<PAGE>
PROSPECTUS
FEBRUARY 16, 1994
$50,000,000
WESTERN INVESTMENT REAL ESTATE TRUST
7_ 7/8% SENIOR NOTES DUE 2004
The 7_ 7/8% Senior Notes due February 15, 2004, are being offered by the
Trust. The Notes will be senior unsecured obligations of the Trust, PARI PASSU
with the Trust's outstanding 8% Convertible Debentures due 2008 and with all
other present or future unsecured and unsubordinated debt of the Trust. As of
September 30, 1993, after giving effect to the repayment of borrowings under the
Trust's existing line of credit with a portion of the proceeds from this
offering, the Trust will have approximately $116,076,000 of unsecured and
unsubordinated debt outstanding (including the Notes). The Notes do not
currently rank senior to any outstanding indebtedness of the Trust. The Notes
will not be listed on any securities exchange, and there can be no assurance
that there will be an active secondary market for the Notes.
Interest on the Notes is payable in cash on each February 15 and August 15,
commencing August 15, 1994. The Notes are not redeemable prior to maturity. Upon
a Change of Control (as defined herein), the Trust is required to offer to
purchase the Notes at 101% of the principal amount thereof, plus accrued
interest to the date of purchase. The Trust is also required to use certain
unreinvested proceeds from the sale or disposition of assets to repay senior
indebtedness or offer to repurchase the Notes at 100% of the principal amount
thereof, plus accrued interest to the date of purchase. See "Description of the
Notes -- Change of Control" and "-- Certain Covenants -- Limitation on
Disposition of Proceeds of Asset Sales."
The Notes will be represented by a Global Note registered in the name of the
nominee of the Depository Trust Company. Beneficial interests in the Global Note
will be shown on, and transfers thereof will be effected only through, records
maintained by the Depository Trust Company (with respect to beneficial interests
of participants) or through the records maintained by participants or persons
that hold interests through participants (with respect to beneficial interests
of beneficial owners). Owners of beneficial interests in the Global Note will be
entitled to physical delivery of Notes in certificated form only under certain
limited circumstances. See "Description of the Notes -- Book-Entry System."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC (1) COMMISSIONS (2) TRUST (3)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Per Note................................................................ 99.71% 0.60% 99.11%
Total................................................................... $ 49,855,000 $ 300,000 $ 49,555,000
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE.
(2) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITER.
(3) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE TRUST, ESTIMATED AT
$250,000.
</TABLE>
The Notes are offered by the Underwriter subject to prior sale, when, as and
if delivered to and accepted by it and subject to various prior conditions,
including the right to reject any order in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York, on or about February
24, 1994.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
[GRAPHIC]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS OR
INCORPORATED HEREIN BY REFERENCE.
THE TRUST
Founded in 1962, Western Investment Real Estate Trust (the "Trust") is a
self-administered and fully integrated equity real estate investment trust
("REIT") which invests in income-producing properties located principally in
Northern and Central California and Nevada. At September 30, 1993, the Trust had
investments in 58 properties containing approximately 4.4 million square feet of
gross leasable area and 19.6 million square feet of land, with an occupancy rate
of 91%. The Trust's policy is primarily to make long-term investments in
properties in which a majority of tenants are already in place or committed to
future occupancy.
The Trust's strategy is to focus on community shopping centers and retail
stores in Northern and Central California and Nevada, generally outside of major
cities in areas which are experiencing population growth. At September 30, 1993,
approximately 88% of the amounts invested by the Trust related to shopping
centers and retail businesses, all of which were located in Northern and Central
California and Nevada. The Trust believes that this focus provides it with a
high degree of market familiarity, promotes greater efficiency in the Trust's
asset management activities and helps the Trust establish strong working
relationships with major national and regional retailers. Further, the Trust's
strategic focus contributes to its ability to identify potential acquisitions.
The Trust's shopping center properties are strategically located, attractive
and well constructed and maintained. Over 75% of the amounts invested by the
Trust in its shopping center and retail properties has been in properties
constructed since January 1, 1985. The Trust's principal shopping center and
retail tenants include substantial, well-recognized national and regional
businesses such as Kmart, Lucky Stores, Marshall's, PayLess, J.C. Penney,
Raley's, Ross Stores, Round Table Pizza, Safeway, Save Mart, Thrifty and Toys
"R" Us. The Trust's commercial tenants include Coast Federal Bank and Fireman's
Fund.
The Trust directly provides full asset management services to all but three
of its properties. Asset management includes property management, leasing,
marketing, accounting and legal support. Internal management provides for the
regular interaction between the Trust and its tenants and the close supervision
of properties, while permitting the Trust to provide its tenants with a range of
value added services. In addition, the Trust believes that over time such
internal asset management should prove less expensive than employing independent
property management and leasing firms due to lower commissions and fees and
certain economies of scale.
The Trust's leases are for varying lengths and provide different mechanisms
for increasing rents over the term of the lease based on the type of tenant.
Substantially all of the Trust's properties are leased on a triple net basis,
with the tenants being responsible for most operating expenses, such as real
estate taxes, utilities, certain types of insurance and normal maintenance and
repair.
The Trust has paid 119 consecutive quarterly cash dividends and has
qualified as a REIT under the Internal Revenue Code, as amended, since it
commenced real estate operations in 1964. Its shares of beneficial interest have
been publicly traded on the American Stock Exchange since 1984. The Trust's
executive offices are located at 3450 California Street, San Francisco,
California 94118, telephone (415) 929-0211.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................ $50,000,000 aggregate principal amount of
the Trust's 7 7/8% Senior Notes due 2004
(the "Notes").
Maturity.................................. February 15, 2004.
Interest Payment Dates.................... February 15 and August 15, commencing
August 15, 1994.
Ranking................................... The Notes will be senior unsecured
obligations of the Trust and will rank
equally with the Trust's other unsecured
and unsubordinated indebtedness. The Notes
do not currently rank senior to any
outstanding indebtedness of the Trust.
Use of Proceeds........................... The Trust will use the proceeds from this
Offering to retire all of the Trust's
indebtedness under its existing line of
credit, to acquire properties as suitable
opportunities arise, to expand and improve
existing properties and for general Trust
purposes. See "Use of Proceeds."
Change of Control......................... If a Change of Control occurs, the Trust
is required to offer to purchase the Notes
at 101% of the principal amount thereof,
plus accrued interest to the date of
purchase. The Trust's ability to
repurchase the Notes upon a Change of
Control may be limited by the Trust's then
existing financial resources. Furthermore,
the enforceability of the Trust's
obligation to offer to repurchase the
Notes may be limited by the provisions of
the California Corporation Code. See
"Description of the Notes -- Change of
Control" and "-- Governing Law."
Redemption................................ The Notes may not be redeemed prior to
maturity.
Principal Covenants....................... The Indenture will contain certain
covenants that, among other things, (i)
will restrict the ability of the Trust to
incur additional indebtedness or pay
dividends and make other distributions,
(ii) will require the Trust to use certain
unreinvested proceeds from the sale or
disposition of assets to repay senior
indebtedness or to offer to repurchase the
Notes at 100% of the principal amount
thereof, plus accrued interest to the date
of purchase, and (iii) will require the
Trust to maintain a minimum net worth. See
"Description of the Notes -- Certain
Covenants."
</TABLE>
4
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes offered hereby are estimated to
be $49,305,000. The Trust intends to use the net proceeds to retire all of the
Trust's indebtedness under its existing line of credit. The outstanding balance
under the line of credit was $32,168,000 at September 30, 1993 bearing interest
at that date at the rate of 6.25% per annum. As of January 31, 1994, the
outstanding balance was reduced to $19,845,000 with the proceeds from the sale
of the Trust's Marin General Hospital property in Larkspur, California. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments." With respect to the remainder of the net
proceeds of this offering, the Trust intends to use approximately $27,000,000 to
acquire properties as suitable opportunities arise and approximately $2,500,000
to expand and improve existing properties. The Trust is continuously engaged, in
the ordinary course of its business, in the evaluation of properties for
acquisition. No agreements or understandings with respect to any material
property acquisitions are currently in effect. Pending such applications of the
net proceeds, the Trust will invest the net proceeds in short-term,
interest-bearing obligations.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Trust at September 30, 1993, and as adjusted to give effect to the sale of the
Notes offered hereby and the anticipated use of the net proceeds therefrom:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Short-term debt................................................................... $ 32,168 $ 0
----------- -----------
----------- -----------
Long-term debt:
Real estate loans payable....................................................... $ 1,527 $ 1,527
7 7/8% Senior Notes due 2004.................................................... 0 50,000
8% Convertible Debentures due June 30, 2008..................................... 66,076 66,076
----------- -----------
Total long-term debt........................................................ 67,603 117,603
Shareholders' equity:
Shares of beneficial interest, no par value, unlimited authorization; 16,625,723
shares issued and outstanding.................................................. 235,922 235,922
Accumulated dividends in excess of Trust net income............................. (29,480) (29,480)
----------- -----------
Total shareholders' equity.................................................. 206,442 206,442
----------- -----------
Total capitalization.............................................................. $ 274,045 $ 324,045
----------- -----------
----------- -----------
</TABLE>
5
<PAGE>
SELECTED FINANCIAL INFORMATION
The table below presents selected data for the Trust on an annual basis and
for certain interim periods. The annual selected financial data are derived from
the Trust's audited financial statements. The financial data for the nine month
periods ended September 30, 1992 and 1993 are derived from interim financial
statements that are unaudited but that reflect, in the opinion of the management
of the Trust, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation. All information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Trust incorporated herein by
reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- ----------------------
1988 1989 1990 1991 1992 1992 1993
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Operating revenues................ $ 20,884 $ 27,575 $ 31,295 $ 32,591 $ 32,879 $ 24,539 $ 25,435
Operating expenses................ 482 915 1,174 1,810 3,357 1,911 3,024
Depreciation and amortization..... 3,191 4,611 6,214 7,880 8,610 6,539 6,752
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from real estate
operations....................... 17,211 22,049 23,907 22,901 20,912 16,089 15,659
Interest expense.................. 3,304 7,034 5,698 6,770 7,925 5,972 5,869
Interest and other income......... 665 1,117 1,315 32 17 13 19
Administrative expense............ 1,430 1,554 1,622 1,510 1,681 1,562 1,110
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before gains on sales of
real estate investments.......... 13,142 14,578 17,902 14,653 11,323 8,568 8,699
Gains on sales of real estate
investments...................... 364 236 526 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................ $ 13,506 $ 14,814 $ 18,428 $ 14,653 $ 11,323 $ 8,568 $ 8,699
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
OTHER DATA
Cash dividends paid............... $ 15,201 $ 17,616 $ 23,161 $ 20,855 $ 18,316 $ 13,711 $ 13,876
Funds from operations (1)......... $ 16,411 $ 19,433 $ 24,380 $ 22,801 $ 20,305 $ 15,259 $ 15,589
Earnings before interest expense,
taxes, depreciation and
amortization ("EBITDA") (2)...... $ 19,637 $ 26,223 $ 29,814 $ 29,303 $ 27,858 $ 21,079 $ 21,320
Ratio of EBITDA to interest
expense (2)...................... 5.9x 3.7x 5.2x 4.3x 3.5x 3.5x 3.6x
Ratio of earnings to fixed
charges (3)...................... 5.0x 3.1x 4.1x 3.2x 2.4x 2.4x 2.5x
Number of properties
(at end of period)............... 52 54 58 58 58 58 58
BALANCE SHEET DATA (AT END OF PERIOD)
Real estate investments, gross.... $ 164,367 $ 209,105 $ 299,492 $ 334,073 $ 337,703 $ 336,823 $ 344,685
Total assets...................... 228,018 299,816 302,014 318,941 316,622 315,656 310,349
Real estate loans payable......... 1,670 1,754 1,693 1,637 1,581 1,596 1,527
Total debt........................ 76,670 76,619 80,254 100,505 105,432 101,165 99,771
Shareholders' equity.............. 148,632 220,125 217,497 213,851 209,345 210,931 206,442
<FN>
- --------------------------
(1) Industry analysts generally consider funds from operations to be an
appropriate measure of the performance of an equity REIT. Funds from
operations, as defined by the National Association of Real Estate
Investment Trusts, is: net income excluding gains or losses from debt
restructuring and sales of property, plus depreciation and amortization,
and after adjustments for unconsolidated joint ventures. Funds from
operations does not represent cash flow from operations as defined by
GAAP, is not necessarily indicative of cash available to fund all cash
needs and should not be considered as a substitute for net income under
GAAP as an indicator of operating performance.
(2) The Trust believes that although this is useful information, it should not
be considered in isolation or as a substitute for the income statement
data prepared in accordance with generally accepted accounting principles.
(3) For purposes of these computations, earnings consist of income before
income taxes, gains on sales of real estate investments and fixed charges.
Fixed charges consist of interest on indebtedness, including capitalized
leases, amortization of interest costs and implicit interest on rental
arrangements.
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
The Trust announced on February 8, 1994 its results for the year and the
fourth quarter ended December 31, 1993. Operating revenues increased $934,000 or
3%, to $33,813,000 in 1993 from $32,879,000 in 1992. Net income increased
$271,000, or 2%, to $11,594,000 in 1993 from $11,323,000 in 1992. Net income per
share increased to $0.70 from $0.69. For the quarter ended December 31, 1993,
operating revenues increased $38,000 to $8,378,000 from $8,340,000 for the
comparable quarter in 1992. Net income increased $140,000, or 5%, to $2,895,000
for the quarter ended December 31, 1993 from $2,755,000 for the comparable
quarter in 1992. Net income per share remained stable in the fourth quarter at
$0.17. The Trust declared a quarterly dividend of $0.28 per share payable March
15, 1994 to shareholders of record on February 25, 1994.
On January 27, 1994, the Trust sold its Marin General Hospital property in
Larkspur, California. The sales price was $12,412,351. The Trust used the net
proceeds of this sale to reduce the outstanding balance on its line of credit.
See "Use of Proceeds." In 1993, the Trust received $1,324,852 in rental income
from this property. As a result of this sale the Trust will receive no further
rental income from this property.
RESULTS OF OPERATIONS
OPERATING REVENUES
Operating revenues consist primarily of rental income derived from the
Trust's properties and income from direct financing leases and interest on
mortgage loans. Operating revenues increased $896,000, or 4%, to $25,435,000 for
the nine months ended September 30, 1993 from $24,539,000 for the comparable
period in 1992. The increase was primarily a result of increased rental income
of $1,292,000, partially offset by decreased interest income of $379,000 on
mortgage loans and decreased direct financing lease income of $17,000. Rental
income increased 5% to $24,957,000 from $23,665,000. The increase consisted of
$459,000 of deferred rent receivable and $833,000 in additional rental income
from increased rental rates and collection of prior year rents.
Operating revenues increased $288,000, or 1%, to $32,879,000 in 1992 from
$32,591,000 in 1991. The increase was primarily a result of increased rental
income of $496,000, partially offset by decreased interest income of $188,000 on
participating convertible and other mortgage loans and decreased direct
financing lease income of $20,000. Rental income increased 2% to $31,716,000
from $31,220,000. The increase consisted of $1,149,000 in rental income
generated from a property acquired in 1991 and from properties upon which rental
payments commenced in 1991, $443,000 in rental income generated from a property
acquired by conversion of a loan in 1991 and increased rental income of $405,000
due to increased rental rates and collections from bankruptcy settlements of two
previous tenants. These increases were offset by a decrease of $1,344,000 in
rental income due to the restructuring of master leases covering 17 of the
Trust's shopping center properties in August 1991 and $157,000 due to the
increase in the allowance for uncollectible rents.
Operating revenues increased $1,296,000, or 4%, to $32,591,000 in 1991 from
$31,295,000 in 1990. The increase was primarily a result of increased rental
income of $4,276,000, partially offset by decreased interest income of
$2,970,000 on participating convertible loans, which were converted to equity
interests, and other mortgage loans and decreased direct financing lease income
of $10,000. Rental income increased 16% to $31,220,000 from $26,944,000. The
increase consisted of $5,193,000 in rental income generated from properties
acquired in 1990 and 1991, including the above referenced conversion of
participating convertible loans to equity interests, and an increase of $59,000
in rental income generated from properties acquired prior to 1990,
7
<PAGE>
offset by a decrease of $438,000 in rental income due to the vacancy of a
commercial property, $301,000 due to the increase in the allowance for
uncollectible rents and $237,000 due to the restructuring of master leases.
OPERATING EXPENSES
Operating expenses include property management expenses and repairs,
maintenance and other expense. Operating expenses have increased in recent
periods as a result of the Trust's decision, beginning in 1991, to assume direct
property management obligations with respect to all but three of its properties.
This decision has required a substantial increase in the Trust's property
management staff. Operating expenses are also affected by occupancy levels, in
that expenses for unoccupied space are absorbed by the Trust rather than being
assumed by tenants under triple net leases. The Trust expects that its operating
expenses will continue to increase in 1994, primarily as a result of increased
staffing requirements, but it expects that the increase will be smaller than has
been experienced in recent years.
Operating expenses increased $1,113,000, or 58%, to $3,024,000 for the nine
months ended September 30, 1993 from $1,911,000 for the comparable period in
1992. The increase consisted of $844,000 of increased property management
expense and $269,000 of increased repairs, maintenance and other expense. The
increase in property management expense was primarily due to the increase in
allocated administrative expense and the increase in the property management
staff and other asset management activities.
Operating expenses increased $1,547,000, or 85%, to $3,357,000 in 1992 from
$1,810,000 in 1991. The increase consisted of $642,000 of increased property
management expense and $905,000 of increased repairs, maintenance, and other
expense. The increases were primarily due to the restructuring of master leases
covering 17 of the Trust's shopping center properties, as the result of which
the Trust assumed direct property management obligations with respect to these
properties.
Operating expenses increased $636,000, or 54%, to $1,810,000 in 1991 from
$1,174,000 in 1990. The increase primarily consisted of a $587,000 increase in
repairs, maintenance and other expense due to the restructuring of master
leases.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $213,000, or 3%, to $6,752,000 for
the nine months ended September 30, 1993 from $6,539,000 for the comparable
period in 1992. Depreciation and amortization increased $730,000, or 9%, to
$8,610,000 in 1992 from $7,880,000 in 1991. The increase was primarily a result
of additional depreciation from improvements on properties made in 1992 and a
full year's depreciation on properties for which depreciation commenced in 1991.
Depreciation and amortization increased $1,666,000, or 27%, to $7,880,000 in
1991 from $6,214,000 in 1990. The increase was primarily a result of additional
depreciation on properties acquired in 1991 and a full year's depreciation on
properties purchased in 1990.
INTEREST EXPENSE
Interest expense consists primarily of interest expense on balances
outstanding under the Trust's line of credit and 8% Convertible Debentures due
June 30, 2008 (the "Debentures"). Interest expense decreased $103,000, or 2%, to
$5,869,000 for the nine months ended September 30, 1993 from $5,972,000 for the
comparable period in 1992, primarily due to partial redemption of the
Debentures. Interest expense increased $1,155,000, or 17%, to $7,925,000 in 1992
from $6,770,000 in 1991 primarily due to decreased capitalization of interest
costs for projects under development and increased levels of bank borrowings,
offset in part by partial redemption of the Debentures. Interest expense
increased $1,072,000, or 19%, to $6,770,000 in
8
<PAGE>
1991 from $5,698,000 in 1990 primarily due to increased bank borrowings, offset
by partial redemption of the Debentures and increased capitalization of interest
costs for projects under development.
INTEREST AND OTHER INCOME
Interest and other income primarily consists of income earned on cash and
short-term investment balances. Interest and other income was $19,000 for the
nine months ended September 30, 1993 and $13,000 for the comparable period in
1992. Interest and other income was $17,000 in 1992, $32,000 in 1991 and
$1,315,000 in 1990. Interest and other income decreased $1,283,000, or 98%, in
1991 from 1990 as a result of the absence of short term investment income during
1991, as compared to 1990 when short term investment income was earned on funds
generated by the Trust's offering of shares of beneficial interest in the third
quarter of 1989.
ADMINISTRATIVE EXPENSE
Administrative expense includes Trustees' fees and costs related to
professional services and the Trust's other administrative functions, including
salaries. Administrative expense decreased $452,000, or 29%, to $1,110,000 for
the nine months ended September 30, 1993 from $1,562,000 for the comparable
period in 1992. The decrease was primarily due to the allocation of certain
administrative expenses to property management expenses. The Trust's
administrative expenses were $1,681,000 in 1992, $1,510,000 in 1991 and
$1,622,000 in 1990.
NET INCOME
Net income increased $131,000, or 2%, to $8,699,000 for the nine months
ended September 30, 1993 from $8,568,000 for the comparable period in 1992. Net
income decreased $3,330,000, or 23%, to $11,323,000 in 1992 from $14,653,000 in
1991. Net income decreased $3,775,000, or 20%, to $14,653,000 in 1991 from
$18,428,000 in 1990.
LIQUIDITY AND CAPITAL RESOURCES
On July 31, 1991 the Trust obtained a $40,000,000 revolving line of credit
on which there was an outstanding balance of $19,845,000 at January 31, 1994. On
December 1, 1993 the amount of the line of credit was reduced to $35,000,000. A
substantial portion of the net cash proceeds to the Trust from this offering is
expected to be used to retire all of the Trust's indebtedness under this line of
credit. Interest is paid on funds drawn under the line of credit at a rate not
greater than the bank's reference rate plus one quarter percent. This line of
credit expires May 31, 1994 and the Trust intends to renew it. Under the Trust's
line of credit, the Trust must maintain a tangible net worth of $195,000,000 and
may not incur indebtedness (other than the indebtedness under the line of
credit, the Debentures and the Notes) exceeding $5,000,000.
The sources of capital for the Trust's acquisition, expansion and renovation
of property historically have been proceeds from public offerings of the Trust's
shares of beneficial interest and debt securities, the Trust's line of credit,
cash flow from operations, and, to a lesser extent, mortgage debt and proceeds
from sales of property. The Trust raised approximately $288,000,000 from 1984 to
1989 through the sale of shares of beneficial interest and the issuance of the
Debentures and may endeavor to raise additional capital, either debt or equity,
to fund future acquisitions and Trust operations. The cost of debt or equity
capital will be weighed against the anticipated yields of the investments which
could be acquired with those funds. If needed, additional funds should be
readily available to the Trust in the form of mortgage debt on one or more of
the Trust's properties, 55 of which currently are not encumbered by debt,
subject to the limitations on incurrence of debt imposed by the Indenture for
the Notes offered hereby. See "Description of Notes -- Certain Covenants --
Limitations on Incurrence of Debt." At September 30, 1993, the Trust's aggregate
mortgage debt was less than 1% of the amount
9
<PAGE>
invested by the Trust in its properties. The Trust believes that adequate cash
will be available to fund investments, operations and administrative expenses,
debt service obligations and the payment of dividends in both the short and long
term.
IMPACT OF THE ECONOMY
Occupancy rates of the Trust's investments were at or above 90% at December
31, 1990, 1991, 1992 and 1993. The Trust believes that it was unable to increase
occupancy above these rates during this period due to a generally sluggish
economy coupled with overbuilding in certain areas in which Trust properties are
located. The smaller retail and service tenants at the Trust's community
shopping centers, which tend to be more dependent on discretionary spending,
have been more negatively impacted by the sluggish economy than the Trust's
anchor tenants. The anchor tenants consist primarily of supermarkets and/or
super drugstores. In the Trust's experience, these businesses tend to be
impacted less by economic downturns than other types of retailers.
The Trust is positioned to benefit from a general economic improvement which
should result in increased occupancy and leasing on terms at least as favorable
as those presently enjoyed by the Trust under its existing leases. As occupancy
increases, the Trust's rental income should increase and expenses should
decrease, as more tenants assume responsibility for common area and other
expenses presently absorbed by the Trust. Increased consumer sales at its
community shopping centers should also increase rental income by generating
greater percentage rents under some leases.
The effects of inflation upon the Trust's results of operations and
properties are mixed. Inflation tends to increase Trust rental income by
increasing tenant revenues upon which percentage rents are based, increasing the
consumer price index ("CPI") upon which CPI rent escalation clauses are based
and permitting an increase in base rents as new leases are made. See "Business
and Properties -- Leasing Policies." This positive effect is partially offset by
increased operating expenses, although the Trust's policy of negotiating leases
on a triple net basis increases the likelihood that these increased operating
expenses will not rise as quickly as rental income.
VOLUME DISCOUNT RETAILERS
During 1991 and 1992, volume discount retailers such as Wal-Mart, Costco and
Sam's Club, entered into certain areas of California and Nevada where Trust
community shopping center properties are located. The Trust expects that these
discounters may positively or negatively affect certain of the Trust's shoppping
center tenants. The Trust believes that its tenants could benefit if these
discounters attract additional customers to nearby Trust properties and thereby
generate increased sales for Trust tenants. Conversely, the Trust's tenants
could be negatively affected if discounters draw customers away from the Trust's
tenants. The Trust believes that to date this trend has had no measurable impact
on the Trust's results of operations.
DIVIDENDS
It is the Trust's policy to pay annual dividends in an amount sufficient to
satisfy the Internal Revenue Code (the "Code") requirement that a REIT annually
distribute at least 95% of its taxable income to its shareholders. The Trust
declares and pays quarterly dividends based on projected income and funds from
operations and the Trust's anticipated ability to maintain or increase such
dividends in future years. In the event that in any year the quarterly dividends
aggregate less than 95% of taxable income, the Trust intends to pay a special
dividend to satisfy the Code requirement. See "Taxation."
10
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Founded in 1962, the Trust is a self-administered and fully integrated
equity REIT which invests in income-producing properties located principally in
Northern and Central California and Nevada. At September 30, 1993, the Trust had
investments in 58 properties containing approximately 4.4 million square feet of
gross leasable area and 19.6 million square feet of land, with an occupancy rate
of 91%. The Trust's policy is primarily to make long-term investments in
properties in which a majority of tenants are already in place or committed to
future occupancy.
The following table indicates by type of property the investments of the
Trust as of September 30, 1993 and their contribution to rental income for the
nine months ended September 30, 1993:
<TABLE>
<CAPTION>
INVESTMENT RENTAL INCOME
NUMBER OF -------------------------- --------------------------
TYPE OF PROPERTY INVESTMENTS DOLLAR AMOUNT PERCENTAGE DOLLAR AMOUNT PERCENTAGE
- ------------------------------- ----------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Shopping Center/Retail......... 44 $ 301,289,349 88.1 % $ 21,222,367 85.0 %
Commercial..................... 11 36,588,371 10.7 2,896,096 11.6
Industrial..................... 3 4,251,624 1.2 838,655 3.4
----------- ------------- ----- ------------- -----
Total.......................... 58 $ 342,129,344 100.0 % $ 24,957,118 100.0 %
----------- ------------- ----- ------------- -----
----------- ------------- ----- ------------- -----
</TABLE>
The Trust owns all of its properties in fee. All but three of its properties
are not encumbered by debt.
SHOPPING CENTERS/ANCHOR TENANTS
The Trust's strategy is to focus on community shopping centers and retail
stores in Northern and Central California and Nevada. At September 30, 1993,
approximately 88% of the amounts invested by the Trust related to shopping
centers and retail businesses, all of which were located in these areas. The
Trust's community shopping center properties are strategically located,
attractive and well constructed and maintained. Over 75% of the amounts invested
by the Trust in its shopping center and retail properties has been in properties
constructed since January 1, 1985.
The Trust's community shopping center anchor tenants provide day-to-day
necessities, primarily to local area customers. Consequently, these anchor
tenants are generally less subject to economic downturns and declines in
discretionary spending than certain other types of tenants. Each shopping center
is typically anchored by a supermarket and/or super drugstore, which generally
fill approximately 60% of the gross leasable area in the shopping center. The
remaining space is leased to smaller retail and service businesses, such as
restaurants, video stores and travel agencies. Lease terms generally are 10 to
25 years for anchor tenants and three to five years for most other retail
tenants.
The Trust's principal shopping center and retail tenants include
substantial, well-recognized national and regional businesses such as Kmart,
Lucky Stores, Marshall's, PayLess, J.C. Penney, Raley's, Ross Stores, Round
Table Pizza, Safeway, Save Mart, Thrifty and Toys "R" Us. The Trust's commercial
tenants include Coast Federal Bank and Fireman's Fund.
11
<PAGE>
The following table indicates the Trust's 10 largest tenants by rental
income for the nine months ended September 30, 1993:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1993
---------------------------------------
GROSS LEASABLE AREA RENTAL INCOME
NUMBER OF ---------------------------- -------------------------------
TENANT LOCATIONS SQUARE FEET PERCENTAGE (1) DOLLAR AMOUNT PERCENTAGE (1)
----------------------------------- --------- ----------- --------------- -------------- ---------------
(IN THOUSANDS)
<C> <S> <C> <C> <C> <C> <C>
1. Raley's (2)........................ 19 1,112,091 25.4 % $ 5,902 23.7 %
2. Coast Federal Bank................. 6 76,322 1.7 1,246 5.0
3. Save Mart.......................... 7 223,698 5.1 1,077 4.3
4. Marin General Hospital (3)......... 1 50,685 1.2 994 4.0
5. Payless............................ 5 153,136 3.5 646 2.6
6. Kmart.............................. 2 199,633 4.6 499 2.0
7. Lucky Stores....................... 3 89,953 2.1 483 1.9
8. Safeway (4)........................ 2 138,690 3.2 479 1.9
9. Fireman's Fund..................... 1 42,136 1.0 464 1.9
10. Viking Freight..................... 1 58,022 1.3 434 1.7
--
----------- --- -------------- ---
Total.............................. 47 2,144,366 49.0 % $ 12,224 49.0 %
--
--
----------- --- -------------- ---
----------- --- -------------- ---
<FN>
- ------------------------
(1) Sets forth the percentage of the Trust's 4,375,698 square feet of total
gross leasable area and $24,957,118 of total rental income represented by
the Trust's 10 largest tenants.
(2) Raley's is a privately owned supermarket and super drug retailer which
operated 85 stores in Northern California and Nevada as of October 31,
1993. Raley's has publicly released information indicating that its sales
were $1.6 billion for its fiscal year ended June 26, 1993.
(3) On January 27, 1994, the Trust sold its Marin General Hospital property
for $12,412,351 pursuant to an option to purchase. In 1993, the Trust
received $1,342,852 in rental income from this property. As a consequence
of this sale the Trust will no longer receive any rental income from this
property.
(4) Safeway has notified the Trust that it will terminate its lease with
respect to one of these properties, located in Oakland, California, as of
September 30, 1994. In 1993, the Trust received $546,000 in rental income
from this property. Although Safeway will continue to pay rent on this
property through September, it has vacated the premises and the Trust has
initiated efforts to re-lease or sell the property. The Trust believes
that it is unlikely that it will be able to re-lease the property on terms
as favorable as the terms with Safeway. Furthermore, depending on the
eventual use of the property, the Trust could be required to take a
material write down of the value of this property.
</TABLE>
GEOGRAPHIC FOCUS
The Trust's geographic strategy is to invest in properties in Northern and
Central California and Nevada, where all but one of the Trust's real estate
investments are located. Since 1985, the Trust has generally invested outside of
major cities in areas which are experiencing population growth. The Trust
focuses on these areas because acquisition costs are generally lower than in
major metropolitan areas and because potential tenants generally have fewer
leasing alternatives, which can lead to attractive lease terms for the Trust.
The Trust believes this geographic focus provides it with a high degree of
market familiarity, promotes greater efficiency in the Trust's asset management
activities and helps the Trust establish strong working relationships with the
major national and regional retailers which serve the Northern and Central
California and Nevada markets. The Trust believes that there are acquisition
opportunities presently available within its geographic focus. This geographic
12
<PAGE>
focus contributes to its ability to identify these acquisition opportunities.
The Trust's geographic focus means that its results are affected by regional
economic trends to a greater extent than would be true if the portfolio were
more geographically diverse. The Trust believes, however, that the size and
economic diversity of the Northern and Central California and Nevada regions
substantially mitigate this potential risk.
ASSET MANAGEMENT
The Trust is a fully integrated REIT which directly provides full asset
management services to all but three of its properties. Asset management
includes property management, leasing, marketing, accounting and legal support.
Internal management provides for the regular interaction between the Trust and
its tenants and the close supervision of properties, while permitting the Trust
to provide its tenants with a range of value added services.
In order to facilitate its present and future asset management activities,
over the last two years the Trust has significantly expanded its asset
management staff, improved its systems and controls and opened two branch
offices. As part of its improved systems and controls, the Trust has implemented
an on-line property management system which is capable of providing the Trust
with descriptions of its properties, tenants, lease expiration dates, option and
cancellation privileges and percentage, scheduled and CPI based rent increase
provisions.
Internal management also permits the Trust to provide value added services
to its tenants. For example, the Trust's marketing staff works with the Trust's
shopping center tenants on promotional and advertising activities to draw
consumers to the shopping centers. These activities help the Trust to attract
and maintain the major national and regional retail tenants which serve the
Northern and Central California and Nevada markets. In addition, the Trust
believes that over time the costs of internal property management and leasing
should prove less expensive than employing independent property management and
leasing firms due to lower commissions and fees and certain economies of scale.
LEASING POLICIES
The Trust's leases with its shopping center anchor tenants, small retail
tenants, and commercial and industrial tenants are for varying lengths and
provide different mechanisms for increasing rents over the term of the lease
based on the type of tenant. The shopping center anchor tenant leases generally
have terms of from 10 to 25 years and provide for percentage rents, through
which the Trust receives a portion of the tenants' gross sales above a specified
amount. The sales level at which percentage rents become payable generally is
not achieved before seven years of successful operation by the tenant. Most of
the Trust's anchor tenants have been open and operating for less than seven
years, and most are not currently paying percentage rents. The extent to which
percentage rents are payable is also affected by general economic conditions,
and in recent periods percentage rents have represented a declining percentage
of rental income. Leases for smaller retail tenants generally have shorter terms
of three to five years and include provisions for fixed rate increases. Leases
for commercial and industrial tenants are of varying terms and generally include
CPI based escalation clauses. The Trust receives on a monthly, quarterly or
annual basis sales and other information from tenants whose leases provide for
percentage rents. The Trust uses this information to monitor the payment of
percentage rents.
Substantially all of the Trust's leases are negotiated on a triple net
basis, with the tenants being responsible for most operating expenses, such as
real estate taxes, certain types of insurance, utilities and normal repairs and
maintenance. In some cases, the tenant's obligation to pay these expenses is
subject to negotiated caps for certain expenses. Property expenses not paid by
tenants are the obligation of the Trust.
13
<PAGE>
The following table sets forth selected lease expiration information for the
Trust's tenants over the next ten years, assuming that none of the tenants
exercise renewal options or enter into new leases:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA
ANNUALIZED BASE REPRESENTED BY PERCENTAGE OF
NUMBER OF RENT UNDER EXPIRING LEASES TOTAL GROSS
LEASE EXPIRATION LEASES EXPIRING EXPIRING LEASES (SQUARE FEET) LEASABLE AREA(1)
- ------------------------ ---------------- --------------- -------------------- -----------------
<S> <C> <C> <C> <C>
November 1, 1993 -
December 31, 1993(2)... 40 $ 840,072 90,993 2.1%
1994.................... 73 2,731,889 336,019 7.7
1995.................... 67 2,577,799 156,321 3.6
1996.................... 67 2,118,672 257,683 5.9
1997.................... 45 1,719,756 129,540 3.0
1998.................... 71 2,129,651 185,621 4.2
1999.................... 25 1,352,718 152,443 3.5
2000.................... 17 1,766,652 136,479 3.1
2001.................... 10 974,849 73,486 1.7
2002.................... 22 1,596,858 214,059 4.9
2003.................... 16 2,126,442 228,691 5.2
<FN>
- ------------------------
(1) Sets forth the percentage of the Trust's 4,375,698 square feet of total
gross leasable area held as of September 30, 1993 covered by expiring
leases.
(2) Includes all of the Trust's month to month leases which represent 28
expiring leases, $539,430 in annual base rent and 66,731 square feet of
gross leasable area.
</TABLE>
PROPERTIES
The following table sets forth certain information with respect to the
Trust's portfolio of properties as of September 30, 1993:
<TABLE>
<CAPTION>
GROSS
LEASABLE
YEAR AREA OCCUPANCY
NAME LOCATION YEAR BUILT ACQUIRED (SQ. FT.) RATE INVESTMENT
- ------------------------------ ------------------------ ---------- -------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTER/RETAIL PROPERTIES
Elverta Crossing Sacramento, CA 1991 1990 119,673 88.9% $ 11,152,036
Stillwater Plaza Fallon, NV 1991 1991 60,114 100.0 4,220,000
Caughlin Ranch Reno, NV 1990 1990 107,596 63.2 10,121,077
Mercantile Row Dinuba, CA 1990 1990 98,520 92.0 7,617,255
Heritage Park Suisun, CA 1989 1990 163,042 82.7 15,881,199
Yreka Junction Yreka, CA 1989 1990 115,360 95.0 7,463,144
Blossom Valley Turlock, CA 1988 1990 111,657 97.8 11,128,355
Canal Farms Los Banos, CA 1988 1988 110,535 89.2 8,317,818
Cobblestone Redding, CA 1988 1988 122,137 88.0 10,428,145
Commonwealth Square Folsom, CA 1988 1990 141,400 90.5 16,416,492
Country Gables Granite Bay, CA 1988 1991 140,216 83.5 15,615,054
Pine Creek (1) Grass Valley, CA 1988 1989 214,518 88.9 10,770,458
Victorian Walk Fresno, CA 1988 1988 102,581 88.5 8,598,414
Park Place Vallejo, CA 1987 1990 146,497 94.7 15,536,144
Angels Camp Towne Center Angels Camp, CA 1986 1986 70,323 96.4 5,034,792
Elko Junction Elko, NV 1986 1988 101,112 96.2 10,779,939
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
GROSS
LEASABLE
YEAR AREA OCCUPANCY
NAME LOCATION YEAR BUILT ACQUIRED (SQ. FT.) RATE INVESTMENT
- ------------------------------ ------------------------ ---------- -------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Heritage Place Tulare, CA 1986 1987 119,411 96.8% $ 8,722,023
Mid Peninsula Plaza (1)(2) Redwood City, CA 1986 1985 50,291 100.0 3,672,303
North Hills North Reno, NV 1986 1988 103,702 88.4 12,340,875
Ukiah Crossroads Ukiah, CA 1986 1989 110,701 85.9 10,225,134
Eastridge Plaza Porterville, CA 1985 1985 81,010 85.3 5,346,822
Marshall's (2) Redwood City, CA 1985 1985 30,307 100.0 2,675,000
Skypark Plaza Chico, CA 1985 1988 176,477 89.5 14,523,705
Belle Mill Landing Red Bluff, CA 1982 1987 107,388 88.1 8,345,263
Eagle Station Carson City, NV 1982 1989 114,076 92.4 9,394,790
Nob Hill General Store Watsonville, CA 1982 1982 26,500 100.0 1,500,000
Heritage Oak Gridley, CA 1981 1987 102,555 88.8 5,238,000
Anderson Square Anderson, CA 1979 1987 67,480 92.0 3,365,500
Valley Plaza Fallon, NV 1978 1977 52,296 100.0 2,032,280
West Town Plaza Winnemucca, NV 1978 1978 65,424 100.0 3,516,300
Coalinga Shopping Center Coalinga, CA 1977 1987 87,570 97.7 3,690,711
Acapulco Y Los Arcos
Restaurantes Fresno, CA 1972 1972 8,360 100.0 545,000
Serra Center (1) Colma, CA 1972 1973 85,564 100.0 1,357,611
Kwik Stop Santa Rosa, CA 1970 1970 2,400 100.0 74,456
Currier Square Oroville, CA 1969 1989 134,702 88.6 9,787,884
Denny's Restaurant Redwood City, CA 1968 1968 3,540 100.0 238,500
Kmart (3) Napa, CA 1964 1966 103,284 100.0 0
Kmart Plaza Sacramento, CA 1964 1986 132,559 89.7 5,067,985
Lucky Stores El Cerrito, CA 1964 1964 34,400 100.0 1,325,000
Carpeteria Concord, CA 1963 1969 24,000 100.0 1,185,433
Raley's Center Yuba City, CA 1963 1986 134,387 92.7 7,884,401
Lucky Stores Santa Maria, CA 1962 1967 25,328 100.0 514,470
San Antonio Shopping
Center Mountain View, CA 1959 1965 45,500 97.5 5,238,180
Willowrock (4) Rocklin, CA -- 1990 -- -- 4,401,401
--------- ------------
Subtotal 3,954,493 301,289,349
COMMERCIAL PROPERTIES
Ford Motor Company Milpitas, CA 1987 1987 48,022 18.5 7,037,352
Redwood Business Park II Petaluma, CA 1985 1985 42,366 100.0 4,069,186
Coast Federal Bank Cupertino, CA 1980 1985 6,495 100.0 1,460,000
Coast Federal Bank Santa Cruz, CA 1980 1986 6,427 100.0 1,028,400
Coast Federal Bank Taraval St.,
San Francisco, CA 1975 1985 13,350 100.0 2,190,000
Marin General Hospital (5) Larkspur, CA 1969 1986 50,685 100.0 10,650,000
Coast Federal Bank Market St.,
San Francisco, CA 1964 1986 12,700 100.0 1,941,000
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
GROSS
LEASABLE
YEAR AREA OCCUPANCY
NAME LOCATION YEAR BUILT ACQUIRED (SQ. FT.) RATE INVESTMENT
- ------------------------------ ------------------------ ---------- -------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Coast Federal Bank Monterey, CA 1963 1985 18,968 100.0% $ 3,100,000
U.S. Post Office Boulder Creek, CA 1959 1969 3,216 100.0 76,936
Western Investment Real
Estate Trust Headquarters San Francisco, CA 1957 1987 11,892 100.0 2,887,497
Coast Federal Bank Salinas, CA 1937 1986 18,382 100.0 2,148,000
--------- ------------
Subtotal 232,503 36,588,371
INDUSTRIAL PROPERTIES
Merchants Truck Terminal Commerce City, CO 1984 1984 15,680 100.0 926,000
Viking Freight System Truck
Terminal (6) Santa Clara, CA 1978 1978 58,022 100.0 548,000
Safeway Ice Cream Plant (7) Oakland, CA 1930 1983 115,000 100.0 2,777,624
--------- ------------
Subtotal 188,702 4,251,624
--------- ------------
Total 4,375,698 $342,129,344
--------- ------------
--------- ------------
<FN>
- --------------------------
(1) The Trust owns 50% of Pine Creek, 50% of Mid Peninsula Plaza and 30% of
Serra Center.
(2) The Trust has entered into negotiations to sell its interests in the
Mid-Peninsula Plaza Shopping Center and the Marshall's property in Redwood
City, California. The Trust has not entered into any final agreement or
completed negotiations regarding any such sales and there is no assurance
that any such sales transaction will be completed.
(3) Property is accounted for as a direct financing lease. As of September 30,
1993, the book value of the direct financing lease was $1,094,665.
(4) Property consists of unimproved land currently under lease to Raley's
which has an option to purchase expiring in November 1995.
(5) On January 27, 1994, the Trust sold its Marin General Hospital property
for $12,412,351 pursuant to an option to purchase. In 1993, the Trust
received $1,342,852 in rental income from this property. As a consequence
of this sale, the Trust will no longer receive any income from this
property.
(6) A portion of the property is accounted for as a direct financing lease. As
of September 30, 1993, the book value of the direct financing lease was
$1,461,651.
(7) Safeway has notified the Trust that it will terminate its lease with
respect to this property as of September 30, 1994. Although Safeway will
continue to pay rent on this property through September, it has vacated
the premises and the Trust has initiated efforts to re-lease or sell the
property. The Trust believes that it is unlikely that it will be able to
re-lease the property on terms as favorable as the terms with Safeway.
Furthermore, depending on the eventual use of the property, the Trust
could be required to take a material write down of the value of this
property.
</TABLE>
The Trust believes that opportunities exist to acquire retail properties
which will complement the Trust's current portfolio. However, the Trust will
consider future investments in existing or proposed shopping centers, commercial
and industrial buildings as well as other kinds of income-producing properties
within or outside of the Trust's current geographic focus. The Trust competes
for properties with other investors and engages in a continuing effort to
identify desirable properties for acquisition. The Trust believes it can compete
for acquisitions effectively because of its experience in real estate investment
and asset management.
The Trust seeks to avoid development risks by purchasing and holding only
income-producing properties, where a majority of the tenants are already in
place or committed to future
16
<PAGE>
occupancy. However, from time to time, the Trust has entered into development
agreements and development mortgage loans to obtain future equity interests in
properties to be developed by others. None of the Trust's properties is
presently under development.
The Trust has an ongoing program designed to increase occupancy at all of
its properties that are not fully occupied. This program involves, among other
things, analyzing local demographics, competition within the specific geographic
area and tenant mix. The Trust aggressively tries to market its properties to
prospective tenants through contacts with real estate brokers as well as direct
contact with prospective tenants by the Trust.
POTENTIAL ENVIRONMENTAL AND INSURANCE RISKS
Investments in real property create a potential for environmental liability
on the part of the owner of such real property. If hazardous substances are
discovered on or emanating from any of the Trust's properties, the Trust and/or
others may be held strictly liable for all costs and liabilities relating to the
clean-up of such hazardous substances.
The Trust, as far as it is aware, owns only four properties which presently
contain underground storage tanks. The Trust has no knowledge of any leakage or
contamination resulting from these tanks. There are, however, reported low
levels of soil contamination from underground storage tanks removed from the
Heritage Place Shopping Center in Tulare, California prior to its acquisition by
the Trust. In addition, there is a potential for contamination from reported
off-site leaking petroleum underground storage tanks located on properties
adjacent to certain Trust properties.
In order to mitigate environmental risks, in 1989 the Trust adopted a policy
of requesting at least a Phase I environmental study (a preliminary site
assessment which does not include environmental sampling, monitoring or
laboratory analysis) on each property it seeks to acquire. No independent
environmental analysis has been implemented by the Trust with respect to any of
the properties which the Trust acquired prior to 1989. Although the Trust has no
knowledge that any material environmental contamination has occurred, no
assurance can be given that hazardous substances are not located under any of
the properties. The Trust carries no express insurance coverage for the type of
environmental risk described above.
The Trust is one of the named defendants in litigation alleging that certain
environmental laws were violated in connection with the construction of the
Trust's Caughlin Ranch Shopping Center, Reno, Nevada (generation of excessive
dust during construction) and the Park Place Shopping Center, Vallejo,
California (disturbance of wetlands). The defendants and the plaintiffs in the
dust cases have reached a settlement, subject to notification of the class
action plaintiffs and approval by the court, involving a payment of $25,000 by
the Trust. The defendants and the plaintiff (the United States) have entered
into a consent decree in the wetlands case which the Trust expects to become
final after publication and the passage of the required notice period. Under the
consent decree, the developer of the property would be primarily liable for
penalties and costs of remediation. However, the Trust has agreed to guarantee
the performance of the restoration work by, and to provide certain financial
accommodations to, the developer. In the event of a default by the developer,
the Trust's exposure could be as much as $250,000.
The Trust assesses on an ongoing basis measures necessary to comply with
environmental laws and regulations. The probable overall costs of these measures
cannot be determined at this time due to uncertainty about the extent of
environmental risks and the Trust's responsibility, the complexity of
environmental laws and regulations and the selection of alternative compliance
approaches. However, the Trust is not aware of any environmental conditions
which will have a material impact on its financial position or results of
operations.
17
<PAGE>
Most of the Trust's leases require the tenant to be responsible for casualty
and liability insurance coverage on the properties. The Trust also maintains
umbrella liability insurance on all of its properties. The Trust monitors tenant
compliance with insurance coverage requirements. While the Trust believes its
properties are adequately insured, the Trust does not carry earthquake, flood or
pollution coverage. Most of the Trust's properties are located in areas of
California and Nevada where earthquakes have been known to occur. In the event
of a major earthquake, Trust properties could suffer substantial damage or
destruction. Since it commenced real estate operations in 1964, the Trust has
not incurred any material expense nor, to its knowledge, have any of its
properties incurred any material damage from earthquake or flood.
18
<PAGE>
DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture to be dated as of February 24,
1994 (the "Indenture") between the Trust, as issuer, and Boatmen's Trust Company
of St. Louis, as Trustee (the "Trustee"). The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and qualified in its entirety by, reference to the provisions of the Indenture,
including the definitions of certain terms contained therein and those terms
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended.
GENERAL
The Notes will be unsecured, senior obligations of the Trust limited to
$50,000,000 aggregate principal amount. The Notes will be issued only in fully
registered book-entry form without coupons, in denominations of $1,000 and
integral multiples thereof (Section 302). A Global Note (as defined below)
representing the Notes will be deposited with, or on behalf of, The Depository
Trust Company ("DTC"), New York, New York, and registered in the name of DTC's
nominee (Section 205). No service charge will be made for any transfer or
exchange of the Notes, except in certain circumstances, for any tax or other
governmental charge that may be imposed in connection therewith (Section 305).
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Notes will mature on February 15, 2004. Interest on the Notes will
accrue at the annual rate shown on the front cover of this Prospectus and will
be payable semi-annually on each February 15 and August 15, commencing August
15, 1994, to the holders of record of Notes at the close of business on the
February 1 and August 1 immediately preceding such interest payment date.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from February 15, 1994. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
RANKING
The Notes will be unsecured, senior obligations of the Trust, ranking
equally with other unsecured, senior obligations of the Trust. As of September
30, 1993, after giving effect to the repayment of borrowings under the Trust's
existing line of credit with a portion of the proceeds from this offering, the
Trust will have approximately $116,076,000 of unsecured, senior indebtedness
outstanding (including the Notes). Subject to certain limitations, the Trust may
incur additional indebtedness in the future. The Notes do not currently rank
senior to any outstanding indebtedness of the Trust.
CERTAIN COVENANTS
The Indenture will contain, among others, the covenants described below.
LIMITATIONS ON INCURRENCE OF DEBT. The Indenture will provide that the
Trust will not, and will not permit any Subsidiary to, incur any Debt if,
immediately after giving effect to the incurrence of such additional Debt, the
aggregate principal amount of all outstanding Debt of the Trust and its
Subsidiaries on a consolidated basis determined in accordance with GAAP would be
greater than 55% of the Trust's Undepreciated Real Estate Assets as of the end
of the calendar quarter covered in the Trust's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
Commission (or, if such filing is not permitted under the Exchange Act, with the
Trustee) prior to the incurrence of such additional Debt, as such Undepreciated
Real Estate Assets have been increased or decreased (exclusive of depreciation
and amortization with respect to real estate assets subject to operating leases)
in accordance with GAAP by any occurence since the end of such calendar quarter
(Section 1010).
19
<PAGE>
In addition to the foregoing limitation on the incurrence of Debt, the Trust
will not, and will not permit any Subsidiary to, incur any Debt secured by any
mortgage, lien, charge, pledge, encumbrance or security interest of any kind
upon the property of the Trust or any Subsidiary (i) where the Trust's
Undepreciated Real Estate Assets are equal to or less than $345,000,000 if,
after giving effect to the incurrence of such additional Debt, the aggregate
principal amount of all outstanding Debt of the Trust and its Subsidiaries on a
consolidated basis which is secured by any mortgage, lien, charge, pledge,
encumbrance or security interest on such property exceeds $50,000,000 (the "Base
Amount") or (ii) where the Undepreciated Real Estate Assets of the Trust exceed
$345,000,000 if, after giving effect to the incurrence of such additional Debt,
the aggregate principal amount of the outstanding Debt of the Trust and its
Subsidiaries on a consolidated basis which is secured by any mortgage, lien,
charge, pledge, encumbrance or security interest on such property exceeds the
sum of (x) the Base Amount plus (y) 55% of the amount by which the Trust's
Undepreciated Real Estate Assets exceed $345,000,000 as of the date such
measurement is taken; PROVIDED, HOWEVER, that, notwithstanding the foregoing, if
the Pine Creek Shopping Center property located at Freeman & Taylorville Road,
Grass Valley, California, which as of the date the Indenture is originally
executed is jointly held by the Trust and Pinecreek Shopping Center Associates,
shall become wholly owned by the Trust, then the Trust may incur any mortgage,
lien, charge, pledge, encumbrance or security interest on such property, but in
such case the Base Amount shall be reduced by the amount of this mortgage, lien,
charge, pledge, encumbrance or security interest, which such reduction shall
remain in effect while this mortgage, lien, charge, pledge, encumbrance or
security interest on the Pine Creek shopping center property is outstanding.
In addition to the foregoing limitations on the incurrence of Debt, the
Trust will not, and will not permit any Subsidiary to, incur any Debt if
Consolidated Income Available for Debt Service for any 12 consecutive calendar
months within the 15 calendar months immediately preceding the date on which
such additional Debt is to be incurred shall have been less than 2.0 times the
Maximum Annual Service Charge on the Debt of the Trust and all Subsidiaries to
be outstanding immediately after the incurring of such additional Debt (Section
1010).
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. The Trust will not, in
respect of any shares of any class of its Capital Stock, (a) declare and pay any
dividends (other than dividends payable in Capital Stock of the Trust) thereon,
(b) apply any of its property or assets to the purchase, redemption or other
acquisition or retirement thereof, (c) set apart any sum for the purchase,
redemption or other acquisition or retirement thereof, or (d) make any other
distribution, by reduction of capital or otherwise if, immediately after such
declaration or other action referred to above, the aggregate of all such
declarations and other actions since the date on which the Indenture was
originally executed shall exceed the sum of (i) Funds from Operations from
January 1, 1994 until the end of the calendar quarter covered in the Trust's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
most recently filed with the Commission (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to such declaration or other
action and (ii) $10,000,000; PROVIDED, HOWEVER, that the foregoing limitation
shall not apply to any declaration or other action referred to above which is
necessary to maintain the Trust's status as a REIT under the Code, if the
aggregate principal amount of all outstanding Debt of the Trust and its
Subsidiaries at such time is less than 55% of the Trust's Undepreciated Real
Estate Assets as of the end of the calendar quarter covered in the Trust's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
most recently filed with the Commission (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to such declaration or other
action, as such Undepreciated Real Estate Assets have been increased or
decreased (exclusive of depreciation and amortization with respect to real
estate assets subject to operating leases) in accordance with GAAP by any
occurrence since the end of such calendar quarter (Section 1011).
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Notwithstanding the foregoing, the Trust will not be prohibited from making
the payment of any dividend within 30 days of the declaration thereof if at such
date of declaration such payment would have complied with the provisions of the
immediately preceding paragraph (Section 1011).
MINIMUM CONSOLIDATED NET WORTH. The Trust will report on its financial
statements, as of the end of each fiscal quarter, a Consolidated Net Worth of
not less than $75,000,000.
LIMITATION ON DISPOSITION OF PROCEEDS OF ASSET SALES. (a) If the Trust or
any Subsidiary engages in an Asset Sale, the Trust may use the Net Cash Proceeds
thereof, within 27 months after such Asset Sale, to invest in real properties to
replace the real properties that were the subject of the Asset Sale or in real
properties that will be used in businesses of the Trust or its Subsidiaries, as
the case may be, existing on February 24, 1994 (the "Closing Date") or in
businesses reasonably related thereto (in each such case, "Qualifying
Properties"). The amount of such Net Cash Proceeds not so used as set forth in
this paragraph (a) constitutes "Excess Proceeds." Excess Proceeds will be
reduced (but not below zero) from time to time to the extent of the Trust's new
investment in Qualifying Properties.
(b) When the aggregate amount of Excess Proceeds exceeds $20,000,000, the
Trust shall, within 15 business days, apply the amounts by which the Excess
Proceeds exceed $20,000,000 to either (i) repay or prepay any of the Trust's
then outstanding senior Debt, and/or (ii) make an offer to purchase (an "Excess
Proceeds Offer") from all holders of Notes, on a PRO RATA basis, in accordance
with the procedures set forth below, the maximum principal amount (expressed as
a multiple of $1,000) of Notes that may be purchased with such funds. The offer
price as to each Note shall be payable in cash in an amount equal to 100% of the
principal amount of such Note plus accrued and unpaid interest, if any, to the
date such Excess Proceeds Offer is consummated, which such date shall not be
more than 50 nor less than 20 days following the Excess Proceeds Offer (the
"Excess Proceeds Purchase Date"). If the aggregate principal amount of Notes
validly tendered and not withdrawn by holders thereof exceeds the amount by
which the Excess Proceeds exceed $20,000,000, Notes to be purchased will be
selected on a PRO RATA basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds, to the extent the Excess Proceeds exceed $20,000,000,
shall be reset to such $20,000,000 (Section 1012).
(c) The Excess Proceeds Offer is required to remain open until the close of
business on the Excess Proceeds Purchase Date. The Trust will comply with Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable, in the event
that an Excess Proceeds Offer is made and the Trust is required to purchase
Notes as described above in subsection (b). Notwithstanding the foregoing, if
any Note accepted for payment pursuant to subsection (b) shall not be so paid,
then, from the Excess Proceeds Purchase Date until the principal of and interest
on such Note is paid, interest shall be paid on the unpaid principal and, to the
extent permitted by law, on any accrued but unpaid interest thereon, in each
case at the rate or rates prescribed therefor in the Notes (Section 1012).
(d) The enforceability of the Trust's obligation to offer to repurchase the
Notes may be limited by the provisions of the California Corporations Code
described under "-- Governing Law."
EXISTENCE. Except as permitted under "Merger, Consolidation and Sale of
Assets," the Trust will do or cause to be done all things necessary to preserve
and keep in full force and effect its status as a real estate investment trust
under the Code, and its rights (Declaration of Trust and statutory) and
franchises, subject to the limitations described under "--Restrictions on
Dividends and Other Distributions"; PROVIDED, HOWEVER, that the Trust shall not
be required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
holders of the Notes (Section 1004).
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MAINTENANCE OF PROPERTIES. The Trust will cause all of its properties used
or useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Trust may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that the Trust and its Subsidiaries shall not be prevented
from selling or otherwise disposing for value their properties in the ordinary
course of business (Section 1006).
INSURANCE. The Trust will, and will cause each of its Subsidiaries to, keep
all of its insurable properties insured or otherwise protected against loss or
damage in the manner and to the extent that property of similar character is
usually so insured or protected by Persons similarly situated and owning like
properties.
PAYMENT OF TAXES AND OTHER CLAIMS. The Trust will pay or discharge or cause
to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Trust or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Trust or any
Subsidiary; PROVIDED, HOWEVER, that the Trust shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 1005).
PROVISION OF FINANCIAL INFORMATION. The Trust shall file with the
Commission the annual, quarterly and other reports required by Section 13(a),
13(c) or 15(d) of the Exchange Act, regardless of whether such Sections of the
Exchange Act are applicable to the Trust, and shall provide copies of such
reports to holders of the Notes and the Trustee within 15 days of the date it
is, or would have been had it been subject to such Sections, required to file
such reports with the Commission.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Trust shall not, and shall not permit any Subsidiary to,
suffer to exist any encumbrance or restriction on the ability of any Subsidiary
(i) to pay, directly or indirectly, dividends or make any other distributions in
respect of its Capital Stock or pay any Debt or other obligation owed to the
Trust or any other Subsidiary; (ii) to make loans or advances to the Trust or
any Subsidiary; or (iii) to transfer any of its property or assets to the Trust
or any Subsidiary.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Trust shall be obligated to
make an offer to purchase all of the then outstanding Notes ( a "Change of
Control Offer"), and shall purchase, on a business day (the "Change of Control
Purchase Date") not more than 60 nor less than 30 days following the Change of
Control, all of the then outstanding Notes validly tendered pursuant to such
Change in Control Offer, at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the Change of Control Purchase Date. The Change of Control
Offer is required to remain open for at least 20 Business Days and until the
close of business on the Change of Control Purchase Date (Section 1101).
In order to effect such Change of Control Offer, the Trust shall, not later
than the 30th day after the Change of Control, mail to each holder of the Notes
notice of the Change of Control Offer, which notice shall govern the terms of
the Change of Control Offer and shall state, among other things, the procedures
that holders of the Notes must follow to accept the Change of Control Offer
(Section 1102).
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The Trust will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Trust is required to purchase Notes as described above (Section 1101).
Notwithstanding the foregoing, if any Note accepted for payment is not so
paid pursuant to this provision, then, from the Change of Control Payment Date
until the principal of (and premium) and interest on such Note is paid, interest
will be paid on the unpaid principal (and premium) and, to the extent permitted
by law, on any accrued but unpaid interest thereon, in each case at the rate or
rates prescribed therefor in the Notes (Section 1101).
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Trust, and,
thus, the removal of incumbent management. Subject to the limitations discussed
herein, the Trust could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could affect the
Trust's capital structure or credit ratings.
The right of each holder of the Notes to require repurchase of the Notes as
described above upon a Change of Control will not be triggered if the Trust
recapitalizes or enters into a transaction with the Trust's management or their
affiliates unless such transaction results in a change in the ownership of the
Voting Stock or Board of Trustees of the Trust satisfying the definition of
"Change of Control" set forth below.
The occurrence of certain of the events which would constitute a Change of
Control could constitute a default under the Trust's other existing or future
Debt. In addition, the exercise by the holders of the Notes of their right to
require the Trust to repurchase the Notes could cause a default under such Debt
even if the Change of Control itself does not, due to the financial effect of
such repurchase on the Trust. The Trust's ability to repurchase the Notes upon a
Change of Control may be limited by the Trust's then existing financial
resources. Furthermore, the enforceability of the Trust's obligation to offer to
repurchase the Notes may be limited by the provisions of the California
Corporations Code described under "-- Governing Law."
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Trust will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, transfer, lease or otherwise dispose
of all or substantially all of its properties and assets as an entirety to, any
Person or Persons, and the Trust will not permit any of its Subsidiaries to
enter into any such transaction or series of transactions, if such transaction
or series of transactions, in the aggregate, would result in a sale, assignment,
transfer, lease or other disposition of all or substantially all of the
properties and assets of the Trust and its Subsidiaries on a consolidated basis
to any other Person or Persons, unless at the time and after giving effect
thereto (i) either (A) if the transaction or transactions is a merger or
consolidation, the Trust shall be the surviving Person of such merger or
consolidation, or (B) the Person formed by such consolidation or into which the
Trust or such Subsidiary is merged or to which the properties and assets of the
Trust or such Subsidiary, as the case may be, substantially as an entirety, are
sold, assigned, transferred, leased or otherwise disposed of (any such surviving
Person or transferee Person being the "Surviving Entity") shall be a corporation
or business trust organized and existing under the laws of the United States of
America, any state thereof or the District of Columbia and shall expressly
assume by a supplemental indenture executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Trust under the
Notes and the Indenture, and, in each case, the Indenture shall remain in full
force and effect; (ii) immediately before and immediately after giving effect to
such transaction or series of transactions on a PRO FORMA basis (including,
without limitation, any Debt incurred or
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anticipated to be incurred in connection with or in respect of such transaction
or series of transactions), no Default or Event of Default shall have occurred
and be continuing and the Trust or the Surviving Entity, as the case may be,
after giving effect to such transaction or series of transactions on a PRO FORMA
basis, could incur $1.00 of additional Debt pursuant to each of the tests set
forth under the "LIMITATION ON INCURRENCE OF DEBT" covenant; and (iii)
immediately after giving effect to such transaction or series of transactions on
a PRO FORMA basis, the Consolidated Net Worth of the Trust or the Surviving
Entity, as the case may be, is at least equal to the Consolidated Net Worth of
the Trust immediately before such transaction or series of transactions (Section
801).
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Trust shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate stating that such consolidation, merger,
transfer, lease or other disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture and an Opinion of
Counsel stating that the requirements of clause (i) of the preceding paragraph
have been complied with.
Upon any consolidation or merger or any sale, assignment, transfer, lease or
other disposition of all or substantially all of the assets of the Trust in
accordance with the foregoing, in which the Trust is not the continuing
corporation, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Trust under the Indenture with the
same effect as if such successor corporation had been named as the Trust
therein, and thereafter the Trust, except in the case of a lease, will be
discharged from all obligations and covenants under the Indenture and the Notes.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of (or premium, if any) when
due and payable, on any of the Notes; or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days; or
(iii) default in the performance or breach of the provisions of "Merger,
Consolidation and Sale of Assets", the failure to make or consummate a
Change in Control Offer in accordance with the provisions of "Change in
Control" or the failure to make or consummate an Excess Proceeds Offer in
accordance with the provisions of "-- Certain Covenants -- LIMITATION ON
DISPOSITION OF PROCEEDS OF ASSET SALES"; or
(iv) the Trust shall fail to perform or observe any other term, covenant
or agreement contained in the Notes or the Indenture (other than a default
specified in (i), (ii) or (iii) above) for a period of 30 days after written
notice of such failure requiring the Trust to remedy the same shall have
been given (a) to the Trust by the Trustee or (b) to the Trust and the
Trustee by the holders of 25% in aggregate principal amount of the Notes
then outstanding; or
(v) default or defaults under one or more mortgages, bonds, debentures
or other evidences of Debt under which the Trust then has outstanding Debt
in excess of $5,000,000, individually or in the aggregate, and either (a)
such Debt is already due and payable in full or (b) such default or defaults
have resulted in the acceleration of the maturity of such Debt; or
(vi) one or more final judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $5,000,000, either individually or in the
aggregate, shall be entered against the Trust or any
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of its properties and shall not be discharged or fully bonded and there
shall have been a period of 60 days after the date on which any period for
appeal has expired and during which a stay of enforcement of such judgment,
order or decree shall not be in effect; or
(vii) (A) any holder of at least $5,000,000 in aggregate principal
amount of secured Debt of the Trust as to which a default has occurred and
is continuing shall commence judicial proceedings (which proceedings shall
remain unstayed for 5 Business Days) to foreclose upon assets of the Trust
having an aggregate Fair Market Value in excess of $5,000,000 or shall have
exercised any right under applicable law or applicable security documents to
take ownership of any such assets in lieu of foreclosure or (B) any action
described in the foregoing clause (A) shall result in any court of competent
jurisdiction issuing any order for the seizure of such assets; or
(viii) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Trust or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (viii) above)
shall occur and be continuing, the Trustee, by notice to the Trust, or the
holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee and the Trust, may declare the principal
of, and accrued interest on all of the outstanding Notes due and payable
immediately, upon which declaration all amounts payable in respect of the Notes
shall be immediately due and payable. If an Event of Default specified in clause
(viii) above occurs and is continuing, then the principal of, and accrued
interest on all of the outstanding Notes shall IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of Notes (Section 502). The indenture governing the
Trust's Debentures and the Credit Agreement covering the Trust's existing line
of credit both provide that in the event that the Trust fails to make a payment
when due on the Notes and such failure results in an acceleration of the Trust's
Debt under the Indenture, then the Trust's Debt under the Debentures and the
line of credit may also be accelerated and become due and payable.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Trust and the Trustee, may rescind
such declaration if (a) the Trust has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
(iii) all unpaid principal of (and premium, if any, on) any Notes which has
become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes, and (iv) to the extent that payment of
such interest is lawful, interest upon overdue interest at the rate borne by the
Notes; (b) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and (c) all Events of Default, other than the
nonpayment of principal of (or premium, if any, on), and interest on the Notes
that has become due solely by such declaration of acceleration, have been cured
or waived (Section 502).
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of (or premium, if any, on), or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding (Section 513).
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity,
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to the Trustee to institute such proceeding as Trustee under the Notes and the
Indenture, the Trustee has failed to institute such proceeding within 15 days
after receipt of such notice and the Trustee, within such 15-day period, has not
received directions inconsistent with such written request by holders of a
majority in aggregate principal amount of the outstanding Notes. Such
limitations do not apply, however, to a suit instituted by a holder of a Note
for the enforcement of the payment of the principal of (and premium, if any,
on), or interest on such Note on or after the respective due dates expressed in
such Note (Sections 507 and 508).
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders of
the Notes unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee under the Indenture (Sections 512
and 602).
If a Default or an Event of Default occurs and is continuing and is known to
the trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 5 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of (and
premium, if any, on), or interest on any Notes, the Trustee may withhold the
notice to the holders of such Notes if a committee of its Trust Officers in good
faith determines that withholding the notice is in the interest of the holders
of the Notes (Section 601).
The Trust is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Trust of its obligations under the
Indenture and as to any default in such performance. The Trust is also required
to notify the Trustee within ten days of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Trust may, at its option and at any time, terminate the obligations of
the Trust with respect to the outstanding Notes ("defeasance"). Such defeasance
means that the Trust shall be deemed to have paid and discharged the entire Debt
represented by the outstanding Notes, except for (i) the rights of holders of
outstanding Notes to receive payment in respect of the principal of, premium, if
any, and interest on such Notes when such payments are due, (ii) the Trust's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office
or agency for payments in respect of the Notes, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions
of the Indenture. In addition, the Trust may, at its option and at any time,
elect to terminate the obligations of the Trust with respect to certain
restrictive covenants that are set forth in the Indenture, some of which are
described under "Certain Covenants" above, and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the Trust
must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the Notes, cash in United States dollars, U.S. Government Obligations
(as defined in the Indenture), or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the
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outstanding Notes to maturity; (ii) the Trust shall have delivered to the
Trustee an Opinion of Counsel to the effect that the holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance or covenant defeasance had not
occurred (in the case of defeasance, such opinion must refer to and be based
upon a ruling the Trust has received from, or which has been published by, the
Internal Revenue Service); (iii) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit; (iv) such defeasance or
covenant defeasance shall not cause the Trustee to have a conflicting interest
with respect to any securities of the Trust; (v) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a default
under, any material agreement or instrument to which the Trust is a party or by
which it is bound; (vi) 93 days shall have passed since the date of such deposit
and no Event of Default resulting from certain events of bankruptcy, insolvency
or reorganization with respect to the Trust or any Significant Subsidiary shall
have occurred; and (vii) the Trust shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel satisfactory to the Trustee,
which, taken together, state that all conditions precedent under the Indenture
to either defeasance or covenant defeasance, as the case may be, have been
complied with (Section 1204).
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Trust and thereafter repaid to the Trust or
discharged from such trust) have been delivered to the Trustee for cancellation
or (b) all Notes not theretofore delivered to the Trustee for cancellation have
become due and payable or will become due and payable at their stated maturity
within one year and the Trust has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Debt on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the Notes to
the date of deposit or to the stated maturity together with irrevocable
instructions from the Trust directing the Trustee to apply such funds to the
payment thereof at maturity; (ii) the Trust has paid all other sums payable
under the Indenture by the Trust; and (iii) the Trust has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel satisfactory to the
Trustee, which, taken together, state that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with (Section 401).
AMENDMENTS AND WAIVERS
From time to time, the Trust and the Trustee may, without the consent of the
holders of the Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies; PROVIDED, HOWEVER, that the Trust has delivered to
the Trustee an Opinion of Counsel stating that such change does not adversely
affect the rights of any holder of the Notes. Other amendments and modifications
of the Indenture or the Notes may be made by the Trust and the Trustee with the
consent of the holders of not less than a majority of the aggregate principal
amount of the outstanding Notes; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the holder of each outstanding Note
affected thereby, (i) reduce the principal amount of or extend the fixed
maturity of the Notes (ii) change the currency in which any Notes or any premium
or the interest thereon is payable, (iii) reduce the percentage in principal
amount of outstanding Notes
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that must consent to an amendment, supplement or waiver or consent to take any
action under the Indenture or the Notes, (iv) impair the right to institute suit
for the enforcement of any payment on or with respect to the Notes, (v) waive a
default in payment with respect to the Notes, (vi) alter the Trust's obligation
to purchase the Notes in accordance with the Indenture or waive any default in
the performance thereof or (vii) reduce or change the rate or time for payment
of interest on the Notes (Sections 901 and 902).
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs (Section 602).
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein, contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Trust, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; PROVIDED, HOWEVER, that if it acquires any
conflicting interest (as defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York, without regard to the principles of conflicts of law. The Trust is
organized under the laws of the State of California. Section 23003 of the
California Corporations Code provides that a California REIT may not issue any
security redeemable at the option of the holder of the security. The Trust
believes that this Section should not affect the enforceability of the Trust's
obligations to make offers to purchase the Notes as set forth under "-- Certain
Covenants -- LIMITATION ON DISPOSITION OF PROCEEDS OF ASSET SALES" and "--
Change of Control" since in each case the Trust's obligation is subject to the
occurrence of a future event outside the control of the Note holders. Although
the Trust believes that this Code Section is therefore inapplicable, there is no
case law on this Section and there can accordingly be no assurance that such
obligations would be enforceable.
BOOK-ENTRY SYSTEM
The Notes will be issued in the form of a single, fully-registered Note in
book-entry form (the "Global Note") which will be deposited with, or on behalf
of, DTC and registered in the name of DTC's nominee. Except as set forth below,
the Global Note may not be transferred except as a whole by DTC to a nominee of
DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any
such nominee to a successor of DTC or a nominee of such successor.
So long as DTC or its nominee is the registered owner of the Global Note,
DTC or its nominee, as the case may be, will be considered the sole holder of
the Notes represented by the Global Note for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in the Global Note will
not be entitled to have Notes represented by the Global Note registered in their
names, will not receive or be entitled to receive physical delivery of Notes in
certificated form and will not be considered the registered owners or holders
thereof under the Indenture. The laws of some states require that certain
purchasers of securities take physical delivery of securities in certificated
form; accordingly, such laws may limit the transferability of beneficial
interests in the Global Note.
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If (i) DTC is at any time unwilling or unable to continue as depository or
if at any time DTC ceases to be a clearing agency registered under the Exchange
Act and a successor depository is not appointed by the Trust within 90 days,
(ii) an Event of Default under the Indenture with respect to the Notes has
occurred and is continuing and the beneficial owners representing a majority in
principal amount of the Notes represented by the Global Note advise DTC to cease
acting as depository or (iii) the Trust, in its sole discretion, determines at
any time that all Notes shall no longer be represented by the Global Note, the
Trust will issue individual Notes in certificated form in exchange for the
Global Note. In any such instance, an owner of a beneficial interest in the
Global Note will be entitled to physical delivery of individual Notes in
certificated form of like tenor, equal in principal amount to such beneficial
interest and to have such Notes in certificated form registered in its name.
Notes so issued in certificated form will be issued in denominations of $1,000
or any integral multiple thereof, and will be issued in registered form only,
without coupons.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Notes. The Notes
will be issued as fully registered securities registered in the
name of Cede & Co. (DTC's partnership nominee). One fully
registered Note certificate is issued with respect to each
$150,000,000 of principal amount of the securities of the
applicable series.
DTC is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also
facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct
Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Securities and Exchange
Commission.
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on
DTC's records. The ownership interest of each actual purchaser of
each Note ("Beneficial Owner") is in turn recorded on the Direct
and Indirect Participants' records. A Beneficial Owner does not
receive written confirmation from DTC of its purchase, but such
Beneficial Owner is expected to receive a written confirmation
providing details of the transaction, as well as periodic
statements of its holdings, from the Direct or Indirect
Participant through which such Beneficial Owner entered into the
transaction. Transfers of ownership interests in Notes are
accomplished by entries made on the books of Participants acting
on behalf of
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Beneficial Owners. Beneficial Owners do not receive certificates
representing their ownership interests in Notes, except in the
event that use of the book-entry system for the Notes is
discontinued.
To facilitate subsequent transfers, the Notes are registered in
the name of DTC's partnership nominee, Cede & Co. The deposit of
the Notes with DTC and their registration in the name of Cede &
Co. effects no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Notes; DTC
records reflect only the identity of the Direct Participants to
whose accounts Notes are credited, which may or may not be the
Beneficial Owners. The Participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial
Owners are governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time
to time.
Neither DTC nor Cede & Co. will consent or vote with respect to
the Notes. Under its usual procedures, DTC mails a proxy (an
"Omnibus Proxy") to the issuer as soon as possible after the
record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the
Notes are credited on the record date (identified on a list
attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made by the
Trust to the Trustee and from the Trustee to DTC. DTC's practice
is to credit Direct Participant's accounts on the payable date in
accordance with their respective holdings as shown on DTC's
records unless DTC has reason to believe that it will not receive
payment on the payable date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the
accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not
of DTC, the Trustee or the Trust, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of
the Trust or the Trustee, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursements of
such payments to the Beneficial Owners is the responsibility of
Direct and Indirect Participants.
DTC may discontinue providing its services as securities
depository with respect to the Notes at any time by giving
reasonable notice to the Trust or the Trustee. Under such
circumstances, in the event that a successor securities depository
is not appointed, Note certificates are required to be printed and
delivered.
The Trust may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities
depository). In that event, Note certificates will be printed and
delivered.
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None of the Trust, the Underwriter, or the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in the Global Note, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
CERTAIN DEFINITIONS
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Trust, in one or a series of related
transactions, of (a) any Capital Stock of any Subsidiary of the Trust held by
the Trust; or (b) any real property of the Trust or any Subsidiary. For the
purposes of this definition, the term "Asset Sale" shall not include any sale,
issuance, conveyance, transfer, lease or other disposition of properties or
assets that is governed by the provisions of "Merger, Consolidation and Sale of
Assets."
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, including the shares of beneficial interest, no
par value, of the Trust, and any rights (other than debt securities convertible
into capital stock), warrants or options exchangeable for or convertible into
such capital stock.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Debt with a maturity of 180
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) certificates of deposit or acceptances with a maturity of 180
days or less of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500,000,000; and (iii) commercial paper with a maturity of 180 days
or less issued by a corporation that is not an Affiliate of the Trust and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by S&P or at least P-1 by Moody's.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have "beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the Trust; (b) the Trust consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into the Trust, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Trust is converted into
or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Trust is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation and/or (2) cash, securities and other
property in an amount which could be paid by the Trust under the "RESTRICTIONS
ON
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DIVIDENDS AND OTHER DISTRIBUTIONS" covenant and (ii) immediately after such
transaction no "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the surviving or transferee corporation; (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Trustees of the Trust (together with any new trustees whose election by such
Board of Trustees or whose nomination for election by the shareholders of the
Trust was approved by a vote of 66 2/3% of the trustees then still in office who
were either trustees at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Trustees of the Trust then in office; or
(d) any final order, judgment or decree of a court of competent jurisdiction
shall be entered against the Trust decreeing the dissolution or liquidation of
the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Income Available for Debt Service" means, for any period,
Consolidated Net Income of the Trust and its Subsidiaries plus amounts which
have been deducted for (a) interest on Debt of the Trust and its Subsidiaries,
(b) provision for taxes of the Trust and its Subsidiaries based on income, (c)
amortization of debt discount and (d) property depreciation and amortization.
"Consolidated Net Income" means, for any period, the amount of consolidated
net income (or loss) of the Trust and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP without giving effect
to gains and losses from extraordinary items, gains and losses on sales of real
estate, or any non cash charge or credit resulting from a change in accounting
principles.
"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated shareholders' equity of such Person less the amount of such
shareholders' equity attributable to Redeemable Capital Stock or treasury stock
of such Persons and its Subsidiaries, as determined in accordance with GAAP.
"Debt" means, with respect to any Person, without duplication, (a) all
liabilities of such Person for borrowed money or for the deferred purchase price
of property or services, excluding any trade payables and other accrued current
liabilities incurred in the ordinary course of business, but including, without
limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit, bankers' acceptance or other similar
credit transaction and in connection with any agreement to purchase, redeem,
exchange, convert or otherwise acquire for value any Capital Stock of each
Person, or any warrants, rights or options to acquire such Capital Stock, now or
hereunder outstanding, if, and to the extent, any of the foregoing would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, (b) all obligations of such Person evidenced by bonds, notes, debentures
or other similar instruments, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (c) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business, (d) all Capitalized Lease Obligations of such Person, (e)
all Debt referred to in the preceding clauses of other Persons and all dividends
of other Persons, the payment of which is secured by (or for
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which the holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any lien upon property (including, without limitation, accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Debt (the amount of such
obligation being deemed to be the lesser of the value of such property or asset
or the amount of the obligation so secured), (f) all guarantees by such Person
of Debt referred to in this definition, (g) all Redeemable Capital Stock of such
Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued dividends, (h) all obligations of such Person
under or in respect of currency exchange contracts and Interest Rate Protection
Obligations and (i) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of such Person of the types referred to
in clauses (a) through (h) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Debt shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Redeemable Capital Stock, such fair market value shall be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction.
"Funds from Operations" means, for any period, the Consolidated Net Income
of the Trust and its Subsidiaries for such period without giving effect to
depreciation and amortization, gains or losses on investments in marketable
securities and any provision/benefit for income taxes for such period, plus
funds from operations of unconsolidated joint ventures, all determined on a
consistent basis for such period.
"GAAP" means generally accepted accounting principles, consistently applied,
that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the Closing Date.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"Interest Rate Protection Obligation" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such
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Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A Person shall be deemed to own subject to a lien any property which such
Person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as provided therein or by the Indenture,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration or otherwise.
"Maximum Annual Service Charge" means, as of any date, the maximum amount
which may become payable in any period of 12 consecutive calendar months from
such date for interest on, and required amortization of, Debt. The amount
payable for amortization shall include the amount of any sinking fund or other
analogous fund for the retirement of Debt and the amount payable on account of
principal on any such Debt which matures serially other than at the final
maturity date of such Debt; PROVIDED, HOWEVER, that such amount shall not
include the amount, up to a maximum of $2,250,000 during any 12 consecutive
calendar months, which may become payable during any 12 consecutive calendar
months in order to effect a limited mandatory redemption of the Trust's
Debentures.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Trust or any Subsidiary of the Trust), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid to any Person (other than the Trust or any Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale and (iv) appropriate amounts to
be provided by the Trust or any Subsidiary, as the case may be, as a reserve
required in accordance with GAAP consistently applied against any liabilities
associated with such Asset Sale and retained by the Trust or any subsidiary, as
the case may be, after such Asset Sale, including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate
delivered to the Trustee.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity.
"S&P" means Standard and Poor's Corporation and its successors.
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"Significant Subsidiary" of the Trust means any Subsidiary of the Trust that
is a "significant subsidiary" as defined in Rule 1.02(v) of Regulation S-X under
the Securities Act.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Debt, means the date
specified in the instrument governing such Debt as the fixed date on which the
principal of such Debt, or any installment of interest thereon, is due and
payable.
"Subsidiary" means, with respect to any Person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person or by such Person and one or
more Subsidiaries thereof or (ii) any other Person (other than a corporation),
including, without limitation, a joint venture, in which such Person, one or
more Subsidiaries thereof or such Person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, has at least
majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other Person performing similar functions).
"Undepreciated Real Estate Assets" means, as of any date, the amount of real
estate assets subject to operating leases, before depreciation and amortization,
and the amount of real estate assets subject to direct financing leases of the
Trust and its Subsidiaries on such date, determined on a consolidated basis in
accordance with GAAP.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
The meaning of certain of the terms and phrases used in the Indenture may be
subject to judicial interpretation if required in the context of a proceeding to
enforce a Note holder's rights under the Indenture or otherwise. For example,
the meaning of the phrase "all or substantially all of its assets" under New
York law, the governing law under the Indenture, has not been definitively
established. Its meaning in the context of a specific proceeding, including one
involving a Change of Control, will involve a fact specific analysis and an
application of the existing case law to those facts. As a result, there can be
no assurance as to the meaning which a court will ascribe to such phrase or any
other term or phrase used in the Indenture which is subject to interpretation.
TAXATION
FEDERAL INCOME TAXATION
The Trust believes that it has operated, and it intends to continue to
operate, in such manner as to qualify as a real estate investment trust under
the Internal Revenue Code of 1986, as amended (the "Code"), but no assurance can
be given that it will at all times so qualify. In the opinion of Steinhart &
Falconer, San Francisco, California, counsel to the Trust, the Trust met the
requirements of the Code for qualification as a real estate investment trust for
the calendar years 1985 through 1992, the Trust presently meets such
requirements, and the Trust's contemplated method of operation as described in
this Prospectus will enable it to meet such requirements in subsequent periods.
In rendering its opinion, counsel to the Trust has relied, as to factual
determinations and conclusions necessary for such opinion, on representations of
management.
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The provisions of the Code pertaining to real estate investment trusts are
highly technical and complex. The following is a general summary of certain
provisions which currently govern the federal income tax treatment of the Trust
and its shareholders. For the complete statutory and regulatory provisions,
refer to Sections 856 through 860 of the Code and the regulations promulgated
thereunder. The following summary is qualified in its entirety by such
reference.
To qualify to be treated as a real estate investment trust for a taxable
year under the Code, the Trust must meet certain requirements. Its principal
activities must be real estate related. Generally, at least 75% of the total
assets of the Trust must consist of real estate assets, cash or governmental
securities, and at least 75% of its gross income must be derived from real
estate activities, including rents from real property and interest on mortgage
obligations. However, the Tax Reform Act of 1986 authorizes the investment of
the proceeds of certain securities offerings of the Trust for up to one year in
stock or debt investments that do not qualify as real estate assets or yield
real estate income. At least 95% of the Trust's gross income must consist of
such gross income derived from real estate activities, plus dividends, interest
or gains from disposing of stock or securities. Additionally, gross income from
the sale or other disposition of stock and securities held for less than one
year and of real property held for less than four years must comprise less than
30% of the gross income of the Trust.
Although rent or interest income of the Trust may be based on a fixed
percentage of receipts or sales, rental or interest income of the Trust may not
be determined by reference to the net profits of a lessee or obligor except
where the lessee or obligor itself leases the property and derives income that
would be qualified rents if received by the Trust directly. The Code requires
that the shares of the Trust be held by at least 100 shareholders and that the
Trust annually distribute at least 95% of its real estate investment trust
taxable income to its shareholders. The Code discourages the Trust from buying
and selling property as a dealer by imposing a 100% tax on the net income (not
reduced by losses) from such sales with some limited exceptions. For any
investment requiring direct management or which provides services to tenants
(other than services that a tax exempt organization may provide to its tenants
without causing its rental income to be "unrelated business income") an
independent property manager is required by the Code. In 1992, the Trust
obtained a comprehensive private letter ruling from the national office of the
Internal Revenue Service stating that the property management activities engaged
in by the Trust with respect to its properties are permissible activities for a
real estate investment trust.
So long as the Trust qualifies for taxation as a real estate investment
trust, the Trust itself will generally be taxable only on its undistributed
income. Distributions made to its shareholders out of current or accumulated
earnings and profits will generally be taxed to them as ordinary income. A
distribution by the Trust of net capital gains will be treated as a capital gain
to shareholders to the extent properly designated by the Trust as a capital gain
dividend. A distribution in excess of current or accumulated earnings and
profits will constitute a non-taxable return of capital, to the extent of the
shareholder's basis in his or her shares. To the extent such a distribution is
greater than such basis, it will be treated as capital gain.
Failure of the Trust to qualify during any taxable year as a real estate
investment trust could, unless certain relief provisions were available, have a
material adverse effect on the Trust. The Trust would be subject to federal
income tax at corporate rates on all of its taxable income and would not be able
to deduct the dividends it paid, which could result in a discontinuation of or
substantial reduction in dividends to shareholders. In addition, the Trust's
financial condition could be impaired materially if federal income tax liability
were imposed as a result of an inadvertent termination of the Trust's real
estate investment trust status or imposition of a 100% penalty tax with respect
to a prior year.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement,
dated February 16, 1994, the Trust has agreed to sell to the Underwriter named
below (the "Underwriter"), and the Underwriter has agreed to purchase, the
principal amount of the Notes set forth below opposite its name.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
- -------------------------------------------------------------------------------------------- --------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......................................... $ 50,000,000
--------------
Total................................................................................... $ 50,000,000
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</TABLE>
The Underwriter has advised the Trust that it proposes initially to offer
the Notes to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not in
excess of 0.40% of the principal amount of the Notes. The Underwriter may allow,
and such dealers may reallow, a discount not in excess of 0.20% of the principal
amount of the Notes to certain other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
The Notes will not be listed on any securities exchange, and there can be no
assurance that there will be an active secondary market for the Notes. From time
to time, the Underwriter may make a market in the Notes; however, at this time
no determination has been made as to whether the Underwriter will make a market
in the Notes.
The Trust has agreed to indemnify the Underwriter against or make
contributions relating to certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
LEGAL OPINIONS
Certain matters with respect to the legality of the securities offered
hereby will be passed upon for the Trust by Steinhart & Falconer, San Francisco,
California and for the Underwriter by Shearman & Sterling, San Francisco,
California. Steinhart & Falconer will rely with respect to certain matters of
New York law on the opinion of Shearman & Sterling.
EXPERTS
The financial statements of Western Investment Real Estate Trust as of
December 31, 1992 and 1991 and for each of the years in the three year period
ended December 31, 1992, incorporated herein by reference, have been
incorporated herein by reference in reliance on the report of KPMG Peat Marwick,
independent certified public accountants, also incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic and current reports and other information with the
Securities and Exchange Commission (the "Commission"). Information concerning
trustees and officers, their remuneration and any material interest of such
persons in transactions with the Trust, as of particular dates, is disclosed in
proxy statements distributed to shareholders of the Trust and filed with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; Northern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can also be
37
<PAGE>
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports,
proxy statements and other information can also be inspected at the offices of
the American Stock Exchange, 86 Trinity Place, New York, New York 10006. Certain
of the Trust's securities are listed on the American Stock Exchange.
This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits, herein referred to as the
"Registration Statement") filed by the Trust under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus does not contain all of the
information included in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to the Trust and the securities
offered hereby.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Trust with the Commission
under the Exchange Act are incorporated by reference in this Prospectus:
(a) The Trust's Annual Report on Form 10-K for the year ended December 31,
1992.
(b) The Trust's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1993, June 30, 1993 and September 30, 1993.
All documents filed by the Trust pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Notes shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed incorporated document modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Trust hereby undertakes to furnish, without charge, to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated by reference in this Prospectus,
other than exhibits to such documents. Requests for such documents should be
directed to Mr. Dennis D. Ryan, Chief Financial Officer, Western Investment Real
Estate Trust, 3450 California Street, San Francisco, California 94118, telephone
(415) 929-0211.
38
<PAGE>
<TABLE>
<S> <C> <C>
[GRAPHIC]
</TABLE>
The Trust's Country Gables Shopping Center located in Granite Bay, California.
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR BY THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER THE CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary...................... 3
Use of Proceeds......................... 5
Capitalization.......................... 5
Selected Financial Information.......... 6
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 7
Business and Properties................. 11
Description of the Notes................ 19
Taxation................................ 35
Underwriting............................ 37
Legal Opinions.......................... 37
Experts................................. 37
Available Information................... 37
Incorporation of Certain Documents by
Reference.............................. 38
</TABLE>
$50,000,000
WESTERN INVESTMENT
REAL ESTATE TRUST
7 7/8% SENIOR NOTES DUE 2004
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
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<PAGE>
GRAPHICS APPENDIX
1. Graphic inside front cover -- Prospectus: map of California and Nevada
displaying each city in both states in which the Trust has an interest in at
least one property.
2. Graphic inside back cover -- Prospectus: picture of the Trust's Country
Gables Shopping Center located in Granite Bay, California.
