less $ attributed to the minority interest in the real estate
partnerships).
(5) Represents the net change, excluding minority interest in real estate
partnerships, resulting from (a) increased rental income from new leases and
renewals that were not in effect for the 12 month period ending March 31,
1998 and (b) rent reductions from leases expiring after March 31, 1998
assuming no lease renewals or new leases.
(6) The amount represents a reduction in interest expense due to amortization of
the related mortgages over the 12-month period ending March 31, 1999.
(7) Represents the effect of adjusting straight-line rental revenue included in
pro forma net income from the straight-line accrual basis to amounts
currently being paid or due from tenants, net of minority interest in real
estate partnerships.
(8) Financing costs for the 12 month period ended March 31, 1998, net of
minority interest in real estate partnerships, are based on principal
mortgage indebtedness outstanding of $ . See 'Business and
Properties -- Debt Financing.'
(9) Reflects recurring tenant improvements and leasing commissions anticipated
for the 12 months ending December 31, 1998 which have been calculated by
multiplying (i) the weighted average tenant improvements and leasing
commissions expenditures for renewed and newly tenanted space at the
Properties incurred during 1993, 1994, 1995, 1996 and 1997 of $14.09, $0.08
$4.69 and $3.17 per square foot for New York City office properties,
office/loft, other office properties and retail properties, repectively,
exclusive of minority interests in real estate partnerships, (assuming a
renewal rate of 75% of expiring square footage. See 'The Properties -- The
Portfolio -- Historical Tenant Improvements and Leasing Commissions'), by
(ii) (the average annual square feet of leased
(footnotes continued on next page)
39
<PAGE>
<PAGE>
(footnotes continued from previous page)
space for which leases expire during the years ending December 31, 1998
through December 31, 2003). The weighted average annual per square foot cost
of tenant improvements and leasing commission expenditures is presented
below:
NEW YORK CITY OFFICE PROPERTIES
<TABLE>
<CAPTION>
WEIGHTED
YEAR ENDED DECEMBER 31, AVERAGE
---------------------------------------------- JAN. 1, 1993-
1993 1994 1995 1996 1997 DEC. 31, 1997
------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Renewals:
Tenant improvement costs ('TI') per square
foot....................................... $ 7.63 $10.35 $11.25 $ .65 $ -- $ 4.79
Leasing commission costs ('LC') per square
foot....................................... 3.15 3.46 3.10 .24 4.63 2.62
------ ------ ------ ------ ------ ------
Total Renewal TI and LC per square
foot.................................. $10.78 $13.81 $14.35 $ .89 $ 4.63 $ 7.41
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Newly Tenanted Space:
TI per square foot........................... $24.94 $26.99 $23.55 $40.32 $13.18 $23.50
LC per square foot........................... 9.30 8.54 10.43 8.32 13.50 10.64
------ ------ ------ ------ ------ ------
Total newly tenanted TI and LC per
square foot........................... $34.24 $35.53 $33.98 $48.64 $26.68 $34.14
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
5 YEAR ANNUAL
WEIGHTED SQUARE FOOTAGE RATE OF
AVERAGE TI AND EXPIRING IN RENEWALS/ TOTAL
LC PER SQUARE FOOT 1998-2003 NEWLY TENANTED COST
------------------ -------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Renewal..................................... $ 7.41 x 56,580 x 75%(i) = $314,443
Newly Tenanted.............................. $ 34.14 x 56,580 x 25% = 482,910
--------
$797,354
--------
--------
</TABLE>
OFFICE/LOFT PROPERTIES
<TABLE>
<CAPTION>
WEIGHTED
YEAR ENDED DECEMBER 31, AVERAGE
------------------------------------ JAN. 1, 1993-
1993 1994 1995 1996 1997 DEC. 31, 1997
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Renewals:
Tenant improvement costs ('TI') per square foot.......... $-- $-- $-- $-- $-- $--
Leasing commission costs ('LC') per square foot.......... -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total Renewal TI and LC per square foot............. $-- $-- $-- $-- $-- $--
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
Newly Tenanted Space:
TI per square foot....................................... $.02 $-- $.43 $-- $.29 $.19
LC per square foot....................................... .11 .22 .13 .13 .14 .14
---- ---- ---- ---- ---- ----
Total newly tenanted TI and LC per square foot...... $.13 $.22 $.56 $.13 $.43 $.33
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
<CAPTION>
AVERAGE
5 YEAR ANNUAL
WEIGHTED SQUARE FOOTAGE RATE OF
AVERAGE TI AND EXPIRING IN RENEWALS/ TOTAL
LC PER SQUARE FOOT 1998-2003 NEWLY TENANTED COST
------------------ -------------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Renewal........................................ $-- x 35,931 x 75%(i) = $ --
Newly Tenanted................................. $.33 x 35,931 x 25% = 2,964
------
$2,964
------
------
</TABLE>
40
<PAGE>
<PAGE>
OTHER OFFICE PROPERTIES
<TABLE>
<CAPTION>
WEIGHTED
YEAR ENDED DECEMBER 31, AVERAGE
------------------------------------------ JAN. 1, 1993-
1993 1994 1995 1996 1997 DEC. 31, 1997
----- ----- ----- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Renewals:
Tenant improvement costs ('TI') per square foot... $ .17 $ .31 $2.57 $ 3.47 $ .93 $ 1.73
Leasing commission costs ('LC') per square foot... .80 .20 .39 .89 .88 .60
----- ----- ----- ------ ----- ------
Total Renewal TI and LC per square foot...... $ .97 $ .51 $2.96 $ 4.36 $1.81 $ 2.33
----- ----- ----- ------ ----- ------
----- ----- ----- ------ ----- ------
Newly Tenanted Space:
TI per square foot................................ $1.52 $ .98 $7.28 $17.86 $6.32 $ 9.40
LC per square foot................................ .74 1.06 .96 4.10 2.67 2.38
----- ----- ----- ------ ----- ------
Total Newly Tenanted TI and LC per square
foot....................................... $2.26 $2.04 $8.24 $21.96 $8.99 $11.78
----- ----- ----- ------ ----- ------
----- ----- ----- ------ ----- ------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
5 YEAR ANNUAL
WEIGHTED SQUARE FOOTAGE RATE OF
AVERAGE TI AND EXPIRING IN RENEWALS/ TOTAL
LC PER SQUARE FOOT 1998-2003 NEWLY TENANTED COST
------------------ -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Renewal................................... $ 2.33 x 262,910 x 75%(i) = $ 459,435
Newly Tenanted............................ $11.78 x 262,910 x 25% = 774,270
----------
$1,233,705
----------
----------
</TABLE>
RETAIL PROPERTIES
<TABLE>
<CAPTION>
WEIGHTED
YEAR ENDED DECEMBER 31, AVERAGE
----------------------------------------- JAN. 1, 1993-
1993 1994 1995 1996 1997 DEC. 31, 1997
----- ----- ----- ----- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Renewals:
Tenant improvement costs ('TI') per square foot.... $-- $ .84 $ .18 $ .67 $ .95 $ .57
Leasing commission costs ('LC') per square foot.... .26 1.43 1.90 .50 2.31 1.25
----- ----- ----- ----- ----- -----
Total Renewal TI and LC per square foot....... $ .26 $2.27 $2.08 $1.17 $3.26 $1.82
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
Newly Tenanted Space:
TI per square foot................................. $2.69 $5.38 $6.10 $6.78 $2.44 $4.80
LC per square foot................................. 5.33 .51 1.81 3.03 4.77 2.42
----- ----- ----- ----- ----- -----
Total Newly Tenanted TI and LC per square
foot........................................ $8.02 $5.89 $7.91 $9.81 $7.21 $7.22
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
5 YEAR ANNUAL
WEIGHTED SQUARE FOOTAGE RATE OF
AVERAGE TI AND EXPIRING IN RENEWALS/ TOTAL
LC PER SQUARE FOOT 1998-2003 NEWLY TENANTED COST
------------------ -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Renewal................................... $ 1.82 x 187,640 x 75%(i) = $ 256,129
Newly Tenanted............................ $ 7.22 x 187,640 x 25% = 338,690
----------
$ 594,819
----------
----------
Total estimated recurring
tenant improvements
and leasing commissions....... $2,628,842
----------
----------
</TABLE>
(footnotes on next page)
41
<PAGE>
<PAGE>
(footnotes from previous page)
(i) The historical weighted average renewal rate, based on square footage,
for the Company from January 1, 1993 through December 31, 1997 is %.
(10) Estimated recurring capital expenditures have been calculated by
multiplying (i) estimated capital expenditures per square foot or per unit
for the Properties for the 12 month period ended December 31, 1998 by (ii)
the aggregate square footage or number of units of the Properties, plus
estimated 1998 capital expenditures associated with the Longboat Key Club
Property. For the 12 months ending December 31, 1998, the estimated cost of
recurring building improvements and equipment upgrades and replacements
(excluding costs of tenant improvements) at the Properties is approximately
$2.1 million. For the 12 months ending December 31, 1998, the estimated
cost of non-recurring capital expenditures of the Properties is
approximately million. The Company expects to fund non-recurring capital
expenditures, tenant improvements and leasing commissions from working
capital or borrowings. Following completion of the Formation Transactions
and the Offering, the Company expects to have remaining net proceeds of
$15.5 million available for capital expenditures and working capital
purposes.
(11) Scheduled mortgage loan principal payments for the 12 months ending March
31, 1999.
(12) The Company's share of estimated Cash Available for Distribution and
estimated initial annual cash distributions to stockholders of the Company
is based on its approximately 50% aggregate partnership interest in the
Operating Partnership.
(13) Based on a total of 13,600,000 Shares of Common Stock to be outstanding
after the Offering (2,040,000 shares to be sold in the Offering, assuming
no exercise of the Underwriters' over-allotment option, and 1,148,934
additional shares of Common Stock to be issued in the Formation
Transactions.)
(14) Calculated as estimated initial annual cash distributions to stockholders
of the Company divided by the Company's share of estimated Cash Available
for Distribution for the 12 months ending March 31, 1999. The payout ratio
based on estimated adjusted pro forma Funds from Operations is %.
Future distributions of the Company will be at the discretion of the Board
of Directors and will depend on the amount of Funds from Operations of the
Company, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and other factors the Board
of Directors deems relevant. See 'Federal Income Tax Considerations -- Taxation
of the Company -- Annual Distribution Requirements.'
42
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the combined historical capitalization of
Loeb Real Estate, the predecessor of the Company, as of December 31, 1997 and on
a pro forma basis to give effect to the Formation Transactions, the Offering
and the use of the net proceeds from the Offering as described under 'Use of
Proceeds.' The following information should be read in conjunction with the
combined financial statements and notes thereto and pro forma financial
information and notes thereto included elsewhere in this Prospectus, as well
as 'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
COMBINED
HISTORICAL PRO FORMA
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage debt........................................................................... $212,456 $197,281
Minority interests in:
Operating Partnership.............................................................. -- 244,654
Real Estate Partnership............................................................ -- 21,462
Stockholders' equity:
Common Stock, $.001 par value per share, 200,000,000 shares authorized; 14,749,034
shares issued and outstanding on a pro forma basis(1)............................. -- 15
Additional paid-in capital......................................................... -- 268,232
Owners equity...................................................................... 43,800 --
-------- --------
Total capitalization.......................................................... $256,256 $731,644
-------- --------
-------- --------
</TABLE>
- ------------
(1) Includes 14,749,034 shares of Common Stock to be issued in the Formation
Transactions and the Offering. Excludes (i) 13,426,066 shares of Common
Stock reserved for issuance upon exchange of Units; (ii) 1,127,000 shares of
Common Stock subject to options being granted concurrently with the Offering
under the Company's Stock Option and Incentive Plan; and (iii) 2,040,000
shares issuable upon exercise of the Underwriters' overallotment option.
43
<PAGE>
<PAGE>
DILUTION
The midpoint of the assumed initial prices per share to the public of
Common Stock offered hereby exceeds the pro forma net tangible book value per
share before giving effect to the Offering. Therefore, the holders of the shares
of Common Stock and Units issued in connection with the formation of the Company
will realize an immediate increase in the net tangible book value of their
shares or Units, while purchasers of shares of Common Stock sold in the Offering
will realize an immediate dilution in the net tangible book value of their
shares.
The following table illustrates the per share dilution to investors who
purchase shares of Common Stock in the Offering, assuming an initial public
offering price of $20.00 per share (the midpoint of the range shown on the cover
of this Prospectus):
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)................................... $20.00
Pro forma net tangible book value per share prior to the Offering(2)................. $19.34
Decrease in net tangible book value per share attributable to the Offering(3)........ (.54)
------
Pro forma net tangible book value per share after the Offering(4).................... 18.80
------
Dilution per share of Common Stock to purchasers in the Offering(5).................. $ 1.20
------
------
</TABLE>
- ------------
(1) Before deduction of the estimated Underwriters' discounts and expenses of
the Offering.
(2) Pro forma net tangible book value per share prior to the Offering
attributable to continuing investors is determined by dividing net tangible
book value of the Company attributable to continuing investors based on the
December 31, 1997 net book value of the tangible assets (consisting of total
assets less intangible assets consisting of deferred lease and loan costs
and after the Formation Transactions, net of liabilities to be assumed) by
the sum of the number of shares of Common Stock (i) issued and outstanding
(ii) issuable (upon the exchange of all Units to be issued) to continuing
investors in the Formation Transactions.
(3) Based on an initial public offering price of $20.00 per share of Common
Stock and after deducting Underwriters' discounts and commissions and
estimated expenses of the Offering.
(4) Based on total pro forma net tangible book value of $530 million divided by
the total number of shares of Common Stock outstanding after the completion
of the Offering (28,175,100 shares including shares issuable upon exchange
of Units issued to continuing investors), and excluding shares of Common
Stock that may be issuable upon exercise of share options. There is no
impact on dilution attributable to the issuance of Common Stock in exchange
for Units to be issued to the continuing investors in the Formation
Transactions because such Units would be exchanged for Common Stock on a
one-for-one basis.
(5) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from the assumed initial public offering
price of $20.00.
44
<PAGE>
<PAGE>
The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock to
be sold by the Company in the Offering and the number of shares of Common Stock
and Units to be issued to the continuing investors in the Formation
Transactions, the adjusted net tangible book value as of December 31, 1997 of
the net assets contributed by the continuing investors in the Formation
Transactions and the net tangible book value of the average contribution per
share based on total contributions.
<TABLE>
<CAPTION>
SHARES AND UNITS BOOK VALUE BOOK VALUE OF
ISSUED OF TOTAL AVERAGE
--------------------------- CONTRIBUTION CONTRIBUTION
NUMBER OF --------------------- PER SHARE/
SHARES OR UNITS PERCENT AMOUNT PERCENT UNIT
---------------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Purchasers in the Offering................. 13,600,000 48.2% $247,949(1) 46.8% $20.00(2)
Common Stock issued in Formation
Transactions............................. 1,149,034 4.1 22,222 4.2 19.34(3)
Units issued in Formation Transactions..... 13,426,066 47.7 259,596 49.0 19.34(3)
---------------- ------- -------- -------
Total................................. 28,175,100 100% $529,767 100%
---------------- ------- -------- -------
---------------- ------- -------- -------
</TABLE>
- ------------
(1) Assumes an estimated initial public offering price of $20.00 (the mid-point
of the range on the cover page of this Prospectus) less the underwriting
discount and the expenses of the Offering.
(2) Before deducting Underwriters' discounts and commissions and other estimated
expenses of the Offering and the Formation Transactions.
(3) Based on the December 31, 1997 net book value of the assets less deferred
financing and leasing cost to be contributed in connection with the
Formation Transactions, net of liabilities to be assumed.
45
<PAGE>
<PAGE>
SELECTED COMBINED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial and operating information
on a pro forma basis for the Company and on a historical combined basis for the
Company's predecessor, which is referred to in the combined historical financial
statements as 'Loeb Real Estate'. Loeb Real Estate is not a legal entity, but
rather a combination of real estate partnership and limited liability companies
which were under common management and control. The following information should
be read in conjunction with the combined financial statements and notes thereto
included elsewhere in this Prospectus. The balance sheet data as of December 31,
1995 and the operating data for the three years ended December 31, 1997, of Loeb
Real Estate have been derived from the historical combined financial statements
audited by Ernst & Young LLP, independent auditors, whose report with respect
thereto is included elsewhere in this Prospectus. The balance sheet and
operating data for the years ended December 31, 1994 and 1993 has been derived
from the unaudited financial statements of Loeb Real Estate. In the opinion of
management, the unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, that management considers
necessary for a fair presentation of the financial position and results of
operations for the period. The selected pro forma information is presented as
if (i) the Offering and the other transactions contemplated herein under
'Formation Transactions' had occurred as of the beginning of the period
presented for operating data and as of the balance sheet date for balance sheet
data and (ii) the Company qualified as a REIT, distributed all of its taxable
income and, therefore, incurred no income tax expense during the period
presented (see 'Risk Factors' and 'Federal Income Tax Considerations --
Taxation of the Company -- Failure to Qualify'). In management's opinion, all
adjustments necessary to present fairly the effects of these transactions have
been made. The pro forma financial data is not necessarily indicative of what
the actual financial position and results of operations of the Company would
have been as of and for the periods indicated, nor does it purport to
represent the Company's future financial position and results of operations.
THE COMPANY (PRO FORMA) AND LOEB REAL ESTATE (COMBINED HISTORICAL)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF PROPERTIES DATA)
<TABLE>
<CAPTION>
PRO YEAR ENDED DECEMBER 31,
FORMA COMBINED HISTORICAL
----------- -----------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues:
Revenue from rental property.............. $ 94,194 $51,306 $48,194 $29,461 $27,460 $17,906
Management fee income..................... 2,699 3,533 2,675 2,256 1,449 505
Other income.............................. 5,357 3,221 4,581 1,755 2,825 2,924
----------- ------- ------- ------- ----------- -----------
Total revenue......................... $ 102,250 $58,060 $55,450 $33,472 $31,734 $21,335
----------- ------- ------- ------- ----------- -----------
----------- ------- ------- ------- ----------- -----------
Expenses:
Property operating expenses............... $ 31,420 $19,182 $18,280 $11,043 $11,679 $ 8,958
Real estate taxes......................... 11,783 7,456 6,784 4,407 4,047 2,494
Interest.................................. 16,599 17,712 13,343 8,015 6,396 4,491
Depreciation and amortization............. 18,042 7,078 6,013 4,108 3,164 2,709
General and administrative................ 3,458 2,207 2,574 2,170 1,421 1,269
----------- ------- ------- ------- ----------- -----------
Total expenses........................ $ 81,302 $53,635 $46,994 $29,743 $26,707 $19,921
----------- ------- ------- ------- ----------- -----------
----------- ------- ------- ------- ----------- -----------
Operating Income.............................. $ 20,948 $ 4,425 $ 8,456 $ 3,729 $ 5,027 $ 1,414
Equity in (loss) income of investees.......... (387) (303) 835 1,023 628 798
Income tax (expense) benefit.................. -- (259) 150 139 138 81
Income before minority interest and
extraordinary item.......................... 20,561 3,863 9,441 4,891 5,793 2,293
Minority interest in:
Operating partnership..................... (9,063) -- -- -- -- --
Real estate partnerships.................. (1,561) -- -- -- -- --
----------- ------- ------- ------- ----------- -----------
Income before extraordinary item.............. $ 9,937 $ 3,863 $ 9,441 $ 4,891 $ 5,793 $ 2,293
----------- ------- ------- ------- ----------- -----------
----------- ------- ------- ------- ----------- -----------
Net income per share(1):
Basic..................................... $.67
----
----
Diluted................................... $.67
----
----
</TABLE>
(table continued on next page)
46
<PAGE>
<PAGE>
(table continued from previous page)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF PROPERTIES DATA)
<TABLE>
<CAPTION>
PRO YEAR ENDED DECEMBER 31,
FORMA COMBINED HISTORICAL
----------- -----------------------------------------------------------------
1997 1997 1996 1995 1994 1993
----------- -------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data: (at end of period)
Real properties, at cost before
accumulated depreciation.......... $ 646,466 $242,748 $202,912 $ 179,699 $ 110,300 $ 79,426
Total assets.................... 755,969 269,977 231,136 199,128 127,273 101,627
Mortgage notes payable.............. 197,281 212,456 184,379 142,905 86,689 75,198
Owner's equity...................... 534,363 43,800 33,706 41,699 26,912 12,946
Other Data:
Fund from operations(2)............. $ 34,424 -- -- -- -- --
Net cash provided by operating
activities(3)..................... -- 4,675 1,484 1,354 -- --
Net cash (used in) investing
activities(3)..................... -- (39,531) (21,670) (17,443) -- --
Net cash provided by financing
activities........................ -- 32,088 25,559 14,610 -- --
Number of properties................ 31 12 10 9 8 8
Square footage (excluding Longboat
Key Club and residential
Properties)....................... 8,614 2,529 2,246 1,990 1,193 523
Apartment units..................... 1,113 1,113 1,113 1,113 1,113 1,113
</TABLE>
- ------------
(1) Pro forma basic net income per share excludes any dilutive effect of options
outstanding. Pro forma diluted net income per share includes the dilutive
effect of the outstanding options calculated under the treasury stock
method. As each Unit is redeemable for one share of Common Stock, the
calculation of net income per share upon redemption of the outstanding Units
will be unaffected, as Unitholders and Common Stockholders are entitled to
equal distributions on a per Unit and per share basis in the net income of
the Company.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that Funds from Operations is helpful
to investors as a measure of the performance of an equity REIT because,
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds
from Operations does not represent cash generated from operating activities
in accordance with GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions. For a
reconciliation of net income and Funds from Operations, see 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Funds from Operations.'
(3) Pro forma information relating to cash flow from operating and investing
activities has not been included because the Company believes that this
information would not be meaningful due to the number of assumptions
required in order to calculate this information.
47
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the 'Selected
Combined Financial Information' and the historical and pro forma combined
financial statements and notes thereto appearing elsewhere in this Prospectus.
Those financial statements and information reflect the historical combined
financial position and results of operations of the Company's predecessor,
which is referred to in the historical financial statements as 'Loeb Real
Estate' prior to the completion of the Offering and the Formation Transactions.
The pro forma financial position is presented as if the Offering and the
Formation Transactions had occurred on December 31, 1997. The combined
historical financial statements of Loeb Real Estate reflect the consolidated
financial information of 13 Properties, and Loeb Real Estate's equity interest
in 10 Properties that were owned during the periods presented. The pro forma
results of operations are presented as if the Offering and the Formation
Transactions had occurred on January 1, 1997. See 'Formation Transactions' and
the Notes to the pro forma financial statements of the Company.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Rental revenue increased $2.3 million or 5.3% to $45.8 million from $43.5
million for the year ended December 31, 1997 compared to the year ended December
31, 1996 primarily as a result of the acquisition of Kendall Value Center and
Sunset Strip Center on December 30, 1996, the acquisition of International Drive
Value Center and 24 West 57th Street in 1997, and an increase in rental revenue
at 200 Madison Avenue due to increased occupancy. These increases were partially
offset by a decrease in rental revenue of $4.4 million at 63 Madison Avenue due
to the scheduled downsizing by New York Life of space which New York Life leased
on a short term basis at the time the Company acquired the Property. The space
vacated by New York Life has since been re-leased to Ziff-Davis. See 'Business
and Growth Strategies -- External Growth.'
Management fee income increased $0.8 million or 32.1% to $3.5 million from
$2.7 million for the year ended December 31, 1997 compared to the year ended
December 31, 1996 primarily as a result of new or higher fees for management
projects which began during 1996.
Other income decreased by $1.4 million or 29.7% to 3.2 million from $4.6
million primarily due to a reduction in land sales at Shenandoah Industrial Park
compared to 1996, partially offset by a $.5 million increase in income from
investments.
Property operating expenses increased $0.5 million or 2.7% to $18.3 million
from $17.8 million for the year ended December 31, 1997 compared to the year
ended December 31, 1996 primarily as a result of an increase in expenses
associated with the Properties acquired at the end of 1996 and in 1997, offset
by a $1.1 million decrease in the cost of property sales at Shenandoah
Industrial Park for the reasons described above. Additionally, real estate taxes
increased by approximately $0.7 million for the year ended December 31, 1997
compared to the year ended December 31, 1996.
Management fee payments to third party property managers increased by
approximately $0.5 million or 97.1% to $0.9 million from $0.4 million primarily
due to the acquisitions of Kendall Value Center, Sunset Strip Center and
International Drive Value Center.
Interest expense increased $4.4 million or 32.7% to $17.7 million from
$13.3 million for the year ended December 31, 1997 compared to the year ended
December 31, 1996 primarily as the result of the acquisition of Properties at
the end of 1996 and in 1997 and the refinancing of 200 Madison Avenue in April
1996 for approximately $28.0 million of additional mortgage proceeds, resulting
in an increase of $1.2 million in interest expense.
Depreciation and amortization expense increased $1.1 million or 17.7% to
$7.1 million from $6.0 million for the year ended December 31, 1997 compared to
the year ended December 31, 1996 as a result of the acquisition of Kendall Value
Center and Sunset Strip Center, the acquisition of International Drive Value
Center, the acquisition of 24 West 57th Street and the increased tenant
improvement costs at 200 Madison Avenue due to leasing activities.
48
<PAGE>
<PAGE>
General and administrative expense decreased $0.4 million or 14.3% to $2.2
million from $2.6 million for the year ended December 31, 1997 compared to the
year ended December 31, 1996 primarily due to insignificant reductions in
expenses at many of the Properties.
As a result of the foregoing, net income decreased $5.5 million to $3.9
million from $9.4 million for the year ended December 31, 1997 compared to the
year ended December 31, 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Rental revenue increased $17.9 million or 69.9% to $43.5 million from $25.6
million for the year ended December 31, 1996 compared to the year ended December
31, 1995 as a result of the acquisition of 63 Madison Avenue in November 1995
($15.7 million) and increased occupancy at 200 Madison Avenue.
Management fee revenue increased $0.4 million or 18.6% to $2.7 million from
$2.3 million primarily as the result of new fees for management projects which
began during 1996.
Other income increased $2.8 million or 161% to $4.6 million from $1.8
million for the year ended December 31, 1996 compared to the year ended December
31, 1995 primarily as a result of an increase in land sales at Shenandoah
Industrial Park ($2.6 million) and the acquisition of 63 Madison Avenue.
Property operating expenses increased $7.0 million or 64.4% to $17.8
million from $10.8 million for the year ended December 31, 1996 compared to the
year ended December 31, 1995 primarily as a result of the acquisition of 63
Madison Avenue ($3.9 million) an increase in the cost of property sales at
Shenandoah Industrial Park ($1.3 million), increases in the operating expenses
of the management business ($1.3 million), and increases in operating expenses
at 200 Madison Avenue and First Union Bank Buildings. Additionally, real estate
taxes increased by $2.4 million for the year ended December 31, 1996 compared to
the year ended December 31, 1995 primarily as a result of the acquisition of 63
Madison Avenue.
Interest expense increased $5.3 million or 66.5% to $13.3 million from $8.0
million for the year ended December 31, 1996 compared to the year ended December
31, 1995 as a result of the acquisition of 63 Madison Avenue ($3.7 million), the
refinancing of 200 Madison Avenue in April 1996, which increased the mortgage
debt on that Property ($1.5 million) and the refinancing of One Dartmouth Place
in December 1995 which increased the outstanding mortgage debt on that Property.
These increases were offset by a $0.1 million decrease in Presidential Estates'
interest expense as a result of refinancing the mortgage in December 1995 at a
lower interest rate.
Depreciation and amortization expense increased $1.9 million or 46.4% to
$6.0 million from $4.1 million for the year ended December 31, 1996 compared to
the year ended December 31, 1995, as a result of the acquisition of 63 Madison
Avenue ($1.3 million) and increased tenant improvement costs at 200 Madison
Avenue due to significant leasing activities.
General and administrative expense increased $0.4 million, or 18.5% to $2.6
million from $2.2 million for the year ended December 31, 1996 compared to the
year ended December 31, 1995.
As a result of the foregoing, net income increased $4.5 million to $9.4
million from $4.9 million for the year ended December 31, 1996 compared to the
year ended December 31, 1995.
PRO FORMA OPERATING RESULTS
On a pro forma basis, after giving effect to the Offering and the Formation
Transactions, income before minority interest would have been $23.2 million for
the year ended December 31, 1997, representing an increase of approximately
$19.4 million over the historical combined income before minority interest and
extraordinary item for the same period. The increase is attributable to a
significant reduction in interest expense based on the effects of the Proposed
Offering as well as a substantial increase in total revenue, due to the benefit
of a pro forma full year of revenues from the Properties.
On a pro forma basis, total revenue for the year ended December 31, 1997
would have been approximately $109.4 million, representing a $51.4 million
increase over historical total revenue for the same period, resulting primarily
from a $46.1 million increase in rental revenue associated with the
49
<PAGE>
<PAGE>
Properties and a $1.6 million increase in management fee income associated with
the acquisition of Comfort.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the Offering and the Formation Transactions and the
application of the net proceeds therefrom as described in 'Use of Proceeds,' the
Company expects to have reduced its total indebtedness from $385.9 million to
approximately $184.1 million, all of which is secured by Properties (the
'Mortgage Debt'). The Mortgage Debt is comprised of 15 loans secured by 15
properties, with a weighted average interest rate of 8.2% on the fixed rate
loans which total approximately $162.5. There will be a total of approximately
$17.9 million of scheduled loan payments due during the year ending December 31,
1998. The Company's Debt-to-Market Capitalization Ratio upon completion of the
Offering is expected to be approximately 24.6%. For information about the
Mortgage Debt, see 'Business and Properties -- Debt Financing.'
The Unsecured Line of Credit. The Company is currently negotiating with
several lenders to obtain a $250 million unsecured line of credit. The Company
expects to have this line of credit in place prior to the closing of the
Offering. The unsecured line of credit will be used to facilitate acquisition
and development activities and for working capital purposes.
Analysis of Liquidity and Capital Resources. Upon completion of the
Offering and the Formation Transactions and the use of proceeds therefrom, the
Company will have reduced its total indebtedness by approximately $201.8
million.
The Company believes the Offering and the Formation Transactions will
improve its financial performance through changes in its capital structure,
principally the substantial reduction in its overall debt and its debt to equity
ratio. The Company anticipates that distributions will be paid from cash
available for distribution, which is expected to exceed cash historically
available for distribution as a result of the reduction in debt service
resulting from the repayment of indebtedness. Through the Formation
Transactions, the Company expects to reduce its pro forma 1997 annual interest
expense by approximately $10.6 million.
The Company expects to meet its short-term liquidity requirements generally
through its initial working capital and net cash provided by operations.
Properties require periodic investments of capital for tenant-related capital
expenditures and for general capital improvements. For the years ended December
31, 1993 through December 31, 1997, the Company's recurring tenant improvements
and leasing commissions averaged $21.68, $7.32 and $5.09 per square foot of
leased space per year at the New York City office Properties, other Properties
and retail Properties, respectively. The Company expects that the average
annual cost of recurring tenant improvements and leasing commissions will be
approximately $2.2 million, $2.2 million and $1.0 million based upon an average
annual square feet for which leases expire during the years ending December 31,
1998 through December 31, 2002 of 100,986; 304,132; and 203,317 square feet at
the New York City office Properties, other Properties and retail Properties,
respectively. The Company expects the cost of general capital improvements to
the Properties to average approximately $2.1 million annually.
The Company expects to meet its long-term liquidity requirements for the
funding of property acquisitions, property development, and other non-recurring
capital improvements through long-term secured and unsecured indebtedness and
the issuance of additional equity securities by the Company. The Company also
intends to fund property acquisitions, property development, and other non-
recurring capital improvements using the lines of credit on an interim basis.
Comparison for the Year Ended December 31, 1997 to Year Ended December 31,
1996. Cash and cash equivalents were $4.9 million and $7.6 million at December
31, 1997 and 1996, respectively. Cash and cash equivalents decreased $2.8
million during 1997 compared to an increase of $5.4 million during 1996. The
decrease in 1997 is due to a $17.9 million increase in net cash used in
investing activities from $21.7 million to $39.5 million, offset by a $6.5
million increase in net cash provided in financing activities from $25.6 million
to $32.1 million and an increase in cash flows provided by operating activities
of $3.1 million from $1.5 million to $4.6 million. The increase in net cash
used in investing activities of $17.8 million is primarily attributable to the
acquisitions of 24 West 57th Street and International Drive Value Center. The
increase in net cash provided by financing activities is primarily the result of
the debt relating to the acquisitions of 24 West 57th Street and International
Drive Value Center. The increase in
50
<PAGE>
<PAGE>
cash provided by operating activities of $3.5 million is primarily due to
increases from accounts receivable, escrows and prepaid expenses.
Comparison for the Year Ended December 31, 1996 to Year Ended December 31,
1995. Cash and cash equivalents were $7.6 million and $2.3 million at December
31, 1996 and 1995 respectively. Cash and cash equivalents increased $5.4 million
during 1996 compared to a decrease of $1.5 million during 1995. The increase in
1996 is due to an increase in cash used in investing activities of $4.3 million
from $17.4 million to $21.7 million, an increase in net cash provided by
financing activities of $11.0 million from $14.6 million to $25.6 million.
FUNDS FROM OPERATIONS
The White Paper defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Management believes Funds from Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures. The Company computes Funds from
Operations in accordance with standards established by the White Paper, which
may differ from the methodology for calculating Funds from Operations utilized
by other equity REITs, and, accordingly, may not be comparable to such other
REITs. Further, Funds from Operations does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties.
Funds from Operations should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's financial
performance or to cash flows from operating activities (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor is it indicative of
funds available to fund the Company's cash needs, including its ability to make
distributions. The Company believes that in order to facilitate a clear
understanding of the combined historical operating results of the Loeb Group and
the Company, Funds from Operations should be examined in conjunction with net
income as presented in the combined financial statements and information
included elsewhere in this Prospectus.
INFLATION
Substantially all of the office leases provide for separate real estate tax
and operating expense escalations over a base amount. In addition, many of the
leases provide for fixed base rent increases or indexed increases. The Company
believes that inflationary increases may be at least partially offset by the
contractual rent increases described above.
YEAR 2000
Many existing computer programs were designed to use only two digits to
identify a year in the date field without considering the impact of the upcoming
change in the century. If not corrected, many computer applications could fail
or create erroneous results by or at the year 2000. The Company is addressing
the 'Year 2000' issue with respect to its operations and is in the process of
evaluating its potential exposures from the non-compliance with the Year 2000,
if any, of the systems of its vendors, tenants, clients and other third parties
with whom the Company does business. There can be no assurance that the systems
of such third persons, on which the Company relies on for certain supporting
administrative procedures and functions and information, will be timely
converted, however, the financial impact of becoming year 2000 compliant has not
to date been, and is not expected to be, material to the Company's financial
position or results of operations in a given year.
51
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<PAGE>
BUSINESS AND PROPERTIES
The Properties are located in 14 states and consist of interests in 14
office Properties, 10 retail Properties, two storage Properties, three
residential Properties and one hospitality/resort complex. The Office, Retail,
Storage and Residential Properties contain an aggregate of approximately 8.6
million net rentable square feet and approximately 1,100 apartment units. These
Properties were approximately 90% leased at December 31, 1997. The Properties
also include approximately 974 acres of land held for development located in an
industrial park and an interest in the Longboat Key Club resort complex. Set
forth below is certain information regarding the Properties:
<TABLE>
<CAPTION>
COMPANY'S
PERCENT SHARE OF PERCENT
YEAR NET LEASED BASE RENT OF
PERCENT BUILT/ RENTABLE AS OF AS OF COMPANY'S
PROPERTY NAME MARKET OWNERSHIP RENOVATED SQUARE FEET 12/31/97 12/31/97(1) BASE RENT
- ------------------------------ ------------------ --------- ---------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
63 Madison Avenue............. New York, NY 50.5%(4) 1961/1997 797,377 100%(5) $ 6,004,532 9.0%
200 Madison Avenue............ New York, NY 31.5(6) 1927/1997 670,238 95 4,512,545 6.8
498 Seventh Avenue............ New York, NY 50.0(7) 1920/1997 873,137 90(8) 2,833,262 8.0
24 West 57th Street........... New York, NY 100.0 1920/1997 97,312 88 2,599,083 3.9
529 Fifth Avenue.............. New York, NY 32.6(9) 1959 266,772 94 2,316,450 3.5
307 West 38th Street.......... New York, NY 100.0 1927/1996 273,819 91 1,992,376 3.0
First NBC Center.............. New Orleans, LA 100.0 1985 1,005,357 92 7,852,291 11.8
Riverview Center.............. Menands, NY 100.0 1929/1990 977,780 67 4,104,674 6.2
Marketplace Design Center..... Philadelphia, PA N/A(10) 1921/1974 302,541 89 3,060,902 4.6
38 Chauncy Street............. Boston, MA 100.0 1927/1982 130,142 90 1,835,136 2.8
First Union Bank Building..... Daytona Beach, FL 100.0 1972/1991 129,765 82 1,724,209 2.6
328 South Jefferson Street.... Chicago, IL 100.0 1923 287,468 93 1,436,823 2.2
Winewood Office Park.......... Tallahassee, FL 20.0(11) 1972/1997 332,030 100 1,039,322 1.6
GTE Property(12).............. Beaverton, OR 100.0 1980 65,000 100 1,016,760 1.5
Shenandoah Industrial Park.... Coweta County, GA N/A(13) N/A N/A N/A N/A N/A
SUBTOTAL/WEIGHTED AVERAGE
FOR OFFICE PROPERTIES... N/A N/A 6,208,738 89% $42,328,365 63.6%
----------- -----------
----------- -----------
RETAIL PROPERTIES:
Princeton Shopping Center..... Princeton, NJ 100.0% 1957/1997 217,441 86% $ 2,905,545 4.4%
International Drive Value
Center...................... Orlando, FL 100.0 1995 185,953 100 2,298,644 3.5
Manufacturers Outlet Center... Mt. Kisco, NY 100.0 1979/1994 203,121 92 1,894,694 2.8
Kendall Value Center.......... Kendall, FL 100.0 1984/1993 173,302 100 1,669,956 2.5
Shoppes at St. Lucie West..... St. Lucie, FL 100.0 1992/1994 200,669 99 1,578,010 2.4
Outlet Park Shoppes at
Waccamaw.................... Myrtle Beach, SC 25.0(14) 1981/1996 738,590 93 1,537,358 2.3
Easton Commons Shopping
Center...................... Houston, TX 100.0 1985 192,154 90 1,353,128 2.0
Kirby/Richmond Shopping
Center...................... Houston, TX 100.0 1972/1989 54,321 92 708,675 1.1
Sunset Strip Center........... Kendall, FL 100.0 1984/1992 81,998 75 686,908 1.0
M&M Plaza..................... Menominee, MI 100.0 1967/1990 225,760 94 354,611 0.5
SUBTOTAL/WEIGHTED AVERAGE
FOR RETAIL PROPERTIES... N/A N/A 2,273,309 93% $14,987,529 22.5%
----------- -----------
----------- -----------
STORAGE PROPERTIES:
Public Storage Facility....... Alameda, CA 74.25%(9) -- 74,581 99% $ 688,583 1.1%
Public Storage Facility....... Glendale, CA 74.25(9) -- 57,690 93 482,655 0.7
TOTAL/WEIGHTED AVERAGE FOR
STORAGE PROPERTIES...... N/A N/A 132,271 96% $ 1,171,238 1.8%
----------- -----------
----------- -----------
<CAPTION>
BASE RENT
PER LEASED NET
SQUARE EFFECTIVE
PROPERTY NAME FOOT(2) RENT(3)
- ------------------------------ ---------- ---------
<S> <C> <C>
OFFICE PROPERTIES:
63 Madison Avenue............. $19.88 $ 8.45
200 Madison Avenue............ 22.43 22.61
498 Seventh Avenue............ 12.98 16.83
24 West 57th Street........... 30.39 32.37
529 Fifth Avenue.............. 28.45 22.35
307 West 38th Street.......... 8.04 8.02
First NBC Center.............. 8.49 8.55
Riverview Center.............. 6.26 8.82
Marketplace Design Center..... 11.33 13.18
38 Chauncy Street............. 15.62 15.72
First Union Bank Building..... 16.15 14.07
328 South Jefferson Street.... 5.37 5.12
Winewood Office Park.......... 15.65 17.35
GTE Property(12).............. 15.64 15.64
Shenandoah Industrial Park.... N/A N/A
SUBTOTAL/WEIGHTED AVERAGE
FOR OFFICE PROPERTIES... $14.63 N/A
RETAIL PROPERTIES:
Princeton Shopping Center..... $15.47 $ 12.82
International Drive Value
Center...................... 12.36 12.84
Manufacturers Outlet Center... 10.16 11.34
Kendall Value Center.......... 9.64 10.05
Shoppes at St. Lucie West..... 7.94 7.52
Outlet Park Shoppes at
Waccamaw.................... 8.99 9.55
Easton Commons Shopping
Center...................... 7.49 7.48
Kirby/Richmond Shopping
Center...................... 14.19 12.76
Sunset Strip Center........... 11.24 11.35
M&M Plaza..................... 2.68(15) 1.79
SUBTOTAL/WEIGHTED AVERAGE
FOR RETAIL PROPERTIES... $ 9.24 N/A
STORAGE PROPERTIES:
Public Storage Facility....... $12.60 $ 12.60
Public Storage Facility....... 12.14 12.14
TOTAL/WEIGHTED AVERAGE FOR
STORAGE PROPERTIES...... $12.41 $ 12.41
</TABLE>
52
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
NET RENTABLE PERCENT LEASED COMPANY'S SHARE COMPANY'S BASE
SQUARE FEET AS OF 12/31/97 OF BASE RENT AS OF 12/31/97 RENT
----------- ------------- --------------------------- --------------
<S> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE FOR OFFICE,
RETAIL AND STORAGE PROPERTIES........ 8,614,318 90% 58,487,132 88%
</TABLE>
<TABLE>
<CAPTION>
COMPANY'S
PERCENT SHARE OF
YEAR LEASED BASE RENT PERCENT OF
PERCENT BUILT/ NO. OF AS OF AS OF COMPANY'S
PROPERTY NAME MARKET OWNERSHIP RENOVATED APARTMENTS 12/31/97 12/31/97(1) BASE RENT
- ------------------------------ ---------------- --------- ---------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL PROPERTIES:
Park Hill Lane................ Menands, NY 100.0% 1962/1979 567 87% $ 3,955,779 4.3%
One Dartmouth Place........... Denver, CO 100.0 1973/1993 418 98 2,828,592 5.9
Presidential Estates.......... Guilderland, NY 100.0 1967/1997 128 95 1,221,106 1.8
TOTAL/WEIGHTED AVERAGE FOR
RESIDENTIAL PROPERTIES.. N/A N/A 1,113 92% $ 8,005,477 12.0%
----- ----
----- ----
</TABLE>
<TABLE>
<CAPTION>
COMPANY'S PERCENT OF
NET RENTABLE SHARE OF COMPANY'S
SQUARE FEET NO. OF APARTMENTS BASE RENT BASE RENT
------------- ------------------ ------------ ----------
<S> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE FOR OFFICE,
RETAIL, STORAGE AND RESIDENTIAL
PROPERTIES........................ 8,614,318 1,113 $66,492,608 100.0%
</TABLE>
<TABLE>
<CAPTION>
PERCENT YEAR 1998 MINIMUM
PROPERTY NAME MARKET OWNERSHIP BUILT/RENOVATED LEASE PAYMENT(17)
- ---------------------------------------- ----------------- ---------- ---------------- -------------------
<S> <C> <C> <C> <C>
HOSPITALITY/RESORT COMPLEX:
Longboat Key Club(16)................... Longboat Key, FL (16) 1982/1991 $6,700,000
</TABLE>
- ------------
(1) Company's share of base rent represents the annual contractual rent in
effect under existing leases as of December 31, 1997 multiplied by the
Company's percentage ownership of the Property.
(2) The base rent per leased square foot information is calculated by dividing
100% of the Property's base rent by the net rentable square feet leased
as of December 31, 1997.
(3) As used throughout this Prospectus, net effective rent represents (a) for
leases in effect at the time an interest in the relevant property s first
acquired by the Company, the remaining lease payments under the lease
excluding operating expense pass-throughs, if any, divided by the number of
months remaining under the lease multiplied by 12 and (b) for leases
entered into after an interest in the relevant Property was first acquired
by the Company, all lease payments under the lease excluding operating
expense pass-throughs, if any, divided by the number of months in the lease
multiplied by 12, and, in the case of both (a) and (b), minus tenant
improvement costs and leasing commissions, if any, paid or payable, divided
by the number of months in the respective lease multiplied by 12, and
presented on a per leased square foot basis. Net effective rent includes
future contractual increases in rental payments and therefore, in certain
cases, may exceed base rent per leased square foot as a result of the
provision for future contractual increases in rental payments in the net
effective rent data.
(4) The Company owns the entire general partner interest in this Property and
49.5% of the limited partner interests.
(5) In January 1998, New York Life delivered approximately 60,000 net rentable
square feet back to the Company so that the Company could lease that space
together with an additional 340,000 net rentable square feet to Ziff-Davis
under a 21 year lease. After giving effect to this leasing activity, the
Property is 100% leased. See 'Business and Growth Strategies -- External
Growth.' The base rent information does not give effect to this leasing
activity.
(6) The Company owns the entire general partner interest in this Property and
30.5% of the limited partner interests.
(7) The Company owns a 50% managing member interest in this Property.
(8) The percent leased data for this Property reflects the execution of (i) a
lease with Bates in November 1997 with regard to approximately 200,000 net
rentable square feet which commences in June 1998 and (ii) leases with
regard to an additional 200,000 net rentable square feet at this Property
which were signed during the first three months of 1998. After giving
effect to these leases, the Property is 90% leased. See 'Business and
Growth Strategies -- External Growth.' The base rent information does not
give effect to this leasing activity.
(9) The Company owns a limited partnership interest in this Property.
(10) The Company holds the mortgage note on this Property with a participation
interest substantially equivalent to 100% economic ownership.
(11) The Company has a 20% co-tenant's interest in this Property.
(12) This Property is leased on a triple net basis to a subsidiary of GTE
Corporation.
(13) This Property consists of 973.7 acres of land being held for development.
The Company does not own fee title to this Property; rather, the Company
owns an option to purchase title to this Property. The option price
currently is approximately $700,000 plus the payment of approximately
$375,000 of accrued real estate taxes.
(14) The Company owns a 25.0% membership interest in the limited liability
company which owns this Property.
(15) Base rent per leased square foot has been adjusted to exclude 85,000 square
feet which is on land that has been ground leased at a rate of $10,000 per
year.
(16) The Longboat Key Club consists of two golf courses with 45 holes of golf,
two tennis centers with 38 Har-Tru tennis courts, two pro shops, a fitness
center and a restaurant. The Club also currently operates 220 units at the
Resort at Longboat Key condominium hotel (the 'Hotel') which is located
within the Club's premises. The Hotel is owned by the condominium unit
owners. The Company will acquire the assets of the Club in the Formation
Transactions. The Operating Partnership will lease the assets of the Club
to an affiliated lessee (in which directors and officers of the Company own
approximately a 4% interest) in order to satisfy certain conditions for the
maintenance of the Company's REIT status. See 'Business and
Properties -- The Hospitality/Resort Complex.' The average occupancy of the
Hotel for the year ended December 31, 1997 was 76.8%, the average daily
rate was $212, and the revenue per available room was approximately $163.
(footnotes continued on next page)
53
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<PAGE>
(footnotes continued from previous page)
(17) The 1998 minimum lease payment represents the fixed annual base rent
payable to the Operating Partnership by the lessee of the Club's assets.
Under the terms of the lease, the Operating Partnership may also
participate in the revenues of the lessee to the extent they exceed certain
base levels. See 'Business and Properties -- The Hospitality/Resort
Complex.'
THE OFFICE PROPERTIES AND THE COMPANY'S NEW YORK CITY INVESTMENT THESIS
Information contained herein regarding the New York metropolitan area
economy and office markets was based on information prepared by CB Commercial
Real Estate Group, Inc.; Colliers, ABR, Inc.; Insignia/ESG; and Grubb & Ellis
Company.
The office Properties consist of 14 Properties containing approximately 6.2
million net rentable square feet. The office Properties are located in eight
states, including six Properties containing an aggregate of approximately 3.0
million net rentable square feet located in New York City. For the year ended
December 31, 1997, the Company derived approximately 67% of its Adjusted Pro
Forma Income from its interests in office Properties, including approximately
40% which the Company derived from its interests in its New York City office
Properties. Following is a discussion of the Company's New York investment
thesis and a brief description of each office Property. Also described below
is the Shenandoah Industrial Park Property, where the Company controls
approximately 974 acres of land held for development.
The Company's New York Investment Thesis
Midtown South Submarket. The majority of the Company's office buildings are
located in the Midtown South submarket of Manhattan, which the Company believes
is one of the fastest-growing submarkets in terms of demand for office space,
characterized by steady increases in rents and an improving quality of tenants.
Midtown South, located between Midtown and Downtown Manhattan, includes office
buildings that are generally smaller than Midtown buildings and often consist of
lofts or converted manufacturing buildings. As the Midtown and Downtown office
occupancy rates continue to tighten and rental rates rise, Midtown South
submarkets such as Penn Plaza, Park Avenue South, Chelsea, Madison Avenue and
the Garment District are enjoying increased demand. Midtown South is also
increasingly attracting tenants that have difficulties in locating sufficient
contiguous space in the core Midtown market.
According to Grubb & Ellis, the office market in Midtown South enjoyed a
steady decline in vacancy rates during 1997, falling below 10% for the first
time in more than five years. Colliers ABR has projected that low vacancy rates
in the core Manhattan markets (Midtown and Downtown) will continue to spread to
historically secondary submarkets. Specifically, Midtown West and Midtown South
are projected to be the most active submarkets in 1998. The Company's strategy
has been, and continues to be, to acquire office properties in secondary markets
such as Midtown South that are experiencing increased demand and rental rates,
largely as a result of a shortage of available office space in Manhattan's
primary markets of Midtown and Downtown.
Large Floorplates and Contiguous Space for High Quality Tenants. Many
companies demand large contiguous blocks of space to increase employee
productivity and efficiency. According to Insignia/ESG, in 1997 the steepest
drop in office space availability occurred in the 'over 250,000 square foot'
category, which lost 22% of available space in Midtown.
Certain of the Company's Properties in New York City, such as 63 Madison
Avenue, 200 Madison Avenue and 498 Seventh Avenue, contain large floorplates
(approximately 40,000 to 50,000 square feet in size) which, when renovated, are
appropriate for institutional quality tenants requiring large undivided office
space. The Company typically seeks to fill unleased office space with tenants
requiring blocks of space, often occupying multiple floors. Two examples of the
Company's strategy of filling contiguous blocks of space with high quality
tenants are:
63 Madison Avenue -- an approximately 800,000 square foot building, is
100% leased to two tenants, New York Life Insurance Company and
Ziff-Davis.
54
<PAGE>
<PAGE>
200 Madison Avenue -- an approximately 670,000 square foot building, is
95% leased to tenants including Greater New York Mutual Insurance Company,
the United Media Division of Scripps-Howard and Primedia Magazines
(K-III).
Class B Office Redevelopment and Retenanting. The Company's New York
Properties can generally be characterized as Class B office buildings, which the
Company believes will benefit from higher occupancy and rental rates resulting
from increasing demand for Manhattan office space (especially in the Midtown
South submarket). The Company believes that Manhattan Class B office real estate
currently represents significant investment potential through redevelopment and
releasing. The effect of a diminishing supply of overall office space in
Manhattan is resulting in lower quality of available space, fewer large
contiguous blocks, smaller floorplates, older buildings and a greater need for
capital improvements such as electrical, elevator and HVAC upgrades.
The Company and its predecessors have owned and managed New York City
office buildings for over 30 years, with an emphasis on redeveloping Class B
buildings. As a result, the Company has the expertise to acquire, redevelop and
retenant office buildings requiring capital improvements and provide new tenants
with large blocks of office space pursuant to their needs. Two recent examples
of the Company's Class B redevelopment and retenanting efforts are:
498 Seventh Avenue, acquired in March of 1997, was 50% vacant at the time
of purchase; in conjunction with ongoing renovations including a
completely redesigned entrance and more efficient floor layouts the
Company has successfully leased approximately 200,000 net rentable square
feet to Bates and an additional 200,000 net rentable square feet to
tenants including Caribiner, USN and Victoria's Secret.
63 Madison Avenue, built in 1961, is currently undergoing a major
renovation including new entrances, new lobbies, a new freight elevator
and electrical upgrades; as a result of its redevelopment efforts the
Company recently signed Ziff-Davis to a 21-year lease for 400,000 square
feet of space.
New York Economic Review
New York City is a leading international business center. Its economy is
larger than the economy of any other metropolitan area in the United States, and
it continues to grow as a result of factors including recent reductions in
unemployment, a decrease in the crime rate (which dropped 9.1% in 1997),
increased tourism and business travel and expansions of growing industries such
as computer services and interactive media. In November 1997, Fortune magazine
ranked New York City as the most improved city for business in North America.
Employment Growth. The Company believes that the New York City metropolitan
area will demonstrate continued economic expansion in 1998 and beyond. Led by
robust growth in the legal, financial services, computer and advertising sectors
of the economy, New York City has experienced employment growth during each of
the past three years. In the year ended November 30, 1997, nearly 70,000 new
jobs were created in the New York City metropolitan area, representing a growth
rate of 1.8% from the year ended November 30, 1996. In terms of job creation in
1997, the New York metropolitan area ranked sixth in the United States.
According to Grubb & Ellis, New York City's economic growth is projected to
continue, led by the financial services industry, the business services industry
and tourism. Additionally, The Office of the State Deputy Comptroller for New
York City and the Office of Management and Budget have projected that there will
be 35,000 new jobs in New York City in 1998.
Industry Diversity. The strength of the securities industry in New York
City, which accounted for 15.3% of the city's total wages for the year ended
November 30, 1997, has stimulated other areas of the economy, notably legal and
business services, information technology, advertising and retail sales. New
York is home to many advertising and media companies, computer businesses,
government agencies, international consulates and nonprofit organizations.
55
<PAGE>
<PAGE>
The following chart shows a breakdown of New York City's major industries:
[CHART]
<TABLE>
<S> <C>
GOVT 15%
SERVICES 37%
CONSTRUCTION 3%
WHOLESALE 5%
TRANSPORTATION 6%
MFG 8%
RETAIL 11%
F.I.R.E. 14%
</TABLE>
The following table summarizes the ten industries that experienced the
largest growth in employment in 1997 in New York City:
[CHART]
<TABLE>
<S> <C>
BUSINESS SERVICES 15,900
PRIVATE EDUCATION 5,100
LEGAL, ENGINEERING &
CONSULTING 4,900
SECURITIES FIRMS 4,700
NEIGHBORH'D RETAIL &
SERVICES 4,400
CONSTRUCTION 4,100
TOURISM 4,100
HEALTH SERVICES 3,500
SOCIAL SERVICES 3,500
RESTAURANTS 2,700
</TABLE>
New York City Office Market Overview
The New York City office market is the largest in the United States with
an overall inventory of nearly 390 million square feet. The Manhattan office
market has enjoyed tremendous growth in recent years, including eight
consecutive quarters of declining vacancy rates (vacancy rates have decreased
by more than 50% since 1993) and with little addition to office space supply
since 1992.
The Company believes that due to increased demand for office space in New
York City, combined with low levels of new development, the underlying
fundamentals of supply and demand have strengthened. Between 1993 and 1997, the
Manhattan office market vacancy rate declined from 15.2% to 7.3% (in 1997, the
New York City office vacancy rate declined from 11.6% to 7.3%). Additionally,
the average asking rents have increased from $24.80 per square foot in 1993 to
$29.96 per square foot in 1997 as a result of decreasing vacancy rates and
increasing demand for Manhattan office space. During the past two years, average
asking rents for New York City office space have increased by more than $2.75
per square foot.
56
<PAGE>
<PAGE>
The following chart shows the historical trends for both vacancy and rental
rates:
VACANCY RATES VS. ASKING RENTS
MANHATTAN OFFICE MARKET
[CHART]
VACANCY RATES
4TH QTR. 4TH QTR. 4TH QTR. 4TH QTR. 4TH QTR.
1993 1994 1995 1996 1997
15.2% 16.1% 14.9% 11.6% 7.3%
AVERAGE ASKING RENTS
4TH QTR. 4TH QTR. 4TH QTR. 4TH QTR. 4TH QTR.
1993 1994 1995 1996 1997
$24.80 $26.30 $26.35 $28.42 $29.96
The following chart shows vacancy rate and average asking rent trends over
the last four years for the Midtown Manhattan office market:
VACANCY RATES VS. ASKING RENTS
MIDTOWN MANHATTAN OFFICE MARKET
[CHART]
VACANCY RATES
4TH QTR. 4TH QTR. 4TH QTR. 4TH QTR. 4TH QTR.
1993 1994 1995 1996 1997
13.2% 12.2% 11.6% 10.1% 6.6%
AVERAGE ASKING RENTS
4TH QTR. 4TH QTR. 4TH QTR. 4TH QTR. 4TH QTR.
1993 1994 1995 1996 1997
$29.07 $28.70 $29.60 $29.78 $32.53
57
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The Company expects the supply of office space in Manhattan to remain
stable for the foreseeable future because there are relatively few sites
available for construction. The following chart shows the percentage increase in
total New York City office space as a result of building completion for the past
decade:
MIDTOWN VS DOWNTOWN OFFICE BUILDING COMPLETION
Annual % increase in New York building completion
<TABLE>
<CAPTION>
MIDTOWN OFFICE MARKET
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0% 1.1% 1.0% 6.0% 1.0% 4.6% 3.4% 7.2% 2.0% 0% 0% 0% 0% 0%
- -------------------------------------------- TO COME ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DOWNTOWN OFFICE MARKET
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.2% 1.8% 2.9% 2.0% 1.9% 1.1% 2.8% 0.8% 1.9% 1.9% 2.2% 0.1% 1.1% 0%
- -------------------------------------------- TO COME ------------------------------------------
</TABLE>
According to Grubb & Ellis, Manhattan is expected to experience increased
growth in office demand in 1998, due in large part to the financial services
industry. Additionally, according to The REIS Reports, Inc., vacancy rates for
New York City office properties are projected to drop an average of 8.6%
annually for the next five years, and rents are projected to increase at a 4.7%
rate annually through 2002. The Company believes that all of these factors
should contribute to an attractive environment for owning and operating office
real estate in New York City for the foreseeable future.
The Office Properties
63 Madison Avenue, New York, New York. The Company acquired 63 Madison
Avenue, an approximately 800,000 square foot, 15 story, institutional quality
office building located in the Midtown South area of Manhattan, in December
1995. The Company was in the midst of repositioning the 200 Madison Avenue
Property, and in the process, identified significant demand from tenants for
space in the neighborhood with large floor plates. At the time, New York Life
was the sole owner-occupier of 63 Madison Avenue. The Company negotiated the
purchase and financing package with New York Life under which the Company agreed
to purchase the Property for approximately $65.0 million, (approximately $81.25
per net rentable square foot), with approximately $52.0 million of such purchase
price financed by New York Life. New York Life also committed to provide $16.5
million of additional financing for future lease-up costs with regard to the
space it was scheduled to vacate in 1998 and which was subsequently leased to
Ziff-Davis.
The property is currently being redeveloped by the Company, including the
execution in January 1998 of a 21-year lease for 400,000 net rentable square
feet with Ziff-Davis. The balance of the building is leased to New York Life
under a lease expiring in 2010. The building contains floor plates of 31,000 and
49,000 square feet. The building is undergoing a major renovation including new
entrances, new lobbies, the installation of a new freight elevator, complete
overhaul of the vertical transportation system, new energy management system,
upgraded class E fire and safety system, electrical upgrades and the
installation of forty feet of new windows on the Madison Avenue facade. The
redevelopment budget for this building is anticipated to be approximately $6.0
million. The renovations are expected to be completed by the fall of 1998.
The Annualized Net Operating Income at acquisition of this Property by the
Company was approximately $9.7 million, of which $6.5 million was attributable
to New York Life's short-term lease
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<PAGE>
which was due to expire in 1998. The Annualized Net Operating Income of the
Property based on leases currently in place is approximately $11.9 million. This
Property is currently 100% leased.
200 Madison Avenue, New York, New York. 200 Madison Avenue (previously
known as The Putnam Berkeley Building) is a 25 story, multi-tenanted office
building containing 670,000 net rentable square feet. The Company acquired the
leasehold position in 200 Madison Avenue for a price of approximately $24.5
million (approximately $36.50 per net rentable square foot), while there was
litigation between Bank of America (which owned the leasehold) and the fee owner
after a loan which was cross collateralized by 200 Madison Avenue and another
property went into default. The Company believes that this litigation reduced
the purchase price for the asset. Subsequently, the Company settled the
litigation and acquired the fee interest for a price of approximately $18.6
million, (approximately $27.75 per net rentable square foot). Bank of America
financed a portion of the purchase price. The occupancy at the time of
acquisition was 83% and the property had Annualized Net Operating Income at
acquisition by the Company of approximately $6.8 million. The Company instituted
a capital improvement program which included, among other things, the
installation of new operable Thermopane windows and the restoration of the main
lobby. The repositioning of the Property through this capital improvement
program and the leasing of 295,000 net rentable square feet to strong tenants
enabled the Company to accomplish a $55 million refinancing of the Property in
April 1996 which recovered the entire purchase price and costs of capital
improvements of this Property invested by the Company. The Annualized Net
Operating Income of the Property based on leases currently in place is
approximately $10.4 million. The cost of the base capital improvement program
was approximately $3.0.
The Property is located nearby each of Grand Central Station, Pennsylvania
Station and the Port Authority Transportation Center. Significant tenants
include Greater New York Mutual Insurance Company, which occupies 10.3% of the
net rentable square feet under a lease expiring in December 2005; the United
Media division of Scripps-Howard, which occupies 7.0% of the net rentable square
feet under a lease expiring in December 2005; Rose Associates, Inc., which
occupies 7.0% of the net rentable square feet under a lease expiring in
September 2012; Primedia Magazines (K-III), which occupies 7.0% of the net
rentable square feet under a lease expiring in October 2006; and Maidenform
Worldwide, which occupies 1.7% of the net rentable square feet under a lease
expiring in June 2003.
498 Seventh Avenue, New York, New York. 498 Seventh Avenue is a 25 story,
multi-tenanted office building containing 873,000 net rentable square feet. The
Company and its partner acquired 498 Seventh Avenue in March 1997 at a price of
approximately $42.0 million (approximately $49.60 per net rentable square foot).
At the time of acquisition, the building was 50% vacant. The Company believed
that the Property had significant potential due to its location and based upon
the success and interest the Company had recently experienced with leasing large
floors and large blocks of space at the 200 Madison Avenue and 63 Madison Avenue
Properties. After acquiring 498 Seventh Avenue, the Company began relocating
existing tenants in order to make large blocks of space available and began a
capital improvements program, at a cost of approximately $7.0 million. The
Company also aggressively began seeking quality tenants to lease the vacant
space. In November 1997, Bates signed a 15 year lease for approximately 200,000
net rentable square feet at this Property. 498 Seventh Avenue is approximately
90% leased after giving effect to the Bates lease, which commences in June 1998,
and the Caribiner, USN and Victoria's Secret leases which were signed during the
first three months of 1998 for an aggregate of an additional 200,000 net
rentable square feet. The Annualized Net Operating Income of this Property at
acquisition was approximately $2.0 million. The Annualized Net Operating Income
of the Property based on leases currently in place is approximately $11.5
million.
The Property is located in the emerging office market known as Times Square
South and is conveniently located near New York City's Grand Central Station,
Pennsylvania Station and the Port Authority Transportation Center. The principal
tenants at this Property are Bates, which leases approximately 22% of the net
rentable square feet under a lease expiring in May 2013, USN, which leases 12.6%
of the net rentable square feet under a lease expiring in May 2004, Caribiner,
which leases 5.9% of the net rentable square feet under a lease expiring in May
2014, and Victoria's Secret, which leases 3.2% of the net rentable square feet
under a lease expiring in January 2008. The building is currently undergoing a
major renovation including new Thermopane windows, a completely redesigned
59
<PAGE>
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and renovated entrance on Seventh Avenue and improved core areas on the office
floors to make the floors more efficient and more usable.
24 West 57th Street, New York, New York. Located between Fifth Avenue and
the Avenue of the Americas in New York City, 24 West 57th Street is a 10 story,
multi-tenant gallery building containing approximately 100,000 net rentable
square feet. The Company acquired the building in May 1997 for approximately
$15.5 million (approximately $155 per net rentable square foot). The base of
high quality gallery tenants and the attractive location places the building in
a strong market position. As part of the acquisition strategy, the Company has
renewed and leased approximately 10,000 net rentable square feet to gallery
tenants, bringing occupancy to approximately 88%. With pending additional
renewals and other transactions, the Company expects the building to be fully
leased in 1998.
529 Fifth Avenue, New York, New York. The Company acquired its interest in
529 Fifth Avenue in 1978. The Property is a 22 story building containing 266,000
net rentable square feet. The Company believes that over the next five years
there will be an opportunity to increase the building's rental rates as leases
covering over 100,000 net rentable square feet (representing approximately 38%
of the building's net rentable square feet) expire during that period. The
building was approximately 94.0% occupied at December 31, 1997.
307 West 38th Street, New York, New York. 307 West 38th Street is a 21
story, multi-tenanted loft/office building containing approximately 270,000 net
rentable square feet. With the emergence of the Times Square area and its
expansion southward and the presently ongoing conversion of the building's
submarket to office use, the Company expects that 307 West 38th Street will
benefit from the area's increasing values and rental rates and the potential to
upgrade the building. The Property is located in the heart of the 'Garment
District' in Manhattan, in close proximity to Manhattan's main subway, train and
bus stations. The building was approximately 93% leased at December 31, 1997 to
75 tenants.
First NBC Center, New Orleans, Louisiana. The Company acquired the Class A
approximately 1,000,000 square foot First NBC Center in October 1994 for
approximately $63.0 million (approximately $63 per net rentable square foot)
from a financial institution which had foreclosed on the asset. The Property was
89% leased, but 60% occupied at the time of acquisition. In connection with this
acquisition, the Company was required to undertake capital improvement work and
to fund and oversee substantial tenant improvements at a cost of approximately
$9.3 million in order to install the new lead tenant, the First National Bank of
Commerce, in its approximately 290,000 net rentable square foot space. Since the
Company believes that the First NBC Center is the premier building in the New
Orleans CBD market, the Company's investment objective is to achieve increasing
rents and lease-up of the currently vacant 8% of the net rentable square feet
and the 177,654 net rentable square feet expiring prior to the end of Year 2000
as the New Orleans market strengthens. This Property was approximately 92%
occupied at December 31, 1997. The Annualized Net Operating Income of the
Property at acquisition was approximately $4.8 million, and is approximately
$9.2 million based on leases currently in place.
The First NBC Center is a 53 story multi-tenanted Class A office building
with an 11 floor parking garage. This Property includes 934,470 net rentable
square feet of office space, 59,495 net rentable square feet of retail and food
court space and 11,492 net rentable square feet of storage space. The lobby of
the building has been upgraded with modern finishes since the Company acquired
it, and in 1997, the roof on the Property was replaced.
The Property is centrally located in the New Orleans CBD. The Property was
approximately 92% leased as of December 31, 1997 to 98 tenants. The significant
tenants include First National Bank of Commerce, which leases approximately 29%
of the net rentable square feet under a lease expiring in 2011, and Jones,
Walker, Waechter, Carrere & Denegre, a major New Orleans law firm, which
occupies 14% of the net rentable square feet under a lease expiring in 2005.
Riverview Center, Albany, New York. The Company acquired the 977,780 net
rentable square foot vacant former regional headquarters of Montgomery Ward at a
purchase price of approximately $2.9 million, (approximately $3 per net rentable
square foot) in 1983. Since acquisition, the Company has converted this property
into an office and warehouse facility and leased approximately 650,000 net
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rentable square feet for office, archival storage and related uses. The large
floor plates, ample parking on the site and the ability to offer below market
rental rates have stimulated the present leasing activity and provide the
potential to lease up the remaining 350,000 net rentable square feet of vacant
space for office, back-office or warehouse uses and add significant additional
value to this asset. The tenants include several major New York State agencies,
and there are several New York State agencies currently in negotiations with the
Company for space at this property, although there can be no assurance that such
negotiations will result in signed leases. The Property was approximately 65%
leased at December 31, 1997.
Marketplace Design Center, Philadelphia, Pennsylvania. The Marketplace
Design Center is a remodeled and renovated upscale home furnishings design
center and showroom. The building contains 302,541 of net rentable square feet
and was approximately 90% leased at December 31, 1997. The Property is located
on 80,000 square feet of land in Philadelphia's CBD.
The Company holds a first priority mortgage note on this Property. The
mortgage note provides for fixed annual interest payments and contingent
interest of 100% of net cash flow after debt service payments. Accrued and
unpaid interest is due in January 2002, with a final maturity of January 2012.
The mortgage note may be satisfied if the Property is sold by the payment of (i)
a fixed amount equal to the lesser of principal plus accrued interest (which was
approximately $53.3 million at December 31, 1997) or $30 million, plus (ii) 49%
of the sale proceeds in excess of the fixed amount. The mortgage note was
restructured to minimize the seller's tax consequences while providing the
Company, as mortgagee, with substantially the economic and operating control
equivalent of ownership of this asset.
38 Chauncy Street, Boston, Massachusetts. The 38 Chauncy Street building is
a 14 story, multi-tenanted office building containing 130,142 net rentable
square feet. The Company acquired this Property in November, 1997 at a price of
approximately $11.0 million ($85 per net rentable square foot). The Annualized
Net Operating Income of the Property based on leases currently in place is $1.2
million. The building was substantially renovated during the 1990s and features
a renovated lobby with marble floors and walls.
38 Chauncy Street is located in Boston's financial district submarket which
is experiencing a significant amount of redevelopment. The strategy for this
asset is to capitalize on the resurgence of Boston's financial district and to
reposition the building from a Class C+ to a Class B office property. Lease
expirations over the next three years represent 55% of the net rentable square
feet and have average rental rates of $15.29 per net rentable square foot, as
compared to market rents of $24.00 per net rentable square foot quoted by
Spaulding & Slye, the manager of the Property. The Company recently executed a
lease at $23.00 per net rentable square foot and is negotiating leases at rental
rates significantly higher than the effective average gross rent of $15.44 per
net rentable square foot upon acquisition. However, there can be no assurance
such negotiations will result in successful transactions.
The building was 90.3% leased at December 31, 1997 to 21 tenants. A
majority of the tenants are in the fields of engineering, architecture and
construction, and transportation-related services.
First Union Bank Building, Daytona Beach, Florida. The First Union Bank
Building is a 10 story, Class A office building containing 129,763 net rentable
square feet. The First Union Bank Building is the largest office building in
Daytona Beach. The building was 82% leased at December 31, 1997. The major
tenants include First Union Bank, which occupies 16% of the net rentable square
feet under a lease expiring in October 1998, a Florida State Attorney General's
office, which occupies 9% of the net rentable square feet under a lease expiring
in 2000 and The Halifax Club (a Club Corporation of America member), which
occupies 11% of the net rentable square feet under a lease expiring in 1999.
328 South Jefferson Street, Chicago, Illinois. 328 South Jefferson Street
is a multi-tenant loft/office building in the South Loop section of Chicago at
the edge of the Chicago CBD. The Property is located at the corner of Jefferson
Street and West Van Buren in the South Loop section of Chicago. There are more
than 55 tenants in the building and approximately 93% of the net rentable square
feet was leased at December 31, 1997.
Winewood Office Park, Tallahassee, Florida. The Winewood Office Park
Property is an eight building office property containing 332,030 net rentable
square feet. The Property is 100% leased to
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Florida state agencies. The Property has been virtually 100% leased since
acquisition, although there can be no assurance the Company will experience such
results in the future.
GTE Property, Beaverton, Oregon. The GTE Property is a Class A office
building which comprises the regional headquarters of GTE Northwest
Incorporated, a subsidiary of GTE Corporation. The Company acquired this
Property in 1980. The Property comprises 65,000 net rentable square feet on 15
acres of land, and was 100% leased at December 31, 1997. The Property is located
in Beaverton, Oregon. The current triple net lease runs to 2005 with six
five-year options to extend the lease term.
Shenandoah Industrial Park, Coweta County, Georgia. The Company controls
approximately 974 acres of land at this 2,500 acre industrial park located in
Coweta County, Georgia. The Property is located approximately 20 miles from
Atlanta Hartsfield International Airport. The Company controls this land through
its ownership of an option to acquire the land. As the Company exercises its
option to acquire land parcels at this industrial park for development, its
remaining option exercise price declines. The option exercise price currently is
approximately $600,000 for the remaining 974 acres. When the balance of the
option price reaches zero, the Company will become the fee owner of this
Property, subject to its paying real estate taxes and a payment of $100,000 to
the Coweta County Development Authority. In addition, the Company must pay
approximately $375,000 of accrued real estate taxes. The park had been
originally developed as part of a federal program of 'New Towns' and had
received substantial federal financing. Companies such as K-Mart, Eckerd Drugs,
Yamaha Motor Manufacturing, Kawasaki and Yokogawa Electric and Industrial
Automation occupy manufacturing and distribution facilities in the Park.
Shenandoah Industrial Park has attractive, landscaped streets and
boulevards with protective covenants to maintain the overall integrity of the
park. Utilities are available in industrial use sizes and capacities and the
park is suitable for light, medium and heavy industrial users. Available sites
range from one to more than 100 acres with rail-served sites also available.
Industrial revenue bond financing is available through the Coweta County
Development Authority. The Company has developed new streets, drainage, water
and sanitary sewer facilities to serve over 150 acres of new industrial sites.
The Company estimates that this land could support the development of an
additional 12 million net rentable square feet of light manufacturing and
distribution facilities under current zoning and entitlements. The Company
estimates that the cost of developing a typical distribution facility of
approximately 200,000 net rentable square feet with concrete and steel
construction and loading docks would be approximately $23.50 per net rentable
square foot in today's market. The Company believes that the current market rent
for such a facility would be approximately $2.75 per net rentable square foot on
a triple net basis. However, there can be no assurance that the Company will
commence or complete future development or that the Company's estimate of future
buildable square footage will not change due to factors beyond the Company's
control.
The Company intends to pursue build-to-suit opportunities to further
develop Shenandoah Industrial Park and to maximize its value. The Company has
previously developed a 200,000 square foot industrial facility for Pope & Talbot
and also developed, on behalf of Coweta County, industrial facilities for
Southern Tool Inc. (52,500 square feet), MAXXIS Corporation (55,000 square feet)
and Vistawall Corporation, a division of Butler Manufacturing (63,800 square
feet).
THE RETAIL PROPERTIES
The retail Properties consist of 10 Properties containing approximately 2.3
million net rentable square feet. Most of the retail properties were acquired
with an expansion, redevelopment or lease-up strategy. A number of these
expansions and redevelopments are currently underway and anticipated to be
completed in 1998 and 1999. Following is a brief description of each retail
Property.
Princeton Shopping Center, Princeton, New Jersey. Princeton Shopping Center
is a seven building grocery-anchored shopping center containing 260,000 net
rentable square feet. The center is located at 301 N. Harrison Street in
Princeton, New Jersey. The Property is the only shopping center in the town of
Princeton.
The center contains 55 stores and has 1,300 parking spaces. The center is
anchored by a 32,000 net rentable square foot McCaffrey's Supermarket, which
occupies 12.3% of the net rentable square feet
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under a lease expiring in December 2012, a 20,000 net rentable square foot
Eckerd Drug, which leases 7.7% of the net rentable square feet under a lease
expiring in August 2007, and a 20,000 net rentable square foot Encore Books,
which occupies 7.7% of the net rentable square feet under a lease expiring in
November 2002.
International Drive Value Center, Orlando, Florida. This value oriented
shopping center contains 186,000 net rentable square feet. The Property is
located on International Drive in Orlando, Florida. The Property was acquired in
1997 for approximately $20.1 million, (approximately $108.00 per net rentable
square foot). The occupancy was 97.7% and Annualized Net Operating Income was
approximately $2.4 million at acquisition by the Company. The Property currently
is 100% occupied and has Annualized Net Operating Income of approximately $2.5
million based on leases currently in place.
This Property is leased to tenants including Bed, Bath and Beyond, which
occupies 21.5% of the net rentable square feet under a lease expiring in 2011,
Ross Stores, which occupies 15.2% of the net rentable square feet under a lease
expiring in 2011, Old Navy, which occupies 8.1% of the net rentable square feet
under a lease expiring in 2006, and T.J. Maxx, which occupies 15% of the net
rentable square feet under a lease expiring in 2005. The Company acquired this
Property because of its location and strong roster of tenants.
Manufacturers Outlet Center of Westchester, Mt. Kisco, New York. The
Manufacturers Outlet Center is a two story enclosed mall with an attached
supermarket. This Property contains 210,000 net rentable square feet and over
1,000 parking spaces. The Company is in the planning stages of a redevelopment
program to upgrade and reposition the center by moving the supermarket into a
new stand-alone building on an adjacent five acre site now owned by the Company
and re-tenanting the current supermarket space with a new tenant. This
redevelopment program is estimated to cost approximately $9.0 million and is
anticipated to be completed in 1999. There can be no assurance that such
approvals will be obtained or that the Company's strategy will be successful.
Manufacturers Outlet Center sits on 16 acres on the main shopping route in
Mt. Kisco, New York. Mt. Kisco is in the heart of upper Westchester County,
approximately 45 miles from New York City. The Property was approximately 92%
leased at December 31, 1997.
Kendall Value Center and Sunset Strip Shopping Center, Miami, Florida.
These Properties were purchased in one transaction from the same seller in
December 1996 for an aggregate purchase price of approximately $17.5 million,
(approximately $48 per net rentable square foot). Kendall Value Center
('Kendall') includes 174,860 net rentable square feet. The Sunset Strip Shopping
Center ('Sunset') includes 81,998 net rentable square feet. Both Properties are
located in the Kendall retail submarket of Miami.
Kendall was 99.7% leased at December 31, 1997 to 21 tenants. Kendall's
principal tenants are BJ's Wholesale Club, which occupies approximately 61% of
the net rentable square feet under a lease expiring in 2012, Loehman's, which
occupies 5% of the net rentable square feet under a lease expiring in 1999, and
NationsBank, which occupies 3% of the net rentable square feet under a lease
expiring in 1999. Sunset was approximately 75.3% leased at December 31, 1997 to
26 tenants. The tenants at this center include local retailers and service
businesses.
Kendall provides stability of cash flow, while the Company believes that
Sunset represents a redevelopment opportunity with the potential to enhance cash
flow and value by repositioning and re-tenanting. The Company plans to increase
the leasable area of the center with a ground lease on a dedicated outparcel.
Cosmetic and landscaping changes have been made to Sunset to effect an image
improvement. Problem tenants have been evicted and a leasing plan is underway to
replace them with higher quality tenants. Negotiations are underway with local
and regional supermarkets to anchor Sunset, although there can be no assurance
that any leases will be executed.
Shoppes at St. Lucie West, Port St. Lucie, Florida. The Shoppes at St.
Lucie West is a shopping center anchored by a K-Mart and a Publix Supermarket.
In 1993, the Company acquired Phase I of the Shoppes at St. Lucie West, a 69,424
net rentable square foot shopping center located in Port St. Lucie Florida and
anchored by a 48,890 net rentable square foot Publix Supermarket. The following
year, the Company developed Phase II, which is a contiguous 131,245 net rentable
square foot structure anchored
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by a 114,500 net rentable square foot K-Mart. The Property also includes a 1.2
acre outparcel. The Shoppes at St. Lucie West were approximately 99% occupied at
December 31, 1997.
As part of the Formation Transactions, the Company will acquire a 17.9 acre
parcel of land from a third party which is adjacent to the Company's Shoppes at
St. Lucie West Property. The Shoppes at St. Lucie West were approximately 99%
leased at December 31, 1997. The Company will acquire this parcel for Units with
a value of $2.25 million. The Company estimates that this land could support
approximately a 150,000 net rentable square foot expansion of the Shoppes at St.
Lucie West Property under current zoning and entitlements.
Outlet Park Shoppes at Waccamaw, Myrtle Beach, South Carolina. Outlet Park
Shoppes at Waccamaw is a 14 building retail outlet center containing 763,818 net
rentable square feet. The center also has approximately 3,660 parking spaces.
The Company purchased this Property with a partner in November 1997 for
approximately $57.0 million (approximately $75 per net rentable square foot).
The Company's strategy with regard to this Property is to seek to enhance the
Property's cash flow and value through expansion. The Company and its partners
are in the process of expanding the center by an additional 36,500 net rentable
square feet. This expansion is expected to be completed in May 1998 at a cost of
approximately $4 million, and is expected to be fully leased by the end of 1998,
although there can be no assurance this expansion will be completed as
contemplated or that the center will be fully leased by such time. The Company
expects that rental rates at this expansion will be approximately $13.00 per net
rentable square foot. In addition, the Company is considering a potential
additional expansion of the center by 27,000 net rentable square feet in 2000,
although there can be no assurance this expansion will be consummated. At
December 31, 1997, the center was approximately 93% leased, and the center has
Annualized Net Operating Income of approximately $6.6 million based on leases
currently in place.
The Outlet Park Shoppes at Waccamaw are located on Highway 501 and the
Intercoastal Waterway in Myrtle Beach. Myrtle Beach is a leading tourist
destination in South Carolina, attracting approximately 13 million visitors
annually, most of whom travel by car.
The principal tenants of the Outlet Park Shoppes at Waccamaw are Waccamaw
Corporation, which occupies approximately 35% of the net rentable square feet
under a lease expiring in 1999 (9%) and 2005 (26%). In addition, Phillip Van
Heusen Corp. occupies approximately 3% of the net rentable square feet in five
stores under leases expiring in 2002, and Nine West Group occupies approximately
2% of the net rentable square feet in two stores under leases expiring in 2001
and 2002. Other tenants include Mikasa, Bugle Boy, Nautica, Adidas, Samsonite,
and Umbro.
Easton Commons Plaza Shopping Center, Houston, Texas. Easton Commons Plaza
is a 192,154 net rentable square foot grocery-anchored shopping center located
at the intersection of Highway 6 North and West Road in Houston, Texas. The
Company acquired this Property in 1993 from an insurance company which had
foreclosed on this center. Since its acquisition, the Company re-tenanted and
leased the center to its current 90% occupancy and has contracted for the sale
of one of the three outparcels. The Property is part of Copperfield, a planned
community development of Friendswood Development Co. Easton Commons is situated
on 18.25 acres, has 1,079 parking spaces and two remaining undeveloped
out-parcels comprising an additional 1.28 acres. The significant tenants include
Kroger, which leases approximately 24% of the net rentable square feet under a
lease expiring in 2006, Sony Theaters, which leases approximately 21% of the net
rentable square feet under a lease expiring in 2005 and Eckerd Drug, which
leases approximately 5% of the net rentable square feet under a lease expiring
in 2006.
Kirby/Richmond Shopping Center, Houston, Texas. The Kirby/Richmond Shopping
Center is a 54,321 net rentable square foot shopping center anchored by a K-Mart
and containing 232 parking spaces. This Property represented a redevelopment
opportunity and, upon acquisition, the Company terminated an existing Kroger
supermarket lease, renovated the free-standing Kroger store, expanded the center
by approximately 22,000 net rentable square feet and re-leased the center. The
Property was approximately 92% leased as of December 31, 1997. The Property is
located at the intersection of Kirby and Richmond Avenues in Houston, Texas,
within close proximity to the residential areas of River Oaks and West
University Place, Rice University, the Houston Medical Complex and Greenway
Plaza office complex.
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M&M Plaza, Menominee, Michigan. M&M Plaza Shopping Center is a 225,000 net
rentable square foot grocery-anchored shopping center located in Menominee on
the Upper Peninsula of Michigan across the Menominee River from Marinette,
Wisconsin. The Property is located on Route 41, the main artery servicing the
region, and is 60 miles from Green Bay, Wisconsin. The center contains 500
parking spaces.
The center's significant tenants include an 85,000 net rentable square foot
K-Mart, a 70,000 net rentable square foot regional supermarket, an 8,000 net
rentable square foot Osco Drug Store and a 9,000 net rentable square foot Family
Dollar. The balance of the center is occupied by approximately 25 smaller
tenants with various community service businesses such as banking and crafts.
The Property was approximately 94% occupied at December 31, 1997.
THE RESIDENTIAL PROPERTIES
There are three residential Properties located in two states and containing
an aggregate of over 1,100 apartment units. Following is a brief description of
each residential Property.
Park Hill Lane Apartments, Menands, New York. Park Hill Lane includes 567
apartment units and is located in the Capital District, near shopping malls,
supermarkets, schools, public transportation and Interstates 90 and 787. Park
Hill Lane was approximately 87% occupied at December 31, 1997.
Park Hill Lane is situated on more than 20 acres of well-maintained lawns
with plentiful shrubbery and trees. The buildings are of brick construction and
most units have private balconies, wall-to-wall carpeting, a full set of
appliances and spacious walk-in closets. Park Hill Lane offers a pool,
playground, ample parking and tennis courts.
One Dartmouth Place Apartments, Denver, Colorado. The One Dartmouth Place
Apartments are located in Denver, Colorado at the corner of Dartmouth Avenue and
Parker Road. The complex contains a total of 418 apartments. The Company
acquired this Property in 1991 for approximately $9.1 million. Since that time,
the carpeting, appliances and countertops have been replaced in virtually all of
the units and several other cosmetic improvements have been made. After giving
effect to these improvements and a strengthening of the local economy, the
Company significantly increased rental rates and with the increased cash flow
was able to refinance the property. The Property has historically maintained a
consistent occupancy rate of 95% or higher.
Presidential Estates, Guilderland, New York. Built in 1967, Presidential
Estates is a 124 unit townhouse community with an additional four one-bedroom
apartments located in Guilderland, New York. The Property is situated in a
suburban section on 14 acres of landscaped land in a central location in
metropolitan Albany and features a community meeting room and an outdoor
swimming pool. At December 31, 1997, the occupancy rate for the Property was
approximately 95%.
THE HOSPITALITY/RESORT COMPLEX
Longboat Key Club/Resort at Longboat Condominium Hotel, Longboat Key,
Florida. As part of the Formation Transactions, the Company will acquire the
operations and assets of the Longboat Key Club (the 'Club') located in Longboat
Key, Florida, a barrier beach island off Sarasota, Florida. The Club owns two
golf courses (the only golf facilities on Longboat Key) offering 45 holes of
golf, two golf clubhouses, two tennis centers with a total of 38 Har-Tru tennis
courts, a fitness center and restaurants. The Club also currently operates the
220 unit Resort at Longboat condominium hotel (the 'Hotel') which is located on
the Club's premises. The principal sources of revenues to the Club are
membership fees for the Club and fees for the use of its facilities. The
condominium unit owners at the Hotel are responsible for their real estate
taxes, insurance, general maintenance of their units, as well as the costs of
the furniture, fixture and equipment replacements. According to the August 1997
edition of Lodging Hospitality magazine, the Club and the Hotel is considered
one of the top five destination resorts in the United States.
In order to minimize the amount of non-rental income which the Company will
realize and satisfy the REIT requirements, the Operating Partnership will lease
the Club's assets to an affiliated lessee under a 10-year participating lease
with renewal options. Certain directors and officers of the Company
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will own approximately a 4% economic interest in the lessee. The terms of the
participating lease are structured such that the Company expects to receive
significant economic benefits from the Club's operations as well as the
operations of the Hotel. The minimum annual base rent payable under the
participating lease for 1998 is approximately $6.7 million.
The owners of the lessee, other than directors and officers of the Company,
will own approximately 13.0% of the equity interests of the Company upon
completion of the Offering. The Operating Partnership and the lessee have agreed
on several measures to further align the interests of the lessee and its owners
with the interests of the Company and its stockholders:
Any distributions from the lessee during the term of the lease, and any
net cash proceeds of any sale of the lessee during the term of the lease,
will be used to purchase Units or Common Stock (subject to the Ownership
Limit) that must be held for at least two years from the purchase date;
The lessee will be required to maintain a net worth of at least (i) 20%
of the aggregate annual rent payments under the lease or (ii) $2 million,
whichever is greater. The lessee will retain its consolidated earnings
in an amount sufficient to maintain that net worth during the term of
the lease;
Any change in control of the lessee without the prior written consent of
the Company will constitute a default under the lease; and
The Operating Partnership will have the right to acquire certain assets of
the lessee at a de minimus price in the event of a default under the
lease.
LEASE EXPIRATIONS OF OFFICE AND RETAIL PROPERTIES
The following table sets forth a schedule of lease expirations by Property
for leases in place at the Company's office and retail Properties as of December
31, 1997, for each of the 10 full and partial calendar years beginning January
1, 1998, assuming that none of the tenants exercise renewal options and
excluding an aggregate of 1,478,038 square feet of unleased office space and
153,266 square feet of unleased retail space.
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<TABLE>
<CAPTION>
PROPERTY 1998 1999 2000 2001 2002 2003 2004
- ------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
63 MADISON AVENUE
Square footage of
expiring leases 48,714 0 0 0 0 0 0
Percentage of total
rentable sq. ft. 6.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Annual base rent(1) 438,426 0 0 0 0 0 0
No. of tenants whose
leases expire 1 0 0 0 0 0 0
Annualized base rent per
leased sq. ft. 9.00 0.00 0.00 0.00 0.00 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 9.00 0.00 0.00 0.00 0.00 0.00 0.00
Company quoted rental
rate per sq. ft.(3) 29.50
200 MADISON AVENUE
Square footage of
expiring leases 57,174 21,446 19,514 133,189 5,389 33,529 22,433
Percentage of total
rentable sq. ft. 8.53% 3.20% 2.91% 19.87% 0.80% 5.00% 3.35%
Annual base rent(1) 1,198,710 422,356 356,192 3,523,794 115,064 587,524 504,192
No. of tenants whose
leases expire 5 6 5 3 2 2 1
Annualized base rent per
leased sq. ft. 20.97 19.69 18.25 26.46 21.35 17.52 22.48
Annualized base rent per
leased sq. ft. with
future step-ups(2) 20.97 19.75 18.25 26.49 22.35 18.01 24.35
Company quoted rental
rate per sq. ft.(3) 29.50
498 SEVENTH AVENUE
Square footage of
expiring leases 98,355 48,031 69,820 27,532 34,199 20,520 61,533
Percentage of total
rentable sq. ft. 11.26% 5.50% 8.00% 3.15% 3.92% 2.35% 7.05%
Annual base rent(1) 1,087,308 658,038 953,099 599,717 428,925 239,147 726,457
No. of tenants whose
leases expire 24 10 18 6 7 3 10
Annualized base rent per
leased sq. ft. 11.05 13.70 13.65 21.78 12.54 11.65 11.81
Annualized base rent per
leased sq. ft. with
future step-ups(2) 11.05 13.70 13.78 24.00 13.11 12.71 13.34
Company quoted rental
rate per sq. ft.(3) 27.00
24 WEST 57TH STREET
Square footage of
expiring leases 14,092 9,808 5,703 13,301 5,411 0 7,143
Percentage of total
rentable sq. ft. 14.48% 10.08% 5.86% 13.67% 5.56% 0.00% 7.34%
Annual base rent(1) 393,029 278,862 153,833 367,408 142,736 0 190,133
No. of tenants whose
leases expire 7 4 4 7 3 0 2
Annualized base rent per
leased sq. ft. 27.89 28.43 26.97 27.62 26.38 0.00 26.62
Annualized base rent per
leased sq. ft. with
future step-ups(2) 27.89 29.43 28.09 28.07 27.82 0.00 28.62
Company quoted rental
rate per sq. ft.(3) 32.00
529 FIFTH AVENUE
Square footage of
expiring leases 0 0 28,851 1,348 6,764 64,299 27,159
Percentage of total
rentable sq. ft. 0.00% 0.00% 10.81% 0.51% 2.54% 24.10% 10.18%
Annual base rent(1) 0 0 692,424 39,092 186,992 1,521,900 685,821
No. of tenants whose
leases expire 0 0 2 1 1 4 2
Annualized base rent per
leased sq. ft. 0.00 0.00 24.00 29.00 27.65 23.67 25.25
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 24.00 29.00 27.65 25.25 26.42
Company quoted rental
rate per sq. ft.(3) 32.00
<CAPTION>
2008 &
PROPERTY 2005 2006 2007 BEYOND
- ------------------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES:
63 MADISON AVENUE
Square footage of
expiring leases 0 0 0 399,000
Percentage of total
rentable sq. ft. 0.00% 0.00 0.00% 50.04%
Annual base rent(1) 0 0 0 8,153,700
No. of tenants whose
leases expire 0 0 0 1
Annualized base rent per
leased sq. ft. 0.00 0.00 0.00 20.44
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 0.00 26.41
Company quoted rental
rate per sq. ft.(3)
200 MADISON AVENUE
Square footage of
expiring leases 141,734 112,207 16,354 69,985
Percentage of total
rentable sq. ft. 21.15% 16.74% 2.44% 10.44%
Annual base rent(1) 3,180,498 2,482,820 427,303 1,462,383
No. of tenants whose
leases expire 5 5 3 2
Annualized base rent per
leased sq. ft. 22.44 22.13 26.13 20.90
Annualized base rent per
leased sq. ft. with
future step-ups(2) 25.38 25.67 29.99 27.58
Company quoted rental
rate per sq. ft.(3)
498 SEVENTH AVENUE
Square footage of
expiring leases 29,127 3,623 0 227,646
Percentage of total
rentable sq. ft. 3.34% 0.41% 0.00% 26.07%
Annual base rent(1) 435,520 75,000 0 4,572,474
No. of tenants whose
leases expire 4 1 0 7
Annualized base rent per
leased sq. ft. 14.95 20.70 0.00 20.09
Annualized base rent per
leased sq. ft. with
future step-ups(2) 15.58 23.46 0.00 26.67
Company quoted rental
rate per sq. ft.(3)
24 WEST 57TH STREET
Square footage of
expiring leases 385 4,043 6,832 18,851
Percentage of total
rentable sq. ft. 0.40% 4.15% 7.02% 19.37%
Annual base rent(1) 114,000 127,905 511,767 318,420
No. of tenants whose
leases expire 1 2 3 2
Annualized base rent per
leased sq. ft. 296.10 31.64 74.91 16.89
Annualized base rent per
leased sq. ft. with
future step-ups(2) 327.27 36.79 94.77 32.89
Company quoted rental
rate per sq. ft.(3)
529 FIFTH AVENUE
Square footage of
expiring leases 30,672 36,131 14,735 49,059
Percentage of total
rentable sq. ft. 11.50% 13.54% 5.52% 18.39%
Annual base rent(1) 793,950 1,511,276 425,615 1,194,269
No. of tenants whose
leases expire 2 3 2 3
Annualized base rent per
leased sq. ft. 25.89 41.83 28.88 24.34
Annualized base rent per
leased sq. ft. with
future step-ups(2) 28.71 45.82 31.00 27.83
Company quoted rental
rate per sq. ft.(3)
</TABLE>
67
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PROPERTY 1998 1999 2000 2001 2002 2003 2004
- ------------------------- --------- --------- --------- --------- --------- --------- ---------
307 WEST 38 STREET
<S> <C> <C> <C> <C> <C> <C> <C>
Square footage of
expiring leases 10,625 9,805 46,465 51,550 88,790 8,350 6,185
Percentage of total
rentable sq. ft. 3.88% 3.58% 16.97% 18.83% 32.42% 3.05% 2.26%
Annual base rent(1) 88,079 81,669 411,866 382,728 673,962 80,000 54,177
No. of tenants whose
leases expire 3 4 15 13 25 2 2
Annualized base rent per
leased sq. ft. 8.29 8.33 8.86 7.42 7.59 9.58 8.76
Annualized base rent per
leased sq. ft. with
future step-ups(2) 8.29 9.70 9.30 7.84 8.31 11.02 11.74
Company quoted rental
rate per sq. ft.(3) 10.00
FIRST NBC CENTER
Square footage of
expiring leases 50,487 60,964 66,203 86,347 105,643 28,548 24,633
Percentage of total
rentable sq. ft. 5.02% 6.06% 6.59% 8.59% 10.51% 2.84% 2.45%
Annual base rent(1) 658,230 650,457 858,617 1,373,900 1,716,524 322,292 346,340
No. of tenants whose
leases expire 9 17 18 13 11 5 1
Annualized base rent per
leased sq. ft. 13.04 10.51 12.97 15.91 16.25 11.29 14.06
Annualized base rent per
leased sq. ft. with
future step-ups(2) 13.04 10.78 14.47 16.59 17.49 13.48 16.11
Company quoted rental
rate per sq. ft.(3) 16.00
RIVERVIEW CENTER
Square footage of
expiring leases 170,360 50,000 310,576 5,000 0 0 0
Percentage of total
rentable sq. ft. 17.42% 5.11% 31.76% 0.51% 0.00% 0.00% 0.00%
Annual base rent(1) 1,168,247 185,000 1,937,157 22,500 0 0 0
No. of tenants whose
leases expire 9 2 7 1 0 0 0
Annualized base rent per
leased sq. ft. 6.86 3.70 6.24 4.50 0.00 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 6.86 3.70 6.24 4.50 0.00 0.00 0.00
Company quoted rental
rate per sq. ft.(3) 12.50
MARKETPLACE DESIGN CENTER
Square footage of
expiring leases 47,779 29,440 65,517 20,610 19,984 7,456 0
Percentage of total
rentable sq. ft. 15.79% 9.73% 21.66% 6.81% 6.61% 2.46% 0.00%
Annual base rent(1) 897,248 362,431 872,945 303,301 258,345 104,384 0
No. of tenants whose
leases expire 16 9 9 6 6 1 0
Annualized base rent per
leased sq. ft. 18.78 12.31 13.32 14.72 12.93 14.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 18.78 13.01 14.16 18.50 13.53 16.00 0.00
Company quoted rental
rate per sq. ft.(3) 14.00
38 CHAUNCY STREET
Square footage of
expiring leases 7,175 27,199 37,776 30,786 14,615 0 0
Percentage of total
rentable sq. ft. 5.51% 20.90% 29.02% 23.66% 11.23% 0.00% 0.00%
Annual base rent(1) 114,560 402,187 586,712 481,251 267,009 0 0
No. of tenants whose
leases expire 3 5 8 5 4 0 0
Annualized base rent per
leased sq. ft. 15.97 14.79 15.54 15.63 18.27 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 15.97 15.26 15.84 16.44 18.27 0.00 0.00
Company quoted rental
rate per sq. ft.(3) 25.00
<CAPTION>
2008 &
PROPERTY 2005 2006 2007 BEYOND
- ------------------------- --------- --------- --------- -------------
307 WEST 38 STREET
<S> <C> <C> <C> <C>
Square footage of
expiring leases 0 0 2,425 0
Percentage of total
rentable sq. ft. 0.00% 0.00% 0.89% 0.00%
Annual base rent(1) 0 0 16,369 0
No. of tenants whose
leases expire 0 0 1 0
Annualized base rent per
leased sq. ft. 0.00 0.00 6.75 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 12.00 0.00
Company quoted rental
rate per sq. ft.(3)
FIRST NBC CENTER
Square footage of
expiring leases 145,149 27,728 3,554 325,232
Percentage of total
rentable sq. ft. 14.44% 2.76% 0.35% 32.35%
Annual base rent(1) 3,095,209 388,487 29,144 3,446,977
No. of tenants whose
leases expire 7 3 3 15
Annualized base rent per
leased sq. ft. 21.32 14.01 8.20 10.60
Annualized base rent per
leased sq. ft. with
future step-ups(2) 22.51 16.08 15.86 11.59
Company quoted rental
rate per sq. ft.(3)
RIVERVIEW CENTER
Square footage of
expiring leases 0 56,150 0 0
Percentage of total
rentable sq. ft. 0.00% 5.74% 0.00% 0.00%
Annual base rent(1) 0 513,640 0 0
No. of tenants whose
leases expire 0 3 0 0
Annualized base rent per
leased sq. ft. 0.00 9.15 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 9.93 0.00 0.00
Company quoted rental
rate per sq. ft.(3)
MARKETPLACE DESIGN CENTER
Square footage of
expiring leases 5,795 1,969 7,073 0
Percentage of total
rentable sq. ft. 1.92% 0.65% 2.34% 0.00%
Annual base rent(1) 52,425 32,981 87,963 0
No. of tenants whose
leases expire 1 1 1 0
Annualized base rent per
leased sq. ft. 9.05 16.75 12.44 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 9.05 22.75 14.43 0.00
Company quoted rental
rate per sq. ft.(3)
38 CHAUNCY STREET
Square footage of
expiring leases 0 0 0 0
Percentage of total
rentable sq. ft. 0.00% 0.00% 0.00% 0.00%
Annual base rent(1) 0 0 0 0
No. of tenants whose
leases expire 0 0 0 0
Annualized base rent per
leased sq. ft. 0.00 0.00 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 0.00 0.00
Company quoted rental
rate per sq. ft.(3)
</TABLE>
68
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PROPERTY 1998 1999 2000 2001 2002 2003 2004
- ------------------------- --------- --------- --------- --------- --------- --------- ---------
FIRST UNION BANK BUILDING
<S> <C> <C> <C> <C> <C> <C> <C>
Square footage of
expiring leases 28,438 28,081 25,117 430 6,801 0 0
Percentage of total
rentable sq. ft. 21.92% 21.64% 19.36% 0.33% 5.24% 0.00% 0.00%
Annual base rent(1) 558,796 390,056 395,451 7,213 90,455 0 0
No. of tenants whose
leases expire 5 12 10 1 2 0 0
Annualized base rent per
leased sq. ft. 19.65 13.89 15.74 16.77 13.30 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 19.65 13.94 16.27 16.77 16.17 0.00 0.00
Company quoted rental
rate per sq. ft.(3) 15.50
328 SOUTH JEFFERSON
STREET
Square footage of
expiring leases 55,280 72,390 22,100 34,950 40,620 20,800 21,278
Percentage of total
rentable sq. ft. 19.23% 25.18% 7.69% 12.16% 14.13% 7.24% 7.40%
Annual base rent(1) 262,368 359,118 154,441 164,450 236,166 109,348 150,458
No. of tenants whose
leases expire 28 12 10 4 3 2 3
Annualized base rent per
leased sq. ft. 4.75 4.96 6.99 4.71 5.81 5.26 7.07
Annualized base rent per
leased sq. ft. with
future step-ups(2) 4.76 5.32 7.33 6.57 6.68 5.40 8.35
Company quoted rental
rate per sq. ft.(3) 8.00
WINEWOOD OFFICE PARK
Square footage of
expiring leases 0 0 0 0 0 0 332,030
Percentage of total
rentable sq. ft. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 100.0%
Annual base rent(1) 0 0 0 0 0 0 5,196,611
No. of tenants whose
leases expire 0 0 0 0 0 0 3
Annualized base rent per
leased sq. ft. 0.00 0.00 0.00 0.00 0.00 0.00 15.65
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 0.00 0.00 0.00 0.00 20.74
Company quoted rental
rate per sq. ft.(3) 16.00
RETAIL PROPERTIES
PRINCETON SHOPPING CENTER
Square footage of
expiring leases 10,575 11,885 19,230 14,255 20,765 9,045 12,362
Percentage of total
rentable sq. ft. 4.86% 5.47% 8.84% 6.56% 9.55% 4.16% 5.69%
Annual base rent(1) 160,335 234,930 328,356 247,388 334,956 174,469 222,908
No. of tenants whose
leases expire 5 8 11 6 4 3 5
Annualized base rent per
leased sq. ft. 15.16 19.77 17.08 17.35 16.13 19.29 18.03
Annualized base rent per
leased sq. ft. with
future step-ups(2) 15.16 19.85 17.67 18.51 16.60 20.95 19.96
Company quoted rental
rate per sq. ft.(3) 22.00
INTERNATIONAL DRIVE
VALUE CENTER
Square footage of
expiring leases 0 0 11,882 15,481 7,292 0 3,152
Percentage of total
rentable sq. ft. 0.00% 0.00% 6.39% 8.33% 3.92% 0.00% 1.70%
Annual base rent(1) 0 0 175,023 241,455 109,380 0 47,280
No. of tenants whose
leases expire 0 0 3 4 2 0 1
Annualized base rent per
leased sq. ft. 0.00 0.00 14.73 15.60 15.00 0.00 15.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 14.73 15.60 17.00 0.00 19.14
Company quoted rental
rate per sq. ft.(3) 15.00
<CAPTION>
2008 &
PROPERTY 2005 2006 2007 BEYOND
- ------------------------- --------- --------- --------- -------------
FIRST UNION BANK BUILDING
<S> <C> <C> <C> <C>
Square footage of
expiring leases 0 13,492 2,582 0
Percentage of total
rentable sq. ft. 0.00% 10.40% 1.99% 0.00%
Annual base rent(1) 0 212,499 37,808 0
No. of tenants whose
leases expire 0 1 1 0
Annualized base rent per
leased sq. ft. 0.00 15.75 14.64 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 15.75 14.64 0.00
Company quoted rental
rate per sq. ft.(3)
328 SOUTH JEFFERSON
STREET
Square footage of
expiring leases 0 0 0 0
Percentage of total
rentable sq. ft. 0.00% 0.00% 0.00% 0.00%
Annual base rent(1) 0 0 0 0
No. of tenants whose
leases expire 0 0 0 0
Annualized base rent per
leased sq. ft. 0.00 0.00 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 0.00 0.00
Company quoted rental
rate per sq. ft.(3)
WINEWOOD OFFICE PARK
Square footage of
expiring leases 0 0 0 0
Percentage of total
rentable sq. ft. 0.00% 0.00% 0.00% 0.00%
Annual base rent(1) 0 0 0 0
No. of tenants whose
leases expire 0 0 0 0
Annualized base rent per
leased sq. ft. 0.00 0.00 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 0.00 0.00
Company quoted rental
rate per sq. ft.(3)
RETAIL PROPERTIES
PRINCETON SHOPPING CENTER
Square footage of
expiring leases 2,984 7,800 19,600 58,790
Percentage of total
rentable sq. ft. 1.37% 3.59% 9.01% 27.04%
Annual base rent(1) 57,240 93,620 275,000 684,843
No. of tenants whose
leases expire 1 3 1 6
Annualized base rent per
leased sq. ft. 19.18 12.00 14.03 11.65
Annualized base rent per
leased sq. ft. with
future step-ups(2) 19.93 12.00 15.31 13.76
Company quoted rental
rate per sq. ft.(3)
INTERNATIONAL DRIVE
VALUE CENTER
Square footage of
expiring leases 28,054 15,000 36,872 68,200
Percentage of total
rentable sq. ft. 15.09% 8.07% 19.83% 36.68%
Annual base rent(1) 272,085 225,000 365,500 862,200
No. of tenants whose
leases expire 1 1 2 2
Annualized base rent per
leased sq. ft. 9.72 15.00 9.91 12.64
Annualized base rent per
leased sq. ft. with
future step-ups(2) 10.22 15.00 10.14 13.82
Company quoted rental
rate per sq. ft.(3)
</TABLE>
69
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PROPERTY 1998 1999 2000 2001 2002 2003 2004
- ------------------------- --------- --------- --------- --------- --------- --------- ---------
MANUFACTURERS OUTLET
CENTER
<S> <C> <C> <C> <C> <C> <C> <C>
Square footage of
expiring leases 80,388 22,998 7,284 40,768 11,872 1,080 12,216
Percentage of total
rentable sq. ft. 39.58% 11.32% 3.59% 20.07% 5.84% 0.53% 6.01%
Annual base rent(1) 1,080,426 402,126 157,150 148,800 233,578 12,960 130,384
No. of tenants whose
leases expire 21 4 3 2 3 1 2
Annualized base rent per
leased sq. ft. 13.44 17.49 21.57 3.65 19.67 12.00 10.67
Annualized base rent per
leased sq. ft. with
future step-ups(2) 13.44 17.49 22.06 3.68 20.88 12.00 12.05
Company quoted rental
rate per sq. ft.(3) 22.00
KENDALL VALUE CENTER
Square footage of
expiring leases 2,236 27,443 5,364 6,400 11,692 15,000 0
Percentage of total
rentable sq. ft. 1.29% 15.84% 3.10% 3.69% 6.75% 8.66% 0.00%
Annual base rent(1) 42,625 330,509 71,604 103,595 209,291 135,000 0
No. of tenants whose
leases expire 2 7 2 3 5 1 0
Annualized base rent per
leased sq. ft. 19.06 12.04 13.35 16.19 17.90 9.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 19.06 12.28 14.52 18.38 20.16 10.00 0.00
Company quoted rental
rate per sq. ft.(3) 14.00
SHOPPES AT ST. LUCIE WEST
Square footage of
expiring leases 5,100 6,170 9,554 8,158 2,200 0 0
Percentage of total
rentable sq. ft. 2.54% 3.07% 4.76% 4.07% 1.10% 0.00% 0.00%
Annual base rent(1) 87,641 98,063 132,008 112,697 37,002 0 0
No. of tenants whose
leases expire 4 4 6 6 2 0 0
Annualized base rent per
leased sq. ft. 17.18 15.89 13.82 13.81 16.82 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 17.18 16.25 14.83 15.20 17.73 0.00 0.00
Company quoted rental
rate per sq. ft.(3) 15.50
OUTLET PARK SHOPPES AT
WACCAMAW
Square footage of
expiring leases 57,641 80,605 41,237 60,463 108,202 5,829 2,403
Percentage of total
rentable sq. ft. 7.80% 10.91% 5.58% 8.19% 14.65% 0.79% 0.33%
Annual base rent(1) 789,988 1,013,159 573,084 684,577 1,497,890 99,216 41,648
No. of tenants whose
leases expire 24 26 14 17 23 4 3
Annualized base rent per
leased sq. ft. 13.71 12.57 13.90 11.32 13.84 17.02 17.33
Annualized base rent per
leased sq. ft. with
future step-ups(2) 13.71 12.58 14.14 11.32 14.17 17.54 17.33
Company quoted rental
rate per sq. ft.(3) 13.00
EASTON COMMONS PLAZA
Square footage of
expiring leases 18,190 15,600 16,829 10,178 9,623 0 0
Percentage of total
rentable sq. ft. 9.47% 8.12% 8.76% 5.30% 5.01% 0.00% 0.00%
Annual base rent(1) 214,040 165,820 216,408 111,658 106,184 0 0
No. of tenants whose
leases expire 6 8 9 4 3 0 0
Annualized base rent per
leased sq. ft. 11.77 10.63 12.86 10.97 11.03 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 11.77 10.80 12.91 11.19 11.11 0.00 0.00
Company quoted rental
rate per sq. ft.(3) 12.00
<CAPTION>
2008 &
PROPERTY 2005 2006 2007 BEYOND
- ------------------------- --------- --------- --------- -------------
MANUFACTURERS OUTLET
CENTER
<S> <C> <C> <C> <C>
Square footage of
expiring leases 4,502 0 5,400 0
Percentage of total
rentable sq. ft. 2.22 0.00% 2.66% 0.00%
Annual base rent(1) 57,568 0 97,500 0
No. of tenants whose
leases expire 2 0 1 0
Annualized base rent per
leased sq. ft. 12.79 0.00 18.06 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 15.74 0.00 31.51 0.00
Company quoted rental
rate per sq. ft.(3)
KENDALL VALUE CENTER
Square footage of
expiring leases 0 0 0 106,484
Percentage of total
rentable sq. ft. 0.00% 0.00% 0.00% 61.44%
Annual base rent(1) 0 0 0 777,333
No. of tenants whose
leases expire 0 0 0 1
Annualized base rent per
leased sq. ft. 0.00 0.00 0.00 7.30
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 0.00 8.20
Company quoted rental
rate per sq. ft.(3)
SHOPPES AT ST. LUCIE WEST
Square footage of
expiring leases 2,080 0 2,028 163,390
Percentage of total
rentable sq. ft. 1.04% 0.00% 1.01% 81.42%
Annual base rent(1) 21,840 0 38,532 1,050,390
No. of tenants whose
leases expire 1 0 1 2
Annualized base rent per
leased sq. ft. 10.50 0.00 19.00 6.43
Annualized base rent per
leased sq. ft. with
future step-ups(2) 11.50 0.00 19.00 6.43
Company quoted rental
rate per sq. ft.(3)
OUTLET PARK SHOPPES AT
WACCAMAW
Square footage of
expiring leases 338,551 20,030 0 200
Percentage of total
rentable sq. ft. 45.84% 2.71% 0.00% 0.03%
Annual base rent(1) 1,767,628 244,950 0 12,000
No. of tenants whose
leases expire 4 3 0 1
Annualized base rent per
leased sq. ft. 5.22 12.23 0.00 60.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 5.98 14.17 0.00 60.00
Company quoted rental
rate per sq. ft.(3)
EASTON COMMONS PLAZA
Square footage of
expiring leases 49,653 45,640 0 0
Percentage of total
rentable sq. ft. 25.84% 23.75% 0.00% 0.00%
Annual base rent(1) 162,453 376,524 0 0
No. of tenants whose
leases expire 2 1 0 0
Annualized base rent per
leased sq. ft. 3.27 8.25 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 3.36 8.25 0.00 0.00
Company quoted rental
rate per sq. ft.(3)
</TABLE>
70
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<CAPTION>
PROPERTY 1998 1999 2000 2001 2002 2003 2004
- ------------------------- --------- --------- --------- --------- --------- --------- ---------
KIRBY RICHMOND PLAZA
<S> <C> <C> <C> <C> <C> <C> <C>
Square footage of
expiring leases 0 6,567 29,724 10,800 2,865 0 0
Percentage of total
rentable sq. ft. 0.00% 12.09% 54.72% 19.88% 5.27% 0.00% 0.00%
Annual base rent(1) 0 116,485 332,938 223,252 36,000 0 0
No. of tenants whose
leases expire 0 4 5 4 1 0 0
Annualized base rent per
leased sq. ft. 0.00 17.74 11.20 20.67 12.57 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 18.20 11.20 20.78 13.18 0.00 0.00
Company quoted rental
rate per sq. ft.(3) 17.00
SUNSET STRIP PLAZA
Square footage of
expiring leases 12,610 7,568 7,000 24,397 2,950 3,014 0
Percentage of total
rentable sq. ft. 15.38% 9.23% 8.54% 29.75% 3.60% 3.68% 0.00%
Annual base rent(1) 151,404 80,464 77,645 245,625 36,875 28,211 0
No. of tenants whose
leases expire 4 5 5 8 1 1 0
Annualized base rent per
leased sq. ft. 12.01 10.63 11.09 10.07 12.50 9.36 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 12.30 10.90 12.18 11.23 12.50 11.39 0.00
Company quoted rental
rate per sq. ft.(3) 13.00
M & M PLAZA
Square footage of
expiring leases 102,135 7,750 10,980 13,950 0 75,015 0
Percentage of total
rentable sq. ft. 45.24% 3.43% 4.86% 6.18% 0.00% 33.23% 0.00%
Annual base rent(1) 108,165 0 32,781 73,834 0 122,831 0
No. of tenants whose
leases expire 9 1 3 3 0 3 0
Annualized base rent per
leased sq. ft. 1.06 0.00 2.99 5.29 0.00 1.64 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 1.06 0.00 2.99 5.29 0.00 1.64 0.00
Company quoted rental
rate per sq. ft.(3) 3.50
OFFICE PROPERTIES
No. of tenants whose
leases expire 110 81 106 60 64 19 24
Square footage of
expiring leases 588,479 357,164 697,632 405,043 328,216 183,502 502,394
Final Annualized Base
Rent 6,865,766 3,881,802 7,596,867 7,584,871 4,410,353 3,196,768 9,823,219
RETAIL PROPERTIES
No. of tenants whose
leases expire 75 67 61 57 44 13 11
Square footage of
expiring leases 288,875 186,586 159,084 204,850 177,461 108,983 30,133
Final Annualized Base
Rent 2,638,261 2,460,321 2,146,510 2,267,802 2,706,266 611,850 495,925
<CAPTION>
2008 &
PROPERTY 2005 2006 2007 BEYOND
- ------------------------- --------- --------- --------- -------------
KIRBY RICHMOND PLAZA
<S> <C> <C> <C> <C>
Square footage of
expiring leases 0 0 0 0
Percentage of total
rentable sq. ft. 0.00% 0.00% 0.00% 0.00%
Annual base rent(1) 0 0 0 0
No. of tenants whose
leases expire 0 0 0 0
Annualized base rent per
leased sq. ft. 0.00 0.00 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 0.00 0.00
Company quoted rental
rate per sq. ft.(3)
SUNSET STRIP PLAZA
Square footage of
expiring leases 0 0 0 0
Percentage of total
rentable sq. ft. 0.00% 0.00% 0.00% 0.00%
Annual base rent(1) 0 0 0 0
No. of tenants whose
leases expire 0 0 0
Annualized base rent per
leased sq. ft. 0.00 0.00 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 0.00 0.00 0.00 0.00
Company quoted rental
rate per sq. ft.(3)
M & M PLAZA
Square footage of
expiring leases 2,160 0 0 0
Percentage of total
rentable sq. ft. 0.96% 0.00% 0.00% 0.00%
Annual base rent(1) 15,000 0 0 0
No. of tenants whose
leases expire 1 0 0 0
Annualized base rent per
leased sq. ft. 6.94 0.00 0.00 0.00
Annualized base rent per
leased sq. ft. with
future step-ups(2) 6.94 0.00 0.00 0.00
Company quoted rental
rate per sq. ft.(3)
OFFICE PROPERTIES
No. of tenants whose
leases expire 24 19 14 30
Square footage of
expiring leases 352,862 255,343 53,555 1,089,773
Final Annualized Base
Rent 8,377,314 6,030,635 1,820,010 24,296,539
RETAIL PROPERTIES
No. of tenants whose
leases expire 12 8 5 12
Square footage of
expiring leases 427,984 88,470 63,900 397,064
Final Annualized Base
Rent 2,647,032 978,922 882,762 3,686,709
</TABLE>
- ------------
(1) Base rent represents the annualized fixed monthly base rental amount in
effect under each lease executed as of December 31, 1997. Base rent
information for the office Properties is reported on a gross rent basis,
while base rent information for the retail Properties is reported on a net
rent basis.
(2) Represents Base Rent as described in footnote (1) above, but also reflects
contractual increases in monthly base rental amounts that occur after
December 31, 1997.
(3) Represents weighted average rental rates per square foot quoted by the
Company as of January 1, 1997. In the case of rents for all office
Properties, rents are quoted on a gross basis. In the case of rents for all
retail Properties, rents are quoted on a net basis. There can be no
assurance that the Company's vacant space will be rented or that the quoted
rental rates will be achieved.
(4) Represents net rent payments.
71
<PAGE>
<PAGE>
The following table sets forth information regarding lease expirations of
the office and retail Properties on an annual basis through December 31, 2007
and thereafter.
PORTFOLIO LEASE EXPIRATIONS -- OFFICE PROPERTIES
<TABLE>
<CAPTION>
FINAL PERCENTAGE
RENTABLE FINAL ANNUALIZED OF TOTAL FINAL
NUMBER OF SQUARE ANNUALIZED BASE RENT ANNUALIZED
LEASES FOOTAGE BASE RENT PER SQUARE BASE RENT
EXPIRING SUBJECT TO UNDER FOOT UNDER UNDER
YEAR OF LEASE EXPIRATION WITHIN EXPIRING EXPIRING EXPIRING EXPIRING CUMULATIVE
DECEMBER 31 THE YEAR LEASES LEASES LEASES LEASES TOTAL
- ------------------------------- --------- ---------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998........................... 110 588,479 $ 6,865,766 $11.67 8.2% 8.2%
1999........................... 81 357,164 3,881,802 10.87 4.6 12.8
2000........................... 106 697,632 7,596,867 10.89 9.1 21.9
2001........................... 60 405,043 7,584,871 18.73 9.0 30.9
2002........................... 64 328,216 4,410,353 13.44 5.3 36.2
2003........................... 19 183,502 3,196,768 17.42 3.8 40.0
2004........................... 24 502,394 9,823,219 19.55 11.7 51.7
2005........................... 20 352,862 8,377,314 23.74 10.0 61.7
2006........................... 19 255,343 6,030,635 23.62 7.2 68.9
2007........................... 14 53,555 1,820,010 33.98 2.2 71.0
2008 and thereafter............ 30 1,089,773 24,296,539 22.30 29.0 100.0%
--- ---------- ----------- ---------- ------
Consolidated Total/
Weighted Average............. 547 4,813,963 $83,884,144 $17.43 100.0%
--- ---------- ----------- ---------- ------
--- ---------- ----------- ---------- ------
</TABLE>
PORTFOLIO LEASE EXPIRATIONS -- RETAIL PROPERTIES
<TABLE>
<CAPTION>
FINAL PERCENTAGE
RENTABLE FINAL ANNUALIZED OF TOTAL FINAL
NUMBER OF SQUARE ANNUALIZED BASE RENT ANNUALIZED
LEASES FOOTAGE BASE RENT PER SQUARE BASE RENT
EXPIRING SUBJECT TO UNDER FOOT UNDER UNDER
YEAR OF LEASE EXPIRATION WITHIN EXPIRING EXPIRING EXPIRING EXPIRING CUMULATIVE
DECEMBER 31 THE YEAR LEASES LEASES LEASES LEASES TOTAL
- ------------------------------- --------- ---------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998........................... 75 288,875 $ 2,638,261 $ 9.13 12.3% 12.3%
1999........................... 67 186,586 2,460,321 13.19 11.4 23.7
2000........................... 61 159,084 2,146,510 13.49 10.0 33.7
2001........................... 57 204,850 2,267,802 11.07 10.5 44.2
2002........................... 44 177,461 2,706,266 15.25 12.6 56.8
2003........................... 13 108,983 611,850 5.61 2.8 59.6
2004........................... 11 30,133 495,925 16.46 2.3 61.9
2005........................... 12 427,984 2,647,032 6.18 12.3 74.2
2006........................... 8 88,470 978,922 11.07 4.5 78.8
2007........................... 5 63,900 882,762 13.81 4.1 82.9
2008 and thereafter............ 12 397,064 3,686,709 9.28 17.1 100.0
--- ---------- ----------- ---------- ------
Consolidated Total/
Weighted Average............. 365 2,133,390 $21,522,361 $10.09 100.0%
--- ---------- ----------- ---------- ------
--- ---------- ----------- ---------- ------
</TABLE>
72
<PAGE>
<PAGE>
TENANTS
The largest tenant at the Properties for the year ended December 31, 1997,
New York Life, accounted for approximately 8.6% of the Company's 1997 aggregate
annualized base rent. The following table sets forth the 20 largest tenants
based on annualized base rent at the Properties at December 31, 1997:
<TABLE>
<CAPTION>
REMAINING AGGREGATE PERCENTAGE
LEASE ANNUALIZED SQUARE OF AGGREGATE
NUMBER OF TERM IN BASE RENT FEET SQUARE FEET
TENANT NAME(1) LEASES MONTHS (IN THOUSANDS) LEASED LEASED
- --------------------------------------------- --------- --------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
New York Life Insurance Company(3)........... 1 154 $ 8,716 459,724 5.2%
State of Florida Dept. of Health &
Rehabilitation(4).......................... 2 78 4,699 300,810 3.4
Putnam Publishing(5)......................... 1 37 3,407 108,819 1.2
Jones, Walker, Waechter, Carrere &
Denegre(5)................................. 1 96 2,295 145,149 1.6
Greater New York Mutual(5)................... 1 96 1,505 66,895 0.8
First National Bank of Commerce.............. 1 157 1,266 268,162 3.0
Finlay Fine Jewelry(6)....................... 1 129 1,194 49,059 0.6
New York State Department of Labor........... 1 34 1,110 156,976 1.8
Rose Associates(5)........................... 1 177 1,080 44,989 0.5
United Feature Syndicate(5).................. 1 96 1,080 44,985 0.5
Primedia, Inc................................ 1 106 1,078 45,396 0.5
Waccamaw Pottery(7).......................... 1 85 1,005 240,000 2.7
New York State Audit & Control............... 2 (8) 902 116,860 1.3
BJ's Wholesale Club.......................... 1 179 777 106,484 1.2
Gerard Klaver Mattison & Co.(6).............. 1 72 719 29,975 0.3
Parker Duryee Rosoff & Haft(6)............... 1 87 670 25,284 0.3
K-Mart....................................... 1 254 666 114,500 1.3
Chase Manhattan Bank (6)..................... 1 108 659 20,807 0.2
Today's Man Inc.(6).......................... 1 108 650 7,836 0.1
J. G. Hook, Inc.............................. 1 13 529 14,750 0.2
--
--- -------------- --------- -----
Total/Weighted Average(9)............... 22 104 $ 34,007 2,367,460 26.7%
--
--
--- -------------- --------- -----
--- -------------- --------- -----
</TABLE>
- ------------
(1) This list is not intended to be representative of the Company's tenants as a
whole.
(2) Annualized Base Rent represents the monthly cash rental rate for each base
in effect as of December 31, 1997, excluding tenant reimbursements
multiplied by 12. Tenant reimbursements generally include payments on
account of real estate taxes, operating expense escalations and common area
utility charges.
(3) This tenant is located at the 63 Madison Avenue Property, in which the
Company owns a 50.5% interest.
(4) This tenant is located at the Winewood Property, in which the Company owns a
20% interest. This tenant has the right to terminate its lease if space at a
state-owned building in the county becomes available.
(5) This tenant is located at the 200 Madison Avenue Property, in which the
Company owns a 31.5% interest. Putnam Publishing has terminated its lease
and will vacate its space in 1998. The Company has signed new leases for the
space being vacated by Putnam Publishing.
(6) This tenant is located at the 529 Fifth Avenue Property, in which the
Company owns a 32.6% interest.
(7) This tenant is located at the Outlet Park Shoppes at Waccamaw Property, in
which the Company owns a 25% interest.
(footnotes continued on next page)
73
<PAGE>
<PAGE>
(footnotes continued from previous page)
(8) Consists of two leases, one of which covers 69,868 net rentable square feet
and expires on November 30, 1998, and a second lease which covers 47,000 net
rentable square feet and expires on August 31, 1998.
(9) Weighted Average calculation based on aggregate rentable square footage
occupied by each tenant.
TENANT IMPROVEMENT AND LEASING COMMISSION COSTS
The Company distinguishes its tenant improvements and leasing commissions
between those that are revenue enhancing (which are required for space which is
vacant at the time of acquisition or that has been vacant for nine months or
more) and non-revenue enhancing (which are required to maintain the revenue
being generated from currently leased space). The table below summarizes the
tenant improvements and leasing commissions related to new leases and lease
renewals for the years ended December 31, 1993 through 1997. The tenant
improvement and leasing commission costs set forth below are presented on an
aggregate basis and do not reflect significant regional variations and, in any
event, are not necessarily indicative of future tenant improvement and leasing
commission costs:
<TABLE>
<CAPTION>
WEIGHTED
1993 1994 1995 1996 1997 AVERAGE
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
NEW YORK CITY OFFICE PROPERTIES
Renewals
Number of leases.............. 11 8 21 15 7 --
Square feet................... 63,693 16,340 68,344 79,548 39,845 267,770
Tenant improvement costs...... 421,568 132,942 174,883 29,305 -- 758,698
Tenant improvement costs per
square foot................. 6.62 8.14 2.56 0.37 -- 2.83
Leasing commission costs...... 174,277 44,425 48,156 10,941 136,840 414,639
Leasing commission costs per
square foot................. 2.74 2.72 0.70 0.14 3.43 1.55
Total tenant improvement
and leasing commission
per square foot........ 9.35 10.85 3.26 0.51 3.43 4.38
New Leases
Number of leases.............. 21 25 24 19 52 --
Square feet................... 132,173 203,616 192,617 167,017 381,015 1,076,438
Tenant improvement costs...... 2,461,266 4,341,619 3,430,953 5,266,505 3,740,977 19,241,320
Tenant improvement costs per
square foot................. 18.62 21.32 17.81 31.53 9.82 17.87
Leasing commission costs...... 921,666 1,382,834 1,516,792 1,091,944 3,814,431 8,727,667
Leasing commission costs per
square foot................. 6.97 6.79 7.87 6.54 10.01 8.11
Total tenant improvement
and leasing commission
per square foot........ 25.59 28.11 25.69 38.07 19.83 25.98
</TABLE>
74
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
1993 1994 1995 1996 1997 AVERAGE
--------- --------- --------- --------- --------- ----------
OTHER OFFICE PROPERTIES
<S> <C> <C> <C> <C> <C> <C>
Renewals
Number of leases.............. 35 37 47 43 55 --
Square feet................... 135,696 140,270 370,349 156,642 211,735 1,014,692
Tenant improvement costs...... 23,616 43,971 950,798 542,769 196,858 1,758,012
Tenant improvement costs per
square foot................. 0.17 0.31 2.57 3.47 0.93 1.73
Leasing commission costs...... 107,991 28,199 144,724 140,179 187,116 608,209
Leasing commission costs per
square foot................. 0.80 0.20 0.39 0.89 0.88 0.60
Total tenant improvement
and leasing commission
per square foot........ 0.97 0.51 2.96 4.36 1.81 2.33
New Leases
Number of leases.............. 27 37 35 44 54 --
Square feet................... 75,750 199,465 255,310 405,654 200,759 136,938
Tenant improvement costs...... 114,989 195,307 1,859,451 7,244,888 1,268,441 10,683,076
Tenant improvement costs per
square foot................. 1.52 0.98 7.28 17.86 6.32 9.40
Leasing commission costs...... 56,158 211,074 244,347 1,664,107 535,403 2,711,089
Leasing commission costs per
square foot................. 0.74 1.06 0.96 4.10 2.67 2.38
Total tenant improvement
and leasing commission
per square foot........ 2.26 2.04 8.24 21.96 8.99 11.78
ALL RETAIL PROPERTIES
Renewals
Number of leases.............. 21 20 15 30 28 --
Square feet................... 58,960 39,166 24,188 56,976 73,622 252,912
Tenant improvement costs...... -- 32,712 4,380 38,238 70,039 145,369
Tenant improvement costs per
square foot................. -- 0.84 0.18 0.67 0.95 0.57
Leasing commission costs...... 15,519 55,842 45,962 28,485 169,978 315,786
Leasing commission costs per
square foot................. 0.26 1.43 1.90 0.50 2.31 1.25
Total tenant improvement
and leasing commission
per square foot........ 0.26 2.26 2.08 1.17 3.26 1.82
New Leases
Number of leases.............. 22 18 22 15 17 --
Square feet................... 69,177 157,091 71,485 39,819 49,612 387,184
Tenant improvement costs...... 186,291 844,702 436,044 269,897 120,968 1,857,902
Tenant improvement costs per
square foot................. 2.69 5.38 6.10 6.78 2.44 4.80
Leasing commission costs...... 368,607 80,747 129,406 120,556 236,538 935,854
Leasing commission costs per
square foot................. 5.33 0.51 1.81 3.03 4.77 2.42
Total tenant improvement
and leasing commission
per square foot........ 8.02 5.89 7.91 9.81 7.21 7.22
</TABLE>
75
<PAGE>
<PAGE>
HISTORICAL LEASE RENEWALS
The following table sets forth certain historical information regarding
tenants at the office Properties who renewed an existing lease at or prior to
the expiration of the existing lease:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Number of leases expired during calendar year......................... 66 96 72 92
Aggregate net rentable square footage of expiring leases.............. 373,098 703,465 564,915 562,686
Number of lease renewals.............................................. 46 70 56 62
Aggregate net rentable square footage of lease renewals............... 156,610 567,470 233,666 251,580
Percentage of leases renewed.......................................... 69.7% 72.9% 77.8% 67.4%
Percentage of expiring net rentable square footage renewed............ 42.0% 80.0% 41.4% 44.7%
</TABLE>
The following table sets forth certain historical information regarding
tenants at the retail Properties who renewed an existing lease at or prior to
the expiration of the existing lease:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Number of leases expired during calendar year......................... 9 19 29 15
Aggregate net rentable square footage of expiring leases.............. 11,576 26,472 46,333 44,020
Number of lease renewals.............................................. 8 14 21 12
Aggregate net rentable square footage of lease renewals............... 8,357 22,428 36,314 39,285
Percentage of leases renewed.......................................... 88.9% 73.7% 72.4% 80.0%
Percentage of expiring net rentable square footage renewed............ 72.2% 84.7% 78.4% 89.2%
</TABLE>
LEASE DISTRIBUTION
The following table sets forth information relating to the distribution of
the Company's leases at its office Properties based on square feet, as of
December 31, 1997:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER PERCENT OF AGGREGATE ANNUAL OF AGGREGATE
SQUARE FEET OF OF ALL TOTAL LEASED LEASED BASE ANNUAL
UNDER LEASE LEASES LEASES SQUARE FEET SQUARE FEET RENT BASE RENT
- ----------------------------------- ------ ------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
2,500 or less...................... 233 42.36% 305,765 5.91% $ 4,301,588 5.82%
2,501-5,000........................ 149 27.09 547,382 10.58 7,644,022 10.34
5,001-7,500........................ 60 10.91 374,243 7.24 4,554,284 6.16
7,501-10,000....................... 20 3.64 183,626 3.55 2,747,744 3.72
10,001-20,000...................... 38 6.91 503,831 9.74 7,060,025 9.55
20,001-40,000...................... 31 5.66 813,226 16.49 10,828,160 15.03
40,001+............................ 18 3.27 2,419,269 46.77 36,620,096 49.53
------ ------- ------------ ------------ ----------- ------------
Total......................... 549 100.00% 5,172,342 100.00% $73,930,919 100.00%
------ ------- ------------ ------------ ----------- ------------
------ ------- ------------ ------------ ----------- ------------
</TABLE>
The following table sets forth information relating to the distribution of
the Company's leases at its retail Properties, based on square feet, as of
December 31, 1997:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER PERCENT OF AGGREGATE ANNUAL OF AGGREGATE
SQUARE FEET OF OF ALL TOTAL LEASED LEASED BASE ANNUAL
UNDER LEASE LEASES LEASES SQUARE FEET SQUARE FEET RENT BASE RENT
- ----------------------------------- ------ ------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
2,500 or less...................... 197 54.87% 300,584 14.34% $ 4,221,003 21.87%
2,501-5,000........................ 88 24.51 303,318 14.47 4,221,417 21.88
5,001-7,500........................ 35 9.75 205,704 9.81 2,522,700 13.07
7,501-10,000....................... 14 3.90 129,637 6.18 1,054,438 5.46
10,001-20,000...................... 8 2.23 120,093 5.73 1,355,245 7.02
20,001-40,000...................... 8 2.23 251,047 11.97 2,416,770 12.52
40,001+............................ 9 2.51 786,072 37.50 3,506,280 18.17
------ ------- ------------ ------------ ----------- ------------
Total......................... 359 100.00% 2,096,455 100.00% $19,297,853 100.00%
------ ------- ------------ ------------ ----------- ------------
------ ------- ------------ ------------ ----------- ------------
</TABLE>
76
<PAGE>
<PAGE>
DEBT FINANCING
Upon the closing of the Offering, the Company will have total outstanding
indebtedness of approximately $184.1 million, which consists or will consist of
mortgage indebtedness secured by Properties. None of the existing loans
comprising the Mortgage Debt is cross-defaulted to, or cross-collateralized
with, any other. The Mortgage Debt will represent approximately 24.6% of the
Company's total market capitalization at the closing of the Offering. The
following table sets forth certain information regarding the Mortgage Debt that
will be outstanding upon completion of the Offering.
REMAINING MORTGAGE DEBT
<TABLE>
<CAPTION>
1998
1998 ANNUAL
PROPERTY PRINCIPAL AMOUNT INTEREST RATE AMORTIZATION MATURITY PAYMENT(1)
- ------------------------------ ---------------- ------------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
63 Madison Avenue(2).......... $ 26,000,000 8.00% $ 0 December 2005 $2,080,000
200 Madison Avenue(2)......... 17,246,683 9.01 240,320 April 2003 1,793,528
498 Seventh Avenue(2)......... 29,658,350 9.43(3) 0 April 2000 2,374,567
529 Fifth Avenue(2)........... 5,222,400 7.41 0 February 2003 386,784
Riverview Center.............. 14,470,744 9.01 164,425 October 2022 1,468,800
Winewood Office Park(2)....... 3,827,640 9.75 172,519 March 2010 546,346
GTE Property.................. 6,056,224 6.65 311,173 December 2010 714,716
Princeton Shopping Center..... 10,320,916 7.90 279,700 August 2002 1,095,900
International Drive........... 15,604,365 8.79 120,241 January 2007 1,492,266
Outlet Park Shoppes at
Waccamaw(2)................. 12,724,348 8.71 158,852 November 2002 1,253,299
Kirby/Richmond................ 4,810,195 8.87 35,705 April 2004 462,489
Park Hill Lane................ 20,766,607 7.25 189,945 September 2028 1,696,056
One Dartmouth Place........... 12,301,744 7.47 134,878 January 2006 1,053,591
Presidential Estates.......... 5,139,196 8.28 77,887 December 2002 503,659
Total/Weighted Average.... $184,149,412 8.40% $1,885,645 N/A $16,922,001
</TABLE>
- ------------
(1) Represents principal and interest payments.
(2) Information for this Property represents the Company's proportionate share
of the principal amount and 1998 annual payment, based on the Company's
percentage ownership of this Property.
(3) Effective interest rate as of May 1, 1998. Interest is calculated based on
LIBOR plus 3.5%.
CREDIT FACILITY
The Company is in negotiations with several fincial institutions with
regard to obtaining a $250 million senior unsecured credit facility. The Company
expects to have the credit facility in place upon completion of the Offering.
The unsecured line of credit will be used to facilitate acquisition and
development activities, to fund distribution payments, if necessary, and for
working capital purposes.
THIRD-PARTY PROPERTY MANAGEMENT
The Company provides property management services for 16 properties owned
by third parties. Nine of these properties are located in New York City and the
balance are located in various other markets. The Company does not presently
intend to actively expand its third-party management business, although it will
evaluate property management engagements as opportunities arise.
EXCLUDED INTERESTS
Members of the Loeb Group or affiliates thereof, including members of the
Company's management, own interests in real properties which are not being
contributed to the Company in the Formation Transactions either because the
interests are inconsistent with the Company's investment
77
<PAGE>
<PAGE>
strategy and objectives, or are currently of little or no value. These 'Excluded
Interests' consist of the following:
Fishkill, New York land -- approximately 575 acres of mostly
unimproved land (including 129 acres which cannot be developed because of
the slope of the land). Members of the Loeb Group or affiliates thereof own
general and limited partnership interests in the entities that own this
land. At the time the Loeb Group and its affiliates acquired the Fishkill
property in 1982, International Business Machines Corporation ('IBM')
occupied 359,000 net rentable square feet of office space (representing
100% of the net rentable square feet) on the property. IBM subsequently
vacated all but 114,000 net rentable square feet of its space during a
downsizing period at IBM. IBM's remaining lease expires in 2001. The Loeb
Group believes that the Fishkill market cannot support a level of
build-to-suit development activity which would make this property
appropriate for the Company. In addition, the land is being held for sale,
which status conflicts with the Company's intention to qualify as a REIT.
303 West 10th Street -- Comfort owns an interest in a 240,000 net
rentable square foot office building located at 303 West 10th Street in New
York City. Comfort cannot transfer its interest in this building to the
Company without the consent of the other owners of this building, who have
not given such consent.
United Park City Mines Company -- a publicly traded company
which owns the surface estate to more than 8,300 acres of land in Utah,
5,300 acres of which are leased to ski resort operators. Members of the
Loeb Group or affiliates thereof control approximately 70% of the stock
of this company. Messrs. Lesser and Gordon are members of the Board of
Directors of this company.
Hillwood Shopping Center -- a shopping center located in Nashville,
Tennessee. Members of the Loeb Group or affiliates thereof purchased a
$250,000 limited partnership interest in the entity which owns this
shopping center.
Participation interests -- certain officers and directors of the
Company have economic interests in the profit participation of an investor
who owns interests in seven office buildings. Five of these buildings are
located in New York City (including 63 Madison Avenue and 200 Madison
Avenue), one is located in Buffalo and one is located in Denver. Each of
these properties is managed by the Company. Through these interests,
certain of the officers and directors will participate in profits realized
by the investor after the investor receives priority returns. These
interests are not expected to have significant value unless the underlying
properties are sold or the related mortgage indebtedness is refinanced.
Scarsdale Chateau -- a one acre parcel of land in Scarsdale, New
York. Members of the Loeb Group or affiliates thereof own co-general
partner and limited partner interests in the entity that owns this parcel.
A gasoline station has recently been removed from this property and an
environmental cleanup is underway at the site. Due to the environmental
risks, the existing zoning and the economic prospects of this parcel,
management believes that this parcel is not an appropriate investment for
the Company.
Triple net lease properties -- members of the Loeb Group or
affiliates thereof are the general partners of partnerships which own three
office and retail properties in California, Texas, Virginia and Rhode
Island. Each of these properties is leased on a triple net basis to single
tenants. The Loeb Group is not contributing its interests in these
properties to the Company either because the property is insignificant, it
is expected to be sold to the lessee or because the limited partners in the
property-owning partnerships must give their consent, and the Company does
not expect that it would obtain their consent because the contribution
would result in negative tax consequences to the limited partners.
LITIGATION
The Company is subject to litigation in the ordinary course of its
business, including routine actions for negligence and other claims. The Company
is not aware of any pending or threatened litigation at this time that will have
a material adverse effect on the Company or any of the Properties.
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INSURANCE
The Company believes the Properties are adequately covered by insurance.
ENVIRONMENTAL MATTERS
All but four of the Properties have been subject to varying degrees of
environmental assessments by independent environmental consultants since the
beginning of 1996. The environmental assessments typically included a visual
inspection of the Properties and the surrounding areas, an examination of
current and historical uses of the Properties and the surrounding areas and a
review of relevant state, Federal and historical documents. Where deemed
appropriate by the Company or the respective owners, on a property-by-property
basis, additional testing was conducted, including sampling for asbestos, for
lead in drinking water, for soil contamination where USTs are or were located or
where other past site usages create a potential for site impact, and for
contamination in groundwater. The Company has not obtained an environmental
assessment with respect to the GTE Property and has been unable to obtain an
environmental assessment more recent than March 1995 for the 529 Fifth Avenue
Property. The Company has not been able to obtain any environmental assessments
at the two public storage Properties because the Company owns only a limited
partnership interest in those Properties and does not have the right to subject
the Properties to environmental assessment.
Several of the Properties contain, or at one time contained, USTs used to
store petroleum products, including fuel oil, waste oil and gasoline.
Environmental assessments at the 38 Chauncy Street and Princeton Shopping Center
Properties have revealed soil and/or groundwater contamination associated with
USTs. In addition, an environmental assessment performed at the Winewood Office
Park, in which the Company owns a 20% co-tenant interest, has revealed
groundwater contamination associated with the migration of petroleum products
from an adjacent property. Certain other environmental assessments recommend
additional review of environmental conditions at adjacent properties from which
contamination may migrate to the Properties. At certain of such Properties, the
contamination is being addressed by third-parties responsible for the
contamination who, in some cases, have indemnified the Company. There can be no
assurance, however, that if recourse to such indemnities becomes necessary, such
indemnity will be available or uncontested.
Additionally, certain Environmental laws also impose requirements with
respect to wetlands. Pursuant to these laws, certain activities in and around
wetlands may require prior governmental approvals. Certain of the Properties,
including Shenandoah Industrial Park, contain wetlands, the presence of which
could delay or hinder the development of such Properties.
ACBM has been detected through sampling in certain of the Properties. Most
of these buildings contain only minor amounts of ACBM in good condition. The
Company believes that ACBM is currently being properly managed and maintained
and other requirements relating to ACBM are being followed, although some ACBM
removal and disposal has been recommended by recent environmental assessments at
certain Properties. The cost of this removal is expected by the Company to
amount to less than $100,000. The Company believes that the presence of ACBM
should not present a significant risk as long as compliance with requirements
continues.
The Company is not aware of any environmental liabilities that the Company
believes would have a material adverse effect on the Company's business, assets,
financial condition or results of operations taken as a whole.
The Company believes that the Properties are in compliance in all material
respects with applicable Environmental Laws. The Company believes that the
issues identified in the environmental reports will not have a material adverse
effect on the Company if it continues to comply with Environmental Laws and with
the recommendations set forth in these reports. No assurance can be given,
however, that unidentified environmental liabilities will not arise at the
Properties or properties which the Company may acquire in the future which could
have an adverse effect on the Company's financial condition or results of
operations.
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MANAGEMENT
The Board of Directors of the Company will be expanded upon consummation of
the Offering to include seven directors. Upon completion of Offering, a majority
of the directors will not be employees or affiliates of the Company. Pursuant to
the Charter, the Board of Directors will be divided into three classes of
directors upon consummation of the Offering. The initial terms of the first,
second and third classes will expire in 1999, 2000 and 2001, respectively.
Beginning in 1999, directors of each class will be chosen for three-year terms
upon the expiration of their current terms and each year one class of directors
will be elected by the stockholders. The Company believes that classification of
the Board of Directors will help to assure the continuity and stability of the
Company's business strategies and policies as determined by the Board of
Directors. Holders of Common Stock will have no right to cumulative voting in
the election of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of the shares of Common Stock will be able to elect
all of the successors of the class of directors whose terms expire at that
meeting.
Information concerning the current directors, director nominees and
executive and senior officers of the Company is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- -----------------------------------------------------------
<S> <C> <C>
Joseph S. Lesser.................... 69 Chairman of the Board and Chief Executive Officer
Alan L. Gordon...................... 63 Vice Chairman of the Board, Chief Financial Officer and
Treasurer
Peter S. Duncan..................... 39 President, Chief Operating Officer and Director
Bernard B. Falk..................... 49 Executive Vice President -- Administration
Gary L. Naughton.................... 57 Senior Vice President -- Property Acquisitions
</TABLE>
Joseph S. Lesser is the Chairman and Chief Executive Officer of the
Company. Mr. Lesser has served as the President and Chief Executive Officer of
Loeb Partners Realty and its predecessor group at Loeb Rhoades & Co. since 1968.
Mr. Lesser has over 30 years of experience in real estate acquisition and
financing. Mr. Lesser served as Chairman of the Trustees of Florida Gulf Realty
Trust from 1973 to 1985, and was a partner of Loeb Rhoades & Co. where he
founded its real estate department. Prior to joining Loeb Rhoades & Co. in 1968,
Mr. Lesser was Senior Vice President and chief lending officer of a New York
Stock Exchange real estate development and lending organization. He received a
degree in Business Administration and a J.D. from the University of South
Dakota. He also received an LL.M. degree in Taxation and Corporate Finance from
New York University. Mr. Lesser is a director of United Park City Mines. Mr.
Lesser is a member of the South Dakota and New York Bars. He is also a licensed
real estate broker and a member of the International Council of Shopping Centers
and the Urban Land Institute.
Alan L. Gordon is the Vice Chairman, Chief Financial Officer and Treasurer
of the Company and is a Director. Mr. Gordon has served as Vice President and
Treasurer of Loeb Partners Realty and its predecessor group at Loeb Rhoades &
Co. since 1973 and has more than 25 years of experience in the financial
management, operation, acquisition and management of properties. He served as a
Managing Trustee of Florida Gulf Realty Trust from 1983 to 1985. Prior to
joining Loeb Rhoades & Co. in 1973, Mr. Gordon was associated with Touche Ross &
Co., as a Certified Public Accountant, and was an Assistant Treasurer with The
Diners Club Inc. He received a B.S. in Economics from the University of
Pennsylvania -- the Wharton School. Mr. Gordon is a Director of United Park City
Mines.
Peter S. Duncan is the President and Chief Operating Officer of the Company
and is a Director. Mr. Duncan has served as President of George M. Comfort &
Sons, Inc. since 1996. Mr. Duncan has held various positions with Comfort for
over 16 years, where he was actively involved in acquisition, repositioning,
financing, management and leasing activities. He holds a B.A. from Trinity
College and is a licensed real estate broker in the States of New York and New
Jersey.
Bernard B. Falk is the Executive Vice President -- Administration of the
Company. Mr. Falk has served as Vice President and General Counsel of Loeb
Partners Realty since 1987. At Loeb Partners Realty, Mr. Falk was actively
involved in acquisition, redevelopment, repositioning and financing activities.
Prior to joining Loeb Partners Realty, Mr. Falk was involved in real estate
investment
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activities, and practiced as an attorney at Willkie Farr & Gallagher in the
areas of real estate finance and corporate law. He holds a B.A. in Economics
from Columbia University and an M.B.A. in Finance and a J.D. from New York
University.
Gary L. Naughton is the Senior Vice President -- Property Acquisitions of
the Company. Mr. Naughton has served as a Vice President of Loeb Partners Realty
and its predecessor group at Loeb Rhoades & Co. since 1971, with primary
responsibilities for the acquisition and repositioning of properties. Mr.
Naughton has been involved in the purchase and repositioning of approximately
$500,000,000 of real estate. Mr. Naughton received his B.S. degree from
Gettysburg College and is a licensed real estate broker in the State of New
York, a member of The Real Estate Board of New York, the International Council
of Shopping Centers and the Urban Land Institute.
COMMITTEES OF THE BOARD OF DIRECTORS
Promptly following the consummation of the Offering, the Board of Directors
will establish an Audit Committee, an Executive Committee, and a Compensation
Committee.
Audit Committee. The Audit Committee (consisting of [names]) will make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.
Executive Committee. The Executive Committee (consisting of [names]) will
have the authority within certain parameters to acquire, dispose of and finance
investments for the Company (including the issuance by the Operating Partnership
of additional Units or other equity interests) and approve the execution of
contracts and agreements, including those related to the borrowing of money by
the Company, and generally exercise all other powers of the Board of Directors,
except as prohibited by law.
Compensation Committee. The Compensation Committee (consisting of [names])
will determine compensation for the Company's executive officers. The
Compensation Committee will review and make recommendations concerning proposals
by management with respect to compensation, bonus, employment agreements and
other benefits and policies respecting such matters for the executive officers
of the Company.
The Board of Directors will not have a nominating committee and the entire
Board of Directors will perform the function of such a committee.
COMPENSATION OF DIRECTORS
The Company intends to pay an annual fee of $ to its non-employee
Directors. Directors who are employees of the Company will not be paid any
directors' fees. The Company will reimburse all directors for travel and all
reasonable out-of-pocket expenses incurred in connection with their activities
on behalf of the Company.
EXECUTIVE COMPENSATION
The following table sets forth the annual base salaries and options which
the Company intends to pay in 1998 to its Chief Executive Officer and the
Company's four other most highly paid executive officers (the 'Named Executive
Officers'). Information for 1997 is not presented because the Company had no
operations during such period and the Named Executive Officers were employed by
other affiliated entities, as well as by the Loeb Group.
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<TABLE>
<CAPTION>
NAME OF INDIVIDUAL TITLE BASE SALARY(1) OPTIONS ALLOCATED(2)
- ------------------------------ ---------------------------------------- -------------- ------------------------
<S> <C> <C> <C>
Joseph S. Lesser.............. Chief Executive Officer $
Alan L. Gordon................ Chief Financial Officer; Treasurer
Peter S. Duncan............... President; Chief Operating Officer
Bernard B. Falk............... Executive Vice President --
Administration
Gary L. Naughton.............. Senior Vice President -- Property
Acquisitions
</TABLE>
- ------------
(1) Does not include bonuses that may be paid to these individuals. See
' -- Incentive Compensation' below.
(2) Upon the effective date of the Offering, options to purchase a total of
1,127,000 shares of Common Stock will be granted to officers and other
employees of the Company under the Company's Stock Option and Incentive Plan
at a price equal to the initial public offering price. See ' -- Stock Option
and Incentive Plan' below.
STOCK OPTION AND INCENTIVE PLAN
Prior to the completion of the Offering, the Company will adopt the Loeb
Realty Corporation 1998 Stock Option and Incentive Plan (the 'Stock Option and
Incentive Plan') to provide incentives to attract and retain executive officers,
directors, employees and other key personnel. The Stock Option and Incentive
Plan will be administered by the Compensation Committee. The maximum number of
shares available for issuance under the Stock Option and Incentive Plan will be
8.0% of the total number of shares of Common Stock and Units (other than Units
owned by the Company) outstanding from time to time (initially 2,254,000
shares).
Under the Stock Option and Incentive Plan, the Compensation Committee may
grant stock options, including 'incentive stock options' as defined in Section
422 of the Code, and non-statutory stock options. The exercise price of each
option will be set by Compensation Committee; provided, however, that the
exercise price must be at least equal to the market price of a share of Common
Stock as of the date the option is granted. The Compensation Committee will also
fix the term of each stock option, but in no event shall an incentive stock
option be exercisable more than 10 years after the date of grant (or five years
in the case of stockholders who own more than 10% of the outstanding Common
Stock).
The Compensation Committee may also grant either restricted or unrestricted
stock awards to participants in the Stock Option and Incentive Plan. With the
consent of the Compensation Committee, a participant may elect to receive a
portion of the cash compensation otherwise due such participant either in the
form of unrestricted stock or discounted stock options. The Compensation
Committee may make performance share awards independent of or in connection with
the granting of any other award under the Stock Option and Incentive Plan. A
performance share award entitles the recipient to acquire shares of stock upon
the attainment of specified performance goals.
EMPLOYMENT AGREEMENTS
Each of Joseph S. Lesser, Alan L. Gordon, Peter S. Duncan, Bernard B. Falk
and Gary L. Naughton will enter into an employment agreement with the Company
which will be effective as of the completion of the Offering. Each agreement
will have a term of three years, which will be automatically renewed for
successive one-year periods unless otherwise terminated. The agreements will
provide for base annual compensation (as set forth in ' -- Executive
Compensation' above) and incentive compensation to be determined by the
Compensation Committee (within the terms described in ' -- Incentive
Compensation' below). Each of the employment agreements provides for certain
severance payments in the event of disability or termination by the Company
without cause or by the employee with good reason.
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The employment agreements will, subject to certain exceptions, prohibit
each of such persons from engaging, directly or indirectly, during the term of
his employment, in any activity which, directly or indirectly, competes with the
Company within any metropolitan area in which the Company owns properties from
time to time. The exceptions include the Excluded Interests and any investments
in publicly traded real-estate entities representing less than 3% of the equity
ownership of such entity. Pursuant to the agreements, each of such persons will
devote substantially all of his business time to the Company.
INCENTIVE COMPENSATION
The Company may award incentive compensation to employees of the Company
and its subsidiaries, including incentive awards under the 1998 Plan that may be
earned on the attainment of performance objectives or other performance-related
criteria. The Compensation Committee may, in its discretion, approve bonuses to
executive officers and certain other officers and key employees if the Company
achieves Company-wide, regional and/or business unit performance objectives
determined by it each year. To the extent a bonus exceeds 100% of an employee's
base salary, the Company may pay the excess in stock of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by the MGCL, the Company's Charter obligates the Company to
indemnify its present and former directors and officers and to pay or reimburse
expenses for such individuals in advance of the final disposition of a
proceeding to the maximum extent permitted by Maryland law from time to time.
The MGCL permits a corporation to indemnify its present and former 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 or other
capacities, unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to such proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the director or officer actually received an improper
personal benefit in money, property or services, or (c) in the case of any
criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. The by-laws of the Company and separate
indemnification agreements with directors and officers implement the provisions
relating to indemnification contained in the Charter.
The MGCL permits the charter 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, except to the extent that
(i) the person actually received an improper benefit or profit in money,
property or services, or (ii) a judgment or other final adjudication 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. The Company's Charter contains a
provision providing for elimination of the liability of its directors or
officers to the Company or its stockholders for money damages to the maximum
extent permitted by Maryland law from time to time.
FORMATION TRANSACTIONS
In order to facilitate the organization of the Company's business, the
following transactions have been or will be effected:
The Company was formed as a Maryland corporation on February 9,
1998.
The Operating Partnership was formed as a Delaware limited
partnership on May 8, 1998.
The Real Estate Brokerage Subsidiary was formed as a Delaware
corporation on April 15, 1998.
Pursuant to one or more contribution, merger or option agreements
(the 'Contribution Agreements'), entities which own direct or indirect
interests in the Properties, the management business and the real estate
brokerage business will contribute those interests to the Operating
Partnership, or will merge with the Operating Partnership, in exchange for
13,426,066 Units,
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1,148,934 shares of Common Stock, $17.9 million in cash and the assumption
of $385.9 million of mortgage indebtedness. None of Messrs. Lesser, Gordon,
Duncan, Naughton or Falk will receive any cash for their interests in the
Properties. The Operating Partnership will repay an approximately $5.8
million outstanding loan made by the owners of the 63 Madison Avenue
Property to fund capital improvements at the Property. Messrs. Lesser,
Gordon, Duncan, Naughton and Falk and members of their families will
receive an aggregate of approximately $224,000 of these proceeds.
Pursuant to one or more contribution agreements, the entity which
owns the Longboat Key Club will contribute the existing condominium unit
management contracts relating to the Hotel as well as certain other
personal property to Longboat Key Club, L.P. (the lessee) in exchange for
100% of the interests of that entity. The Operating Partnership will lease
the Longboat Key Club to Longboat Key Club, L.P. pursuant to a 10 year
participating lease, the terms of which have been structured so that the
Operating Partnership will receive significant economic benefits from the
operations of the Club and the Hotel.
Prior to the completion of the Offering, the Operating Partnership
will contribute its third party sales and leasing brokerage business to the
Real Estate Brokerage Subsidiary. The Operating Partnership will hold 100%
of the non-voting stock, representing a 95.0% equity interest in the Real
Estate Brokerage Subsidiary. All of the voting stock, representing a 5%
equity interest will be held by officers and directors of the Real Estate
Brokerage Subsidiary.
The Company will sell shares of Common Stock in the Offering and
will contribute the net proceeds from the Offering to the Operating
Partnership in exchange for 13,600,000 Units, which will represent
approximately a 48.3% economic interest in the Operating Partnership after
the Offering.
The Operating Partnership will use approximately $201.7 million of
the net proceeds from the Offering to repay mortgage indebtedness on the
Properties.
In forming the Company, the Company will succeed to the ownership of each
of the Properties or the interests therein based upon a value for such property
determined by the Company. The valuation of the Company as a whole has been
determined based primarily on a multiple of estimated funds from operations and
adjusted funds from operations attributable to all assets of the Company. No
independent third-party appraisals, valuations or fairness opinions have been
obtained by the Company in connection with the Formation Transactions.
Accordingly, there can be no assurance that the value of the Units, Common Stock
and other consideration received in the Formation Transactions by persons or
entities contributing interests in the Formation Transactions is equivalent to
the fair market value of those interests.
The Company's interests in the Properties and its property management and
brokerage businesses will be acquired pursuant to the Contribution Agreements,
the forms of which will be filed as exhibits to the Registration Statement of
which this Prospectus forms a part. The Contribution Agreements will contain
representations and warranties from the contributors in the Formation
Transactions with regard to their authority to enter into the Formation
Transactions and certain other matters. The Contribution Agreements generally
contain representations only with respect to the ownership of the interests by
the holders thereof and certain other limited matters. Pursuant to a
Supplemental Representations and Warranties Agreement (the 'Supplemental
Agreement'), Messrs. Lesser, Gordon and Duncan (the 'Indemnitors') have agreed
to indemnify the Company against certain breaches of representations and
warranties made by such persons with respect to the Properties and the property
management and real estate brokerage businesses being transferred to the
Company, which representations are in some cases limited to the knowledge of any
of the Indemnitors, and all of which expire 12 months following the completion
of the Offering. No liability is being assumed until the aggregage liability
exceeds $250,000. The Indemnitors will pledge an aggregate of $15 million of
Units (based on the initial public offering price of shares of Common Stock)
(the 'Pledged Units') to secure their indemnification obligations under the
Supplemental Agreement. The maximum aggregate liability of the Indemnitors under
the Supplemental Agreement is limited to $10 million collectible solely out of
the Pledged Units received by the Indemnitors in the Formation Transactions,
which amount may not be sufficient in all circumstances to recompense the
Company in the event of material breaches of these representations.
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BENEFITS TO RELATED PARTIES
Certain affiliates of the Company will realize certain material benefits as
a result of the Offering and the Formation Transactions, including the
following:
Investors who owned interests in the Properties and the Company's
property management and real estate brokerage businesses immediately prior
to the Formation Transactions (including Messrs. Lesser, Gordon, Duncan,
Naughton and Falk) will receive 13,426,066 Units and 1,148,934 shares of
Common Stock in consideration for the contribution of those interests to
the Operating Partnership with an aggregate value of approximately $291.5
million (based on the midpoint of the price range set forth on the cover
page of this Prospectus), representing approximately 51.7% of the Company's
equity interests on a fully diluted basis. These interests have a book
value of approximately $64.7 million.
Members of the management of Loeb Partners Realty and Comfort
(Messrs. Lesser, Gordon, Duncan, Naughton and Falk) will become executive
officers and, in the case of Messrs. Lesser, Duncan and Gordon, directors
of the Company. Each of the executive officers will enter into employment
agreements with the Company. See 'Management -- Employment Agreements.'
Also, the Company will grant to directors, officers and employees of the
Company options to purchase an aggregate of approximately 1,127,000 shares
of Common Stock at the initial public offering price under the Stock Option
and Incentive Plan, subject to certain vesting requirements. See
'Management -- Stock Option and Incentive Plan.'
Investors who owned interests in the 63 Madison Avenue Property
prior to the Formation Transactions will receive approximately $5.8 million
of the net cash proceeds of the Offering in repayment of a loan previously
made by those investors to fund improvements at the Property. Messrs.
Lesser, Gordon, Duncan, Naughton and Falk will receive an aggregate of
approximately $224,000 of these proceeds.
The structure of the Formation Transactions will provide Unit
recipients with the opportunity to defer the tax consequences of the
contribution of their interests in the Properties and the property and real
estate brokerage businesses.
The lease with regard to the facilities at the Longboat Key Club
will provide certain of the contributors of the Properties in the Formation
Transactions of the Company with potential economic benefits. Directors and
officers of the Company will own an approximately 4% interest in the
lessee; the balance of the interests in the lessee will be owned by the
former owners of this Property, none of whom is an officer, director or
employee of the Company. See 'Business and Properties -- The
Hospitality/Resort Complex.'
Recipients of Units in the Formation Transactions will have
registration rights with respect to shares of Common Stock issued in
exchange for Units.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's policies with respect to
investments, financing and certain other activities. The Company's policies with
respect to these activities have initially been determined by the Board of
Directors of the Company and may be amended or revised from time to time at the
discretion of the Board of Directors without notice to, or a vote of, the
stockholders of the Company, except that certain policies with respect to
conflicts of interest must be consistent with legal requirements.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. The Company
currently plans to conduct all of its investment activities through the
Operating Partnership. The Company's investment objectives are to increase cash
flow and the value of the Properties, and to acquire various types of properties
with cash flow growth potential. Additionally, where prudent and possible, the
Company will seek to upgrade the existing Properties and any newly acquired
properties. The Company will invest opportunistically in various property types
rather than focusing on any one asset type, but the Company expects that a
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significant amount of its investment activity, initially, will be focused on
office properties. Where appropriate, and subject to REIT qualification rules,
the Operating Partnership may sell certain of its properties.
The Company expects to pursue its investment objectives through the direct
and indirect ownership of properties and the ownership of interests in other
entities. The Company will focus on properties in those markets where the
Company currently has operations and in new markets targeted by management. See
'Business and Growth Strategies.' The Company anticipates that newly acquired
properties will be located in the United States. Future investments, however,
including the activities described below, will not be limited to any geographic
area or to a specified percentage of the Company's assets.
The Company also may participate with other entities in property ownership
through joint ventures or other types of co-ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness or such financing
or indebtedness may be incurred in connection with acquiring investments. Any
such financing or indebtedness will have priority over the Company's equity
interest in such property.
Investments in Real Estate Mortgages. While the Company's emphasis will be
on equity real estate investments, it may, in its discretion, invest in
mortgages on office properties and other similar interests. The Company does not
intend to invest to a significant extent in mortgages or deeds of trust, but may
acquire mortgages as a strategy for acquiring ownership of a property or the
economic equivalent thereof, subject to the investment restrictions applicable
to REITs. See 'Federal Income Tax Considerations -- Taxation of the
Company -- Income Tests' and ' -- Asset Tests.' In addition, the Company may
invest in mortgage-related securities and/or may seek to issue securities
representing interests in such mortgage-related securities as a method of
raising additional funds.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Although the Company has no current intention of
making such an investment, the Company also may legally invest in securities of
entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities, subject to
the gross income and asset tests necessary for REIT qualification. The Company
may acquire all or substantially all of the securities or assets of other REITs
or similar entities where such investments would be consistent with the
Company's investment policies. In any event, the Company does not intend that
its investments in securities will require it or the Operating Partnership to
register as an 'investment company' under the Investment Company Act of 1940, as
amended.
FINANCING POLICIES
The Company does not have a policy limiting the amount of indebtedness that
the Company may incur. In addition, the Charter and By-laws do not limit the
percentage of indebtedness that the Company may incur. The Company has not
established any limit on the number or amount of mortgages that may be placed on
any single property or on its portfolio as a whole. Upon completion of the
Offering, the Company's Debt-to-Market Capitalization Ratio will be
approximately 24.6%. See 'Business and Properties--Debt Financing.'
The Board of Directors will consider a number of factors when evaluating
the Company's level of indebtedness and when making decisions regarding the
incurrence of indebtedness, including the purchase price of properties to be
acquired with debt financing, the estimated market value of its properties upon
refinancing and the ability of particular properties and the Company as a whole
to generate cash flow to cover expected debt service. See 'Risk Factors,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and 'Business and
Properties -- Debt Financing.'
To the extent that the Board of Directors of the Company determines to
obtain additional capital, the Company may issue debt or equity securities, or
cause the Operating Partnership to issue additional Units, or retain earnings
(subject to provisions in the Code requiring distributions of income to maintain
REIT status), or a combination of these methods. As long as the Operating
Partnership is in existence, the proceeds of all equity capital raised by the
Company will be contributed to the Operating
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Partnership in exchange for additional interests in the Operating Partnership,
which will dilute the ownership interest, if any, of the other partners.
To the extent that the Board of Directors determines to obtain additional
debt financing, the Company intends to do so generally through mortgages on its
properties and lines of credit. These mortgages may be recourse, nonrecourse or
cross-collateralized and may contain cross-default provisions. Future credit
facilities and lines of credit may be used for the purpose of making
acquisitions or capital improvements or providing working capital to the Company
or meeting the taxable income distribution requirements for REITs under the Code
if the Company has taxable income without receipt of cash sufficient to enable
the Company to meet such distribution requirements.
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies and entered into certain
agreements designed to minimize potential conflicts of interest. See
'Management -- Employment Agreements.' The Company's Board of Directors is
subject to certain provisions of Maryland law, which are designed to eliminate
or minimize certain potential conflicts of interest. However, there can be no
assurance that these policies always will be successful in eliminating the
influence of conflicts, and if they are not successful, decisions could be made
that might fail to reflect fully the interests of all stockholders.
Affiliate Transactions. The Company has adopted a policy that, without the
approval of a majority of the disinterested Directors, it will not (i) acquire
from or sell to any director, officer or employee of the Company, or any entity
in which a director, officer or employee of the Company beneficially owns more
than a 1% interest, or acquire from or sell to any affiliate of any of the
foregoing, any of the assets or other property of the Company, (ii) make any
loan to borrow from any of the foregoing persons or (iii) engage in any other
transaction with any of the foregoing persons.
The Operating Partnership. A conflict of interest may arise between the
Company and the Limited Partners of the Operating Partnership, due to the
possibility that a disproportionately large share of any gain recognized from
the sale of any of the Properties contributed by the Limited Partners, directly
or indirectly, to the Operating Partnership will be allocated to the Limited
Partners. The Operating Partnership Agreement gives the General Partner, full,
complete and exclusive discretion in managing and controlling the business of
the Operating Partnership and in making all decisions affecting the business and
assets of the Operating Partnership. In addition, the Company's By-laws provide
that any transaction (including the sale of a real estate asset) involving the
Company in which an advisor, director, officer of shareholder of the Company, or
any affiliate of the foregoing, has a direct or indirect interest other than
solely as a result of his status as an advisor, director, officer, or
shareholder of the Company, must be approved by a majority of the disinterested
directors. Pursuant to the Operating Partnership Agreement, the Limited Partners
have agreed that in the event of any conflict in the fiduciary duties owed by
the Company to its shareholders, and by the General Partner to such Limited
Partners, the General Partner will fulfill its fiduciary duties to such Limited
Partners by acting in the best interests of the Company's shareholders. In
addition, the General Partner is not responsible for any misconduct or
negligence on the part of its agents, provided that the General Partner
appointed such agents in good faith.
Provisions of Maryland Law. Pursuant to Maryland law (the jurisdiction
under which the Company is organized), each Director is required to discharge
his duties in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and in a manner he
reasonably believes to be in the best interest of the Company. In addition,
under Maryland law, a transaction between the Company and any of its Directors
or between the Company and a corporation, firm or other entity in which a
Director is a director or has a material financial interest is not void or
voidable solely because of the Director's directorship or the Director's
interest in the transaction if (i) the transaction is authorized, approved or
ratified, after disclosure of the interest, by the affirmative vote of a
majority of the votes cast by shareholders entitled to vote other than the votes
of shares owned of record or beneficially by the interested Director or
corporation, firm or other entity, or (ii) the transaction is fair and
reasonable to the Company.
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POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company may, although it does not currently intend to, make
acquisitions and investments other than as previously described. The Company has
authority to issue senior securities although it has no current plans for such
issuance.
The Company also has authority to offer its shares of Common Stock or other
equity or debt securities in exchange for property and to repurchase or
otherwise reacquire its Common Stock or any other securities and may engage in
such activities in the future. The Company also may make loans to joint ventures
in which it participates. The Company will not engage in trading, underwriting,
or the agency distribution or sale of securities of other issuers. At all times,
the Company intends to make investments in such a manner as to be consistent
with the requirements of the Code to qualify as a REIT unless, because of the
circumstances or changes in the Code (or the regulations promulgated
thereunder), the Board of Directors determines that it is no longer in the best
interests of the Company to continue to have the Company qualify as a REIT. The
Company's policies with respect to such activities may be reviewed and modified
from time to time by the Company's directors without notice to, or the vote of,
the stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION TRANSACTIONS
The terms of the acquisitions of interests in the Properties and in the
property management and real estate brokerage businesses of Loeb Partners Realty
and Comfort, and the benefits of those transactions to related parties, are
described in 'Formation Transactions.'
OPERATING PARTNERSHIP AGREEMENT
For a description of the rights of recipients of Units to exchange their
Units for Common Stock, see 'The Operating Partnership Agreement.'
REGISTRATION RIGHTS
For a description of certain registration rights held by related parties,
see 'Shares Available for Future Sale.'
LONGBOAT KEY CLUB
Directors and officers of the Company own a 4% interest in the lessee of
the Longboat Key Club and, as a result, will benefit from the lease arrangement
between the Operating Partnership and the lessee. See 'Business and
Properties -- The Hospitality/Resort Complex.'
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of shares of Common
Stock for (i) each director (and director nominee) of the Company, (ii) each
executive officer of the Company, (iii) the directors and executive officers of
the Company as a group, and (iv) each person who is expected to be the
beneficial owner of 5% or more of the outstanding shares of the Common Stock
immediately following the Offering. Unless otherwise indicated, all of such
interests are owned directly, and the indicated person or entity has sole voting
and investment power. The number of shares of Common Stock represents the number
of shares the person is expected to hold in addition to the number of shares of
Common Stock into which Units expected to be held by such person are redeemable.
<TABLE>
<CAPTION>
COMMON STOCK PERCENT OF PERCENT OF
AND UNITS ALL COMMON ALL COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK(1) STOCK AND UNITS(2)
- ----------------------------------------------------------- ------------------ ---------- ------------------
<S> <C> <C> <C>
Joseph S. Lesser........................................... 1,166,399 7.3% 4.1%
Alan L. Gordon............................................. 596,750 3.9 2.1
Peter S. Duncan............................................ 735,491 4.9 2.6
Gary H. Naughton........................................... 19,191 * *
Bernard B. Falk............................................ 105,464 * *
Abercromby Property International.......................... 2,976,324 16.7 10.6
Directors and executive officers as a group (five
persons)................................................. 5,599,619 32.8% 19.4%
</TABLE>
- ------------
* Less than 1%.
(1) Assumes that all Units held by the person are redeemed for shares of Common
Stock and assumes that none of the Units held by other persons are redeemed
for shares of Common Stock.
(2) Assumes that all Units held by the person and all other holders of Units are
redeemed.
DESCRIPTION OF SECURITIES
The following summary of the terms of the capital stock of the Company set
forth below does not purport to be complete and is subject to and qualified in
its entirety by reference to the Charter and by-laws of the Company, copies of
which are exhibits to the Registration Statement of which this Prospectus is a
part. See 'Additional Information.'
GENERAL
The Company's Charter provides that the Company may issue up to 200 million
shares of capital stock, all with a par value of $.001 per share. Initially, all
of such shares will be designated as Common Stock. As of February 9, 1997, 100
shares of Common Stock were issued and outstanding. Upon completion of the
Offering and the related transactions, 28,175,100 shares of Common Stock will be
issued and outstanding (or subject to issuance upon exchange of Units).
The Board of Directors is authorized to classify and reclassify any
unissued shares of capital stock to provide for the issuance of shares in other
classes or series, including preferred stock in one or more series, to establish
the number of shares in each class or series and to fix the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of such class
or series.
COMMON STOCK
All shares of Common Stock offered hereby when issued will be duly
authorized, fully paid and nonassessable. The holders of the Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. No cumulative voting rights for the election of
directors will attach to shares of Common Stock. Subject to the provisions of
law and any preferential rights with respect to any outstanding capital stock of
the Company, holders of Common Stock are entitled to receive ratably such
dividends or other distributions as may be declared by the Board of
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Directors out of funds legally available therefor. The Company currently intends
to pay regular quarterly distributions. If the Company is liquidated or
dissolved, subject to the right of any holders of the capital stock of the
Company Stock to receive preferential distributions, each outstanding share of
Common Stock will be entitled to participate ratably in the assets remaining
after payment of, or adequate provision for, all known debts and liabilities of
the Company.
Holders of shares of Common Stock have no conversion, sinking fund,
redemption or preemptive rights to subscribe for any securities of the Company.
The transfer agent and registrar for the Common Stock is .
ADDITIONAL CLASSES OF STOCK
Additional classes of stock, including preferred stock, may be issued from
time to time, in one or more series, as authorized by the Board of Directors.
Prior to issuance of shares of each series, the Board of Directors is required
by the MGCL and the Company's Charter to set for each such series, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to the dividends or other distributions, qualifications and terms
or conditions of redemption, as are permitted under Maryland law. The Board of
Directors could authorize the issuance of capital stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction which holders of some, or a majority, of the Common Stock might
believe to be in their best interests or in which holders of some, or a
majority, of the Common Stock might receive a premium for their Common Stock
over the then market price of such Common Stock. As of the date hereof, no
preferred stock is outstanding and the Company has no present plans to issue any
preferred stock.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of outstanding shares. Specifically, not
more than 50% of its outstanding shares of Stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year of the Company's existence) or during a proportionate part of a shorter
taxable year, and the shares must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year; and certain percentages of the
Company's gross income must be from particular activities. Because the Directors
believe it is essential for the Company to continue to qualify as a REIT, the
Company's Charter, subject to certain exceptions, provides that no holder (other
than any person approved by the Directors, at their option and in their
discretion, provided that such approval will not result in the termination of
the status of the Company as a REIT) may own, directly or by virtue of the
attribution provisions of the Code, more than 9.8% (in value or number of
shares, whichever is more restrictive) (the 'Ownership Limit'), of the issued
and outstanding shares of Common Stock or more than 9.8% (in value) of the
issued and outstanding shares of the Company's capital stock. As a condition of
waiver, the Directors may require opinions of counsel satisfactory to it and
undertakings or representations from the applicant with respect to preserving
the REIT status of the Company. The foregoing restrictions on transferability
and ownership will not apply if the Directors determine that it is no longer in
the best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT.
If any transfer of shares occurs which, if effected, would result in the
Common Stock being owned by fewer than 100 persons, that transfer will be deemed
null and void. If any transfer of shares occurs which, if effected, would (i)
create a direct or indirect ownership of shares in excess of the Ownership
Limit, (ii) result in the Company being 'closely held' within the meaning of
Section 856(h) of the Code, or (iii) result in the Company owning 10% or more of
the ownership interests in one of its tenants or would otherwise result in the
Company failing to qualify as a REIT, then the excess capital stock being
transferred that would cause one or more of the restrictions on ownership or
transfer to be violated will be automatically transferred to a trust for the
benefit of a designated charitable beneficiary. The purported transferee of such
shares shall have no right to receive dividends or other distributions with
respect to such shares and shall have no right to vote such shares. Any
dividends or other distributions
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paid to such purported transferee prior to the discovery by the Company that the
shares have been transferred to a trust shall be paid upon demand to the trustee
of the trust for the benefit of the charitable beneficiary. The trustee of the
trust will have all rights to dividends with respect to the shares of capital
stock held in trust, which rights will be exercised for the exclusive benefit of
the charitable beneficiary. Any dividends or distributions paid over to the
trustee will be held in trust of the charitable beneficiary. The trustee shall
designate a transferee of such stock so long as such shares of stock would not
violate the ownership limitations in the hands of such designated transferee.
Upon the sale of such shares, the purported transferee shall receive the lesser
of (A)(i) the price per share such purported transferee paid for the capital
stock in the purported transfer that resulted in the transfer of shares of
capital stock to the trust, or (ii) if the transfer or other event that resulted
in the transfer of shares of capital stock to the trust was not a transaction in
which the purported record transferee of shares of capital stock gave full value
for such shares, a price per share equal to the market price on the date of the
purported transfer or other event that resulted in the transfer of the shares to
the trust, or (B) the price per share received by the trustee from the sale or
disposition of the shares held in the trust.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 1% of the outstanding Common Stock (or such other percentage
as may be required by the Code or Treasury Regulations) must file an affidavit
with the Company containing the information specified in the Charter within 30
days after January 1 of each year. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information with
respect to the direct, indirect and constructive ownership of shares as the
Board of Directors deems necessary to determine the Company's status as a REIT
and to insure compliance with the Ownership Limit.
These ownership limitations may have the effect of precluding acquisitions
of control of the Company unless the Board of Directors determines that
maintenance of REIT status is no longer in the best interests of the Company.
LIMITATION OF LIABILITY OF DIRECTORS
The Company's Charter provides that, to the fullest extent permitted by
Maryland law, a Director or officer will not be personally liable for monetary
damages to the Company or its stockholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Charter provides that the Company shall indemnify (i) its
Directors and officers to the full extent required or permitted by Maryland law,
including the advance of expenses under the procedures and to the full extent
permitted by law and (ii) other employees and agents to such extent as shall be
authorized by the Board or the Company's By-laws and be permitted by law. The
Charter provides that no amendment of the Company's charter or repeal of any of
its provisions shall limit or eliminate the right to indemnification provided
thereunder with respect to acts or omissions occurring prior to such amendment
or repeal.
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SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offering and the related transactions, there will be
14,749,034 shares of Common Stock issued and outstanding (16,789,034 shares if
the Underwriters' over-allotment option is exercised in full), including 100
shares of Common Stock issued prior to the Offering to Joseph S. Lesser and
1,148,934 shares of Common Stock issued in connection with the Formation
Transactions. In addition, shares of Common Stock are reserved for issuance upon
exchange of Units. The 13,600,000 shares of Common Stock (15,640,000 shares if
the Underwriters' over-allotment option is exercised in full) issued in the
Offering will be freely tradeable without registration or other restrictions
under the Securities Act. As described in the section entitled 'Description of
Securities -- Restrictions on Transfer,' the Common Stock is subject to other
restrictions to facilitate the maintenance of REIT status by the Company. The
100 shares of Common Stock held by Joseph S. Lesser, the Common Stock issued in
connection with the Formation Transactions, the Common Stock issuable under the
Stock Option Plan and the Common Stock issued to affiliates of the Company upon
exchange of Units (collectively, 'Restricted Stock'), will be 'restricted stock'
under the meaning of Rule 144 under the Securities Act and may be sold only
pursuant to an effective registration statement under the Securities Act or an
applicable exemption, including an exemption under Rule 144.
The Company and the directors and officers of the Company will be required
to enter into a lock-up agreement with the Underwriters pursuant to which they
will not be permitted to, subject to certain exceptions, without the prior
written consent of Smith Barney Inc., offer, sell, contract to sell or otherwise
dispose of any Common Stock (including Common Stock acquired upon redemption of
Units) for one year after the date of this Prospectus. See 'Underwriting.' After
expiration of such lock-up period, the holders of the Units, after notifying the
Company of its or their intention, will be permitted to sell Common Stock
received or to be received in exchange for the Units. As described below, it is
expected that the Company will file a registration statement with respect to
such Common Stock. Similarly, by the expiration of the lock-up period, the
Company expects to have filed a registration statement with respect to the
Common Stock issuable under the Stock Option Plan, which Common Stock may be
resold without restriction, unless held by affiliates. The Company will pay all
costs and expenses, other than underwriting discounts, in connection with any
such registration.
The holders of Restricted Stock also may be able to sell their Common Stock
after the lock-up period without registration in accordance with the exemptions
provided by Rule 144 under the Securities Act. In general, under Rule 144 as
currently in effect, if one year has elapsed since the later of the date of
acquisition of Restricted Stock from the Company or any 'affiliate' of the
Company, as that term is defined under the Securities Act, the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly trading volume of the Common Stock
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission (the
'Commission'). Sales under Rule 144 also are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the date of
acquisition of Restricted Stock from the Company or from any 'affiliate' of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days immediately
preceding a sale, such person is entitled to sell such shares in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
Prior to the Offering, there has been no public market for the Common
Stock. Trading of the Common Stock on the New York Stock Exchange is expected to
commence immediately following the completion of the Offering. No prediction can
be made as to the effect, if any, that future market sales of Common Stock or
the availability of Common Stock for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock or the perception that such sales may occur could adversely affect
prevailing market prices for the Common Stock.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND BY-LAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Charter and by-laws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to Maryland law and
the Company's Charter and by-laws for complete information.
CERTAIN CHARTER AND BY-LAW PROVISIONS
Classified Board. The Company's Charter and by-laws provide that the number
of directors of the Company initially shall be seven, and thereafter may be
increased or decreased pursuant to the by-laws of the Company, but shall never
be less than the minimum number permitted by the MGCL. The directors will be
divided into three classes, with their terms expiring over a staggered
three-year term. Under the Charter, a majority of the entire Board of Directors
will consist of persons who are not employees or affiliates of the Company.
Because stockholders will have no right to cumulative voting for the election of
directors, at each annual meeting of stockholders, the holders of a majority of
the shares of Common Stock will be able to elect all of the successors to the
class of directors whose term expires at that meeting.
Removal; Filling of Board Vacancies. The Charter provides that, subject to
the rights of the holders of any class separately entitled to elect one or more
directors, any director, or the entire Board of Directors, may be removed only
for cause and then only by the affirmative vote of at least a majority of the
votes entitled to be cast in the election of directors. Subject to the rights of
the holders of any class separately entitled to elect one or more directors,
vacancies on the Board of Directors resulting from death, resignation, removal,
retirement or other cause will be filled by a vote of the stockholders or a
majority of the directors then in office. A director so chosen by the
stockholders shall hold office for the balance of the term then remaining. A
director so chosen by the remaining directors shall hold office until the next
annual meeting of stockholders, at which time the stockholders shall elect a
director to hold office for the balance of the term then remaining.
Other Constituencies. The Board of Directors, when evaluating any offer,
bid, proposal or similar communication of another party to: (i) make a tender or
exchange offer for any equity security of the Company; (ii) merge or consolidate
the Company with or into another corporation or corporations; or (iii) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Company, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Company and its stockholders,
give due consideration to all relevant factors, including, without limitation,
the social, economic and regulatory effects on the Company, on employees,
providers and payors of the Company and its subsidiaries, on residents and
families served by the Company and its subsidiaries, on operations of the
Company's subsidiaries and on the communities in which the Company and its
subsidiaries operate or are located.
Stockholder Action by Unanimous Written Consent. Any action required or
permitted to be taken by the stockholders must be effected at a duly called
annual or special meeting of such holders and may not be effected by any consent
in writing by such holders, unless such consent is unanimous and each holder
entitled to notice of such meeting but not to vote on the matter signs a waiver
of a right to dissent.
Call of Special Meeting. Special meetings of stockholders may be called at
any time but only by the Chairman of the Board, the President, by a majority of
the directors then in office or by stockholders possessing at least 25% of the
voting power of the issued and outstanding voting stock entitled to cast votes
at the meeting.
By-law Amendments. The stockholders may amend the By-laws by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of stock of the Company entitled to vote thereon. Directors may also amend the
By-laws by a two-thirds vote of the directors then in office.
Charter Amendments. Except as set forth in the Charter or as otherwise
specifically required by law, no amendment of any provision of the Charter shall
be made unless such amendment has been approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of stock
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of the Company entitled to vote thereon; provided, however, if such amendment is
to the provisions described above or the provisions in the Charter relating to
Board authority to issue shares of stock of any class; the limitation on
directors' liability; the classified Board requirements; or other provisions
relating to the Board, such amendment must be approved by the affirmative vote
of the holders of at least two-thirds of the outstanding shares of stock
entitled to vote thereon.
Stockholder Nominations and Proposals. Notice of stockholder proposals and
director nominations must be timely given in writing to the Secretary of the
Company prior to the meeting at which the matters are to be acted upon or the
directors are to be elected. To be timely, notice must be received at the
principal offices of the Company not less than 30, nor more than 60, days prior
to the meeting of stockholders; provided, that if less than 31 days' notice or
prior public disclosure of the date of the meeting is given or made, notice by
the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the date of the
meeting was mailed or the day on which public disclosure was made, whichever
first occurs. The purpose of requiring advance notice is to afford the Board of
Directors an opportunity to consider the qualifications of the proposed nominees
or the merits of other stockholder proposals and, to the extent deemed necessary
or desirable by the Board of Directors, to inform stockholders about those
matters.
CHANGES IN CONTROL PURSUANT TO MARYLAND LAW
Business Combination Law. Under the MGCL, certain 'business combinations'
(including certain issuances of equity securities) between a Maryland
corporation and any Interested Stockholder or an affiliate of the Interested
Stockholder are prohibited for five years after the most recent date on which
the Interested Stockholder becomes an Interested Stockholder. Thereafter, any
such business combination must be recommended by the Board of Directors of such
corporation and approved by two super-majority stockholder votes unless, among
other conditions, the corporation's common stockholders receive a minimum price
(as defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its common shares. The Company has elected not to have the business combination
statute apply to the Company, although the Board of Directors may elect to have
this statute apply to the Company in the future.
Control Share Acquisitions. Subtitle 7 of Title 3 of the MGCL (the
'Maryland Control Share Act') generally provides that control shares (as defined
below) of a Maryland corporation acquired in a control share acquisition (as
defined below) have no voting rights, unless voting rights for such shares shall
have been approved at a meeting of the stockholders of the corporation by the
affirmative vote of two-thirds of all votes entitled to be cast on the matter
(other than interested shares, as defined below) or, among other exceptions,
such acquisition of shares is made pursuant to a merger agreement with the
corporation or, prior to the acquiring person's acquisition thereof, the
corporation's charter or by-laws permit the acquisition of such shares. If the
acquiring person so requests, the corporation is required to hold a
stockholders' meeting to consider the authorization of voting rights to control
shares within 50 days after a demand is made by the acquiring person, provided
that, among other things, such acquiring person has delivered to the corporation
a copy of a definitive agreement or agreements with respect to any amount of
financing of the control share acquisition that is not provided by the acquiring
person and has agreed to pay the corporation's expenses of the meeting.
'Control shares' generally means voting shares of stock which, if
aggregated with all other such shares of stock previously acquired by the
acquiring person or in respect of which the acquiring person is able to exercise
or direct the exercise of voting power (except solely by virtue of a revocable
proxy), would entitle the acquiring person to exercise voting power in electing
directors within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority,
or (iii) a majority or more of all voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval. 'Control share acquisition' generally
means the acquisition of ownership of, or the right to direct the exercise of
voting power with respect to, issued and outstanding control shares, but does
not include the acquisition of shares in a merger, consolidation or share
exchange to which the corporation is a party. 'Interested shares' generally
means shares of a corporation in respect of which an acquiring
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person, an officer of the corporation or an employee of the corporation who is
also a director of the corporation is entitled to exercise voting power in the
election of directors.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by Maryland law,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiring person or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiring person becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise appraisal rights.
The fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiring person in
the control share acquisition.
The Maryland Control Share Act does not apply (a) to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction or (b) to acquisitions approved or exempted by the articles of
incorporation or by-laws of the corporation.
The provisions in the Charter on removal of directors, the provisions of
the MGCL regarding business combinations and control share acquisitions and the
advance notice provisions of the by-laws could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
shares of Common 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 interests.
The Company has elected not to have the Maryland Control Share Act apply to
it, although the Board of Directors may elect to have this Act apply to the
Company in the future.
THE OPERATING PARTNERSHIP AGREEMENT
The following summary of the Operating Partnership Agreement describes the
material provisions of that agreement. This summary is qualified in its entirety
by reference to the Operating Partnership Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
GENERAL
The Operating Partnership was organized as a Delaware limited partnership
on May 8, 1998. The Company is the sole general partner of, and will initially
hold approximately 48.3% of the economic interests in, the Operating
Partnership. The Company will hold a one percent general partner interest in the
Operating Partnership and the balance will be held as a limited partner
interest. The Company will conduct substantially all of its business through the
Operating Partnership and its subsidiaries. Holders of Units (other than the
Company in its capacity as general partner) will hold a limited partnership
interest in the Operating Partnership, and all holders of Units (including the
Company in its capacity as general partner) will be entitled to share in cash
distributions from, and in the profits and losses of, the Operating Partnership.
Each Unit generally will receive distributions in the same amount paid on each
share of Common Stock. See 'Distributions.'
Holders of Units will have the rights to which limited partners are
entitled under the Partnership Agreement and, to the extent not limited by the
Partnership Agreement, the Delaware Revised Uniform Limited Partnership Act (the
'Act'). The Units have not been and are not expected to be registered pursuant
to any federal or state securities laws or listed on any exchange or quoted on
any national market system. The Partnership Agreement imposes certain
restrictions on the transfer of Units, as described below.
Purposes, Business and Management. The purpose of the Operating Partnership
includes the conduct of any business that may be lawfully conducted by a limited
partnership formed under the Act, except that the Partnership Agreement requires
the business of the Operating Partnership to be conducted in such a manner that
will permit the Company to be classified as a REIT under Section 856 of the
Code, unless the Company ceases to qualify as a REIT for reasons other than the
conduct of the
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business of the Operating Partnership. Subject to the foregoing limitation, the
Operating Partnership may enter into partnerships, joint ventures or similar
arrangements and may own interests directly or indirectly in any other entity.
Pursuant to the Operating Partnership Agreement, the Company, as the sole
general partner of the Operating Partnership, generally has full, exclusive and
complete responsibility and discretion in the management, operation and control
of the Operating Partnership, including the ability to cause the Operating
Partnership to enter into certain major transactions, such as acquisitions,
developments and dispositions of properties and refinancings of existing
indebtedness. The consent of the limited partners will be required in certain
circumstances described below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units. Certain restrictions apply to the Company's
ability to engage in a Business Combination, as described more fully under
' -- Extraordinary Transactions' below.
The Company may not conduct any business other than the business of the
Operating Partnership without the consent of the holders of a majority of the
limited partnership interests (not including the limited partnership interests
held by the Company in its capacity as a limited partner in the Operating
Partnership).
Reimbursement of the Company; Transactions with the Company and its
Affiliates. The Company will not receive any compensation for its services as
general partner of the Operating Partnership. The Company, however, as a partner
in the Operating Partnership, has the same right to allocations and
distributions as other partners in the Operating Partnership. In addition, the
Operating Partnership will reimburse the Company for substantially all expenses
it incurs relating to the ongoing operation of the Company and offerings of
Units or shares of Common Stock (or rights, options, warrants or convertible or
exchangeable securities).
Except as expressly permitted by the Partnership Agreement, affiliates of
the Company will not engage in any transactions with the Operating Partnership
except on terms that are fair and reasonable and no less favorable to the
Operating Partnership than would be obtained from an unaffiliated third party.
Removal of General Partner. The Operating Partnership provides that the
limited partners may not remove the Company as general partner of the Operating
Partnership. See 'Policies with Respect to Certain Activities -- Conflict of
Interest Policies.'
Borrowing by the Operating Partnership. The Company is authorized to cause
the Operating Partnership to borrow money and to issue and guarantee debt as it
deems necessary for the conduct of the activities of the Operating Partnership.
Such debt may be secured by mortgages, deeds of trust, liens or encumbrances on
properties of the Operating Partnership. The Company also may cause the
Operating Partnership to borrow money to enable the Operating Partnership to
make distributions, including distributions in an amount sufficient to permit
the Company, as long as it qualifies as a REIT, to avoid the payment of any
Federal income tax.
FIDUCIARY DUTIES
The limited partners of the Operating Partnership have agreed that in the
event of any conflict in the fiduciary duties owed by the Company to its
stockholders and by the Company, as general partner of the Operating
Partnership, to such limited partners, the Company may act in the best interests
of the Company's stockholders without violating its fiduciary duties to such
limited partners or being liable for any resulting breach of its duties to the
limited partners.
AMENDMENTS OF THE OPERATING PARTNERSHIP AGREEMENT
Amendments to the Operating Partnership Agreement may be proposed by the
Company or by limited partners owning at least 20% of the Units.
Generally, the Operating Partnership Agreement may be amended with the
approval of the Company, as general partner, and limited partners (including the
Company) holding a majority of the Units. Certain amendments that would, among
other things, convert a limited partner's interest into a
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general partner's interest, modify the limited liability of a limited partner,
alter the interest of a partner in profits or losses or the right to receive any
distributions, alter or modify the redemption right described below, or cause
the termination of the Operating Partnership at a time or on terms inconsistent
with those set forth in the Operating Partnership Agreement must be approved by
the Company and each limited partner that would be adversely affected by such
amendment. Notwithstanding the foregoing, the Company, as general partner, will
have the power, without the consent of the limited partners, to amend the
Operating Partnership Agreement as may be required to (1) add to the obligations
of the Company as general partner or surrender any right or power granted to the
Company as general partner; (2) reflect the admission, substitution, termination
or withdrawal of partners in accordance with the terms of the Operating
Partnership Agreement; (3) establish the rights, powers, duties and preferences
of any additional partnership interests issued in accordance with the terms of
the Operating Partnership Agreement; (4) reflect a change of an inconsequential
nature that does not materially adversely affect the limited partners, or cure
any ambiguity, correct or supplement any provisions of the Operating Partnership
Agreement not inconsistent with law or with other provisions of the Operating
Partnership Agreement, or make other changes concerning matters under the
Operating Partnership Agreement that are not otherwise inconsistent with the
Operating Partnership Agreement or law; or (5) satisfy any requirements of
federal or state law. Certain provisions affecting the rights and duties of the
Company as general partner (e.g., restrictions on the Company's power to conduct
businesses other than owning Units; restrictions relating to the issuance of
securities of the Company and related capital contributions to the Operating
Partnership; restrictions relating to certain extraordinary transactions
involving the Company or the Operating Partnership) may not be amended without
the approval of a majority or, in certain instances, a super majority of the
Units not held by the Company.
TRANSFER OF INTERESTS
Restrictions on Transfer of the Company's Interest. The Company may not
transfer any of its interests as general or limited partner in the Operating
Partnership, except (i) in connection with a merger or sale of all or
substantially all of its assets, in which the limited partners in the Operating
Partnership either will receive, or will have the right to receive,
substantially the same consideration as holders of shares of Common Stock, and
for which it has obtained the requisite approval in accordance with the terms of
the Operating Partnership Agreement, (ii) if the limited partners holding at
least three-fourths of the Units (excluding Units owned by the Company) consent
to such transfer or (iii) to certain affiliates of the Company.
Transfer of Units; Substitute Limited Partners. The Operating Partnership
Agreement provides that limited partners generally may transfer their Units
without the consent of any other person, but may substitute a transferee as a
limited partner only with the prior written consent of the Company as the sole
general partner of the Operating Partnership, (which consent cannot be
unreasonably withheld). If the Company does not consent to the admission of a
transferee of Units as a substituted limited partner, then the transferee will
succeed to all economic rights and benefits attributable to such Units
(including the redemption right described below), but will not become a limited
partner or possess any other rights of limited partners (including the right to
vote). In addition, limited partners may not transfer Units in any event until
the one-year anniversary of the Offering or in violation of certain regulatory
and other restrictions set forth in the Operating Partnership Agreement. Any
attempted transfer in violation of this restriction will be void ab initio and
without any force or effect. Beginning one year after the completion of the
Offering, limited partners (other than the Company) will be permitted to
transfer all or any portion of their Units without restriction as long as they
satisfy certain requirements set forth in the Partnership Agreement. In
addition, limited partners will be permitted to dispose of their Units following
the expiration of the 12-month period following the completion of the Offering
by exercising the redemption right described below. See ' -- Redemption of
Units' below.
REDEMPTION OF UNITS
Beginning 12 months after the completion of the Offering, the Operating
Partnership will be obligated to redeem each Unit at the request of the holder
thereof for cash equal to the fair market
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value of one share of Common Stock at the time of such redemption (as determined
in accordance with the provisions of the Operating Partnership Agreement),
provided that the Company may elect to acquire any such Unit presented for
redemption for one share of Common Stock or an amount of cash of the same value.
The Company presently anticipates that it will elect to issue Common Stock in
connection with each such redemption rather than having the Operating
Partnership pay cash. With each such redemption, the Company's percentage
ownership interest in the Operating Partnership will increase. Persons other
than the Company who acquire Units in the Formation Transactions will have
certain rights, pursuant to a separate registration rights agreement, to have
the issuance of shares of Common Stock that may be issued to them in exchange
for their Units, or the resale of such shares by them, registered under the
Securities Act. See 'Shares Available for Future Sale.'
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
The Company is authorized, without the consent of the limited partners, to
cause the Operating Partnership to issue additional Units to the Company, to the
limited partners or to other persons for such consideration and on such terms
and conditions as the Company deems appropriate. If additional Units are issued
to the Company, then the Company must (i) issue additional shares of Common
Stock and must contribute to the Operating Partnership the entire proceeds
received by the Company from such issuance or (ii) issue additional Units to all
partners in proportion to their respective interests in the Operating
Partnership. In addition, the Company may cause the Operating Partnership to
issue to the Company additional partnership interests in different series or
classes, which may be senior to the Units, in conjunction with an offering of
securities of the Company having substantially similar rights, in which the
proceeds thereof are contributed to the Operating Partnership. Consideration for
additional partnership interests may be cash or other property or assets. No
limited partner has preemptive, preferential or similar rights with respect to
additional capital contributions to the Operating Partnership or the issuance or
sale of any partnership interests therein.
EXTRAORDINARY TRANSACTIONS
The Operating Partnership Agreement provides that the Company may not
generally engage in any merger, consolidation or other combination with or into
another person or sale of all or substantially all of its assets, or any
reclassification, or any recapitalization or change of outstanding shares of
Common Stock (a 'Business Combination'), unless in connection with the Business
Combination, (i) each limited partner either will receive, or will have the
right to elect to receive, for each Unit held by the limited partner, an amount
of cash, securities (which may be operating partnership units of a subsidiary of
the surviving corporation rather than common stock of the surviving corporation)
or other property equal to the product of the number of shares of Common Stock
for which each Unit may then be redeemed and the greatest amount of cash,
securities or other property paid to the holder of one share of Common Stock in
consideration of one share of Common Stock at any time during the period from
and after the date on which the Business Combination is consummated; and (ii)
the Business Combination is structured so that the holders of Units will not
suffer adverse economic consequences from any gain recognized for federal income
tax purposes by the holders of Units by virtue of their participation in the
Business Combination, and to otherwise preserve the rights, preferences and
privileges of the limited partners which are in effect immediately prior to the
consummation of the Business Combination. If holders of Units will not be
treated in such manner in connection with a proposed Business Combination, the
Company may not engage in such transaction unless limited partners (other than
the Company) holding more than 50% of the Units held by limited partners vote to
approve the Business Combination. In addition, the Company, as general partner
of the Operating Partnership, has agreed in the Operating Partnership Agreement
with the limited partners that the Company will not consummate a Business
Combination in which the Company conducted a vote of the stockholders unless the
matter would have been approved had holders of Units been able to vote together
with the stockholders on the transaction. The foregoing provision of the
Operating Partnership Agreement would under no circumstances enable or require
the Company to engage in a Business Combination which required the approval of
the Company's stockholders if the Company's stockholders did not in fact give
the requisite approval. Rather, if the Company's stockholders did approve a
Business Combination, the Company
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would not consummate the transaction unless (i) the Company as general partner
first conducts a vote of holders of Units (including the Company) on the matter,
(ii) the Company votes the Units held by it in the same proportion as the
stockholders of the Company voted on the matter at the stockholder vote, and
(iii) the result of such vote of the Unit holders (including the proportionate
vote of the Company's Units) is that had such vote been a vote of stockholders,
the Business Combination would have been approved by the stockholders. As a
result of these provisions of the Operating Partnership, a third party may be
inhibited from making an acquisition proposal that it would otherwise make, or
the Company, despite having the requisite authority under its Articles of
Incorporation, may not be authorized to engage in a proposed Business
Combination.
LIABILITY AND INDEMNIFICATION
Liability of the Company and Limited Partners. The Company, as general
partner of the Operating Partnership, is liable for all general recourse
obligations of the Operating Partnership to the extent not paid by the Operating
Partnership. The Company is not liable for the nonrecourse obligations of the
Operating Partnership. Assuming that a limited partner does not take part in the
control of the business of the Operating Partnership and otherwise acts in
conformity with the provisions of the Partnership Agreement and the Act, the
liability of a limited partner for obligations of the Operating Partnership
under the Partnership Agreement and the Act will be limited, subject to certain
exceptions, generally to the loss of such limited partners' investment in the
Operating Partnership represented by his Units. The Operating Partnership will
operate in a manner that the Company deems reasonable, necessary or appropriate
to preserve the limited liability of the limited partners.
Exculpation and Indemnification of the General Partner. The Operating
Partnership Agreement generally provides that the Company, as general partner of
the Operating Partnership, will incur no liability to the Operating Partnership
or any limited partner for losses sustained or liabilities incurred as a result
of errors in judgment or of any act or omission if the Company carried out its
duties in good faith. In addition, the Company is not responsible for any
misconduct or negligence on the part of its agents, provided the Company
appointed such agents in good faith. The Company may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisors, and any action it takes or omits to take in reliance
upon the opinion of such persons, as to matters that the Company reasonably
believes to be within their professional or expert competence, shall be
conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
The Operating Partnership Agreement also provides for indemnification of
the Company, the directors and officers of the Company, and such other persons
as the Company may from time to time designate against any judgments, penalties,
fines, settlements and reasonable expenses actually incurred by such person in
connection with the preceding unless it is established that: (1) the act or
omission of the indemnified person was material to the matter giving rise to the
preceding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (2) the indemnified person actually received an improper
personal benefit in money, property or services; or (3) in the case of any
criminal proceeding, the indemnified person had reasonable cause to believe that
the act or omission was unlawful.
TAX MATTERS
The Company will be the tax matters partner of the Operating Partnership
and, as such, will have the authority to make tax elections under the Code on
behalf of the Operating Partnership.
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue in full force and effect until
December 31, , unless sooner dissolved and terminated. The Operating
Partnership will be dissolved prior to the expiration of its term, and its
affairs wound up upon the occurrence of the earliest of: (i) the withdrawal of
the Company as general partner without the permitted transfer of the Company's
interest to a successor general partner (except in certain limited
circumstances); (ii) the sale of all or substantially all of the
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Operating Partnership's assets and properties; (iii) the entry of a decree of
judicial dissolution of the Operating Partnership pursuant to the provisions of
the Act; and (iv) the entry of a final non-appealable order for relief in a
bankruptcy proceeding of the general partner, or the entry of a final
non-appealable judgment ruling that the general partner is bankrupt or
insolvent, except that, in either such case, in certain circumstances the
limited partners (other than the Company) may vote to continue the Operating
Partnership and substitute a new general partner in place of the Company. Upon
dissolution, the Company, as general partner, or any liquidator will proceed to
liquidate the assets of the Operating Partnership and apply the proceeds
therefrom in the order of priority set forth in the Partnership Agreement.
ERISA AND CERTAIN OTHER CONSIDERATIONS
GENERAL
Each fiduciary of an employee benefit plan subject to ERISA (an 'ERISA
Plan') should carefully consider whether an investment in the Common Stock is
consistent with its fiduciary responsibilities under ERISA. In particular, the
fiduciary requirements of Part 4 of Title I of ERISA require an ERISA Plan's
investment, inter alia, to be (i) prudent and solely in the interests of the
participants and beneficiaries of the ERISA Plan, (ii) diversified in order to
minimize the risk of large losses, unless it is clearly prudent not to do so,
and (iii) authorized under the terms of the governing documents of the ERISA
Plan. In determining whether an investment in the Common Stock is prudent for
purposes of ERISA, the appropriate fiduciary of an ERISA Plan should consider,
among other things, all of an ERISA Plan's investment portfolio for which the
fiduciary has responsibility, to meet the objectives of the ERISA Plan, taking
into consideration the risk of loss and opportunity for gain (or other return)
from the investment, the diversification, cash flow and funding requirements of
the ERISA Plan, and the liquidity and current return of the ERISA Plan's
investment portfolio. Examples of other considerations a fiduciary should take
into account include the nature of the Company's business, the length of the
Company's operating history, the terms of the management agreements, the fact
that certain investment properties may not have been identified yet, other
matters described under 'Risk Factors' and the possibility of UBTI (defined
below). See 'Federal Income Tax Considerations.' In addition, fiduciaries of
ERISA Plans or of individual retirement accounts or employee benefit plans which
are subject to Section 4975 of the Code but which are not subject to ERISA
('Non-ERISA Plans,' and, together with ERISA Plans, 'Plans') should not cause or
permit such Plan to enter into transactions prohibited under Section 406 of
ERISA or Section 4975 of the Code, as applicable. Additional legal
considerations may apply to Non-ERISA Plans and to other employee benefit plans
and arrangements not subject to ERISA.
STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER ERISA
The following section discusses certain principles that apply in
determining whether the fiduciary requirements of ERISA and the prohibited
transaction provisions of ERISA and the Code apply to an entity because one or
more investors in the entity's equity interests is a Plan. An ERISA Plan
fiduciary should also consider the relevance of these principles to ERISA's
prohibition on improper delegation of control over or responsibility for Plan
assets and ERISA's imposition of co-fiduciary liability on a fiduciary who
participates in, permits (by action or inaction) the occurrence of, or fails to
remedy a known breach by another fiduciary.
If the underlying assets of the Company are deemed to be assets of a Plan
('Plan Assets'), (i) the prudence standards and other provisions of Part 4 of
Title I of ERISA and the prohibited transaction provisions of ERISA and the
Code, as applicable, would be applicable to any transactions involving the
Company's assets and (ii) persons who exercise any authority or control over the
Company's assets, or who provide investment advice for a fee or other
compensation to the Company, would generally be deemed to be (for the purposes
of ERISA and the Code) fiduciaries of Plans that acquire Common Stock. The
United States Department of Labor (the 'DOL'), which has certain administrative
responsibility over Plans, has issued a regulation defining Plan Assets for
certain purposes (the 'DOL Regulation'). The DOL Regulation generally provides
that when a Plan acquires a security that is an
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equity interest in an entity and that security is neither a 'publicly offered
security' nor a security issued by an investment company registered under the
1940 Act, the assets of the Plan include both the equity interest and an
undivided interest in each of the underlying assets of the entity, unless it is
established either that the entity is an 'operating company' (as defined in the
DOL Regulation) or that equity participation in the entity by 'benefit plan
investors' is not significant.
The DOL Regulation defines a 'publicly offered security' as a security that
is 'widely held,' 'freely transferable' and either part of a class of securities
registered under the Exchange Act, or sold pursuant to an effective registration
statement under the Securities Act (provided the securities are registered under
the Exchange Act within 120 days, or such later time as may be allowed by the
Commission (the 'registration period'), after the end of the fiscal year of the
issuer during which the offering occurred). The Common Stock is being sold in an
offering registered under the Securities Act and the Company intends to register
the Common Stock under the Exchange Act within the registration period.
The DOL Regulation provides that a security is 'widely held' only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be 'widely held'
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control.
The DOL Regulation provides that whether a security is 'freely
transferable' is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulation further provides that,
where a security is part of an offering in which the minimum investment is
$10,000 or less, certain restrictions ordinarily will not, alone or in
combination, affect a finding that such securities are 'freely transferable.'
The restrictions on transfer enumerated in the DOL Regulation as ordinarily not
affecting a finding that the securities are 'freely transferable' include: (i)
any restriction on or prohibition against any transfer or assignment that would
result in a termination or reclassification of the Company for federal or state
tax purposes, or that would otherwise violate any state or federal law or court
order, (ii) any requirement that advance notice of a transfer or assignment be
given to the Company, (iii) any requirement that either the transferor or
transferee, or both, execute documentation setting forth representations as to
compliance with any restrictions on transfer that are among those enumerated in
the DOL Regulation as not affecting free transferability, (iv) any
administrative procedure that establishes an effective date, or an event (such
as completion of the Offering) prior to which a transfer of assignment will not
be effective, (v) any prohibition against transfer or assignment to an
ineligible or unsuitable investor, and (vi) any limitation or restriction on
transfer or assignment that is not imposed by the issuer or a person acting for
or on behalf of the issuer. The Offering will not impose a minimum investment
requirement, and the Company believes that the restrictions on transfer imposed
under the Declaration of Trust on the transfer of Common Stock are of the type
of restrictions on transfer generally permitted under the DOL Regulation or are
not otherwise material and should not result in the failure of the Common Stock
to be 'freely transferable' within the meaning of the DOL Regulation. See
'Description of Securities -- Restrictions on Transfer.' The Company also
believes that certain restrictions on transfer that derive from the securities
laws, from contractual arrangements with the Underwriters in connection with the
Offering and from certain other provisions should not result in the failure of
the Common Stock to be 'freely transferable.' See 'Underwriting.' Furthermore,
the Company is not aware of any other facts or circumstances limiting the
transferability of the Common Stock that are not included among those enumerated
as not affecting their free transferability under the DOL Regulation, and the
Company does not expect to impose in the future (or to permit any person to
impose on its behalf) any other limitations or restrictions on transfer that
would not be among the enumerated permissible limitations or restrictions.
However, the DOL Regulation only establishes, in effect, a presumption of free
transferability, and, therefore, no assurances can be given that the DOL, the
IRS or a court would not reach a contrary conclusion with respect to the Common
Stock.
Assuming that the Common Stock is 'widely held' and 'freely transferable,'
the Company believes that, under the DOL Regulation, the Common Stock should be
considered 'publicly offered securities' and that, therefore, the underlying
assets of the Company should not be deemed to be Plan Assets of any Plan that
invests in the Common Stock.
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The DOL Regulation will also apply in determining whether the underlying
assets of the Operating Partnership will be deemed to be Plan Assets. The
partnership interests in the Operating Partnership will not be publicly offered
securities. Nevertheless, if the Common Stock constitutes publicly offered
securities, the Company believes that the indirect investment in the Operating
Partnership by Plans through their ownership of the Common Stock will not cause
the assets of the Operating Partnership to be treated as Plan Assets.
PRIOR TO MAKING AN INVESTMENT IN THE COMMON STOCK, PROSPECTIVE INVESTORS
WHICH ARE 'PLANS' (AS DEFINED ABOVE) OR WHICH OTHERWISE ARE OR ARE ACTING ON
BEHALF OF EMPLOYEE BENEFIT PLANS (WHETHER OR NOT SUBJECT TO ERISA OR SECTION
4975 OF THE CODE) SHOULD CONSULT WITH THEIR LEGAL AND OTHER ADVISORS CONCERNING
THE IMPACT OF ERISA AND THE CODE (AND, PARTICULARLY IN THE CASE OF PLANS AND
ARRANGEMENTS NOT SUBJECT TO ERISA, ANY ADDITIONAL STATE, LOCAL AND FOREIGN LAW
CONSIDERATIONS), AS APPLICABLE, AND THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC
CIRCUMSTANCES OF AN INVESTMENT IN THE COMMON STOCK.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of material federal income tax considerations that
may be relevant to a U.S. person who holds Common Stock is based on current law,
and is not intended as tax advice. The following discussion, which is not
exhaustive of all possible tax considerations, does not include a detailed
discussion of any state, local or foreign tax considerations. Nor does it
discuss all of the aspects of federal income taxation that may be relevant to a
prospective U.S. stockholder in light of his or her particular circumstances or
to certain types of stockholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes.
As used in this section, the term 'Company' refers solely to Loeb Realty
Corporation and the term 'Operating Partnership' refers solely to Loeb Realty,
L.P.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company intends to elect to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1998. The Company believes that it will be organized and will operate in a
manner so as to qualify for taxation as a REIT under the Code, and the Company
intends to continue to operate in such a manner. No assurance, however, can be
given that the Company will operate in a manner so as to qualify or remain
qualified as a REIT. Qualification and taxation as a REIT depend upon the
Company's ability to meet, on a continuing basis, through periodic operating
results, distribution levels, diversity of stock ownership and other
qualification tests
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imposed under the Code on REITs, some of which are summarized below. While the
Company intends to operate so that it will qualify as a REIT, given the highly
complex nature of the rules governing REITs, the ongoing importance of factual
determinations and the possibility of future changes in circumstances of the
Company, no assurance can be given that the Company will so qualify for any
particular year. See ' -- Failure to Qualify.'
In the opinion of Rogers & Wells LLP, counsel to the Company ('Counsel'),
commencing with its taxable year ending December 31, 1998, the Company will be
organized in conformity with the requirements for qualification as a REIT under
the Code and the proposed method of operation of the Company and the Operating
Partnership, including the Company's interest in the Real Estate Brokerage
Subsidiary and the lease of the Long Boat Key Club, will enable the Company to
meet the requirements for qualification as a REIT. Counsel's opinion is based on
various assumptions and is conditioned upon certain representations made by the
Company, the Operating Partnership and the Real Estate Brokerage Subsidiary as
to factual matters. In addition, Counsel's opinion is based upon factual
representations of the Company concerning its business and properties, and the
business and properties of the Operating Partnership and the Real Estate
Brokerage Subsidiary. Unlike a tax ruling, an opinion of counsel is not binding
upon the IRS and no assurance can be given that the IRS will not challenge the
status of the Company as a REIT. Moreover, such qualification and taxation as a
REIT depend upon the Company's ability to meet, through periodic operating
results, distribution levels, diversity of stock ownership and other
qualification tests imposed under the Code discussed below. Counsel will not
review the Company's compliance with the various REIT qualification tests on a
periodic or continuing basis. Accordingly, no assurance can be given that the
actual results of the Company's operation for any one taxable year will satisfy
such requirements. See ' -- Failure to Qualify.'
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on net income that it distributes
currently to its stockholders. This treatment substantially eliminates the
'double taxation' (taxation at both the corporate and stockholder levels) that
generally results from an investment in a corporation. If the Company does not
qualify as a REIT, it would be taxed at rates applicable to corporations on all
of its income, whether or not distributed to its shareholders. Even if the
Company qualifies as a REIT, it will be subject to federal income or excise tax
as follows: (i) the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income and undistributed net capital gains (other
than retained capital gains as discussed below); (ii) under certain
circumstances, the Company may be subject to the 'alternative minimum tax' on
its items of tax preference, if any; (iii) if the Company has (1) net income
from the sale or other disposition of 'foreclosure property' (generally,
property acquired by reason of a foreclosure or otherwise on default of a loan
secured by the property) that is held primarily for sale to customers in the
ordinary course of business or (2) other nonqualifying net income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income; (iv) if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property (other
than dispositions of foreclosure property and dispositions of property that
occur due to involuntary conversion) held primarily for sale to customers in the
ordinary course of business), such income will be subject to a 100% tax; (v) if
the Company should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), and has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which the Company fails the 75% or 95% test, multiplied by a
fraction intended to reflect the Company's profitability; (vi) if the Company
should fail to distribute with respect to each calendar year at least the sum of
(1) 85% of its REIT ordinary income for such year, (2) 95% of its REIT capital
gain net income for such year, and (3) any undistributed taxable income from
prior years, the Company would be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed; (vii) if the
Company acquires any asset from a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which
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the basis of the asset in the Company's hands is determined by reference to the
basis of the asset (or any other property) in the hands of the C corporation and
the Company subsequently recognizes gain on the disposition of such asset during
the 10-year period (the 'Recognition Period') beginning on the date on which the
asset was acquired by the Company (or the Company first qualified as a REIT),
then pursuant to guidelines issued by the IRS, the excess of (1) the fair market
value of the asset as of the beginning of the applicable Recognition Period,
over (2) the Company's adjusted basis in such asset as of the beginning of such
Recognition Period (the 'Built-In Gain') will be subject to tax at the highest
regular corporate rate (the 'Built-In Gain Rule').
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) that has the calendar year as its taxable
year; (vi) the beneficial ownership of which is held by 100 or more persons;
(vii) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and
(viii) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that conditions (i) through (v),
inclusive, must be met during the entire taxable year and that condition (vi)
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. Conditions (vi) and
(vii), however, will not apply until after the first taxable year for which an
election is made to be taxed as a REIT. The Company anticipates issuing
sufficient shares of Common Stock in the Offering with sufficient diversity of
ownership to allow the Company to satisfy conditions (vi) and (vii) immediately
following the Offering. In addition, the Company's Charter includes restrictions
regarding the transfer of the Company's Common Stock that are intended to assist
the Company in continuing to satisfy the share ownership requirements described
in (vi) and (vii) above. See 'Description of Securities -- Restrictions on
Transfer.' In rendering its opinion that the Company is organized in conformity
with the requirements for qualification as a REIT, Counsel is relying on the
Company's representation that ownership of its stock satisfies condition (vii)
and Counsel expresses no opinion as to whether the ownership restrictions
contained in the Charter preclude the Company from failing to satisfy condition
(vii) above. In addition, the Company intends to continue to comply with the
Treasury Regulations requiring it to ascertain and maintain records which
disclose the actual ownership of its shares. Although a failure by the Company
to ascertain the actual ownership of its shares will not cause its
disqualification as a REIT, a monetary fine may result.
The Company may have one or more 'qualified REIT subsidiaries.' A
corporation that is a 'qualified REIT subsidiary' is not treated as a separate
corporation for federal income tax purposes, and all assets, liabilities and
items of income, deduction and credit of a 'qualified REIT subsidiary' are
treated as assets, liabilities and items of the REIT. In applying the
requirements described herein, any 'qualified REIT subsidiary' of the Company
will be ignored, and all assets, liabilities and items of income, deduction and
credit of such subsidiary will be treated as assets, liabilities and items of
the Company. Any 'qualified REIT subsidiary' of the Company will therefore not
be subject to federal corporate income taxation, although it may be subject to
state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is
deemed to own its proportionate share of the assets of the partnership and is
deemed to receive the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
retain the same character in the hands of the REIT. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership are treated as assets, liabilities and items of income of
the Company for purposes of applying the requirements described herein, provided
that the Operating Partnership is treated as a partnership for federal income
tax purposes. See ' -- Other Tax Considerations -- Effect of Tax Status of the
Operating Partnership on REIT Qualification.'
Income Tests. In order to qualify as a REIT, there are two gross income
requirements that must be satisfied annually. First, at least 75% of the REIT's
gross income (excluding gross income from
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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. Second, at least 95%
of the REIT's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived from the same items which qualify under
the 75% gross income test, and from dividends, interest and gain from the sale
or disposition of stock or securities, or from any combination of the foregoing.
Rents received by a REIT will qualify as 'rents from real property' in
satisfying the gross income requirements for a REIT described above 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 of any person. 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 gross receipts or sales. Second, 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 indirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a 'Related Party Tenant').
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as 'rents from real property.' Finally, in order for rents received with
respect to a property to qualify as 'rents from real property,' the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an 'independent contractor' who is adequately
compensated and from whom the Company derives no income. The 'independent
contractor' requirement, however, does not apply to the extent the services
provided by the REIT are 'usually or customarily rendered' in connection with
the rental of space for occupancy only and are not otherwise considered
'rendered to the occupant.' However, a de minimis rule may apply to certain
non-customary services provided by a REIT. Specifically, if the value of the
non-customary service income with respect to a property (valued at no less than
150% of the Company's direct costs of performing such services) is 1% or less of
the total income derived from the property, then all rental income except the
non-customary service income will qualify as 'rents from real property.'
The Company does not anticipate charging rent 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 or percentages of gross receipts or sales consistent with the
rules described above). The Company does not anticipate receiving more than a de
minimis amount of rents from any Related Party Tenant or rents attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents.
Pursuant to a lease (the 'Lease') with respect to the Longboat Key Club
Property, Longboat Key Club, Inc. will lease from the Operating Partnership the
assets comprising the Longboat Key Club (the 'Club') for a 10-year period. The
Lease provides that Longboat Key Club, Inc. will be obligated to pay to the
Operating Partnership (i) the greater of fixed minimum rent (the 'Base Rent') or
(ii) percentage rent (the 'Participating Rent') (collectively, the 'Rents'),
plus certain other amounts, including interest accrued on any late payments or
charges (the 'Additional Charges'). Participating Rent is calculated by
multiplying fixed percentages by various revenue categories for the Club. Both
Base Rent and the thresholds in the Participating Rent formulas will be adjusted
for inflation. The Base Rent functions as an overall minimum rent to be paid by
the lessee monthly. Participating Rent is payable quarterly.
In order for Base Rent, Participating Rent and Additional Charges to
constitute 'rents from real property,' the lease must be respected as a true
lease for federal income tax purposes and not treated as a service contract,
joint venture or some other type of arrangement. The determination of whether
the lease is a true lease depends on an analysis of all the surrounding facts
and circumstances. In making such a determination, courts have considered a
variety of factors, including the following: (i) the intent of the parties, (ii)
the form of the agreement, (iii) the degree of control over the property that is
retained by the property owner (e.g., whether the lessee has substantial control
over the operation of the property or whether the lessee is required simply to
use its best efforts to perform its obligations under the agreement), and (iv)
the extent to which the property owner retains the risk of loss with respect to
the property (e.g., whether the lessee bears the risk of increases in operating
expenses or the
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risk of damage to the property) or the potential for economic gain (e.g.,
appreciation) with respect to the property.
In addition, Code section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) is treated instead as a lease
of property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not: (i) the service recipient is in
physical possession of the property, (ii) the service recipient controls the
property, (iii) the service recipient has significant economic or possessory
interests in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of the
property, the recipient shares in any appreciation in the value of the property,
the recipient shares in savings in the property's operating costs, or the
recipient bears the risk of damage to or loss of the property), (iv) the service
provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient, and
(vi) the total contract price does not substantially exceed the rental value of
the property for the contract period. Since the determination whether a service
contract should be treated as a lease is inherently factual, the presence or
absence of any single factor may not be dispositive in every case. The Lease has
been structured to qualify as a true lease for federal income tax purposes.
The determination that the Lease will be treated as true lease for federal
income tax purposes is based, in part, on the following facts: (i) the Operating
Partnership and the lessee intend for their relationship to be that of lessor
and lessee and each such relationship will be documented by a lease agreement;
(ii) the lessee will have the right to exclusive possession and use and quite
enjoyment of the leased premises during the term of the Lease; (iii) the lessee
will bear the cost of, and be responsible for, day-to-day maintenance and repair
of the leased premises, other than the cost of certain capital expenditures, and
will dictate how the leased premises are operated and maintained; (iv) the
lessee will bear all of the costs and expenses of operating the leased premises
during the term of the Lease; (v) the term of the Lease is less than the
economic life of the leased premises and the lessee does not have a purchase
option with respect to the leased premises; (vi) the lessee is required to pay
substantial fixed rent during the term of the Lease; and (vii) the lessee stands
to incur substantial losses or reap substantial profits depending on how
successfully it operates the leased premises.
Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the Lease that discuss whether such a lease
constitutes a true lease for federal income tax purposes. Therefore, there can
be no assurance that the IRS will not assert a contrary position. If the Lease
is recharacterized as a service contract or partnership agreement, rather than a
true lease, part or all of the payments that the Operating Partnership receives
from the lessee would not be considered rent and would not otherwise satisfy the
various requirements for qualification as 'rents from real property.' In that
case, the Company would not be able to satisfy either the 75% or 95% gross
income tests and, as a result, would lose its REIT status.
As indicated above, 'rents from real property' must not be based in whole
or in part on the income or profits of any person. The Participating Rent should
qualify as 'rents from real property' since it is based on percentages of gross
receipts or sales which percentages are fixed at the time the leases are entered
into, provided (i) the leases are not renegotiated during the term of the leases
in a manner that has the effect of basing Participating Rent on income or
profits and (ii) the leases conform with normal business practice. More
generally, the Participating Rent will not qualify as 'rents from real property'
if, considering the Lease and all the surrounding circumstances, the arrangement
does not conform with normal business practice, but is in reality used as a
means of basing the Participating Rent on income or profits. Since the
Participating Rent is based on fixed percentages of gross revenues that are
established in the Lease, and the Company has represented that the percentages
(i) will not be renegotiated during the term of the Lease in a manner that has
the effect of basing the Participating Rent on income or profits and (ii)
conform with normal business practice, the Participating Rent should not be
considered based in whole or in part on the income or profits of any person.
Also, as indicated above, another requirement for Rent payments under the
Lease to constitute 'rents from real property' is that the Rent attributable to
personal property under the Lease must not
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be greater than 15% of the rent received under the Lease. For this purpose, Rent
attributable to personal property is the amount that bears the same ratio to the
total Rent for the taxable year as the average of the adjusted basis of the
personal property at the beginning and at the end of the taxable year bears to
the average of the aggregate adjusted basis of both the real property and
personal property leased under, or in connection with, such lease. Under the
Lease, the Operating Partnership leases certain personal property to the lessee.
The Operating Partnership believes that under the Lease less than 15% of the
total Rent is attributable to personal property and, as a result, no portion of
such Rent will be treated as being attributable to the rental of personal
property for purposes of the 75% and 95% gross income tests. The Operating
Partnership has represented that it will monitor the 15% test in order to ensure
that receipt of Rent under the Lease will not adversely affect the Company's
ability to satisfy the 75% and 95% gross income requirements.
The Company will provide certain services with respect to the Properties
through the Operating Partnership, which is not an 'independent contractor.'
However, the Company believes (and has represented to Counsel) that all of such
services will be considered 'usually or customarily rendered' in connection with
the rental of space for occupancy only, so that the provision of such services
will not jeopardize the qualification of rent from the Properties as 'rents from
real property.' In rendering its opinion on the Company's ability to qualify as
a REIT, Counsel is relying on such representations. In the case of any services
that are not 'usual and customary' under the foregoing rules, the Company
intends to employ 'independent contractors' to provide such services.
The Operating Partnership may receive certain types of income that will not
qualify under the 75% or 95% gross income test. In particular, dividends
received from the Real Estate Brokerage Subsidiary will not qualify under the
75% gross income test and fees from the management of properties owned by third
parties will not qualify under the 75% or 95% gross income tests. The Company
believes, and has represented to Counsel, however, that the aggregate amount of
such items and other non-qualifying income in any taxable year will not cause
the Company to exceed the limits on non-qualifying income under the 75% and 95%
gross income tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if the Company's failure to
meet any such tests was due to reasonable cause and not due to willful neglect,
the Company attaches a schedule of the sources and nature of its income to its
federal income tax return and any incorrect information on the schedule was not
due to fraud with the intent to evade tax. It is not possible, however, to state
whether in all circumstances the Company would be entitled to the benefit of
these relief provisions. As discussed above, even if these relief provisions
were to apply, a tax would be imposed on certain excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets: (1) at least
75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company has an interest and (2) stock or debt
instruments purchased with the proceeds of a stock offering on long-term (at
least five years) debt offering of the Company and held for not more than one
year following the receipt by the Company of such proceeds), cash, cash items
and government securities; (ii) not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset class; and
(iii) of the investments included in the 25% asset class, the value of any one
issuer's securities (other than an interest in a partnership, shares of a
'qualified REIT subsidiary' or shares of another REIT) owned by the Company may
not exceed 5% of the value of the Company's total assets, and the Company may
not own more than 10% of any one issuer's outstanding voting securities (other
than an interest in a partnership, securities of a 'qualified REIT subsidiary'
or shares of another REIT).
After initially meeting the assets tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a subsequent quarter solely by reason of a fluctuation in
asset values. If the failure to satisfy the asset tests results from an
acquisition of securities or other property during a quarter, the failure can be
cured by a disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. The Company intends to maintain
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adequate records of the value of its assets to ensure compliance with the asset
tests and plans to take such other action within 30 days after the close of any
quarter as may be required to cure any noncompliance. However, there can be no
assurance that such other action will always be successful.
Based on the foregoing, the 5% test must generally be met for any quarter
in which the Company acquires securities of an issuer. Therefore, this
requirement must be satisfied not only on the date the Company acquires
securities of the Real Estate Brokerage Subsidiary, but also each time the
Company increases its ownership of securities of the Real Estate Brokerage
Subsidiary (e.g., through an increase of the Company's interest in the Operating
Partnership).
The Operating Partnership will own all of the non-voting stock of the Real
Estate Brokerage Subsidiary, which stock represents 95% of the equity of the
Real Estate Brokerage Subsidiary. By virtue of the Company's interest in the
Operating Partnership, the Company will be considered to own its proportionate
share of the assets of the Operating Partnership, including the securities of
the Real Estate Brokerage Subsidiary. The Operating Partnership will not own
more than 10% of the voting securities of the Real Estate Brokerage Subsidiary
and, therefore, the Company will not own more than 10% of the voting securities
of the Real Estate Brokerage Subsidiary. In addition, the Company and its
management believe that the Company's proportionate share of the value of the
securities of the Real Estate Brokerage Subsidiary will not exceed, as of the
completion of the Offering, 5% of the total value of the Company's assets. There
can be no assurance, however, that the IRS will not contend that the value of
the securities of the Real Estate Brokerage Subsidiary exceeds the 5% value
limitation. Counsel, in rendering its opinion regarding the qualification of the
Company as a REIT, will rely on the conclusions of the Company and its
management as to the value of the securities of the Real Estate Brokerage
Subsidiary.
As noted above, the 5% value requirement must be satisfied within 30 days
after the end of each quarter during which the Company increases, directly or
indirectly, ownership of securities of the Real Estate Brokerage Subsidiary
(including as a result of increasing its interest in the Operating Partnership).
Although the Company plans to take steps to ensure that it satisfies the 5%
value test for each quarter, there can be no assurance that such steps will
always be successful or will not require a reduction in the Operating
Partnership's interest in the Real Estate Brokerage Subsidiary.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (A) 95% of the
Company's 'REIT taxable income' (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (B) 95% of the net income (after
tax), if any, from foreclosure property, minus (ii) the sum of certain items of
noncash income. Such distributions must be paid during the taxable year to which
they relate (or during the following taxable year, if declared before the
Company timely files its tax return for the preceding year and paid on or before
the first regular dividend payment after such declaration). To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its 'REIT taxable income,' as adjusted, it
will be subject to tax on the undistributed amount at regular corporate capital
gains rates and ordinary corporate tax rates. Furthermore, if the Company fails
to distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income of such year, (ii) 95% of its REIT capital gain net income for
such year and (iii) any undistributed taxable income from prior periods, the
Company will be subject to a 4% excise tax on the excess of such amounts over
the amounts actually distributed. In addition, if the Company disposes of any
asset subject to the Built-In Gain Rule during its Recognition Period, the
Company will be required to distribute at least 95% of the Built-In Gain (after
tax), if any, recognized on the disposition.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, it is expected that the
Company's REIT taxable income will be less than its cash flow due to the
allowance of depreciation and other noncash charges in the computing of REIT
taxable income. Moreover, the Partnership Agreement of the Operating Partnership
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Partnership to make distributions to its
partners of amounts sufficient to permit the Company to meet these distribution
requirements. It is possible, however, that the Company, from time to time, may
not have sufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences
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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
REIT taxable income of the Company, or due to cash expenditures of nondeductible
expenses such as principal amortization or capital expenditures. In the event
that such circumstances do occur, then in order to meet the 95% distribution
requirement, the Company may cause the Operating Partnership to arrange for
short-term, or possibly long-term, borrowings to permit the payment of required
dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for year by paying 'deficiency dividends'
to stockholders in a later year that may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends. However, the Company
would be required to pay to the IRS interest based upon the amount of any
deduction taken for deficiency dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and special relief provisions do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders in any
year in which the Company fails to qualify as a REIT will not be deductible, 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 in the Code,
corporate distributees may be eligible for the 'dividends received deduction.'
In addition, the Company's failure to qualify as a REIT could also substantially
reduce the cash available for distributions to stockholders. Unless entitled to
relief under specific statutory provisions, the Company also will 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 the Company would be entitled to such statutory relief.
Partnership Anti-Abuse Rule. Treasury Regulations have been promulgated
under the partnership provisions of the Code that permit the IRS to
recharacterize transactions involving partnerships that purport to create tax
advantages that are inconsistent with the intent of the partnership provisions
of the Code. The scope and intended application of these Treasury Regulations
are unclear. Nonetheless, although the matter is not free from doubt, Counsel
believes that these Treasury Regulations do not adversely affect the Company's
ability to qualify as a REIT.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as the Company qualifies
as a REIT, distributions made to the Company's 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
corporate stockholders will not be eligible for the dividends received deduction
as to such amounts. Distributions that are designated as capital gain dividends
will be taxed as gains from the sale or exchange of a capital asset (to the
extent they do not exceed the Company's 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% of certain
capital gain dividends as ordinary income. The Company may elect to retain and
pay income tax on any net long-term capital gain, in which case domestic
stockholders of the Company would include in their income as long-term capital
gain their proportionate share of such undistributed net long-term capital gain.
A domestic stockholder would also receive a refundable tax credit for such
stockholder's proportionate share of the tax paid by the Company on such
undistributed capital gains and an increase in its basis in the stock of the
Company in an amount equal to the difference between the undistributed long-term
capital gains and the amount of tax paid by the Company. See ' -- Capital Gains
and Losses' below.
Distributions in excess of 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 Common Stock, but rather will reduce the
adjusted basis of such Common Stock. To the extent that such distributions
exceed the adjusted basis of a stockholder's Common Stock, they will be included
in income as short-term or long-term capital gain (depending on the length of
time the shares have been held), assuming the Common Stock is a capital asset in
the hands of the stockholder. In addition, any
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dividend declared by the Company in October, November or December of any year
and payable to a stockholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Stockholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.
In general, a domestic stockholder will realize capital gain or loss on the
disposition of Common Stock equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the stockholder's adjusted basis of such Common Stock. Such gain or loss
generally will constitute short-term capital gain or loss if the stockholder has
not held such shares for more than one year and long-term capital gain or loss
if the stockholder has held such shares for more than one year. See ' -- Capital
Gains and Losses' below. Loss upon a sale or exchange of Common Stock by a
stockholder who has held such Common Stock for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent of distributions from the Company required to be treated by
such stockholder as long-term capital gain.
Capital Gains and Losses. The maximum marginal individual income tax rate
is 39.6%. The maximum tax rate on net capital gains applicable to individuals,
trusts and estates from the sale or exchange of capital assets held for more
than 18 months is 20%, and the maximum rate is reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
individuals, trusts and estates who would be subject to a maximum tax rate of
15%, the rate on net capital gains is reduced to 10%, and effective for taxable
years commencing after December 31, 2000, the rate is reduced to 8% for assets
held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than 18
months is 25% to the extent of the deductions for depreciation (other than
certain depreciation recapture taxable as ordinary income) with respect to such
property. The maximum rate of capital gains tax for capital assets held more
than one year but not more than 18 months remains at 28%. Accordingly, the tax
rate differential between capital gain and ordinary income for noncorporate
taxpayers may be significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against a noncorporate
taxpayer's ordinary income only up to a maximum annual amount of $3,000. Unused
capital losses may be carried forward. All net capital gain of a corporate
taxpayer is subject to tax at ordinary corporate rates. A corporate taxpayer can
deduct capital losses only to the extent of capital gains, with unused losses
being carried back three years and forward five years.
In addition, Notice 97-64 provides temporary guidance with respect to the
taxation of distributions by the Company designated as capital gain dividends.
Pursuant to Notice 97-64, forthcoming Temporary Regulations will provide that
capital gains allocated to a stockholder by the Company may be designated as a
20% rate gain distribution, an unrecaptured Section 1250 gain distribution
(subject to a 25% rate), or a 28% rate gain distribution. In determining the
amounts which may be designated as each class of capital gains dividends, a REIT
must calculate its net capital gains as if it were an individual subject to a
marginal tax rate of 28%. Unless specifically designated otherwise by the
Company, a distribution designated as a capital gain distribution is presumed to
be a 28% rate gain distribution. If the Company elects to retain any net
long-term capital gain, as discussed above, the undistributed long-term capital
gains are considered to be designated as capital gain dividends for purposes of
Notice 97-64.
Backup Withholding. The Company will report to its domestic stockholders
and the IRS 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% with respect to dividends paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number and
certifies as to no loss of exemption, and otherwise complies with the applicable
requirements of the backup withholdings rules. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.
The United States Treasury has recently issued final regulations (the 'Final
Regulations') regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not alter the substantive
withholding and
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information reporting requirements but unify current certification procedures
and forms and clarify and modify reliance standards. The Final Regulations are
generally effective for payments made on or after January 1, 2000, subject to
certain transition rules. Prospective investors should consult their own tax
advisors concerning the adoption of the Final Regulations and the potential
effect on their ownership of Common Stock.
In addition, the Company may be required to withhold a portion of capital
gain distributions made to any stockholders which fail to certify their non
foreign status to the Company. See ' -- Taxation of Foreign Stockholders' below.
Taxation of Tax-Exempt Stockholders. The IRS has ruled that amounts
distributed as dividends by a qualified REIT generally do not constitute
unrelated business taxable income ('UBTI') when received by a tax-exempt entity.
Based on that ruling, the dividend income from the Common Stock will not be UBTI
to a tax-exempt stockholder, provided that the tax-exempt stockholder has not
held its shares of Common Stock as 'debt financed property' within the meaning
of the Code and such shares are not otherwise used in a trade or business.
Similarly, income from the sale of Common Stock will not constitute UBTI unless
such tax-exempt stockholder has held such shares as 'debt financed property'
within the meaning of the Code or has used the shares in a trade or business.
Notwithstanding the above, however, a portion of the dividends paid by a
'pension held REIT' will be treated as UBTI as to any trust which is described
in Section 401(a) of the Code, is tax-exempt under Section 501(a) of the Code (a
'qualified trust') and which holds more than 10% (by value) of the interests in
the REIT. A REIT is a 'pension held REIT' if (i) it would not have qualified as
a REIT but for the application of a 'look-through' exception to the 'not closely
held' requirement applicable to qualified trusts, and (ii) either (A) at least
one such qualified trust holds more than 25% (by value) of the interests in the
REIT, or (B) one or more such qualified trusts, each of which owns more than 10%
(by value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend treated
as UBTI is equal to the ratio of (i) the gross income (less direct expenses
related thereto) of the REIT from unrelated trades or businesses (determined as
if the REIT were a qualified trust) to (ii) the total gross income (less direct
expenses related thereto) of the REIT. A de minimis exception applies where this
percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the 'not closely held' requirement without relying upon
the 'look-through' exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of Common Stock contained in the
Charter, the Company does not expect to be classified as a 'pension held REIT.'
Taxation of Foreign Stockholders. The rules governing United States 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 summary of such rules.
PROSPECTIVE NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS
WITH REGARD TO AN INVESTMENT IN SHARES, INCLUDING ANY REPORTING REQUIREMENTS, AS
WELL AS THE TAX TREATMENT OF SUCH AN INVESTMENT UNDER THEIR HOME COUNTRY LAWS.
In general, Non-U.S. Stockholders will be subject to regular United States
federal income taxation with respect to their investment in shares of Common
Stock in the same manner as a U.S. Stockholder (i.e., at graduated rates on a
net basis, after allowance of deductions) if such investment is 'effectively
connected' with the conduct by such Non-U.S. Stockholder of a trade or business
in the United States. A Non-U.S. Stockholder that is a corporation and that
receives income with respect to its investment in shares of Common Stock that is
(or is treated as) 'effectively connected' with the conduct of a trade or
business in the United States may also be subject to the 30% branch profits tax
imposed under Section 884 of the Code, which is payable in addition to the
regular United States corporate income tax. The following discussion addresses
only the federal income taxation of Non-U.S. Stockholders whose investment in
shares of Common Stock is not 'effectively connected' with the conduct of a
trade or business in the United States. Prospective investors whose investment
in shares of Common Stock may
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be 'effectively connected' with the conduct of a United States trade or business
should consult their own tax advisors as to the tax consequences thereof.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gains 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 the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. Pursuant to the Final
Regulations, dividends paid to an address in a country outside the United States
are no longer presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding discussed above and the
availability of a reduced tax treaty rate. A Non-U.S. Stockholder who wishes to
claim the benefit of an applicable treaty rate is now required to satisfy
certain certification and other requirements. Distributions made by the Company
in excess of its current and accumulated earnings and profits will not be
taxable to a Non-U.S. Stockholder to the extent they do not exceed the adjusted
basis of the Non-U.S. Stockholder's shares, but rather will reduce the adjusted
basis of such shares (but not below zero). To the extent that such distributions
exceed the adjusted basis of the 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 in the Company, as
described below.
For withholding tax purposes, the Company is currently required to treat
all distributions as if made out of its current or accumulated earnings and
profits and thus intends to withhold at the rate of 30% (or a reduced treaty
rate if applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Stockholder. Under the
Final Regulations (discussed below), generally effective for distributions on or
after January 1, 2000, the Company would not be required to withhold at the 30%
rate on distributions it reasonably estimates to be in excess of the Company's
current and accumulated earnings and profits. If it cannot be determined at the
time a distribution is made whether 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 ordinary dividends. However, the
Non-U.S. Stockholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company, and the amount
withheld exceeded the Non-U.S. Stockholder's United States tax liability, if
any, with respect to the distribution.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. 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 the conduct of a
United States trade or business. Non-U.S. Stockholders would thus be taxed at
the normal capital gain rates applicable to domestic stockholders (subject to
applicable alternative minimum tax and special alternative minimum tax in the
case of nonresident alien individuals), without regard as to whether such
distributions are designated by the Company as capital gain dividends. Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
The Company is required by Treasury Regulations to withhold 35% of any
distribution to a Non-U.S. Stockholder that could be designated by the Company
as a capital gain dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by the Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a 'domestically controlled
REIT,' defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of its stock was held directly or
indirectly by Non-U.S. Stockholders. The Company believes that it will be a
domestically controlled REIT and therefore, that the sale of its shares will not
be subject to taxation under FIRPTA. However, because the Common Stock will be
publicly traded, no assurance can be given that the Company will continue to so
qualify. Notwithstanding the foregoing, gain from the sale or exchange of shares
of Company stock not otherwise subject to FIRPTA generally will be taxable to a
Non-U.S. Stockholder if the Non-U.S. Stockholder is a nonresident alien
individual who is present in the United States for 183
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days or more during the taxable year and has a 'tax home' in the United States.
In such case, the nonresident alien individual will be subject to a 30% United
States withholding tax on the amount of such individual's gain.
If the Company does not qualify as or ceases to be a 'domestically
controlled REIT,' whether gain arising from the sale or exchange by a Non-U.S.
Stockholder of shares of Common Stock would be subject to U.S. taxation under
FIRPTA will depend on whether the shares are 'regularly traded' (as defined in
applicable Treasury Regulations) on an established securities market (such as
the New York Stock Exchange on which the Common Stock will be traded) and on the
size of the selling Non-U.S. Stockholder's interest in the Company. If the gain
on the sale of shares were to be subject to tax under FIRPTA, the Non-U.S.
Stockholder would be subject to the same treatment as a domestic stockholder
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals and
the possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the shares would be required to withhold and
remit to the IRS 10% of the purchase price. In addition, if the Company is not a
domestically controlled REIT, distributions in excess of the Company's current
and accumulated earnings and profits would be subject to withholding at a rate
of 10%.
The Final Regulations, issued by the United States Treasury on October 6,
1997, affect the rules applicable to payments to foreign persons. In general,
the Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and modify
reliance standards. In addition, the Final Regulations also address certain
issues relating to intermediary certification procedures designed to simplify
compliance by withholding agents. The Final Regulations are generally effective
for payments made on or after January 1, 2000, subject to certain transition
rules. Prospective investors should consult their own tax advisors concerning
the adoption of the Final Regulations and the potential effect on their
ownership of Common Stock.
OTHER TAX CONSIDERATIONS
Effect of Tax Status of the Operating Partnership on REIT Qualification.
All of the Company's investments are through the Operating Partnership. The
Company believes that the Operating Partnership is properly treated as a
partnership for tax purposes (and not as an association taxable as a
corporation). If, however, the Operating Partnership were to be treated as an
association taxable as a corporation, the Company would cease to qualify as a
REIT. Furthermore, in such a situation, the Operating Partnership would be
subject to corporate income taxes and the Company would not be able to deduct
its share of any losses generated by the Operating Partnership in computing its
taxable income.
Tax Allocations with Respect to the Properties. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties). When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a 'Book-Tax Difference'). The partnership agreement of the
Operating Partnership requires allocations of income, gain, loss and deduction
with respect to contributed Property to be made in a manner consistent with the
special rules in Section 704(c) of the Code, and the regulations thereunder,
which tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the remaining useful lives of the Properties. However, because
of certain technical limitations, the special allocation rules of Section 704(c)
may not always entirely eliminate the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale. Thus, the
carryover basis of the contributed Properties in the hands of the Operating
Partnership could cause the Company to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to
the Company if all Properties were to have a tax basis equal to their fair
market value at the time of acquisition. The foregoing principles also apply in
determining the earnings and profits of the Company for purposes of determining
the portion of distributions taxable as dividend income. The application of
these rules over time may result in a higher
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portion of distributions being taxed as dividends than would have occurred had
the Company purchased its interests in the Properties at their agreed value.
Brokerage Subsidiary. A portion of the amounts used by the Operating
Partnership to fund distributions to stockholders is expected to come from the
Real Estate Brokerage Subsidiary through dividends on the non-voting stock of
the Real Estate Brokerage Subsidiary to be held by the Operating Partnership.
The Real Estate Brokerage Subsidiary will not qualify as a REIT and thus will
pay federal, state and local income taxes on its net income at normal corporate
rates. To the extent that the Real Estate Brokerage Subsidiary is required to
pay federal, state and local income taxes, the cash available for distribution
to the Company's stockholders will be reduced accordingly.
As described above, the value of the securities of the Real Estate
Brokerage Subsidiary held by the Company cannot exceed 5% of the value of the
Company's total assets. See ' -- Taxation of the Company -- Asset Tests.' This
limitation may restrict the ability of the Real Estate Brokerage Subsidiary to
increase the size of its business unless the value of the other assets of the
Company is increasing at a commensurate rate.
State and Local Taxes. The Company and its stockholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective stockholders
should consult with their own tax advisors regarding the effect of state, local
and other tax laws of any investment in the Common Stock of the Company.
Potential Legislative Action Regarding REITs. On February 2, 1998, the
Clinton Administration released a summary of its proposed budget plan which
contained several proposals affecting REITs. One such proposal, if enacted in
its present form, would prohibit a REIT from holding securities representing
more than 10% of the value of all classes of stock of a corporation, other than
a qualified REIT subsidiary or another REIT. If enacted in its present form, the
proposal may limit the future activities and growth of the Real Estate Brokerage
Subsidiary. No prediction can be made as to whether such proposal or any other
proposal affecting REITs will be enacted into legislation and the impact of any
such legislation on the Company.
UNDERWRITING
Under the terms and subject to the conditions of the underwriting agreement
dated the date hereof (the 'Underwriting Agreement'), each of the underwriters
named below (the 'Underwriters') has severally agreed to purchase, and the
Company has agreed to sell to each Underwriter the number of shares of Common
Stock set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
- --------------------------------------------------------------------------- ----------------
<S> <C>
Smith Barney Inc...........................................................
Lazard Freres & Co. LLC....................................................
PaineWebber Incorporated...................................................
----------------
Total................................................................. 13,600,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares of Common Stock are taken. Under
certain circumstances, the commitments of non-defaulting Underwriters may be
increased.
The Underwriters, for whom Smith Barney Inc., Lazard Freres & Co. LLC,
and PaineWebber Incorporated are acting as representatives (the
'Representatives'), initially propose to offer part of the shares of Common
Stock to the public at the public offering price per share set forth on the
cover page of this Prospectus and part to certain dealers at a price which
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represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share on sales to the other Underwriters
or to certain other dealers. After the initial public offering, the public
offering price and such concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
2,040,000 additional shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus, minus the underwriting discounts and
commissions. The Underwriters may exercise such option to purchase additional
shares of Common Stock solely for the purpose of covering overallotments, if
any, incurred in connection with the sale of the shares of Common Stock offered
hereby. To the extent that such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Common Stock as the number of
shares of Common Stock set forth opposite such Underwriter's name in the
preceding table bears to the total number of shares of Common Stock in such
table.
Until the distribution of the shares of Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the shares of Common
Stock. As an exception to these rules, the Representatives will be permitted to
engage in certain transactions that stabilize the price of the shares of Common
Stock. Such transactions consist of bids for the Common Stock or purchases of
the Common Stock for the purpose of pegging, fixing or maintaining the price of
the shares of Common Stock or for the purpose of reducing a syndicate short
position created in connection with this Offering.
If the Underwriters create a short position in the shares of Common Stock
in connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representative may
reduce that short position by purchasing shares of Common Stock in the open
market. The Representative may also elect to reduce any short position by
exercising all or part of the overallotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representative will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Company will pay an advisory fee of .75% of the gross proceeds of the
Offering (including any exercise of the Underwriters over-allotment option) to
Smith Barney Inc. for advisory services in connection with the evaluation,
analysis and structuring of the Company's formation and the Offering.
At the request of the Company, the Underwriters have reserved up to
shares of Common Stock (the 'Reserved Shares') for sale at the
public offering price to certain employees of the Company, the Company's
business affiliates and other parties who have expressed an interest in
purchasing shares of Common Stock. The number of shares of Common Stock
available to the general public will be reduced to the extent these persons
purchase the Reserved Shares. Any Reserved Shares that are not so purchased by
such persons at the completion of the Offering will be offered by the
Underwriters to the general public on the same terms as the other shares offered
by this Prospectus.
The Company and the Underwriters have agreed to indemnify each other
against certain civil liabilities, including liabilities under the Securities
Act. Insofar as indemnification of the Underwriters
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for liabilities arising under the Securities Act may be permitted pursuant to
the foregoing provision, the Company has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
The Company, the Operating Partnership and their officers and directors
have agreed, subject to certain limited exceptions (including the issuance of
Common Stock or Units in exchange for interests in properties or businesses and
the granting and exercise or stock options), not to sell, offer to sell, solicit
or purchase or otherwise transfer or dispose of any Common Stock ('Transfers')
or Units or any security convertible into or exchangeable for Common Stock or
Units for a period of one year after the date of this Prospectus, without the
prior written consent of Smith Barney Inc.
Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company. The initial public offering price will be
determined through negotiations between the Company and the Representatives.
Among the factors to be considered in such negotiations, in addition to
prevailing market conditions, will be dividend yields and financial
characteristics of publicly traded REITs that the Company and the
Representatives believe to be comparable to the Company, the expected results of
operations of the Company (which will be based on the results of operations of
the Properties and the management and leasing businesses in recent periods),
estimates of the future business potential and earnings prospects of the Company
as a whole and the current state of the real estate market in the Company's
primary markets and the economy as a whole.
The Company will apply to list the Common Stock on the NYSE under the
trading symbol 'LRC.' In order to meet one of the requirements for listing the
Common Stock on the NYSE, the Underwriters have undertaken to sell lots of 100
or more shares of Common Stock to a minimum of 2,000 holders.
LEGAL MATTERS
The validity of the Common Stock offered by this Prospectus as well as
certain legal matters described under 'Federal Income Tax Considerations' will
be passed upon for the Company by Rogers & Wells LLP, New York, New York.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Willkie Farr & Gallagher, New York, New York. Rogers & Wells
LLP and Willkie Farr & Gallagher will rely as to certain matters of Maryland law
on the opinion of Piper & Marbury, Baltimore, Maryland.
EXPERTS
The audited consolidated balance sheet of Loeb Realty Corporation as of May
11, 1998, the audited combined financial statements and schedule of Loeb Real
Estate, as of December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997, the audited statements of revenues and certain
expenses for each of the three years in the period ended December 31, 1997 of
First NBC Center and Riverview Center, the audited statements of revenues and
certain expenses for the year ended December 31, 1997 of Princeton Shopping
Center, Marketplace Design Center, and Bazaar Mall and the audited statements of
revenues and certain expenses for the year ended December 31, 1996 of 24 West
57th Street appearing in this Prospectus, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein in reliance upon such reports, given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Key Club Associates, Limited Partnership
d/b/a Longboat Key Club as of and for the years ended December 31, 1997, 1996
and 1995 included in this prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-11 (of which this Prospectus is a part) under the Securities Act with respect
to the securities offered hereby. This Prospectus does not contain all
information set forth in the Registration Statement, certain portions of
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which have been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each instance
reference is made 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 hereto. For further
information regarding the Company and the Common Shares offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules, which may be obtained from the Commission at its principal office at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees
prescribed by the Commission. The Commission maintains a website at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission. In addition, application has been made to
list the Common Stock on the NYSE, and if so listed, similar information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
Following the consummation of the Offering, the Company will be required to
file reports and other information with the Commission pursuant to the Exchange
Act. In addition to applicable legal or NYSE requirements, if any, holders of
the Common Stock will receive annual reports containing audited financial
statements with a report thereon by the Company's independent certified public
accountants.
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GLOSSARY
For purposes of this Prospectus the following capitalized terms shall have
the meanings set forth below:
'ACBMs' means asbestos-containing building materials.
'Additional Charges' means
'ADA' means the Americans with Disabilities Act.
'Adjusted Pro Forma Net Operating Income' means the Company's pro forma net
operating income for the year ended December 31, 1997, as adjusted to give
effect to the execution and commencement in 1998 of significant leases
(including the Ziff-Davis, Bates, Caribiner International, Victoria's Secret
and USN Communications leases) at the New York City Properties.
'Annualized Net Operating Income' means (i) in the case of 'Annualized Net
Operating Income at acquisition,' the net operating income of the Property for
the first full month of ownership by the Company, multiplied by 12, and (ii) in
the case of 'Annualized Net Operating Income based on leases currently in
place,' the contractual monthly rental income under signed leases at the
Property as of March 31, 1998, assuming that any rent abatement period under the
leases has expired, multiplied by 12 and less property operating expenses for
the year ended December 31, 1997.
'Charter' means the Articles of Incorporation of the Company, as amended,
restated or supplemented.
'Club' means the Longboat Key Club.
'Code' means the Internal Revenue Code of 1986, as amended.
'Common Stock' means the Common Stock, $.001 par value, of the Company.
'Company' means Loeb Realty Corporation, a Maryland corporation.
'Contribution Agreements' means the asset or partnership interest
contribution agreements or merger agreements among the contributors in the
Formation Transactions, the Company and the Operating Partnership.
'Counsel' means Rogers & Wells LLP, tax counsel to the Company.
'Debt-to-Market Capitalization Ratio' means the total consolidated and
unconsolidated debt of the Company as a percentage of the market value of
outstanding Common Stock and Units plus total consolidated and unconsolidated
debt, but excluding all nonrecourse consolidated debt in excess of the Company's
proportionate share of such debt.
'DOL' means the Department of Labor.
'EBITDA' means operating income before mortgage and other interest, income
taxes, depreciation and amortization. However, EBITDA does not represent cash
generated from operating activities in accordance with GAAP, is not to be
considered as an alternative to net income or any other GAAP measurement as a
measure of operating performance and is not necessarily indicative of cash
available to fund all cash needs.
'Environmental laws' means federal, state and local laws and regulations
relating to the protection of the environment or the impact of the environment
on human health.
'ERISA' means the Employee Retirement Income Security Act of 1974, as
amended.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'FIRPTA' means the Foreign Investment in Real Property Tax Act of 1980.
'Funds from Operations' means net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures.
118
<PAGE>
<PAGE>
'Hotel' means the Resort at Longboat condominium hotel.
'GAAP' means generally accepted accounting principles.
'Interested Stockholder' means a person who beneficially owns 10% or more
of the voting power of a Maryland corporation's shares or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation.
'IRS' means the Internal Revenue Service.
'Loeb Group' means Loeb Partners Realty and its affiliates which owned
interests in one or more of the Properties or in other assets that will be
contributed to the Company in connection with the Formation Transactions or in
the Excluded Properties.
'Loeb Real Estate' means the predecessor of the Company, as defined in the
combined historical financial statements contained in this Prospectus.
'MGCL' means the Maryland General Corporation Law, as amended.
'NAREIT' means the National Association of Real Estate Investment Trusts.
'NYSE' means The New York Stock Exchange, Inc.
'Offering' means the offering of 13,600,000 shares of Common Stock.
'Operating Partnership' means Loeb Realty, L.P., a Delaware limited
partnership.
'Ownership Limit' means not more than 9.8% of the outstanding shares of
Common Stock (in value or number of shares, whichever is more restrictive) and
with respect to any class or series of preferred stock, 9.8% (in value or number
of shares, whichever is more restrictive) of the outstanding shares of such
class or series of preferred stock.
'Plan' means a pension, profit-sharing, retirement or other employee
benefit plan subject to ERISA.
'Properties' means the 31 properties more particularly described in the
section entitled 'Business and Properties.'
'Real Estate Brokerage Subsidiary' means Loeb Property Services, Inc., a
Delaware corporation.
'Recognition Period' means the 10-year period beginning on the date on
which an asset was acquired by the Company from a C corporation in a transaction
in which the basis of the asset in the Company's hands is determined by
reference to the basis of the asset (or other property in the hands of the C
corporation) where the Company recognizes gain on the disposition of such asset
during such 10-year period.
'Registration Statement' means the registration statement of the Company
filed on Form S-11 and any subsequent amendments thereof.
'REIT' means a real estate investment trust as defined pursuant to Sections
856 through 860 of the Code.
'Related Party Tenant' means a tenant that is 10% or more owned, directly
or constructively, by the REIT or an owner of 10% or more of the REIT.
'Representatives' means Smith Barney Inc., Lazard Freres & Co. LLC, and
PaineWebber Incorporated.
'Restricted Stock' means shares of Common Stock which have been issued
other than in a transaction involving a public offering or which are held by
affiliates of the Company.
'Securities Act' means the Securities Act of 1933, as amended.
'Stock Option and Incentive Plan' means the Company's 1998 Stock Option and
Incentive Plan.
119
<PAGE>
<PAGE>
'UBTI' means unrelated business taxable income.
'Underwriters' means those underwriters for whom the Representatives are
acting as representatives.
'Unit' means a partnership interest in the Operating Partnership which is
exchangeable, subject to certain conditions, at any time after one year from the
date of this Prospectus into Common Stock, or at the option of the Company, the
cash equivalent thereof.
'UST' means underground storage tanks.
120
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Loeb Realty Corporation
Pro Forma Combined Financial Statements (unaudited)
Pro Forma Combined Balance Sheet as of December 31, 1997......................................... F-3
Pro Forma Combined Statement of Income for the Year Ended December 31, 1997...................... F-4
Notes to Pro Forma Combined Financial Information................................................ F-5
Historical
Report of Independent Auditors................................................................... F-12
Consolidated Balance Sheet as of May 11, 1998.................................................... F-13
Notes to Consolidated Balance Sheet.............................................................. F-14
Loeb Real Estate
Combined Financial Statements
Report of Independent Auditors................................................................... F-16
Combined Balance Sheets as of December 31, 1997 and 1996......................................... F-17
Combined Statements of Income for the Years Ended December 31, 1997, 1996 and 1995............... F-18
Combined Statements of Owners' Equity for the Years Ended December 31, 1997, 1996 and 1995....... F-19
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995........... F-20
Notes to Combined Financial Statements........................................................... F-21
Schedule III Real Estate and Accumulated Depreciation as of December 31, 1997.................... F-29
Key Club Associates, Limited Partnership
Report of Independent Certified Public Accountants.................................................... F-31
Balance Sheets as of December 31, 1997, 1996 and 1995................................................. F-32
Statements of Income for the Years Ended December 31, 1997, 1996 and 1995............................. F-33
Statements of Partners' Capital for the Years Ended December 31, 1997, 1996 and 1995.................. F-34
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995......................... F-35
Notes to Financial Statements......................................................................... F-36
First NBC Center
Report of Independent Auditors........................................................................ F-42
Statement of Revenues and Certain Expenses for the Years Ended December 31, 1997, 1996 and 1995....... F-43
Notes to Statements of Revenues and Certain Expenses.................................................. F-44
Riverview Center
Report of Independent Auditors........................................................................ F-45
Statements of Revenues and Certain Expenses for the Years Ended December 31, 1997, 1996 and 1995...... F-46
Notes to Statements of Revenues and Certain Expenses.................................................. F-47
Princeton Shopping Center
Report of Independent Auditors........................................................................ F-48
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997....................... F-49
Notes to Statement of Revenues and Certain Expenses................................................... F-50
Marketplace Design Center
Report of Independent Auditors........................................................................ F-51
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997....................... F-52
Notes to Statement of Revenues and Certain Expenses................................................... F-53
Bazaar Mall
Report of Independent Auditors........................................................................ F-54
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997....................... F-55
Notes to Statement of Revenues and Certain Expenses................................................... F-56
24 West 57th Street
Report of Independent Auditors........................................................................ F-57
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1996....................... F-58
Notes to Statement of Revenues and Certain Expenses................................................... F-59
</TABLE>
F-1
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma balance sheet of Loeb Realty Corporation (the 'Company') as
of December 31, 1997 has been prepared as if the Offering and Formation
Transactions had been consummated on December 31, 1997. The pro forma statements
of income for the year ended December 31, 1997 is presented as if the completion
of the Offering and the Formation Transactions occurred at January 1, 1997 and
the effect thereof was carried forward through December 31, 1997.
The pro forma financial statements do not purport to represent what the
Company's financial position or results of operations would have been assuming
the completion of the Formation Transactions and the Offering on such date or at
the beginning of the period indicated, nor do they purport to project the
Company's financial position or results of operations at any future date or for
any future period. The pro forma consolidated financial statements should be
read in conjunction with the combined financial statements of Loeb Real Estate
included elsewhere herein.
F-2
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION
OF THE
REMAINING EQUITY ACQUISITION OF
ACQUISITION OF INTERESTS IN SERVICE
LOEB PARTNERSHIPS' & PARTNERSHIPS & CORPORATION AND
REAL LIMITED LIABILITY LIMITED ESTABLISHMENT
ESTATE COMPANIES' LIABILITY OF REAL ESTATE ACQUISITION OF
HISTORICAL INTERESTS COMPANIES BROKERAGE PROPERTY
(A) (B) (C) SUBSIDIARY INTERESTS
-------- ----------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real Estate, at cost.................. $220,278 $ 110,026 $225,253 $ 7,300(F) $ 74,991(H)
Cash and cash equivalents............. 4,878 (6,050) (5,059) (1)(E) (8,400)(H)
Restricted cash....................... 10,830 227
Receivables........................... 1,913 2,151
Related party receivables............. 1,744 (44)
Deferred rents receivable............. 10,330 (3,832) 137
Investment in:
Partnerships and limited liability
companies....................... 8,837 (4,814) 53,237(G)
Real Estate Brokerage
Subsidiary...................... 1(E)
Deferred costs, net................... 7,701 (3,884) (346)
Other assets.......................... 3,466 8,107
-------- -------- -------- --------------- --------------
Total assets.................. $269,977 $ 96,260 $225,612 $ 7,300 $ 119,828
-------- -------- -------- --------------- --------------
-------- -------- -------- --------------- --------------
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Mortgage notes payable............ $212,456 $144,431 $ 41,333(H)
Accounts payable and accrued
expenses........................ 5,480 5,428
Excess of distributions and share
of losses over investment in
partnerships and limited
liability companies............. 1,015 (1,015)
Related party payables............ 4,242 3,183
Other liabilities................. 2,984 10,032
-------- -------- -------- --------------- --------------
Total liabilities............. 226,177 162,059 41,333
-------- -------- -------- --------------- --------------
Minority Interest in:
Operating Partnership.............
Real Estate Partnerships..........
Common Stock..........................
Additional paid in capital............
Owners' equity........................ 43,800 $ 96,260 63,553 22,979(D) 53,237(G)
(22,979)(D) 25,258(H)
7,300(F)
-------- -------- -------- --------------- --------------
Total equity.................. 43,800 96,260 63,553 7,300 78,495
-------- -------- -------- --------------- --------------
Total liabilities and
equity...................... $269,977 $ 96,260 $225,612 $ 7,300 $ 119,828
-------- -------- -------- --------------- --------------
-------- -------- -------- --------------- --------------
<CAPTION>
PRO FORMA COMPANY
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
ASSETS
Real Estate, at cost.................. $637,848
Cash and cash equivalents............. $ 247,949(I) 21,235
(1,250)(J)
(210,832)(K)
Restricted cash....................... 11,057
Receivables........................... 4,064
Related party receivables............. 1,700
Deferred rents receivable............. 6,635
Investment in:
Partnerships and limited liability
companies....................... 57,260
Real Estate Brokerage
Subsidiary...................... 1
Deferred costs, net................... 1,250(J) 4,596
(125)(K)
Other assets.......................... 11,573
----------- ---------
Total assets.................. $ 36,992 $755,969
----------- ---------
----------- ---------
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Mortgage notes payable............ $(200,939)(K) $197,281
Accounts payable and accrued
expenses........................ (2,801)(K) 8,107
Excess of distributions and share
of losses over investment in
partnerships and limited
liability companies............. --
Related party payables............ (80)(K) 3,202
(4,143)(K)
Other liabilities................. 13,016
----------- ---------
Total liabilities............. (207,963) 221,606
----------- ---------
Minority Interest in:
Operating Partnership............. 244,654(M) 244,654
Real Estate Partnerships.......... 21,462(L) 21,462
Common Stock.......................... 15(I) 15
Additional paid in capital............ 247,934(I) 268,232
20,298(M)
Owners' equity........................ (125)(K) --
(7,012)(K)
4,143(K)
(21,462)(L)
(264,952)(M)
----------- ---------
Total equity.................. (21,161) 268,247
----------- ---------
Total liabilities and
equity...................... $ 36,992 $755,969
----------- ---------
----------- ---------
</TABLE>
F-3
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION
OF THE
REMAINING EQUITY ACQUISITION OF
ACQUISITION OF INTERESTS IN SERVICE CORPORATION
PARTNERSHIPS' & PARTNERSHIPS & AND PROPERTY PROPERTY
LOEB LIMITED LIABILITY LIMITED ACQUISITION OF INTERESTS AND OPERATIONS
REAL ESTATE COMPANIES' LIABILITY TRIPLE NET ESTABLISHMENT OF PRIOR TO
HISTORICAL INTERESTS COMPANIES LEASE REAL ESTATE OWNERSHIP
(N) (O) (P) (Q) BROKERAGE SUBSIDIARY (V)
----------- ----------------- ---------------- -------------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental.................. $45,845 $ 380 $ 48,594 $(28,835) $ 11,119(U) $3,353
Escalation and
reimbursement......... 5,461 4,938 2,426(U) 271
Percentage rent......... 165(U)
Management fees......... 3,533 3,510(R)
(1,982)(S)
Share of net income on
investment in
Partnerships and
limited liability
companies........... 1,196 (969) 1,257(T)
Real Estate Brokerage
Subsidiary.......... 26(S)
Other income.......... 3,221 2,093 (422) 430(U) 35
----------- ------- ------- -------------- ------- ----------
Total revenues...... 59,256 380 54,656 (29,257) 16,951 3,659
----------- ------- ------- -------------- ------- ----------
EXPENSES
Operating expenses...... 18,311 30,724 (25,008) 5,464(U) 554
Real estate taxes....... 7,456 1,895 1,803(U) 629
Management fees......... 871 1,672 (1,040) 597(U) 82
Interest expense........ 17,712 9,453
Depreciation and
amortization.......... 7,078 1,624 7,060 367
General and
administrative........ 2,207 3,329 (3,138) 261(U) 113
3,212(R)
(1,932)(S)
Share of net loss on
investment in
Partnership and
limited liability
companies........... 1,499 (46) 478(T)
----------- ------- ------- -------------- ------- ----------
Total expenses...... 55,134 1,624 54,087 (29,186) 9,883 1,745
----------- ------- ------- -------------- ------- ----------
Income (loss) before income
tax expense................ 4,122 (1,244) 569 (71) 7,068 1,914
Tax expense.................. (259)
----------- ------- ------- -------------- ------- ----------
Income (loss) before
minority interest and
extraordinary item........ 3,863 (1,244) 569 (71) 7,068 1,914
Minority interest in:
Operating Partnership...
Real Estate
Partnerships.......... --- --- --- --- --- ---
----------- ------- ------- -------------- ------- ----------
Income before extraordinary
item...................... $ 3,863 $(1,244) $ 569 $ (71) $ 7,068 $1,914
----------- ------- ------- -------------- ------- ----------
----------- ------- ------- -------------- ------- ----------
Income per share(AD)
Basic...................
Diluted.................
<CAPTION>
PRO FORMA COMPANY
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
REVENUES
Rental.................. $ 477(W) $ 80,933
Escalation and
reimbursement......... 13,096
Percentage rent......... 165
Management fees......... (2,362)(Z) 2,699
Share of net income on
investment in
Partnerships and
limited liability
companies........... 1,484
Real Estate Brokerage
Subsidiary.......... 26
Other income.......... 5,357
----------- ---------
Total revenues...... (1,885) 103,760
----------- ---------
EXPENSES
Operating expenses...... 30,045
Real estate taxes....... 11,783
Management fees......... (807)(Z) 1,375
Interest expense........ (10,566)(X) 16,599
Depreciation and
amortization.......... 399(X) 18,042
1,514(W)
General and
administrative........ (784)(Z) 3,458
190(Y)
Share of net loss on
investment in
Partnership and
limited liability
companies........... (34)(Z) 1,897
----------- ---------
Total expenses...... (10,088) 83,199
----------- ---------
Income (loss) before income
tax expense benefit....... 8,203 20,561
Tax expense................. (259)(AA)
----------- ---------
Income (loss) before
minority interest and
extraordinary item........ 8,462 20,561
Minority interest in:
Operating Partnership... (9,063)(AC) (9,063)
Real Estate
Partnerships.......... (1,561)(AB) (1,561)
----------- ---------
Income before extraordinary
item...................... $ (2,162) $ 9,937
----------- ---------
----------- ---------
Income per share(AD)
Basic................... $ .67
---------
---------
Diluted................. $ .67
---------
---------
</TABLE>
F-4
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ADJUSTMENTS TO THE PRO FORMA COMBINED BALANCE SHEET
(A) To reflect the historical combined balance sheet of Loeb Realty
Corporation's predecessor ('Loeb Real Estate') as of December 31, 1997.
(B) To reflect in accordance with APB #16, purchase of the non-promoter
interests in the contributing partnerships and limited liability companies at
fair market value aggregating $120,593. The fair market value purchase price by
location is reflective of the non-promoter percentage interest(s) acquired in
the respective partnership or limited liability company. The promoter interests
and non-promoter interests that were not purchased are recorded at historical
cost. Certain partners in Easton Commons Shopping Center and 63 Madison Avenue
will receive cash of approximately $300 and $5,750, respectively, in lieu of
units at the closing of the initial public offering.
<TABLE>
<CAPTION>
HISTORICAL
BOOK VALUE CASH AND PURCHASE
NON-SPONSOR PURCHASE CASH PRICE
INTERESTS PRICE EQUIVALENTS ADJUSTMENTS
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Easton Commons Shopping Center.............................. $ 1,613 $ 5,689 $ (300) $ 3,776
Kendall Valley Center & Sunset Strip Center................. 3,645 9,302 5,657
One Dartmouth Place......................................... (2,258) 3,403 5,661
Presidential Estates........................................ (1,672) 206 1,878
International Drive Value Center............................ 4,079 7,758 3,679
200 Madison Avenue.......................................... 3,960 19,407 15,447
Shenandoah Industrial Park.................................. (2,447) 13,527 15,974
24 West 57th Street......................................... 3,255 7,166 3,911
63 Madison Avenue........................................... 10,834 41,538 (5,750) 24,954
Shoppes at St. Lucie West................................... 1,934 8,734 6,800
Park Hill Lane.............................................. (5,411) 1,702 7,113
First Union Bank Building................................... 751 2,161 1,410
----------- -------- ----------- -----------
$18,283 $120,593 $(6,050) $96,260
----------- -------- ----------- -----------
----------- -------- ----------- -----------
</TABLE>
Pro forma adjustment is as follows:
<TABLE>
<S> <C>
Real estate........................................................................................... $110,026
Cash and cash equivalents............................................................................. (6,050)
Deferred rents receivables............................................................................ (3,832)
Deferred costs, net................................................................................... (3,884)
--------
Net adjustment to owners' equity...................................................................... $ 96,260
--------
--------
</TABLE>
(C) To reflect Longboat Key Club, Kirby Richmond Shopping Center, Riverview
Center, First NBC Center, the GTE Property and 38 Chauncy Street as consolidated
entities rather than equity investments as a result of the acquisition of 100%
of the partnerships' and limited liability companies' interests. The Company
will account for interests acquired from third parties at fair market value in
accordance with APB #16. Certain partners in First NBC Center will receive cash
of approximately $9,139 in lieu of units at the closing of the initial public
offering.
F-5
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The adjustment is as follows:
TO ADJUST FOR
PROPERTIES
ELIMINATION THAT
OF COMBINED WILL REMAIN ON TOTAL
HISTORICAL EQUITY EQUITY METHOD PRO FORMA PRO FORMA
BALANCE PROPERTIES (SEE NOTE E) ADJUSTMENTS ADJUSTMENTS
----------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, at cost...................... $237,479 $ (120,970) $ 108,744 $ 225,253
Cash and cash equivalents................. 10,789 (6,709) (9,139) (5,059)
Restricted cash........................... 3,543 (3,316) 227
Receivables............................... 7,708 (5,557) 2,151
Related party receivables................. (44) (44)
Deferred rents receivables................ 3,723 (2,443) (1,143) 137
Investment in partnerships................ $(8,837) 4,023 (4,814)
Deferred costs, net....................... 17,478 (6,262) (11,562) (346)
Other assets.............................. 11,558 (3,451) 8,107
----------- -------- -------------- ----------- -----------
Total assets.................... $(8,837) $292,278 $ (144,729) $ 86,900 $ 225,612
----------- -------- -------------- ----------- -----------
----------- -------- -------------- ----------- -----------
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Mortgage notes payable............... $255,925 $ (135,494) $ 24,000 $ 144,431
Accounts payable and accrued
expenses........................... 8,042 (2,614) 5,428
Excess of distributions and share of
losses
over investment in partnerships...... $(1,015) (1,015)
Related parties payable.............. 3,192 (9) 3,183
Other liabilities.................... 14,110 (4,078) 10,032
----------- -------- -------------- ----------- -----------
Total liabilities............... (1,015) 281,269 (142,195) 24,000 162,059
----------- -------- -------------- ----------- -----------
Owners' Equity
The Company.......................... (7,822) 8,112 62,900 63,190
Outside partners..................... 2,897 (2,534) 363
----------- -------- -------------- ----------- -----------
Total equity.................... (7,822) 11,009 (2,534) 62,900 63,553
----------- -------- -------------- ----------- -----------
Total liabilities & owners'
equity........................ $(8,837) $292,278 $ (144,729) $ 86,900 $ 225,612
----------- -------- -------------- ----------- -----------
----------- -------- -------------- ----------- -----------
</TABLE>
F-6
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
BOOK VALUE CASH AND MORTGAGE
NON-SPONSOR PURCHASE CASH NOTES PRO FORMA
INTERESTS PRICE EQUIVALENTS PAYABLE ADJUSTMENTS
----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Longboat Key Club................................ $ (16,911) $ 21,373 $(24,000) $14,284
Kirby Richmond Shopping Center................... 57 769 712
Riverview Center................................. (3,240) 10,154 13,394
First NBC Center................................. 5,029 40,312 $(9,139) 26,144
GTE Property..................................... (2,225) 3,579 5,804
38 Chauncy Street................................ 1,021 3,873 2,852
----------- -------- ----------- -------- -----------
Sub-Total.................................... $ (16,269) $ 80,060 $(9,139) $(24,000) $63,190
Elimination of capitalized costs................. ----------- -------- ----------- -------- (290)
-----------
Total........................................ $62,900
-----------
-----------
</TABLE>
Pro forma adjustment is as follows:
<TABLE>
<S> <C>
Net real estate....................................................................................... $108,744
Cash and cash equivalents............................................................................. (9,139)
Deferred rents receivables............................................................................ (1,143)
Deferred costs, net................................................................................... (11,562)
Mortgage notes payable................................................................................ (24,000)
--------
Net adjustment to owners' equity...................................................................... $ 62,900
--------
--------
</TABLE>
(D) To reflect, in accordance with purchase accounting, the merger of the
property management business of George Comfort & Sons, Inc. ('Comfort')
into the Company in exchange for approximately $22,979 in common stock and to
expense as a cost the cancellation of the Comfort management agreements.
(E) To reflect adjustments required to record the Company's investment in
the Real Estate Brokerage Subsidiary pursuant to the equity method of
accounting. As a result of the Formation Transactions the Company will own 100%
of the non-voting common stock representing 95% of the total equity.
(F) To reflect the acquisition of Loeb management from non-promoters,
through the issuance of units in the operating partnership, who hold interests
in the properties to be acquired by the Company, treating such acquisition
as additional purchase price of the properties. Substantially all of the Loeb
management income was derived from short-term contracts with properties to be
acquired by the Company.
(G) To reflect the Company's acquisition of certain equity interest in real
estate partnerships and limited liability companies from non-promoters. The
Company does not have control of these real estate partnerships and limited
liability companies and, therefore, they have been accounted for on the equity
method, computed as follows:
<TABLE>
<CAPTION>
HISTORIC PROFORMA ADJUSTMENT
PERCENTAGE INVESTMENT EQUITY TO
ENTITY OWNERSHIP (SEE NOTE C) INVESTMENT FAIR VALUE
- ------------------------------------------------------------ ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Outlet Park RPFIV Associates, LLC........................... 25.00% $1,030 $ 4,074 $ 3,044
Public Storage Glendale Freeway, Ltd........................ 74.25% --- 3,326 3,326
Public Storage Alemeda, Ltd................................. 74.25% --- 4,722 4,722
529 Fifth Company........................................... 32.64% 724 11,974 11,250
Winewood Office Park, Ltd................................... 20.00% 1,417 2,320 903
498 Seventh Avenue, LLC..................................... 50.00% 852 30,844 29,992
---------- ------------ ---------- ----------
Total.................................................. $4,023 $ 57,260 $ 53,237
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
F-7
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(H) To reflect the acquisition of Princeton Shopping Center, 307 West 38
Street, 328 South Jefferson Street, Manufacturers Outlet Center, M&M Plaza and
Marketplace Design Center. The purchase price consists of the issuance of
units with a fair value of $25,258, cash of $8,400, and the assumption of
$41,333 of debt.
(I) To reflect the issuance of 13,600,000 shares of common stock at an
assumed price of $20 per share which is reduced by the underwriting discount of
$17,000, and advisory fee of $2,040 payable to Solomon Smith Barney, Inc. and
estimated other costs of the Offering of $5,011.
(J) To reflect the payment of a commitment fee of $1,250 for a $250,000
line of credit to be used in connection with future property acquisitions.
(K) To reflect the repayment of certain mortgage notes, including accrued
interest thereon, and related party payables, payment of prepayment penalties
and write off of deferred financing costs.
<TABLE>
<S> <C>
Repayment of mortgage notes....................................................... $200,939
Payment of accrued interest....................................................... 2,801
Repayment of related party payables............................................... 80
Prepayment penalties.............................................................. 7,012
--------
Total cash payments............................................................... $210,832
--------
--------
Issuance of units in satisfaction of partner loans................................ $ 4,143
--------
--------
Write-off of deferred financing costs in connection with the repayment of the
mortgage notes.................................................................. $125
--------
--------
</TABLE>
(L) To reflect the historical minority interest in the real estate
partnerships:
<TABLE>
<CAPTION>
MINORITY
INTEREST MINORITY
PARTNERSHIP PERCENTAGE INTEREST
- ----------------------------------------------------------------------- ---------- --------
<S> <C> <C>
63 Madison Avenue Assoc., L.P.......................................... 50.0% $ 11,874
200 Madison Associates, L.P............................................ 68.5% 9,588
---------- --------
Total............................................................. $ 21,462
--------
--------
</TABLE>
(M) Reflects the establishment of limited partners' interest (47.7%) in the
Operating Partnership as follows:
<TABLE>
<S> <C>
Total owners' equity.............................................................. $534,363
Less: Minority interest in real estate partnerships............................... 21,462
--------
512,901
Limited partners' percentage ownership interest in the net assets of the Operating
Partnership..................................................................... x47.7%
--------
Limited partners' interest in the Operating Partnership........................... $244,654
--------
--------
</TABLE>
F-8
<PAGE>
<PAGE>
ADJUSTMENTS TO THE PRO FORMA COMBINED INCOME STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1997
(N) To reflect the historical combined statement of income of Loeb Real
Estate for the year ended December 31, 1997.
(O) To reflect the adjustment resulting from the purchase of the
non-promoter interests in the combined entities:
LOEB REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Rental revenue adjustment to straight line rental income.......................... 380
Depreciation and amortization..................................................... 1,624
</TABLE>
(P) To reflect Longboat Key Club, Kirby Richmond Shopping Center, Riverview
Center, First NBC Center, GTE Property and 38 Chauncy Street as consolidated
entities rather than an investment in partnerships and limited liability
companies due to the acquisition of 100% of the partnerships' and limited
liability companies' interests.
(Q) To reflect Longboat Key Club property on a triple net lease basis, with
rental income of approximately $5,400 in lieu of historical operation.
(R) To reflect the historical operations of Comfort.
(S) To reflect the Company's share in the Brokerage operations that were
previously conducted by the Company and Comfort and will be conducted by the
Real Estate Brokerage Subsidiary.
The adjustment is as follows:
<TABLE>
<CAPTION>
SHARE OF NET
INCOME
HISTORICAL ON
BROKERAGE EQUITY PROFORMA
REVENUE METHOD(A) ADJUSTMENTS
---------- ------------ -----------
<S> <C> <C> <C>
Revenue:
Management fees........................................... $1,982 -- $(1,982)
Share of net income of Real Estate Brokerage Subsidiary... $ 26 26
---------- --- -----------
Total revenue........................................ 1,982 26 (1,956)
Expenses:
Marketing, general and administration..................... 1,932 -- (1,932)
---------- --- -----------
Total expenses....................................... 1,932 -- (1,932)
---------- --- -----------
Income (loss)........................................ $ 50 $ 26 $ (24)
---------- --- -----------
---------- --- -----------
</TABLE>
(a) The equity in income of Real Estate Brokerage Subsidiary is computed as
follows:
<TABLE>
<S> <C>
Income.................................................................................. $50
Tax provision........................................................................... 23
---
Net income.............................................................................. $27
---
---
Equity in income of Real Estate Brokerage Subsidiary at 95 percent...................... $26
---
---
</TABLE>
(T) To reflect the equity in net income (loss) of real estate partnerships
and limited liability companies that are accounted for on the equity method for
the period prior to the date of acquisition as follows:
<TABLE>
<CAPTION>
PERCENTAGE DATE OF PROFORMA
ENTITIES OWNERSHIP ACQUISITION ADJUSTMENTS
- ---------------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Outlet Park RPFIV Associates, LLC............................... 25.00% 11/4/97 $ 269
Public Storage Glendale Freeway, Ltd............................ 74.25% * 247
Public Storage Alemeda, Ltd..................................... 74.25% * 350
Winewood Office Park, Ltd....................................... 20.00% ** 151
529 Fifth Company............................................... 32.64% *** 240
-----------
$ 1,257
-----------
-----------
498 Seventh Avenue, LLC......................................... 50.00% **** $ (478)
</TABLE>
(footnotes on next page)
F-9
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(footnotes from previous page)
* To be acquired at the close of the initial public offering.
** Originally owned 7.1%, balance to be acquired at close of initial public
offering.
*** Originally owned 7.5%, balance to be acquired at close of initial public
offering.
**** Acquired a 25% interest on March 27, 1997, balance to be acquired at close
of initial public offering.
(U) To reflect the operations of Princeton Shopping Center, 307 West 38
Street, 328 South Jefferson Street, Manufacturers Outlet Center, M&M Plaza, and
Marketplace Design Center which will be acquired at closing for the year ended
December 31, 1997.
(V) To reflect the operations of International Drive Value Center, 24 West
57th Street, and 38 Chauncy Street prior to their acquisition on March 19, 1997,
June 1, 1997 and November 12, 1997, respectively.
(W) To reflect the adjustment of straight-line rents for the acquisition
properties and depreciation based on purchase price.
(X) To eliminate interest expense and amortization of deferred financing
costs related to the satisfaction of mortgage notes and to reflect interest
expense related to the transfer of certain mortgage debt to the Company and
amortization of deferred financing costs related to the Company's line of
credit.
<TABLE>
<S> <C>
Historic interest.............................................. $27,165
Pro forma interest............................................. 16,599
-------
Pro forma adjustments.......................................... $10,566
-------
-------
Historical amortization........................................ $ 250
Pro forma amortization......................................... 649
-------
Pro forma adjustments.......................................... $ 399
-------
-------
</TABLE>
(Y) To reflect the net increase in marketing, general and administrative
expenses related to operations of a public company of $190.
The marketing, general and administrative expenses consist of the
following:
<TABLE>
<S> <C>
Salaries, including taxes and benefits........................... $3,710
Transfer agent fees.............................................. 75
Directors' fees and liability insurance.......................... 175
Professional fees................................................ 360
Rent............................................................. 250
Printing......................................................... 120
Annual listing................................................... 100
Other............................................................ 600
------
5,390
Less: expenses allocated to Real Estate Brokerage Subsidiary..... 1,932
------
Total....................................................... $3,458
------
------
</TABLE>
The additional officers' compensation and related costs are attributable
primarily to employment agreements with the officers as further described under
the caption 'Management -- Executive Compensation.'
F-10
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(Z) To reflect the elimination of management, supervisory and brokerage fee
income earned by the Company and Comfort from entities owned and acquired by the
Company.
(AA) To eliminate the tax provision, as management does not anticipate
paying any taxes as a REIT.
(AB) To reflect the historical minority interest in the real estate
partnerships:
<TABLE>
<CAPTION>
MINORITY
INTEREST MINORITY
PARTNERSHIPS PERCENTAGE INTEREST
- ----------------------------------------------------------------------- ---------- --------
<S> <C> <C>
63 Madison Avenue Assoc. LP............................................ 50.0%(a) $ 524
200 Madison Associates, LP............................................. 68.5%(a) 1,037
---------- --------
Total............................................................. $1,561
--------
--------
</TABLE>
- ------------
(a) Non controlling interest.
(AC) Represents the 47.7% interest of the minority in the Operating
Partnership.
<TABLE>
<S> <C>
Income before minority interest and extraordinary items............................ $20,561
Less: Minority interest in real estate partnership................................. 1,561
-------
19,000
Limited partners' percentage ownership of the operating partnership................ x 47.7%
-------
Limited partners' interest in the operating partnership............................ $ 9,063
-------
-------
</TABLE>
(AD) Pro Forma net income per common share is based on 14,749,034 shares
of common stock expected to be outstanding after the Offering. As each Operating
Partnership unit is redeemable for cash, or at the company's election, for one
share of common stock, the calculation of earnings per share upon redemption
will be unaffected as unitholders and stockholders share equally on a per unit
and per share basis in the net income of the company. In February, 1997, the
Financial Accounting Standards Board issued Statement No. 128, Earnings per
Share, which is required to be adopted on December 31, 1997. Management does not
believe the adoption of Statement No. 128 will have a material impact on
earnings per share.
F-11
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
LOEB REALTY CORPORATION
We have audited the accompanying consolidated balance sheet of Loeb Realty
Corporation as of May 11, 1998. This consolidated balance sheet is the
responsibility of Loeb Realty Corporation. Our responsibility is to express an
opinion on the consolidated balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheet presents fairly, in all
material respects, the financial position of Loeb Realty Corporation at May 11,
1998 in conformity with generally accepted accounting principles.
New York, New York
May 11, 1998
F-12
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
CONSOLIDATED BALANCE SHEET
MAY 11, 1998
<TABLE>
<S> <C>
ASSETS
Cash..................................................................................................... $ 200
------
Total assets................................................................................... $ 200
------
------
MINORITY INTEREST AND SHAREHOLDERS' EQUITY
Minority interest........................................................................................ $ 100
------
Shareholders' equity:
Common stock $.001 par value; 100,000,000 shares authorized, 100 shares issued and outstanding...... --
Additional paid-in capital.......................................................................... 1,000
Subscriptions receivable............................................................................ (900)
------
Total shareholders' equity..................................................................... 100
------
Total minority interest and shareholders' equity............................................... $ 200
------
------
</TABLE>
See accompanying notes.
F-13
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
NOTES TO CONSOLIDATED BALANCE SHEET
MAY 11, 1998
1. FORMATION AND PROPOSED TRANSACTION
Loeb Realty Corporation (the 'Company'), a Maryland corporation was formed
on February 9, 1998 for the purpose of combining certain real estate properties
(the 'Properties') which are owned by partnerships and limited liability
companies (the 'Contributing Companies') in which the Loeb Group owns an
interest. The Company had no operations for the period February 9, 1998
through May 11, 1998. The Company expects to qualify as a real estate
investment trust ('REIT') under the Internal Revenue Code of 1986, as amended.
A REIT is a legal entity that holds real estate interest and, through payments
of dividends to shareholder, is permitted to reduce or avoid the payment of
federal income taxes at the Company level.
PRINCIPLES OF REPORTING
The accompanying consolidated balance sheet includes the accounts of the
Company and the Operating Partnership. All significant inter-company
transactions and balances have been eliminated.
FORMATION TRANSACTION
In order to facilitate the organization of the Company's business, the
following transactions have been or will be effected:
Pursuant to one or more contribution, merger or option agreements,
entities which own direct or indirect interests in the Properties, the
management business and the real estate brokerage business will contribute
those interests to the Operating Partnership, or will merge with the
Operating Partnership, in exchange for 13,425,885 Units, 1,148,934 shares
of Common Stock, $17.9 million in cash and the assumption of $385.9 million
of mortgage indebtedness. The Operating Partnership will repay an
approximately $5.8 million outstanding loan made by the owners of the
63 Madison Avenue Property to fund capital improvements at the Property.
Pursuant to one or more contribution agreements, owners of
the Longboat Key Club will contribute the existing condominium unit
management contracts relating to the hotel as well as certain other
personal property to Longboat Key Club, L.P. (the lessee) in exchange for
100% of the interest of that entity. The Operating Partnership will lease
the Longboat Key Club to Longboat Key Club, L.P. pursuant to a 10 year
participating lease, the terms of which have been structured so that the
Operating Partnership will receive significant economic benefits from the
operations of the Club and the Hotel.
Prior to the completion of the Offering, the Operating Partnership
will contribute its third party sales and leasing brokerage business to a
newly formed Real Estate Brokerage Subsidiary. The Operating Partnership
will hold 100% of the non voting stock, representing a 95.0% equity
interest in the Real Estate Brokerage Subsidiary. All of the voting stock,
representing a 5% equity interest will be held by officers and directors of
the Real Estate Brokerage Subsidiary.
The Operating Partnership will obtain certain new mortgage debt and
repay certain existing debt from the proceeds of the Offering and the new
mortgage debt.
The Company will sell 13,600,000 shares of Common Stock and issue
1,149,034 shares to continuing investors in the Offering and will
contribute the net proceeds from the Offering to the Operating Partnership
in exchange for 14,749,034 Units, which will represent approximately a
52.3% economic interest in the Operating Partnership after the Offering.
F-14
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
MAY 8, 1998
2. COMMITMENTS AND CONTINGENCIES
THIRD-PARTY PROPERTY MANAGEMENT
The Company will provide property management services for 16 properties
owned by third parties. Nine of these properties are located in New York City
and the balance are located in various other markets. The Company does
not presently intend to actively expand its third-party management business,
although it will evaluate property management engagements as opportunities
arise.
STOCK OPTION PLAN
The Company intends to adopt a stock option plan designed to attract,
retain and motivate executive officers of the Company and other key employees.
The plan will authorize the issuance of shares of common stock pursuant to
options granted under the plan, as described in the Company's Prospectus under
the caption 'Management -- Stock Option Plan.'
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with certain executive
officers as described in the company's Prospectus under the captions
'Management -- Employment Agreements.'
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
F-15
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners and Members
LOEB REAL ESTATE
We have audited the accompanying combined balance sheets of Loeb Real
Estate as of December 31, 1997 and 1996, and the related combined statements of
income, owners' equity and cash flows for each of the three years in the period
ended December 31, 1997. We have also audited the financial statement schedule
listed on the index to Financial Statements included in the Prospectus. These
financial statements and financial statement schedule are the responsibility of
Loeb Real Estate management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Loeb Real
Estate at December 31, 1997 and 1996, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
New York, New York
April 2, 1998
F-16
<PAGE>
<PAGE>
LOEB REAL ESTATE
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Real estate, at cost:
Land and improvements................................................................ $ 51,007 $ 37,885
Buildings and improvements........................................................... 191,741 165,027
Land held for development............................................................ 2,544 2,974
-------- --------
245,292 205,886
Less accumulated depreciation........................................................ (25,014) (19,121)
-------- --------
220,278 186,765
Cash and cash equivalents................................................................. 4,878 7,646
Restricted cash........................................................................... 10,830 7,547
Receivables............................................................................... 1,913 1,490
Related party receivables................................................................. 1,744 1,100
Deferred rents receivable................................................................. 10,330 8,196
Investment in partnerships and limited liability companies................................ 8,837 7,322
Deferred costs, net....................................................................... 7,701 7,875
Other assets.............................................................................. 3,466 3,195
-------- --------
Total assets............................................................... $269,977 $231,136
-------- --------
-------- --------
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Mortgage notes payable............................................................... $212,456 $184,379
Accounts payable and accrued expenses................................................ 5,480 5,010
Excess of distributions and share of losses over investment in partnerships and
limited liability companies......................................................... 1,015 1,016
Related party payables............................................................... 4,242 3,831
Security deposits.................................................................... 1,442 1,001
Other liabilities.................................................................... 1,542 2,193
-------- --------
Total liabilities............................................................... 226,177 197,430
Commitments and contingencies
Owners' equity............................................................................ 43,800 33,706
-------- --------
Total liabilities and owners' equity....................................... $269,977 $231,136
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-17
<PAGE>
<PAGE>
LOEB REAL ESTATE
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
Rental...................................................................... $45,845 $43,523 $25,622
Escalation and reimbursement................................................ 5,461 4,671 3,839
Management fees............................................................. 3,533 2,675 2,256
Share of net income on investment in partnerships and limited liability
companies................................................................. 1,196 955 1,052
Other income................................................................ 3,221 4,581 1,755
------- ------- -------
Total revenues......................................................... 59,256 56,405 34,524
------- ------- -------
Expenses:
Operating expenses.......................................................... 18,311 17,838 10,851
Real estate taxes........................................................... 7,456 6,784 4,407
Management fees............................................................. 871 442 192
Interest expense............................................................ 17,712 13,343 8,015
Depreciation and amortization............................................... 7,078 6,013 4,108
General and administrative.................................................. 2,207 2,574 2,170
Share of net loss on investment in partnerships and limited liability
companies................................................................. 1,499 120 29
------- ------- -------
Total expenses......................................................... 55,134 47,114 29,772
------- ------- -------
Income before income tax (expense) benefit....................................... 4,122 9,291 4,752
Tax (expense) benefit............................................................ (259) 150 139
------- ------- -------
Net income........................................................ $ 3,863 $ 9,441 $ 4,891
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes.
F-18
<PAGE>
<PAGE>
LOEB REAL ESTATE
COMBINED STATEMENTS OF OWNERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at January 1, 1995................................................................. $ 26,912
Distributions......................................................................... (6,533)
Contributions......................................................................... 16,429
Net income for the year ended December 31, 1995....................................... 4,891
-----------
Balance at December 31, 1995............................................................... 41,699
Distributions......................................................................... (24,916)
Contributions......................................................................... 7,482
Net income for the year ended December 31, 1996....................................... 9,441
-----------
Balance at December 31, 1996............................................................... 33,706
Distributions......................................................................... (5,279)
Contributions......................................................................... 11,510
Net income for the year ended December 31, 1997....................................... 3,863
-----------
Balance at December 31, 1997............................................................... $ 43,800
-----------
-----------
</TABLE>
See accompanying notes.
F-19
<PAGE>
<PAGE>
LOEB REAL ESTATE
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................................... $ 3,863 $ 9,441 $ 4,891
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization............................................ 7,078 6,013 4,108
Share of net loss (income) on investment in partnerships and limited
liability companies.................................................... 418 (784) (926)
Changes in operating assets and liabilities:
Restricted cash.......................................................... (3,283) (4,810) (45)
Receivables.............................................................. (423) (592) 163
Related party receivables................................................ (644) 345 (204)
Deferred costs........................................................... (885) (2,962) (3,102)
Deferred rents receivable................................................ (2,134) (3,691) (3,121)
Other assets............................................................. 14 861 (920)
Accounts payable and accrued expenses.................................... 470 (477) 434
Related party payables................................................... 411 (386) 299
Security deposits payable................................................ 441 151 141
Other liabilities........................................................ (651) (1,625) (364)
-------- -------- --------
Net cash provided by operating activities........................... 4,675 1,484 1,354
-------- -------- --------
INVESTING ACTIVITIES
Additions to land, buildings and improvements............................ (39,531) (21,670) (17,443)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable..................................... 28,918 75,217 12,625
Payments of mortgage notes payable....................................... (841) (33,743) (8,409)
Contributions from partners/members...................................... 7,992 7,482 16,429
Distributions to partners/members........................................ (3,981) (23,397) (6,035)
-------- -------- --------
Net cash provided by financing activities..................................... 32,088 25,559 14,610
-------- -------- --------
Net (decrease) increase in cash and cash equivalents.......................... (2,768) 5,373 (1,479)
Cash and cash equivalents at beginning of period.............................. 7,646 2,273 3,752
-------- -------- --------
Cash and cash equivalents at end of period.................................... $ 4,878 $ 7,646 $ 2,273
-------- -------- --------
-------- -------- --------
Supplemental cash flow disclosures
Interest paid................................................................. $ 15,754 $ 14,032 $ 7,521
-------- -------- --------
-------- -------- --------
NON CASH INVESTING AND FINANCING ACTIVITIES
Investment in partnerships/limited liability companies included in:
Contributions............................................................ 3,518 -- --
Distributions............................................................ $ 1,298 $ 1,519 $ 498
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-20
<PAGE>
<PAGE>
LOEB REAL ESTATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Loeb Real Estate (the 'Company') is engaged in the business of owning,
managing, leasing, and acquiring various types of real estate properties (the
'Properties') throughout the United States. The Properties consist of four
office properties, five retail shopping centers, three residential properties,
and one land development company.
PRINCIPLES OF COMBINATION
Loeb Real Estate is not a legal entity but rather a combination of real
estate properties that is currently organized as limited partnerships and
limited liability companies and which is under the common management and control
of the Loeb Group, or entities (Loeb Partners Realty, Loeb Partners Realty and
Development Corp., CPK Inc., NLF, Inc., Loeb Partners Realty Southeast, Inc. and
Lane Hill Park, Inc.) controlled by such parties. The entities included in the
financial statements have been combined for only the periods that they were
under common control and management. In addition, investments in certain
non-controlled limited partnerships are accounted for under the equity method.
All significant intercompany transactions and balances have been eliminated in
combination.
The specific partnerships and limited liability companies and management
companies, whose ownership interests range from approximately 13% to 87%, are
included in the accompanying combined financial statements are as follows:
<TABLE>
<CAPTION>
PROPERTY ENTITY
- --------------------------------------------------------- -----------------------------------------------
<S> <C>
ECP Shopping Center, Ltd.
Easton Commons Plaza Shopping Center
LKS Associates, L.P.
LKS Associates, L.P.
Kendall Value
Sunset Strip Shopping Centers
One Dartmouth Place Associates, L.P.
One Dartmouth Place Apartments
Presidential Estates Associates
Presidential Estates
LID Associates, Ltd.
International Drive Value Center
200 Madison Associates, L.P.
200 Madison Avenue
Shenandoah Development Group, L.P.
Shenandoah Industrial Park
L/C Group LLC
24 West 57th Street
63 Madison Associates, L.P.
63 Madison Avenue
LSL Associates, L.P., Ltd.
Shoppes at St. Lucie West
Park Hill Lane Associates
Park Hill Lane Apartments
444 Seabreeze Boulevard Associates
First Union Bank Building
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REAL ESTATE PROPERTIES
Depreciation is computed by the straight-line method over the estimated
useful lives, which range from ten to thirty-nine years for buildings and
improvements. Tenant improvements, which are included in buildings and
improvements on the accompanying combined balance sheets, are amortized over the
life of the respective leases, using the straight-line method.
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ('SFAS No. 121'), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires the
Company review real estate assets for impairment whenever
F-21
<PAGE>
<PAGE>
LOEB REAL ESTATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
events or changes in circumstances indicate the carrying value of assets to be
held and used may not be recoverable. Impaired assets are required to be
reported at the lower of cost or fair value less cost to sell. Assets are
classified to be disposed when management has committed to a plan to dispose of
the assets. Prior to the adoption of SFAS No. 121, real estate assets were
required to be stated at the lower of cost or net realizable value. The
Company's real estate assets are held for use. No impairment losses have been
recorded in any of the periods presented.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less from the date of purchase to be cash and cash
equivalents.
The Company maintains banking relationships with major financial
institutions and operates its properties through multiple bank accounts to
mitigate exposure to loss of cash balances which may, from time to time, exceed
federally insured limits.
RESTRICTED CASH
Restricted cash consists of capital improvement escrows, real estate tax
escrows and tenant security deposits.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due, pursuant
to the underlying leases, are included in deferred rents receivable on the
accompanying combined balance sheets. Contractually due but unpaid rents are
included in receivables on the accompanying combined balance sheets.
DEFERRED COSTS
Costs incurred to obtain tenant leases and long-term financing are
amortized over the terms of the related leases or debt agreements, as
applicable.
INCOME TAXES
The following management companies: Loeb Partners Realty and Development
Corp., CPK Inc., NLF, Inc., Loeb Partners Realty Southeast, Inc., and Lane Hill
Park, Inc. are tax paying entities and are included in the consolidated U.S.
Federal income tax return of Loeb Holding Corporation. Accordingly, an income
tax expense or benefit has been computed on a separate return basis. The
properties and the remaining management company, Loeb Partners Realty, are not
tax paying entities for income tax purposes and accordingly the partners/members
allocable share of taxable income or loss are reportable on their respective
income tax returns.
CONCENTRATION OF REVENUE AND CREDIT RISK
The Company's management performs on-going credit evaluations of tenants
and requires certain tenants to provide security deposits. The commercial
tenants of the Properties operate in various industries and there is no
dependence upon any single tenant.
Approximately 52%, 63% and 48% of the Company's total revenue for the years
ended December 31, 1997, 1996 and 1995, respectively, was derived from 63
Madison Associates, L.P. and 200 Madison Associates, L.P. Any adverse change in
the operating profitability of those properties may have a material effect on
the Company.
F-22
<PAGE>
<PAGE>
LOEB REAL ESTATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
CAPITAL CONTRIBUTIONS, DISTRIBUTIONS AND PROFITS AND LOSSES
Capital contributions, distributions, profits and losses are allocated in
accordance with the terms of the applicable agreements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Statement No. 131 ('FAS No. 131')
'Disclosure about Segments of an Enterprise and Related Information' is
effective for financial statements issued for periods beginning after December
15, 1997. FAS No. 131 requires disclosures about segments of an enterprise and
related information regarding the different types of business activities in
which an enterprise engages and the different economic environments in which it
operates. The Company has not determined the effect FAS No. 131 will have on the
disclosures in the Company's financial statements.
2. INVESTMENT IN PARTNERSHIPS AND LIMITED LIABILITY COMPANIES
The Company holds investments in partnerships and limited liability
companies which are accounted for under the equity method since the Company does
not control the activities of the partnerships or limited liability companies.
These investments are recorded initially at cost and subsequently adjusted for
equity in the net income or loss of investees and cash contributions and
distributions.
<TABLE>
<CAPTION>
PERCENTAGE
PROPERTY ENTITY OWNERSHIP
- --------------------------------------------- ---------------------------------------------------- -----------
<S> <C> <C>
Long Boat Key Club Key Club Associates, Limited Partnership............ 33.3%
529 Fifth Avenue 529 Fifth Company................................... 7.5%
Kirby/Richmond Shopping Center Kirby Richmond Shopping Center, Ltd................. 71.5%
Riverview Center Riverview Center Associates......................... 35.8%
498 Seventh Avenue 498 Seventh LLC..................................... 25.0%
Winewood Office Park Winewood Park Limited............................... 7.1%
First NBC Center PS Charles Associates, L.P. ........................ 29.8%
GTE Property Second Portland Associates, Ltd. ................... 14.4%
Shoppes at Waccamaw VT Waccamaw LLC..................................... 25.0%
38 Chauncy Street 38 Chauncy Street, LLC.............................. 8.9%
</TABLE>
F-23
<PAGE>
<PAGE>
LOEB REAL ESTATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Condensed combined financial statements of the entities, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Condensed combined balance sheets
Real estate, net................................................................ $237,479 $129,889
Cash and short-term investments................................................. 10,789 11,135
Restricted cash................................................................. 3,543 2,656
Related party receivables....................................................... -- 307
Tenant receivables.............................................................. 7,708 6,961
Deferred rents receivable....................................................... 3,723 2,255
Deferred costs, net............................................................. 17,478 10,166
Other........................................................................... 11,558 7,747
-------- --------
Total assets.......................................................... $292,278 $171,116
-------- --------
-------- --------
Mortgage notes payable.......................................................... $255,925 $145,209
Accounts payable and accrued expenses........................................... 8,042 4,208
Accounts payable to related parties............................................. 3,192 3,524
Other........................................................................... 14,110 10,786
-------- --------
Total liabilities..................................................... 281,269 163,727
-------- --------
Partners'/members' equity:
The Company................................................................ 8,112 6,311
Outside partners/members................................................... 2,897 1,078
-------- --------
Total partners'/members' equity....................................... 11,009 7,389
-------- --------
Total liabilities and partners'/members' equity....................... $292,278 $171,116
-------- --------
-------- --------
The Company's capital account................................................... $ 8,112 $ 6,311
Less: elimination of inter-company capitalized cost............................. 290 5
-------- --------
The Company's investment in partnerships/limited liability
companies........................................................... $ 7,822 $ 6,306
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Condensed combined statements of operations
Rental revenue and escalations......................................... $73,593 $61,736 $57,653
Other revenue.......................................................... 2,086 2,290 7,051
------- ------- -------
Total revenues............................................... 75,679 64,026 64,704
------- ------- -------
Interest............................................................... 16,571 12,336 12,263
Depreciation and amortization.......................................... 8,641 6,193 6,353
Operating and other expenses........................................... 48,249 41,488 39,475
------- ------- -------
Total expenses............................................... 73,461 60,017 58,091
------- ------- -------
Net income before outside partners'/members interests.................. 2,218 4,009 6,613
Elimination of inter-company management fees........................... 115 50 98
Other partners'/members share of the profits........................... (2,636) (3,224) (5,688)
------- ------- -------
(Loss)/income allocated to the Company....................... $ (303) $ 835 $ 1,023
------- ------- -------
------- ------- -------
</TABLE>
F-24
<PAGE>
<PAGE>
LOEB REAL ESTATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
The Company receives various fees for management, financing and leasing for
the entities above. Fees earned included in the aforementioned condensed
combined statements of income and combined balance sheets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Management fee expense................................................. $ 321 $ 204 $ 302
Leasing commissions.................................................... $ 887 $ -- $ --
</TABLE>
3. DEFERRED COSTS
Deferred costs consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Deferred financing costs................................................. $5,766 $5,714
Deferred leasing commissions............................................. 3,831 3,501
Deferred lease costs..................................................... 678 393
------- ------
10,275 9,608
Less accumulated amortization............................................ 2,574 1,733
------- ------
$7,701 $7,875
------- ------
------- ------
</TABLE>
4. MORTGAGE NOTES PAYABLE
The following table summarizes mortgage indebtedness as of December 31,
1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
PROPERTY/COLLATERAL MORTGAGE NOTES WITH FIXED INTEREST 1997 1996
- ------------------------- ---------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
One Dartmouth Place First mortgage note with a fixed interest rate of 7.465%;
Apartments matures on 1/1/2006. Monthly principal and interest payments of
$88. ........................................................... $ 12,368 $ 12,493
Easton Commons Plaza First mortgage note with a fixed interest rate of 7.5%; matures
Shopping Center on 1/1/04. Monthly payments of interest and principal of $57. .. 7,987 8,068
Kendall Value & Sunset First mortgage note with a fixed interest rate of 8.625%;
Strip Shopping Centers matures on 12/30/01. Monthly principal and interest payments of
$112. .......................................................... 13,613 13,750
Park Hill Lane Apartments First mortgage note with a fixed interest rate of 7.250%;
matures on 9/1/28. Monthly principal and interest payments of
$141. .......................................................... 20,860 21,037
Presidential Estates First mortgage note with a fixed interest rate of 8.28%; matures
on 12/31/02. Monthly principal and interest payments of $42. ... 5,177 5,249
63 Madison Avenue First mortgage note with a fixed interest rate of 8%; matures on
12/10/05. Monthly interest only payments of $347 are required
through 12/10/98. Commencing on 1/10/99, monthly interest and
principal payments of $393 are required until maturity. ........ 52,000 52,000
Shenandoah Industrial First mortgage note with a fixed interest rate of 8%; matured on
Park 12/17/96. The loan was not repaid in 1996, and no payments were
made in 1997. The holder has not yet declared the loan to be in
default and has not demanded payment in full. .................. 192 192
Purchase money note with a fixed interest rate of 8%; matures on
4/21/98. Annual interest and principal payments of $21. ........ 21 39
</TABLE>
(table continued on next page)
F-25
<PAGE>
<PAGE>
LOEB REAL ESTATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(table continued from previous page)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
PROPERTY/COLLATERAL MORTGAGE NOTES WITH FIXED INTEREST 1997 1996
- ------------------------- ---------------------------------------------------------------- -------- --------
<S> <C> <C> <C>
200 Madison Avenue First mortgage note with a fixed interest rate of 9.00625%;
matures on 4/17/03. Interest payments are due monthly.
Commencing on 7/17/98 principal payments, based upon a 20-year
amortization, are payable in 21 quarterly installments. ........ $ 55,000 $ 55,000
Shoppes at St. Lucie West First mortgage note with a fixed interest rate of 8.50%; matures
on 6/1/99. Monthly principal and interest payments of $48. ..... 5,621 5,710
First mortgage note with a fixed interest rate of 9.75%; matures
on 6/1/98. Monthly principal and interest payments of $39. ..... 4,335 4,374
First Union Bank Building First mortgage note with a fixed interest rate of 8.83%; matures
on 7/30/06. Monthly principal and interest payments of $56. .... 6,364 6,467
International Drive Value First mortgage note with a fixed interest rate of 8.79%; matures
Center on 1/1/07. Monthly principal and interest payments of $124. .... 15,663 --
-------- --------
Total Fixed Rate Notes.......................................... 199,201 184,379
-------- --------
MORTGAGE WITH VARIABLE INTEREST
24 West 57th Street First mortgage note with interest at the greater of 8% or LIBOR
plus 325 basis points (8.94% at December 31, 1997). Monthly
interest payments commenced on 7/1/97. The note matures on
6/1/00. ........................................................ 13,255 --
-------- --------
Total Mortgage Notes Payable.................................... $212,456 $184,379
-------- --------
-------- --------
</TABLE>
F-26
<PAGE>
<PAGE>
LOEB REAL ESTATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgages as of December 31,
1997 are as follows:
<TABLE>
<S> <C>
1998.................................................................... $ 6,493
1999.................................................................... 8,431
2000.................................................................... 16,409
2001.................................................................... 16,209
2002.................................................................... 8,180
Thereafter.............................................................. 156,734
--------
$212,456
--------
--------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values for the Company's financial instruments were
determined by the Company using market information available as of December 31,
1997 and appropriate valuation methodologies which included, in the case of debt
instruments, consideration of interest rates available to the Company for the
issuance of debt with terms and maturities similar to its currently outstanding
indebtedness. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the Company's estimates are not
necessarily indicative of the amounts the Company could realize on disposition
of its financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. Although management is not aware of any factors that would
significantly affect its estimates of the fair value amounts, such amounts have
not been comprehensively revalued for purposes of these financial statements
since December 31, 1997.
Cash equivalents and variable mortgage notes payable with an aggregate
carrying value of $18,133 are reflected in the accompanying combined balance
sheet at amounts which reasonably approximate their fair value. Fixed mortgage
notes payable with an aggregate carrying value of $199,201, have an approximate
fair value of $193,000.
6. TENANT LEASES
The Properties are being leased to tenants under operating leases with
expiration dates ranging from 1998 to 2019. The minimum rental amounts due under
the leases are generally either subject to scheduled fixed increases or
adjustments. The leases generally also require that the tenants reimburse the
Company for increases in certain operating costs and real estate taxes above
their base year costs.
The approximate future minimum rentals to be received, assuming neither
renewals nor extensions of leases which may expire during the periods, for
leases in effect at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................................................... $ 32,853
1999.................................................................... 33,111
2000.................................................................... 31,516
2001.................................................................... 32,178
2002.................................................................... 31,026
Thereafter.............................................................. 239,028
--------
$399,712
--------
--------
</TABLE>
F-27
<PAGE>
<PAGE>
LOEB REAL ESTATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
7. RELATED PARTY TRANSACTIONS
LOANS FROM PARTNERS
The limited partners of Shenandoah Industrial Park, advanced the
partnership funds for operations. These loans, reflected as related party
payables in the accompanying financial statements, accrue interest at prime plus
1% and are payable upon demand.
For the years ended December 31, 1997 and 1996 the balances of these loans
were, $4,143 and $3,712, respectively.
ADVANCES TO/FROM PARTNER
Advances to and from partners or shareholders in those entities comprising
the Company and certain affiliated entities are reflected in the financial
statements as related party receivables, and payables. Such advances are
generally payable upon demand.
8. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The management of Loeb Real Estate believes that the properties are in
compliance in all material respects with applicable federal, state and local
ordinances and regulations regarding environmental issues. Several of the
Properties contain, or at one time contained, Underground Storage Tanks ('USTs')
used to store petroleum products, including fuel oil, waste oil and gasoline.
The environmental assessments at these Properties have revealed soil and/or
groundwater contamination associated with USTs. At certain of such Properties,
the contamination is being addressed by third-parties responsible for the
contamination who, in some cases, have indemnified the Company. There can be no
assurance, however, that if recourse to such indemnities becomes necessary, such
indemnity will be available or uncontested. Management is not aware of any
environmental liability that management believes would have a material adverse
impact on the Company's financial position, results of operations or cash flows.
Management is unaware of any instances in which it would incur significant
environmental cost if any of the properties were sold.
LEGAL MATTERS
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. Management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or liquidity of the Company.
9. SUBSEQUENT EVENTS
On March 11, 1998, the Company, which holds a limited partnership interest
in Longboat Key Club, entered into an agreement to purchase the existing general
partner's interest. The purchase price was based upon a $60,000 valuation
adjusted by certain apportionments as defined in the purchase agreement.
Subsequently, Longboat Key Club entered into a new management agreement
with an affiliate of the Company.
F-28
<PAGE>
<PAGE>
LOEB REAL ESTATE
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITALIZED COSTS
INITIAL COST SUBSEQUENT TO ACQUISITION
------------------------ -----------------------------
BUILDING AND LAND AND BUILDING AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS
- --------------------------- ----------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
200 Madison Avenue......... $ 55,000 $ 9,876 $ 20,571 $-- $ 30,468
First Union Bank
Building................. 6,364 706 6,274 -- 1,511
63 Madison Avenue.......... 52,000 16,302 48,801 -- 301
Easton Commons Plaza
Shopping Center.......... 7,987 2,035 8,140 -- 248
Kendall Value and Sunset
Strip Shopping Centers... 13,613 3,339 13,354 -- 129
Shoppes at St. Lucie
West..................... 9,957 2,853 4,113 -- 5,859
One Dartmouth Place
Apartments............... 12,368 1,739 7,111 106 2,023
Park Hill Lane Apartments.. 20,860 737 -- 57 15,742
Presidential Estates....... 5,177 192 1,446 -- 1,608
Shenandoah Industrial
Park..................... 212 -- -- -- 18
24 West 57th Street........ 13,255 9,089 6,579 -- --
International Drive Value
Center................... 15,663 3,976 15,927 -- --
----------- ------- ------------ ----- ------------
$ 212,456 $50,844 $132,316 $ 163 $ 57,907
----------- ------- ------------ ----- ------------
----------- ------- ------------ ----- ------------
<CAPTION>
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD LIFE UPON
--------------------------------------------- WHICH
LAND AND BUILDING AND CONSTRUCTION ACCUMULATED DATE DEPRECIATION
DESCRIPTION IMPROVEMENTS IMPROVEMENTS IN PROGRESS TOTAL DEPRECIATION ACQUIRED IS COMPUTED
- --------------------------------------- ------------ ------------ -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
200 Madison Avenue.........$ 9,876 $ 51,039 $1,176 $ 62,091 $ 7,124 06/04/93 2-39 years
First Union Bank
Building................. 706 7,785 -- 8,491 2,138 10/31/88 1-39 years
63 Madison Avenue.......... 16,302 49,102 333 65,737 2,686 11/20/95 39 years
Easton Commons Plaza
Shopping Center.......... 2,035 8,388 -- 10,423 972 12/28/93 3-39 years
Kendall Value and Sunset
Strip Shopping Centers... 3,339 13,483 -- 16,822 361 12/30/96 39 years
Shoppes at St. Lucie
West..................... 2,853 9,972 -- 12,825 1,107 12/23/92 5-39 years
One Dartmouth Place
Apartments............... 1,845 9,134 -- 10,979 1,837 12/18/91 5-39 years
Park Hill Lane Apartments.. 794 15,742 -- 16,536 6,632 01/06/82 5-39 years
Presidential Estates....... 192 3,054 -- 3,246 1,709 12/17/75 18-39 years
Shenandoah Industrial
Park..................... -- 18 -- 18 16 01/01/75 5-39 years
24 West 57th Street........ 9,089 6,579 9 15,677 107 06/14/97 39 years
International Drive Value
Center................... 3,976 15,927 -- 19,903 325 03/13/97 39 years
------------ ------------ ------ -------- -----------
$ 51,007 $190,223 $1,518 $242,748 $25,014
------------ ------------ ------ -------- -----------
------------ ------------ ------ -------- -----------
</TABLE>
F-29
<PAGE>
<PAGE>
LOEB REAL ESTATE
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
The changes in real estate for the three years ended December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period........................... $202,912 $179,663 $110,264
Improvements............................................. 39,961 23,293 69,539
Less: Disposals.......................................... (125) (44) (140)
-------- -------- --------
Balance at end of period............................ $242,748 $202,912 $179,663
-------- -------- --------
-------- -------- --------
</TABLE>
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1997 was $243,349.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1997 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period............................... $19,121 $14,295 $10,953
Depreciation for period...................................... 6,018 4,870 3,482
Less: Disposals.............................................. (125) (44) (140)
------- ------- -------
Balance at end of period................................ $25,014 $19,121 $14,295
------- ------- -------
------- ------- -------
</TABLE>
F-30
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the General and Limited Partners of
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP:
We have audited the accompanying balance sheets of Key Club Associates,
Limited Partnership d/b/a Longboat Key Club (a Florida limited partnership)
as of December 31, 1997, 1996 and 1995, and the related statements of income,
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Limited Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Key Club Associates, Limited
Partnership d/b/a Longboat Key Club as of December 31, 1997, 1996 and 1995, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Tampa, Florida,
March 11, 1998
F-31
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 885,951 1,427,949 2,154,412
Accounts receivable, net....................................... 1,741,396 1,818,453 1,897,265
Inventories and supplies (Note 2).............................. 1,057,771 961,856 919,046
Prepaid expenses and other current assets...................... 307,899 345,324 248,020
----------- ----------- -----------
Total current assets...................................... 3,993,017 4,553,582 5,218,743
----------- ----------- -----------
Property and equipment, net (Note 2)................................ 25,857,873 23,351,407 18,592,409
Other assets, net (Note 2).......................................... 4,777,379 5,000,223 5,231,699
Due from related parties (Note 4)................................... 102,866 307,490 157,903
----------- ----------- -----------
Total assets.............................................. $34,731,135 $33,212,702 $29,200,754
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable............................................... $ 773,585 $ 539,666 $ 566,017
Accrued expenses and other current liabilities................. 1,252,900 1,039,337 1,113,018
Unit owners' distributions payable (Note 2).................... 537,647 460,111 442,778
Deferred membership revenue (Note 2)........................... 5,664,534 5,004,947 4,581,692
Advanced deposits.............................................. 1,947,075 1,492,856 1,367,737
Capital distributions payable (Note 5)......................... 371,715 1,332,593 1,776,301
Current maturities of long-term debt and capital lease
obligations (Note 3)......................................... 94,904 1,091,977 753,757
----------- ----------- -----------
Total current liabilities................................. 10,642,360 10,961,487 10,601,300
----------- ----------- -----------
Long-term debt and capital lease obligations, less current
maturities (Note 3)............................................... 19,662,323 18,656,284 15,057,399
Commitments and contingencies (Notes 3 and 8)
Partners' capital (Note 5).......................................... 4,426,452 3,594,931 3,542,055
----------- ----------- -----------
Total liabilities and partners capital.................... $34,731,135 $33,212,702 $29,200,754
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-32
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues (Note 2):
Hotel.......................................................... $14,255,577 $14,588,551 $13,866,222
Golf, tennis and social memberships............................ 8,462,056 7,584,414 6,913,492
Food and beverage.............................................. 5,220,952 5,050,260 4,996,343
Golf........................................................... 3,388,629 3,231,882 3,125,478
Tennis......................................................... 1,209,055 372,227 336,043
Fitness center................................................. 1,278,803 382,484 --
Conference services............................................ 213,481 413,931 407,638
Other food and beverage........................................ 206,517 178,699 185,969
Other income................................................... 422,180 445,795 420,323
----------- ----------- -----------
Total revenues (Note 4)................................... 34,657,250 32,248,243 30,251,508
----------- ----------- -----------
Costs and operating expenses (Notes 3 and 7):
Hotel.......................................................... 4,013,996 3,688,967 3,402,233
Food and beverage.............................................. 5,352,706 4,730,577 4,514,843
Golf........................................................... 3,571,977 3,444,797 3,218,006
Tennis......................................................... 687,908 668,552 682,697
Fitness center................................................. 509,198 300,483 -
Conference services............................................ 371,920 375,508 344,253
Other food and beverage........................................ 84,625 85,656 83,376
Unit owners' distributions (Note 2)............................ 6,569,350 6,606,351 6,307,845
Depreciation and amortization (Note 2)......................... 1,723,819 1,319,607 1,581,547
General and administrative (Notes 4 and 6)..................... 8,024,095 7,344,878 7,174,707
----------- ----------- -----------
Total costs and operating expenses........................ 30,909,594 28,565,376 27,309,507
----------- ----------- -----------
Operating income.................................................... 3,747,656 3,682,867 2,942,001
Interest expense.................................................... 1,730,266 1,436,889 1,478,173
----------- ----------- -----------
Net income.......................................................... $ 2,017,390 $ 2,245,978 $ 1,463,828
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-33
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
SHANNON HOTEL COMBINED
GROUP, INC. LIMITED
(GENERAL PARTNER) PARTNERS TOTAL
----------------- ----------- ----------
<S> <C> <C> <C>
Partners' Capital, December 31, 1994.............................. $ 38,645 $ 3,815,883 $3,854,528
Net income................................................... 14,638 1,449,190 1,463,828
Capital distributions declared (Note 5)...................... (17,763) (1,758,538) (1,776,301)
----------------- ----------- ----------
Partners' Capital, December 31, 1995.............................. 35,520 3,506,535 3,542,055
Net income................................................... 22,460 2,223,518 2,245,978
Capital distributions declared (Note 5)...................... (21,931) (2,171,171) (2,193,102)
----------------- ----------- ----------
Partners' Capital, December 31, 1996.............................. 36,049 3,558,882 3,594,931
Net income................................................... 20,174 1,997,216 2,017,390
Capital distributions declared (Note 5)...................... (11,859) (1,174,010) (1,185,869)
----------------- ----------- ----------
Partners' Capital, December 31, 1997.............................. $ 44,364 $ 4,382,088 $4,426,452
----------------- ----------- ----------
----------------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-34
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 2,017,390 $ 2,245,978 $ 1,463,828
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization............................. 1,723,819 1,319,607 1,581,547
(Gain) loss on the sale of property and equipment......... (12,660) 36,884 31,685
Loss on write-off of advances to related parties.......... 78,007 -- --
Decrease (increase) in assets --
Accounts receivable, net............................. 77,057 83,763 (244,480)
Inventories and supplies............................. (95,915) (42,810) (8,055)
Prepaid expenses and other current assets............ 37,425 (102,255) 104,304
Other assets, net.................................... 37,697 (30,883) 7,050
Increase (decrease) in liabilities --
Accounts payable..................................... 233,919 (26,351) 258,926
Accrued expenses and other liabilities............... 213,563 (73,681) (96,350)
Unit owners' distributions payable................... 77,536 17,333 (42,837)
Deferred membership revenue.......................... 659,587 423,255 352,517
Advanced deposits.................................... 454,219 125,119 5,454
----------- ----------- -----------
Total adjustments............................... 3,484,254 1,729,981 1,949,761
----------- ----------- -----------
Net cash provided by operating activities....... 5,501,644 3,975,959 3,413,589
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures........................................... (3,834,896) (5,666,067) (1,086,039)
Proceeds from the sale of property and equipment............... 26,965 41,850 24,075
Repayment from (advances to) related parties................... 126,617 (149,587) (94,193)
----------- ----------- -----------
Net cash used in investing activities........... (3,681,314) (5,773,804) (1,156,157)
----------- ----------- -----------
Cash flows from financing activities:
Advances from related parties, net............................. -- -- 650,000
Proceeds from long-term debt................................... 1,147,875 4,502,125 16,073,400
Deferred loan costs............................................ (25,050) (15,000) (243,474)
Pre-opening costs.............................................. (134,291) -- --
Repayments of advances from related parties.................... -- -- (650,000)
Repayment of long-term debt and capital lease obligations...... (1,204,115) (778,933) (16,835,695)
Capital distributions.......................................... (2,146,747) (2,636,810) (1,210,325)
----------- ----------- -----------
Net cash (used in) provided by financing
activities.................................... (2,362,328) 1,071,382 (2,216,094)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents................ (541,998) (726,463) 41,338
Cash, beginning of year............................................. 1,427,949 2,154,412 2,113,074
----------- ----------- -----------
Cash, end of year................................................... $ 885,951 $ 1,427,949 $ 2,154,412
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest......................... $ 1,730,220 $ 1,435,918 $ 1,373,743
Supplemental disclosures of non-cash investing and financing
activities:
Property and equipment acquired under capital lease
obligations.................................................. $ 65,206 $ 213,913 $ 64,240
Capital distributions netted against due from related
parties...................................................... $ -- $ -- $ 30,571
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-35
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION AND BUSINESS:
Key Club Associates, Limited Partnership, a Florida limited partnership
(the 'Limited Partnership') was formed on May 1, 1990, to own and operate the
real property known as the Longboat Key Club (the 'Key Club'). The Limited
Partnership operates a 233-room condominium beach front resort property located
in Longboat Key, Florida, offering golf and tennis. Shannon Hotel Group, Inc.
(the 'Group'), a Florida S corporation, which is the general partner of the
Limited Partnership, provides management services to the Limited Partnership
under a Management Agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES AND SUPPLIES
Material and supplies inventories are recorded at the lower of cost
(first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is recorded using
the straight-line method over the estimated useful lives of the assets. Assets
under capital leases are amortized using the straight-line method over the lives
of the respective assets or lease terms, whichever is shorter.
Property and equipment consisted of the following at December 31, 1997,
1996 and 1995:
<TABLE>
<CAPTION>
USEFUL
LIVES 1996 1995 1997
------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Land....................................................... -- $ 7,442,480 $ 7,292,088 $ 7,237,577
Land improvements.......................................... 7-15 2,979,484 2,360,796 2,203,099
Building and building improvements......................... 7-39 11,737,376 6,138,331 4,500,576
Golf courses and recreational facilities................... 7-50 5,396,767 5,396,767 5,396,767
Furniture and fixtures..................................... 5-7 1,251,047 776,835 683,826
Equipment.................................................. 3-7 3,179,648 2,416,869 1,923,337
Assets under capital lease................................. 3-7 404,138 338,932 125,019
Leasehold improvements..................................... 3-7 49,077 49,077 47,527
Operating assets........................................... -- 418,246 312,471 252,938
Construction in process.................................... -- 147,722 4,150,843 1,175,158
----------- ----------- -----------
33,005,985 29,233,009 23,545,824
Less -- Accumulated depreciation........................... (7,148,112) (5,881,602) (4,953,415)
----------- ----------- -----------
$25,857,873 $23,351,407 $18,592,409
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During 1997, 1996 and 1995, the Limited Partnership capitalized interest in
the amount of $157,199, $224,977 and $10,479, respectively.
OTHER ASSETS
Other assets consisted of the following at December 31, 1997, 1996 and
1995:
<TABLE>
<CAPTION>
AMORTIZATION PERIOD 1997 1996 1995
---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Intangible assets......................... 27.5 $ 6,219,202 $ 6,219,202 $ 6,219,202
Pre-opening and organizational costs...... 5 134,291 -- 593,695
Deferred loan costs....................... Life of related loan 243,536 233,489 243,474
Utility deposits.......................... -- 71,403 109,097 78,214
----------- ----------- -----------
6,668,432 6,561,788 7,134,585
Less -- Accumulated amortization.......... (1,891,053) (1,561,565) (1,902,886)
----------- ----------- -----------
$ 4,777,379 $ 5,000,223 $ 5,231,699
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-36
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Total amortization expense was $344,488, $277,359 and $671,095 for the
years ended December 31, 1997, 1996 and 1995, respectively.
During 1996, $593,695 and $24,985 of fully amortized pre-opening and
organizational costs and deferred loan costs, respectively, were removed from
the accounts.
During 1995, the Limited Partnership refinanced its long-term debt
obligation, expensed the remaining deferred loan costs of $337,839, and removed
from the accounts $549,439 of previously amortized deferred loan costs.
UNIT OWNERS' DISTRIBUTIONS PAYABLE
Hotel revenue includes unit rental revenue from condominium units owned by
third parties who contract with the Limited Partnership to rent their units. The
contract provides for the Limited Partnership to distribute 50 percent of the
room revenue, less amounts due to travel agents, to the unit owners.
DEFERRED MEMBERSHIP REVENUE
Revenue related to membership dues is recognized ratably over the
membership year, which is October 1 to September 30. Revenue related to member
initiation fees is recognized in the month the member joins.
SEASONAL RENTAL REVENUE
On a seasonal basis, for a minimum of 30 days, the Limited Partnership
leases off-property condominium units for their owners under contracts between
the owners and the Limited Partnership. These contracts are rescindable by
either party with 60 days written notice. These amounts are included in hotel
revenue and totaled $314,401, $303,410 and $284,742 for the years ended December
31, 1997, 1996 and 1995, respectively.
REVENUE RECOGNITION
Revenue from the Key Club's operations is recognized as the related
services are performed.
INCOME TAXES
No federal income taxes are payable by the Limited Partnership, and,
accordingly, none have been provided for in the accompanying financial
statements. The partners in the Limited Partnership include their respective
share of profits or losses in their individual income tax returns.
The Limited Partnership's income tax returns, the qualification of the
Limited Partnership, and the amount of distributable losses are subject to
examination. If such examination results in changes to the distributable profits
or losses, the income tax liabilities of the partners could be changed
accordingly.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Key Club's financial instruments as of December
31, 1997, 1996 and 1995, approximate fair value.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS 130 is effective for
financial statements for periods beginning after December 15, 1997. Management
believes the effect of adopting SFAS 130 would not have a material impact on the
accompanying financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined the effect
of adopting SFAS 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pension and Other Post Retirement Benefits" ("SFAS 132"). SFAS 132 revises
employers' disclosures about pension and other post retirement benefit plans.
SFAS 132 is effective for fiscal years beginning after December 15, 1997.
Management believes the effect of adopting SFAS 132 would not have a material
impact on the accompanying financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform to the 1997 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and disclosure of contingent assets and liabilities at the date of
the financial statements and during the reporting period. Actual results could
differ from those estimates.
F-37
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Long-term debt and capital lease obligations consisted of the following at
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Note payable, bearing interest at a variable rate (10% at
December 31, 1997), interest only payable monthly
through May 31, 1997, principal payable in quarterly
installments of $104,629 beginning at June 30, 1997, and
interest payable monthly, collateralized by real and
personal property, maturing June 30, 2002............... $ 5,336,113 $ 4,502,125 $ --
Note payable, bearing interest at 8.755%, payable in
monthly installments of principal and interest of
$174,012, collateralized by real estate improvements,
furniture and rights under unit rental contracts,
jointly and severally guaranteed by the Group and its
shareholders, maturing June 30, 2002.................... 14,240,506 15,026,646 15,742,488
Capital lease obligations, bearing interest at rates
ranging from 8.25% to 11.77% at December 31, 1997,
payable in monthly installments ranging from $225 to
$1,700.................................................. 217,174 244,745 75,724
----------- ----------- -----------
19,793,793 19,773,516 15,818,212
Less -- Amounts representing interest on capital lease
obligations imputed at 8.25% to 11.77%.................. (36,566) (25,255) (7,056)
Less -- Current maturities................................ (94,904) (1,091,977) (753,757)
----------- ----------- -----------
$19,662,323 $18,656,284 $15,057,399
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Effective March 11, 1998, the Company entered into a new loan agreement
with Nomura Asset Capital Corporation, and the above notes payable were repaid.
The new loan agreement contains various terms and provisions regarding the
maintenance of financial ratios and other matters.
At December 31, 1997, maturities of long-term debt and capital lease
obligations after reflecting the new loan agreement, were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- --------------------------------------------------------------------- -----------
<S> <C>
1998................................................................. $ 94,904
1999................................................................. 58,404
2000................................................................. 729,063
2001................................................................. 792,871
2002................................................................. 789,371
-----------
Thereafter........................................................... 17,292,614
-----------
$19,757,227
-----------
-----------
</TABLE>
F-38
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
The Limited Partnership maintains a $2,000,000 line of credit (LOC) from a
bank secured by certain assets of the Limited Partnership, bearing interest at
variable rates (10 percent at December 31, 1997) selected by the Limited
Partnership from lender-specified rates, as defined in the Line of Credit
Agreement. Interest on the LOC is payable monthly, with the outstanding
principal balance due at maturity, which is June 30, 1998. At December 31, 1997,
1996 and 1995, no borrowings were outstanding under this LOC. Effective March
11, 1998, the LOC was terminated in conjunction with the new loan agreement.
The Limited Partnership has various non-cancelable operating leases for
certain buildings and operating equipment. At December 31, 1997, future minimum
rental commitments based on the lease terms were as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------------------------- -----------
<S> <C>
1998................................................................. $ 683,167
1999................................................................. 556,459
2000................................................................. 415,412
2001................................................................. 213,254
2002................................................................. 184,040
Thereafter........................................................... 203,300
-----------
$ 2,255,632
-----------
-----------
</TABLE>
Rent expense of $923,439, $671,804 and $665,524 is included in costs and
operating expenses for the years ended December 31, 1997, 1996 and 1995,
respectively.
4. RELATED-PARTY TRANSACTIONS:
Management fees of $1,039,718, $967,447 and $907,545 were paid to the Group
for the years ended December 31, 1997, 1996 and 1995, respectively. These fees
represent 3 percent of total revenues and are paid on a monthly basis.
Management fees are included in general and administrative expenses in the
accompanying statements of income. The Limited Partnership leases office space
from the Group. Rent paid to the Group was $89,800 for the years ended December
31, 1997 and 1996, respectively, and $83,460 for the year ended December 31,
1995, and is reflected in general and administrative expenses in the
accompanying statements of income.
During 1996 and 1995, the Limited Partnership had provided $110,992 and
$35,866, respectively, in noninterest-bearing cash advances to Key Club Realty
Inc. ('Realty'), a company related through common ownership, which were included
in due from related parties in the accompanying balance sheets. During 1997,
Realty disposed of it business interests and $78,007 of the advance was
determined to be uncollectible. This amount was written off and is included in
general and administrative expenses in the accompanying statement of income.
The Limited Partnership provides human resource and accounting services to
related resorts. The Limited Partnership allocated approximately $144,000 for
the year ended December 31, 1997, and approximately $90,000 for the years ended
December 31, 1996 and 1995, respectively, to those resorts for these services.
5. PARTNERS' CAPITAL:
CAPITAL CONTRIBUTIONS
The general and limited partners have contributed initial capital totaling
$8,290,023, which is the required contribution in accordance with the limited
partnership agreement (the 'Partnership Agreement'). Under the Partnership
Agreement, the limited partners and general partner hold 99 percent and 1
percent ownership interests, respectively.
F-39
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Additionally, under the Partnership Agreement, the general partner has the right
to request additional capital contributions from the limited partners up to a
maximum aggregate amount of $1,000,000. For the years ended December 31, 1997,
1996 and 1995, there have been no additional capital contributions requested.
Once the limited partners have contributed the maximum aggregate additional
capital, any remaining capital contributions will be made based upon the
partners' respective ownership interests.
CAPITAL DISTRIBUTIONS
The Limited Partnership, at the discretion of the general partner, may make
capital distributions in accordance with the Partnership Agreement. During 1997,
1996 and 1995, the Limited Partnership declared capital distributions in the
amount of $1,185,869, $2,193,102 and $1,776,301, respectively. As of December
31, 1997, a portion of the 1997 capital distributions were unpaid and are
reflected as capital distributions payable in the accompanying financial
statements. The 1996 and 1995 capital distributions payable were paid during
1997 and 1996, respectively.
NET PROFIT (LOSS) ALLOCATION
Net profits of the Limited Partnership are allocated first to eliminate any
general and limited partner negative capital account balances, with any
remainder being allocated to the general and limited partners based on Cash Flow
Available for Distribution, as defined in the Partnership Agreement. Net losses
of the Limited Partnership are allocated ratably based on the relative capital
account balances.
6. GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the years ended December 31, 1997,
1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Accounting and administration............................. $ 2,930,750 $ 2,446,166 $ 2,423,425
Other operating........................................... 1,473,515 1,313,800 1,388,475
Sales and marketing....................................... 1,125,906 1,146,963 998,931
Management fees (Note 4).................................. 1,039,718 967,447 907,545
Property repairs and maintenance.......................... 691,919 714,184 624,750
Utilities................................................. 567,627 519,530 487,736
Condominium association assessments....................... 207,320 199,904 312,160
(Gain) loss on the sale of property and equipment......... (12,660) 36,884 31,685
----------- ----------- -----------
$ 8,024,095 $ 7,344,878 $ 7,174,707
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
7. EMPLOYEE BENEFITS:
The Group sponsors both a profit sharing [401(k)] plan and a cafeteria plan
for medical and dental benefits. The Limited Partnership contributed
approximately $132,000 for the years ended December 31, 1997 and 1996
respectively, and approximately $109,000 for the year ended December 31, 1995,
to the profit sharing plan. During the years ended December 31, 1997, 1996 and
1995, the Limited Partnership paid approximately $1,034,000, $960,000 and
$718,000, respectively, for medical and dental claims. These amounts are
included in costs and operating expenses in the accompanying statements of
income.
8. CONTINGENCIES:
The Limited Partnership is involved in various legal actions, arising in
the normal course of business. While it is not possible to determine with
certainty the outcome of these matters, in the opinion of management, the
eventual resolution of the claim and actions outstanding will not have a
material adverse effect on the Limited Partnerships financial position or
operating results.
F-40
<PAGE>
<PAGE>
KEY CLUB ASSOCIATES, LIMITED PARTNERSHIP
D/B/A LONGBOAT KEY CLUB
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
9. SUBSEQUENT EVENT:
Effective March 11, 1998, the general and limited partners entered into an
interest purchase agreement (the 'Agreement'). The Agreement provides that the
general partner sell its partnership interest to LBK Hotel Management, Inc., the
new general partner, and that certain limited partners sell their partnership
interests to the remaining limited partners. The purchase price was based upon a
$60 million valuation, adjusted by certain assets, liabilities and income of the
Company, as defined in the Agreement. The Company also entered into a new
management agreement with an affiliate of the new general partner.
F-41
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
LOEB REALTY CORPORATION
We have audited the statements of revenues and certain expenses of First
NBC Center as described in Note 1, for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements of revenues and certain expenses were prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of Loeb Realty Corporation and is not intended to be a complete presentation of
First NBC Center's revenues and expenses.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and certain expenses of First NBC Center,
as described in Note 1, for each of the three years ended December 31, 1997 in
conformity with generally accepted accounting principles.
New York, New York
April 2, 1998
F-42
<PAGE>
<PAGE>
FIRST NBC CENTER
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
Revenues from rental property............................................... $ 8,303 $ 7,010 $ 6,917
Escalation and reimbursement revenue........................................ 4,579 3,816 3,373
Other income................................................................ 1,641 1,550 1,448
------- ------- -------
14,523 12,376 11,738
------- ------- -------
Certain expenses:
Property taxes.............................................................. 1,460 1,091 1,096
Management fees to affiliates............................................... 362 304 264
Repairs and maintenance..................................................... 841 673 570
Cleaning, security and landscaping.......................................... 761 677 577
Utilities................................................................... 754 686 582
Insurance................................................................... 230 309 352
Other operating expenses.................................................... 1,619 1,555 1,740
------- ------- -------
6,027 5,295 5,181
------- ------- -------
Revenues in excess of certain expenses........................................... $ 8,496 $ 7,081 $ 6,557
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes.
F-43
<PAGE>
<PAGE>
FIRST NBC CENTER
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Presented herein are the statements of revenues and certain expenses
related to the operations of First NBC Center ('the Property'), which is located
in New Orleans, LA.
The accompanying financial statements have been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by Loeb Realty Corporation in the future operations of the
aforementioned property. Expenses excluded consist of interest, depreciation and
certain general and administrative expenses.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
revenue is recognized on a straight-line basis over the terms of the respective
leases.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Management services are provided by related parties, the Operating General
Partner and Managing General Partner. During 1997, management fees of $278 and
$69 were paid to the operating General Partner and Managing General Partner,
respectively.
5. LEASE AGREEMENTS
The Property is leased to tenants under operating leases. The minimum
rental amounts due under the leases are generally either subject to scheduled
fixed increases or upward adjustments based on certain inflation indices. The
leases generally also require that the tenants reimburse increases in certain
operating costs and real estate taxes.
Approximate future minimum rents to be received over the next five years
and thereafter for leases in effect as of December 31, 1997 assuming that there
are no renewals or extensions of leases are as follows:
<TABLE>
<S> <C>
1998..................................................................... $ 7,839
1999..................................................................... 7,706
2000..................................................................... 7,557
2001..................................................................... 7,191
2002..................................................................... 5,909
Thereafter............................................................... 23,908
-------
$60,110
-------
-------
</TABLE>
6. CONCENTRATION OF REVENUE
Approximately 28% of the Property's revenue for the year ended December 31,
1997 was derived from Jones, Walker, Waechter, Cariere, Denegre. Any adverse
change in the operating profitability of this tenant may have a material adverse
effect on the Property.
F-44
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
LOEB REALTY CORPORATION
We have audited the statements of revenues and certain expenses of
Riverview Center as described in Note 1, for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements of revenues and certain expenses were prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of Loeb Realty Corporation and is not intended to be a complete presentation of
the Riverview Center revenues and expenses.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues and certain expenses of Riverview Center,
as described in Note 1, for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
New York, New York
April 2, 1998
F-45
<PAGE>
<PAGE>
RIVERVIEW CENTER
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues:
Revenues from rental property................................................... $3,886 $3,518 $3,313
Escalation and reimbursement revenue............................................ 93 131 71
Other income.................................................................... 5 27 188
------ ------ ------
3,984 3,676 3,572
------ ------ ------
Certain expenses:
Property taxes.................................................................. 241 212 203
Management fees to affiliates................................................... 228 187 171
Repairs and maintenance......................................................... 197 147 179
Professional fees............................................................... 10 27 23
Cleaning, security and landscaping.............................................. 139 115 57
Utilities....................................................................... 624 628 554
Insurance....................................................................... 53 59 57
Other operating expenses........................................................ 249 240 247
------ ------ ------
1,741 1,615 1,491
------ ------ ------
Revenues in excess of certain expenses............................................... $2,243 $2,061 $2,081
------ ------ ------
------ ------ ------
</TABLE>
See accompanying notes.
F-46
<PAGE>
<PAGE>
RIVERVIEW CENTER
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Presented herein are the statements of revenues and certain expenses
related to the operations of Riverview Center ('the Property'), which is located
in Menands, NY.
The accompanying financial statements have been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by Loeb Realty Corporation in the future operations of the
aforementioned property. Expenses excluded consist of interest, depreciation and
certain general and administrative expenses.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
revenue is recognized on a straight-line basis over the terms of the respective
leases.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Management services are provided by a related party, District Management.
Fees paid for such services are generally based on 5% of total revenue.
5. LEASE AGREEMENTS
The Property is leased to tenants under operating leases. The minimum
rental amounts due under the leases are generally either subject to scheduled
fixed increases or upward adjustments based on certain inflation indices. The
leases generally also require that the tenants reimburse increases in certain
operating costs and real estate taxes.
Approximate future minimum rents to be received over the next five years
and thereafter for leases in effect as of December 31, 1997 assuming that there
are no renewals or extensions of leases are as follows:
<TABLE>
<S> <C>
1998........................................................... $ 3,447
1999........................................................... 2,598
2000........................................................... 1,340
2001........................................................... 543
2002........................................................... 531
Thereafter..................................................... 1,813
-------
$10,272
-------
-------
</TABLE>
6. CONCENTRATION OF REVENUE
Approximately 56% of the Property's revenue for the year ended December 31,
1997 was derived from the New York State Department of Labor, Department of
Motor Vehicles and Department of Social Services. If any of these tenants were
to vacate the premises, it would have a material adverse effect on the Property.
F-47
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
LOEB REALTY CORPORATION
We have audited the statement of revenues and certain expenses of Princeton
Shopping Center as described in Note 1, for the year ended December 31, 1997.
The financial statement is the responsibility of management. Our responsibility
is to express an opinion on the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of Loeb Realty Corporation and is not intended to be a complete presentation of
the Princeton Shopping Center revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of Princeton
Shopping Center, as described in Note 1, for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
New York, New York
April 2, 1998
F-48
<PAGE>
<PAGE>
PRINCETON SHOPPING CENTER
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
----------------------
<S> <C>
Revenues:
Revenues from rental property......................................................... $2,880
Escalation and reimbursement revenue.................................................. 931
Other income.......................................................................... 25
-------
3,836
-------
Certain expenses:
Property taxes........................................................................ 407
Management fee to affiliates.......................................................... 134
Repairs and maintenance............................................................... 188
Professional fees..................................................................... 44
Cleaning, security and landscaping.................................................... 95
Utilities............................................................................. 137
Insurance............................................................................. 85
Other operating expenses.............................................................. 283
-------
1,373
-------
Revenues in excess of certain expenses..................................................... $2,463
-------
-------
</TABLE>
See accompanying notes.
F-49
<PAGE>
<PAGE>
PRINCETON SHOPPING CENTER
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of Princeton Shopping Center (the 'Property'), which is
located in Princeton, NJ.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those expected
to be incurred by Loeb Realty Corporation in the future operations of the
aforementioned property. Expenses excluded consist of interest, depreciation and
certain general and administrative expenses.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
revenue is recognized on a straight-line basis over the terms of the respective
leases.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Management services for the Property are provided by a related party,
George Comfort & Sons, Inc. Fees paid for such services are based on 3.5% of
rental collections.
5. LEASE AGREEMENTS
The Property is leased to tenants under operating leases. The minimum
rental amounts due under the leases are generally either subject to scheduled
fixed increases or upward adjustments based on certain inflation indices. The
leases generally also require that the tenants reimburse increases in certain
operating costs and real estate taxes.
Approximate future minimum rents to be received over the next five years
and thereafter for leases in effect as of December 31, 1997 assuming that there
are no renewals or extensions of leases are as follows:
<TABLE>
<S> <C>
1998..................................................................... $ 2,807
1999..................................................................... 2,578
2000..................................................................... 2,354
2001..................................................................... 2,055
2002..................................................................... 1,836
Thereafter............................................................... 9,726
-------
$21,356
-------
-------
</TABLE>
6. CONCENTRATION OF REVENUE
Approximately 10% of the Property's total revenue for the year ended
December 31, 1997 is derived from one tenant, Princeton Market, Inc. Any adverse
change in the operating profitability of this tenant may have a material adverse
effect on the Property.
F-50
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
LOEB REALTY CORPORATION
We have audited the statement of revenues and certain expenses of
Marketplace Design Center as described in Note 1, for the year ended December
31, 1997. The financial statement is the responsibility of management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of Loeb Realty Corporation and is not intended to be a complete presentation of
the Marketplace Design Center revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Marketplace
Design Center, as described in Note 1, for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
New York, New York
April 2, 1998
F-51
<PAGE>
<PAGE>
MARKETPLACE DESIGN CENTER
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1977
-----------------
<S> <C>
Revenues:
Revenues from rental property............................................................ $ 2,717
Escalation and reimbursement revenue..................................................... 441
Other income............................................................................. 26
-------
3,184
-------
Certain expenses:
Property taxes........................................................................... 283
Management fees.......................................................................... 111
Repairs and maintenance.................................................................. 138
Professional fees........................................................................ 29
Cleaning, security and landscaping....................................................... 47
Utilities................................................................................ 594
Insurance................................................................................ 50
Other operating expenses................................................................. 541
-------
1,793
-------
Revenues in excess of certain expenses........................................................ $ 1,391
-------
-------
</TABLE>
See accompanying notes.
F-52
<PAGE>
<PAGE>
MARKETPLACE DESIGN CENTER
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of Marketplace Design Center (the 'Property'), which is
located in Philadelphia, PA.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those expected
to be incurred by Loeb Realty Corporation in the future operations of the
aforementioned property. Expenses excluded consist of interest, depreciation and
certain general and administrative expenses.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
revenue is recognized on a straight-line basis over the terms of the respective
leases.
4. MANAGEMENT AGREEMENT
Management services for the Property are provided by Isard Greenberg Co.
Fees paid for such services are generally based on 3% to 5% of total revenue.
5. LEASE AGREEMENTS
The Property is leased to tenants under operating leases. The minimum
rental amounts due under the leases are generally either subject to scheduled
fixed increases or upward adjustments based on certain inflation indices. The
leases generally also require that the tenants reimburse increases in certain
operating costs and real estate taxes.
Approximate future minimum rents to be received over the next five years
and thereafter for leases in effect as of December 31, 1997 assuming that there
are no renewals or extensions of leases are as follows:
<TABLE>
<S> <C>
1998............................................................. $2,375
1999............................................................. 1,864
2000............................................................. 1,525
2001............................................................. 789
2002............................................................. 275
Thereafter....................................................... 668
------
$7,496
------
------
</TABLE>
F-53
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
LOEB REALTY CORPORATION
We have audited the statement of revenues and certain expenses of Bazaar
Mall as described in Note 1, for the year ended December 31, 1997. The financial
statement is the responsibility of management. Our responsibility is to express
an opinion on the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of Loeb Realty Corporation and is not intended to be a complete presentation of
Bazaar Mall's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of Bazaar Mall, as
described in Note 1, for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
New York, New York
April 2, 1998
F-54
<PAGE>
<PAGE>
BAZAAR MALL
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Revenues:
Revenues from rental property............................................................ $ 2,030
Escalation and reimbursement revenue..................................................... 356
Other income............................................................................. 163
-------
2,549
-------
Certain expenses:
Property taxes........................................................................... 383
Management fees to affiliates............................................................ 102
Repairs and maintenance.................................................................. 196
Professional fees........................................................................ 38
Cleaning, security and landscaping....................................................... 32
Utilities................................................................................ 557
Insurance................................................................................ 26
Other operating expenses................................................................. 281
-------
1,615
-------
Revenues in excess of certain expenses........................................................ $ 934
-------
-------
</TABLE>
See accompanying notes.
F-55
<PAGE>
<PAGE>
BAZAAR MALL
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of Bazaar Mall (the 'Property'), which is located in Mt.
Kisco, NY.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those expected
to be incurred by Loeb Realty Corporation in the future operations of the
aforementioned property. Expenses excluded consist of interest, depreciation and
certain general and administrative expenses.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
revenue is recognized on a straight-line basis over the terms of the respective
leases.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Management services for the Property are provided by a related party,
George Comfort & Sons, Inc. Fees paid for services are based on 4% of rental
collections.
5. LEASE AGREEMENTS
The Property is leased to tenants under operating leases. The minimum
rental amounts due under the leases are generally either subject to scheduled
fixed increases or upward adjustments based on certain inflation indices. The
leases generally also require that the tenants reimburse increases in certain
operating costs and real estate taxes.
Approximate future minimum rents to be received over the next five years
and thereafter for leases in effect as of December 31, 1997 assuming that there
are no renewals or extensions of leases are as follows:
<TABLE>
<S> <C>
1998....................................................................... $1,479
1999....................................................................... 911
2000....................................................................... 816
2001....................................................................... 715
2002....................................................................... 373
Thereafter................................................................. 2,442
------
$6,736
------
------
</TABLE>
F-56
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
LOEB REALTY CORPORATION
We have audited the statement of revenues and certain expenses of 24 West
57th Street as described in Note 1, for the year ended December 31, 1996. The
financial statement is the responsibility of management. Our responsibility is
to express an opinion on the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of Loeb Realty Corporation and is not intended to be a complete presentation of
the 24 West 57th Street revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 24 West 57th
Street as described in Note 1, the year ended December 31, 1996 in conformity
with generally accepted accounting principles.
New York, New York
April 2, 1998
F-57
<PAGE>
<PAGE>
24 WEST 57TH STREET
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE FOR THE YEAR
MONTHS ENDED ENDED
MAY 28, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Revenues from rental property................................................. $1,060 $2,384
Escalation and reimbursement revenue.......................................... 98 175
Other income.................................................................. 60 55
------------ ------------
1,218 2,614
------------ ------------
Certain expenses:
Property taxes................................................................ 210 527
Management fees............................................................... 48 84
Repairs and maintenance....................................................... 44 514
Professional fees............................................................. 18 69
Cleaning, security and landscaping............................................ 180 281
Utilities..................................................................... 127 200
Insurance..................................................................... 9 36
Other operating expenses...................................................... 12 19
------------ ------------
648 1,730
------------ ------------
Revenues in excess of certain expenses............................................. $ 570 $ 884
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-58
<PAGE>
<PAGE>
24 WEST 57TH STREET
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Presentled herein are the statements of revenues and certain expenses
related to the operations of 24 Wst 57th Street (the 'Property'), which is
located in New York, NY.
The 24 West property was acquired by Loeb Real Estate on May 29, 1997. The
accompanying inancial statement presents revenues and certain expenses of the
prior owner, related to the 5 months prior to the above-mentioned acquisition by
Loeb Real Estate and for the year ended December 31, 1996.
The accompanying financial statements have been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those expected
to be incurred by Loeb Realty Corporation in the future operations of the
aforementioned property. Expenses excluded consist of interest, depreciation and
certain generl and administrative expenses.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statement and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
revenue is recognized on a straight-line basis over the terms of the respective
leases.
4. MANAGEMENT AGREEMENTS
Management services for the Property were provided by Asset Management
Corp. and Colliers, ABR, Inc. Fees paid for such services are generally based on
3% to 5% of total revenue.
5. LEASE AGREEMENTS
The Property is leased to tenants under operating leases. The minimum
rental amounts due under the leases are generally either subject to scheduled
fixed increases or upward adjustments based on certain inflation indices. The
leases generally also require that the tenants reimburse increases in certain
operating costs and real estate taxes.
Minimum rents and expenses reimbursements represents approximately 95% of
revenues from rental property for the five months ended May 28, 1997 and 98% of
revenues from rental property for the year ended December 31, 1996.
Approximate future minimum rents to be received over the next five years
and thereafter for leases in effect as of December 31, 1996 assuming that there
are no renewals or extensions of leases are as follows:
<TABLE>
<S> <C>
1997................................................................................. $ 2,556
1998................................................................................. 2,585
1999................................................................................. 2,299
2000................................................................................. 2,027
2001................................................................................. 1,841
Thereafter........................................................................... 10,419
$21,7-7
</TABLE>
F-59
<PAGE>
<PAGE>
24 WEST 57TH STREET
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES -- (CONTINUED)
DECEMBER 31, 1996
6. CONCENTRATION OF REVENUE
Approximately 12% and 11% of the Property's total revenue for the year
ended December 31, 1996 and for the five months ended May 28, 1997 is derived
from one tenant, HRW Realty Corp. Any adverse change in the operating
profitability of this tenant may have a material adverse effect on the Property.
7. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the five months ended May 28, 1997 is unaudited,
however, in the opinion of management all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation of the
financial statement for the interim period have been included. The results of
the interim period are not necessarily indicative of the results to be obtained
for a full fiscal year.
F-60
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES COVERED BY THIS
PROSPECTUS IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................................................................... 1
Risk Factors................................................................................................................ 16
The Company................................................................................................................. 30
Business and Growth Strategies.............................................................................................. 31
Use of Proceeds............................................................................................................. 35
Distributions............................................................................................................... 36
Capitalization.............................................................................................................. 43
Dilution.................................................................................................................... 44
Selected Combined Financial and Operating Information....................................................................... 46
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 48
Business and Properties..................................................................................................... 52
Management.................................................................................................................. 80
Formation Transactions...................................................................................................... 83
Policies with Respect to Certain Activities................................................................................. 85
Certain Relationships and Related Transactions.............................................................................. 88
Principal Stockholders...................................................................................................... 89
Description of Securities................................................................................................... 89
Shares Available for Future Sales........................................................................................... 92
Certain Provisions of Maryland Law and of the Company's Charter and By-Laws................................................. 93
The Operating Partnership Agreement......................................................................................... 95
ERISA and Certain Other Considerations...................................................................................... 100
Federal Income Tax Considerations........................................................................................... 102
Underwriting................................................................................................................ 114
Legal Matters............................................................................................................... 116
Experts..................................................................................................................... 116
Additional Information...................................................................................................... 116
Glossary.................................................................................................................... 118
Index to Financial Statements............................................................................................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
13,600,000 SHARES
LOEB REALTY CORPORATION
COMMON STOCK
[LOGO]
------------------
PROSPECTUS
, 1998
------------------
SALOMON SMITH BARNEY
LAZARD FRERES & CO. LLC
PAINEWEBBER INCORPORATED
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration fee -- Securities and Exchange Commission....................... $ 112,572.00
Filing fee -- NASD........................................................... 30,500.00
Listing fee -- NYSE.......................................................... 130,000.00
Blue Sky fees and expenses (including legal fees)............................ 2,000.00
Accounting fees and expenses................................................. 1,750,000.00
Legal fees and expenses...................................................... 2,000,000.00
Printing..................................................................... 500,000.00
Transfer Agent's and Registrar's fees........................................ 2,500.00
Miscellaneous................................................................ 2,500,000.00
-------------
Total........................................................................ $7,027,672.00
-------------
-------------
</TABLE>
ITEM 32. SALES TO SPECIAL PARTIES
None.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
Prior to the Offering, the Company did not issue any unregistered
securities, except the 100 shares of Common Stock sold to Joseph S. Lesser in a
transaction not involving a public offering under the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the charter and by-laws of the Company and the
limited partnership agreement of Loeb Realty, L.P.
The charter and by-laws of the Company require that the Company shall, to
the fullest extent permitted by Section 2-418 of the Maryland General
Corporation Law (the 'MGCL') as in effect from time to time, indemnify any
person who is or was, or is the personal representative of a deceased person who
was, a director or officer of the Company against any judgments, penalties,
fines, settlements and reasonable expenses and any other liabilities; provided,
that, unless applicable law otherwise requires, indemnification shall be
contingent upon a determination, by the Board by a majority vote of a quorum
consisting of directors not, at the time, parties to the proceeding, or, if such
a quorum cannot be obtained, then by a majority vote of a committee of the Board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full Board in which the designated directors who are parties may
participate or by special legal counsel selected by and if directed by the Board
as set forth above, that indemnification is proper in the circumstances because
such director, officer, employee, or agent has met the applicable standard of
conduct prescribed by Section 2-418(b) of the MGCL.
Under Maryland law, a corporation formed in Maryland is permitted to limit,
by provision in its charter, the liability of directors and officers so that no
director or officer of the Company shall be liable to the Company or to any
stockholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the directors' or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
II-1
<PAGE>
<PAGE>
The partnership agreement of Loeb Realty, L.P. also provides for
indemnification of the Company and its officers and directors against any and
all losses, claims, damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, settlements, and other amounts
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operations of Loeb
Realty, L.P. as set forth in the partnership agreement of Loeb Realty, L.P. in
which any indemnitee may be involved, or is threatened to be involved, unless it
is established that (i) the act or omission of the indemnitee was material to
the matter giving rise to the proceeding and either was committed in bad faith
or was the result of active and deliberate dishonesty, (ii) the indemnitee
actually received an improper personal benefit in money, property or services,
or (iii) in the case of a criminal proceeding, the indemnitee had cause to
believe that the act or omission was unlawful. The termination of any proceeding
by judgment, order or settlement does not create a presumption that the
indemnitee did not meet the requisite standard of conduct set forth in the
partnership agreement section on indemnification. The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment creates a rebuttable
presumption that the indemnitee acted in a manner contrary to that specified in
the indemnification section of the partnership agreement of Loeb Realty, L.P.
Any indemnification pursuant to the partnership agreement of Loeb Realty, L.P.
may only be made out of the assets of Loeb Realty, L.P.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and schedule are included in the
prospectus included in this registration statement.
<TABLE>
<S> <C>
Loeb Realty Corporation
Pro Forma Combined Financial Statements (unaudited)
Pro Forma Combined Balance Sheet as of December 31, 1997
Pro Forma Combined Statement of Income for the Year Ended December 31, 1997
Notes to Pro Forma Combined Financial Information
Historical
Report of Independent Auditors
Consolidated Balance Sheet as of May 11, 1998
Notes to Consolidated Balance Sheet
Loeb Real Estate
Combined Financial Statements
Report of Independent Auditors
Combined Balance Sheets as of December 31, 1997 and December 31, 1996
Combined Statements of Income for the Years Ended December 31, 1997, 1996 and 1995
Combined Statements of Owners' Equity for the Years Ended December 31, 1997, 1996
and 1995
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995
Notes to Combined Financial Statements
Schedule III Real Estate and Accumulated Depreciation as of December 31, 1997
Key Club Associates, Limited Partnership
Report of Independent Certified Public Accountants
Balance Sheets as of December 31, 1997, December 31, 1996 and December 31, 1995
Statements of Income for the Years Ended December 31, 1997, 1996 and 1995
Statements of Partners' Capital for the Years Ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<S> <C>
First NBC Center
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Years Ended December 31, 1997, 1996 and 1995
Notes to Statements of Revenues and Certain Expenses
Riverview Center
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Years Ended December 31, 1997, 1996 and 1995
Notes to Statements of Revenues and Certain Expenses
Princeton Shopping Center
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997
Notes to Statement of Revenues and Certain Expenses
Marketplace Design Center
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997
Notes to Statement of Revenues and Certain Expenses
Bazaar Mall
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1997
Notes to Statement of Revenues and Certain Expenses
24 West 57th Street
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1996
Notes to Statement of Revenues and Certain Expenses
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------------------
<C> <C> <S> <C>
1 -- Form of Underwriting Agreement*
3 -- Organizational Documents
a) -- Form of Articles of Incorporation of Loeb Realty Corporation
b) -- Form of By-Laws of Loeb Realty Corporation
c) -- Agreement of Limited Partnership of the Operating Partnership
d) -- Certificate of Incorporation of the Real Estate Brokerage Subsidiary
e) -- By-laws of the Real Estate Brokerage Subsidiary
4 -- Specimen Common Stock Certificate*
-- Registration Rights Agreement*
5 -- Opinions re Legality*
a) -- Opinion of Rogers & Wells LLP*
b) -- Opinion of Piper & Marbury*
8 -- Opinion of Rogers & Wells LLP Regarding Tax Matters *
10 -- Material Contracts
a) -- Omnibus Contribution Agreement
b) -- Supplemental Representations and Warranties Agreement*
c) -- Contribution Agreement with regard to St. Lucie*
d) -- 1997 Stock Option and Incentive Plan*
e) -- Lease with regard to the Longboat Key Club*
f) -- Form of Employment Agreement for Messrs. Lesser, Gordon, Duncan, Falk and Naughton*
21 -- List of Subsidiaries of Loeb Realty Corporation
23 -- Consents of Experts and Counsel
</TABLE>
II-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------------------
<C> <C> <S> <C>
a) -- Consent of Rogers & Wells LLP (counsel) (included as part of Exhibits 5 and 8)*
b) -- Consent of Piper & Marbury (counsel) (included as part of Exhibit 5)*
c) -- Consent of Ernst & Young LLP (accountants)
d) -- Consent of Arthur Andersen LLP (accountants)
24 -- Powers of Attorney (included on signature pages of Registration Statement)
99 -- Consents of Proposed Directors
</TABLE>
- ------------
* To be filed by amendment.
ITEM 37. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide the Underwriters,
at the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the 'Securities Act'), may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant 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, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on May 11, 1998.
LOEB REALTY CORPORATION
By: /s/ Joseph S. Lesser
...................................
JOSEPH S. LESSER
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ Joseph S. Lesser
......................................... Sole Director and Chief Executive Officer May 11, 1998
(JOSEPH S. LESSER) (Principal Executive Officer)
/s/ Alan L. Gordon
......................................... Chief Financial Officer (Principal Financial May 11, 1998
(ALAN L. GORDON) and Accounting Officer)
</TABLE>
S-1
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
EXHIBITS NUMBER
- -------- ---------------
<C> <C> <S> <C>
1 -- Form of Underwriting Agreement*....................................................
3 -- Organizational Documents...........................................................
a) -- Form of Articles of Incorporation of Loeb Realty Corporation.......................
b) -- Form of By-Laws of Loeb Realty Corporation.........................................
c) -- Agreement of Limited Partnership of the Operating Partnership......................
d) -- Certificate of Incorporation of the Real Estate Brokerage Subsidiary...............
e) -- By-laws of the Real Estate Brokerage Subsidiary....................................
4 -- Specimen Common Stock Certificate*.................................................
-- Registration Rights Agreement*.....................................................
5 -- Opinions re Legality...............................................................
a) -- Opinion of Rogers & Wells LLP*.....................................................
b) -- Opinion of Piper & Marbury*........................................................
8 -- Opinion of Rogers & Wells LLP Regarding Tax Matters*...............................
10 -- Material Contracts.................................................................
a) -- Omnibus Contribution Agreement.....................................................
b) -- Supplemental Representations and Warranties Agreement*.............................
c) -- Contribution Agreement with regard to St. Lucie*...................................
d) -- 1997 Stock Option and Incentive Plan*..............................................
e) -- Lease with regard to the Longboat Key Club*........................................
f) -- Form of Employment Agreement for Messrs. Lesser, Gordon, Duncan, Falk and
Naughton*...........................................................................
21 -- List of Subsidiaries of Loeb Realty Corporation....................................
23 -- Consents of Experts and Counsel....................................................
a) -- Consent of Rogers & Wells LLP (counsel) (included as part of Exhibits 5 and 8)*....
b) -- Consent of Piper & Marbury (counsel) (included as part of Exhibit 5)*..............
c) -- Consent of Ernst & Young LLP (accountants).........................................
d) -- Consent of Arthur Andersen LLP (accountants).......................................
24 -- Powers of Attorney (included on signature pages of Registration Statement).........
99 -- Consents of Proposed Directors.....................................................
</TABLE>
- ------------
* To be filed by amendment
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as.............................. 'SS'
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
LOEB REALTY CORPORATION, a Maryland corporation, having its principal
office in Baltimore City, Maryland (which is hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended and
restated in its entirety to read as follows:
* * * * * * * *
<PAGE>
<PAGE>
LOEB REALTY CORPORATION
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, James J. Winn, Jr., whose address is 36
South Charles Street, Baltimore, Maryland 21201, being at least eighteen years
of age, acting as incorporator, does hereby form a corporation under the General
Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called
the "Corporation") is:
LOEB REALTY CORPORATION
THIRD: (a) The purposes for which the Corporation is formed and
the business and objects which may be carried on and promoted by it are:
(1) To engage in the business of a "real estate investment
trust" as that phrase is defined in the Code and to engage in any
other lawful act or activity for which corporations may be
organized under the MGCL.
(2) To engage in any one or more businesses or
transactions, or to acquire all or any portion of any entity
engaged in any one or more businesses or transactions which the
Board of Directors may from time to time authorize or approve,
whether or not related to the business described elsewhere in
this Article or to any other business described elsewhere in this
Article or to any other business at the time or theretofore
engaged in by the Corporation.
(b) The foregoing enumerated purposes and objects shall be in no
way limited or restricted by reference to, or inference from, the terms of any
other clause of the Charter or By-Laws of the Corporation, and each shall be
regarded as independent; and they are intended to be and shall be construed as
powers as well as purposes and objects of the Corporation and shall be in
addition to and not in limitation of the general powers of corporations under
the General Laws of the State of Maryland.
FOURTH: The present address of the principal office of the
Corporation in this State is c/o Prentice-Hall Corporation Systems Maryland,
Inc., 11 East Chase Street, Baltimore, Maryland 21202.
FIFTH: The Name and address of the resident agent of the
Corporation in this State are Prentice-Hall Corporation Systems Maryland, Inc.,
11 East Chase Street, Baltimore, Maryland 21202. Said resident agent is a
Maryland corporation.
2
<PAGE>
<PAGE>
SIXTH: (a) The total number of shares of stock of all classes
which the Corporation has authority to issue is 200,000,000 shares of capital
stock (par value $.001 per share), amounting in aggregate par value of $200,000.
All of such shares are initially classified as "Common Stock." Subject to the
provisions of Article NINTH, the Board of Directors may classify and reclassify
any unissued shares of capital stock by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares of capital stock.
(b) Subject to Article NINTH, the following is a description of
the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the Common Stock of the Corporation:
(1) Each share of Common Stock shall have one vote, and,
except as otherwise provided in respect of any class of stock
hereafter classified or reclassified, the exclusive voting power
for all purposes shall be vested in the holders of the Common
Stock. Shares of Common Stock shall not have cumulative voting
rights.
(2) Subject to the provisions of applicable law and any
preferences of any class of stock hereafter classified or
reclassified, dividends, including dividends payable in shares of
another class of the Corporation's stock, may be paid ratably on
the Common Stock at such time and in such amounts as the Board of
Directors may deem advisable.
(3) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary,
the holders of the Common Stock shall be entitled, together with
the holders of any other class of stock hereafter classified or
reclassified not having a preference on distributions in the
liquidation, dissolution or winding up of the Corporation, to
share ratably in the net assets of the Corporation remaining,
after payment or provision for payment of the debts and other
liabilities of the Corporation and the amount to which the
holders of any class of stock hereafter classified or
reclassified having a preference on distributions in the
liquidation, dissolution or winding up of the Corporation shall
be entitled.
(c) Subject to Article NINTH and subject to the foregoing, the
power of the Board of Directors to classify and reclassify any of the shares of
capital stock shall include, without limitation, subject to the provisions of
the Charter, authority to classify and reclassify any unissued shares of such
stock into a class or classes of preferred stock, preference stock, special
stock or other stock, and to divide and classify shares of any class into one or
more series of such class, by determining, fixing, or altering, prior to
issuance, one or more of the following:
3
<PAGE>
<PAGE>
(1) The distinctive designation of such class or series
and the number of shares to constitute such class or series;
provided that, unless otherwise prohibited by the terms of such
or any other class or series, the number of shares of any class
or series may be decreased (but not below the number of shares
outstanding) by the Board of Directors in connection with any
classification or reclassification of unissued shares and the
number of shares of such class or series may be increased by the
Board of Directors in connection with any such classification or
reclassification, and any shares of any class or series which
have been redeemed, purchased, otherwise acquired or converted
into shares of Common Stock or any other class or series shall
become part of the authorized capital stock and be subject to
classification and reclassification as provided in this
sub-paragraph.
(2) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends shall
be payable on shares of such class or series, whether any such
dividends shall rank senior or junior to or on a parity with the
dividends payable on any other class or series of stock, and the
status of any such dividends as cumulative, cumulative to a
limited extent or non-cumulative and as participating or
non-participating.
(3) Whether or not shares of such class or series shall
have voting rights, in addition to any voting rights provided by
law and, if so, the terms of such voting rights.
(4) Whether or not shares of such class or series shall
have conversion or exchange privileges and, if so, the terms and
conditions thereof, including provision for adjustment of the
conversion or exchange rate in such events or at such times as
the Board of Directors shall determine.
(5) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of
such redemption, including the date or dates upon or after which
they shall be redeemable and the amount per share payable in case
of redemption, which amount may vary under different conditions
and at different redemption dates; and whether or not there shall
be any sinking fund or purchase account in respect thereof, and
if so, the terms thereof.
(6) The rights of the holders of shares of such class or
series upon the liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the
Corporation, which rights may vary depending upon whether such
liquidation,
4
<PAGE>
<PAGE>
dissolution or winding up is voluntary or involuntary and, if
voluntary, may vary at different dates, and whether such rights
shall rank senior or junior to or on a parity with such rights of
any other class or series of stock.
(7) Whether or not there shall be any limitations
applicable, while shares of such class or series are outstanding,
upon the payment of dividends or making of distributions on, or
the acquisition of, or the use of moneys for purchase or
redemption of, any stock of the Corporation, or upon any other
action of the Corporation, including action under this
subparagraph, and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of
such class or series, not inconsistent with law and the Charter
of the Corporation.
(d) Subject to Article NINTH and for the purposes hereof and of
any articles supplementary to the Charter providing for the classification or
reclassification of any shares of capital stock or of any other Charter document
of the Corporation (unless otherwise provided in any such articles or document),
any class or series of stock of the Corporation shall be deemed to rank:
(1) prior to another class or series either as to
dividends or upon liquidation, if the holders of such class or
series shall be entitled to the receipt of dividends or of
amounts distributable on liquidation, dissolution or winding up,
as the case may be, in preference or priority to holders of such
other class or series;
(2) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation price per
share thereof be different from those of such others, if the
holders of such class or series of stock shall be entitled to
receipt of dividends or amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to
their respective dividend rates or redemption or liquidation
prices, without preference or priority over the holders of such
other class or series; and
(3) junior to another class or series either as to
dividends or upon liquidation, if the rights of the holders of
such class or series shall be subject or subordinate to the
rights of the holders of such other class or series in respect of
the receipt of
5
<PAGE>
<PAGE>
dividends or the amounts distributable upon liquidation,
dissolution or winding up, as the case may be.
SEVENTH: (a) The number of directors of the Corporation shall be
[seven], which number may be increased or decreased by at least two-thirds of
the directors then in office pursuant to the By-Laws, but shall never be less
than the minimum nor more than the maximum number permitted by the General Laws
of the State of Maryland now or hereafter in force.
(b) Subject to the rights of the holders of any class of stock
separately entitled to elect one or more directors, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office, or other cause shall be
filled by the required vote of the stockholders or the directors then in office.
A director so chosen by the stockholders shall hold office for the balance of
the term then remaining. A director so chosen by the remaining directors shall
hold office until the next annual meeting of stockholders, at which time the
stockholders shall elect a director to hold office for the balance of the term
then remaining. No decrease in the number of directors constituting the Board of
Directors shall affect the tenure of office of any director.
(c) Subject to the rights of the holders of any class separately
entitled to elect one or more directors, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and then
only by the affirmative vote of the holders of at least a majority of the
combined voting power of all classes of shares of capital stock entitled to vote
in the election for such director or directors voting together as a single
class. For purposes of this Charter, "cause", with respect to the removal of any
director, shall mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of a court, (iii) gross dereliction of duty, (iv)
conviction of any act involving moral turpitude or (v) commission of an act that
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit to such
action and a material injury to the Corporation.
(d) The directors shall be divided into three classes as follows:
(1) The term of office of Class I shall be until the 1999
annual meeting of stockholders and until their successors shall
be elected and have qualified and thereafter shall be for three
years and until their successors shall be elected and have
qualified;
(2) the term of office of Class II shall be until the 2000
annual meeting of stockholders and until their successors shall
be elected and have qualified and thereafter shall be for three
years and until their successors shall be elected and have
qualified; and
(3) the term of office of Class III shall be until the
2001 annual meeting of stockholders and until their successors
shall be
6
<PAGE>
<PAGE>
elected and have qualified and thereafter shall be for three
years and until their successors shall be elected and have
qualified.
(e) The names of the individuals who will initially serve as
directors of the Corporation until their successors are elected and qualify are
as follows:
(1) The following persons shall serve as Class I
directors:
[name of directors]
(2) The following persons shall serve as Class II
directors:
[name of directors]
(3) The following persons shall serve as Class III
directors:
[name of directors]
(f) Whenever the holders of any one or more series of stock of
the Corporation shall have the right, voting separately as a series or together
with holders of such other series, to elect one or more directors of the
Corporation, the Board of Directors shall consist of said directors so elected
in addition to the number of directors fixed as provided in paragraph (a) of
this Article SEVENTH or in the By-Laws and such directors so elected shall not
be divided into classes and their terms shall expire at each succeeding annual
meeting of stockholders.
EIGHTH: (a) The following provisions are hereby adopted for the
purposes of defining, limiting, and regulating the powers of the Corporation and
of the directors and the stockholders:
(1) The Board of Directors is hereby empowered to
authorize the issuance from time of shares of its stock of any
class, whether now or hereafter authorized, or securities
convertible into shares of its stock of any class or classes,
whether now or hereafter authorized, for such consideration as
may be deemed advisable by the Board of Directors and without any
action by the stockholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any
other securities of the Corporation other than such, if any, as
the Board of Directors, in its sole discretion, may determine and
at
7
<PAGE>
<PAGE>
such price or prices and upon such other terms as the Board of
Directors, in its sole discretion, may fix; and any stock or
other securities which the Board of Directors may determine to
offer for subscription may, as the Board of Directors in its sole
discretion shall determine, be offered to the holders of any
class, series or type of stock or other securities at the time
outstanding to the exclusion of the holders of any or all other
classes, series or types of stock or other securities at the time
outstanding.
(3) The Board of Directors of the Corporation shall,
consistent with applicable law, have the power in its sole
discretion to determine from time to time in accordance with
sound accounting practice or other reasonable valuation methods
what constitutes annual or other net profits, earnings, surplus
or net assets in excess of capital; to fix and vary from time to
time the amount to be reserved as working capital, or determine
that retained earnings or surplus shall remain in the hands of
the Corporation; to set apart out of any funds of the Corporation
such reserve or reserves in such amount or amounts and for such
proper purpose or purposes as it shall determine, or to abolish
any such reserve or any part thereof; to redeem or purchase its
stock or to distribute and pay distributions or dividends in
stock, cash or other securities or property, out of surplus or
any other funds or amounts legally available therefor, at such
times and to the stockholders of record on such dates as it may,
from time to time, determine; to determine the amount, purpose,
time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid
or discharged); to determine the fair value and any matters
relating to the acquisition, holding and disposition of any
assets by the Corporation; and to determine whether and to what
extent and at what times and places and under what conditions and
regulations the books, accounts and documents of the Corporation,
or any of them, shall be open to the inspection of stockholders,
except as otherwise provided by statute, the rules of any stock
exchange or market system on which securities of the Corporation
are listed or included, or by the By-Laws, and, except as so
provided, no stockholder shall have any right to inspect any
book, account or document of the Corporation unless authorized so
to do by resolution of the Board of Directors.
(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater portion than a majority
of the total number of shares of all classes of capital stock or
of the total number of shares of any class of capital stock, such
action
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shall be valid and effective if authorized by the affirmative
vote of the holders of a majority of the total number of shares
of all classes outstanding and entitled to vote thereon, except
as otherwise provided in the Charter.
(5) The Corporation shall indemnify (A) its directors and
officers, whether serving the Corporation or at its request any
other entity, to the full extent required or permitted by the
General Laws of the State of Maryland now or hereafter in force,
including the advance of expenses under the procedures and to the
full extent permitted by law and (B) other employees and agents
to such extent as shall be authorized by the Board of Directors
or the Corporation's By-Laws and be permitted by law. The
foregoing rights of indemnification shall not be exclusive of any
other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time
any resolutions or contracts implementing such provisions or such
further indemnification arrangements as may be permitted by law.
No amendment of the Charter of the Corporation or repeal of any
of its provisions shall limit or eliminate the right to
indemnification provided hereunder with respect to acts of
omissions occurring prior to such amendment or repeal.
(6) To the fullest extent permitted by Maryland statutory
or decisional law, as amended or interpreted, no director or
officer of the Corporation shall be personally liable to the
Corporation or its stockholders for money damages. No amendment
of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the limitation on liability
provided to directors and officers hereunder with respect to any
act or omission occurring prior to such amendment or repeal.
(7) The Corporation reserves the right from time to time
to make any amendments of the Charter which may now or hereafter
be authorized by law, including any amendments changing the terms
or contract rights, as expressly set forth in the Charter, of any
of its outstanding stock by classification, reclassification or
otherwise, but no such amendment which changes such terms or
contract rights of any of its outstanding stock shall be valid
unless such amendment shall have been authorized by not less than
a majority of the aggregate number of the votes entitled to be
cast thereon; provided, however, that any amendment to, repeal of
or adoption of any provision inconsistent with Article SEVENTH,
with sub-paragraphs (1), (5), (6), (8) or
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(9) of Article EIGHTH, paragraph (a) or with this subparagraph of
Article EIGHTH, paragraph (a) shall have been authorized by not
less than two-thirds of the aggregate votes entitled to be cast
thereon (considered for this purpose as a single class).
(8) The Board of Directors shall, in connection with the
exercise of its business judgment involving a Business
Combination (as defined in Section 3-601 of the Corporations and
Associations Article of the Annotated Code of Maryland) or any
actual or proposed transaction which would or may involve a
change in control of the Corporation (whether by purchases of
shares of stock or any other securities of the Corporation in the
open market, or otherwise, tender offer, merger, consolidation,
dissolution, liquidation, sale of all or substantially all of the
assets of the Corporation, proxy solicitation or otherwise), in
determining what is in the best interests of the Corporation and
its stockholders and in making any recommendation to its
stockholders, give due consideration to all relevant factors,
including, but not limited to (A) the economic effect, both
immediate and long-term, upon the Corporation's stockholders,
including stockholders, of any, who do not participate in the
transaction; (B) the social and economic effect on the employees
and customers of, and others dealing with, the Corporation and
its subsidiaries and on the communities in which the Corporation
and its subsidiaries operate or are located; (C) whether the
proposal is acceptable based on the historical and current
operating results or financial condition of the Corporation; (D)
whether a more favorable price could be obtained for the
Corporation's stock or other securities in the future; (E) the
reputation and business practices of the offeror and its
management and affiliates as they would affect the employees of
the Corporation and its subsidiaries; (F) the future value of the
stock or any other securities of the Corporation; (G) any
antitrust or other legal and regulatory issues that are raised by
the proposal; and (H) the business and financial condition and
earnings prospects of the acquiring person or entity, including,
but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection
with the acquisition, and other likely financial obligations of
the acquiring person or entity. If the Board of Directors
determines that any proposed Business Combination (as defined in
Section 3-601 of the Corporations and Associations Article of the
Annotated Code of Maryland) or actual or proposed transaction
which would or may involve a change in control of the Corporation
should be rejected, it may take any lawful action to defeat such
transaction, including, but not limited to, any or all of the
following: advising stockholders not to accept the proposal;
instituting litigation against the party making the
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proposal; filing complaints with governmental and regulatory
authorities; acquiring the stock or any of the securities of the
Corporation; selling or otherwise issuing authorized but unissued
stock, other securities or granting options or rights with
respect thereto; acquiring a company to create an antitrust or
other regulatory problem for the party making the proposal; and
obtaining a more favorable offer from another individual or
entity.
(9) In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors of the Corporation
is expressly authorized to make, repeal, alter, amend and rescind
the By-Laws of the Corporation. Notwithstanding any other
provision of the Charter or the By-Laws of the Corporation (and
notwithstanding the fact that some lesser percentage may be
specified by law), the By-Laws shall not be made, repealed,
altered, amended or rescinded by the stockholders of the
Corporation except by the vote of the holders of not less than
two-thirds of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose (provided
that notice of such proposed adoption, repeal, alteration,
amendment or rescission is included in the notice of such
meeting), or, as set forth above, by the Board of Directors.
(b) The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the Charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any powers
conferred upon the Board of Directors under the General Laws of the State of
Maryland now or hereafter in force.
NINTH: (a)(1) Subject to Sections (a)(7) and (a)(10) of this
Article NINTH, during the period commencing on the Initial Date and prior to the
Restriction Termination Date:
(A) (i) No Person, other than an Excepted Holder, shall
Beneficially Own or Constructively Own shares of Capital Stock in
excess of the Aggregate Stock Ownership Limit, no Person, other
than an Excepted Holder, shall Beneficially Own or Constructively
Own shares of Common Stock in excess of the Common Stock
Ownership Limit, and no Excepted Holder shall Beneficially Own or
Constructively Own shares of Capital Stock in excess of the
Excepted Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially or Constructively Own
shares of Capital Stock to the extent that such Beneficial or
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Constructive Ownership of Capital Stock would result in the
Corporation being "closely held" within the meaning of Section
856(h) of the Code (without regard to whether the ownership
interest is held during the last half of a taxable year), or
otherwise failing to qualify as a REIT (including, but not
limited to, Beneficial or Constructive Ownership that would
result in the Corporation owning (actually or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of
the Code if the income derived by the Corporation from such
tenant would cause the Corporation to fail to satisfy any of the
gross income requirements of Section 856(c) of the Code).
(B) If any Transfer of shares of Capital Stock or change
in capital structure or other event occurs which, if effective,
would result in any Person Beneficially Owning or Constructively
Owning shares of Capital Stock in violation of Section
(a)(1)(A)(i) or (ii) of this Article NINTH,
(i) then that number of shares of the Capital Stock the
Beneficial or Constructive Ownership of which otherwise would
cause such Person to violate Section (a)(1)(A)(i) or (ii) of this
Article NINTH (rounded to the nearest whole shares) shall be
automatically transferred to a Trust for the benefit of a
Charitable Beneficiary, as described in Section (b) of this
Article NINTH, effective on the close of business on the Business
Day prior to the date of such Transfer, and such Person shall
acquire no rights in such shares; or
(ii) if the transfer to the Trust described in clause (i)
of this sentence would not be effective for any reason to prevent
the violation of Section (a)(1)(A)(i) or (ii) of this Article
NINTH, then the Transfer of that number of shares of Capital
Stock that otherwise would cause any Person to violate Section
(a)(1)(A)(i) or (ii) of this Article NINTH shall be void ab
initio, and the intended transferee shall acquire no rights in
such shares of Capital Stock.
(C) Notwithstanding any other provisions contained herein,
any Transfer of shares of Capital Stock, that, if effective,
would result in the Capital Stock being Beneficially Owned by
less than 100 Persons (determined under the principles of Section
856(a)(5) of the Code and without reference to any rules of
attribution) shall be void ab initio, and the intended transferee
shall acquire no rights in such shares of Capital Stock.
(2) If the Board of Directors of the Corporation or any duly
authorized committee thereof shall at any time determine in good faith that a
Transfer or change in capital structure
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or other event has taken place that results in a violation of Section (a)(1) of
this Article NINTH or that a Person intends to acquire or has attempted to
acquire Beneficial or Constructive Ownership of any shares of Capital Stock in
violation of Section (a)(1) of this Article NINTH (whether or not such violation
is intended), the Board of Directors or a committee thereof shall take such
action as it deems advisable to refuse to give effect to or to prevent such
Transfer or change in capital structure or other event, including without
limitation, causing the Corporation to redeem shares, refusing to give effect to
such Transfer on the books of the Corporation or instituting proceedings to
enjoin such Transfer or other event; provided, however, that any Transfers or
attempted Transfers or changes in capital structure or other events in violation
of Section (a)(1) of this Article NINTH shall automatically result in the
transfer to the Trust described above, and, where applicable, such Transfer (or
other event) shall be void ab initio as provided above irrespective of any
action (or non-action) by the Board of Directors of committee thereof.
(3) Any Person who acquires or attempts or intends to acquire
Beneficial Ownership or Constructive Ownership of shares of Capital Stock that
will or may violate Section (a)(1)(A) of this Article NINTH, or any Person who
would have owned shares of Capital Stock that resulted in a transfer to the
Trust pursuant to the provisions of Section (a)(1)(B) of this Article NINTH
shall immediately give written notice to the Corporation of such event, or in
the case of such proposed or attempted transaction, give at least 15 days prior
written notice, and shall provide to the Corporation such other information as
the Corporation may request in order to determine the effect, if any, of such
Transfer on the Corporation's status as a REIT.
(4) From the Initial Date and prior to the Restriction
Termination Date:
(A) every owner of more than 1% (or such other percentage
as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding shares of Capital Stock shall,
within 30 days after the end of each taxable year, give written
notice to the Corporation stating the name and address of such
owner, the number of shares of Capital Stock Beneficially Owned,
and a description of the manner in which such shares are held.
Each such owner shall provide to the Corporation such additional
information as the Corporation may request in order to determine
the effect, if any, of such Beneficial Ownership on the
Corporation's status as a REIT and ensure compliance with the
Aggregate Stock Ownership Limit.
(B) each Person who is a Beneficial or Constructive Owner
of more than 1% of the outstanding Capital Stock and each Person
(including the stockholder of record) who is holding more than 1%
of the outstanding Capital Stock for a Beneficial or Constructive
Owner shall provide to the Corporation such information as the
Corporation may request, in good faith, in order to determine the
Corporation's status as a REIT and to comply with requirements of
any taxing authority or governmental authority or to determine
such compliance.
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(5) Nothing contained in this Section (a) of this Article NINTH
shall limit the authority of the Board of Directors of the Corporation to take
such other action as it deems necessary or advisable to protect the Corporation
and the interests of its stockholders in preserving the Corporation's status as
a REIT or to ensure compliance with the Aggregate Stock Ownership Limit, the
Common Stock Ownership Limit, and the Excepted Holder Ownership Limit.
(6) In the case of an ambiguity in the application of any of the
provisions of this Article NINTH or any definition contained in Article TENTH,
the Board of Directors of the Corporation shall have the power to determine the
application of the provisions of this Article NINTH or any definition contained
in Article TENTH with respect to any situation based on the facts known to it.
In the event this Article NINTH requires any action by the Board of Directors
and the Charter fails to provide specific guidance with respect to such action,
the Board of Directors shall have the power to determine the action to be taken
so long as such action is not contrary to the provisions of this Article NINTH
or any definition contained in Article TENTH.
(7) (A) Subject to Section (a)(1)(A)(ii) of this Article NINTH,
the Board of Directors of the Corporation, in its sole discretion, may exempt a
Person from the Aggregate Stock Ownership Limit and the Common Stock Ownership
Limit, as the case may be, and may establish or increase an Excepted Holder
Limit for such Person, if:
(i) the Board of Directors obtains such representations
and undertakings from such Person as are reasonably necessary to
ascertain that no individual's Beneficial or Constructive
Ownership of such shares of Capital Stock will violate Section
(a)(1)(A)(ii) of this Article NINTH; and
(ii) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other
action which is contrary to the restrictions contained in
Sections (a)(1) through (a)(6) of this Article NINTH) will result
in such shares of Capital Stock being automatically transferred
to a Trust in accordance with Sections (a)(1)(B) and (b) of this
Article NINTH.
(B) Prior to granting any exception pursuant to Section
(a)(7)(A) of this Article NINTH, the Board of Directors may
require a ruling from the Internal Revenue Service or an opinion
of counsel or other evidence, in each case in form and substance
satisfactory to the Board of Directors in its sole discretion, as
it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT. Notwithstanding the
receipt of any ruling or opinion or other evidence, the Board of
Directors may impose such conditions or restrictions as it deems
appropriate in connection with granting such exception.
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(C) Subject to Section (a)(1)(A)(ii) of this Article
NINTH, any underwriter which participates in a public offering or
a private placement of Capital Stock (or securities convertible
into or exchangeable for Capital Stock) may Beneficially Own or
Constructively Own shares of Capital Stock of any series or class
(or securities convertible into or exchangeable for Capital Stock
of any series or class) in excess of the Aggregate Stock
Ownership Limit, the Common Stock Ownership Limit, or both such
limits, but only to the extent necessary to facilitate such
public offering or private placement or to support such offering
or placement in the aftermarket.
(8) The Board of Directors may from time to time modify the
Common Stock Ownership Limit, any Excepted Holder Limit and the Aggregate Stock
Ownership Limit; provided, however, that:
(A) Any decrease may be made only prospectively (other
than a decrease as a result of a retroactive change in existing
law, in which case such decrease shall be effective immediately);
(B) No ownership limitation may be increased if, after
giving effect to such increase, five Persons could Beneficially
Own or Constructively Own, in the aggregate, more than 49.9% in
value of the shares of Capital Stock then outstanding;
(C) Prior to the modification of any of the ownership
limitations, the Board of Directors of the Corporation may
require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to
determine or ensure the Corporation's status as REIT;
(D) The Excepted Holder Limit for an Excepted Holder shall
be decreased after any Transfer permitted in this Article Ninth
by such Excepted Holder by the percentage of the outstanding
Capital Stock so Transferred;
(E) No Excepted Holder Limit shall be reduced to a
percentage which is less than the Common Stock Ownership Limit or
the Aggregate Ownership Limit; and
(F) Neither the Common Stock Ownership Limit or the
Aggregate Ownership Limit may be increased to a percentage which
is greater than 9.8 percent.
(9) Each certificate for shares of Capital Stock or securities
exercisable or exchangeable for or convertible into shares of Capital Stock
shall bear the following legend:
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The securities represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and
Transfer for the purpose of the Corporation's maintenance of its
status as a Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended (the "Code"). Subject to certain
further restrictions and except as expressly provided in the
Corporation's Charter, (i) no Person may Beneficially or
Constructively Own shares of the Corporation's Common Stock in
excess of 9.8% (in value or number of shares) of the outstanding
shares of Common Stock of the Corporation unless such Person is
an Excepted Holder (in which case the Excepted Holder Limit shall
be applicable); (ii) no Person may Beneficially or Constructively
Own shares of Capital Stock of the Corporation in excess of 9.8%
of the value of the total outstanding shares of Capital Stock of
the Corporation, unless such Person is an Excepted Holder (in
which case the Excepted Holder Limit shall be applicable); (iii)
no Person may Beneficially or Constructively Own Capital Stock
that would result in the Corporation being "closely held" under
Section 856(h) of the Code or otherwise cause the Corporation to
fail to qualify as a REIT; and (iv) no Person may Transfer shares
of Capital Stock if such Transfer would result in the Capital
Stock of the Corporation being owned by fewer than 100 Persons.
Any Person who Beneficially or Constructively Owns or attempts to
Beneficially or Constructively Own shares of Capital Stock which
causes or will cause a Person to Beneficially or Constructively
Own shares of Capital Stock in excess or in violation of the
above limitations must immediately notify the Corporation. If any
of the restrictions on transfer or ownership are violated, the
shares of Capital Stock represented hereby may be automatically
transferred to a Trustee of a Trust for the benefit or one or
more Charitable Beneficiaries. In addition, upon the occurrence
of certain events, attempted Transfers in violation of the
restrictions described above may be void ab initio. All
capitalized terms in this legend have the meanings defined in the
Charter of the Corporation, as the same may be amended from time
to time, a copy of which, including the restrictions on transfer
and ownership, will be furnished to each holder of Capital Stock
of the Corporation on request and without charge.
(10) Nothing contained in this Article NINTH or in any provision
hereof shall preclude the settlement of any transaction entered into through the
facilities of the NYSE or any other national securities exchange or automated
inter-dealer quotation system. Although settlement of any transaction is
permitted, any transferee in such transaction shall be subject to all the
provisions and limitations set forth in this Article NINTH.
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(11) If any of the restrictions on transfer of Capital Stock
contained in this Article NINTH are determined to be void, invalid or
unenforceable by any court of competent jurisdiction, then the Prohibited Owner
may be deemed, at the option of the Corporation, to have acted as an agent of
the Corporation in acquiring such Capital Stock and to hold such Capital Stock
on behalf of the Corporation.
(b) (1) Upon any purported Transfer or other event described in Section
(a)(1)(B) of this Article NINTH that would result in a transfer of shares of
Capital Stock to a Trust, such shares of Capital Stock shall be deemed to have
been transferred to the Trustee as trustee of a Trust for the exclusive benefit
of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be
deemed to be effective as of the close of business on the Business Day prior to
the purported Transfer or change in capital structure or other event that
results in the transfer to the Trust pursuant to Section (a)(1)(B) of this
Article NINTH. The Trustee shall be appointed by the Corporation by written
notice and shall be a Person unaffiliated with the Corporation and any
Prohibited Owner. Each Charitable Beneficiary shall be designated by the
Corporation as provided in Section (b)(6) of this Article NINTH.
(2) Shares of Capital Stock held by the Trustee shall be issued
and outstanding shares of Capital Stock of the Corporation. The Prohibited Owner
shall have no rights in the shares held by the Trustee except as provided in
this Section (b) of this Article NINTH. The Prohibited Owner shall not benefit
economically from ownership of any shares held in trust by the Trustee, shall
have no rights to dividends and shall not possess any rights to vote or other
rights attributable to the shares held in the Trust.
(3) The Trustee shall have all voting rights and rights to
dividends or other distributions with respect to shares of Capital Stock held in
the Trust, which rights shall be exercised for the exclusive benefit of the
Charitable Beneficiary. Any dividend or other distribution paid prior to the
discovery by the Corporation that the shares of Capital Stock have been
transferred to the Trustee shall be paid with respect to such shares of Capital
Stock to the Trustee upon demand and any dividend or other distribution
authorized but unpaid shall be paid when due to the Trustee. Any dividends or
distributions so paid over to the Trustee shall be held in trust for the
Charitable Beneficiary. The Prohibited Owner shall have no voting rights with
respect to shares held in the Trust and, subject to Maryland law, effective as
of the date that the shares of Capital Stock have been transferred to the
Trustee, the Trustee shall have the authority (at the Trustee's sole discretion)
(i) to rescind as void any vote cast by a Prohibited Owner prior to the
discovery by the Corporation that the shares of Capital Stock have been
transferred to the Trustee and (ii) to recast such vote in accordance with the
desires of the Trustee acting for the benefit of the Charitable Beneficiary.
Notwithstanding the provisions of this Article NINTH, until the Corporation has
received notification that shares of Capital Stock have been transferred into a
Trust, the Corporation shall be entitled to rely on its share transfer and other
stockholder records for purposes of preparing lists of stockholders entitled to
vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.
(4) If reasonably practicable, and in an orderly fashion so as
not to affect in a materially adverse manner the Market Price of the Company's
capital stock, within 20 days of
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receiving notice from the Corporation that shares of Capital Stock have been
transferred to the Trust, the Trustee of the Trust shall sell the shares held in
the Trust to a Person, designated by the Trustee, whose ownership of the shares
will not violate the ownership limitations set forth in Section (a)(1)(A) of
this Article NINTH. Upon such sale, the interest of the Charitable Beneficiary
in the shares sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary
as provided in this Section (b)(4) of this Article NINTH. The Prohibited Owner
shall receive the lesser of (i) the price paid by the Prohibited Owner for the
shares or, if the Prohibited Owner did not give value for the shares in
connection with the event causing the shares to be held in the Trust (e.g., in
the case of a gift, devise or other such transaction), the Market Price of the
shares on the day of the event causing the shares to be held in the Trust or
(ii) the price per share received by the Trustee from the sale or other
disposition of the shares held in the Trust. Any net sales proceeds in excess of
the amount payable to the Prohibited Owner shall be immediately paid to the
Charitable Beneficiary. If, prior to the discovery by the Corporation that
shares of Capital Stock have been transferred to the Trustee, such shares are
sold by a Prohibited Owner, then (i) such shares shall be deemed to have been
sold on behalf of the Trust and (ii) to the extent that the Prohibited Owner
received an amount for such shares that exceeds the amount that such Prohibited
Owner was entitled to receive pursuant to this Section (b)(4) of this Article
NINTH, such excess shall be paid to the Trustee upon demand.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of, or any distribution of assets of, the Corporation,
prior to the sale of the shares held in the Trust, the Prohibited Owner shall
receive the lesser of (i) the price paid by the Prohibited Owner for the shares
or, if the Prohibited owner did not give value for the shares in connection with
the event causing the shares to be held in the Trust (e.g., in the case of gift,
devise or other such transaction), the Market Price of the shares on the day of
the event causing the shares to be held in the Trust and (ii) the amount of
assets received in respect of the shares in any liquidation, dissolution or
winding up of, or any distribution of the assets of, the Corporation. Any assets
received in excess of the amount payable to the Prohibited Owner shall be
immediately paid to the Charitable Beneficiary.
(5) Shares of Capital Stock transferred to the Trustee shall be
deemed to have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the Trust (or, in the case of a
devise or gift, the Market Price at the time of such devise or gift) and (ii)
the Market Price on the date the Corporation, or its designee, accepts such
offer. The Corporation shall have the right to accept such offer until the
Trustee has sold the shares held in the Trust pursuant to Section (b)(4) of this
Article NINTH. Upon such sale to the Corporation, the interest of the Charitable
Beneficiary in the shares sold shall terminate and the Trustee shall distribute
the net proceeds of the sale to the Prohibited Owner.
(6) By written notice to the Trustee, the Corporation shall
designate one or more nonprofit organizations to be the Charitable Beneficiary
of the interest in the Trust such that (i) the shares of Capital Stock held in
the Trust would not violate the restrictions set forth in Section (a)(1)(A) of
this Article NINTH in the hands of such Charitable Beneficiary and (ii) each
such organization must be described in Section 501(c)(3) of the Code and
contributions to each such
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organization must be eligible for deduction under each of Sections 170(b)(1)(A),
170(c)(2), 2055 and 2522 of the Code.
TENTH: For the purpose of the Charter, the following terms shall
have the following meanings:
AGGREGATE STOCK OWNERSHIP LIMIT. The term "Aggregate Stock
Ownership Limit" shall mean not more than 9.8% in value of the aggregate of the
outstanding shares of Capital Stock. The value of the outstanding shares of
Capital Stock shall be determined by the Board of Directors of the Corporation
in good faith, which determination shall be conclusive for all purposes hereof.
BENEFICIAL OWNERSHIP. The term "Beneficial Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns," and "Beneficially Owned" shall
have the correlative meanings.
BUSINESS DAY. The term "Business Day" shall mean any day, other
than a Saturday or Sunday, that is neither a legal holiday nor a day on which
banking institutions in New York City are authorized or required by law,
regulation or executive order to close.
BY-LAWS. The term "By-Laws" shall mean the By-Laws of the
Corporation and all amendments and supplements thereto.
CHARITABLE BENEFICIARY. The term "Charitable Beneficiary" shall
mean one or more beneficiaries of the Trust as determined pursuant to Section
(b)(6) of Article EIGHTH, provided that each such organization must be described
in Section 501(c)(3) of the Code and contributions to each such organization
must be eligible for deduction under each Sections 170(b)(1)(A), 2055 and 2522
of the Code.
CHARTER. The term "Charter" shall mean the Articles of
Incorporation of the Corporation and all amendments and supplements thereto.
CODE. The term "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
CAPITAL STOCK. The term "Capital Stock" shall mean all classes
and series of stock which the Corporation shall have authority to issue. The
term "Capital Stock" shall include Common Stock, preferred stock, preference
stock, special stock or other stock.
CLOSING PRICE. The term "Closing Price" on any date shall mean
the last sale price for such Capital Stock, regular way, or if in any case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, for such Capital Stock, in either case as reported in the
principal consolidated transaction reporting system with respect to
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securities listed or admitted to trading on the NYSE or, if such Capital Stock
is not listed or admitted to trading on the NYSE, as reported on the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which such Capital Stock is listed
or admitted to trading or, if such Capital Stock is not listed or admitted to
trading on any national securities exchange, the last quoted price, or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the NASDAQ National Market, or, if such
automated quotation system is no longer in use, the principal other automated
quotation system that may then be in use or, if such Capital Stock is not quoted
by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such Capital Stock
selected by the Board of Directors of the Corporation or, in the event that no
trading price is available for such Capital Stock, the fair market value of the
Capital Stock, as determined in good faith by the Board of Directors of the
Corporation.
COMMON STOCK. The term "Common Stock" shall mean the common
stock, par value $.001 per share, of the Corporation.
COMMON STOCK OWNERSHIP LIMIT. The term "Common Stock Ownership
Limit" shall mean not more than 9.8% (in value or in number of shares, whichever
is more restrictive) of the aggregate of the outstanding shares of Common Stock
of the Corporation. The number and value of outstanding shares of Common Stock
of the Corporation shall be determined by the Board of Directors of the
Corporation in good faith, which determination shall be conclusive for all
purposes hereof.
CONSTRUCTIVE OWNERSHIP. The term "Constructive Ownership" shall
mean ownership of Capital Stock by a Person, whether the interest in the shares
of Capital Stock is held directly or indirectly (including by a nominee), and
shall include interests that would be treated as owned through the application
of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructive Owner," "Constructively Owns," and "Constructively Owned"
shall have the correlative meanings.
CORPORATION. The term "Corporation" shall mean Loeb Realty
Corporation, a Maryland corporation.
EXCEPTED HOLDER. The term "Excepted Holder" shall mean a
stockholder of the Corporation for whom an Excepted Holder Limit is created by
the Charter or by the Board of Directors pursuant to Section (a)(7) and (a)(8)
of Article NINTH.
EXCEPTED HOLDER LIMIT. The term "Excepted Holder Limit" shall
mean, provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Directors pursuant to Section (a)(7) of
Article NINTH, and subject to adjustment pursuant to Section (a)(8) of Article
NINTH, the percentage limit established by the Board of Directors pursuant to
Section (a)(7) of Article NINTH. Prior to the Restriction Termination Date the
Secretary of the Corporation shall maintain and, upon request, make available to
each Excepted Holder a schedule which sets forth the then current Excepted
Holders Limit for each such Excepted Holder.
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INITIAL DATE. The term "Initial Date" shall mean the date of the
filing of the Amended and Restated Articles of Incorporation with the State
Department of Assessments of Maryland.
MARKET PRICE. The term "Market Price" on any date shall mean,
with respect to any class or series of outstanding shares of Capital Stock, the
Closing Price for such Capital Stock on such date.
MGCL. The term "MGCL" shall mean the Maryland General Corporation
Law.
NYSE. The term "NYSE" shall mean the New York Stock Exchange,
Inc.
PERSON. The term "Person" shall mean an individual, corporation,
partnership, limited liability company, estate, trust (including a trust
qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside for or to be used exclusively for the purposes described
in Section 642(c) of the Code, association, private foundation within the
meaning of Section 509(a) of the Code, joint stock company or other entity, [or
any "group" as defined under Rule 13(d)(3) of the Securities Exchange Act, as
amended.]
PROHIBITED OWNER. The term "Prohibited Owner" shall mean, with
respect to any purported Transfer, any Person who, but for the provisions of
Section (a)(1) of Article EIGHTH, would Beneficially Own or Constructively Own
shares of Capital Stock, and if appropriate in the context, shall also mean any
Person who would have been the record owner of the shares that the Prohibited
Owner would have so owned.
REIT. The term "REIT" shall mean a real estate investment trust
within the meaning of Section 856 through 860 of the Code.
RESTRICTION TERMINATION DATE. The term "Restriction Termination
Date" shall mean the first day after the Initial Date on which the Board of
Directors of the Corporation determines that it is no longer in the best
interests of the Corporation to attempt to, or continue to, qualify as a REIT or
that compliance with the restriction and limitations Beneficial Ownership,
Constructive Ownership and Transfers of shares of Capital Stock set forth herein
is no longer required in order for the corporation to qualify as a REIT.
TRANSFER. The term "Transfer" shall mean any issuance, sale,
transfer, gift, assignment, devise or other disposition, as well as any other
event, that causes any Person to acquire Beneficial Ownership or Constructive
Ownership, or any agreement to take any such actions or cause any such events,
of Capital Stock or the right to vote or receive dividends on Capital Stock,
including (i) the granting or exercise of any option or warrant (or any
disposition of any option or warrant), (ii) any disposition of any securities or
rights convertible into or exchangeable for Capital Stock or any interest in
Capital Stock or any exercise of any such conversion or exchange right, and
(iii) Transfers of interests in other entities that result in changes in
Beneficial or Constructive Ownership of Capital Stock; in each case, whether
voluntary or involuntary, whether owned of record, Constructively Owned or
Beneficially
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Owned and whether by operation of law or otherwise. The terms "Transferring" and
"Transferred" shall have the correlative meanings.
TRUST. The term "Trust" shall mean any trust provided for in
Section (b)(1) of Article NINTH.
TRUSTEE. The term "Trustee" shall mean the Person unaffiliated
with the Corporation and a Prohibited Owner, that is appointed by the
Corporation to serve as trustee of the Trust.
ELEVENTH: In the event any term, provision, sentence or paragraph
of the Charter of the Corporation is declared by a court of competent
jurisdiction to be invalid or unenforceable, such term, provision, sentence or
paragraph shall be deemed severed from the remainder of the Charter, and the
balance of the Charter shall remain in effect and be enforced to the fullest
extent permitted by law and shall be construed to preserve the intent and
purposes of the Charter. Any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such term, provision,
sentence or paragraph of the Charter in any other jurisdiction.
TWELFTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation, acknowledging the same to be my act, on February 9, 1998.
Witness:
/s/ Elizabeth Monetti /s/ James J. Winn, Jr.
__________________________________ ___________________________________
Elizabeth Monetti James J. Winn, Jr.
SECOND: (a) As of immediately before the amendment and restatement the
total number of shares of capital stock of all classes which the Corporation has
authority to issue is
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100,000,000 shares, all of which shares are now classified as Common Stock (par
value $.0001 per share).
(b) As amended the total number of shares of capital stock of all
classes which the Corporation has authority to issue is 200,000,000 shares, all
of which shares are now Common Stock (par value $.001 per share).
(c) The aggregate par value of all shares having a par value is
$10,000 before the amendment and $200,000 as amended.
THIRD: The foregoing amendment and restatement to the Charter of the
Corporation has been advised by the Board of Directors and approved by the
stockholders of the Corporation.
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IN WITNESS WHEREOF, LOEB REALTY CORPORATION has caused these
presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on _________________, 1998.
WITNESS: LOEB REALTY CORPORATION
______________________________ By: ____________________________
________________, Secretary __________________, President
THE UNDERSIGNED, President of LOEB REALTY CORPORATION, who executed on
behalf of the Corporation the foregoing Articles of Amendment and Restatement of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment and Restatement
to be the corporate act of said Corporation and hereby certifies that to the
best of his knowledge, information, and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
____________________________________
________________, President
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LOEB REALTY CORPORATION
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
meeting of its stockholders (beginning in May 1999) to elect directors and
transact any other business within its powers either at 10:00 a.m. on the second
Tuesday of May in each year if not a legal holiday, or at such other time on
such other day as shall be set by the Board of Directors. Except as the Charter
or statute provides otherwise, any business may be considered at an annual
meeting without the purpose of the meeting having been specified in the notice.
Failure to hold an annual meeting does not invalidate the Corporation's
existence or affect any otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board of Directors or the President or by a majority of the
Board of Directors by vote at a meeting or in writing (addressed to the
Secretary of the Corporation) with or without a meeting. Special meetings of the
stockholders shall be called by the Secretary at the request of stockholders
only on the written request of stockholders entitled to cast at least 25% of
the votes entitled to be cast at the meeting and then only as may be required by
law. Unless requested by stockholders entitled to cast a majority of all the
votes entitled to be cast of the meeting, a special meeting need not be called
to consider any matter which is substantially the same as a matter voted on at
any special meeting of stockholders held in the preceding 12 months.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the
Board of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to him
or her, left at his or her residence or usual place of business, or mailed to
him or her at his or her address as it appears on the records of the
Corporation. Notwithstanding the foregoing provisions, each person who is
entitled to notice waives notice if he or she before or after the meeting signs
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waiver of the notice which is filed with the records of stockholders' meetings,
or is present at the meeting in person or by proxy.
SECTION 1.05. Quorum; Voting. Unless any statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
SECTION 1.06. Adjournments. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been transacted at
the meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present.
SECTION 1.07. General Right to Vote; Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders but
no share shall be entitled to vote if any installment payable thereon is overdue
and unpaid. In all elections for directors, each share of stock may be voted for
as many individuals as there are directors to be elected and for whose election
the share is entitled to be voted. A stockholder may vote the stock the
stockholder owns of record either in person or by proxy. A stockholder may sign
a writing authorizing another person to act as proxy. Signing may be
accomplished by the stockholder or the stockholder's authorized agent signing
the writing or causing the stockholder's signature to be affixed to the writing
by any reasonable means, including facsimile signature. A stockholder may
authorize another person to act as proxy by transmitting, or authorizing the
transmission of, a telegram, cablegram, datagram, or other means of electronic
transmission to the person authorized to act as proxy or to a proxy solicitation
firm, proxy support service organization, or other person authorized by the
person who will act as proxy to receive the transmission. Unless a proxy
provides otherwise, it is not valid more than 11 months after its date. A proxy
is revocable by a stockholder at any time without condition or qualification
unless the proxy states that it is irrevocable and the proxy is coupled with an
interest. A proxy may be made irrevocable for so long as it is coupled with an
interest. The interest with which a proxy may be coupled includes an interest in
the stock to be voted under the proxy or another general interest in the
Corporation or its assets or liabilities.
SECTION 1.08. List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
SECTION 1.09. Conduct of Business. No candidate for election as a
director at a meeting shall serve as an inspector at such meeting. Nominations
of persons for election to the Board of Directors and the proposal of business
to be considered by the stockholders may be
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made at an annual meeting of stockholders (a) pursuant to the Corporation's
notice of meeting, (b) by or at the direction of the Board of Directors or (c)
by any stockholder of the Corporation who was a stockholder of record at the
time of giving notice provided for in Section 1.11, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in Section
1.11. The chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in this Section and Section
1.11 and, if any proposed nomination or business is not in compliance with this
Section and Section 1.11, to declare that such defective nomination or proposal
be disregarded.
SECTION 1.10. Conduct of Voting. At all meetings of stockholders, unless
the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies, the acceptance or rejection of votes and procedures for the
conduct of business not otherwise specified by these By-Laws, the Charter or
law, shall be decided or determined by the chairman of the meeting. If demanded
by stockholders, present in person or by proxy, entitled to cast 10% in number
of votes entitled to be cast, or if ordered by the chairman, the vote upon any
election or question shall be taken by ballot and, upon like demand or order,
the voting shall be conducted by two inspectors, in which event the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided, by such inspectors. Unless so demanded or ordered, no vote
need be by ballot and voting need not be conducted by inspectors. The
stockholders at any meeting may choose an inspector or inspectors to act at such
meeting, and in default of such election the chairman of the meeting may appoint
an inspector or inspectors.
SECTION 1.11. Inspectors of Election. Before any meeting of
stockholders, the board of directors may appoint any person other than nominees
for office to act as inspectors of election at the meeting and any adjournment
thereof. If no inspectors of election are so appointed, the chairman of the
meeting may, and on the request of any stockholder or a stockholder's proxy
shall, appoint inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are appointed at a meeting
on the request of one or more stockholders or proxies, the holders of a majority
of shares or their proxies present at the meeting shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any stockholder or a stockholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
a. Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
b. Receive votes, ballots, or consents;
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Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
d. Count and tabulate all votes or consents;
e. Determine when polls shall close;
f. Determine the result; and
g. Do any other acts that may be proper to conduct the election
or vote with fairness to all stockholders.
SECTION 1.12. Stockholder Proposals. (A) Nominations for the election of
directors and proposals for any new business to be taken up at any annual or
special meeting of stockholders may be made by the Board of Directors of the
Corporation or by any stockholder of the Corporation entitled to vote generally
in the election of directors. In order for a stockholder of the Corporation to
make any such nominations and/or proposals, he or she shall give notice thereof
in writing, delivered or mailed by first class United States mail, postage
prepaid, to the Secretary of the Corporation not less than 30 days nor more than
60 days prior to any such meeting; provided, however, that if less than 31 days
notice of the meeting is given to stockholders, such written notice shall be
delivered or mailed, as prescribed, to the Secretary of the Corporation not
later than the close of the tenth day following the day on which notice of the
meeting was mailed to stockholders. Each such notice given by a stockholder with
respect to nominations for the election of directors shall set forth (i) the
name, age, business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of each
such nominee, (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee, (iv) such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the proposed nominee pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended, including, without limitation, such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director, if elected, and (v) as to the stockholder giving such notice, his name
and address as they appear on the Corporation's books and the class and number
of shares of the Corporation which are beneficially owned by such stockholder.
In addition, the stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation. For the 1999 annual
meeting, the previous year's meeting shall be deemed to have taken place on May
11, 1998; provided that this sentence shall cease to be a part of the By-Laws
after the holding of the 1999 annual meeting and any adjournments thereof.
(B) The Chairman of the annual or special meeting of stockholders may,
if the facts warrant, determine and declare to such meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if he or
she should so determine, he or she shall so declare to the meeting and the
defective nomination or proposal shall be disregarded and laid over for action
at the next succeeding adjourned, special or annual meeting
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of the stockholders taking place 30 days or more thereafter. This provision
shall not require the holding of any adjourned or special meeting of
stockholders for the purpose of considering such defective nomination or
proposal.
SECTION 1.13. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
SECTION 1.14. Meeting by Conference Telephone. Stockholders may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number of
Directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are less than three stockholders, the number of
Directors may be less than three but not less than the number of stockholders.
The Corporation shall have the number of directors provided in the Charter until
changed as herein provided. Two-thirds of the entire Board of Directors may
alter the number of directors set by the Charter to not exceeding 25 nor less
than the minimum number then permitted herein, but the action may not affect the
tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. The directors shall be
divided into three classes as nearly equal in number as possible. At each
successive annual meeting of stockholders, the holders of stock present in
person or by proxy at such meeting and entitled to vote thereat shall elect
members of each successive class to serve for three year terms and until their
successors are elected and qualify. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional director of any class shall, subject to Section 2.05, hold office for
a term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director.
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SECTION 2.04. Removal of Director. Any director or the entire Board of
Directors may be removed only in accordance with the provisions of the Charter.
SECTION 2.05. Vacancy on Board of Directors. Subject to the rights of
the holders of any class of stock separately entitled to elect one or more
directors, the stockholders may elect a successor to fill a vacancy on the Board
of Directors which results from the removal of a director. A director elected by
the stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director. Subject to the
rights of the holders of any class of stock separately entitled to elect one or
more directors, a majority of the remaining directors, whether or not sufficient
to constitute a quorum, may fill a vacancy on the Board of Directors which
results from any cause except an increase in the number of directors, and a
majority of the entire Board of Directors may fill a vacancy which results from
an increase in the number of directors. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of stockholders
and until his or her successor is elected and qualifies.
SECTION 2.06. Regular Meetings. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon thereafter as practicable for the purpose of organization and the
transaction of other business. In the event that no other time and place are
specified by resolution of the Board of Directors or announced by the President
or the Chairman at such stockholders meeting, the Board of Directors shall meet
immediately following the close of, and at the place of, such stockholders
meeting. Any other regular meeting of the Board of Directors shall be held on
such date and time and at such place as may be designated from time to time by
the Board of Directors. No notice of such meeting following a stockholders
meeting or any other regular meeting shall be necessary if held as hereinabove
provided.
SECTION 2.07. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board of Directors or
the President or by a majority of the Board of Directors by vote at a meeting,
or in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place as may be designated from
time to time by the Board of Directors. In the absence of designation such
meeting shall be held at such place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06, the
Secretary shall give notice to each director of each regular and special meeting
of the Board of Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered personally to him or
her, left at his or her residence or usual place of business, or sent by
telegraph, facsimile transmission or telephone, at least 24 hours before the
time of the meeting or, in the alternative by mail to his or her address as it
shall appear on the records of the Corporation, at least 72 hours before the
time of the meeting. Unless these By-Laws or a resolution of the Board of
Directors provides otherwise, the notice need not state the business to be
transacted at or the purposes of any regular or special meeting of the Board of
Directors. No notice of any meeting of the Board of Directors need be given to
any director who attends except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened, or to any director who,
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in writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. Any meeting of the Board of
Directors, regular or special, may adjourn from time to time to reconvene at the
same or some other place, and no notice need be given of any such adjourned
meeting other than by announcement.
SECTION 2.09. Quorum; Action by Directors. A majority of the entire
Board of Directors shall constitute a quorum for the transaction of business. In
the absence of a quorum, the directors present by majority vote and without
notice other than by announcement may adjourn the meeting from time to time
until a quorum shall attend. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified. Unless statute or the Charter
or By-Laws requires a greater proportion, the action of a majority of the
directors present at a meeting at which a quorum is present is action of the
Board of Directors. Any action required or permitted to be taken at a meeting of
the Board of Directors may be taken without a meeting, if an unanimous written
consent which sets forth the action is signed by each member of the Board of
Directors and filed with the minutes of proceedings of the Board of Directors.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors, a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. Such fixed sums may be paid either in cash
or in shares of the Corporation. Directors who are full-time employees of the
Corporation shall not be paid for attendance at meetings of the Board of
Directors or committees thereof for which fees are paid to other directors. A
director who serves the Corporation in any other capacity also may receive
compensation for such other services, pursuant to a resolution of the directors.
SECTION 2.12. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the home office of the
Corporation addressed to the Chairman of the Board of Directors or the
President. Unless otherwise specified therein such resignation shall take effect
upon receipt thereof by the Chairman of the Board of Directors or the President.
SECTION 2.13. Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file his or her written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who votes in favor of such action.
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ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint from among
its members an Executive Committee, a Compensation Committee, an Audit
Committee, and other committees composed of one or more directors and delegate
to these committees any of the powers of the Board of Directors, except the
power to authorize dividends on stock, elect directors, issue stock other than
as provided in the next sentence, recommend to the stockholders any action which
requires stockholder approval, amend these By-Laws, or approve any merger or
share exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock providing
for or establishing a method or procedure for determining the maximum number of
shares to be issued, a committee of the Board of Directors, in accordance with
that general authorization or any stock option or other plan or program adopted
by the Board of Directors, may authorize or fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by conference telephone in accordance with the provisions of Section
2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and these By-Laws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and any provisions of these By-Laws (other than
this Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the
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Corporation to resume the conduct and management of its affairs and business
under all the other provisions of these By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive and Other Officers. The Corporation shall have a
President, a Secretary, and a Treasurer. It may also have a Chairman of the
Board of Directors. The Board of Directors shall designate who shall serve as
chief executive officer, who shall have general supervision of the business and
affairs of the Corporation, and may designate a chief operating officer, who
shall have supervision of the operations of the Corporation. In the absence of
any designation, the Chairman of the Board of Directors, if there be one, shall
serve as chief executive officer and the President shall serve as chief
operating officer. In the absence of the Chairman of the Board of Directors, or
if there be none, the President shall be the chief executive officer. The same
person may hold both offices. The Corporation may also have one or more
Vice-Presidents, assistant officers, and subordinate officers as may be
established by the Board of Directors. A person may hold more than one office in
the Corporation except that no person may serve concurrently as both President
and Vice-President of the Corporation. The Chairman of the Board of Directors
shall be a director, and the other officers may be directors.
SECTION 4.02. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if one be elected, shall preside at all meetings of the
Board of Directors and of the stockholders at which he or she shall be present.
Unless otherwise specified by the Board of Directors, he or she shall be the
chief executive officer of the Corporation. In general, he or she shall perform
such duties as are customarily performed by the chief executive officer of a
corporation and may perform any duties of the President and shall perform such
other duties and have such other powers as are from time to time assigned to him
or her by the Board of Directors.
SECTION 4.03. President. Unless otherwise provided by resolution of the
Board of Directors, the President, in the absence of the Chairman of the Board
of Directors, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present. Unless otherwise specified by
the Board of Directors, the President shall be the chief operating officer of
the Corporation and perform the duties customarily performed by chief operating
officers. He or she may execute, in the name of the Corporation, all authorized
deeds, mortgages, bonds, contracts or other instruments, except in cases in
which the signing and execution thereof shall have been expressly delegated to
some other officer or agent of the Corporation. In general, he or she shall
perform such other duties customarily performed by a president of a corporation
and shall perform such other duties and have such other powers as are from time
to time assigned to him or her by the Board of Directors or the chief executive
officer of the Corporation.
SECTION 4.04. Vice-Presidents. The Vice-President or Vice-Presidents,
at the request of the chief executive officer or the President, or in the
President's absence or during his or her
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inability to act, shall perform the duties and exercise the functions of the
President, and when so acting shall have the powers of the President. If there
be more than one Vice-President, the Board of Directors may determine which one
or more of the Vice-Presidents shall perform any of such duties or exercise any
of such functions, or if such determination is not made by the Board of
Directors, the chief executive officer, or the President may make such
determination; otherwise any of the Vice-Presidents may perform any of such
duties or exercise any of such functions. Each Vice-President shall perform such
other duties and have such other powers, and have such additional descriptive
designations in their titles (if any), as are from time to time assigned to them
by the Board of Directors, the chief executive officer, or the President.
SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he or she shall see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by law;
he or she shall be custodian of the records of the Corporation; he or she may
witness any document on behalf of the Corporation, the execution of which is
duly authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and, when so affixed, may attest the
same. In general, he or she shall perform such other duties customarily
performed by a secretary of a corporation, and shall perform such other duties
and have such other powers as are from time to time assigned to him or her by
the Board of Directors, the chief executive officer, or the President.
SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he or she shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation. In general, he or she shall perform such other duties customarily
performed by a treasurer of a corporation, and shall perform such other duties
and have such other powers as are from time to time assigned to him or her by
the Board of Directors, the chief executive officer, or the President.
SECTION 4.07. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.08. Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any committee or officer to appoint assistant
and subordinate officers. Election or appointment of an officer, employee or
agent shall not of itself create contract rights. All officers shall be
appointed to hold their offices, respectively, during the pleasure of the Board
of Directors. The Board of Directors (or, as to any assistant or subordinate
officer, any committee or officer authorized by the Board of Directors) may
remove an officer at any time. The removal of an officer does not prejudice any
of his or her contract rights. The Board of Directors (or, as to any assistant
or subordinate officer, any committee or officer authorized by
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the Board of Directors) may fill a vacancy which occurs in any office for the
unexpired portion of the term.
SECTION 4.09. Compensation. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. No officer shall be prevented from receiving
such salary by reason of the fact that he or she is also a director of the
Corporation. The Board of Directors may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers.
ARTICLE V.
STOCK
SECTION 5.01. Certificates for Stock. Each stockholder is entitled to
certificates which represent and certify the shares of stock he or she holds in
the Corporation. Each stock certificate shall include on its face the name of
the Corporation, the name of the stockholder or other person to whom it is
issued, and the class of stock and number of shares it represents. It shall also
include on its face or back (a) a statement of any restrictions on
transferability and (b) a statement which provides in substance that the
Corporation will furnish to any stockholder on request and without charge a full
statement of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
Corporation is authorized to issue, of the differences in the relative rights
and preferences between the shares of each series of a preferred or special
class in series which the Corporation is authorized to issue, to the extent they
have been set, and of the authority of the Board of Directors to set the
relative rights and preferences of subsequent series of a preferred or special
class of stock and any restrictions on transferability. Such request may be made
to the Secretary or to its transfer agent. It shall be in such form, not
inconsistent with law or with the Charter, as shall be approved by the Board of
Directors or any officer or officers designated for such purpose by resolution
of the Board of Directors. Each stock certificate shall be signed by the
Chairman of the Board of Directors, the President, or a Vice-President, and
countersigned by the Secretary, an Assistant Secretary, the Treasurer, or an
Assistant Treasurer. Each certificate may be sealed with the actual corporate
seal or a facsimile of it or in any other form and the signatures may be either
manual or facsimile signatures. A certificate is valid and may be issued whether
or not an officer who signed it is still an officer when it is issued. A
certificate may not be issued until the stock represented by it is fully paid.
SECTION 5.02. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
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SECTION 5.03. Record Dates or Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day the
record date is fixed nor, subject to Section 1.06, more than 90 days before the
date on which the action requiring the determination will be taken; the transfer
books may not be closed for a period longer than 20 days; and, in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall be at least ten days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
SECTION 5.05. Certification of Beneficial Owners. The Board of Directors
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered in
the name of the stockholder are held for the account of a specified person other
than the stockholder. The resolution shall set forth the class of stockholders
who may certify; the purpose for which the certification may be made; the form
of certification and the information to be contained in it; if the certification
is with respect to a record date or closing of the stock transfer books, the
time after the record date or closing of the stock transfer books within which
the certification must be received by the Corporation; and any other provisions
with respect to the procedure which the Board of Directors considers necessary
or desirable. On receipt of a certification which complies with the procedure
adopted by the Board of Directors in accordance with this Section, the person
specified in the certification is, for the purpose set forth in the
certification, the holder of record of the specified stock in place of the
stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may require the owner of the certificate to give bond, with sufficient
surety, to indemnify the Corporation against any loss or claim arising as a
result of the issuance of a new certificate. In their discretion' the Board of
Directors or such officer or officers may refuse to issue such new certificate
save upon the order of some court having jurisdiction in the premises.
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ARTICLE VI.
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by the Chairman of the Board of Directors, the
President, a Vice-President or an Assistant VicePresident and countersigned by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of the stockholders and, within 20 days after
the meeting, placed on file at the Corporation's principal office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be
the calendar year, unless otherwise provided by the Board of Directors.
SECTION 6.04. Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
SECTION 6.05. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 6.06. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the Board of Directors may select.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.01. Procedure. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the director or officer
entitled to seek indemnification (the "Indemnified Party"). The right to
indemnification and advances hereunder shall be enforceable by the Indemnified
Party in any court of competent jurisdiction, if (i) the Corporation denies such
request, in whole or in part, or (ii) no disposition thereof is made within 60
days. The Indemnified Party's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be reimbursed
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by the Corporation. It shall be a defense to any action for advance for expenses
that (a) a determination has been made that the facts then known to those making
the determination would preclude indemnification or (b) the Corporation has not
received both (i) an undertaking as required by law to repay such advances in
the event it shall ultimately be determined that the standard of conduct has not
been met and (ii) a written affirmation by the Indemnified Party of such
Indemnified Party's good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met.
SECTION 7.02. Exclusivity, Etc. The indemnification and advance of
expenses provided by the Charter and these By-Laws shall not be deemed exclusive
of any other rights to which a person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any agreement,
vote of stockholders or disinterested directors or other provision that is
consistent with law, both as to action in his or her official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, shall continue in respect of all events occurring
while a person was a director or officer after such person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. The Corporation shall not be liable
for any payment under this By-Law in connection with a claim made by a director
or officer to the extent such director or officer has otherwise actually
received payment under insurance policy, agreement, vote or otherwise, of the
amounts otherwise indemnifiable hereunder. All rights to indemnification and
advance of expenses under the Charter of the Corporation and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of such director
or officer or the obligations of the Corporation arising hereunder with respect
to events occurring, or claims made, while this By-Law or any provision hereof
is in force.
SECTION 7.03. Severability; Definitions. The invalidity or
unenforceability of any provision of this Article VII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article VII means this Article VII in its entirety.
ARTICLE VIII.
SUNDRY PROVISIONS
SECTION 8.01. Books and Records. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of the Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be
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maintained in the form of a reproduction. The original or a certified copy of
these By-Laws shall be kept at the principal office of the Corporation.
SECTION 8.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"(seal)" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 8.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his or her duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTION 8.04. Voting Stock in Other Corporations. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 8.05. Mail. Any notice or other document which is required by
these By-laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 8.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 8.07. Amendments. These By-Laws may be altered or repealed and
new by-laws may be adopted (a) by the Stockholders but only by affirmative vote
of not less than two-thirds of all the votes entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose (provided that notice of
such proposed repeal, alteration, amendment or rescission is included in the
notice of such meeting) or (b) by affirmative vote of not less than two-thirds
of the Board of Directors at a meeting held in accordance with the provisions of
these By-Laws.
SECTION 8.08. Contracts and Agreements. To the extent permitted by
applicable law, and except as otherwise prescribed by the Charter or these
By-Laws, the Board of Directors may authorize any officer, employee or agent of
the Corporation to enter into any contract or execute and deliver any instrument
in the name of and on behalf of the Corporation. Such authority may be general
or confined to specific instances.
SECTION 8.09. Reliance. Each director, officer, employee and agent of
the Corporation shall, in the performance of his or her duties with respect to
the Corporation, be fully justified and protected with regard to any act or
failure to act in reliance in good faith upon
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the books of account or other records of the Corporation, upon an opinion of
counsel or upon reports made to the Corporation by any of its officers or
employees or by the adviser, accountants, appraisers or other experts or
consultants selected by the Board of Directors or officers of the Corporation,
regardless of whether such counsel or expert may also be a director.
SECTION 8.10. Certain Rights of Directors, Officers, Employees and
Agents. The directors shall have no responsibility to devote their full time to
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his or her personal capacity or in a capacity as an
affiliate, employee, or agent of any other person, or otherwise, may have
business interests and engage in business activities similar to or in addition
to those of or relating to the Corporation.
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<PAGE>
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
LOEB REALTY, L.P.
DATED AS OF ____________, 1998
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 DEFINED TERMS........................................................ 2
ARTICLE 2 ORGANIZATIONAL MATTERS............................................... 12
Section 2.1 Formation............................................................ 12
Section 2.2 Name................................................................. 12
Section 2.3 Registered Office and Agent; Principal Office........................ 13
Section 2.4 Power of Attorney.................................................... 13
Section 2.5 Term................................................................. 14
ARTICLE 3 PURPOSE.............................................................. 14
Section 3.1 Purpose and Business................................................. 14
Section 3.2 Powers............................................................... 15
ARTICLE 4 CAPITAL CONTRIBUTIONS................................................ 15
Section 4.1 Capital Contributions of the Partners................................ 15
A. Initial Capital Contributions and Recapitalization of the
Partnership on the Effective Date............................... 15
B. Capital Contributions By Merger................................. 15
C. No Obligation to Make Additional Capital Contributions.......... 16
Section 4.2 Issuances of Additional Partnership Interests........................ 16
Section 4.3 Contribution of Proceeds of Issuance of REIT Shares.................. 17
Section 4.4 No Interest On Capital............................................... 17
Section 4.5 No Preemptive Rights................................................. 17
Section 4.6 Other Contribution Provisions........................................ 18
ARTICLE 5 DISTRIBUTIONS........................................................ 18
Section 5.1 Requirement and Characterization of Distributions.................... 18
Section 5.2 Amounts Withheld..................................................... 18
Section 5.3 Distributions Upon Liquidation....................................... 18
Section 5.4 Revisions to Reflect Issuance of Additional Partnership Interests.... 19
Section 5.5 Minimum Distributions if REIT Shares Not Publicly Traded............. 19
ARTICLE 6 ALLOCATIONS OF PROFITS AND LOSSES.................................... 19
Section 6.1 Profits and Losses................................................... 19
Section 6.2 Mandatory Allocations................................................ 19
Section 6.3 Other Allocation Rules............................................... 21
Section 6.4 Tax Allocations...................................................... 21
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS................................ 22
Section 7.1 Management........................................................... 22
Section 7.2 Certificate of Limited Partnership................................... 25
Section 7.3 Restrictions on General Partner Authority. .......................... 26
</TABLE>
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Section 7.4 Reimbursement of the General Partner and the Company; DRIP's
and Repurchase Programs......................................... 26
Section 7.5 Outside Activities of the General Partner....................... 27
Section 7.6 Contracts with Affiliates....................................... 27
Section 7.7 Indemnification................................................. 28
Section 7.8 Liability of the General Partner................................ 30
Section 7.9 Other Matters Concerning the General Partner.................... 30
Section 7.10 Title to Partnership Assets..................................... 31
Section 7.11 Reliance by Third Parties....................................... 32
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS...................... 32
Section 8.1 Limitation of Liability......................................... 32
Section 8.2 Management of Business.......................................... 32
Section 8.3 Outside Activities of Limited Partners.......................... 32
Section 8.4 Return of Capital............................................... 33
Section 8.5 Rights of Limited Partners Relating to the Partnership.......... 33
Section 8.6 Redemption Right................................................ 34
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS.......................... 36
Section 9.1 Records and Accounting.......................................... 36
Section 9.2 Fiscal Year..................................................... 37
Section 9.3 Reports......................................................... 37
ARTICLE 10 TAX MATTERS..................................................... 37
Section 10.1 Preparation of Tax Returns...................................... 37
Section 10.2 Tax Elections................................................... 37
Section 10.3 Tax Matters Partner............................................. 38
Section 10.4 Organizational Expenses......................................... 39
Section 10.5 Withholding..................................................... 39
ARTICLE 11 TRANSFERS AND WITHDRAWALS....................................... 40
Section 11.1 Transfer........................................................ 40
Section 11.2 Transfer of the General Partner Interest and Company's Limit.... 41
Section 11.3 Limited Partners' Rights to Transfer............................ 43
Section 11.4 Substituted Limited Partners.................................... 44
Section 11.5 Assignees....................................................... 44
Section 11.6 General Provisions.............................................. 44
ARTICLE 12 ADMISSION OF PARTNERS........................................... 47
Section 12.1 Admission of Successor General Partner.......................... 47
Section 12.2 Admission of Additional Limited Partners........................ 47
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership... 48
</TABLE>
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ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION............................. 48
Section 13.1 Dissolution.......................................................... 48
Section 13.2 Winding Up........................................................... 49
Section 13.3 Deemed Distribution and Recontribution............................... 50
Section 13.4 Rights of Limited Partners........................................... 51
Section 13.5 Notice of Dissolution................................................ 51
Section 13.6 Termination of Partnership and Cancellation of
Certificate of Limit................................................. 51
Section 13.7 Reasonable Time for Winding-Up....................................... 51
Section 13.8 Waiver of Partition.................................................. 51
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS............................................................. 51
Section 14.1 Amendments........................................................... 51
Section 14.2 Meetings of the Partners............................................. 53
ARTICLE 15 GENERAL PROVISIONS................................................... 54
Section 15.1 Addresses and Notice................................................. 54
Section 15.2 Titles and Captions.................................................. 54
Section 15.3 Pronouns and Plurals................................................. 54
Section 15.4 Further Action....................................................... 54
Section 15.5 Binding Effect....................................................... 54
Section 15.6 Creditors............................................................ 55
Section 15.7 Waiver............................................................... 55
Section 15.8 Counterparts......................................................... 55
Section 15.9 Applicable Law....................................................... 55
Section 15.10 Invalidity of Provisions............................................. 55
Section 15.11 Entire Agreement..................................................... 55
Section 15.12 No Rights as Stockholders............................................ 56
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
LOEB REALTY, L.P.
DATED AS OF ___________, 1998
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF LOEB
REALTY, L.P. (this "Agreement"), dated as of _____________, 1998, is entered
into by and among LOEB REALTY GP, INC., a Maryland [corporation or trust], (the
"General Partner"), LOEB REALTY CORPORATION, a Maryland corporation (the
"Company"), and the Persons (as defined below) whose names are set forth on
Exhibit A attached hereto (as it may be amended from time to time).
WHEREAS, this Limited Partnership was originally formed on ____________,
1998;
WHEREAS, immediately prior to or contemporaneously with the execution
hereof, the persons named on Exhibit A hereto conveyed to the Partnership all of
their right, title and interest to certain real property and other assets owned
by them and received in exchange therefor Partnership Interests and,
accordingly, the parties have determined to amend and restate the original
partnership agreement of this Limited Partnership;
WHEREAS, the Company proposes (i) to effect a public offering of its
common stock, (ii) to acquire and cause the Partnership to acquire direct and
indirect interests in certain properties and other assets, (iii) to cause the
Partnership to enter into certain financing arrangements and (iv) to contribute
the proceeds from the public offering and the other assets of the Company to the
Partnership;
WHEREAS, the parties to this Agreement have determined to admit the
General Partner to the Partnership in exchange for its Capital Contribution;
WHEREAS, the Partnership will issue Partnership Interests to the Company
in accordance with the foregoing transactions;
NOW, THEREFORE, BE IT RESOLVED, that for good and adequate
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
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ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Sections 4.2 and 12.2 hereof and who is shown
as such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" With respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Partnership Year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such
Partner is deemed to be obligated to restore to the Partnership pursuant
to the second to last sentences of Regulations 'SS''SS' 1.704-2(g)(1)
and 1.704-2(i)(5).
(ii) Debit to such Capital Account the items described in
Regulations 'SS''SS' 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
Except as otherwise modified herein, the foregoing definition of Adjusted
Capital Account Deficit is intended to comply with the provisions of Regulations
'SS' 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Administrative Expenses" means (i) all administrative and operating
costs and expenses incurred by the Partnership, (ii) those administrative costs
and expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner or the Company, and any
accounting and legal expenses of the General Partner or the Company, which
expenses, the Partners have agreed, are expenses of the Partnership and not the
General Partner, and (iii) to the extent not included in clause (ii) above, REIT
Expenses.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, "control," when used with respect to any
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. No officer, director or stockholder of
the General Partner shall be considered an Affiliate of the General Partner
solely as a result of serving in such capacity or being a stockholder of the
General Partner.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be further amended, supplemented or restated from time to
time. Terms such as
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"hereof," "hereto," "hereby, "hereunder" and "herein" refer to this Agreement,
unless the context otherwise requires.
"Assignee" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, (a) all cash received by the Partnership from any
source (including borrowings by the Partnership, cash Capital Contributions and
proceeds of the sale, exchange or other disposition of all or portions of the
Partnership assets) and any cash released from working capital, capital
replacement, debt repayment or other reserves less (b) cash expended, reserved
or required for (i) debts and expenses, interest and principal payments on any
indebtedness, capital expenditures, taxes, fees, (ii) investments in the
acquisition, development, construction, expansion or redevelopment of real
estate or personal property appurtenant thereto, or entities which hold direct
or indirect interests in real estate or such personal property, or (iii) other
requirements of the Partnership, in each case as reasonably determined by the
General Partner. Notwithstanding the foregoing, Available Cash shall not include
any cash received or reductions in reserves, or take into account any
disbursements made or reserves established, after commencement of the
dissolution and liquidation of the Partnership.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"Capital Account" With respect to each Partner, a book account
maintained in accordance with the following provisions:
(i) To each Partner's Capital Account there shall be
credited such Partner's Capital Contributions, such Partner's
distributive share of Profits and any items in the nature of income or
gain which are allocated to such Partner pursuant to Section 6.2, and
the amount of any Partnership liabilities that are assumed by such
Partner or that are secured by any Partnership property distributed to
such Partner.
(ii) To each Partner's Capital Account there shall be
debited the amount of cash and the Gross Asset Value of any Partnership
asset distributed to such Partner pursuant to any provision of this
Agreement, such Partner's distributive share of Losses and any items in
the nature of expenses and losses which are allocated to such Partner
pursuant to Section 6.2, and the amount of any liabilities of such
Partner that are assumed by the Partnership or which are secured by any
property contributed to the Partnership by such Partner (except to the
extent already reflected in the amount of such Partner's Capital
Contributions).
In the event the Gross Asset Value of Partnership assets are adjusted
pursuant to paragraph (ii), (iii) or (iv) of the definition of Gross Asset
Value, the Capital Accounts of the Partners shall be adjusted to reflect the
aggregate net adjustments as if the Partnership sold all
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of its assets for their fair market values, and recognized gain or loss equal to
the aggregate amount of such net adjustment.
The foregoing definition and other provisions of this Agreement relating
to the maintenance of Capital Accounts are intended to comply with Code 'SS'
704(b) and the Regulations thereunder, and shall be interpreted and applied in a
manner consistent with such regulations.
Any transferee of a Partnership Interest or a portion thereof shall
succeed to the Capital Account relating to the Partnership Interest transferred
or the corresponding portion thereof.
"Capital Contributions" With respect to any Partner, the amount of cash
and the initial Gross Asset Value of any other property contributed or deemed
contributed to the capital of the Partnership by or on behalf of such Partner,
reduced by the amount of any liability assumed by the Partnership relating to
such property and any liability to which such property is subject.
"Cash Amount" means an amount of cash per Partnership Unit equal to the
Value on the Valuation Date of the REIT Shares Amount.
"Certificate of Incorporation" means the Certificate of Incorporation or
other organizational document governing the General Partner, as amended or
restated from time to time.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership relating to the Partnership filed in the office of the Delaware
Secretary of State, as amended from time to time in accordance with the terms
hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Consent" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
["Consenting Partner" or "Consenting Partners" means ___________________
and ________________________, individually or collectively, as the case may be.]
"Conversion Factor" means 1.0, provided that in the event that the
Company (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares; (ii) subdivides its outstanding REIT Shares; or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purpose that each such dividend, distribution, subdivision or
combination which occurred prior to such time has occurred as of such time), and
the denominator of which shall be the actual number of REIT
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Shares (determined without the above assumption) issued and outstanding on the
record date for such dividend, distribution, subdivision or combination. Any
adjustment to the Conversion Factor shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event (provided, however, if a Notice of Redemption is given prior to such a
record date and the Specified Redemption Date is after such a record date, then
the adjustment to the Conversion Factor shall, with respect to such redeeming
Partner, be retroactive to the date of such Notice of Redemption). It is
intended that adjustments to the Conversion Factor are to be made in order to
avoid unintended dilution or anti-dilution as a result of transactions in which
REIT Shares are issued, redeemed or exchanged without a corresponding issuance,
redemption or exchange of Partnership Units. If, prior to a Specified Redemption
Date, Rights (other than Rights issued pursuant to an employee benefit plan or
other compensation arrangement) were issued, and such Rights were issued with an
exercise price that, together with the purchase price for such Rights, was below
fair market value in relation to the security or other property to be acquired
upon the exercise of such Rights, and such Rights were issued to all holders of
outstanding REIT Shares or the General Partner cannot in good faith represent
that the issuance of such Rights benefitted the Limited Partners, then the
Conversion Factor applicable upon a Notice of Redemption shall be equitably
adjusted in a manner consistent with antidilution provisions in warrants and
other instruments in the case of such a below market issuance or exercise price.
A similar equitable adjustment to protect the value of Partnership Units shall
be made in all events if any Rights issued under a "Shareholder Rights Plan"
became exercisable prior to a Specified Redemption Date.
"Depreciation" For each Partnership Year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Partnership Year or other period; provided, however, that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Partnership Year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such Partnership Year or other period bears to such
beginning adjusted tax basis; provided, further, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such
Partnership Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
"Designated Property" or "Designated Properties" has the meanings set
forth in Section 8.7 hereof.
"Effective Date" means the date of closing the initial public offering
of REIT Shares by the Company.
"Extraordinary Transaction" shall mean, with respect to the Company or
the General Partner, the occurrence of one or more of the following events: (i)
a merger (including a triangular merger), consolidation or other combination
with or into another Person; (ii) the direct or indirect sale, lease, exchange
or other transfer of all or substantially all of its assets in one transaction
or a series of transactions; (iii) any reclassification, recapitalization or
change of its outstanding equity interests (other than a change in par value, or
from par value to no par value,
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or as a result of a split, dividend or similar subdivision); (iv) any issuance
of equity securities of the Company or the General Partner, as the case may be,
in exchange for assets (other than an issuance of securities for cash or an
issuance of securities pursuant to an employee benefit plan); (v) any Change of
Control (as defined in the Company's or the General Partner's Certificate of
Incorporation, as the case may be) or (vi) the adoption of any plan of
liquidation or dissolution of the Company, or the General Partner, as the case
may be, (whether or not in compliance with the provisions of this Agreement).
"General Partner" means [Loeb Realty GP, Inc.] in its capacity as the
general partner of the Partnership, or its successors as general partner of the
Partnership.
"General Partner Interest" means a Partnership Interest held by the
General Partner, in its capacity as general partner. A General Partner Interest
may be expressed as a number of Partnership Units.
"Gross Asset Value" With respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market value of
such asset at the time of contribution, as reasonably determined by the
General Partners;
(ii) The Gross Asset Values of all Partnership Assets shall
be adjusted to equal their respective gross fair market values, as
reasonably determined by the General Partner, as of the following times:
(a) the acquisition of an additional interest in the Partnership by any
new or existing Partner in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Partnership to a Partner of
more than a de minimis amount of property as consideration for an
interest in the Partnership; and (c) the liquidation of the Partnership
within the meaning of Regulations 'SS' 1.704- 1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (a) and (b) above shall be
made only if the General Partner reasonably determine that such
adjustments are necessary or appropriate to reflect the relative
economic interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership Asset
distributed to any Partner shall be the gross fair market value of such
asset on the date of distribution; and
(iv) The Gross Asset Values of Partnership Assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code 'SS' 734(b) or Code 'SS' 743(b),
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulations 'SS' 1.704-
1(b)(2)(iv)(m).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
this provision, such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for purposes of
computing Profits and Losses. Any adjustment to the Gross
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Asset Values of Partnership Assets shall require an adjustment to the Partner's
Capital Account as provided in Section 6.2 hereof.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his or her Person or estate; (ii) as to
any corporation which is a Partner, the filing of a certificate of dissolution,
or its equivalent, for the corporation or the revocation of its charter; (iii)
as to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above; (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties; (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof; (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment; or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
"Indemnitee" means (i) any Person made a party to a proceeding by reason
of (A) his status as the General Partner, or as a director, officer or
shareholder of the Partnership or the General Partner, or (B) his or its
liabilities, pursuant to a loan guarantee or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken assets subject to); and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time (whether before or after the event
giving rise to potential liability), in its sole and absolute discretion.
"Independent Directors" has the meaning given such term in the Company's
Certificate of Incorporation.
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"Limited Partner" means any Person (including the Company) named as a
Limited Partner in Exhibit A attached hereto, as such Exhibit may be amended
from time to time, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner of the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled, as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.
"Nonrecourse Deductions" As defined in Regulations 'SS' 1.704-2(b)(1).
The amount of Nonrecourse Deductions for a Partnership Year equals the net
increase, if any, in the amount of Partnership Minimum Gain during such
Partnership Year reduced by any distributions during such Partnership Year of
proceeds of a Nonrecourse Liability that are allocable to an increase in
Partnership Minimum Gain, determined according to the provisions of Regulations
'SS''SS' 1.704- 2(c) and 1.704-2(h).
"Nonrecourse Liability" As defined in Regulations 'SS' 1.704-2(b)(3).
"Notice of Redemption" means the Notice of Redemption substantially in
the form of Exhibit B to this Agreement.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" An amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations 'SS' 1.704-2(i)(3).
"Partner Nonrecourse Debt" As defined in Regulations 'SS' 1.704-2(b)(4).
"Partner Nonrecourse Deductions" As defined in Regulations 'SS'
1.704-2(i)(2). The amount of Partner Nonrecourse Deductions with respect to a
Partner Nonrecourse Debt for a Partnership Year equals the net increase, if any,
in the amount of Partner Minimum Gain during such Partnership Year attributable
to such Partner Nonrecourse Debt, reduced by any distributions during that
Partnership Year to the Partner that bears the economic risk of loss for such
Partner Nonrecourse Debt to the extent that such distributions are from the
proceeds of such Partner Nonrecourse Debt and are allocable to an increase in
Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined
according to the provisions of Regulations 'SS''SS' 1.704-2(h) and 1.704-2(i).
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"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, as it may be amended and/or restated, and any
successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"Partnership Minimum Gain" -- As defined in Regulations 'SS' 1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.1
hereof, which record date shall be the same as the record date established by
the Company for a distribution to its shareholders of some of all of its portion
of such distribution.
"Partnership Unit" or "Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1, 4.2 and
4.3. The number of Partnership Units outstanding and the Percentage Interest in
the Partnership represented by such Units are set forth in Exhibit A attached
hereto, as such Exhibit may be amended from time to time. The ownership of
Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities.
"Partnership Year" means the fiscal year of the Partnership, which shall
be the calendar year.
"Percentage Interest" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit may be amended from time
to time.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Profits" and "Losses" For each Partnership Year or other period, an
amount equal to the Partnership's taxable income or loss for such Partnership
Year or period, determined in accordance with Code 'SS' 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code 'SS' 703(a)(1) shall be included in taxable income
or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax or excluded from federal gross income and not
otherwise taken into account in computing Profits or Losses pursuant to
this Section shall be added to such taxable income or loss;
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(ii) Any expenditures of the Partnership described in Code
'SS' 705(a)(2)(B) or treated as Code 'SS' 705(a)(2)(B) expenditures
pursuant to Regulations 'SS' 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this
Section, shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership
Asset is adjusted pursuant to any provision of this Agreement in
accordance with the definition of Gross Asset Value, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such Asset for purposes of computing Profits or Losses;
(iv) Gain or loss resulting from any disposition of any
Partnership Asset with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Gross
Asset Value of the property disposed of, notwithstanding that the
adjusted tax basis of such Asset differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such
Partnership Year or other period, computed in accordance with the
definition of Depreciation; and
(vi) Notwithstanding any other provision of this Section,
any items which are allocated pursuant to Section 6.2 shall not be taken
into account in computing Profits or Losses.
"Publicly Traded" means listed or admitted to trading on the New York
Stock Exchange, the American Stock Exchange or another national securities
exchange or designated for quotation on the NASDAQ National Market, or any
successor to any of the foregoing.
"Redeeming Partner" has the meaning set forth in Section 8.6 hereof.
"Redemption Right" shall have the meaning set forth in Section 8.6
hereof.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT Expenses" means (i) costs and expenses relating to the formation
and continuity of existence and operation of the Company and all of its
Subsidiaries, including Loeb Realty GP, Inc. (which Subsidiaries shall, for
purposes hereof, be included within the definition of Company), including taxes,
fees and assessments associated therewith, and any and all costs, expenses or
fees payable to any director, officer, or employee of the Company, (ii) costs
and expenses relating to the public offering and registration of securities by
the Company and all statements, reports, fees and expenses incidental thereto,
including underwriting discounts and selling commissions applicable to any such
offering of securities, (iii) costs and expenses associated with the preparation
and filing of any periodic reports by the Company under federal,
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state or local laws or regulations, including the costs of all distributions to
stockholders, (iv) costs and expenses associated with compliance by the Company
with laws, rules and regulations promulgated by any regulatory body, and (v) all
other operating or administrative costs of the Company incurred in the ordinary
course of its business on behalf of or in connection with the Partnership.
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT Share" shall mean a share of common stock, par value $.01 per
share, of the Company.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor in effect on the date of receipt by
the Company of a Notice of Redemption, provided that in the event the Company
issues to all holders of REIT Shares rights, options, warrants or convertible or
exchangeable securities entitling the shareholders to subscribe for or purchase
REIT Shares, or any other securities or property (collectively, "Rights"), and
the Rights have not expired at the Specified Redemption Date, then the REIT
Shares Amount shall also include the Rights that were issuable to a holder of
the REIT Shares Amount of REIT Shares on the applicable record date relating to
the issuance of such Rights.
"Rights" shall have the meaning set forth in the definition of "REIT
Shares Amount."
"Specified Redemption Date" means the tenth (10th) Business Day after
receipt by the Company of a Notice of Redemption; provided that no Specified
Redemption Date shall occur before that date that is twelve (12) months after
the Effective Date.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities; or (ii) the outstanding equity interests, is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"Successor Designated Property" has the meaning set forth in Section 8.7
hereof.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"Value" means, with respect to a REIT Share, the average of the daily
market price for the ten (10) consecutive trading days immediately preceding the
Valuation Date. The market
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price for each such trading day shall be: (i) if the REIT Shares are listed or
admitted to trading on any securities exchange or the Nasdaq National Market
System, the closing price on such day, or if no such sale takes place on such
day, the average of the closing bid and asked prices on such day; (ii) if the
REIT Shares are not listed or admitted to trading on any securities exchange or
the Nasdaq National Market System, the last reported sale price on such day or,
if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
General Partner; or (iii) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the Nasdaq National Market System and no
such last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by the General Partner, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than ten (10)
days prior to the date in question) for which prices have been so reported;
provided that if there are no bid and asked prices reported during the ten (10)
days prior to the date in question, the Value of the REIT Shares shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate. In the event the REIT Shares Amount includes Rights, then the Value
of such Rights shall be determined by the General Partner acting in good faith
on the basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate, provided that the Value of any rights issued
pursuant to a "Shareholder Rights Plan" shall be deemed to have no value unless
a "triggering event" shall have occurred (i.e., if the Rights issued pursuant
thereto are no longer "attached" to the REIT Shares and are able to trade
independently).
ARTICLE 2
ORGANIZATIONAL MATTERS
SECTION 2.1 FORMATION
The Partnership is a limited partnership organized pursuant to the
provisions of the Act. The Partners hereby agree to continue the Partnership
upon the terms and conditions set forth in this Agreement. Except as expressly
provided herein to the contrary, the rights and obligations of the Partners and
the administration and termination of the Partnership shall be governed by the
Act. The Partnership Interest of each Partner shall be personal property for all
purposes.
SECTION 2.2 NAME
The name of the Partnership is Loeb Realty, L.P. The Partnership's
business may be conducted under any other name or names deemed advisable by the
General Partner, including the name of the General Partner or any Affiliate
thereof. The words "Limited Partnership," "L.P.," "Ltd." or similar words or
letters shall be included in the Partnership's name where necessary for the
purposes of complying with the laws of any jurisdiction that so requires. The
General Partner in its sole and absolute discretion may change the name of the
Partnership at
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any time and from time to time and shall notify the Limited Partners of such
change in the next regular communication to the Limited Partners.
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
principal office of the Partnership shall be 521 Fifth Avenue, New York, NY, or
such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
SECTION 2.4 POWER OF ATTORNEY
A. Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(a) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate of Limited Partnership and all amendments or restatements
thereof) that the General Partner or the Liquidator deems appropriate or
necessary to form, qualify or continue the existence or qualification of
the Partnership as a limited partnership (or a partnership in which the
Limited Partners have limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership may or plans to conduct
business or own property; (b) all instruments that the General Partner
deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its
terms; (c) all conveyances and other instruments or documents that the
General Partner or the Liquidator deems appropriate or necessary to
reflect the dissolution and liquidation of the Partnership pursuant to
the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant
to, or other events described in, Article 11, 12 or 13 hereof or the
Capital Contribution of any Partner; and (e) all certificates, documents
and other instruments relating to the determination of the rights,
preferences and privileges of Partnership Interests; and
(b) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner or any Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is
made or given by the Partners hereunder or is consistent with the terms
of this agreement or appropriate or necessary, in the sole discretion of
the General Partner or any Liquidator, to effectuate the terms or intent
of this Agreement.
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Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
SECTION 2.5 TERM
The term of the Partnership commenced on ____________, 1998, the date on
which the Certificate of Limited Partnership was filed in the office of the
Secretary of State of the State of Delaware, and shall continue until December
31, ____, unless the Partnership is dissolved sooner pursuant to the provisions
of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
SECTION 3.1 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
Company at all times to be classified as a REIT, unless the Company ceases to
qualify as a REIT for reasons other than the conduct of the business of the
Partnership; (ii) to enter into any partnership, joint venture, limited
liability company or other similar arrangement to engage in any of the foregoing
or to own interests in any entity engaged, directly or indirectly, in any of the
foregoing; and (iii) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, and without limiting the Company's right, in its
sole discretion, to cease qualifying as a REIT, the Partners acknowledge the
Company's current status as a REIT inures to the benefit of all of the Partners
and not solely the Company and the General Partner.
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SECTION 3.2 POWERS
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and dispose of real property;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the Company to
continue to qualify as a REIT; (ii) could subject the Company to any additional
taxes under Section 857 or Section 4981 of the Code; or (iii) could violate any
law or regulation of any governmental body or agency having jurisdiction over
the Company or its securities, unless such action (or inaction) shall have been
specifically consented to by the Company and the General Partner in writing.
ARTICLE 4
CAPITAL CONTRIBUTIONS
SECTION 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS
A. Initial Capital Contributions and Recapitalization of the Partnership
on the Effective Date. The General Partner and the Company have previously made
Capital Contributions to the Partnership upon its formation. On the Effective
Date, the General Partner shall contribute additional cash to the Partnership so
that its total contribution shall be the amount set forth opposite its name on
Schedule A. The Company, as a limited partner, shall contribute $___________ and
the other Persons listed on Schedule A will make Capital Contributions to the
Partnership as set forth therein (except that certain of such Persons, as
described in the recitals hereof, were deemed to have made Capital Contributions
prior to the date hereof). The General Partner will adjust Exhibit A as
necessary from time to time to reflect redemptions, the Capital Contributions
made by each Partner, the Partnership Units assigned to each Partner and the
Percentage Interest in the Partnership represented by such Partnership Units.
The Capital Accounts of the Partners and the Gross Asset Values of the
Partnership's Assets shall be determined as of the Effective Date to reflect the
Capital Contributions made prior to and on the Effective Date.
B. Capital Contributions By Merger. To the extent the Partnership
acquires any property by the merger of any other Person into the Partnership,
Persons who receive Partnership Interests in exchange for their interests in the
Person merging into the Partnership shall become Partners and shall be deemed to
have made Capital Contributions as provided in the applicable merger agreement
and as set forth in Exhibit A, as amended to reflect such deemed Capital
Contributions.
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C. No Obligation to Make Additional Capital Contributions. Each Partner
shall own the number of Partnership Units set forth for such Partner in Exhibit
A and shall have a Percentage Interest in the Partnership as set forth in
Exhibit A, which Percentage Interest shall be adjusted in Exhibit A from time to
time by the General Partner to the extent necessary to reflect accurately
redemptions, additional Capital Contributions, the issuance of additional
Partnership Units (pursuant to any merger or otherwise), or similar events
having an effect on any Partner's Percentage Interest. The number of Partnership
Units held by the General Partner, in its capacity as general partner, (equal to
.2% of all outstanding Partnership Units from time to time) shall be deemed to
be the General Partner Interest. Except as provided in Sections 4.2, 10.5 or
elsewhere in this Agreement, the Partners shall have no obligation to make any
additional Capital Contributions or loans to the Partnership.
SECTION 4.2 ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS
A. The General Partner is hereby authorized to cause the Partnership
from time to time to issue to the Partners (including the General Partner, the
Company and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) additional
Partnership Units or other Partnership Interests in one or more classes, or one
or more series of any of such classes, with such designations, preferences and
relative, participating, optional or other special rights, powers and duties,
including rights, powers and duties senior to the Limited Partner Interests
issued on the Effective Date, all as shall be determined by the General Partner
in its sole and absolute discretion subject to Delaware law, including, without
limitation, (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Interests; (ii)
the right of each such class or series of Partnership Interests to share in
Partnership distributions; and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership;
provided that no such additional Partnership Units or other Partnership
Interests shall be issued to the General Partner or the Company, unless either
(a)(1) the additional Partnership Interests are issued in connection with the
grant, award or issuance of REIT Shares or other equity interests by the
Company, which REIT shares or other equity interests have designations,
preferences and other rights such that the economic interests attributable to
such REIT shares or other equity interests are substantially similar to the
designations, preferences and other rights of the additional Partnership
Interests issued to the General Partner or the Company in accordance with this
Section 4.2.A, and (2) the General Partner or the Company shall make a Capital
Contribution to the Partnership in an amount equal to the proceeds raised in
connection with such issuance, or (b) the additional Partnership Interests are
issued to all Partners in proportion to their respective Percentage Interests.
In addition, the General Partner or the Company may acquire Units from other
Partners pursuant to this Agreement. In the event that the Partnership issues
Partnership Interests pursuant to this Section 4.2.A, the General Partner shall
make such revisions to this Agreement including but not limited to the revisions
described in Section 5.4 and Section 8.6 hereof, as it deems necessary to
reflect the issuance of such additional Partnership Interests and the special
rights, powers and duties associated therewith. Unless specifically set forth
otherwise by the General Partner, any Partnership Interest issued after the
Effective Date shall have the same rights, powers and duties as the Partnership
Interests issued on the Effective Date.
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B. From and after the date hereof, the Company shall not issue any
additional REIT Shares [(other than REIT Shares issued pursuant to Section
8.6)], or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares (collectively "New
Securities") other than to all holders of REIT Shares unless (i) the General
Partner shall cause the Partnership to issue to the Company, Partnership
Interests or rights, options, warrants or convertible or exchangeable securities
of the Partnership having designations, preferences and other rights, all such
that the economic interests are substantially similar to those of the New
Securities; and (ii) the Company contributes to the Partnership the proceeds
from the issuance of such New Securities and from the exercise of rights
contained in such New Securities. Without limiting the foregoing, the Company is
expressly authorized to issue New Securities for no tangible value or for less
than fair market value, and the General Partner is expressly authorized to cause
the Partnership to issue to the Company corresponding Partnership Interests, so
long as (x) the General Partner concludes in good faith that such issuance of
Partnership Interests is in the interests of the Partnership; and (y) the
Company contributes all proceeds, if any, from such issuance and exercise to the
Partnership.
SECTION 4.3 CONTRIBUTION OF PROCEEDS OF ISSUANCE OF REIT SHARES
In connection with the initial public offering of REIT Shares by the
Company and any other issuance of New Securities pursuant to Section 4.2, the
Company and/or the General Partner shall contribute to the Partnership any
proceeds (or a portion thereof) raised in connection with such issuance;
provided that if the proceeds actually received by the Company are less than the
gross proceeds of such issuance as a result of any underwriter's discount or
other expenses paid or incurred in connection with such issuance, then the
Company shall be deemed to have made a Capital Contribution to the Partnership
in the amount equal to the sum of the net proceeds of such issuance plus the
amount of such underwriter's discount and other expenses paid by the Company
(which discount and expense shall be treated as an expense for the benefit of
the Partnership for purposes of Section 7.4). In the case of employee
acquisitions of New Securities at a discount from fair market value or for no
value in connection with a grant of New Securities, the amount of such discount
representing compensation to the employee, as determined by the General Partner,
shall be treated as an expense of the issuance of such New Securities.
SECTION 4.4 NO INTEREST ON CAPITAL
No Partner shall be entitled to interest on its Capital Contributions or
its Capital Account.
SECTION 4.5 NO PREEMPTIVE RIGHTS
Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (i) additional Capital Contributions or loans to
the Partnership or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
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SECTION 4.6 OTHER CONTRIBUTION PROVISIONS
If any Partner is admitted to the Partnership and is given a Capital
Account in exchange for services rendered to the Partnership, such transaction
shall be treated by the Partnership and the affected Partner as if the
Partnership had compensated such Partner in cash, and the Partner had
contributed such cash to the capital of the Partnership.
ARTICLE 5
DISTRIBUTIONS
SECTION 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS
The General Partner shall distribute at least quarterly an amount equal
to one hundred percent (100%) of Available Cash generated by the Partnership
during such quarter or shorter period to the Partners who are Partners on the
Partnership Record Date with respect to such quarter or shorter period in
accordance with their respective Percentage Interests on such Partnership Record
Date; provided that in no event may a Partner receive a distribution of
Available Cash with respect to a Partnership Unit for a quarter if such Partner
is entitled to receive a distribution out of such Available Cash with respect to
a REIT Share for which such Partnership Unit has been exchanged and such
distribution shall be made to the Company. Unless otherwise expressly provided
for herein or in an agreement at the time a new class of Partnership Interests
is created in accordance with Article 4 hereof, no Partnership Interest shall be
entitled to a distribution in preference to any other Partnership Interest. The
General Partner shall take such reasonable efforts, as determined by it in its
sole and absolute discretion and consistent with the Company's qualification as
a REIT, to distribute Available Cash (a) to the Limited Partners so as to
preclude any such distribution or portion thereof from being treated as part of
a sale of property to the Partnership by a Limited Partner under Section 707 of
the Code or the Regulations thereunder; provided that the General Partner and
the Partnership shall not have liability to a Limited Partner under any
circumstances as a result of any distribution to a Limited Partner being so
treated and (b) to the Company in an amount that will be sufficient to enable
the Company to pay dividends that (1) to satisfy the requirements for qualifying
as a REIT under the Code and the Regulations and (2) avoid any federal income or
excise tax liability for the General Partner or the Company.
SECTION 5.2 AMOUNTS WITHHELD
All amounts withheld pursuant to the Code or any provisions of any state
or local tax law and Section 10.5 hereof with respect to any allocation, payment
or distribution to the Partners or Assignees shall be treated as amounts
distributed to the Partners or Assignees pursuant to Section 5.1 for all
purposes under this Agreement.
SECTION 5.3 DISTRIBUTIONS UPON LIQUIDATION
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Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
SECTION 5.4 REVISIONS TO REFLECT ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS
In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article 4 hereof, the General Partner shall make such revisions to this Article
5 as it deems necessary to reflect the issuance of such additional Partnership
Interests and any special rights, duties or powers with respect thereto. Such
revisions shall not require the consent or approval of any other Partner.
SECTION 5.5 MINIMUM DISTRIBUTIONS IF REIT SHARES NOT PUBLICLY TRADED
If the REIT Shares are not Publicly Traded, the General Partner shall
(without regard to the amount of Available Cash) make cash distributions with
respect to the Partnership Units at least annually for each taxable year of the
Partnership beginning prior to the 15th anniversary of the date of the closing
of the Company's initial public offering, in an aggregate amount with respect to
each such taxable year at least equal to 95% of the Partnership's taxable income
for such year allocable to the Partnership Units, with such distributions to be
made not later than 60 days after the end of such year.
ARTICLE 6
ALLOCATIONS OF PROFITS AND LOSSES
SECTION 6.1 PROFITS AND LOSSES
After giving effect to the mandatory allocations set forth in Section
6.2, Profits and Losses for any Partnership Year or other applicable period
shall be allocated to the Partners in accordance with their Percentage
Interests.
SECTION 6.2 MANDATORY ALLOCATIONS
(a) (i) Minimum Gain Chargeback. Notwithstanding any other provision of
this Article 6, if there is a net decrease in Partnership Minimum Gain during
any Partnership Year or other applicable period, then, subject to the exceptions
set forth in Regulations 'SS' 1.704-2(f)(2), (3), (4) and (5), each Partner
shall be specially allocated items of Partnership income and gain for such
Partnership Year (and, if necessary, subsequent Partnership Years) in an amount
equal to such Partner's share of the net decrease in Partnership Minimum Gain,
as determined in accordance with Regulations 'SS' 1.704-2(g). Allocations
pursuant to the previous sentence shall be determined in accordance with
Regulations 'SS' 1.704-2(f). This Section 6.2(a)(i) is intended to comply with
the minimum gain chargeback requirement in Regulations 'SS' 1.704-2(f) shall be
interpreted consistently therewith.
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(ii) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 6 except Section 6.2(a)(i), if there is a net decrease
in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any
Partnership Year or other applicable period, then, subject to the exceptions set
forth in Regulations 'SS' 1.704-2(i)(4), each Partner who has a share of the
Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined
in accordance with Regulations 'SS' 1.704-2(i)(5) shall be specially allocated
items of Partnership income and gain for such Partnership Year (and, if
necessary, subsequent Partnership Years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations 'SS' 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Regulations
'SS' 1.704-2(i)(4). This Section 6.2(a)(ii) is intended to comply with the
minimum gain chargeback requirement in Regulations 'SS' 1.704-2(i)(4) shall be
interpreted consistently therewith.
(b) Qualified Income Offset. Notwithstanding any provision of this
Article 6, except Section 6.2(a), in the event any Partner receives any
adjustments, allocations, or distributions described in Regulations 'SS''SS'
1.704-1(b)(2)(ii)(d)(4), (5) or (6), that cause or increase an Adjusted Capital
Account Deficit of such Partner, items of Partnership income and gain shall be
specially allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of such Partner as quickly as possible. This Section 6.2(b) is
intended to comply with the qualified income offset provision of Regulations
'SS' 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(c) No Excess Deficit. To the extent that any Partner has or would have,
as a result of an allocation of Loss (or item thereof), an Adjusted Capital
Account Deficit, such amount of Loss (or item thereof) shall be allocated to the
other Partners in accordance with Section 6.1, but in a manner which will not
produce an Adjusted Capital Account Deficit as to such Partner. To the extent
such allocation would result in all Partners having Adjusted Capital Account
Deficits, such Loss shall be allocated to the General Partner. Any allocations
of Loss pursuant to this Section 6.2(c) shall be reversed with a corresponding
amount of Profits in subsequent years.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
Year or other applicable period shall be allocated to the Partners pro rata in
accordance with their Percentage Interests.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any Partnership Year or other applicable period shall be specially allocated
to the Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations 'SS' 1.704-2(i)(1).
(f) Code 'SS' 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership Asset pursuant to Code 'SS' 734(b) or Code
'SS' 743(b) is required, pursuant to Regulations 'SS''SS' 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
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adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Regulations.
(g) Curative Allocations. Any mandatory allocations of items of income,
gain, loss or deduction pursuant to Sections 6.2(a), (b), (c) and (f) above
shall be taken into account for the purpose of equitably adjusting subsequent
allocations of income, gain, loss or deduction so that the net allocations, in
the aggregate, allocated to each Partner pursuant to this Article 6, and the
Capital Accounts of each Partner, shall as quickly as possible and to the extent
possible, be the same as if no mandatory allocations had been made.
SECTION 6.3 OTHER ALLOCATION RULES
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the General
Partners using any permissible method under Code 'SS' 706 and the Regulations
thereunder.
(b) The Partners are aware of the income tax consequences of the
allocations made by this Article 6 and hereby agree to be bound by the
provisions thereof in reporting their shares of Partnership income and loss for
income tax purposes.
SECTION 6.4 TAX ALLOCATIONS
(a) Except as otherwise provided for in this Section 6.4, for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Sections 6.1,
6.2, and 6.3 above.
(b) In accordance with Code Section 704(b) and 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the Partnership shall solely for federal income tax
purposes, be allocated among the Partners so as to take into account any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and the initial Gross Asset Value. If the Gross
Asset Value of any Partnership Asset is adjusted as described in the definition
of Gross Asset Value, subsequent allocations of income, gain, loss and deduction
with respect to such Partnership Asset shall take into account any variation
between the adjusted basis of such Partnership Asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code 'SS' 704(c)
and the Regulations thereunder In furtherance of the foregoing, the Partnership
shall employ the method described in Regulations 'SS' 1.704-3(b) (the
"traditional method") with respect to the aspects set forth on Exhibit D.
Allocations pursuant to this Section 6.4 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into account
in computing, any Partner's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any provision of this Agreement.
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(c) If the Partnership issues Partnership Interests to the General
Partners or any Additional Limited Partner pursuant to Article 4 hereof, the
General Partner shall make such revisions to this Article 6 as it deems
necessary to reflect the terms of the issuance of such Partnership Interests,
including making preferential allocations to classes of Partnership Interests
that are entitled thereto. Such revisions shall not require the consent or
approval of any other Partner.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
SECTION 7.1 MANAGEMENT
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(a) the making of any expenditures, including expenditures
reimbursable to the General Partner by the Partnership, the lending or
borrowing of money (including, without limitation, making prepayments on
loans and borrowing money to permit the Partnership to make
distributions to its Partners in such amounts as will permit the Company
(so long as the Company qualifies as a REIT) to avoid the payment of any
federal income tax (including, for this purpose, any excise tax pursuant
to Section 4981 of the Code) and to make distributions to its
shareholders in amounts sufficient to permit the Company to maintain
REIT status), the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidence of
indebtedness (including the securing of the same by deed, mortgage, deed
of trust or other lien or encumbrance on the Partnership's assets) and
the incurring of any obligations it deems necessary for the conduct of
the activities of the Partnership;
(b) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership, the
registration of any class of securities of the Partnership under the
Securities Exchange Act of 1934, as amended, and the listing of any
securities of the Partnership on any exchange;
(c) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership (including
the exercise or
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grant of any conversion, option, privilege, or subscription right or
other right available in connection with any assets at any time held by
the Partnership) or the merger or other combination of the Partnership
with or into another entity (all of the foregoing subject to any prior
approval only to the extent required by Section 7.3 hereof);
(d) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of
this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the
Company, the Partnership or any of the Partnership's Subsidiaries, the
lending of funds to other Persons (including, without limitation, the
Subsidiaries of the Partnership and/or the Company), the incurrence of
expenditures on behalf of the Partnership or any subsidiary of the
Partnership and the repayment of obligations of the Partnership and its
Subsidiaries and any other Person in which it has an equity investment,
and the making of capital contributions to its Subsidiaries;
(e) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or
improvements owned by the Partnership or any Subsidiary of the
Partnership;
(f) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner considers
useful or necessary to the conduct of the Partnership's or any of its
Subsidiaries' operations or the implementation of the General Partner's
powers under this Agreement, including contracting with contractors,
developers, consultants, accountants, legal counsel, other professional
advisors and other agents and the payment of their expenses and
compensation out of the Partnership's assets;
(g) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(h) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(i) the collection and receipt of revenues and income of the
Partnership;
(j) the establishment of one or more divisions of the
Partnership, the selection and dismissal of employees of the Partnership
(including, without limitation, employees having titles such as
"president," "vice president," "secretary" and "treasurer" of the
Partnership), and agents, outside attorneys, accountants, consultants,
financial advisors and contractors of the Partnership, and the
determination of their compensation and other terms of employment or
hiring;
(k) the maintenance of such insurance for the benefit of the
Partnership, the Partner and directors and officers thereof as the
General Partner deems necessary or appropriate;
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(l) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of interests
in, and the contributions of property to, its Subsidiaries and any other
Person in which it has an equity investment from time to time);
(m) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement, compromise,
submission to arbitration or any other form of dispute resolution, or
abandonment of, any claim, cause of action, liability, debt or damages,
due or owing to or from the Partnership, the commencement or defense of
suits, legal proceedings, administrative proceedings, arbitration or
other forms of dispute resolution, and the representation of the
Partnership in all suits or legal proceedings, administrative
proceedings, arbitrations or other forms of dispute resolution, the
incurring of legal expense, and the indemnification of any Person
against liabilities and contingencies to the extent permitted by law;
(n) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any
other Person (including, without limitation, the contribution or loan of
funds by the Partnership to such Persons);
(o) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation
as the General Partner may adopt;
(p) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of
any right, including the right to vote, appurtenant to any asset or
investment held by the Partnership or any of its Subsidiaries;
(q) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Partnership or any other Person in which the
Partnership has a direct or indirect interest, or jointly with any such
Subsidiary or other Person;
(r) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have an interest pursuant to contractual or other
arrangements with such Person;
(s) the making, execution and delivery of any and all deeds,
leases, notes, mortgages, deeds of trust, security agreements,
conveyances, contracts, guarantees, warranties, indemnities, waivers,
releases or legal instruments or agreements in writing necessary or
appropriate, in the judgment of the General Partner, for the
accomplishment of any of the powers of the General Partner enumerated in
this Agreement; and
(t) the issuance of additional Partnership Units, as appropriate,
in connection with Capital Contributions by Additional Limited Partners
and additional Capital Contributions by Partners pursuant to Article 4
hereof, and the amendment and
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restatement of Exhibit A hereof to reflect the Capital Contributions and
Percentage Interests of the Partners as the same are adjusted from time
to time.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement
(except as provided in Section 7.3 or Section 8.7), the Act or any applicable
law, rule or regulation, to the fullest extent permitted under the Act or other
applicable law, rule or regulation. The execution, delivery or performance by
the General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
D. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner (including the Company and the General Partner) of any action
taken (or not taken) by it. The General Partner and the Partnership shall not
have liability for money damages or otherwise to a Limited Partner under any
circumstances, as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner taken
pursuant to its authority under this Agreement and in accordance with the terms
of Section 7.3 and Section 8.7.
E. The General Partner may cause the Partnership to obtain and maintain
(i) casualty, liability and other insurance on the properties of the
Partnership, (ii) liability insurance for the Indemnitees hereunder and (iii)
such other insurance as the General Partner, in its sole and absolute
discretion, determines to be necessary.
SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner has previously filed the Certificate of Limited
Partnership with the Secretary of State of the State of Delaware as required by
the Act. The General Partner shall use all reasonable efforts to cause to be
filed such other certificates or documents as may be reasonable and necessary or
appropriate, in the discretion of the General Partner, for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate of Limited Partnership and do all of the things to maintain the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) under the laws of the State of Delaware and
each other state, or the District of Columbia, in which the
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Partnership may elect to do business or own property. Subject to the terms of
Section 8.5.A(d) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate of Limited
Partnership or any amendment thereto to any Limited Partner.
SECTION 7.3 RESTRICTIONS ON GENERAL PARTNER AUTHORITY.
The General Partner may not take any action in contravention of an
express prohibition or limitation of this Agreement without the written Consent
of Limited Partners holding a majority of the Percentage Interests of the
Limited Partners (including Limited Partner Interests held by the Company), or
such other percentage of the Limited Partners as may be specifically provided
for under a provision of this Agreement.
SECTION 7.4 REIMBURSEMENT OF THE GENERAL PARTNER AND THE COMPANY; DRIP'S
AND REPURCHASE PROGRAMS
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.
B. The General Partner is hereby authorized to pay compensation for
accounting, administrative, legal, technical, management and other services
rendered to the Partnership. The General Partner and its Affiliates shall be
reimbursed on a monthly basis, or such other basis as the General Partner may
determine in its sole and absolute discretion, for all expenses that they incur
relating to the ownership and operation of, or for the benefit of, the
Partnership (including, without limitation, Administrative Expenses), provided
that the amount of any such reimbursement shall be reduced by any interest
earned by the General Partner with respect to bank accounts or other instruments
or accounts held by it on behalf of the Partnership. The General Partner shall
determine in good faith the amount of expenses incurred by it related to the
ownership and operation of, or for the benefit of, the Partnership. In the event
that certain expenses are incurred for the benefit of the Partnership and other
entities (including the General Partner), such expenses will be allocated to the
Partnership and such other entities in such a manner as the General Partner in
its sole and absolute discretion deems fair and reasonable. The Partners
acknowledge that all such expenses of the General Partner are deemed to be for
the benefit of the Partnership. Such reimbursements shall be in addition to any
reimbursement made pursuant to Section 10.3.C hereof or as a result of any
indemnification pursuant to Section 7.7 hereof. All payments and reimbursements
hereunder shall be characterized for federal income tax purposes as expenses of
the Partnership incurred on its behalf, and not as expenses of the General
Partner. Moreover, if and to the extent any reimbursement made pursuant to this
Section is determined for federal income tax purposes not to constitute a
payment of expenses of the Partnership, the amount so determined shall be
treated as a distribution to the General Partner and there shall be a
corresponding special allocation of gross income to the General Partner for
purposes of computing the Partners' Capital Accounts.
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C. As set forth in Section 4.3, the Company shall be treated as having
made a Capital Contribution in the amount of all expenses that it incurs
relating to the Company's initial public offering of REIT Shares.
D. In the event that the Company shall elect to purchase from its
shareholders REIT Shares for the purpose of delivering such REIT Shares to
satisfy an obligation under any dividend reinvestment program adopted by the
Company, any employee stock purchase plan adopted by the Company, or any similar
obligation or arrangement undertaken by the Company in the future or for the
purpose of retiring such REIT Shares, the purchase price paid by the Company for
such REIT Shares and any other expenses incurred by the Company in connection
with such purchase shall be considered expenses of the Partnership and shall be
advanced to the Company or reimbursed to the Company, subject to the condition
that: (i) if such REIT Shares subsequently are sold by the Company, the Company
shall pay to the Partnership any proceeds received by the Company for such REIT
Shares (which sales proceeds shall include the amount of dividends reinvested
under any dividend reinvestment or similar program provided that a transfer of
REIT Shares for Units pursuant to Section 8.6 would not be considered a sale for
such purposes); and (ii) if such REIT Shares are not retransferred by the
Company within thirty (30) days after the purchase thereof, or the Company
otherwise determines not to retransfer such REIT Shares, the Company, as General
Partner, shall cause the Partnership to redeem a number of Partnership Units
held by the Company, as a Limited Partner, equal to the product obtained by
dividing the number of such REIT Shares by the Conversion Factor (in which case
such advancement or reimbursement of expenses shall be treated as having been
made as a distribution in redemption of such number of Units held by the
Company).
SECTION 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER
The General Partner shall not directly or indirectly enter into or
conduct any business other than in connection with the ownership, acquisition
and disposition of Partnership Interests and the management of the business of
the Partnership, and such activities as are incidental thereto; provided,
however, that the Company may make an acquisition (directly or through a
wholly-owned Subsidiary) if such acquisition is made through the issuance of
REIT Shares and the acquisition has been approved by a majority of the
Independent Directors. The General Partner and any Affiliates of the General
Partner may acquire Limited Partner Interests and shall be entitled to exercise
all rights of a Limited Partner relating to such Limited Partner Interests.
SECTION 7.6 CONTRACTS WITH AFFILIATES
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.5, the Partnership may transfer
assets to joint ventures, other partnerships, corporations or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this
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Agreement and applicable law as the General Partner, in its sole and absolute
discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable.
D. The General Partner, in its sole and absolute discretion and without
the approval of the Limited Partners, may propose and adopt, on behalf of the
Partnership, employee benefit plans, stock option plans, and similar plans
funded by the Partnership for the benefit of employees of the General Partner,
the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them
in respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any Subsidiaries of the Partnership.
E. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole and absolute discretion, believes are advisable.
SECTION 7.7 INDEMNIFICATION
A. To the fullest extent permitted by Delaware law, the Partnership
shall indemnify each Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorneys fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership or the Company as set forth in
this Agreement, in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, unless it is established that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the Indemnitee actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. Without limitation, the foregoing indemnity shall
extend to any liability of any Indemnitee, pursuant to a loan guaranty (except a
guaranty by a limited partner of nonrecourse indebtedness of the Partnership or
as otherwise provided in any such loan guaranty) or otherwise for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. The termination of any proceeding by conviction of an Indemnitee
or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an
entry of an order of probation against an Indemnitee prior to judgment, creates
a rebuttable presumption that such Indemnitee acted in a manner contrary to that
specified in this Section 7.7.A. Any indemnification pursuant to this Section
7.7
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shall be made only out of the assets of the Partnership, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership, or otherwise provide funds, to enable the
Partnership to fund its obligations under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in Section 7.7.A. has been met, and (ii) a written undertaking by or
on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement pursuant to which
such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.7; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the
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benefit of any other Persons. Any amendment, modification or repeal of this
Section 7.7 or any provision hereof shall be prospective only and shall not in
any way affect the Partnership's liability to any Indemnitee under this Section
7.7, as in effect immediately prior to such amendment, modification, or repeal
with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
Moreover, if and to the extent any reimbursement made pursuant to this
Section 7.7 is determined for federal income tax purposes not to constitute a
payment of expenses of the Partnership, the amount so determined shall be
treated as a distribution to the General Partner and there shall be a
corresponding special allocation of gross income to the General Partner for
purposes of computing Partners' Capital Accounts.
SECTION 7.8 LIABILITY OF THE GENERAL PARTNER
A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner and its officers, directors and shareholders shall not be
liable for monetary damages to the Partnership, any Partners or any Assignees
for losses sustained or liabilities incurred as a result of errors in judgment
or of any act or omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that, as stated in Section
7.1.D, the General Partner is acting on behalf of the Partnership and the
shareholders of the Company collectively, that the General Partner is under no
obligation to consider the separate interests of the Limited Partners in
deciding whether to cause the Partnership to take (or decline to take) any
actions, and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents. The General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
SECTION 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
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A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the property party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investments bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the Company to continue to
qualify as a REIT; or (ii) to avoid the Company incurring any taxes under
Section 857 or Section 4981 of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
SECTION 7.10 TITLE TO PARTNERSHIP ASSETS
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is held in the
name of the General Partner or any nominee or Affiliate of the General Partner
shall be held by the General Partner for the use and benefit of the Partnership
in accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably practicable
if failure to so vest such title would have a material adverse effect on the
Partnership. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
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SECTION 7.11 RELIANCE BY THIRD PARTIES
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect; (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership; and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
SECTION 8.1 LIMITATION OF LIABILITY
The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.5 hereof, or under
the Act.
SECTION 8.2 MANAGEMENT OF BUSINESS
The Limited Partners shall not participate in the management or control
of Partnership business nor shall they transact any business for the Partnership
nor shall they have the power to sign for or bind the Partnership, such powers
being vested solely and exclusively in the General Partner.
SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS
Subject to any agreements entered into pursuant to Section 7.6.E hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the Partnership or any of its Subsidiaries, any Limited Partner (other than
the Company) and any officer, director, employee, agent, trustee, Affiliate or
shareholder of any Limited Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
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Partnership, including business interests and activities that are in direct
competition with the Partnership or that are enhanced by the activities of the
Partnership. Neither the Partnership nor any Partners shall have any rights by
virtue of this Agreement in any business ventures of any Limited Partner or
Assignee. None of the Limited Partners (other than the Company) nor any other
Person shall have any rights by virtue of this Agreement or the Partnership
relationship established hereby in any business ventures of any other Person and
such Person shall have no obligation pursuant to this Agreement to offer any
interest in any such business ventures to the Partnership, any Limited Partner
or any such other Person, even if such opportunity is of a character which, if
presented to the Partnership, any Limited Partner or such other Person, could be
taken by such Person.
SECTION 8.4 RETURN OF CAPITAL
Except pursuant to the right of redemption set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except as
expressly provided in this Agreement, no Limited Partner or Assignee shall have
priority over any other Limited Partner or Assignee, either as to the return of
Capital Contributions or as to profits, losses or distributions.
SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP
A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(a) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the Company
pursuant to the Securities Exchange Act of 1934;
(b) to obtain a copy of the Partnership's federal, state and
local income tax returns for each Partnership Year;
(c) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(d) to obtain a copy of this Agreement and the Certificate of
Limited Partnership and all amendments thereto, together with executed
copies of all powers of attorney pursuant to which this Agreement, the
Certificate of Limited Partnership and all amendments thereto have been
executed; and
(e) to obtain true and full information regarding the amount of
cash and a description and statement of any other property or services
contributed by each Partner
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and which each Partner has agreed to contribute in the future, and the
date on which each became a Partner.
B. The Partnership shall notify each Limited Partner, upon request, of
the then current Conversion Factor and the REIT Shares Amount per Partnership
Unit and, with reasonable detail, how the same was determined.
C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner reasonably believes to
be in the nature of trade secrets or other information, the disclosure of which
the General Partner in good faith believes is not in the best interests of the
Partnership or could damage the Partnership or its business; or (ii) the
Partnership is required by law or by agreements with an unaffiliated third party
to keep confidential.
SECTION 8.6 REDEMPTION RIGHT
A. Subject to Sections 8.6.B and 8.6.C hereof, on or after that date
which is twelve (12) months after the Effective Date, each Limited Partner
(other than the Company) shall have the right (the "Redemption Right") to
require the Partnership to redeem on a Specified Redemption Date all or a
portion of the Partnership Units held by such Limited Partner at a redemption
price per Unit equal to and in the form of the Cash Amount to be paid by the
Partnership. The Redemption Right shall be exercised pursuant to a Notice of
Redemption delivered to the Partnership (with a copy to the General Partner and
the Company) by the Limited Partner who is exercising the redemption right (the
"Redeeming Partner"); provided, however, that the Partnership shall not be
obligated to satisfy such Redemption Right if the General Partner or the Company
elects to purchase the Partnership Units subject to the Notice of Redemption
pursuant to Section 8.6.B. A Limited Partner may not exercise the Redemption
Right for less than one thousand (1,000) Partnership Units or, if such Limited
Partner holds less than one thousand (1,000) Partnership Units, all of the
Partnership Units held by such Partner. The Redeeming Partner shall have no
right, with respect to any Partnership Units so redeemed, to receive any
distributions paid on or after the Specified Redemption Date. The Assignee of
any Limited Partner may exercise the rights of such Limited Partner pursuant to
this Section 8.6, and such Limited Partner shall be deemed to have assigned such
rights to such Assignee and shall be bound by the exercise of such rights by
such Assignee. In connection with any exercise of such rights by an Assignee on
behalf of a Limited Partner, the Cash Amount shall be paid by the Partnership
directly to such Assignee and not to such Limited Partner.
B. Notwithstanding the provisions of Section 8.6.A, a Limited Partner
that exercises the Redemption Right shall be deemed to have offered to sell the
Partnership Units described in the Notice of Redemption to the Company, and the
Company will, at the direction of the Partnership as determined in the
Partnership's sole and absolute discretion and only if so directed, elect to
purchase directly and acquire such Partnership Units by paying to the Redeeming
Partner either the Cash Amount or the REIT Shares Amount, as directed by the
Partnership, on the Specified Redemption Date, whereupon the Company shall
acquire the Partnership Units offered for redemption by the Redeeming Partner
and shall be treated for all
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purposes of this Agreement as the owner of such Partnership Units. If the
General Partner or the Company shall elect to exercise its right to purchase
Partnership Units under this Section 8.6.B with respect to a Notice of
Redemption, it shall so notify the Redeeming Partner within five (5) Business
Days after the receipt by it of such Notice of Redemption. Unless the Company
(as directed by the Partnership in its sole and absolute discretion) shall
exercise its right to purchase Partnership Units from the Redeeming Partner
pursuant to this Section 8.6.B, the Company shall not have any obligation to the
Redeeming Partner or the Partnership with respect to the Redeeming Partner's
exercise of the Redemption Right. In the event the Company shall exercise its
right to purchase Partnership Units with respect to the exercise of a Redemption
Right in the manner described in the first sentence of this Section 8.6.B, the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of such Redemption Right, and
each of the Redeeming Partner, the Partnership, and the Company shall treat the
transaction between the Company and the Redeeming Partner, for federal income
tax purposes, as a sale of the Redeeming Partner's Partnership Units to the
Company. Each Redeeming Partner agrees to execute such documents as the Company
may reasonably require in connection with the issuance of REIT Shares upon
exercise of the Redemption Right.
C. Notwithstanding the provisions of Section 8.6.A and Section 8.6.B, a
Partner shall not be entitled to exercise the Redemption Right pursuant to
Section 8.6.A if the delivery of REIT Shares to such Partner on the Specified
Redemption Date by the Company pursuant to Section 8.6.B (regardless of whether
or not the Company would in fact exercise its rights under Section 8.6.B) would
be prohibited under the Certificate of Incorporation of the Company.
D. In the event that the Partnership issues additional Partnership
Interests pursuant to Section 4.2.A hereof, the General Partner shall make such
revisions to this Section 8.6 as it determines are necessary to reflect the
issuance of such additional Partnership Interests.
E. Each Limited Partner covenants and agrees with the General Partner
that all Partnership Units delivered for redemption shall be delivered to the
Partnership or the General Partner, as the case may be, free and clear of all
liens, and, notwithstanding anything contained herein to the contrary, neither
the General Partner nor the Partnership shall be under any obligation to acquire
Partnership Units which are or may be subject to any liens.
F. Notwithstanding anything herein to the contrary, until the first
business day following the date which is two years after the Effective date, the
Partnership and the General Partner shall have the right, in connection with a
Limited Partner's exercise of its Redemption Right:
(1) to condition the payment of the redemption price under
Section 8.6(A) upon the General Partner's sole
satisfaction that any New York real estate transfer tax
and New York City real property transfer tax payable by
reason of such Limited Partner's redemption prior to two
years after the Effective Date shall have been paid in
full or that adequate provision has been made therefor
(as determined by the General Partner in its sole
discretion); and
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(2) if the General Partner elects under Section 8.6.B to pay
the REIT Shares Amount, then such Limited Partner shall
be obligated, as a condition to the effective exercise of
the Redemption Right, to escrow with the General Partner
an amount equal to the New York real estate transfer tax
and New York City real property transfer tax that would
have been payable as of the exercise of the Redemption
Right, assuming such Limited Partner transferred the REIT
Shares Amount received on such date prior to two years
after the Effective Date. Such escrow may be used by the
General Partner or the Limited Partner who provided such
escrow for the payment of the taxes described in this
subparagraph (2) provided, in the latter event, the
General Partner shall have determined, in its good faith
discretion, that such tax will be paid. Such escrow shall
be released to the Limited Partner, to the extent not
used, after two years after the Effective Date if the
General Partner shall determine in its sole discretion
exercised in good faith that no such transfer tax shall
have been due and payable.
[SECTION 8.7 GUARANTEE RIGHTS OF CERTAIN LIMITED PARTNERS
A. The General Partner agrees to cause the Partnership to use its
reasonable commercial efforts to cause its lenders to permit the Consenting
Partners or any of them individually to guarantee any indebtedness of the
Partnership (including additional indebtedness or substitute indebtedness
incurred after the Effective Date) and to thereby become the guarantor or
guarantors of last resort with respect to such additional or substitute
indebtedness. Each Partner by such Partner's execution hereof agrees that the
right of each Consenting Partner under this Section 8.7.A shall include the
right to become the guarantor of last resort of any indebtedness of the
Partnership guaranteed by any other Partner of the Partnership without any
further action by or notice to or approval of any other Partner, provided that
such Consenting Partner has not expressly waived his right with respect to such
indebtedness.
B. This Section 8.7 may not be amended without the written consent of
each Consenting Partner.]
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 9.1 RECORDS AND ACCOUNTING
The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape,
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photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles, or such other basis as
the General Partner determines to be necessary or appropriate.
SECTION 9.2 FISCAL YEAR
The fiscal year of the Partnership, including its first year, shall be
the calendar year.
SECTION 9.3 REPORTS
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Partnership Year, the General Partner shall
cause to be mailed to each Limited Partner as of the close of the Partnership
Year, an annual report containing financial statements of the Partnership, or of
the Company if such statements are prepared solely on a consolidated basis with
the Company, for such Partnership Year, presented in accordance with generally
accepted accounting principles, such statements to be audited by a nationally
recognized firm of independent public accountants selected by the General
Partner.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner as of the last day of the calendar quarter, a report containing
unaudited financial statements of the Partnership, or of the Company, if such
statements are prepared solely on a consolidated basis with the Company, and
such other information as may be required by applicable law or regulation, or as
the General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
SECTION 10.1 PREPARATION OF TAX RETURNS
The General Partner shall arrange for the preparation and timely filing
of all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by Limited Partners
for federal and state income tax reporting purposes.
SECTION 10.2 TAX ELECTIONS
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code. Notwithstanding the above, in making any such tax election
the General Partner shall take into account the tax consequences to the Limited
Partners resulting from any such election. The
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General Partner shall make such tax elections on behalf of the Partnership as
the Limited Partners holding a majority of the Percentage Interests of the
Limited Partners (excluding Limited Partner Interests held by the Company)
request, provided that the General Partner believes that such election is not
adverse to the interests of the General Partner, including its interest in
preserving its qualification as a REIT under the Code. The General Partner
intends that Section 704(c) allocations with respect to property contributed as
of the Effective Date shall be made by the election of the so-called
"traditional method" without curative allocations. The General Partner shall
have the right to seek to revoke any tax election it makes (including, without
limitation, the election under Section 754 of the Code) upon the General
Partner's determination, in its sole and absolute discretion, that such
revocation is in the best interests of the Partners.
SECTION 10.3 TAX MATTERS PARTNER
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes within the meaning of Section
6231(a)(7) of the Code. Pursuant to Section 6230(e) of the Code, upon receipt of
notice from the IRS of the beginning of an administrative proceeding with
respect to the Partnership, the tax matters partner shall furnish the IRS with
the name, address, taxpayer identification number, and profit interest of each
of the Limited Partners and the Assignees; provided, however, that such
information is provided to the Partnership by the Limited Partners and the
Assignees.
B. The tax matters partner is authorized, but not required:
(a) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership
items required to be taken into account by a Partner for income tax
purposes (such administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as "judicial
review"), and in the settlement agreement the tax matters partner may
expressly state that such agreement shall bind all Partners, except that
such settlement agreement shall not bind any Partner (i) who (within the
time prescribed pursuant to the Code and Regulations) files a statement
with the IRS providing that the tax matters partner shall not have the
authority to enter into a settlement agreement on behalf of such
Partner; or (ii) who is a "notice partner" (as defined in Section
6231(a)(8) of the Code) or a member of a "notice group" (as defined in
Section 6223(b)(2) of the Code);
(b) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken
into account by a Partner for tax purposes (a "final adjustment") is
mailed to the tax matters partner, to seek judicial review of such final
adjustment, including the filing of a petition for readjustment with the
Tax Court or the filing of a complaint for refund with the United States
Claims Court or the District Court of the United States for the district
in which the Partnership's principal place of business is located;
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(c) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(d) to file a request for an administrative adjustment with the
IRS and, if any part of such request is not allowed by the IRS, to file
an appropriate pleading (petition or complaint) for judicial review with
respect to such request;
(e) to enter into an agreement with the IRS to extend the period
for assessing any tax which is attributable to any item required to be
taken account of by a Partner for tax purposes, or an item affected by
such item; and
(f) to take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the
tax matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees and
expenses) shall be borne by the Partnership. Nothing herein shall be construed
to restrict the Partnership from engaging an accounting firm to assist the tax
matters partner in discharging its duties hereunder, so long as the compensation
paid by the Partnership for such services is reasonable.
SECTION 10.4 ORGANIZATIONAL EXPENSES
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60) month period as provided
in Section 709 of the Code.
SECTION 10.5 WITHHOLDING
Each Limited Partner hereby authorizes the Partnership to withhold from,
or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited
Partner; or (ii) the General Partner determines, in its sole and absolute
discretion, that such
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payment may be satisfied out of the available funds of the Partnership which
would, but for such payment, be distributed to the Limited Partner. Any amounts
withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as
having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. In the event that a Limited Partner fails to pay any amounts
owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment to
the Partnership on behalf of such defaulting Limited Partner, and in such event
shall be deemed to have loaned such amount to such defaulting Limited Partner
and shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner. Without limitation, in such event the General
Partner shall have the right to receive distributions that would otherwise be
distributable to such defaulting Limited Partner until such time as such loan,
together with all interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
distributed to the defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the lesser
of (A) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in The Wall Street Journal,
plus four (4) percentage points, or (B) the maximum lawful rate of interest on
such obligation, such interest to accrue from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall take such actions as the Partnership or the General Partner shall
request in order to perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
SECTION 11.1 TRANSFER
A. The term "transfer," when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by operation of law or otherwise. The term "transfer" when
used in this Article 11 does not include any redemption of Partnership Interests
by the Partnership from a Limited Partner or any acquisition of Partnership
Units from a Limited Partner by the Company pursuant to Section 8.6. No part of
the interest of a Limited Partner shall be subject to the claims of any
creditor, any spouse for alimony or support, or to legal process, and may not be
voluntarily or involuntarily alienated or encumbered except as may be
specifically provided for in this Agreement or consented to by the General
Partner in its sole discretion.
B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported
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transfer of a Partnership Interest not made in accordance with this Article 11
shall be null and void.
SECTION 11.2 TRANSFER OF THE GENERAL PARTNER INTEREST AND COMPANY'S
LIMITED PARTNER INTEREST; EXTRAORDINARY TRANSACTIONS
A. The General Partner may not transfer any of its General Partner
Interest or withdraw as General Partner, and the Company may not transfer any of
its Limited Partner Interest, or engage in an Extraordinary Transaction, except,
in any such case, (i) if such Extraordinary Transaction is, or such transfer or
withdrawal is pursuant to an Extraordinary Transaction that is, permitted under
Section 11.2(B) or (ii) if Limited Partners holding at least fifty percent of
the Percentage Interests of the Limited Partners (other than Limited Partner
Interests held by the Company or its Affiliates) consent to such transfer or
withdrawal or Extraordinary Transaction in which case the Partnership Vote
required to be conducted under Section 11.2 need not be conducted, or (iii) if
such transfer is to an entity that is wholly-owned by the Company or the General
Partner and is a Qualified REIT Subsidiary under Section 856(i) of the Code.
B. Each of the General Partner and the Company is permitted to engage in
the following Extraordinary Transactions without the approval or vote of the
Limited Partners except as provided in Section 11.2(C):
(i) an Extraordinary Transaction in connection with which
all Limited Partners either will receive, or will have the right to
elect to receive, for each Partnership Unit an amount of cash,
securities, or other property equal to the product of the REIT Shares
Amount and the greatest amount of cash, securities or other property
paid to a holder of one REIT Share in consideration of one REIT Share
pursuant to the terms of the Extraordinary Transaction; provided that,
if, in connection with the Extraordinary Transaction, a purchase, tender
or exchange offer shall have been made to and accepted by the holders of
the outstanding REIT Shares, each holder of Partnership Units shall
receive, or shall have the right to elect to receive, the greatest
amount of cash, securities, or other property which such holder would
have received had it exercised its right to Redemption (as set forth in
Section 8.6) and received REIT Shares in exchange for its Partnership
Units immediately prior to the expiration of such purchase, tender or
exchange offer and had thereupon accepted such purchase, tender or
exchange offer and then such Extraordinary Transaction shall have been
consummated; and
(ii) a merger (including a triangular merger), consolidation
or other combination with or into another entity, or other combination
of assets, with another entity if: (w) immediately after such
Extraordinary Transaction, substantially all of the assets directly or
indirectly owned by the surviving entity, other than Partnership Units
held by the General Partner or the Company, are owned directly or
indirectly by the Partnership or another limited partnership or limited
liability company which is the survivor of a merger, consolidation or
combination of assets with the Partnership (in each case, the "Surviving
Partnership"); (x) the Limited Partners own a percentage interest
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of the Surviving Partnership based on the relative fair market value
of the net assets of the Partnership (as determined pursuant to
Section 11.2.E) and the other net assets of the Surviving Partnership
(as determined pursuant to Section 11.2.E) immediately prior to
the consummation of such transaction; (y) the rights, preferences and
privileges of the Limited Partners in the Surviving Partnership are at
least as favorable as those in effect immediately prior to the
consummation of such transaction and as those applicable to any other
limited partners or non-managing members of the Surviving Partnership;
and (z) such rights of the Limited Partners include the right to
exchange their interests in the Surviving Partnership for at least one
of: (a) the consideration available to such Limited Partners pursuant to
Section 11.2.B(i) or (b) if the ultimate controlling person of the
Surviving Partnership has publicly traded common equity securities, such
common equity securities, with an exchange ratio based on the relative
fair market value of such securities (as determined pursuant to Section
11.2.E) and the REIT Shares.
C. Except as provided in Section 11.2(A)(ii), the Company shall not
consummate any Extraordinary Transaction in connection with which it conducted a
vote of its stockholders (a "Stockholder Vote") unless the General Partner also
conducts a vote of the Partners of the Partnership (the "Partnership Vote") in
which (i) the General Partner provides the Partners with advance notice equal in
time to the advance notice given in the case of the Stockholder Vote, (ii) in
connection with such advance notice the General Partner provides the Partners
with written materials describing the proposed Extraordinary Transaction as well
as the tax effect of the consummation thereof on the Limited Partners, (iii) in
such vote of the Partners, the General Partner and the Company vote all
Partnership Interests held by them in proportion to the manner in which all
outstanding shares of capital stock of the Company were voted at the Stockholder
Meeting (such votes to be "For," "Against," "Abstain" and "Not Present"), and
(iv) the total votes of the General and Limited Partners voted "For," "Against,"
"Abstain" and "Not Present" would be sufficient (measured in percentage terms),
if such vote were a vote by the Company's stockholders, to approve the
Extraordinary Transaction. For purposes of the Partnership Vote, each holder of
a Partnership Interest shall be entitled to a number of votes equal to the total
votes such holder would have been entitled to at the Stockholder Meeting had
such holder presented its Partnership Interest for redemption and such
Partnership Interest had been acquired by the Company for the REIT Shares Amount
of REIT Shares prior to the record date therefor.
D. Without in any way limiting the exculpation from liability set forth
in Section 7.1.D and 7.8.B, in connection with any transaction permitted by
Section 11.2.B or Section 11.2.C hereof, the General Partner and the Company
shall each use its commercially reasonable efforts to structure such
Extraordinary Transaction to avoid causing the Limited Partners to recognize
gain for federal income tax purposes by virtue of the occurrence of or their
participation in such Extraordinary Transaction.
E. In connection with any transaction permitted by Section 11.2.B or
11.2.C, the relative fair market values shall be reasonably determined by the
General Partner as of the time of such transaction and, to the extent
applicable, shall be no less favorable to the Limited Partners than the relative
values reflected in the terms of such transaction.
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SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, and
11.4, a Limited Partner (other than the Company) may transfer, with or without
the consent of the General Partner, all or any portion of its Partnership
Interest, or any of such Limited Partner's economic rights as a Limited Partner.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited Partner of
its Partnership Units if, in the opinion of legal counsel to the Partnership,
such transfer would require filing of a registration statement under the
Securities Act of 1933 or would otherwise violate any federal or state
securities laws or regulations applicable to the Partnership or the Partnership
Units.
D. No transfer by a Limited Partner of its Partnership Units may be made
to any Person if (i) in the opinion of legal counsel for the Partnership, it
would result in the Partnership being treated as an association taxable as a
corporation; (ii) it is made within one year after the consummation of the
initial public offering of the Company; (iii) such transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" with the meaning of Section 7704 of the Code;
(iv) such transfer would cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code); (v) such transfer would, in the opinion of legal
counsel for the Partnership, cause any portion of the assets of the Partnership
to constitute assets of any employee benefit plan pursuant to Department of
Labor Regulations Section 2510.2-101; or (vi) such transfer would subject the
Partnership to be regulated under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or the Employee Retirement Income Security Act
of 1974, each as amended.
E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
in its sole and absolute discretion; provided that as a condition to such
consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to redeem for the Cash Amount any
Partnership Units in which a security interest is held simultaneously with the
time at which such lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Section 752 of the Code.
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SECTION 11.4 SUBSTITUTED LIMITED PARTNERS
A. No Limited Partner shall have the right to substitute a transferee as
a Limited Partner in his place. The General Partner shall, however, have the
right to consent to the admission of a transferee of the interest of a Limited
Partner pursuant to this Section 11.4 as a Substituted Limited Partner, which
consent may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
SECTION 11.5 ASSIGNEES
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee as a Substituted Limited
Partner, as described in Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive distributions from the
Partnership and the share of Net Income, Net Losses, Recapture Income, and any
other items, gain, loss deduction and credit of the Partnership attributable to
the Partnership Units assigned to such transferee, but except as otherwise
provided in Section 8.6.A hereof shall not be deemed to be a holder of
Partnership Units for any other purpose under this Agreement, and shall not be
entitled to vote such Partnership Units in any matter presented to the Limited
Partners for a vote (such Partnership Units being deemed to have been voted on
such matter in the same proportion as all other Partnership Units held by
Limited Partners are voted). In the event any such transferee desires to make a
further assignment of any such Partnership Units, such transferee shall be
subject to all of the provisions of this Article 11 to the same extent and in
the same manner as any Limited Partner desiring to make an assignment of
Partnership Units.
SECTION 11.6 GENERAL PROVISIONS
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11 or pursuant to the redemption of all of
its Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of its Partnership Units
in a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited
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Partner who shall transfer all of its Partnership Units pursuant to a redemption
of all of its Partnership Units under Section 8.6 shall cease to be a Limited
Partner.
C. Transfers pursuant to this Article 11 may only be made on the first
day of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees, in its sole and absolute discretion.
D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 or redeemed or transferred pursuant to Section 8.6
on any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items attributable to such interest for
such Partnership Year shall be divided and allocated between the transferor
Partner and the transferee Partner by taking into account their varying
interests during the Partnership Year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which the
transfer or assignment occurs shall be allocated to the transferee Partner, and
none of such items for the calendar month in which a redemption occurs shall be
allocated to the Redeeming Partner; provided, however, that the General Partner
may adopt such other conventions relating to allocations in connection with
transfers, assignments or redemptions as it determines are necessary or
appropriate. All distributions of Available Cash attributable to such
Partnership Unit with respect to which the Partnership Record Date is before the
date of such transfer, assignment, or redemption shall be made to the transferor
Partner or the Redeeming Partner, as the case may be, and in the case of a
transfer or assignment other than a redemption, all distributions of Available
Cash thereafter attributable to such Partnership Unit shall be made to the
transferee Partner.
E. Additional Restrictions. In addition to any other restrictions on
transfer herein contained, including, without limitation, the provisions of this
Article II, in no event may any transfer or assignment of a Partnership Interest
by any Partner (including pursuant to Section 8.6 hereof) be made without the
express consent of the General Partner, in its sole and absolute discretion, (i)
to any person or entity who lacks the legal right, power or capacity to own a
Partnership Interest; (ii) in violation of applicable law; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest; (iv) if, in the opinion of legal counsel to the
Partnership experienced in such matters such transfer would cause a termination
of the Partnership for federal or state income tax purposes (except as a result
of the redemption or exchange for Shares of all Partnership Units held by all
Limited Partners or pursuant to a transaction expressly permitted under Section
11.2; (v) if, in the opinion of counsel to the Partnership experienced in such
matters, such transfer would cause the Partnership to cease to be classified as
a partnership for federal income tax purposes (except as a result of the
redemption or exchange for Shares.of all Partnership Units held by all Limited
Partners or pursuant to a transaction expressly permitted under Section 11.2);
(vi) if such transfer would cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code); (vii) if such transfer would, in the opinion of
counsel to the Partnership experienced in such matters, cause any portion of the
assets of the
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Partnership to constitute assets of any employee benefit plan pursuant to
Department of Labor Regulations Section 25101.1-101; (viii) if such transfer
requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws; (ix) if such transfer is
effectuated through an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) within the meaning of Section 7704 of
the Code or such transfer causes the Partnership to become a "publicly traded
partnership," as such term is defined in Section 469(k)(2) or Section 7704(b) of
the Code (provided, that this clause (ix) shall not be the basis for limiting or
restricting in any manner the exercise of the Redemption Right under Section 8.6
hereof unless, and only to the extent that, outside tax counsel experienced in
such matters provides to the General Partner an opinion to the effect that, in
the absence of such limitation or restriction, there is a significant risk that
the Partnership will be treated as a "publicly traded partnership" and, by
reason thereof, taxable as a corporation); (x) if such transfer subjects the
Partnership to regulation under the Investment Company Act of 1940, the
Investment Advisors Act of 1940 or ERISA, each as amended; (xi) such transfer
could adversely affect the ability of the Company to remain qualified as a REIT;
or (xii) if in the opinion of independent legal counsel experienced in such
matters for the transferring Partner (which opinion and counsel shall be
reasonably satisfactory to the Partnership) or legal counsel for the
Partnership, such transfer would adversely affect the ability of the Company to
continue to qualify as a REIT or subject the Company or the General Partner to
any additional taxes under Section 857 or Section 4981 of the Code.
F. Avoidance of "Publicly Traded Partnership" Status. The General
Partner shall monitor the transfers of interests in the Partnership to determine
(i) if such interests are being traded on an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code and (ii) whether additional transfers of interests
would result in the Partnership being unable to qualify for at least one of the
"safe harbors" set forth in Regulations Section 1.7704-1 (or such other guidance
subsequently published by the IRS setting forth safe harbors under which
interests will not be treated as "readily tradable on a secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code)
(the "Safe Harbors"). The General Partner shall take all steps reasonably
necessary or appropriate in its sole an absolute discretion to prevent any
trading of interests or any recognition by the Partnership of transfers made on
such markets and, except as otherwise provided herein, to insure that at least
one of the Safe Harbors is met; provided, however, that the foregoing shall not
authorize the General Partner to limit or restrict in any manner the right of
the holder of a Partnership Unit to exercise the Redemption Right in accordance
with the terms of Section 8.6 unless, and only to the extent that, outside tax
counsel experienced in such matters provides to the General Partner an opinion
to the effect that, in the absence of such limitation or restriction, there is a
significant risk that the Partnership will be treated as a "publicly traded
partnership" and, by reason thereof, taxable as a corporation.
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ARTICLE 12
ADMISSION OF PARTNERS
SECTION 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER
A successor to all of the General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership Year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6.D hereof.
SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS
A. After the admission to the Partnership of the initial Limited
Partners on the date hereof, a Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using any convention permitted by law and selected by the
General Partner. Solely for purposes of making such allocations, each such item
for the calendar month in which an admission of any Additional Limited Partner
occurs shall be allocated among all of the Partners and Assignees, including
such Additional Limited Partner; provided, however, that the General Partner may
adopt such other conventions relating to allocations to Additional Limited
Partners as it determines are necessary or appropriate. All distributions of
Available Cash with respect to which the Partnership Record Date is before the
date of such admission shall be made
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solely to Partners and Assignees, other than the Additional Limited Partner, and
all distributions of Available Cash thereafter shall be made to all of the
Partners and Assignees, including such Additional Limited Partner.
SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A) and, if
required applicable by law, shall prepare and file an amendment to the
Certificate of Limited Partnership and may for this purpose exercise the power
of attorney granted pursuant to Section 2.4 hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 13.1 DISSOLUTION
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, only upon the first to occur of any of the
following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless, within ninety (90) days after such
event of withdrawal a majority in interest of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a successor General Partner;
C. from and after the date of this Agreement through [December 31,
____,] an election to dissolve the Partnership made by the General Partner with
the Consent of Partners holding eighty-five percent (85%) of the Percentage
Interests of the Limited Partners (including Limited Partner Interests held by
the Company and its Affiliates);
D. on or after [January 1, ____], an election to dissolve the
Partnership made by the General Partner, in its sole and absolute discretion;
E. entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Act;
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F. the sale of all or substantially all of the assets and properties of
the Partnership; or
G. a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or insolvent,
or a final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the General Partner, in each case under any
federal or state bankruptcy or insolvency laws as now or hereafter in effect,
unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner.
SECTION 13.2 WINDING UP
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or, in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator"),
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities and
property and the Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
(which may, to the extent determined by the General Partner, include shares of
common stock in the Company) shall be applied and distributed in the following
order:
(a) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the
Partners;
(b) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General Partner;
(c) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other Partners; and
(d) The balance, if any, to the General Partner and Partners in
accordance with their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation
for any services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners,
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the Liquidator may, in its sole and absolute discretion, defer for a reasonable
time the liquidation of any assets except those necessary to satisfy liabilities
of the Partnership (including to those Partners as creditors) and/or distribute
to the Partners, in lieu of cash, as tenants in common and in accordance with
the provisions of Section 13.2.A hereof, undivided interests in such Partnership
assets as the Liquidator deems not suitable for liquidation. Any such
distributions in kind shall be made only if, in the good faith judgment of the
Liquidator, such distributions in kind are in the best interest of the Partners,
and shall be subject to such conditions relating to the disposition and
management of such properties as the Liquidator deems reasonable and equitable
and to any agreements governing the operation of such properties at such time.
The Liquidator shall determine the fair market value of any property distributed
in kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(a) distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or obligations of the
Partnership or the General Partner arising out of or in connection with
the Partnership. The assets of any such trust shall be distributed to
the General Partner and Limited Partners from time to time, in the
reasonable discretion of the Liquidator, in the same proportions as the
amount distributed to such trust by the Partnership would otherwise have
been distributed to the General Partner and Limited Partners pursuant to
this Agreement; or
(b) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld or escrowed amounts shall be
distributed to the General Partner and Limited Partners in the manner
and order of priority set forth in Section 13.2.A as soon as
practicable.
SECTION 13.3 DEEMED DISTRIBUTION AND RECONTRIBUTION
Notwithstanding any other provision of this Article 13, in the event the
Partnership is considered "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, for federal income tax purposes, the Partnership shall be deemed to
have contributed the Partnership property to a new partnership, in exchange for
an interest in the new partnership, which new partnership shall be deemed to
have assumed and taken such property subject to all Partnership liabilities.
Immediately thereafter, the Partnership shall be deemed to have distributed the
interests in the new partnership in liquidation of the Partnership, to the
General Partner and the Limited Partners, in proportion to their respective
Partnership Interests for the Continuation of the business.
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SECTION 13.4 RIGHTS OF LIMITED PARTNERS
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distributions, or allocations.
SECTION 13.5 NOTICE OF DISSOLUTION
In the event a Liquidating Event occurs or an event occurs that would,
but for the provisions of an election or objection by one or more Partners
pursuant to Section 13.1, result in a dissolution of the Partnership, the
General Partner shall, within thirty (30) days thereafter, provide written
notice thereof to each of the Partners.
SECTION 13.6 TERMINATION OF PARTNERSHIP AND CANCELLATION OF CERTIFICATE
OF LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as may be necessary
to terminate the Partnership shall be taken.
SECTION 13.7 REASONABLE TIME FOR WINDING-UP
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
SECTION 13.8 WAIVER OF PARTITION
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
SECTION 14.1 AMENDMENTS
A. Amendments to this Agreement may be proposed by the General Partner
or by any Limited Partners (other than the Company) holding twenty percent (20%)
or more of the Partnership Interests. Following such proposal, the General
Partner shall submit any proposed amendment to the Limited Partners. The General
Partner shall seek the written vote of the Partners on the proposed amendment or
shall call a meeting to vote thereon and to transact any
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other business that it may deem appropriate. For purposes of obtaining a written
vote, the General Partner may require a response within a reasonable specified
time, but not less than fifteen (15) days, and failure to respond in such time
period shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in Section
13.1.C, 14.1.B, 14.1.C or 14.1.D, a proposed amendment shall be adopted and be
effective as an amendment hereto if it is approved by the General Partner and it
receives the Consent of Partners holding a majority of the Percentage Interests
of the Limited Partners (including Limited Partner Interests held by the
Company); provided that, an action shall become effective at such time as the
requisite consents are received even if prior to such specified time.
B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(a) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(b) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(c) to set forth and reflect in the Agreement the designations,
rights, powers, duties, and preferences of the holders of any additional
Partnership Interests issued pursuant to Section 4.2.A hereof;
(d) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material respect,
or to cure any ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this Agreement that
will not be inconsistent with law or with the provisions of this
Agreement; and
(e) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners when
any action under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement
shall not be amended without the Consent of each Partner adversely affected if
such amendment would (i) convert a Limited Partner's interest in the Partnership
into a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner (other than as a result of the issuance of Partnership Interests) to
receive distributions pursuant to Article 5 or Article 13 or the allocations
specified in Article 6 (except
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as permitted pursuant to Section 4.2 and Section 14.1.B(3) hereof); (iv) alter
or modify the Redemption Right and REIT Shares Amount as set forth in Sections
8.6 and 11.2.B, and the related definitions, in a manner adverse to such
Partner; (v) cause the termination of the Partnership prior to the time set
forth in Sections 2.5 or 13.1; or (vi) amend this Section 14.1.C. Further, no
amendment may alter the restrictions on the General Partner's authority set
forth in Section 7.3.B without the Consent specified in that section. In
addition, Section 8.7 may only be amended as provided therein.
D. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General
Partner shall not (except in connection with amendments made to reflect the
issuance of additional Partnership Interests and the relative rights, powers and
duties incident thereto) amend Sections 4.2.A, 7.5, 7.6, 11.2 or 14.2 without
the Consent of Limited Partners holding a majority of the Percentage Interests
of the Limited Partners, excluding Limited Partner Interests held by the Company
or its Affiliates.
SECTION 14.2 MEETINGS OF THE PARTNERS
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the Company) holding twenty percent (20%) or more
of the Partnership Interests. The request shall state the nature of the business
to be transacted. Notice of any such meeting shall be given to all Partners not
less than seven (7) days nor more than thirty (30) days prior to the date of
such meeting. Partners may vote in person or by proxy at such meeting. Whenever
the vote or Consent of the Partners is permitted or required under this
Agreement, such vote or Consent may be given at a meeting of the Partners or may
be given in accordance with the procedure prescribed in Section 14.1.A hereof.
Except as otherwise expressly provided in this Agreement, the Consent of holders
of a majority of the Percentage Interests held by Limited Partners (including
Limited Partnership Interests held by the Company) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Limited Partner may authorize any Person or Persons to act for
him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of twelve (12)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
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D. Each meeting of the Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate. Without limitation, meetings of Partners may be conducted in
the same manner as meetings of the shareholders of the Company and may be held
at the same time, and as part of, meetings of the shareholders of the Company.
ARTICLE 15
GENERAL PROVISIONS
SECTION 15.1 ADDRESSES AND NOTICE
Any notice, demand, request or report required or permitted to be given
or made to a Partner or Assignee under this Agreement shall be in writing and
shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee at the address set forth in Exhibit A or such other address
of which the Partner shall notify the General Partner in writing.
SECTION 15.2 TITLES AND CAPTIONS
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
SECTION 15.3 PRONOUNS AND PLURALS
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
SECTION 15.4 FURTHER ACTION
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
SECTION 15.5 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
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SECTION 15.6 CREDITORS
Other than as expressly set forth herein with respect to the
Indemnities, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor of the Partnership.
SECTION 15.7 WAIVER
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
SECTION 15.8 COUNTERPARTS
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
SECTION 15.9 APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to principles of
conflicts of law.
SECTION 15.10 INVALIDITY OF PROVISIONS
If any provision of this Agreement shall to any extent be held void or
unenforceable (as to duration, scope, activity, subject or otherwise) by a court
of competent jurisdiction, such provision shall be deemed to be modified so as
to constitute a provision conforming as nearly as possible to the original
provision while still remaining valid and enforceable. In such event, the
remainder of this Agreement (or the application of such provision to persons or
circumstances other than those in respect of which it is deemed to be void or
unenforceable) shall not be affected thereby. Each other provision of this
Agreement, unless specifically conditioned upon the voided aspect of such
provision, shall remain valid and enforceable to the fullest extent permitted by
law; any other provisions of this Agreement that are specifically conditioned on
the voided aspect of such invalid provision shall also be deemed to be modified
so as to constitute a provision conforming as nearly as possible to the original
provision while still remaining valid and enforceable to the fullest extent
permitted by law.
SECTION 15.11 ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes the Prior
Agreement, any other prior written or oral understandings or agreements among
them with respect thereto.
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SECTION 15.12 NO RIGHTS AS STOCKHOLDERS
Nothing contained in this Agreement shall be construed as conferring
upon the holders of the Partnership Units any rights whatsoever as partners or
stockholders of the General Partner or the Company, including, without
limitation, any right to receive dividends or other distributions made to
stockholders of the General Partner or the Company or to vote or to consent or
receive notice as stockholders in respect to any meeting of stockholders for the
election of directors of the General Partner or the Company or any other matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
LOEB REALTY GP, INC.
By:
____________________________________________
Name:
Title:
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LIMITED PARTNER SIGNATURE PAGE
The undersigned, desiring to become one of the within named Limited
Partners of Loeb Realty Limited Partnership, hereby becomes a party to the
Agreement of Limited Partnership of Loeb Realty Limited Partnership by and among
Loeb Realty Corp. and such Limited Partners, dated as of ________, 1998. The
undersigned agrees that this signature page may be attached to any counterpart
of said Agreement of Limited Partnership.
Signature Line for Limited Partner:
LOEB REALTY CORPORATION
By:
_________________________________
Name:
Title:
Address of Limited Partner: _________________________________
_________________________________
_________________________________
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[OTHER SIGNATURE PAGES]
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EXHIBIT A
PARTNERS' CONTRIBUTIONS AND PARTNERSHIP INTERESTS
A-1
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EXHIBIT B
NOTICE OF REDEMPTION
The undersigned Limited Partner hereby irrevocably (i) redeems [_____]
Limited Partnership Units in Loeb Realty Limited Partnership in accordance with
the terms of the Operating Partnership Agreement of Limited Partnership of Loeb
Realty Limited Partnership and the Redemption Right referred to therein; (ii)
surrenders such Limited Partnership Units and all right, title and interest
therein; and (iii) directs that the Cash Amount or REIT Shares Amount (as
determined by the General Partner) deliverable upon exercise of the Redemption
Right be delivered to the address specified below, and if REIT Shares are to be
delivered, such REIT Shares be registered or placed in the name(s) and at the
address(es) specified below. The undersigned hereby, represents, warrants, and
certifies that the undersigned (a) has marketable and unencumbered title to such
Limited Partnership Units, free and clear of the rights or interests of any
other person or entity; (b) has the full right, power, and authority to redeem
and surrender such Limited Partnership Units as provided herein; and (c) has
obtained the consent or approval of all person or entities, if any, having the
right to consent or approve such redemption and surrender.
Dated:
_______________________
Name of Limited Partner:
_________________________________________
(Please Print)
_________________________________________
(Signature of Partner)
_________________________________________
(Street Address)
_________________________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
_________________________________________
B-1
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If REIT Shares are to be issued, issue to:
Name:
_________________________________________
Please insert social security or identifying number:
- -
_______________ ___________ _______________
B-2
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<PAGE>
EXHIBIT C
DESIGNATED PROPERTIES
Designated Property
- -------------------
_______________________________________
_______________________________________
_______________________________________
C-1
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CERTIFICATE OF INCORPORATION
OF
LOEB PROPERTY SERVICES, INC.
THE UNDERSIGNED, for the purpose of forming a corporation
pursuant to Section 102 of the Delaware General Corporation Law, does hereby
certify the following:
FIRST: The name of the corporation is: Loeb Property Services,
Inc.
SECOND: The address of the Corporation's registered office in the
state of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware
19805-1297. The name of the registered agent at such address is Corporation
Service Company.
THIRD: The purposes to be conducted or promoted are to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The aggregate number of shares of stock which the
Corporation shall have authority to issue is ONE HUNDRED (100); each of such
shares shall be with a par value of $.01 per share.
FIFTH: The name and mailing address of the incorporator is:
Sandra Park, c/o Rogers & Wells, 200 Park Avenue, New York, New York 10166.
SIXTH: In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to make,
alter, or repeal the by-laws of the Corporation.
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SEVENTH: No director will have any personal liability to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, as amended, or
(iv) for any transaction from which the director obtained an improper personal
benefit.
EIGHTH: Pursuant to Section 211(e) of the Delaware General
Corporation Law, directors shall not be required to be elected by written
ballot.
IN WITNESS WHEREOF, the incorporator named above has executed
this Certificate of Incorporation this 14th day of April, 1998.
/s/ Sandra Park
--------------------------
Sandra Park
Incorporator
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Amendment to
Certificate of Incorporation
of
Loeb Property Services, Inc.
The undersigned, the sole incorporator of Loeb Property Services, Inc.,
pursuant to Section 241 of the Delaware General Corporation Law ("Section 241"),
hereby amends the Certificate of Incorporation (the "Certificate") as provided
herein.
Article "FOURTH" is deleted in its entirety and replaced by the
following:
"FOURTH: The Corporation shall have authority to issue 1000 shares of
Class A Voting Common Stock (no par value) and 1000 shares of Class B Non-Voting
Common Stock (no par value), with the following relative rights and limitations:
1. Class A Voting Common Stock.
Voting Rights. The holders of Class A Voting Common Stock ("Class
A Stock") shall, to the exclusion of the holders of any other class of stock of
the Corporation, have the sole and full power to vote for the election of
Directors and for all other purposes without limitation except as otherwise
expressly provided in these Articles of Incorporation, the by-laws of the
Corporation or by the General Corporation Law of Delaware. The holders of Class
A Stock shall have one (1) vote for each share of Class A Stock held by them.
2. Class B Non-Voting Common Stock.
Voting Rights. The holders of Class B Non-Voting Common Stock ("Class B
Stock") shall not be entitled to vote on any matters except as provided in these
Articles of Incorporation or the by-laws of the Corporation and to the extent
required by the General Corporation Law of Delaware. In such matters in which
they are entitled to vote, the holders of
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Class B Stock shall have one (1) vote for each share ofClass B Stock held by
them.
3. Distribution of Assets and Dividends. In the case of cash dividends
and the distribution of any property (other than shares of the Corporation's
stock), the Class A Stock and the Class B Stock shall be entitled to equal,
ratable rights and benefits.
4. Preemptive Rights. No holder of shares of any class of the
Corporation shall have any preemptive or preferential right to purchase or
subscribe to (i) any shares of any class of the Corporation, whether now or
hereafter authorized; (ii) any warrants, rights, or options to purchase such
shares; or (iii) any securities or obligations convertible into any such shares
or into warrants, rights or options to purchase any such shares."
I hereby certify that the corporation has not received any payment for
any of its stock and that this amendment has been duly adopted in accordance
with the provisions of Section 241.
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IN WITNESS WHEREOF, the undersigned sole incorporator of the
corporation, has executed this amendment to the Certificate as of the 4th day of
May, 1998.
-----------------------------------
Sandra Park
Incorporator
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BY-LAWS
of
LOEB PROPERTY SERVICES, INC.
A Delaware Corporation
Adopted April 15, 1998
ARTICLE I
Offices
Section 1. The registered office of the Corporation will be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places,
within or outside of the State of Delaware, as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
Meeting of Stockholders
Section 1. All meetings of stockholders will be held at the registered
office of the Corporation, or at such other place within or outside of the State
of Delaware as may be fixed from time to time by the Board of Directors.
Section 2. Commencing with the year 1999, annual Meetings of
Stockholders will be held on May 15 of each year, or
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if that is a legal holiday, on the next following business day, at the offices
of the Corporation, or at such other date and time as may be fixed by the Board
of Directors. At each annual meeting of stockholders the stockholders will elect
directors and transact such other business as may properly be brought before the
meeting.
Section 3. Special meetings of stockholders may be called at any time
for any purpose or purposes by the Board of Directors or by the President, and
must be called by the President or the Secretary upon the written request of a
majority of the directors or upon the written request of the holders of at least
50% of all the outstanding shares entitled to vote on the action proposed to be
taken. Each written request must state the time, place and purpose or purposes
of the proposed meeting. A special meeting of stockholders called by the Board
of Directors or the President, other than one required to be called by reason of
a written request of stockholders, may be cancelled by the Board of Directors at
any time not less than 24 hours before the scheduled commencement of the
meeting.
Section 4. Written notice of each annual or special meeting of
stockholders, stating the date, time and place of the meeting and the matters to
be voted upon at it, must be given in the manner set forth in Article VI of
these By-Laws not less than ten nor more than sixty days before the date of the
meeting, to each stockholder entitled to vote at the meeting.
Section 5. Except as otherwise required by law or the Certificate of
Incorporation, the presence in person or by proxy of holders of a majority of
the shares entitled to vote at
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a meeting of stockholders will be necessary, and will constitute a quorum, for
the transaction of business at such meeting. If a quorum is not present or
represented by proxy at any meeting of stockholders, the holders of a majority
of the shares entitled to vote at the meeting who are present in person or
represented by proxy may adjourn the meeting from time to time until a quorum is
present. An adjourned meeting may be held later without notice other than
announcement at the meeting, except that if the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting must be given in the manner
set forth in Article VI to each stockholder of record entitled to vote at the
adjourned meeting.
Section 6. At any meeting of stockholders each stockholder having the
right to vote may vote in person or by proxy. Except as otherwise provided by
law or in the Certificate of Incorporation, each stockholder will be entitled to
one vote for each share of stock entitled to vote standing in his name on the
books of the Corporation. All elections will be determined by plurality votes.
Except as otherwise provided by law or in the Certificate of Incorporation or
By-Laws, any other matter will be determined by the vote of a majority of the
shares which are voted with regard to it.
Section 7. Whenever the vote of stockholders at a meeting is required
or permitted in connection with any corporate action, the meeting and vote may
be dispensed with if the action taken has the written consent of the holders of
shares having at
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least the minimum number of votes required to authorize the action at a meeting
at which all shares entitled to vote were present and voted.
ARTICLE III
Directors
Section 1. The Board of Directors will manage the business of the
Corporation, except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws.
Section 2. The number of directors which will constitute the entire
Board of Directors will be such number, not less than three nor more than
twenty, as is determined by the Board of Directors from time to time. Until
further action by the Board of Directors, the number of directors which will
constitute the entire Board of Directors will be . As used in these By-Laws, the
term "entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.
Section 3. Except as provided in Section 5 of this Article, the
directors will be elected at each annual meeting of stockholders. Except as
otherwise provided by law, the Certificate of Incorporation, or these By-Laws,
each director elected will serve until the next succeeding annual meeting of
stockholders and until his successor is elected and qualified.
Section 4. Any of the directors may be removed for cause by vote of a
majority of the entire Board. Any or all of the directors may be removed for
cause or without cause by vote of
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<PAGE>
the holders of a majority of the outstanding shares of each class of voting
stock of the Corporation voting as a class.
Section 5. Newly created directorships resulting from an increase in
the number of directors and vacancies occurring in the Board may be filled by
vote of a majority of the directors then in office, even if less than a quorum
exists. A director elected to fill a vacancy, including a vacancy created by a
newly created directorship, will serve until the next succeeding annual meeting
of stockholders and until his successor is elected and qualified.
Section 6. The books of the Corporation, except as such as are required
by law to be kept within the State of Delaware, may be kept at such place or
places within or outside of the State of Delaware as the Board of Directors may
from time to time determine.
Section 7. The Board of Directors, by the affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of any or
all directors for services to the Corporation as directors or officers or
otherwise.
ARTICLE IV
Meetings of the Board of Directors
Section 1. The first meeting of each newly elected Board of Directors
will be held immediately following the annual meeting of the stockholders. If
the meeting is held at the place of the meeting of stockholders, no notice of
the meeting need be
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given to the newly elected directors. If the first meeting is not held at that
time and place, it will be held at a time and place specified in a notice given
in the manner provided for notice of special meetings of the Board of Directors.
Section 2. Regular meetings of the Board of Directors may be held upon
such notice, or without notice, at such times and at such places within or
outside of the State of Delaware, as is determined from time to time by the
Board of Directors.
Section 3. Special meetings of the Board of Directors may be called by
the Chairman of the Board, if there is one, or by the President, on at least two
days' notice to each director and must be called by the President or the
Secretary on like notice at the written request of any two directors.
Section 4. Whenever notice of a meeting of the Board of Directors is
required, the notice must be given in the manner set forth in Article VI of
these By-Laws and must state the place, date and hour of the meeting. Except as
provided by law, the Certificate of Incorporation, or other provisions of these
By-Laws, neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of the meeting.
Section 5. Except as otherwise required by law or the Certificate of
Incorporation or other provisions of these By-Laws, a majority of the directors
in office, but in no event less than one-third of the entire Board of Directors,
will constitute a quorum for the transaction of business, and the vote
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of a majority of the directors present at any meeting at which a quorum is
present will be the act of the Board of Directors. If a quorum is not present at
any meeting of directors, a majority of the directors present at the meeting may
adjourn the meeting from time to time, without notice of the adjourned meeting
other than announcement at the meeting. To the extent permitted by law, a
director participating in a meeting by conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other will be deemed present in person at the meeting and all acts
taken by him during his participation will be deemed taken at the meeting.
Section 6. Any action of the Board of Directors may be taken without a
meeting if written consent to the action signed by all members of the Board of
Directors is filed with the minutes of the Board of Directors.
ARTICLE V
Committees
Section 1. The Board of Directors may designate from among its members
an Executive Committee and other committees, each consisting of two or more
directors, and may also designate one or more of its members to serve as
alternates on these committees. To the extent permitted by law, the Executive
Committee will have all the authority of the Board of Directors, except as the
Board otherwise provides, and the other committees will have such authority as
the Board grants them. The Board of Directors will have power at any time to
change the membership of
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any committees, to fill vacancies in their membership and to discharge any
committees. All resolutions establishing or discharging committees, designating
or changing members of committees, or granting or limiting authority of
committees, may be adopted only by the affirmative vote of a majority of the
entire Board of Directors.
Section 2. Each committee must keep regular minutes of its proceedings
and report to the Board of Directors as and when the Board requires. Unless the
Board otherwise provides, a majority of the members of any committee may
determine its actions and the procedures to be followed at its meetings (which
may include a procedure for participating in meetings by conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other), and may fix the time and place of its meetings.
Section 3. Any action of a committee may be taken without a meeting if
written consent to the action signed by all the members of the committee is
filed with the minutes of the committee.
ARTICLE VI
Notices
Section l. Any notice to a stockholder may be given personally or by
mail. If mailed, a notice will be deemed given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of stockholders.
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Section 2. Any notice to a director may be given personally, by
telephone or by mail, facsimile transmission, telex, telegram, cable or similar
instrumentality. A notice will be deemed given when actually given in person or
by telephone, when received if given by facsimile transmission or telex, on the
third business day after the day when deposited in the United States mail,
postage prepaid, or on the day when delivered to a cable or similar
communications company, directed to the director at his business address or at
such other address as the director may have designated to the Secretary in
writing as the address to which notices should be sent.
Section 3. Any person may waive notice of any meeting by signing a
written waiver, whether before or after the meeting. In addition, attendance at
a meeting will be deemed a waiver of notice unless the person attends for the
purpose, expressed to the meeting at its commencement, of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
Officers
Section 1. The officers of the Corporation will be a President, a
Secretary and a Treasurer, and the Board of Directors may also elect a Chairman
of the Board, a Vice Chairman of the Board, one or more Vice Presidents (one or
more of whom may be designated an Executive Vice President or a Senior Vice
President), one or more Assistant Secretaries or Assistant
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Treasurers, and such other officers as it may from time to time deem advisable.
Any two or more offices, except the offices of President and Secretary, may be
held by the same person. No officer except the Chairman of the Board need be a
director of the Corporation.
Section 2. Each officer will be elected by the Board of Directors and
will hold office for such term, if any, as the Board of Directors shall
determine. Any officer may be removed at any time, either with or without cause,
by the vote of a majority of the entire Board of Directors.
Section 3. The compensation of officers will be fixed by the Board of
Directors or in such manner as it may provide.
Section 4. The Chairman of the Board, if any, will preside at all
meetings of the stockholders and of the Board of Directors and will have such
other duties as from time to time may be prescribed by the Board of Directors.
Section 5. The President will be the Chief Executive Officer of the
Corporation, will have general charge of management of the business and affairs
of the Corporation, subject to the control of the Board of Directors, and will
see that all orders and resolutions of the Board of Directors are carried into
effect. The President will preside over any meeting of the stockholders or the
Board of Directors at which neither the Chairman of the Board nor a Vice
Chairman of the Board is present.
Section 6. The officers of the Corporation, other than the Chairman of
the Board and the President, will have such
10
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powers and perform such duties in the management of the property and affairs of
the Corporation, subject to the control of the Board of Directors and the
President, as generally pertain to their respective offices, as well as such
powers and duties as from time to time may be prescribed by the Board of
Directors.
Section 7. The Board of Directors may require any officer, agent or
employee to give security for the faithful performance of his duties.
ARTICLE VIII
Certificates for Shares
Section 1. The shares of stock of the Corporation will be represented
by certificates, in such form as the Board of Directors may from time to time
prescribe, signed by the President or a Vice-President and by the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary.
Section 2. Any or all signatures upon a certificate may be a facsimile.
Even if an officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate ceases to be that
officer, transfer agent or registrar before the certificate is issued, that
certificate may be issued by the Corporation with the same effect as if he or it
were that officer, transfer agent or registrar at the date of issue.
Section 3. The Board of Directors may direct that a new certificate be
issued in place of any certificate issued by the Corporation which is alleged to
have been lost, stolen or
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destroyed. When doing so, the Board of Directors may prescribe such terms and
conditions precedent to the issuance of the new certificate as it deems
expedient, and may require a bond sufficient to indemnify the Corporation
against any claim that may be made against it with regard to the allegedly lost,
stolen or destroyed certificate or the issuance of the new certificate.
Section 4. The Corporation or a transfer agent of the Corporation, upon
surrender to it of a certificate representing shares, duly endorsed or
accompanied by proper evidence of lawful succession, assignment or authority to
transfer, shall issue a new certificate to the person entitled to it, and shall
cancel the old certificate and record the transaction upon the books of the
Corporation.
Section 5. The Board of Directors may fix in advance a date as the
record date for determination of the stockholders entitled to notice of or to
vote at any meeting of stockholders, or to express consent to, or dissent from,
any proposal without a meeting, or to receive payment of any dividend or
allotment of any rights, or to take or be the subject of any other action. That
date must be not less than ten nor more than sixty days before the date of the
meeting, nor more than sixty days prior to any other action. If no record date
is fixed, the record date will be as provided by law. A determination of
stockholders entitled to notice of or to vote at any meeting of stockholders
which has been made as provided in this Section will apply to any adjournment of
the meeting, unless the Board of Directors fixes a new record date for the
adjourned meeting.
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Section 6. The Corporation will for all purposes, be entitled to treat
a person registered on its books as the owner of shares as the owner of those
shares, with the exclusive right, among other things, to receive dividends and
to vote with regard to those shares, and the Corporation will not be bound to
recognize any equitable or other claim to or interest in shares of its stock on
the part of any other person, whether or not the Corporation has notice of the
claim or interest of the other person, except as otherwise provided by the laws
of Delaware.
ARTICLE IX
Indemnification
Section 1. The Corporation shall indemnify any person who was or is
made a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with
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respect to any criminal action or proceeding, had no reasonable cause to believe
the conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, will not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
conduct was unlawful.
Section 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which
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such action or such suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 3. To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article, or
in defense of any claim, issue or matter therein, the person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1 or 2. Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable and a quorum
of disinterested directors so directs, by independent legal counsel (compensated
by the Corporation) in a written opinion, or (3) by the stockholders.
Section 5. Expenses incurred by an officer, director, employee or agent
in defending a civil, criminal,
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administrative or investigative action, suit or proceeding, or threat thereof,
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall ultimately
be determined that the person is not entitled to be indemnified by the
Corporation as authorized in this Article.
Section 6. The Indemnification and advancement of expenses provided by,
or granted pursuant to, the other Sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 7. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
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against the person and incurred by him in any such capacity, or arising out of
the person's status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Article.
Section 9. References in this Article to "the Corporation" will
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, will stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to the constituent
corporation if its separate existence had continued.
Section 10. For purposes of this Article, references to "other
enterprises" will include employee benefit plans; references to "fines" will
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation" will
include any service as a director, officer, employee or agent of a subsidiary of
the Corporation and any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or
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involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan will be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article.
Section 11. The provisions of this Article will be deemed retroactive
and will include all acts of the officers and directors of the Corporation since
the date of incorporation.
ARTICLE X
General Provisions
Section 1. The corporate seal will have inscribed on it the name of the
Corporation, the year of its creation, the words "CORPORATE SEAL DELAWARE," and
such other appropriate legend as the Board of Directors may from time to time
determine. Unless prohibited by the Board of Directors, a facsimile of the
corporate seal may be affixed or reproduced in lieu of the corporate seal
itself.
Section 2. The fiscal year of the Corporation will end on December 31
of each year.
ARTICLE XI
Amendments
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Section I. These By-Laws may be amended or repealed, and new By-Laws
may be adopted, amended or repealed (a) at any regular or special meeting of
stockholders, or (b) by the affirmative vote of a majority of the entire Board
at any regular or special meeting of the Board, except that no By-Law may be
adopted or amended by the Board of Directors if the By-Law or amendment is
inconsistent with a By-Law, or an amendment to a By-Law, adopted by the
stockholders.
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OMNIBUS CONTRIBUTION AGREEMENT
BY AND AMONG
LOEB REALTY, L.P.,
LOEB REALTY CORPORATION
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of May 11, 1998
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TABLE OF CONTENTS
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ARTICLE I.
CONTRIBUTION TERMS AND CLOSING PROCEDURES..........................2
1.1 Contribution of Assets..................................................2
1.2 Term of Agreement.......................................................2
1.3 Consideration...........................................................2
1.4 Closing; Condition to Obligations.......................................2
1.5 Documents to be Delivered at Closing....................................4
1.6 Cessation of IPO........................................................5
1.7 Closing Costs...........................................................5
1.8 Default.................................................................5
1.9 Further Assurances......................................................5
ARTICLE II.
REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS.........................5
2.1 Authority................................................................6
2.2 No Other Agreements to Sell..............................................7
2.3 No Brokers...............................................................7
2.4 Investment Representations and Warranties................................7
2.5 FIRPTA Representation....................................................9
2.6 Covenant to Remedy Breaches..............................................9
2.7 Covenant to Operate in the Ordinary Course...............................9
ARTICLE III.
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF OPERATING PARTNERSHIP.....................10
3.1 Authority...............................................................10
3.2 No Brokers..............................................................10
ARTICLE IV.
CLOSING ADJUSTMENTS.............................10
4.1 Prorations..............................................................10
4.2 Asset Entity's Retained Items...........................................12
4.3 Accounts Receivable.....................................................12
4.4. Security Deposits......................................................13
4.5 Timing of Calculations; Cooperation.....................................13
4.6 Allocation of Adjustments...............................................13
ARTICLE V.
POWER OF ATTORNEY..............................13
5.1 Grant of Power of Attorney..............................................13
5.2 Limitation on Liability.................................................15
5.3 Ratification; Third Party Reliance......................................15
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ARTICLE VI.
MERGERS AND OTHER MATTERS..........................15
6.1 Amendment...............................................................15
6.2 Entire Agreement; Counterparts; Applicable Law..........................16
6.3 Assignability...........................................................16
6.4 Titles..................................................................16
6.5 Third Party Beneficiary.................................................16
6.6 Severability............................................................16
6.7 Equitable Remedies......................................................16
6.8 Attorneys' Fees.........................................................17
6.9 Notices.................................................................17
6.10 Mergers.................................................................17
6.11 Waiver of Rights; Consents With Respect to
Partnership Interests...................................................18
6.12 Legending...............................................................20
6.13 Confidentiality.........................................................20
6.14 Computation of Time.....................................................20
6.15 Survival................................................................20
6.16 Time of the Essence.....................................................20
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OMNIBUS CONTRIBUTION AGREEMENT
This Omnibus Contribution Agreement (the "Contribution
Agreement") is executed as of the 11th day of May, 1998 by Loeb Realty, L.P.
(the "Operating Partnership"), a Delaware limited partnership in formation,
Loeb Realty Corporation (the "REIT"), a Maryland corporation, and the
Contributors whose names are set forth in Exhibit A hereto (each,
a "Contributor" and, collectively, the "Contributors").
WHEREAS, Loeb Partners Realty ("Loeb Partners"), George
Comfort & Sons, Inc. ("Comfort") and their respective affiliates have formed the
REIT as a Maryland corporation that will be the sole general partner of the
Operating Partnership and will effect an initial public offering (the "IPO") of
the REIT's shares of common stock ("Common Stock");
WHEREAS, it is intended that, upon consummation of the IPO,
the Operating Partnership will acquire interests in the properties listed on
Exhibit B hereto, as well as interests in the property management and leasing
businesses currently conducted by Loeb Partners and Comfort and certain of their
respective affiliates;
WHEREAS, it is understood that the Operating Partnership may
acquire interests in additional properties with the proceeds of the IPO;
WHEREAS, each Contributor owns interests in the partnerships,
other entities or properties described in the supplemental exhibit dated the
date hereof and delivered by or on behalf of such Contributor to the Operating
Partnership (such exhibit being hereinafter referred to as such Contributor's
"Supplemental Acquisition Exhibit");
WHEREAS, the Operating Partnership desires to acquire from
each Contributor, and each Contributor desires to convey to the Operating
Partnership under the terms and conditions set forth herein, the assets,
interests or other properties owned by such Contributor described in its
Supplemental Acquisition Exhibit (each such asset or property and all personal
property related thereto or to the operation thereof is hereinafter referred to
as an "Asset" and each direct or indirect interest of a Contributor in the
partnership or other entities listed on Exhibit D (the "Asset Entities") or (in
the case of Contributors which are themselves Asset Entities) in an Asset,
including without limitation, such Contributor's interests set forth in its
Supplemental Acquisition Exhibit, is referred to individually as an "Interest"
and collectively, as such Contributor's "Interests"); and
WHEREAS, each Contributor acknowledges that the REIT and the
Operating Partnership may decide that, rather than acquiring all of the direct
and indirect interests in the entity that owns a certain Asset or acquiring an
Asset by a direct purchase, it is more desirable for the REIT or the Operating
Partnership to acquire a Contributor's or an Asset Entity's Interests by a
merger of the Contributor or Asset Entity with and into the REIT, the Operating
Partnership or an affiliate of either of them (a "Merger"); and whereas each
Contributor, desiring to give the REIT and the Operating Partnership the right,
in the REIT's and the Operating Partnership's sole discretion, to engage in any
Merger on the terms and conditions
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described herein without the need to seek any further consent or action of the
Contributor, will give hereby an irrevocable consent and related power of
attorney as set forth in Article VI hereof;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Operating
Partnership, the REIT and the Contributors agree as follows:
ARTICLE I.
CONTRIBUTION TERMS AND CLOSING PROCEDURES
1.1 Contribution of Assets. At the Final Closing (defined
below), each Contributor shall, subject to Section 1.4 hereof, assign, transfer,
convey, contribute and deliver to the Operating Partnership and the Operating
Partnership shall (i) acquire and accept from such Contributor, all right, title
and interest of such Contributor in such Contributor's Interests, free and clear
of all Encumbrances (as defined in Section 2.1 hereof) except Permitted
Encumbrances (as defined in Section 2.1 hereof), and (ii) deliver to such
Contributor such Contributor's Consideration (defined below), both in accordance
with this Contribution Agreement.
1.2 Term of Agreement. If the IPO Closing (defined below) does
not occur by December 31, 1998 (the "Termination Date"), this Contribution
Agreement shall be deemed terminated and shall be of no further force and effect
and neither the Operating Partnership nor the Contributors shall have any
further obligations hereunder except as specifically set forth herein.
1.3 Consideration. The full consideration for each
Contributor's Interests (such consideration with respect to such Contributor is
hereinafter referred to as such Contributor's "Consideration") shall be an
amount in cash and/or a number of Units (as hereinafter defined) set forth in
the Contributor's Supplemental Acquisition Exhibit, subject to the terms and
provisions of Article IV hereof providing for adjustments to each Contributor's
Consideration based on closing adjustments. As used herein, the term "Units"
means units of limited partnership interest in the Operating Partnership.
1.4 Closing; Condition to Obligations. In connection with the
acquisition of the Contributors' Interests, the Operating Partnership will
notify the Contributors of a closing date, which date will be no later than the
Termination Date, for the initial closing (the "Initial Closing") of the
acquisition contemplated by this Contribution Agreement. At or before such
Initial Closing, which shall be held at the offices of Rogers & Wells LLP, 200
Park Avenue, New York, New York 10166 or such other place as is determined by
the Operating Partnership in its sole discretion at a time specified by the
Operating Partnership in its sole discretion, the Operating Partnership and the
Contributors will execute all closing documents (the "Closing Documents")
required by the Operating Partnership in accordance with Section 1.5 hereof and
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deposit the same in escrow with Rogers & Wells LLP, as escrow agent of the
Operating Partnership (the "Closing Agent").
The transactions contemplated by this Contribution Agreement
and by the Closing Documents executed and deposited in connection with such
exercise will be consummated at the Final Closing (as defined below) only if the
closing of the IPO (the "IPO Closing") is consummated by the Termination Date.
If the IPO Closing occurs by such date:
(a) the Operating Partnership shall,
contemporaneously with the IPO Closing, cause to be delivered to the
Closing Agent with respect to each Contributor (i) the cash portion of
such Contributor's Consideration, (such cash portion, the "Cash
Portion") and (ii) if applicable, a certificate of the General Partner
of the Operating Partnership certifying that such Contributor has been
or will be, effective upon the Final Closing (as hereinafter defined),
admitted as a limited partner of the Operating Partnership and that the
Operating Partnership's books and records indicate or will indicate
that such Contributor is the holder of the number of Units which are
called for pursuant to the Consideration as adjusted pursuant to
Article V hereof;
(b) upon receipt of the Consideration set forth in
clause (a) above, the Closing Agent will release the Closing Documents
to the Operating Partnership and deliver to the Contributor the Cash
Portion, and, if requested by the Contributor, a copy of such General
Partner's certificate; and
(c) the transactions described or otherwise
contemplated herein or in the Closing Documents will thereupon be
deemed to have been consummated simultaneously with the IPO Closing
(such consummation, the "Final Closing").
Notwithstanding the above, the Operating Partnership may, in
its sole discretion, elect not to complete the acquisition of all or any portion
of the Interests of any Contributor. The election of the Operating Partnership
to not acquire all or any portion of the Interests of a particular Contributor
shall not affect the obligations of any other Contributor hereunder.
The risk of loss to an Asset Entity's Assets prior to Closing
shall be borne by such Asset Entity. If, prior to the Final Closing, any of an
Asset Entity's Assets shall be destroyed or damaged by fire or other casualty,
then this Agreement may, at the option of the Operating Partnership, be
terminated with respect to the Asset Entity (or the Interests therein), the
Assets of which have been destroyed or damaged. If, after the occurrence of any
such casualty affecting an Asset Entity's Assets, this Agreement is not so
terminated relative to such Asset Entity, the Operating Partnership may elect to
(a) purchase the given Contributors' interests in such Asset Entity or Assets,
as the case may be, and (b) direct such Contributors to pay or cause to be paid
to the Operating Partnership any sums collected under any policies of insurance
because of damage due to such casualty and otherwise assign to the Operating
Partnership all rights to collect such sums as may then be uncollected;
provided, however, that the Contributor shall not adjust or settle any insurance
claim without the Operating Partnership's prior written consent, not to be
unreasonably withheld or delayed. Under such circumstances,
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the Consideration payable upon such purchase shall be reduced by the amount of
any deductibles under the applicable insurance policies.
If the IPO Closing does not occur by the Termination Date,
then, except as set forth in Section 1.10 hereof, neither party shall have any
obligations under the Closing Documents or under any agreements or instruments
executed in connection with the transactions contemplated hereunder or
thereunder (such other agreements or instruments, collectively, "Ancillary
Agreements"), this Contribution Agreement, the Closing Documents and the
Ancillary Agreements shall be deemed null and void ab initio and the Closing
Agent will be, and is hereby, directed to destroy the Closing Documents and any
Ancillary Agreement it holds and return to the Operating Partnership the
Consideration, if any, delivered by the Operating Partnership to the Closing
Agent.
1.5 Documents to be Delivered at Closing. At the Initial
Closing, each Contributor shall, directly or through the attorney-in-fact
appointed pursuant to Article V hereof, execute, acknowledge where deemed
desirable or necessary by the Operating Partnership, and deliver to the Closing
Agent, in addition to any other documents mentioned elsewhere herein, the
following:
(a) An Assignment of Assets (the "Assignment"), which
assignment shall be in a form satisfactory to the Operating Partnership
and shall either (i) reaffirm the accuracy of all representations and
warranties and the satisfaction of all covenants made by such
Contributor in Article II hereof or (ii) if such reaffirmation cannot
be made, identify those representations, warranties and covenants of
Article II hereof (other than Section 2.5 hereof) with respect to which
circumstances have changed, represent that such Contributor has used
all reasonable efforts within its control to prevent and remedy such
breach, and reaffirm the accuracy of all other representations and
warranties and the satisfaction of all other covenants made by such
Contributor in Article II hereof.
(b) All books and records, title insurance policies,
leases, lease files, contracts, stock certificates, original promissory
notes, and other indicia of ownership with respect to such
Contributor's Interests which are in each Contributor's possession or
which can be obtained through each Contributor's reasonable efforts.
(c) Any other documents reasonably requested by the
Operating Partnership or reasonably necessary or desirable to assign,
transfer and convey such Contributor's Interests and effectuate the
transactions contemplated hereby, including, without limitations,
deeds, assignments of ground leases and space leases (as applicable),
such documents as may be necessary to enable a title insurance company
(acceptable to the Operating Partnership in its sole discretion) to
issue to the Operating Partnership an owner's title insurance policy
and such endorsements as the Operating Partnership may reasonably
request, insuring fee simple and/or leasehold title to all real
property and improvements comprising all or any part of the Assets to
the Operating Partnership as the Operating Partnership may designate,
and any filings with any applicable governmental jurisdiction in which
the Operating Partnership is required to file its partnership
documentation or the recording of the Assignment is required.
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1.6 Cessation of IPO. If at any time the Operating Partnership
or the underwriter or underwriters determine in good faith to abandon the
formation of the REIT or the IPO (the date of such determination being referred
to as the "Cessation Date"), the Operating Partnership will so advise each
Contributor in writing and thereupon all parties hereto will be relieved of all
obligations under this Contribution Agreement, all Ancillary Agreements, and all
Closing Documents (except for obligations arising under Sections 1.7, 2.5 and
3.2 hereof).
1.7 Closing Costs. Except as may be otherwise agreed between
the Operating Partnership and a particular Contributor, each Contributor agrees
to pay all of the closing costs, other than the Operating Partnership's legal
fees, arising from the transfer of the Assets and Interests of such Contributor
pursuant to the exercise by the Operating Partnership of its Contribution Right,
including, without limitation, any applicable transfer, gains and sales taxes
and any transfer fee due in connection with the assumption of existing mortgage
debt by the Operating Partnership.
1.8 Default. (a) If, after notifying the Contributors of a
date for the Initial Closing, the Operating Partnership fails to close
(including a failure due to the IPO Closing not occurring), then the Operating
Partnership will pay to each Contributor the sum of $100.00 as liquidated and
agreed-upon damages. It would be difficult, if not impossible, to ascertain the
actual measure of each Contributor's damages in the event of the Operating
Partnership's default and the parties agree that $100.00 is a fair reflection of
each Contributor's damages in the event of the Operating Partnership's default.
(b) If any Contributor defaults with respect to its
obligations under this Agreement, the Operating Partnership shall be entitled to
exercise against each such Contributor any and all remedies provided at law or
in equity, including but not limited to, the right to specific performance. No
default by any Contributor hereunder shall in any way limit or affect the
obligations of any other Contributor hereunder.
1.9 Further Assurances. Each Contributor will, from time to
time, execute and deliver to the Operating Partnership all such other and
further instruments and documents and take or cause to be taken all such other
and further action as the Operating Partnership may reasonably request in order
to effect the transactions contemplated by this Agreement, including instruments
or documents deemed necessary or desirable by the Operating Partnership to
effect and evidence the conveyance of such Contributor's Interests in accordance
with the terms of this Contribution Agreement. The provisions of this Section
1.9 shall survive the Final Closing.
ARTICLE II.
REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
As a material inducement to the Operating Partnership to
enter into this Contribution Agreement and to consummate the transactions
contemplated hereby, each Contributor hereby severally makes to the Operating
Partnership each of the representations and warranties set forth in this Article
II, which representations and warranties (unless otherwise noted) are true as of
the date hereof. As a condition to the Operating Partnership's obligation to
complete the acquisition of any Contributor's Assets after the exercise of the
Contribution Right, such representations and warranties must continue to be
true as of the date of the Initial Closing and as of the date of the Final
Closing.
2.1 Title to Assets. Each Contributor owns its Interests
beneficially and of record, free and clear of any claim, lien, pledge, voting
agreement, option, charge, security interest, mortgage, deed of trust,
encumbrance, rights of assignment, purchase rights or other rights of any nature
whatsoever (collectively, "Encumbrances"), except as disclosed as exceptions in
a title report, dated on or after January 1, 1998, provided such title
exceptions are satisfactory to the Operating Partnership in its sole discretion,
and as set forth on Exhibit E attached hereto (any such encumbrance, a
"Permitted Encumbrance"), and has full power and
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authority to convey free and clear of any Encumbrances (except, where
applicable, the Permitted Encumbrances), its Interests and, upon delivery of any
Assignment by such Contributor conveying its Interests and delivery of
Consideration for such Interests as herein provided, the Operating Partnership
will acquire good and valid title thereto, free and clear of any Encumbrance
except Encumbrances created in favor of the Operating Partnership by the
transactions contemplated hereby and, where applicable, the Permitted
Encumbrances. No Contributor will consent to join in or in any way effect the
transfer of any Asset prior to the Final Closing. At the Final Closing, if so
requested, Contributors will execute all documents necessary to enable a title
insurance company (acceptable to the Operating Partnership, in its sole
discretion) to issue to the Operating Partnership an ALTA Form B (1987 or later)
Owner's Policy and such endorsements as the Operating Partnership may reasonably
request, insuring fee simple and/or leasehold title to all real property and
improvements comprising all or any part of the Assets to the Operating
Partnership; provided that each Contributor's cost of complying with this
requirement shall be limited to ten percent of the Consideration to be received
by such Contributor, which amount shall be deducted from such Consideration at
the Final Closing. Each of such Contributor's Interests have been validly issued
and each Contributor has funded (or will fund before the same is past due) all
capital contributions and advances to the partnership or other entity in which
such Interest represents an interest that are required to be funded or advanced
prior to the date hereof and the date of the Initial Closing and the Final
Closing. There are no agreements, instruments or understandings with respect to
any of such Contributor's Interests except as disclosed in writing to the
Operating Partnership. Such Contributor has no interest, either direct or
indirect, in any of the Assets except for the Assets owned by it which are the
subject of this Contribution Agreement, (b) the Excluded Interests (where
applicable) and (c) direct or indirect interests in partnerships or other
entities which are themselves Contributors hereunder. Such Contributor covenants
that no Encumbrance on its Assets (except, where applicable, the Permitted
Encumbrances) will be in existence as of the date of the Final Closing. In
making the representations in this Section 2.1 regarding the absence of
Encumbrances, each Contributor may assume that the consents and waivers of
rights set forth in Section 6.11 hereof have been given by all partners of
partnerships in which such Contributor's Interests represent direct or indirect
interests. Notwithstanding anything to the contrary contained herein, to the
extent that the Contributor's Interests transferred hereunder constitute
interests in partnerships or other entities ("Continuing Partnerships") which
will continue in existence after the consummation of the transactions
contemplated hereby, such Interests are and will remain subject to the terms and
provisions of the partnership or other organizational agreements (as amended) of
the Continuing Partnerships, including without limitation, restrictions,
options, priorities and partnership loans provided for therein.
2.2 Authority. Such Contributor has full right, authority,
power and capacity: (a) to enter into this Contribution Agreement and each
agreement, document and instrument to be executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement; (b) to carry out
the transactins contemplated hereby and thereby; and (c) to assign, transfer,
convry, contribute and deliver all of such Contributor's Assets to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement, document and instrument executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal,
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valid and binding obligation of such Contributor, each enforceable in accordance
with their respective terms. Except for any breaches, violations or default
which will be waived or cured prior to the Initial Closing and all loans,
indentures, creditor agreements or other agreements which will be discharged or
repaid prior to or contemporaneously with the IPO Closing, the execution
delivery and performance of this Contribution Agreement and each such agreement,
document and instrument by or on behalf of such Contributor: (a) does not and
will not violate such Contributor's partnership agreement or operating
agreement, if applicable, or other organizational documentation; (b) does not
and will not violate any foreign, federal, state, local or other laws applicable
to or binding on such Contributor or require such Contributor to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made or which does not
remain in effect; and (c) does not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of, any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Contributor is a party or by which the property of such Contributor
is bound or affected, or result in the creation of any Encumbrance on any of the
property or assets of any partnership in which in Interest of such Contributor
represents an interest. In making the representation set forth in this Section
2.2, each Contributor may assume that the consents and waivers of rights set
forth in Section 6.11 hereof have been given by all partners of partnerships or
owners of voting interests in entities in which such Contributor's Interests
represent direct or indirect interests.
2.3 Litigation. There is not litigation or proceeding, either judicial or
administrative, pending or overtly threatened, affecting all or any portion of
such Contributor's Assets or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Assets, which in any such case would impair such Contributor's ability to enter
into and perform all of its obligations under this Contribution Agreement.
2.4 No Other Agreements to Sell. Such Contributor has not made any
agreement with, and will not enter into any agreement with, and has not
obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to sell, transfer or in any way encumber (except for
Permitted Encumbrances) any of such Contributor's Assets or to not sell such
Contributor's Interests, or (b) to enter into any agreement with respect to a
sale, transfer or encumbrance or put or call right with respect to such
Contributor's Assets. In making the representations set for in this Section 2.4,
the Contributor may assume that the consents and waiver of rights set forth in
Section 6.10 hereof have been given by all partners of the Asset Entities.
2.5 No Brokers. Such Contributor has not entered into, and covenants that
it will not enter into, any agreement, arrangement or understanding with any
person or firm which will result in the obligation of the Operating Partnership
to pay any finder's fee, brokerage commission or similar payment in connection
with the transactions contemplated hereby and such Contributor shall indemnify
and hold harmless that Operating Partnership for all costs and
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expenses incurred by the Operating Partnership as a result of a breach of this
representation. The provisions of this Section 2.5 shall survive termination of
this Contribution Agreement.
2.6 Investment Representations and Warranties. Each Contributor who is receiving
Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such Contributor
shall become subject to, and shall be bound by, the terms and provisions of
the agreement of limited partnership of the Operating Partnership (in
substantially the form attached hereto as Exhibit F) (the 'Partnership
Agreement'), including the terms of the power of attorney contained in
Section thereof, as the Partnership agreement may be amended from time in
accordance with its terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business
and financial experience of those persons, if any, retained by it to
represent or advise it with respect to its investment in the Units, has
such knowledge, sophistication and experience in financial and business
matters and in making investment decisions of this type that it is capable
of evaluating the merits and risks of an investment in the Operating
Partnership and of making an informed investment decision, (ii) is capable
of protecting its own interest or has engaged representatives or advisors
to assist it in protecting its interest and (iii) is capable of bearing the
economic risk of such investment. If such Contributor retained a person to
represent or advise it with respect to the investment in Units that may be
made hereby then, at Contributor's request, such Contributor shall, prior
to or at the Initial Closing, (i) acknowledge in writing such
representation and (ii) cause such representative or advisor to deliver a
certificate to the Operating Partnership containing such representations as
are necessary requested by the Operating Partnership.
(c) Such Contributor understands that an investment in the Operating
Partnership involves substantial risks. Such Contributor has been given the
opportunity to make a thorough investigation of the proposed activities of
the Operating Partnership and has been furnished with materials relating to
the Operating Partnership and its proposed activities. Such Contributor has
been afforded the opportunity to obtain any additional information deemed
necessary by such Contributor to verify the accuracy of any representations
made or information conveyed to such Contributor. Such Contributor confirms
that all documents, records, and books pertaining to its investment in the
Operating Partnership and requested by such Contributor have been made
available or delivered to such Contributor. Such Contributor has had an
opportunity to ask questions of and receive answers from the Operating
Partnership, or from a person or persons acting on the Operating
Partnership's behalf, concerning the terms and conditions of this
investment. Such Contributor has relied and is making its investment
decision upon written information provided to the Contributor by or on
behalf of the Operating Partnership and/or Contributor's position (in the
case of certain individual Contributors) as a director or executive officer
of the REIT.
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(d) The Units to be issued to such Contributor will be acquired by such
Contributor for its own account for investment only and not with a view to, or
with any intention of, a distribution or resale thereof, in whole or in part, or
the grant of any participation therein, without prejudice, however, to such
Contributor's right (subject to the terms of the Units) at all times to sell or
otherwise dispose of all or any part of its Units under an exemption from such
registration available under the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities laws, and subject,
nevertheless, to the disposition of its assets being at all time within its
control. Such Contributor was not formed for the specific purpose of acquiring
an interest in the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be issued to such
Contributor have not been registered under the Securities Act or state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws. Such Contributor hereby acknowledges that because of
the restrictions on transfer or assignment of such Units to be issued hereunder
which will be set forth in the Partnership Agreement and/or in a Registration
Rights Agreement (as defined in Section 5.1 hereof), such Contributor may have
to bear the economic risk of the investment commitment evidenced by this
Contribution Agreement and any Units acquired hereby for an indefinite period of
time, although (i) under the terms of the Partnership Agreement, as it will be
in effect at the time of the IPO, Units will be redeemable at the request of the
holder thereof at any time after the second anniversary of their issuance for
cash or (at the option of the REIT) for Common Stock of the REIT and (ii) the
holder of any such Common Stock issued upon a presentation of Units for
redemption will be afforded certain rights to have such Common Stock registered
for resale under the Securities Act or applicable state securities laws under
the Registration Rights Agreement as described more fully below.
(f) The information set forth in the investor questionnaire (a form of
which is attached hereto as Exhibit G) (the "Investor Questionnaire") which has
been completed and executed by such Contributor and delivered to the Operating
Partnership on or prior to the date hereof is true, correct and complete.
2.7 FIRPTA Representation. Contributor is not a "foreign person" within the
meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
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2.8 Additional Representations of Certain Contributors. Certain
Contributors or affiliates thereof (collectively, the "Indemnitors") shall enter
into a supplemental agreement (the "Supplemental Agreement") on terms mutually
acceptable to the Indemnitors and the Operating Partnership whereby the
Indemnitors make additional representations, warranties and covenants with
respect to matters relating to this Contribution Agreement which shall survive
the consummation of the transactions contemplated by this Contribution Agreement
for a period equal to one (1) year from the date of the Final Closing and shall
expire with, and be terminated and extinguished forever, at such time except
with respect to claims asserted by written notice of or on behalf of the
Operating Partnership at any time during such period against any Indemnitor
making such representations, warranties or covenants. The Supplemental Agreement
shall provide that (a) the maximum aggregate liability of all Indemnitors for
any misrepresentation or misrepresentations or any breach or breaches of any
one or more of the representations, warranties or covenants set forth therein
shall not exceed $10 million, (b) the Indemnitors will pledge Units with a
value of $15 million (based on the IPO price of the REIT's Common Stock) to
secure their indemnification obligations under the Supplemental Agreement
(the "Pledged Units"), (c) any such liability shall be joint and several to each
of the Indemnitors, (d) the Operating Partnership shall make no claim thereunder
against any Indemnitor and no such Indemnitor shall have liability resulting
from claims or other assertions of liability arising from the Supplemental
Agreement unless and until such claim or claims exceed $250,000 in the
aggregate, and (e) recourse thereunder shall be limited to the
Indemnitors' Pledged Units.
2.9 Covenant to Remedy Breaches. Each Contributor covenants to use all
reasonable efforts within its control (a) to prevent the breach of any
representations or warranty of such Contributor hereunder, (b) to satisfy all
covenants of such Contributor hereunder and (c) to promptly cure any breach of a
representation, warranty or covenant of such Contributor hereunder upon its
learning of same.
ARTICLE III.
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF OPERATING PARTNERSHIP
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 Authority. The Operating Partnership has full right, authority, power
and capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of it
pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and
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binding obligation of the Operating Partnership, each enforceable in accordance
with their respective terms. The execution, delivery and performance of this
Contribution Agreement and each such agreement, document and instrument by the
Operating Partnership: (a) does not and will not violate the Partnership
Agreement; (b) does not and will not violate any foreign, federal, state and
local or other laws applicable to Operating Partnership or require the Operating
Partnership to obtain any approval, consent or waiver of, or make any filing
with, any person or authority (governmental or otherwise) that has not been
obtained or made; and (c) does not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of, any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which the Operating Partnership is party or by which the property of the
Operating Partnership is bound or affected.
3.2 No Brokers. The Operating Partnership represents that it has not
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
any Contributor to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
ARTICLE IV.
CLOSING ADJUSTMENTS
4.1 Prorations. In the case of (i) each Asset Entity which is
itself a Contributor and (ii) each Asset Entity in which the Operating
Partnership acquires an interest pursuant to this Contribution Agreement, the
Operating Partnership and such Asset Entity shall make the prorations set forth
below, and make payment with respect to such prorations as appropriate, in the
manner customary for similar assets in their respective locations (except as
otherwise agreed below). To the extent an Asset Entity ceases to have a separate
legal existence as a result of the transactions contemplated hereunder, those
Contributors who held interests in such Asset Entity shall collectively exercise
the rights of such Asset Entity, and succeed to the obligations of such Asset
Entity, under this Contribution Agreement from and after the Final Closing.
(a) Taxes. Real property taxes and general and
special assessments, water and sewer rents, tap charges, and business
improvements district charges upon the Asset shall be adjusted and prorated as
of the date of the Final Closing on the basis of the fiscal year for such taxes
and assessments (the "Tax Year"). If the Final Closing shall occur before the
real property tax rate for the Tax Year is fixed, the apportionment of taxes
shall be made on the basis of the taxes assessed for the preceding Tax Year.
After the real property taxes are finally fixed for the Tax Year in which the
Final Closing occurs, the Operating Partnership and such Contributor shall make
a recalculation of the apportionment of such taxes, and the Operating
Partnership or the Contributor, as the case may be, shall make an appropriate
payment to the other based on such recalculation. To the extent that either the
Contributor or the Operating Partnership shall obtain any real estate tax
abatement, reduction, refund or incentive with respect to the Asset, the amount
of the net proceeds of such tax abatement, reduction, refund or incentive shall
be prorated through the date of the Final Closing if, as, and when such proceeds
are paid by the applicable governmental taxing authority (it being understood
that to the extent any tenant demising space in the Asset owned by such
Contributor shall be entitled to any portion of such tax abatement, that such
portion shall be turned over to the Operating Partnership to remit to such
tenant and shall be deducted from any tax abatement, reduction, refund or
incentive proceeds in connection with calculating the net proceeds thereof).
(b) Rents. Rents (including, without
limitation, any ground lease rents), additional rents, including electricity
charges, operating expense recoveries, and tax reimbursements under the leases
affecting the Asset (collectively, "Rents") shall be adjusted and prorated as of
the date of the Final Closing. Rents collected after the date of the Final
Closing from tenants whose rental was delinquent on the date of the Final
Closing shall be deemed to apply first to current rents due at the time of
payment and second to past due rents accruing after the Final Closing and last
to the rents which were past due on the date of the Final Closing. Unpaid and
past due rents to which the Asset Entity is entitled shall be promptly paid over
to the Asset Entity if collected by the Operating Partnership after the date of
the Final Closing, less any reasonable collection costs actually incurred by the
Operating Partnership.
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(c) Prepayments. Any prepayment made by or on behalf
of the Contributor under any service, maintenance, management, consulting, or
similar contracts shall be adjusted and prorated as of the date of the Final
Closing.
(d) Expenses. Charges and assessments for sewer and
water and other utilities, including charges for consumption of electricity,
steam and gas (unless the Operating Partnership elects to have final meter
readings made as of the Final Closing in which event the adjustment shall be
made based on such meter readings); current operating expenses, including,
without limitation, obligations under any service, maintenance, management,
consulting, or similar contracts; payroll and related expenses (including all
benefits and vacation and sick days); license and permit fees relating to the
operation of the Asset; insurance and bond premiums; and any other charges
incident to the ownership, use and/or occupancy of the Assets shall be adjusted
and prorated as of the date of the Final Closing.
(e) Interest on Existing Mortgages. Interest on
existing mortgages encumbering any Assets and which are not being repaid at the
Final Closing shall be adjusted and prorated as of the date of the Final
Closing.
(f) Fuel and Maintenance Supplies Stored on Site.
The costs of purchasing fuel and maintenance supplies stored on site shall be
adjusted and prorated as of the date of the Final Closing.
(g) Reletting Expenses for New Leases. Customary
reletting expenses for leases entered into after the date hereof and prior to
the Final Closing (including without limitation, brokerage commissions, tenant
improvements and moving expenses paid in connection with such leasing by the
Asset Entity) shall be adjusted and prorated in a manner that is consistent with
the calculation of the Consideration for the Interests.
4.2 Asset Entity's Retained Items. All cash on hand, working
capital, escrow and reserve accounts other than tenant security deposits, and
utility or other deposits shall be distributed by the Asset Entity to its
current shareholders, partners or members, as applicable, prior to the Final
Closing.
4.3 Accounts Receivable. The Asset Entity shall retain all
accounts receivable and other income items other than Rents which are
attributable to periods prior to the date of the Final Closing. The Asset Entity
shall deliver to the Operating Partnership at the Final Closing a schedule of
all such unpaid accounts receivable and other income items as of the date of the
Final Closing. Rents collected after the Initial Closing Date from tenants whose
rent was delinquent on the Closing Date shall be applied first to current rental
due at the time of payment; second, to the rentals which were delinquent on the
date of or after the Initial Closing; and third, to the rental which were
delinquent prior to the date of the Initial Closing. All such accounts
receivable and other income items collected by or for the Operating Partnership
after the date of the Final Closing which are attributable to periods prior to
the date of the Final Closing shall be promptly remitted to the order of the
Asset Entity. Except for sums actually received by the Operating Partnership
pursuant to the immediately preceding sentence, the Operating Partnership shall
assume no obligation to collect or enforce the payment of any amounts that may
be due to
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the Asset Entity, except that the Operating Partnership shall render reasonable
assistance, at no expense to the Operating Partnership, to the Asset Entity
after the Final Closing in the event the Asset Entity proceeds against any
third-party to collect any accounts receivable or other income items due the
Asset Entity.
4.4 Security Deposits. An amount equal to all tenant security
deposits and interest thereon, if any, and any other amounts due tenants with
respect to such security deposits shall be paid over to the Operating
Partnership at the Final Closing.
4.5 Timing of Calculations; Cooperation. Each Asset Entity
and/or Contributor and the Operating Partnership agree to use reasonable efforts
to reconcile, prorate, and adjust all of the foregoing items upon the Final
Closing and, in all events within ninety (90) days after the date of the Final
Closing. In the event any adjustments or prorations made pursuant to this
Contribution Agreement are, subsequent to Final Closing, found to be erroneous,
then either party hereto who is entitled to additional amounts shall invoice the
other party for such additional amounts as may be owing, and such amounts shall
be paid promptly by the other party upon receipt of invoice. Such invoice shall
be accompanied by reasonable substantiating evidence.
4.6 Allocation of Adjustments. All adjustments contemplated by
this Article IV shall, to the extent practicable, be made by adjusting (either
up or down) the cash portion amount of the Consideration, if any, and/or the
number of Units issued to each Contributor by debiting or crediting (as the case
may be) such Contributor's Consideration with a portion of the prorated items
allocated to the Asset Entity in which the Contributor owns an interest. The
amount of an Asset Entity's adjustments calculated pursuant to this Article IV
allocated to each Contributor shall be that portion equal to that Contributor's
pro rata equity interest in each Asset Entity.
ARTICLE V.
POWER OF ATTORNEY
5.1 Grant of Power of Attorney. Each Contributor does hereby
irrevocably appoint Joseph S. Lesser, Alan L. Gordon, Peter S. Duncan and the
Operating Partnership, and each of them individually and any successor thereof
from time to time (such persons or the Operating Partnership or any such
successor of any of them acting in his, her or its capacity as attorney-in-fact
pursuant hereto, the "Attorney-In-Fact") as the true and lawful attorney-in-fact
and agent of such Contributor, to act in the name, place and stead of such
Contributor:
(a) To enter into a registration rights agreement (the
"Registration Rights Agreement") which provides for (i) the registration under
the Securities Act of 1933 of the REIT's Common Stock which may be issued to the
Contributor in accordance with the Partnership Agreement, upon the presentation
of Units for redemption or exchange and (ii) restrictions on the transfer of
Units (and any common stock which may be issued in exchange for Units) for a
period not to exceed one year from their date of issuance;
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(b) If so requested, to enter into a lock-up agreement (the
"Lock-Up Agreement") which provides that the Contributors will not, directly or
indirectly, offer, sell, offer to sell, contract to sell, grant any option to
purchase or otherwise dispose of (or announce any offer, sale, offer of sale,
contract of sale, grant of any option to purchase or other sale or disposition
of) any share of REIT Common Stock or any securities convertible into or
exchangeable for or substantially similar to REIT Common Stock, for a period of
one year from the IPO Closing without the prior written consent of the managing
underwriter named in the Lock-Up Agreement;
(c) To take for such Contributor all steps deemed necessary or
advisable by the Operating Partnership in connection with the registration of
the REIT's Common Stock under the Securities Act, including without limitation
(i) filing the Registration Statement and amendments thereto under the
Securities Act which shall describe the benefits to be received by such
Contributor in connection with the formation of the REIT and the IPO, (ii)
distributing a preliminary prospectus and prospectus regarding the IPO (the
"Preliminary Prospectus" and the "Prospectus," respectively) which contain such
information as is deemed necessary or desirable to lawfully effect the initial
public offering of such shares, and (iii) taking such other steps as the
Attorney-in-Fact may deem necessary or advisable.
(d) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
consents, letters and other writings (including without limitation the execution
of Closing Documents, Ancillary Agreements, the Partnership Agreement, any other
documents relating to the acquisition by the Operating Partnership of such
Contributor's Assets, and, in general, to do all things and to take all action
which the Attorney-in-Fact in its sole discretion may consider necessary or
proper in connection with or to carry out the transaction contemplated by this
Contribution Agreement, the Ancillary Agreements, if any, and the Closing
Documents as fully as could such Contributor if personally present and acting.
(e) To make, acknowledge, verify and file on behalf of such
Contributor applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners or
officers administering state securities or Blue Sky laws and to take any other
action required to facilitate the exemption for registration of the Units and
the qualification of the REIT's Common Stock under the securities or Blue Sky
laws of the jurisdictions in which the Units and the REIT's Common Stock are to
be offered.
The Power of Attorney granted by each Contributor pursuant to
this Article V and all authority conferred hereby is granted and conferred
subject to and in consideration of the interests of the Operating Partnership,
the REIT and the other Contributors and is for the purpose of completing the
transactions contemplated by this Contribution Agreement. The Power of Attorney
shall terminate upon termination of this Contribution Agreement. The Power of
Attorney of each Contributor granted hereby and all authority conferred hereby
is coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of such Contributor or by operation of law, whether by the
liquidation of such Contributor or by the occurrence of any other event or
events (including without limitation the termination of any trust or estate for
which such Contributor is acting as a fiduciary or fiduciaries), and if, after
the
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execution hereof, such Contributor is liquidated, or if any other such event or
events shall occur before the completion of the transactions contemplated by
this Contribution Agreement, the Attorney-in-Fact shall nevertheless be
authorized and directed to complete all such transactions as if such liquidation
or other event or events had not occurred and regardless of notice thereof. Each
Contributor acknowledges that Joseph S. Lesser, Alan L. Gordon, Peter S. Duncan
and the Operating Partnership have, and any successor thereof acting as
Attorney-in-Fact may have an economic interest in the transactions contemplated
by this Contribution Agreement. Each Contributor agrees that, at the request of
the Operating Partnership, it will promptly execute a separate power of attorney
on the same terms set forth in this Article V, such execution to be witnessed
and notarized.
5.2 Limitation on Liability. It is understood that no
Attorney-in-Fact assumes any responsibility or liability to any person solely by
virtue of the Power of Attorney granted by each Contributor hereby. Other than
as set forth in the Supplemental Agreement, no Attorney-in-Fact makes any
representations with respect to and shall have no responsibility for the
formation of the REIT, the acquisitions of the Assets by the Operating
Partnership, the Registration Statement, the Prospectus or any Preliminary
Prospectus, nor for any aspect of the offering of the REIT's Common Stock, and
shall not be liable for any error of judgment or for any act done or omitted or
for any mistake of fact or law except for its own gross negligence or bad faith.
Each Contributor agrees that each Attorney-in-Fact may consult with counsel of
its own choice (who may be counsel for the Operating Partnership or the REIT)
and shall have full and complete authorization and protection for any action
taken or suffered by it hereunder in good faith and in accordance with the
opinion of such counsel. It is understood that each Attorney-in-Fact may,
without breaching any express or implied obligation to any Contributor
hereunder, release, amend or modify any other Power of Attorney granted by any
other Contributor hereunder or by any other person under any related agreement.
The provisions of this Section 5.2 shall not limit or otherwise affect the
obligations of the Operating Partnership (acting for itself and not as
Attorney-in-Fact) under the other Articles of this Contribution Agreement.
5.3 Ratification; Third Party Reliance. Each Contributor does
hereby ratify and confirm all that the Attorney-in-Fact shall lawfully do or
cause to be done by virtue of the exercise of the powers granted unto it by such
Contributor hereunder, and such Contributor authorizes the reliance of third
parties on this Power of Attorney and waives its rights, if any, as against any
such third party for its reliance hereon.
ARTICLE VI.
MERGERS AND OTHER MATTERS
6.1 Amendment. Any amendment hereto shall be effective only
against those parties hereto who have acknowledged in writing their consent to
such amendment, provided that the Operating Partnership may amend this
Contribution Agreement without notice to or the consent of any Contributor (a)
for the purpose of adding additional Contributors as parties hereto or deleting
Contributors as parties hereto and conforming Exhibit A in connection with such
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additions or deletions and (b) to conform any Contributor's Supplemental
Acquisition Exhibit to the extent the interests set forth therein do not
accurately or completely reflect the interest of such Contributor in the Asset
Entity or (in the case of Contributors which are themselves Asset Entities) in
their Properties. No waiver of any provisions of this Contribution Agreement
shall be valid unless in writing and signed by the party against whom
enforcement is sought.
6.2 Entire Agreement; Counterparts; Applicable Law. This
Contribution Agreement and all Ancillary Agreements (a) constitute the entire
agreement and supersede conflicting provisions set forth in all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, (b) may be executed in several
counterparts, each of which will be deemed an original and all of which shall
constitute one and the same instrument and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of New York without giving effect to the conflict of law provisions
thereof.
6.3 Assignability. This Contribution Agreement shall be
binding upon, and shall be enforceable by and inure to the benefit of, the
parties hereto and their respective heirs, legal representatives, successors and
assigns; provided, however, that this Contribution Agreement may not be assigned
(except by operation of law) by any party without the prior written consent of
the other parties, and any attempted assignment without such consent shall be
void and of no effect.
6.4 Titles. The titles and captions of the Articles, Sections
and paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 Third Party Beneficiary. No provision of this Contribution
Agreement is intended, nor shall it be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any customer,
affiliate, stockholder, partner, member, director, officer or employee of any
party hereto or any other person or entity, provided, however, that Sections 5.3
and 6.3 of this Contribution Agreement shall be enforceable by and shall inure
to the benefit of the persons described therein.
6.6 Severability. If any provision of this Contribution
Agreement, or the application thereof, is for any reason held to any extent to
be invalid or unenforceable, the remainder of this Contribution Agreement and
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such void or unenforceable provision of this
Contribution Agreement with a valid and enforceable provision that will achieve,
to the extent possible, the economic, business and other purposes of the void or
unenforceable provision and to execute any amendment, consent or agreement
deemed necessary or desirable by the Operating Partnership to effect such
replacement.
6.7 Equitable Remedies. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Contribution Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly
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agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Contribution Agreement and to enforce specifically the
terms and provisions hereof in any federal or state court located in New York
(as to which the parties agree to submit to jurisdiction for the purposes of
such action), this being in addition to any other remedy to which they are
entitled under this Contribution Agreement or otherwise at law or in equity.
6.8 Attorneys' Fees. In connection with any litigation or a
court proceeding arising out of this Contribution Agreement, the prevailing
party shall be entitled to recover all costs incurred, including reasonable
attorneys' fees and legal assistants' fees and costs whether incurred prior to
trial, at trial, or on appeal.
6.9 Notices. Any notice or demand which must or may be given
under this Contribution Agreement or by law shall, except as otherwise provided,
be in writing and shall be deemed to have been given (a) when physically
received by personal delivery (which shall include the confirmed receipt of a
telecopied facsimile transmission), or (b) three (3) business days after being
deposited in the United States certified or registered mail, return receipt
requested, postage prepaid, or (c) one (1) business day after being deposited
with a nationally known commercial courier service providing next day delivery
service (such as Federal Express); addressed and delivered or telecopied in the
case of a notice to the Operating Partnership at the following address and
telecopy number:
Loeb Realty, L.P.
521 Fifth Avenue
New York, New York
Attention: Joseph S. Lesser
Phone: 212-883-0360
Telecopy: 212-883-0388
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Robert E. King, Jr.
Phone: 212-878-8000
Telecopy: 212-878-8375
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.
6.10 Mergers. The parties acknowledge and agree that the REIT
and the Operating Partnership may decide to purchase one or more of the
Interests or Assets by way of a Merger of a Contributor or Asset Entity with and
into the REIT or the Operating Partnership or any of their respective
affiliates. In order to facilitate any such Merger without the need for further
consent or action of the Contributors and Asset Entities and without such Merger
causing
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a violation of any relevant partnership agreement or other organizational
document, each Contributor by its execution hereof with respect to each Asset
Entity in which an Interest owned by Contributor represents a direct or indirect
interest, gives such consent as is necessary (under the partnership agreement of
the applicable Asset Entity and under the partnership agreement of any other
partnership that has a direct or indirect interest in such Asset Entity, to the
extent Contributor is a partner of any such partnership) to cause such Asset
Entity to have authority to merge with and into the REIT or the Operating
Partnership, provided, however, that in either such case the total merger
consideration shall equal the aggregate value that would be given to all persons
with an Interest in the applicable Asset Entity based on the information set
forth in the applicable Supplemental Acquisition Exhibit. The terms
"partnership," "partner" and "partnership agreement" in this Section 6.10 and in
Section 6.11 shall in all cases also refer to limited liability companies,
members and operating agreements or similar organizational documents.
6.11 Waiver of Rights; Consents With Respect to Partnership
Interests.
(a) Each Contributor acknowledges that the
agreements contained herein and the transactions contemplated hereby and any
actions taken in contemplation of the transactions contemplated hereby may
conflict with, and may not have been contemplated by, the partnership agreement
of one or more partnerships in which one or more of such Contributor's Interests
represents a direct or indirect interest or another agreement among one or more
holders of such Interests or one or more of the partners of any such
partnership. With respect to each partnership in which an Interest of a
Contributor represents a direct or indirect interest, each Contributor expressly
gives all Consents (and any consents necessary to authorize the proper parties
in interest to give all Consents) and Waivers necessary or desirable to
facilitate any Conveyance Action relating to such partnership (as such terms are
hereinafter defined).
As used herein, the term "Conveyance Action" means,
with respect to any partnership having a direct or indirect ownership interest
in any Asset, (i) the conveyance or agreement to convey by a partner thereof or
by any holder of an indirect interest therein (whether or not such partner or
holder is a Contributor hereunder) directly, by Merger or otherwise of its
direct or indirect interest in such partnership to the Operating Partnership or
REIT or (ii) the entering into by any such partner or holder of any agreement
relating to (x) the formation of the Operating Partnership or the REIT, or (y)
the direct or indirect acquisition by the Operating Partnership or REIT of any
such direct or indirect interest or (iii) the taking by any such partner or
holder of any action necessary or desirable to facilitate any of the foregoing,
including, without limitation, the following (provided that the same are taken
in furtherance of the foregoing): any sale or distribution to any person of a
direct or indirect interest in such partnership, the entering into any agreement
with any person that grants to such person the right to purchase a direct or
indirect interest in such partnership, and the giving of the Consents and
Waivers contained in this Section 6.11 or consents or waivers similar thereto in
form or purpose. As used herein, the term "Consents" means, with respect to any
such partnership, any consent necessary or desirable under the partnership
agreement of such partnership or any other agreement among all or any of the
holders of interests therein or any other agreement relating thereto or referred
to therein (i) to permit any and all Conveyance Actions relating to such
partnership or to amend such partnership agreement and/or other agreements so
that no provision
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thereof prohibits, restricts, impairs or interferes with any Conveyance Action
(such amendments to include, without limitation, the deletion of provisions
which cause a default under such agreement if interests therein are transferred
for cash), (ii) to admit the Operating Partnership as a substitute limited
partner or general partner of such partnership upon the Operating Partnership's
acquisition of a limited or general partnership interest therein, respectively,
and to adopt such amendment as is necessary or desirable to effect such
admission, (iii) to adopt any amendment as may be deemed desirable by the
Operating Partnership, either simultaneously with or immediately prior to the
acquisition of any interest therein, and (iv) to continue such partnership
following the transfer of interest therein to the Operating Partnership. As used
herein, the term "Waivers" means, with respect to a partnership of which an
Interest of a Contributor represents a direct or indirect interest, the waiving
of any and all rights that such Contributor may have with respect to, and (to
the extent possible) that any other person may have with respect to, or that may
accrue to such Contributor or other person upon the occurrence of, a Conveyance
Action relating to such partnership, including, but not limited to, the
following rights: rights of notice, rights to response periods, rights to
purchase the direct or indirect interests of another partner in such partnership
or to sell such Contributor's or other person's direct or indirect interest
therein to another partner, rights to sell such Contributor's or other person's
direct or indirect interest therein at a price other than as provided herein, or
rights to prohibit, limit, invalidate, otherwise restrict or impair any such
Conveyance Action or to cause a termination or dissolution of such partnership
because of such Conveyance Action. Each Contributor further covenants that such
Contributor will take no action to enjoin, or seek damages resulting from, any
Conveyance Action by any holder of a direct or indirect interest in a
partnership in which an Interest of such Contributor represents a direct or
indirect interest. The Waivers and Consents contained in this Section 6.10 shall
terminate upon the termination of this Contribution Agreement, except as to
transactions completed hereunder prior to termination.
(b) Each Contributor by its execution hereof (i)
with respect to each Asset Entity in which an Interest owned by Contributor
represents a direct or indirect interest therein and with respect to which the
Operating Partnership acquires all of the ownership interests therein gives such
consent as is necessary to cause each such Asset Entity, as applicable, to have
authority to transfer the Assets of such Asset Entity to the Operating
Partnership on such terms and conditions as such Asset Entity and the Operating
Partnership may agree; and (ii) agrees that such Contributor's Consideration may
be reduced to reflect such direct transfer of assets and the consequent receipt
of Units directly by such Asset Entity, provided that the total consideration to
be received by such Contributor either directly hereunder or indirectly through
the receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives
such consent as is necessary to cause, with respect to the partnership agreement
of each partnership in which an Interest of such Contributor represents,
directly or indirectly, a limited partner or general partner interest, an
amendment thereto to enable such partnership, to the extent permissible under
applicable law, (i) to admit the Operating Partnership as a substitute limited
partner therein and/or a substitute general partner therein if the Operating
Partnership by the exercise of its Contribution Right acquires a limited
partnership interest or a general partnership interest in such
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partnership, respectively, (ii) to redeem the interest of any other partner
therein who has not agreed to become a party to this Contribution Agreement or a
similar contribution agreement with the Operating Partnership, (iii) to transfer
to all partners thereof, including any partner who has not agreed to become a
party to this Contribution Agreement, Units and/or cash (provided that such
Contributor receives as a result of all such distributions and the direct
payment of consideration hereunder, an amount of cash and/or Units that is in
conformity with the Consideration of such Contributor provided for herein), and
thereafter, at the Operating Partnership's option, to dissolve, and (iv) any
such other amendment as the Operating Partnership may deem desirable, provided
that such amendment occurs simultaneously with or immediately prior to the
acquisition of the applicable partnership interest and, provided further, that
such amendment will not result in any increased liability on the part of any
Contributor hereunder or under the applicable partnership agreement. The
Attorney-in-Fact may on behalf of each Contributor execute such consents,
amendments or other instruments as it deems necessary or desirable in connection
with the foregoing.
6.12 Legending. Each certificate, if any, representing the
Units (and any Common Stock that might be exchanged therefor) shall bear a
legend substantially in the form set forth below:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE,
TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT
AND UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
6.13 Confidentiality. All press releases or other public
communications of any kind relating to the IPO or the transactions contemplated
herein, and the method and timing of release for publication thereof, will be
subject to the prior written approval of the Operating Partnership.
6.14 Computation of Time. Any time period provided for herein
which shall end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m.
of the next full business day. All times are Eastern Time.
6.15 Survival. It is the express intention and agreement of
the parties hereto that the representations, warranties and covenants of each
Contributor set forth in this Contribution Agreement shall survive the
consummation of the transactions contemplated hereby.
6.16 Time of the Essence. Time is of the essence with respect
to all obligations of Contributor under this Contribution Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has executed
this Contribution Agreement, or caused the Contribution Agreement to be duly
executed on its behalf, as of the date first written above.
Loeb Realty, L.P.
By: Loeb Realty Corporation
Its General Partner
By: /s/ Joseph S. Lesser
__________________________________
Name: Joseph S. Lesser
Title: Chairman of the Board
and Chief Executive Officer
Loeb Realty Corporation
By: /s/ Joseph S. Lesser
__________________________________
Name: Joseph S. Lesser
Title: Chairman of the Board
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EXHIBIT A
Contributors
Comfort 200 Inc.
Loeb Partners Realty and Development Corp.
Comfort 200 Partners
Loeb 200 Partners
Gordon Smith
L 63 Partners, L.P.
Comfort 63 Madison, Inc.
Comfort 63, L.P.
Comfort 498, Inc.
498 Associates, LLC
498 Seventh Avenue, Inc.
24 West 57th, LLC
John L. Loeb
Glenhill Associates Partnership
328 Jefferson Associates
444 Seabreeze Boulevard Associates, Ltd.
PS Charles Associates, L.P.
Loeb Partners Realty Southeast, Inc.
Joseph S. Lesser
Thomas L. Kemner
Edward E. Matthew
ECP Shopping Center Ltd.
LID Associates Ltd.
LKS Associates L.P.
Kirby Richmond Shopping Center Ltd.
LSL Associates, L.P.
Princeton Shopping Center Company
Bazaar Mall Associates
Comfort Menominee Associates
Riverview Center Associates
Shenandoah Development Group, Ltd.
Abercromby Property International
One Dartmouth Place Associates, L.P.
Park Hill Lane Associates, L.P.
Presidential Estates Associates
LLK Associates, L.P.
LBK Hotel Management, Inc.
Shannon Partners Realty
Second Portland Associates, Ltd.
38 Chauncy Street, LLC
LMBI, LLC VT Investors L.P.
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Loeb Partners Realty
George Comfort & Sons, Inc.
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EXHIBIT B
Properties
63 Madison Avenue
200 Madison Avenue
498 Seventh Avenue
24 West 57th Street
529 Fifth Avenue
307 West 38th Street
First NBC Center
Riverview Center
Marketplace Design Center
38 Chauncy Street
First Union Bank Building
328 South Jefferson Street
Winewood Office Park
Second Portland NNN Lease
Shenandoah Industrial Park
Princeton Shopping Center
International Drive Value Center
Manufacturers Outlet Center
Kendall Value Center
Shoppes at St. Lucie West
Outlet Park Shoppes at Waccamaw
Easton Commons Shopping Center
Kirby/Richmond Shopping Center
Sunset Strip Center
M&M Plaza
Public Storage Fcaility - Glendale
Public Storage Facility - Alameda
Park Hill Lane
One Dartmouth Place
Presidential Estates
Longboat Key Club
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EXHIBIT C
Excluded Interests
None.
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EXHIBIT D
Asset Entities
200 Madison Associates, L.P.
63 Madison Associates, L.P.
498 Seventh, LLC
24 West 57th, LLC
Glenhill Associates Partnership
328 Jefferson Associates
444 Seabreeze Boulevard Associates, Ltd.
PS Charles Associates, L.P.
Winewood Park Limited
ECP Shopping Center Ltd.
LID Associates Ltd.
LKS Associates L.P.
Kirby Richmond Shopping Center Ltd.
LSL Associates, L.P.
Princeton Shopping Center Company
Bazaar Mall Associates
Comfort Menominee Associates
Riverview Center Associates
Shenandoah Development Group, Ltd.
One Dartmouth Place Associates, L.P.
Park Hill Lane Associates, L.P.
Presidential Estates Associates
Key Club Associates, L.P.
Second Portland Associates, Ltd.
38 Chauncy Street, LLC
Outlet Park RPF IV Associates LLC
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EXHIBIT F
Operating Partnership Agreement
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EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE
NAME JURISDICTION OF ORGANIZATION INTEREST
- -------------------------------------------------------------------------- ---------------------------- ----------
<S> <C> <C>
Loeb Realty, L.P. Delaware 48.3%
Loeb Property Services, Inc. Delaware 95 %
economic
interest
</TABLE>
<PAGE>
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EXHIBIT 23(C)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Expert' and in
the headnotes to the 'Summary Selected Combined Financial and Operating
Information' and 'Selected Combined Financial and Operating Information' and to
the use of our reports dated (i) May 11, 1998 with respect to the Consolidated
Balance Sheet of Loeb Realty Corporation; (ii) April 2, 1998 with respect to
the Financial Statements of Loeb Real Estate as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997; (iii)
April 2, 1998 with respect to the Statements of Revenues and Certain Expenses of
First NBC Center and Riverview Center for each of the three years in the period
ended December 31, 1997; (iv) April 2, 1998, with respect to the Statement of
Revenues and Certain Expenses of Princeton Shopping Center, Marketplace Design
Center, and Bazaar Mall for the year ended December 31, 1997; and (v) April 2,
1998, with respect to the Statement of Revenues and Certain Expenses of 24 West
57th Street for the year ended December 31, 1996, all of which are included in
the Registration Statement (Form S-11) of Loeb Realty Corporation dated May 11,
1998 for the registration of 15,640,000 shares of its common stock.
ERNST & YOUNG LLP
New York, New York
May 11, 1998
<PAGE>
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EXHIBIT 23(D)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
in this registration statement of our report dated March 11, 1998 included
herein and to all references to our Firm included in this registration
statement.
Arthur Andersen LLP
Tampa, Florida
May 11, 1998
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EXHIBIT 99
CONSENT
The Undersigned hereby consents to being named as a Director of Loeb Realty
Corporation (the "Company") in the Form S-11 of the Company to be filed with
the Securities and Exchange Commission.
/s/ALAN L. GORDON
......................
Alan L. Gordon
Date: May 11, 1998
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<PAGE>
CONSENT
The Undersigned hereby consents to being named as a Director of Loeb Realty
Corporation (the "Company") in the Form S-11 of the Company to be filed with
the Securities and Exchange Commission.
/s/ PETER S. DUNCAN
......................
Peter S. Duncan
Date: May 11, 1998
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