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PROSPECTUS
1,432,364 SHARES
WESTERN PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
We are Western Properties Trust, a real estate investment trust focused
on owning, redeveloping, developing and operating community and neighborhood
shopping centers and other real estate in a number of markets in the western
United States. Because we are organized as a trust, our common equity interests
are called "shares of beneficial interest" rather than shares of stock; however
our common shares are comparable in most ways to shares of stock, see
"Description of Our Common Shares."
This prospectus relates to our possible issuance of common shares to
the limited partners of Western/Kienow, L.P., a limited partnership in which we
are the sole general partner. We are not affiliated with any of the limited
partners. The limited partners acquired their units of limited partnership
interest on October 30, 1998, in connection with the partnership's acquisition
of an indirect ownership interest in Kienow's Food Stores, Inc. Kienow's owns
six neighborhood shopping centers and other real estate in the Portland, Oregon
metropolitan area and, prior to the acquisition, operated a dozen grocery stores
in the Portland area. The partnership agreement of Western/Kienow, L.P. gives
the limited partners the right to tender their units of limited partnership
interest to the partnership for redemption at any time on or after October 30,
1999. Upon such tender, we have the right to acquire their tendered units in
exchange for our common shares, on a one-for-one basis, or for cash. However,
our right to acquire their tendered units in exchange for common shares is
conditioned on the common shares being registered under the Securities Act. This
prospectus is part of a registration statement we filed with the SEC to register
our issuance of such common shares. We agreed to bear the expense of registering
the common shares. We will not receive any cash proceeds from the issuance of
the common shares, but we will receive the tendered units. Receiving such units
will increase our ownership interest in the partnership. The limited partners
are under no obligation to tender their units for redemption and we are under no
obligation to acquire tendered units in exchange for common shares. Our
registration of these common shares does not necessarily imply that we will
issue all or any portion of these common shares.
Our common shares are traded on the American Stock Exchange under the
symbol "WIR." On November 10, 1999, the last reported sale price for the common
shares on the American Stock Exchange was $10.25 per share.
INVESTING IN OUR COMMON SHARES INVOLVES A NUMBER OF RISKS. IN
CONSIDERING WHETHER TO INVEST, YOU SHOULD CAREFULLY CONSIDER THE MATTERS
DISCUSSED UNDER "RISK FACTORS," BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 12, 1999
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
TO WHICH THIS DOCUMENT REFERS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES IN ANY PLACE WHERE THE OFFER OR SALE TO YOU IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ON ANY DATE AFTER THE DATE OF THIS PROSPECTUS, EVEN IF THIS PROSPECTUS IS GIVEN
TO YOU OR THESE SECURITIES ARE OFFERED OR SOLD TO YOU ON A LATER DATE.
TABLE OF CONTENTS
Table Of Contents............................................................2
Note Regarding Forward-Looking Statements....................................2
Risk Factors.................................................................3
The Company.................................................................10
Use Of Proceeds.............................................................11
Description Of Our Common Shares............................................11
Federal Income Tax Considerations...........................................13
Registration Rights Of The Unitholders......................................21
Plan Of Distribution........................................................22
Experts.....................................................................22
Legal Matters...............................................................22
Incorporation Of Certain Information By Reference...........................23
Where You Can Find More Information.........................................24
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the information incorporated in it by
reference, contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Forward-looking
statements are those that predict or describe future events or trends and that
do not relate solely to historical matters. You can generally identify
forward-looking statements as statements containing the words "will," "shall,"
"believe," "expect," "anticipate," "intend," "estimate," "assume" or other
similar expressions.
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS BECAUSE THE
MATTERS THEY DESCRIBE ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER UNPREDICTABLE FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL. Many relevant
risks are described under the caption "Risk Factors" in this prospectus, as well
as throughout our disclosure documents, and you should consider the important
factors listed there as you read this prospectus.
Our actual results, performance or achievements may differ materially
from the anticipated results, performance or achievements that are expressed or
implied by our forward-looking statements. We assume no responsibility to update
our forward-looking statements.
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RISK FACTORS
AN INVESTMENT IN OUR COMMON SHARES INVOLVES VARIOUS RISKS. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN CONJUNCTION
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR
COMMON SHARES.
OUR INVESTMENTS ARE SUBJECT TO A NUMBER OF RISKS BEYOND OUR CONTROL.
Our investments in neighborhood shopping centers and other retail and
commercial properties are subject to varying degrees of risk that are beyond our
control and that may affect our ability to pay operating and other expenses,
make property improvements and make distributions to our shareholders. Income
from our properties may be adversely affected by a number of factors beyond our
control including:
- the national economic climate;
- the regional economic climate, which may be adversely impacted by
plant closings, industry slowdowns and other factors and which may
affect us directly (by reducing the willingness of tenants to enter
into new leases) or indirectly (by reducing our current tenants'
income and thereby reducing their ability to pay rent to us);
- local real estate conditions such as an oversupply of, or a reduction
in demand for, retail and commercial space;
- perceptions by retailers or shoppers of declining safety, convenience
or attractiveness of our retail spaces and the surrounding
neighborhoods;
- decisions by customers of our grocery, drug store and other tenants to
shop with on-line internet merchants rather than to visit our tenants'
neighborhood locations;
- the quality, philosophy and performance of our tenants' management;
and
- increased costs of maintenance, insurance and operations, which
increases may not necessarily be passed-through fully to tenants.
Income from our properties and their values are also affected by
factors such as government regulations and changes in zoning or tax laws,
interest rate levels, the availability of financing and potential liability
under environmental and other laws. In addition, the number of prospective
buyers interested in purchasing income-producing properties is limited.
Therefore, if we sell one of our properties, we may receive less money than we
invested in the property.
IF WE FAIL TO ATTRACT AND RETAIN RENT-PAYING TENANTS, OUR INCOME MAY DECREASE.
Our income and funds available for distribution will depend on our
ability to continue to lease space in our properties on economically favorable
terms. In addition, as substantially all of our income is derived from rentals
of real property, our income and funds available for distribution could be
adversely affected if a significant number of our tenants were unable to meet
their obligations to us. In the event of default by a tenant, we may experience
delays in enforcing our rights as a landlord and may incur substantial costs in
protecting our investment. We are subject to the risks that leases may not be
renewed, space may not be relet or the terms of renewal or reletting, including
the cost of required renovations, may be less favorable than current lease terms
and this risk is particularly pronounced for our larger tenants. For example,
one of our tenants, Raley's, leased 22 supermarket locations from us and
accounted for approximately 20% of our revenues for the year ended December 31,
1998 and any impairment of the
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rental payments from Raley's could have a material adverse affect on our income
and cash flow. Additionally, we expect to incur costs in making improvements or
repairs required by new or renewing tenants and we expect to incur costs
associated with brokerage commissions payable in connection with the reletting
of space. Leases on a total of approximately 7% of the leased square footage of
our properties (excluding Kienow's properties which are being redeveloped and
retenanted) as of December 31 1998 will expire on or prior to December 31, 2000.
Our financial condition, results of operations, cash flow and our ability to pay
distributions on, and the market price of, our common shares could be adversely
affected if we are unable promptly to relet or renew the leases for all or a
substantial portion of expiring leases or if the rental rates upon renewal or
reletting are significantly lower than current or expected rates.
THE BANKRUPTCY OF ONE OR MORE MAJOR TENANTS WOULD CAUSE OUR INCOME TO DECREASE.
In the various industries in which our tenants operate, there have been
a number of recent bankruptcies, including a few of our tenants. Our properties
are not insulated from the risk of tenant-bankruptcies, and the bankruptcy or
insolvency of one of our major tenants could have a material adverse effect on
the property in which the tenant is located and the income produced by that
property. Our leases generally do not contain restrictions designed to ensure
the creditworthiness of a tenant, although we do consider the creditworthiness
of each tenant prior to executing the lease.
IF WE FAIL TO COMPETE EFFECTIVELY AGAINST OTHER PROPERTY OWNERS IN OUR ATTEMPTS
TO ATTRACT AND RETAIN TENANTS AND IN OUR ATTEMPTS TO PURCHASE ATTRACTIVE
PROPERTIES, OUR INCOME AND PROFITS MAY DECLINE.
Numerous owners of properties compete with us to attract tenants and
numerous companies compete with us to acquire attractive properties. We compete
for tenants primarily on the basis of location, rental rates, services provided
and the design and condition of our properties. In some of the geographic areas
in which we own properties, the available supply of space for lease exceeds the
demand by prospective tenants. In those circumstances, the rents we may charge
tenants may decline and the costs and expenses we incur on the tenant's behalf
may increase, resulting in a decline in our income and cash flow.
Additionally, we compete for quality properties with other investors
and engage in a continuing effort to identify desirable properties for
acquisition. If the number of prospective buyers for the types of properties we
consider acquiring increases, the prices of those properties may increase and
the yields may decrease.
IF OUR OPERATING COSTS INCREASE BY A GREATER AMOUNT THAN OUR RENTAL INCOME, THEN
OUR PROFITS WILL DECREASE.
Our properties are subject to operating risks common to commercial real
estate in general, any of which may adversely affect operating income. For
example, our properties are subject to increases in operating expenses, such as
security, taxes, landscaping, insurance, repairs and maintenance. While most of
our tenants are currently obligated to pay many of these costs, we cannot assure
you that our tenants will pay the costs they owe us or, upon renewal, will agree
to continue to pay those costs. If operating expenses increase, local market
conditions may limit the extent to which rents may be increased to meet
increased expenses without decreasing occupancy rates. While we implement
cost-saving incentive measures at each of our properties, if any of the above
problems occur, our ability to make distributions on, and the market price of,
our common shares could be adversely affected.
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WE MAY BE UNABLE TO COMPLETE DEVELOPMENT AND REDEVELOPMENT PROJECTS ON
ADVANTAGEOUS TERMS.
The real estate development business, including the renovation and
rehabilitation of existing properties, involves significant risks. As of
September 30, 1999, we are involved in the early stages of two development
projects in the San Francisco Bay Area. The first project is located in Walnut
Creek, California (the "Cal Fed Project") where we intend to acquire and
redevelop three parcels, which comprise the majority of a city block. The second
project is located in Redwood City, California (the "On Broadway Project"),
which is a project contemplated with the city's redevelopment agency. We intend
to finance both projects through joint ventures, property disposition proceeds
and/or through third-party construction loans.
Our development projects involve significant risks, including the
following:
- As of September 30, 1999, we do not have sufficient financing in place
to meet our anticipated commitments to both development projects. We
cannot assure you that we will be able to obtain financing on
favorable terms for development projects and we may not complete
construction on schedule or within budget, resulting in increased debt
service expense and construction costs and delays in leasing such
properties and generating cash flow.
- We may not be able to obtain, or we may experience delays in
obtaining, all necessary zoning, land-use, building, occupancy and
other required governmental permits and authorizations. In particular,
with respect to the Cal Fed Project, we may need to rely on the City
of Walnut Creek's willingness to assist in our acquisition of the
applicable properties by exercising the city's power of condemnation;
however, the City may not commence such process or it may be subject
to significant legal or other delays.
- New or renovated properties may perform below anticipated levels,
producing cash flow below budgeted amounts;
- Substantial renovation as well as new development activities,
regardless of whether or not they are ultimately successful, typically
require a substantial portion of management's time and attention which
could divert management's time from our day-to-day operations.
- Activities that we finance through construction loans involve the risk
that, upon completion of construction, we may not be able to obtain
permanent financing or we may not be able to obtain permanent
financing on advantageous terms.
These risks could have an adverse effect on our financial condition,
results of operations and cash flow and our ability to pay distributions on, and
the market price of, our common shares.
MARKET CONDITIONS AND THE COST OF FINANCING MAY LIMIT OUR GROWTH RATE.
Various elements of our business and growth strategies will require
additional capital. There can be no assurance that funds will be available to us
on terms satisfactory to us when needed. To the extent that we raise additional
equity capital, it could have a dilutive effect on existing shareholders.
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WE ARE SUBJECT TO RISKS AND LIABILITIES IN CONNECTION WITH PROPERTIES AND
PROJECTS OWNED THROUGH PARTNERSHIPS AND LIMITED LIABILITY COMPANIES.
As of September 30, 1999, we had an ownership interest in two
partnerships and one limited liability company (an "LLC") with third parties. On
September 30, 1999, we owned 11 properties through these entities. We may make
additional investments through partnerships and LLCs in the future.
The ownership of properties through a partnership structure with third
parties involves certain risks which may include one or more of the following:
- Our partners could become bankrupt, in which event we could be
generally liable for the partnership liabilities of our third-party
partners.
- Our partners could at any time have economic interests or goals which
are inconsistent with our economic interests and goals.
- Our partners may take actions contrary to our instructions, requests,
policies or objectives.
- Our partnerships often contain restrictions on the ability of a
partner to sell its interest, which may result in a purchase or sale
of our interest at a disadvantageous time or on disadvantageous terms.
The occurrence of one or more of the events described above could have
an adverse effect on our financial condition, results of operations and cash
flow and our ability to pay distributions on, and the market price of, our
common shares.
IF WE SUFFER AN UNINSURED LOSS, OUR INCOME AND CASH FLOW MAY DECREASE.
We carry comprehensive liability and casualty insurance with respect to
all of our properties, with policy specifications, insured limits and
deductibles on terms and amounts which we believe are adequate and customarily
carried by others for similar properties. There are, however, certain types of
losses, such as losses arising from acts of war or relating to pollution or for
earthquake or flood, that we generally do not insure because they are either
uninsurable or not economically insurable. Most of our properties are located in
California and Nevada near active earthquake fault lines. In the event of a
major earthquake, any of our properties in the area of the earthquake could
suffer substantial damage or destruction. Should an uninsured loss or a loss in
excess of insured limits occur, we could lose our capital invested in a
property, as well as the anticipated future revenue from that property.
Nevertheless, we would continue to be obligated on any obligations related to
that property. Any of those losses could adversely affect our business and our
financial condition, as well as adversely affect our ability to make
distributions on, and the market price of, our common shares.
THE RISE OF ON-LINE COMMERCE MAY DECREASE OUR TENANTS' INCOME, THEREBY
INCREASING THE RISK THAT THEY MAY NOT BE ABLE TO MAKE TIMELY RENT PAYMENTS TO US
AND MAY NOT BE ABLE TO RENEW THEIR LEASES ON TERMS FAVORABLE TO US.
Most of our retail tenants depend upon in-store sales for the majority
of their revenues. In addition, many of the smaller retail tenants in our
neighborhood shopping centers depend upon the foot traffic generated by the
shopping center's anchor tenant (which generally is a grocery or drug store).
Recently, on-line merchants such as Webvan, Peapod and Drugstore.Com have begun
competing against such neighborhood grocery and drug stores, and other
specialized on-line merchants compete against our smaller retail tenants. If our
tenants' customers reduce their in-store shopping by ordering products on-
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line from other merchants, the foot traffic at our neighborhood shopping centers
and other properties may decrease and our tenants' revenues may decline. Such a
decline in our tenants' revenues creates a risk that they will not be able to
make timely rent payments to us, and that any renewal of their lease may be on
less favorable terms to us than otherwise would have been the case. If our
tenants fail to make timely rent payments, we may be unable to meet our
financial obligations under our outstanding notes and our line of credit. If a
number of our tenants default on their rent payments or renew their leases on
terms less favorable to us, our business and financial condition, as well as our
ability to make distributions on, and the market price of, our common shares
could be adversely affected.
WE COULD SUFFER ENVIRONMENTAL LIABILITIES, WHICH WOULD RESULT IN A DECREASE IN
OUR INCOME, CASH FLOW AND PROPERTY VALUES.
Under various federal, state and local environmental laws, we may be
required to investigate and clean-up hazardous or toxic substances or petroleum
product releases at our current and former properties, often regardless of
whether we caused or even knew about such environmental condition. Such duties
may be imposed solely because of our current or previous ownership or operation
of the real estate. We may also be held liable to a governmental entity or to
third parties for property damage and for investigation and clean-up costs
incurred by those parties in connection with any such contamination. In
addition, applicable environmental laws allow for the imposition of liens on
contaminated sites in favor of the government for damages and costs it incurs in
connection with the contamination. Such liens or the presence of hazardous
substances on our property or our failure to properly remediate the
contamination may adversely affect our ability to borrow against, sell or rent
the affected property.
WE MAY INCUR COSTS IN COMPLYING WITH THE AMERICANS WITH DISABILITIES ACT AND
SIMILAR LAWS.
The Americans with Disabilities Act generally requires that all places
of public accommodation, including our properties, be made accessible to
disabled persons. Although we believe that our properties are substantially in
compliance with the present requirements of the Americans with Disabilities Act,
we may incur additional costs in complying with the Americans with Disabilities
Act. A number of additional federal, state and local laws exist which also may
require modifications to our properties. These laws may also restrict certain
further renovations of our properties. Additional legislation may impose further
burdens or restrictions on us with respect to access by disabled persons.
IN ACQUIRING REAL PROPERTIES, WE INCUR A RISK THAT THE STRUCTURE OF A PARTICULAR
TRANSACTION SHALL NOT PERMIT US THE FLEXIBILITY TO TAKE AN ACTION WITH RESPECT
TO THE ACQUIRED PROPERTY THAT MIGHT OTHERWISE BE IN THE BEST INTEREST OF OUR
SHAREHOLDERS.
We may acquire properties (or an economic interest in properties) or
other real estate companies when we believe that an acquisition is consistent
with our business strategies. In addition, in certain circumstances we create
and use units of so-called "downREIT" partnerships as consideration for
acquisitions from tax-sensitive sellers. In connection with those acquisitions,
we sometimes agree to certain restrictions on our ability to sell, or reduce the
mortgage indebtedness on, those acquired assets, including agreeing not to sell
properties for significant periods of time. These transactions may increase our
indebtedness, which may impair our ability to take actions that would otherwise
be in the best interests of our shareholders.
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THE ILLIQUIDITY OF THE MARKET IN WHICH WE OPERATE IMPEDES OUR FLEXIBILITY IN
RESPONDING TO MARKET CHANGES.
Equity and debt real estate investments are relatively illiquid and,
therefore, tend to limit our ability to vary our portfolio promptly in response
to changes in economic or other conditions. In addition, the Internal Revenue
Code generally limits our ability to sell those properties that we have held for
fewer than four years. The limitation in the Internal Revenue Code and related
regulations may affect our ability to sell properties without adversely
affecting returns to our shareholders. The relative illiquidity of our holdings,
Internal Revenue Code prohibitions and related regulations could impede our
ability to respond to adverse changes in the performance of our investments and
could adversely affect our financial condition, results of operations and cash
flow and our ability to make distributions on, and the market price of, our
common shares.
OUR ROLE AS THE GENERAL PARTNER OF THE WESTERN/KIENOW, L.P. MAY CONFLICT WITH
THE INTERESTS OF OUR SHAREHOLDERS.
As the general partner of Western/Kienow, L.P., we have fiduciary
obligations to that partnership's limited partners, the discharge of which may
conflict with the interests of our shareholders.
WE ARE SUBJECT TO THE RISKS OF MAKING LOANS SECURED BY REAL ESTATE.
As of September 30, 1999, we had invested as a lender in three notes
secured by mortgages on real property. Through such date we had advanced $16.9
million of our total funding commitment of $36 million. We are considering
increasing our aggregate commitment to as much as $51.5 million. These loans are
secured by properties in Walnut Creek (commonly known as the "Plaza Escuela
Project"), Dublin and Concord, California. In the future, we may make more of
this type of investment. In general, the risks of investing in mortgages
include:
- Borrowers may not have adequate cash flow to be able to make periodic
debt service payments or pay principal when due.
- The value of the mortgaged property may be less than the principal
amount of the notes secured thereby.
- The interest rate payable on the notes may be lower than our costs of
funds to acquire the notes.
- Borrowers may not have the ability to pay the principal balance at
maturity of the loan.
In any of the foregoing events, our income and our ability to make distributions
on, and the market price of, our common shares could be adversely affected.
WE COULD SUFFER ADVERSE TAX CONSEQUENCES IF WE FAIL AT ANY TIME TO QUALIFY AS A
REIT.
We intend at all times to operate so as to qualify as a REIT for
federal income tax purposes. Although we believe that we are organized and
operate in that manner, no assurance can be given that we shall remain qualified
as a REIT. This is because qualification as a REIT involves the application of
complex Internal Revenue Code provisions for which there are only limited
judicial and administrative interpretations. The determination of various
factual matters and circumstances not entirely within our control may affect our
ability to qualify as a REIT. If in any taxable year we fail to qualify as a
REIT, we
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shall be subject to federal and state income tax on our taxable income at
regular corporate rates. In addition, unless we are entitled to relief under
certain statutory provisions, we would be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. The additional tax liability resulting from our failure to qualify as a
REIT would significantly reduce or eliminate the cash flow available for
distribution to our shareholders.
BECAUSE OUR DECLARATION OF TRUST CONTAINS CERTAIN LIMITS ON WHO MAY OWN OUR
COMMON SHARES, IT WILL BE VERY DIFFICULT FOR SOMEONE ELSE TO TAKE CONTROL OF US,
EVEN IF SUCH CHANGE OF CONTROL MIGHT BE IN THE BEST INTERESTS OF OUR
SHAREHOLDERS.
For us to maintain our qualification as a REIT, not more than 50% in
value of our outstanding shares may be owned, directly or indirectly, by five or
fewer persons. Our declaration of trust includes provisions authorizing our
board of trustees to refuse to effect any transfer of our shares of beneficial
interest that would jeopardize our status as a REIT. These provisions may have
the effect of delaying, deferring or preventing someone from taking control of
us, even though that change of control could involve a premium price for our
shareholders or otherwise could be in our shareholders' best interests.
OUR DEBT FINANCING MAY ADVERSELY IMPACT OUR SHAREHOLDERS.
We are subject to the risks associated with debt financing, including
the risk that our cash flow will be insufficient to meet required payments of
principal and interest.
Our current indebtedness bears interest at both fixed rates and
floating rates. As of September 30, 1999, our aggregate outstanding indebtedness
of $211.8 million consisted of $134.6 million in fixed rate, long-term debt and
$77.2 million of borrowings under our variable rate, unsecured bank line. Over
the next five and ten years, approximately $136.9 million and $186.9 million,
respectively, of our indebtedness will mature. It is our intention to repay such
indebtedness with a combination of the sale of assets and/or the issuance of new
debt or equity securities, both of which will be dependent on market conditions.
For future financings, we intend to seek the most attractive financing
arrangements available at the time, which may involve either fixed or floating
interest rates. With respect to floating rate indebtedness, increases in
interest rates could adversely affect our operating income, funds available for
distribution and ability to meet our debt service obligations.
As of September 30, 1999, we had one secured loan of approximately $9.9
million, which was secured by a mortgage on one of our properties. However, if
amounts due under our bank line are not paid at maturity, the bank, at its
option, can require us to provide security interests in our properties. Our
agreements executed in connection with our senior notes and bank line of credit
contain covenants, including minimum shareholder's equity, maximum ratio of debt
to net worth and income coverage requirements, which impose limitations on us,
including limitations on our ability to incur additional debt. Also, we are
tenants-in-common in two properties where our co-owner, as the sole borrower, is
obligated under a note that is secured by its interest in the property. If
mortgage payments are not made by the sole borrower, the lender could commence
foreclosure proceedings on the property, which could result in a loss to us.
One of our requirements to qualify as a REIT under the Internal Revenue
Code is that we must distribute to our shareholders at least 95% of our taxable
income each year (determined without regard to net capital gains and the
dividends paid deduction). If our cash flow is not sufficient to fund such a
distribution, we may have to borrow funds on a short-term basis or liquidate
investments in order to raise enough cash to fund the distribution and thereby
maintain our REIT status. Such borrowing or liquidation
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may be on disadvantageous terms and not otherwise in our best interests. As a
result our ability to pursue our broader business strategy may be adversely
affected.
FAILURE TO RESOLVE THE YEAR 2000 PROBLEM COULD HAVE AN ADVERSE EFFECT ON OUR
RESULTS OF OPERATIONS.
Many existing computer programs and embedded technologies use two
digits rather than four to define the applicable year. Consequently, our
computer equipment, software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This may result in system failure or erroneous data that may disrupt
our operations. We have initiated a Year 2000 compliance program that includes a
review of both our information technology and non-information technology
systems, as well as inquiries to our major vendors, key tenants, banks and other
parties we have significant business dealings with. During 1998 and 1999, we
have undertaken and substantially completed the conversion and upgrade of our
management system.
Based on currently available information, we believe that the Year 2000
issue shall not pose significant operational problems for us. However, if we
fail to properly identify all Year 2000 issues, or if our assessment,
remediation and testing are not effected in a timely manner, the Year 2000 issue
may adversely affect our results of operations or our relationships with tenants
or other third parties. Additionally, we can not assure you that the Year 2000
issues of third parties shall not have an adverse impact on our results of
operations. For further Year 2000 readiness disclosure, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in our most recent Annual Report on Form 10-K and in our most recent
Quarterly Report on Form 10-Q.
THE COMPANY
We are Western Properties Trust ("Western Properties"), a real estate
investment trust ("REIT") formerly known as Western Investment Real Estate
Trust. We focus on owning, redeveloping, developing and operating community and
neighborhood shopping centers and other real estate in a number of markets in
the western United States. Western Properties was founded in 1962. We are
self-administered, which means that our operating decisions are made by our
officers under the supervision of our board of trustees. Effective October 30,
1998, we acquired control of Kienow's Food Stores, Inc., an Oregon corporation
("Kienow's"). Kienow's is a Portland, Oregon-based landlord of neighborhood
shopping centers and other properties, whose principal assets are its real
estate properties. Kienow's is now an unconsolidated indirect subsidiary of
ours. The acquisition was accomplished using a newly formed downREIT limited
partnership, named Western/Kienow, L.P. (the "DownREIT Partnership"). The
DownREIT Partnership is a Delaware limited partnership that we control in our
capacity as its sole general partner. In this prospectus, the term "Company"
generally includes Western Properties, the DownREIT Partnership, Kienow's and a
partnership in which Western Properties has a controlling financial interest. As
of September 30, 1999, the Company holds 63 real estate investments. Those
investments are comprised of 49 properties owned directly, three notes secured
by real estate (i.e., mortgages) and 11 properties owned by Kienow's. The 63
properties contain an aggregate of approximately 5.6 million leasable square
feet. Included in this total are 9 properties held for sale comprising 262,000
leasable square feet. The Company evaluates performance and makes
resource-allocation decisions on an individual property basis. For financial
reporting purposes the Company has grouped its properties into three segments:
shopping centers; single-tenant retail; and other commercial properties.
Investments principally consist of direct investments in real estate and also
include three loans secured by real estate. The Company leases a substantial
portion of its total gross leasable area on a long-term, triple net basis. Most
of the shopping centers owned by the Company have a grocery store as an anchor
tenant.
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We have elected to be taxed as a REIT for federal income tax purposes.
If we continue to comply with the REIT qualification requirements under the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), we will
not generally be required to pay income tax at the corporate level.
Our executive offices are located in the San Francisco Bay Area at 2200
Powell Street, Suite 600, Emeryville, California 94608 and our telephone number
is (510) 597-0160. Additionally, we maintain regional offices in Granite Bay and
Fresno, California and Portland, Oregon.
THE DOWNREIT PARTNERSHIP
The DownREIT Partnership's principal asset is its indirect interest in
Kienow's. The limited partners of the DownREIT Partnership are the prior
stockholders of Kienow's who accepted units of limited partnership interest in
the DownREIT Partnership ("Units") in exchange for their interest in Kienow's.
Each of the limited partners of the DownREIT Partnership has the right to tender
his or her Units to the DownREIT Partnership for cash. Upon such a tender, we
have the right to acquire the tendered Units, either for cash or for our common
shares on a one-for-one basis under certain terms and conditions. This
prospectus relates to the common shares we may issue to the limited partners in
exchange for their Units in the DownREIT Partnership. The limited partners'
redemption right was not exercisable during the first year following issuance of
the Units and became exercisable on October 30, 1999. See "Registration Rights
of the Unitholders."
USE OF PROCEEDS
We will not receive any cash proceeds from our issuance of the common
shares covered by this prospectus, but instead we will receive Units in the
DownREIT Partnership. Receiving those Units will increase our ownership interest
in the DownREIT Partnership.
DESCRIPTION OF OUR COMMON SHARES
The description of our common shares of beneficial interest ("Common
Shares") set forth below does not purport to be complete and is qualified in its
entirety by reference to our declaration of trust, as amended, restated and
supplemented through the date hereof (our "Charter"), a copy of which is
incorporated by reference as an exhibit to the registration statement of which
this prospectus is a part. See "Where You Can Find More Information."
GENERAL
Under our Charter, we have authority to issue an unlimited number of
Common Shares, without par value, and up to 2,000,000 preferred shares of
beneficial interest, without par value ("Preferred Shares"). On September 30,
1999, we had issued and outstanding 17,231,349 Common Shares. No Preferred
Shares are currently outstanding. In addition, on October 30, 1999, there were
1,432,364 units of limited partnership interest in the DownREIT Partnership
outstanding, which units are exchangeable for Common Shares on a one-for-one
basis.
Subject to the preferential rights of any outstanding class of
Preferred Shares, the holders of Common Shares are entitled to those
distributions as may be declared from time to time by our board of trustees from
funds available therefor and, upon liquidation, are entitled to receive pro rata
all assets of the Company available for distributions to those holders. All
Common Shares issued pursuant to this
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prospectus shall be fully paid and nonassessable and the holders thereof shall
not have preemptive rights. However, our Charter prohibits us from issuing
warrants, options or similar evidences of a right to buy our shares unless
issued to all of our security holders ratably (or unless in connection with an
employee stock option plan).
The holders of Common Shares are entitled to one vote per share on all
matters voted on by shareholders, including elections of trustees, and, except
as otherwise required by law or provided in any resolution adopted by our board
of trustees with respect to any class of Preferred Shares establishing the
powers, designations, preferences and relative, participating, option or other
special rights of that series, the holders of those Common Shares exclusively
possess all voting power. The Charter does not provide for cumulative voting in
the election of trustees.
The Charter provides for a staggered board of trustees consisting of
three classes. Each class holds office until the third annual meeting for
selection of trustees following the election of that class.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursing agent for the
Common Shares is ChaseMellon Shareholder Services, L.L.C., New York, New York.
RESTRICTIONS ON OWNERSHIP
The Common Shares are freely transferable, except that the board of
trustees may refuse to transfer shares if, in the opinion of the trustees, the
proposed transfer would jeopardize our qualification as a real estate investment
trust under the Internal Revenue Code. For Western Properties to qualify as a
REIT under the Internal Revenue Code, it must meet certain requirements
concerning the ownership of its outstanding shares of capital stock.
Specifically, not more than 50% in value of the Company's outstanding shares of
capital stock may be owned, directly or indirectly, by five or fewer individuals
(as defined in the Internal Revenue Code to include certain entities) during the
last half of a taxable year, and the Company must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations."
Because our board of trustees believes it is essential for us to
qualify as a REIT, the Charter permits the board of trustees to refuse to
transfer shares, if in the opinion of the trustees, the proposed transfer would
jeopardize our qualification as a REIT for any reason, including the violation
of the Internal Revenue Code restrictions described above and under "Federal
Income Tax Considerations."
PREFERRED SHARES
We are authorized to issue up to 2,000,000 Preferred Shares, without
par value. No Preferred Shares are outstanding as of the date hereof. Under our
Charter, Preferred Shares may be issued from time to time, in one or more
series, as authorized by the board of trustees. Subject to limitations
prescribed by California law and our Charter, the board of trustees is
authorized to fix the number of shares constituting each series of Preferred
Shares and the designations, powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereon, including those provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and any other subjects or matters as may be fixed by resolution of the
board of trustees or a duly authorized committee thereof. The Preferred Shares
shall, when issued, be fully paid and nonassessable. Because the board of
trustees has the power to establish the
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terms and conditions of each series of Preferred Shares, it may afford the
holders of any series of Preferred Shares power, preferences and rights, voting
or otherwise, senior to the rights of holders of Common Shares. The issuance of
Preferred Shares could have the effect of delaying or preventing a change in
control of Western Properties.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
that may be relevant to a prospective holder of Common Shares in Western
Properties is based on current law. This discussion does not purport to address
all aspects of taxation that may be relevant to particular shareholders in light
of their personal investment or tax circumstances, or to certain types of
shareholders subject to special treatment under the federal income tax laws,
including insurance companies, tax-exempt organizations (except as described
below), financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States (except as
described below).
The statements in this discussion are based on current provisions of
the Internal Revenue Code, existing, temporary, and currently proposed Treasury
Regulations promulgated under the Internal Revenue Code, the legislative history
of the Internal Revenue Code, existing administrative rulings and practices of
the IRS, and judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions, which may be
retroactive in effect, shall not affect the accuracy of any statements in this
prospectus with respect to the transactions entered into or contemplated prior
to the effective date of those changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL.
Western Properties elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code in 1962 and has not revoked its
election. Western Properties believes that it is organized and operates in a
manner so as to qualify for taxation as a REIT under the Internal Revenue Code,
and intends to operate in that manner, but no assurance can be given that it
shall operate in a manner so as to qualify or remain qualified as a REIT.
The REIT provisions of the Internal Revenue Code are highly technical
and complex. The following sets forth the material aspects of the sections that
govern the federal income tax treatment of a REIT and its shareholders. This
summary is qualified in its entirety by the applicable Internal Revenue Code
provisions, rules and regulations promulgated thereunder, and administrative and
judicial interpretations thereof. O'Melveny & Myers LLP has acted as tax counsel
to the Company.
In the opinion of O'Melveny & Myers LLP, Western Properties'
organization and method of operation shall enable it to meet the requirements
for qualification and taxation as a REIT under the Internal Revenue Code for its
current taxable year and for future years. It must be emphasized that this
opinion is based on various assumptions and is conditioned upon certain
representations made by the
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Company as to factual matters, including a REIT qualification analysis provided
by the Company. In addition, this opinion is based upon the factual
representations of the Company concerning its business and properties as set
forth in this prospectus. Moreover, qualification and taxation as a REIT depends
upon Western Properties having met, and its continuing ability to meet, through
actual annual operating results, the distribution level tests, diversity of
stock ownership test, and the various other qualification tests imposed under
the Internal Revenue Code discussed below, the results of which were not and
shall not be reviewed by O'Melveny & Myers LLP. Accordingly, no assurance can be
given that the actual results of the Company's operation for any particular
taxable year satisfied or shall satisfy those requirements. See "--Failure to
Qualify." The opinion letter of O'Melveny & Myers LLP is filed as an exhibit to
the registration statement of which this prospectus is a part.
In any year in which Western Properties qualifies as a REIT, in general
it shall not be subject to federal income tax on that portion of its taxable
income or capital gain which is distributed to shareholders. Western Properties
shall, however, be subject to tax at normal corporate rates upon any taxable
income or capital gain not distributed.
Notwithstanding its qualification as a REIT, Western Properties may
also be subject to taxation in certain other circumstances. If Western
Properties should fail to satisfy the 75% or the 95% gross income test, as
discussed below, and nonetheless maintains its qualification as a REIT because
certain other requirements are met, it shall be subject to a 100% tax on the
gross income attributable to the greater of the amount by which it fails either
the 75% or the 95% test, multiplied by a fraction intended to reflect its
profitability. Western Properties shall also be subject to a tax of 100% on net
income from "prohibited transactions," which "prohibited transactions" are, in
general, certain sales or other dispositions of property held primarily for sale
to customers in the ordinary course of business, other than foreclosure property
and, if Western Properties has (i) net income from the sale or other disposition
of "foreclosure property" (generally, property acquired by reason of a default
on indebtedness or a lease) which is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from foreclosure
property, it shall be subject to tax on that income from foreclosure property at
the highest corporate rate. In addition, if Western Properties should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for that year, (ii) 95% of its REIT capital gain net income for
that year, and (iii) any undistributed taxable income from prior years, it would
be subject to a 4% excise tax on the excess of a required distribution over the
amounts actually distributed. Western Properties may also be subject to the
corporate "alternative minimum tax," on its items of tax preference, as well as
tax in certain situations not presently contemplated.
REQUIREMENTS FOR QUALIFICATION.
The Internal Revenue Code defines a REIT as a corporation, trust or
association (i) which is managed by one or more trustees or directors, (ii) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (iii) which would be taxable
as a domestic corporation, but for Sections 856 through 860 of the Internal
Revenue Code, (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Internal Revenue Code, (v) the
beneficial ownership of which is held by 100 or more persons, (vi) during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or constructively, by five or fewer
individuals (as defined in the Internal Revenue Code to include certain
entities), and (vii) which meets certain other tests, described below, regarding
the nature of its income and assets. The Internal Revenue Code provides that
conditions (i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year of less than 12
months. Conditions (v) and (vi) shall not apply until after the first taxable
year for which an election is made to be taxed as a REIT. Additionally, for any
taxable year of Western Properties beginning after August 5, 1997, if Western
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Properties complies with Treasury Regulations requiring the maintenance of
records to ascertain ownership of its outstanding stock and Western Properties
does not know or have reason to know that it failed to satisfy condition (vi),
it shall be treated as having satisfied that condition for any applicable
taxable year.
Western Properties believes that it has issued sufficient shares to
allow it to satisfy conditions (v) and (vi). In addition, Western Properties'
Charter grants the trustees the right to refuse to recognize a transfer of
shares if, in their opinion, the proposed transfer would jeopardize Western
Properties' qualification as a REIT under the share ownership requirements
described in conditions (v) and (vi) above, or otherwise.
Western Properties currently has one wholly-owned corporate subsidiary,
Western Asset Management Services, and may have additional corporate
subsidiaries in the future. Internal Revenue Code Section 856(i) provides that a
corporation that is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities, and items of income, deduction and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is held by the REIT. Thus, in applying the requirements described herein, any
"qualified REIT subsidiaries" owned by Western Properties shall be ignored, and
all assets, liabilities, and items of income, deduction, and credit of those
subsidiaries shall be treated as assets, liabilities and items of income,
deduction and credit of Western Properties. Western Properties' current
wholly-owned subsidiary is a "qualified REIT subsidiary." Western Properties'
wholly-owned subsidiary therefore shall not be subject to federal corporate
income taxation, although it may be subject to state and local taxation.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT shall be deemed to own its proportionate share
of the assets of the partnership and shall be deemed to be entitled to the
income of the partnership attributable to its share. In addition, the assets and
gross income of the partnership retain the same character in the hands of the
REIT for purposes of Section 856 of the Internal Revenue Code, including for
purposes of satisfying the gross income tests and the asset tests. Thus, Western
Properties' proportionate share of the assets, liabilities and items of income
of the DownREIT Partnership shall be treated as assets, liabilities and items of
income of Western Properties for purposes of applying the requirements described
herein.
INCOME TESTS.
In order to qualify and maintain qualification as a REIT, Western
Properties annually must satisfy two gross income requirements. First, at least
75% of Western Properties' gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of Western
Properties' gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived from its real property investments,
dividends, interest and gain from the sale or disposition of stock or securities
(or from any combination of the foregoing).
Rents received by Western Properties shall qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally shall not be excluded from the term "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Internal Revenue Code provides
that rents received from a tenant shall not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or an owner of 10%
or more of the REIT,
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directly or constructively owns 10% or more of that tenant (a "Related Party
Tenant"). Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to that personal property
shall not qualify as "rents from real property." Finally, for rents received to
qualify as "rents from real property," the REIT generally must not operate or
manage the property or furnish or render services to the tenants of that
property, other than through an independent contractor from whom the REIT
derives no revenue; provided, however, Western Properties may directly perform
certain services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. For taxable years beginning after
August 5, 1997, Western Properties may operate or manage the property or furnish
or render services to the tenants of that property without disqualifying any
rents received from that property as "rents from real property," provided that
any amounts received or accrued (directly or indirectly) by Western Properties
for any of those activities or services do not exceed 1% of all amounts received
or accrued (directly or indirectly) with respect to that property. However, any
amounts received or accrued (directly or indirectly) by Western Properties for
any of those activities or services shall not qualify as "rents from real
property," even to the extent those amounts do not exceed the 1% threshold. The
Company does not and shall not (i) charge rent for any property that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a percentage of receipts or sales, as described above), (ii) rent
any property to a Related Party Tenant, (iii) derive rental income attributable
to personal property (other than personal property leased in connection with the
lease of real property, the amount of which is less than 15% of the total rent
received under the lease), or (iv) perform services considered to be rendered to
the occupant of the property, other than through an independent contractor from
whom Western Properties derives no revenue (subject to the 1% de minimis rule
discussed above).
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of that amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally shall not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If Western Properties fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless qualify as a REIT
for that year if it is entitled to relief under certain provisions of the
Internal Revenue Code. These relief provisions shall be generally available if
Western Properties' failure to meet those tests was due to reasonable cause and
not due to willful neglect, Western Properties attaches a schedule of the
sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances Western Properties would be
entitled to the benefit of these relief provisions. As discussed above in
"General," even if these relief provisions apply, a tax would be imposed with
respect to the excess net income.
ASSET TESTS.
Western Properties, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of Western Properties' total assets must be
represented by real estate assets (including (i) its allocable share of real
estate assets held by partnerships in which Western Properties owns an
interest and (ii) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of Western Properties), cash, cash items and government
securities. Second, not more than 25% of Western Properties' total assets may
be represented by securities other than those in the 75% asset class. Third,
of the investments not included in the 75% asset class, the value of any one
issuer's securities owned by Western Properties may not exceed 5% of the
value of Western Properties' total
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assets, and Western Properties may not own more than 10% of any one issuer's
outstanding voting securities (except for its ownership interest in the stock
of a qualified REIT subsidiary).
If Western Properties should fail to satisfy the asset tests at the end
of a calendar quarter, that failure would not cause it to lose its REIT status
if (i) it satisfied all of the asset tests at the close of the preceding
calendar quarter and (ii) the discrepancy between the value of Western
Properties' assets and the asset requirements either did not exist immediately
after the acquisition of any particular asset or was not wholly or partly caused
by that acquisition (i.e., the discrepancy arose from changes in the market
values of its assets). If the condition described in clause (ii) of the
preceding sentence were not satisfied, Western Properties still could avoid
disqualification by eliminating any discrepancy within 30 days after the close
of the quarter in which it arose.
ANNUAL DISTRIBUTION REQUIREMENTS.
Western Properties, in order to qualify as a REIT, is required to
distribute dividends (other than capital gain dividends) to its shareholders in
an amount at least equal to (i) the sum of (a) 95% of Western Properties' "REIT
taxable income" (computed without regard to the dividends paid deduction and
Western Properties' net capital gain) and (b) 95% of the net income (after tax),
if any, from foreclosure property, minus (ii) the sum of certain items of
noncash income. Those distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before Western
Properties timely files its tax return for the year and if paid on or before the
first regular dividend payment after the declaration. To the extent that Western
Properties does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
shall be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. Western Properties may elect to retain and pay taxes on all or a
portion of its net long-term capital gains for that year, in which case, Western
Properties' shareholders would include in their income as long-term capital
gains their proportionate share of the undistributed capital gains. The
shareholders would be treated as having paid their proportionate share of the
capital gains tax paid by Western Properties, which amounts would be credited or
refunded to the shareholders. Furthermore, if Western Properties should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for the year, (ii) 95% of its REIT capital gain income for the
year, and (iii) any undistributed taxable income from prior periods, Western
Properties shall be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed. For taxable years of Western
Properties beginning after August 5, 1997, Western Properties may elect to
retain and pay taxes on all or a portion of its net long-term capital gains for
the year, in which case its shareholders would include in income their
proportionate share of that undistributed long-term capital gain and claim a
credit for their share of the taxes paid by Western Properties. Western
Properties intends to make timely distributions sufficient to satisfy this
annual distribution requirement.
It is possible that Western Properties, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement
due to timing differences between (i) the actual receipt of income and actual
payment of deductible expenses and (ii) the inclusion of that income and
deduction of those expenses in arriving at taxable income of Western Properties.
In the event that those timing differences occur, in order to meet the 95%
distribution requirement, Western Properties may find it necessary to arrange
for short-term, or possibly long-term, borrowings or to pay dividends in the
form of taxable stock dividends.
Under certain circumstances, Western Properties may be able to rectify
a failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in Western
Properties' deduction for dividends paid for the earlier year. Thus, Western
Properties may be able to avoid being taxed on amounts distributed as deficiency
dividends; however,
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Western Properties shall be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If Western Properties fails to qualify for taxation as a REIT in any
taxable year, and the relief provisions do not apply, Western Properties shall
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in any
year in which Western Properties fails to qualify shall not be deductible by
Western Properties nor shall they be required to be made. In that event, to the
extent of current and accumulated earnings and profits, all distributions to
shareholders shall be taxable as ordinary income, and, subject to certain
limitations of the Internal Revenue Code, corporate distributees may be eligible
for the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company shall also be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances the Company
would be entitled to that statutory relief.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as Western Properties qualifies as a REIT, distributions made
to its taxable domestic shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) shall be taken into
account by them as ordinary income and shall not be eligible for the dividends
received deduction for corporations. Distributions (or, net long-term capital
gains retained by Western Properties) that are designated as capital gain
dividends shall be taxed as long-term capital gain (to the extent they do not
exceed Western Properties' actual net capital gain for the taxable year) without
regard to the period for which the stockholder has held its stock. However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits shall not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's shares,
but rather shall reduce the adjusted basis of those shares. To the extent that
those distributions exceed the adjusted basis of a stockholder's shares they
shall be included in income as long-term capital gain (or short-term capital
gain if the shares have been held for one year or less) assuming the shares are
a capital asset in the hands of the stockholder. In addition, any dividend
declared by Western Properties in October, November or December of any year
payable to a stockholder of record on a specified date in any of those months
shall be treated as both paid by Western Properties and received by the
stockholder on December 31 of that year, provided that the dividend is actually
paid by Western Properties during January of the following calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of Western Properties.
In general, any loss upon a sale or exchange of shares by a stockholder
who has held those shares for six months or less (after applying certain holding
period rules), shall be treated as a long-term capital loss to the extent of
distributions from Western Properties required to be treated by the stockholder
as long-term capital gain.
BACKUP WITHHOLDING
Western Properties shall report to its domestic shareholders and the
Internal Revenue Service the amount of dividends paid during each calendar year,
and the amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless the holder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact, or (b)
provides a taxpayer identification number,
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certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder that does not provide Western Properties with his correct taxpayer
identification number may also be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding shall be creditable
against the stockholder's income tax liability. In addition, Western Properties
may be required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to Western Properties.
The Internal Revenue Service has issued final regulations that shall alter the
technical requirements relating to backup withholding compliance as applied to
foreign shareholders for distributions made after December 31, 2000. See
"--Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
In Revenue Ruling 66-106, 1966-1 C.B. 151, the Internal Revenue Service
ruled that amounts distributed by a REIT to a tax-exempt employees' pension
trust did not constitute "unrelated business taxable income" ("UBTI"). Revenue
rulings are interpretive in nature and subject to revocation or modification by
the IRS. However, based upon Revenue Ruling 66-106 and the analysis therein,
distributions by Western Properties to a stockholder that is a tax-exempt entity
should not constitute UBTI, provided that the tax-exempt entity has not financed
the acquisition of its shares with "acquisition indebtedness" within the meaning
of the Internal Revenue Code and the shares are not otherwise used in an
unrelated trade or business of the tax-exempt entity.
In certain circumstances, a pension trust that owns more than 10% of
Western Properties stock shall be required to treat a percentage of the
dividends received from Western Properties as UBTI (the "UBTI Percentage"). The
UBTI Percentage is the gross income derived by Western Properties from an
unrelated trade or business (determined as if Western Properties were a pension
trust) divided by Western Properties' gross income for the year in which the
dividends are paid. The UBTI Percentage rule shall apply to a pension trust
holding more than 10% of Western Properties' stock only if (i) the UBTI
Percentage is at least 5%, (ii) Western Properties qualifies as a REIT by reason
of the modification of the 5/50 Rule that allows the beneficiaries of the
pension trust to be treated as holding shares of Western Properties in
proportion to their actuarial interests in the pension trust and (iii) either
(A) one pension trust owns more than 25% of the value of Western Properties'
stock or (B) a group of pension trusts individually holding more than 10% of the
value of Western Properties' stock collectively owns more than 50% of the value
of Western Properties' stock.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex
and no attempt shall be made herein to provide more than a summary of the rules.
Prospective Non-U.S. Shareholders should consult with their own tax advisors to
determine the impact of federal, state and local income tax laws with regard to
an investment in shares, including any reporting requirements.
Distributions by the Company that are not attributable to gain from
sales or exchanges of United States real property interests and not designated
by Western Properties as capital gains dividends shall be treated as dividends
of ordinary income to the extent that they are made out of current or
accumulated earnings and profits. The distributions, ordinarily, shall be
subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the Common Shares is treated as
effectively connected with the conduct by the Non-U.S. Stockholder of a United
States trade or business, the Non-U.S. Shareholder
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generally shall be subject to a tax at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to those dividends (and may also be
subject to the 30% branch profits tax in the case of a Non-U.S. Shareholder
that is a foreign corporation). Western Properties expects to withhold United
States income tax at the rate of 30% on the gross amount of any of those
dividends made to a Non-U.S. Shareholders unless (i) a lower treaty rate
applies or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with Western
Properties certifying that the investment to which the distribution relates
is effectively connected to a United States trade or business of the Non-U.S.
Shareholder. Lower treaty rates applicable to dividend income may not
necessarily apply to dividends from a REIT, however. The Internal Revenue
Service has issued final regulations that shall modify the manner in which
Western Properties complies with the withholding requirements for
distributions made after December 31, 2000. Distributions in excess of
current and accumulated earnings and profits of Western Properties shall not
be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather shall reduce the
adjusted basis of those shares. To the extent that the distributions exceed
the adjusted basis of a Non-U.S. Shareholder's shares, they shall give rise
to tax liability if the Non-U.S. Shareholder otherwise is subject to tax on
any gain from the sale or disposition of his Western Properties shares (as
described below). If it cannot be determined at the time a distribution is
made whether or not the distribution shall be in excess of current and
accumulated earnings and profits, the distribution shall be subject to
withholding at the same rate applicable to dividends. However, amounts thus
withheld are refundable if it is subsequently determined that the
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.
In August 1996, the U.S. Congress passed the Small Business Job
Protection Act of 1996, which requires Western Properties to withhold 10% of any
distribution in excess of its current and accumulated earnings and profits. That
statute is effective for distributions made after August 20, 1996. Consequently,
although Western Properties intends to withhold at a rate of 30% on the entire
amount of any distribution, to the extent that it does not do so, any portion of
a distribution not subject to withholding at a rate of 30% shall be subject to
withholding at a rate of 10%.
For any year in which Western Properties qualifies as a REIT,
distributions (or for taxable years beginning after December 31, 1997, net
long-term capital gains retained and designated as capital gain dividends by
Western Properties) that are attributable to gain from sales or exchanges by
Western Properties of United States real property interests shall be taxed to a
Non-U.S. Stockholder under provisions of the Foreign Investment in Real Property
Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are
taxed to a Non-U.S. Shareholder as if the gain were effectively connected with a
United States trade or business. Non-U.S. Shareholders would thus be taxed at
the same capital gain rates applicable to U.S. shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Also, distributions subject to FIRPTA
may be subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder not entitled to treaty relief or exemption. Western Properties is
required by applicable Treasury Regulations to withhold 35% of any distribution
that could be designated by it as a capital gains dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares
generally shall not be taxed under FIRPTA if Western Properties is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. However, because the shares of
Western Properties are publicly-traded, no assurance can be given that Western
Properties shall continue to be a "domestically-controlled REIT." In addition, a
Non-U.S. Shareholder that owns, actually or constructively, 5% or less of
Western Properties' stock throughout a specified "look back" period shall not
recognize gain on the sale of his stock taxable under FIRPTA if the shares are
traded on an established securities market. Furthermore, gain not subject to
FIRPTA shall be taxable to a Non-U.S. Shareholder if (i) investment in the
shares is effectively
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connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder shall be subject to the same treatment as
U.S. shareholders with respect to the gain (except that a stockholder that is a
foreign corporation may also be subject to the 30% branch profits tax), or (ii)
the Non-U.S. Shareholder is a nonresident alien individual who was present in
the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual shall
be subject to a 30% tax on the individual's capital gains. If the gain on the
sale of shares were to be subject to taxation under FIRPTA, the Non-U.S.
Shareholder shall be subject to the same treatment as U.S. shareholders with
respect to the gain (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals and, in the
case of foreign corporations, subject to the possible application of the 30%
branch profits tax).
STATE AND LOCAL TAXES
Western Properties, its subsidiaries, the DownREIT Partnership, or
Western Properties' shareholders may be subject to state and local tax in
various states and localities, including those states and localities in which it
or they transact business, own property, or reside. The state tax treatment of
the Company and our shareholders in those jurisdictions may differ from the
federal income tax treatment described above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of state
and local tax laws upon an investment in the Common Shares.
REGISTRATION RIGHTS OF THE UNITHOLDERS
All of the Unitholders currently hold Units in the DownREIT
Partnership. The Units were issued to them in connection with our acquisition of
Kienow's on October 30, 1998.
The Partnership Agreement gives the Unitholders the right to tender
their Units to the DownREIT Partnership for redemption at any time on or after
October 30, 1999. Upon such tender, we have the right to acquire their tendered
Units in exchange for Common Shares, on a one-for-one basis, or for cash.
However, our right to acquire their tendered Units in exchange for Common Shares
is conditioned on the Common Shares being registered under the Securities Act.
This prospectus is part of a registration statement we filed with the SEC to
register the issuance of such Common Shares. In the Partnership Agreement, we
agreed to bear our proportionate share of the expense of registering the Common
Shares. The Unitholders are under no obligation to tender their Units for
redemption and we are under no obligation to acquire tendered Units in exchange
for Common Shares. Our registration of these Common Shares does not necessarily
imply that we shall issue all or any portion of these Common Shares.
In the Partnership Agreement, we agreed to use our best efforts to have
the registration declared effective under the Securities Act and to keep the
registration continuously effective until a date agreed upon by us and a
majority of the limited partners or until the time as all of the shares
registered pursuant to the registration have been issued pursuant to that
registration. We further agreed to supplement or make amendments to the
registration, if required by the rules, regulations or instructions applicable
to the registration form utilized by us or by the Securities Act.
Under the Partnership Agreement, we and the DownREIT Partnership are
each required to pay our proportionate share of expenses in connection with the
registration, including, without limitation, the following: (1) all expenses
incident to filing with the National Association of Securities Dealers, Inc.;
(2) registration fees; (3) printing expenses; (4) accounting and legal fees and
expenses, except to the extent Unitholders elect to engage accountants or
attorneys in addition to the accountants and attorneys engaged by the Company;
(5) accounting expenses incident to or required by that registration or
qualification; and (6) expenses of complying with the securities or blue sky
laws of any jurisdiction; PROVIDED, HOWEVER,
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neither we nor the DownREIT Partnership shall be liable for (A) any direct
out-of-pocket costs incurred by the Unitholders in connection with the
registration, or (B) any other fees or expenses incurred by the Unitholders in
connection with that registration, which according to the written instructions
of any regulatory authority either the DownREIT Partnership or we are not
permitted to pay.
This summary of the Unitholders' registration rights is qualified in
its entirety by the provisions of the Partnership Agreement, which is
incorporated by reference as an exhibit to the registration statement of which
this prospectus is a part.
PLAN OF DISTRIBUTION
We are registering our possible issuance of Common Shares to the
Unitholders of the DownREIT Partnership in exchange for the Unitholders' Units
in that partnership. The purpose of this registration is to comply with our
registration obligation under the Partnership Agreement, as described under
"Registration Rights of the Unitholders." Any Common Shares issued under this
prospectus shall be issued directly to the Unitholders and not through any
broker or dealer. We shall not receive any cash proceeds from our issuance of
the Common Shares. We or the DownREIT Partnership shall bear all costs, expenses
and fees in connection with this registration, except as described under
"Registration Rights of the Unitholders."
Our Common Shares are traded on the American Stock Exchange under the
symbol "WIR."
EXPERTS
The consolidated financial statements of Western Properties Trust
(formerly Western Investment Real Estate Trust) as of December 31, 1998 and 1997
and for each of the years in the three-year period ended December 31, 1998, have
been incorporated by reference herein and in the registration statement in
reliance upon the reports of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the securities registered hereby shall be passed upon
for the Company by O'Melveny & Myers LLP, San Francisco, California.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it. This means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and the information we file later with
the SEC shall automatically update and supersede this information.
The following documents, which have been filed with the SEC, are hereby
incorporated by reference:
1. Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1998, including portions of the Company's definitive
Proxy Statement incorporated therein by reference;
2. Quarterly Reports on Form 10-Q of the Company for the fiscal quarters
ended March 31, 1999, June 30, 1999 and September 30, 1999;
3. Current Reports on Form 8-K of the Company filed April 13, 1999 and
August 20, 1999; and
4. The description of the Common Shares included in the Company's
registration statements and reports filed under the Exchange Act,
including any amendments or reports filed for the purpose of updating
such description.
In addition, all reports and other documents that we file with the SEC
pursuant to Section 13(a) and 13(c), 14 or 15(d) of the Exchange Act after the
date of this prospectus and prior to the termination of the offering shall be
deemed to be incorporated by reference in this prospectus from the date of the
filing of those documents, except that each time we file a new annual report on
Form 10-K, any Form 10-K, Form 10-Q or Form 8-K filed prior to that filing shall
no longer be incorporated in this prospectus. Any statement contained in a
document incorporated by reference shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained in a
later document modifies or supersedes that statement. Any statements so modified
or superseded shall not be deemed to constitute a part of this prospectus,
except as so modified or superseded.
We shall provide without charge to each person to whom this prospectus
is delivered, upon written or oral request of that 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 those documents' exhibits that are not
also specifically incorporated by reference. Requests for those documents should
be directed to Western Properties Trust, 2200 Powell Street, Suite 600,
Emeryville, California 94608, Attention: Ms. Barbara Donham (telephone: (510)
597-0160).
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information requirements of the Exchange Act and
in accordance with the Exchange Act we file annual and quarterly reports, proxy
statements and other information with the SEC. Our reports, proxy statements and
most other information that we file with the SEC can be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at regional offices
of the SEC located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You may obtain information on the operation of the SEC's
public reference room by calling 1-800-SEC-0330. Copies of our filed materials
can be obtained by mail from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC also maintains
an Internet site that contains our reports, proxy statements and other
information as well as those documents from other companies that file
electronically with the SEC and the address is http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act, as amended, and the rules and regulations promulgated
thereunder, with respect to the securities issued pursuant to this prospectus.
This prospectus, which is part of the registration statement, does not contain
all of the information set forth in the registration statement and the exhibits
thereto. For further information concerning the Company and the securities
issued pursuant to this prospectus, we refer you to the registration statement
and the exhibits and schedules filed therewith, which may be obtained as
described above.
No dealer, sales representative or any other person has been authorized
to give any information or to make any representations in connection with this
offering other than those contained in this prospectus or any accompanying
prospectus supplement, and, if given or made, that information or representation
must not be relied upon as having been authorized by the Company or any
underwriter. This prospectus and any accompanying prospectus supplement do not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which they relate or an offer
to, or solicitation of, any person in any jurisdiction where that offer or
solicitation would be unlawful. Neither the delivery of this prospectus and any
accompanying prospectus supplement nor any sale made hereunder or thereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or thereof or that
the information contained herein or therein is correct as of any time subsequent
to the date hereof or thereof.
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YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR CONTAINED
IN THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO
PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER
OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD
NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
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TABLE OF CONTENTS
Table Of Contents.........................................2
Note Regarding Forward-Looking Statements.................2
Risk Factors..............................................3
The Company..............................................10
Use Of Proceeds..........................................11
Description Of Our Common Shares.........................11
Federal Income Tax Considerations........................13
Registration Rights Of The Unitholders...................21
Plan Of Distribution.....................................22
Experts..................................................22
Legal Matters............................................22
Incorporation Of Certain Information By Reference........23
Where You Can Find More Information......................24
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WESTERN
PROPERTIES
TRUST
1,432,364
COMMON SHARES
OF BENEFICIAL INTEREST
----------------------------------
PROSPECTUS
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NOVEMBER 12, 1999
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