<PAGE>
Pursuant to Rule 424(b)(2)
Registration No. 33-63687
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 7, 1995
4,000,000 SHARES
[LOGO OF FEDERAL REALTY INVESTMENT TRUST APPEARS HERE]
7.95% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES
(NO PAR VALUE PER SHARE)
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
-----------
Federal Realty Investment Trust (the "Trust") is an equity real estate
investment trust specializing in the ownership, management, development and
redevelopment of prime retail properties. At September 30, 1997, the Trust
owned 94 retail properties, consisting of community and neighborhood shopping
centers and main street retail properties with a total of 13.5 million square
feet.
Dividends on the Trust's Series A Cumulative Redeemable Preferred Shares
(the "Series A Preferred Shares"), offered by this Prospectus Supplement (the
"Offering") will be cumulative from the date of original issue and will be
payable quarterly in arrears on the last day of January, April, July and
October of each year (or, if such day is not a business day, the next business
day), commencing on October 31, 1997, at the rate of 7.95% of the liquidation
preference per annum. See "Description of Series A Preferred Shares--
Dividends."
The Series A Preferred Shares are not redeemable prior to October 6, 2002.
On and after such date, the Series A Preferred Shares may be redeemed, in
whole or in part, at the option of the Trust, at a redemption price of $25.00
per share, plus all accrued and unpaid dividends. The Series A Preferred
Shares will not be subject to any sinking fund or mandatory redemption and
will not be convertible into any other securities of the Trust. See
"Description of Series A Preferred Shares--Redemption."
The Trust intends to file an application to list the Series A Preferred
Shares on the New York Stock Exchange, although there can be no assurance that
the Series A Preferred Shares will be approved for listing.
-----------
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
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
UNDERWRITING
INITIAL PUBLIC DISCOUNTS AND PROCEEDS TO
OFFERING PRICE(1) COMMISSIONS(2) TRUST(3)
----------------- -------------- -----------
<S> <C> <C> <C>
Per Share.......................... $25.00 $.7875 $24.2125
Total.............................. $100,000,000 $3,150,000 $96,850,000
</TABLE>
- -------
(1) Plus accrued dividends, if any, from the date of original issue.
(2) The Trust has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Trust estimated at $200,000.
-----------
The Series A Preferred Shares offered hereby are offered severally by the
Underwriters, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Series
A Preferred Shares will be ready for delivery in book-entry form only through
the facilities of the Depositary Trust Company in New York, New York, on or
about October 6, 1997, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
-----------
The date of this Prospectus Supplement is October 1, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A
PREFERRED SHARES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
----------------
THE TRUST
Federal Realty Investment Trust (the "Trust") specializes in the ownership,
management, development and redevelopment of prime retail properties. At
September 30, 1997, the Trust owned 94 retail properties consisting of
shopping centers and main street retail properties. At June 30, 1997, the
occupancy rate of the core retail portfolio (which excludes properties
acquired in the previous twelve months and centers under redevelopment) was
94%. Including all retail properties owned at June 30, 1997, the occupancy
rate was 94%.
RECENT DEVELOPMENTS
Since July 1, 1997 the Trust has made three main street retail acquisitions.
On August 28, 1997 the Trust, through a limited liability company of which the
Trust owns 90%, acquired three buildings in Forest Hills, New York for
approximately $12.6 million. The Trust contributed 90% of the acquisition
cost. On September 17, 1997 a partnership, which was formed during the first
quarter of 1997 to purchase another retail building in California, purchased a
building in Hermosa Beach, California for approximately $1.5 million in cash.
In accordance with the provisions of the partnership agreement, the Trust
contributed 90% of the costs. On September 26, 1997 the Trust purchased a main
street retail project which also has a residential component in Portland,
Oregon for approximately $15.7 million.
On September 25, 1997 the Trust sold Brainerd Village Shopping Center in
Chattanooga, Tennessee for $10.2 million, resulting in a loss after sales
commissions and expenses of approximately $500,000.
On October 1, 1997 the Trust entered into an agreement with a third party to
purchase an 147 acre property in Queens, New York. Upon the purchase, the
Trust will take title to the retail component of the property with the other
party taking title to the residential component. In connection with this
transaction, the Trust made a $3.8 million nonrefundable deposit.
The Trust intends to continue its acquisition of retail properties, both
shopping center and main street retail buildings, and redevelopment activities
in the major metropolitan markets of New York, Philadelphia,
Baltimore/Washington, D.C., Chicago, Boston, Los Angeles, San Francisco, San
Diego and San Jose. In addition, the Trust is also pursuing site acquisitions
to permit the Trust to develop shopping centers.
The Trust, a District of Columbia business trust of unlimited duration,
maintains its offices at 1626 East Jefferson Street, Rockville, Maryland,
20852-4041 (telephone 301/998-8100).
S-2
<PAGE>
THE OFFERING
For a more complete description of the terms of the Series A Preferred
Shares, including definitions of capitalized terms used herein but not
defined, see "Description of Series A Preferred Shares" in this Prospectus
Supplement.
Securities Offered........... 4,000,000 Series A Preferred Shares.
Use of Proceeds.............. The net proceeds to the Trust from the Offering
(approximately $96.65 million) will be used to
repay debt, principally the Trust's revolving
credit facilities, and for general corporate
purposes. See "Use of Proceeds."
Ranking...................... With respect to the payment of dividends and
amounts upon liquidation, the Series A
Preferred Shares will rank senior to the Common
Shares. See "Description of Series A Preferred
Shares--Ranking."
Dividends.................... Dividends on the Series A Preferred Shares will
be cumulative from the date of original issue
and will be payable quarterly in arrears on the
last day of January, April, July and October of
each year (or, if such day is not a business
day, the next business day), commencing on
October 31, 1997 at the rate of 7.95% of the
liquidation preference per annum (equivalent to
$1.9875 per share per annum). Dividends on the
Series A Preferred Shares will accrue whether
or not the Trust has earnings, whether or not
there are funds legally available for the
payment of such dividends and whether or not
such dividends are declared. See "Description
of Series A Preferred Shares--Dividends."
Liquidation Rights........... The liquidation preference for such Series A
Preferred Share is $25.00. Upon liquidation,
holders will be entitled to be paid the
liquidation preference plus an amount equal to
accrued and unpaid dividends thereon out of the
assets available for such payment. See
"Description of Series A Preferred Shares--
Liquidation Rights."
Redemption................... The Series A Preferred Shares are not
redeemable prior to October 6, 2002. On and
after October 6, 2002, the Series A Preferred
Shares will be redeemable at the option of the
Trust, in whole or in part, at a redemption
price of $25.00 per share, plus accrued and
unpaid dividends thereon. The redemption price
(other than the portion thereof consisting of
accrued and unpaid dividends) is payable solely
out of proceeds from the sale of other capital
shares of the Trust. See "Description of Series
A Preferred Shares--Redemption."
S-3
<PAGE>
Voting Rights................ If dividends on the Series A Preferred Shares
are in arrears for six or more consecutive
quarterly periods, holders of Series A
Preferred Shares (voting separately as a class
with all other series of preferred shares upon
which like voting rights have been conferred
and are exercisable) will be entitled to vote
for the election of two additional trustees to
serve on the Board of Trustees of the Trust
until all such dividend arrearages are
eliminated. See "Description of Series A
Preferred Shares--Voting Rights."
Conversion................... The Series A Preferred Shares are not
convertible into or exchangeable for any other
property or security of the Trust.
Trading...................... The Trust intends to file an application to
list the Series A Preferred Shares on the New
York Stock Exchange, although there can be no
assurance that the Series A Preferred Shares
will be approved for listing.
USE OF PROCEEDS
The net proceeds to the Trust from the sale of the Series A Preferred Shares
offered hereby are estimated to be $96,650,000. The Trust intends to use the
proceeds to repay debt, principally the Trust's revolving credit facilities.
S-4
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Trust as of June
30, 1997 on an historical and pro forma basis giving effect to the completion
of the Offering and the application of the proceeds therefrom to the repayment
of debt.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Mortgages and capital lease obligations................ $ 224,229 $ 224,229
Notes payable.......................................... 97,396 546
Senior notes and debentures............................ 290,289 290,289
Other liabilities...................................... 48,347 48,347
---------- ----------
Total liabilities.................................. 660,261 563,411
---------- ----------
Investors' interest in consolidated assets............. 14,134 14,134
Shareholders' equity
Preferred shares..................................... 100,000
Common shares........................................ 685,873 685,873
Accumulated dividends in excess of Trust net income.. (207,161) (207,161)
---------- ----------
478,712 578,712
Less shares in treasury, deferred compensation and
subscriptions receivable............................ (8,460) (8,460)
---------- ----------
Total shareholders' equity......................... 470,252 570,252
---------- ----------
Total capitalization............................... $1,144,647 $1,147,797
========== ==========
</TABLE>
S-5
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial and operating information
for the Trust as of and for the years ended December 31, 1996, 1995 and 1994.
This information is derived from and should be read in conjunction with the
audited financial statements of the Trust, which statements have been audited
by Grant Thornton LLP independent public accountants. In addition, the
following table sets forth selected financial and operating information for
the Trust as of June 30, 1997 and for the six months ended June 30, 1997 and
1996, which information is derived from the unaudited financial statements of
the Trust.
The following table also sets forth pro forma financial information for the
Trust as of and for the six months ended June 30, 1997 and for the year ended
December 31, 1996, giving effect to the completion of the Offering and the
application of the net proceeds therefrom to the repayment of certain
outstanding indebtedness.
The following selected financial and operating information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" incorporated herein by reference:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------------- -----------------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
---------- --------------------- ---------- ------------------------------
1997 1997 1996 1996 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues
Rental and other
income................ $ 96,501 $ 96,501 $ 85,423 $ 174,703 $ 174,703 $ 150,276 $133,831
Interest............... 2,948 2,948 1,919 4,352 4,352 4,113 3,933
Expenses
Interest............... 19,420 23,988 22,288 38,579 45,555 39,268 31,462
Depreciation and
amortization.......... 20,528 20,528 18,676 38,154 38,154 34,901 29,801
Property expenses...... 30,471 30,471 29,686 57,098 57,098 49,564 47,927
Administrative......... 4,594 4,594 3,822 9,100 9,100 7,305 7,716
Net income.............. 30,889 26,321 12,923 35,718 28,742 23,110 20,466
Distributions made...... 31,453 26,403 54,726 50,687 46,637
PER SHARE DATA
Earnings per share...... $.68 $.40 $.86 $.72 $.67
Distributions paid per
share.................. $.84 $.82 $1.65 $1.61 $1.57
Weighted average
outstanding common
shares (1)............. 38,633 38,633 32,666 33,573 33,573 31,860 30,679
BALANCE SHEET DATA
Real estate assets, at
cost................... $1,266,649 $1,266,649 $1,047,226 $1,147,865 $1,147,865 $1,009,682 $852,722
Total assets............ 1,147,797 1,144,647 913,815 1,038,456 1,035,306 886,154 751,804
Mortgages and capital
lease obligations...... 224,229 224,229 221,084 229,189 229,189 222,317 235,705
Notes payable........... 546 97,396 52,503 -- 66,106 49,980 61,883
Senior notes and
debentures............. 290,289 290,289 240,289 290,289 290,289 240,289 75,289
Total liabilities....... 563,411 660,261 557,410 604,416 635,160 557,266 406,308
Investors' share of
operations............. 14,134 14,134 1,240 11,261 1,420 2,274
Total shareholders'
equity................. 570,252 470,252 355,165 488,885 388,885 327,468 343,222
OTHER DATA
Funds from operations
(2).................... $43,421 $38,853 $30,805 $72,230 $65,254 $57,034 $50,404
Net cash provided by
operating activities... 37,818 33,250 28,827 72,624 65,648 65,117 45,199
EBITDA (3).............. 64,384 64,384 53,834 112,857 112,857 97,520 82,121
Ratio of EBITDA to fixed
charges and preferred
dividends (4).......... 2.57 2.51 2.31 2.33 2.37 2.35 2.50
Ratios of earnings to
fixed charges and
preferred share
dividends (4).......... 1.75 1.71 1.53 1.55 1.59 1.55 1.61
Ratio of Funds from
operations to fixed
charges and preferred
share dividends (4).... 2.53 2.47 2.30 2.31 2.35 2.35 2.52
</TABLE>
S-6
<PAGE>
- --------
(1) Weighted average shares outstanding used in calculating net income per
share includes Common Shares and, when dilutive, stock equivalents and
stock options.
(2) The Trust has historically reported funds from operations in addition to
net income and net cash provided by operating activities. Funds from
operations is a supplemental measure of real estate companies' operating
performance which excludes historical cost depreciation, since real estate
values have historically risen and fallen with market conditions rather
than over time. Funds from operations is defined by The National
Association of Real Estate Investment Trusts ("NAREIT") in a white paper
issued during 1995, as follows: income before depreciation and
amortization of real estate assets and before extraordinary items and
significant non-recurring events less gains on sale of real estate. The
Trust complies with this definition. Funds from operations does not
replace net income as a measure of performance or net cash provided by
operating activities as a measure of liquidity. Rather, funds from
operations has been adopted by real estate investment trusts to provide a
consistent supplemental measure of operating performance in the industry.
(3) EBITDA is calculated as net operating income before investors' interest,
plus interest expense, depreciation and amortization, and income taxes, if
any.
(4) Prior to this Offering, the Trust did not have any preferred shares issued
and outstanding. Therefore, the ratio of earnings to combined fixed
charges and preferred share dividends for all periods was identical to the
ratio of earnings to fixed charges.
S-7
<PAGE>
PROPERTIES
The Trust currently owns or has leasehold interests in 94 retail properties.
The following table sets forth information concerning the Trust's properties
as of June 30, 1997 except it also includes information on main street retail
properties located in Forest Hills, NY, Hermosa Beach, CA and Portland, OR
acquired on August 28, September 17 and September 26, 1997, respectively, and
excludes Brainerd Village which was sold on September 25, 1997.
<TABLE>
<CAPTION>
MORTGAGE OR
SQUARE YEAR YEAR CAPITAL LEASE
SHOPPING CENTERS LOCATION FEET ACQUIRED RENOVATED OCCUPANCY TOTAL COST OBLIGATION
- ---------------- -------- ------- -------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW ENGLAND
Bristol................. Bristol, CT 296,000 1995 98% $19,972,000 $10,909,000
Dedham Plaza............ Dedham, MA 250,000 1993 88% 26,076,000
Queen Anne Plaza........ Norwell, MA 149,000 1994 100% 13,893,000
Saugus Plaza............ Saugus, MA 171,000 1996 98% 12,739,000
NEW YORK/NEW JERSEY
Allwood................. Clifton, NJ 52,000 1988 100% 4,150,000 3,560,000
Blue Star............... Watchung, NJ 392,000 1988 97% 31,793,000 27,170,000
Brick Plaza............. Brick, NJ 288,000 1989 1997 98% 45,108,000 21,362,000
Brunswick............... North Brunswick, NJ 261,000 1988 100% 14,224,000 11,310,000
Clifton................. Clifton, NJ 80,000 1988 100% 4,014,000 3,311,000
Hamilton................ Hamilton, NJ 185,000 1988 100% 7,275,000 4,907,000
Huntington.............. Huntington, NY 274,000 1988 1992 95% 20,292,000 14,535,000
Rutgers................. Franklin, NJ 216,000 1988 95% 15,055,000 13,102,000
Troy.................... Parsippany-Troy, NJ 201,000 1980 96% 17,640,000
PHILADELPHIA
Andorra................. Philadelphia, PA 257,000 1988 97% 17,313,000
Bala Cynwyd............. Bala Cynwyd, PA 279,000 1993 100% 20,044,000
Ellisburg Circle........ Cherry Hill, NJ 255,000 1992 1993 100% 25,108,000
Feasterville............ Feasterville, PA 104,000 1980 1983 78% 5,885,000
Flourtown............... Flourtown, PA 188,000 1980 1983 87% 7,294,000
Langhorne Square........ Levittown, PA 208,000 1985 1989 91% 11,983,000
Lawrence Park........... Broomall, PA 340,000 1980 1985 77% 14,166,000 3,466,000
Northeast............... Philadelphia, PA 303,000 1983 1990 99% 20,430,000 1,500,000
Willow Grove............ Willow Grove, PA 227,000 1984 1987 98% 26,566,000
Wynnewood............... Wynnewood, PA 260,000 1996 70% 24,446,000
BALTIMORE/WASHINGTON, D.C.
Congressional Plaza..... Rockville, MD 341,000 1965 1994 99% 45,204,000
Falls Plaza............. Falls Church, VA 60,000 1967 1986 100% 2,805,000 4,219,000
Federal Plaza........... Rockville, MD 243,000 1989 1990 99% 59,435,000 28,256,000
Gaithersburg Square..... Gaithersburg, MD 201,000 1993 1995 86% 21,531,000
Governor Plaza.......... Glen Burnie, MD 252,000 1985 1989 95% 16,970,000
Idylwood Plaza.......... Falls Church, VA 73,000 1994 100% 14,811,000
Laurel.................. Laurel, MD 384,000 1986 1990 91% 43,462,000
Loehmann's Plaza........ Fairfax, VA 245,000 1983 1985 97% 21,726,000 6,374,000
Mid-Pike Plaza.......... Rockville, MD 311,000 1982 1983 98% 16,009,000 10,041,000
Old Keene Mill.......... Springfield, VA 92,000 1976 1983 90% 4,293,000 6,917,000
Pan Am.................. Fairfax, VA 218,000 1993 95% 24,062,000
Perring Plaza........... Baltimore, MD 437,000 1985 1992 99% 23,530,000
Pike 7.................. Tysons Corner, VA 163,000 1997 98% 32,382,000
Quince Orchard.......... Gaithersburg, MD 240,000 1993 96% 16,355,000
Tysons Station.......... Falls Church, VA 50,000 1978 1981 100% 3,333,000 4,236,000
West Falls.............. Falls Church, VA 62,000 1972 1986 91% 3,125,000 4,842,000
Wildwood................ Bethesda, MD 85,000 1969 1985 100% 15,344,000
CENTRAL VIRGINIA
Barracks Road........... Charlottesville, VA 479,000 1985 1990 98% 32,859,000 21,221,000
Williamsburg............ Williamsburg, VA 249,000 1986 98% 12,926,000
The Shops at Willow
Lawn................... Richmond, VA 445,000 1983 1987 90% 55,119,000
</TABLE>
S-8
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE OR
SQUARE YEAR YEAR CAPITAL LEASE
SHOPPING CENTERS LOCATION FEET ACQUIRED RENOVATED OCCUPANCY TOTAL COST OBLIGATION
- ---------------- -------- --------- -------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MIDWEST
Crossroads.............. Highland Park, IL 137,000 1993 100% $18,130,000
Finley.................. Downers Grove, IL 306,000 1995 89% 20,762,000
Garden Market........... Western Springs, IL 134,000 1994 90% 8,102,000
Gratiot Plaza........... Roseville, MI 148,000 1973 100% 4,719,000
North Lake Commons...... Lake Zurich, IL 123,000 1994 97% 11,525,000
CALIFORNIA
Escondido............... Escondido, CA 222,000 1996 92% 23,833,000 $ 9,400,000
Town & Country.......... San Jose, CA 320,000 1997 76% 43,631,000
OTHER
Eastgate................ Chapel Hill, NC 159,000 1986 99% 11,802,000
Lancaster............... Lancaster, PA 107,000 1980 1981 100% 4,716,000 1,018,000
Northeast Plaza......... Atlanta, GA 446,000 1986 72% 38,300,000
<CAPTION>
MORTGAGE OR
NUMBER OF RETAIL SQUARE YEAR YEAR CAPITAL LEASE
MAIN STREET RETAIL PROPERTIES FEET ACQUIRED RENOVATED OCCUPANCY TOTAL COST OBLIGATION
- ------------------ ---------------- ------ -------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW ENGLAND
Brookline, MA........... 1 12,000 1995 83% $ 3,902,000
Greenwich, CT........... 4 79,000 1995 99% 28,955,000
West Hartford, CT....... 7 126,000 1995 98% 15,625,000
Westport, CT............ 2 26,000 1995 100% 9,890,000
NEW YORK/NEW JERSEY
Westfield, NJ........... 1 11,000 1995 100% 3,259,000
Forest Hills, NY........ 3 69,000 1997 100% 12,563,000
BALTIMORE/WASHINGTON, D.C.
Bethesda, MD............ 1 276,000 1993 1996 99% 28,473,000 $12,576,000
Shirlington, VA......... 1 368,000 1995 92% 26,172,000
Washington, DC.......... 1 49,000 1995 95% 11,399,000
SOUTHEAST
Winter Park, FL......... 2 28,000 1996 100% 6,853,000
MIDWEST
Chicago, IL............. 1 5,000 1997 100% 4,218,000
Evanston, IL............ 2 19,000 1995 72% 3,732,000
SOUTHERN CALIFORNIA
Hermosa Beach, CA....... 1 25,000 1997 40%(1) 1,493,000
Pasadena, CA............ 1 27,000 1996 N/A(2) 3,128,000
San Diego, CA........... 5 65,000 1996 5%(3) 5,643,000
Santa Monica, CA........ 7 123,000 1996 39%(4) 33,057,000
NORTHWEST
Portland, OR............ 1 110,000 1997 99% 15,653,000
<CAPTION>
MORTGAGE OR
SQUARE YEAR YEAR CAPITAL LEASE
APARTMENTS LOCATION FEET ACQUIRED RENOVATED OCCUPANCY TOTAL COST OBLIGATION
- ---------- -------- ------ -------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALTIMORE/WASHINGTON, D.C.
Rollingwood Apartments.. Silver Spring, MD 282 units 1971 1992 99% $ 6,471,000
</TABLE>
- --------
(1) Of the total 25,000 square feet, 15,000 square feet is under redevelopment.
(2) This building is currently under redevelopment.
(3) Of the total 65,000 square, 62,000 square feet is currently under
redevelopment.
(4) Of the total 123,000 square feet, 72,000 square feet is currently under
redevelopment.
S-9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Federal Realty meets its liquidity requirements through net cash provided by
operating activities, long term borrowing through debt offerings and
mortgages, medium and short term borrowing under revolving credit facilities,
and equity offerings. Because a significant portion of the Trust's net cash
provided by operating activities is distributed to shareholders, capital
outlays for property acquisitions, renovation projects and debt repayments
require funding from borrowing or equity offerings.
Net cash provided by operating activities increased from $28.8 million
during the first half of 1996 to $33.3 million during the first half of 1997.
The $4.4 million increase resulted primarily from the positive cash effects of
a $6.4 million increase in income before gain on sale of real estate and a
$1.9 million increase in depreciation and amortization offset by a $3.1
million increase in cash used for operating activities such as accounts
receivable, prepaid expenses, accounts payable and accrued expenses. Dividends
paid in cash were $30.1 million in 1997 and $25.1 million in 1996.
During the first half of 1997, the Trust invested $103.3 million of cash to
acquire real estate assets, $23.6 million to improve its properties and $13.7
million in mortgage notes receivable. On January 6, 1997 the Trust purchased
the fee interest in Shillington, Troy and Feasterville Shopping Centers for
$1.9 million, $5.7 million and $2.2 million, respectively. The Trust also
contracted to purchase the fee interest in Lawrence Park Shopping Center in
June 1998 for $8.5 million. In connection with the purchase agreement for
Lawrence Park, in January 1997 the Trust lent the seller $8.8 million at 8%
interest which is due in June 1998. The Trust had previously held these
properties under capital leases. On February 24, 1997 the Trust purchased a 16
acre tract of land underlying part of the Shops at Willow Lawn for $4.6
million in cash. On June 3, 1997 the Trust exercised its purchase option on a
parcel of land adjacent to its Bethesda Row property in Bethesda, Maryland for
$5.8 million in cash. The land will be used for future development. In
connection with the purchase, a $3.6 million mortgage which the Trust had made
to the seller was repaid.
The Trust purchased four retail buildings and two shopping centers during
the first half of 1997. On January 22, 1997 the Trust purchased a 5,000 square
foot retail building in Chicago, Illinois for cash of $4.2 million. On March
31, 1997 two partnerships were formed to purchase property in California. One
of the partnerships purchased a 15,000 square foot building in Santa Monica,
California for $4.0 million and the other purchased a 20,000 square foot
building in San Diego, California for $850,000. On April 17, 1997, Street
Retail West II, a partnership which was organized in December 1996, exercised
its purchase option on a retail building in Santa Monica, California. The
total cost, including the buyout of the existing tenant, was $7.1 million. In
accordance with the provisions of the partnership agreements, the Trust
contributed 90% of the cost of these buildings to the partnerships with the
other 10% being contributed by the minority interests. Also, on April 17, 1997
the Trust loaned the minority partners in Street Retail West II $3.9 million.
The loan is secured by property in Santa Monica, earns interest at 10% and
participates in certain revenues and appreciation of the property.
On March 5, 1997 the Trust, through a Limited Liability Company ("the LLC")
organized by the Trust, purchased the 320,000 square foot San Jose Town &
Country Village Shopping Center in San Jose, California for $42.8 million. The
other member of the LLC has a minor interest in the profits. On March 31, 1997
the 159,000 square foot Pike 7 Shopping Center in Tysons Corner, Virginia was
purchased for $31.5 million by a partnership formed to own the center. The
Trust contributed $30.9 million to the partnership which was used to pay off
existing debt on the center. The other partners contributed the shopping
center and its existing debt in exchange for partnership units valued at
$495,000 which are exchangeable, at the option of the Trust, for cash or
18,074 common shares of the Trust.
S-10
<PAGE>
On May 13, 1997 the Trust sold Town & Country Shopping Center in
Springfield, Illinois for $7.5 million, resulting in a gain of $5.3 million.
On May 30, 1997 Shillington Shopping Center in Shillington, Pennsylvania was
sold for $4.6 million, resulting in a gain of $1.7 million. The cash from
these transactions was deposited with an escrow agent to be used for future
acquisitions, in order to structure the sales as tax free exchanges for tax
purposes.
Improvements to Trust properties during the first half of 1997 included $4.3
million for the second phase of the redevelopment of Brick Plaza, $2.7 million
to begin the redevelopment of Wynnewood Shopping Center, $3.2 on the
redevelopment of Troy Shopping Center, $6.5 million of tenant work.
On April 24, 1997 the Trust purchased Terranomics Retail Services, a
property management and brokerage company for approximately $2.0 million, to
provide it with leasing and property management services on the west coast.
On July 16, 1997 the Trust purchased a 3,750 square foot parcel of land in
Bethesda, Maryland for approximately $800,000. The land was purchased in order
to allow future expansion of the Trust's Bethesda Row property.
The Trust has $135.0 million of unsecured medium-term revolving credit
facilities with four banks. The facilities, which require fees and have
covenants requiring a minimum shareholders' equity and a maximum ratio of debt
to net worth, are used to fund acquisitions and other cash requirements until
conditions are favorable for issuing equity or long term debt. At June 30,
1997 the Trust had borrowed $93.1 million under these facilities, the maximum
amount borrowed under these facilities in 1997. Amounts advanced under these
facilities bear interest at LIBOR plus 75 basis points; the weighted average
interest rate on borrowings during the first half of 1997 was 6.4%.
On February 4, 1997 the Trust sold 3.0 million shares to an institutional
investor for $28 per share, netting $83.9 million. Proceeds from this offering
were used primarily to repay borrowings on the revolving credit facilities.
On July 29, 1997 the Trust sold $40 million of 6.82% Medium Term Notes. The
notes, which pay interest semi-annually on February 1 and August 1, mature on
August 1, 2027, but may be redeemed, at par, at the option of holders on
August 1, 2007. Proceeds will be used to repay borrowings on the revolving
credit facilities.
The Trust is contractually obligated on contracts of approximately $7.6
million for redevelopment and tenant improvements and is committed unless
leases for up to an additional $6.5 million in tenant work and general
improvements to its properties. In addition to these committed amounts, the
Trust has budgeted an additional $6 billion for the remainder of 1997 for
improvements to its properties. These committed and budgeted improvements
include the completion of the second phase of the redevelopment and expansion
of Brick Plaza, the completion of the renovation and retenanting of Troy
Shopping Center, and the continuation of the renovation and retenanting of
Wynnewood Shopping Center. These expenditures will be funded with the
revolving credit facilities pending their long term financing with either
equity or debt.
The Trust plans additional acquisitions of retail properties, both shopping
center and main street buildings, during the remainder of 1997. In addition,
the Trust has identified a limited number of sites in its core markets for the
development of new shopping centers.
The Trust will need new additional capital in order to fund these
acquisitions, expansions and refinancings. Sources of this funding may be
additional debt, additional equity or proceeds from the sale of existing
properties. The timing and choice between additional debt or equity financing
will depend upon many factors, including the market price for the Trust's
shares, interest rates and the ratio of debt to net worth. The Trust believes
that it will be able to raise this capital as needed, based on its past
success in so doing.
S-11
<PAGE>
CONTINGENCIES
As previously reported, certain of the Trust's shopping centers have some
environmental contamination. The Trust has retained an environmental
consultant to investigate contamination at a shopping center in New Jersey.
The Trust is evaluating whether it has insurance coverage for this matter. At
this time, the Trust has not determined what the range of remediation costs
might be, but does not believe that the costs will have a material effect upon
the Trust's financial condition. The Trust has also identified chlorinated
solvent contamination at another property. The contamination appears to be
linked to the current and/or previous dry cleaner. The Trust intends to look
to the responsible parties for any remediation effort. Evaluation of this
situation is preliminary and it is impossible, at this time, to estimate the
range of remediation costs, if any.
Pursuant to the provisions of the respective partnership agreements, in the
event of the exercise of put options by the other partners, the Trust would be
required to purchase the 99% limited partnership interest at Loehmann's Plaza
at its then fair market value and a 22.5% interest at Congressional Plaza at
its then fair market value.
Under the terms of certain partnerships, if certain leasing and revenue
levels are obtain for the properties owned by the partnerships, the limited
partners may require the Trust to purchase their partnership interests at a
formula price based upon net operating income. The purchase price may be paid
in cash or common stock of the Trust at the election of the limited partners.
If the limited partners do not redeem their interest, the Trust may choose to
purchase the limited partnership interests upon the same terms.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1996
Net income and funds from operations have been affected by the Trust's
recent acquisition, redevelopment and financing activities. The Trust has
historically reported its funds from operations in addition to its net income
and net cash provided by operating activities. Funds from operations is a
supplemental measure of real estate companies' operating performance which
excludes historical cost depreciation, since real estate values have
historically risen and fallen with market conditions rather than over time.
The National Association of Real Estate Investment Trusts (NAREIT) defines
funds from operations as follows: income before depreciation and amortization
of real estate assets and before extraordinary items and significant non-
recurring events less gains on sale of real estate. Funds from operations does
not replace net income as a measure of performance or net cash provided by
operating activities as a measure of liquidity. Rather, funds from operations
has been adopted by real estate investment trusts to provide a consistent
measure of operating performance in the industry.
The reconciliation of net income to funds from operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income............................................ $28,742 $23,110 $20,466
Depreciation and amortization of real estate assets... 34,128 30,986 26,479
Amortization of initial direct cost of leases......... 2,372 2,393 2,404
Loss on sale of real estate, extraordinary and non-re-
curring items........................................ 12 545 1,055
------- ------- -------
Funds from operations................................. $65,254 $57,034 $50,404
======= ======= =======
</TABLE>
The Trust's retail leases generally provide for minimum rents, with periodic
increases. Most retail tenants pay a majority of on-site operating expenses
and real estate taxes. Many leases also contain a percentage rent clause which
calls for additional rents based on tenant sales, so that at a given sales
S-12
<PAGE>
volume, if prices increase, so does rental income. These features in the Trust
leases reduce the Trust's exposure to higher costs caused by inflation,
although inflation has not been significant in recent years.
Rental income, which consists of minimum rent, percentage rent, and cost
recoveries, increased 11.5% in 1995 to $142.8 million from $128.1 million in
1994 and 15.4% in 1996 to $164.9 million. If centers acquired and sold in
1994, 1995 and 1996 are excluded, rental income increased 4.3% from 1994 to
1995 and 6.6% from 1995 to 1996.
Minimum rents increased 14% in 1995 to $113.9 million from $99.9 million in
1994 and 15.5% in 1996 to $131.5 million. If centers acquired and sold in
1994, 1995 and 1996 are excluded, minimum rents increased 6.7% from 1994 to
1995 and 6.2% from 1995 to 1996. Fifty percent of the increase in minimum rent
in 1996 was from Congressional Plaza, Brick Plaza and Gaithersburg Square,
which have been redeveloped and retenanted. Thirty-four percent of the
increase in minimum rent in 1995 was from Congressional Plaza.
Cost reimbursements consist of tenant reimbursements of real estate taxes
(real estate tax recovery) and common area maintenance expenses (CAM
recovery). After removing the effect of properties purchased and sold during
the past three years, real estate tax recovery increased 6.2% from 1994 to
1995 and 9.7% from 1995 to 1996. Forty-nine percent of the increase from 1994
to 1995 was attributable to Congressional Plaza as its occupancy increased
after being vacated for renovation. Sixty-four percent of the increase in 1996
was attributable to Congressional Plaza, Brick Plaza and Gaithersburg Square.
CAM recovery on the portfolio, adjusted to remove the effect of properties
purchased in 1994, 1995 and 1996, was $13.2 million in 1994, $11.5 million in
1995 and $13.2 million in 1996. These fluctuations correspond to fluctuations
in CAM expenses, primarily snow removal and related repairs which were high in
1994 and 1996 due to heavy snowfalls in those years.
Other property income includes items which tend to fluctuate from period to
period, such as utility reimbursements, telephone income, merchant association
dues, lease termination fees, late fees and temporary tenant income. The
increases from 1994 to 1996 were due primarily to the fluctuating nature of
the income. Major increases in 1995 over 1994 resulted from lease termination
fees, an unexpected recovery from a bankrupt tenant, merchant association dues
and a commission on telephone services. The increase from 1995 to 1996 was due
to lease termination fees.
Rental expenses went from $35.8 million in 1994 to $35.1 million in 1995 to
$40.7 million in 1996, which represents 26.8% of property income (rental
income plus other property income) in 1994, 23.4% in 1995 and 23.3% in 1996.
If rental expenses are adjusted to remove the effect of properties purchased
and sold in 1994, 1995 and 1996, rental expenses ranged from $35.1 million in
1994 to $32.6 million in 1995 to $35.3 million in 1996. The primary reason for
the decrease from 1994 to 1995 was a decrease in snow removal and other
related expenses, such as roof and parking lot repairs. The increase from 1995
to 1996 was caused by an increase in snow related expenses and by an increase
in the write-off of tenant work and lease commissions, often connected with
tenants whose leases were terminated. Real estate taxes have ranged from 9.0%
of property income in 1994 to 9.6% in 1995 to 9.4% in 1996. The lower
percentage in 1994 was primarily due to Congressional Plaza, which received a
refund of prior year taxes in 1994.
Depreciation and amortization expenses have increased because of the recent
acquisitions and also because of the depreciation on recent tenant work and
property improvements.
Interest income has increased slightly over the past three years. The
Trust's major sources of interest income are on its mortgage notes receivable,
its notes to officers, and its available cash balances. Increases in interest
income due to the issuance of $14.3 million in mortgage notes receivable in
1996 were offset by decreases in interest on investments in marketable
securities which the Trust sold in 1995. Included in interest income in 1995
is the effect of the sale in December 1995
S-13
<PAGE>
of the Trust's investment in Olympia and York Senior First Mortgage Notes and
other real estate investment trusts, both of which were written down to market
value in prior years.
Interest expense increased to $45.6 million in 1996 from $39.3 million in
1995, due to interest on the $50 million of senior debentures issued in 1996
and the $165 million of senior notes issued in 1995, due to interest from
increased usage of the revolving credit facilities and due to interest on the
mortgage assumed upon the purchase of Bristol Shopping Center. Interest
expense increased from $31.5 million in 1994 to $39.3 million in 1995,
primarily due to interest on the three issues of senior notes in 1995. The
ratio of earnings to fixed charges was 1.59x, 1.55x and 1.61x in 1996, 1995
and 1994, respectively. The ratio of funds from operations to fixed charges
was 2.35x, 2.35x, and 2.52x in 1996, 1995 and 1994, respectively.
Administrative expenses have increased as the Trust has grown and as it has
accelerated its acquisition and development efforts. Administrative expenses
as a percentage of total income, however, were fairly constant, at 5.1%, 4.7%
and 4.8% in 1996, 1995 and 1994, respectively. The $1.8 million increase from
1995 to 1996 was primarily due to the write-off of costs associated with
unconsummated acquisition and development efforts and due to costs related to
the move of the Trust's corporate office. The major components of the increase
in 1995 over 1994 were in payroll and in costs related to a business
combination that the Trust decided not to pursue.
Investors' share of operations represents the minority interest in
Congressional Plaza, Loehmann's Plaza and North City Plaza. In 1995 minority
net losses at Loehmann's and North City exceeded the minority net income at
Congressional Plaza which was under redevelopment in 1995.
Income before loss on sale of real estate and extraordinary item increased
from $20.5 million in 1994 to $23.7 million in 1995 to $28.7 million in 1996,
reflecting not only the contribution to net income from the Trust's
acquisitions but also the contribution from improved operating results of the
core portfolio.
Loss or gain on the sale of real estate is dependent on the extent and
timing of sales. The Trust regularly reviews its portfolio and does from time
to time sell properties. In 1996 the Trust sold Town & Country Plaza in
Hammond, Louisiana for $4.9 million, resulting in a loss of $12,000. In 1995
the Trust sold North City Plaza for $1.8 million resulting in a loss on sale
of $545,000.
As a result of the foregoing items, net income rose from $20.5 million in
1994 to $23.1 million in 1995 to $28.7 million in 1996.
The Trust intends to increase its pace of acquisitions in 1997. If
successful in so doing, these acquisitions should contribute to growth in
rental income and expenses and, thereby, net income. The growth of the core
portfolio, however, is, in part, dependent on controlling expenses, some of
which are beyond the complete control of the Trust, such as snow removal, and
trends in the retailing environment. Recently there have been a number of
retailer bankruptcies and consolidations. These bankruptcies and a further
weakening of the retail environment could adversely impact the Trust, by
increasing vacancies and by decreasing rents. In past weak retail and real
estate environments, the Trust has been able to replace weak and bankrupt
tenants with stronger tenants; management believes that due to the quality of
the Trust's properties there will continue to be demand for its retail space.
S-14
<PAGE>
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net income and funds from operations have been affected by the Trust's
recent acquisition, redevelopment and financing activities.
The reconciliation of net income to funds from operations for the six months
ended June 30 is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net income.................................................... $26,321 $12,923
Plus: depreciation and amortization of real estate assets..... 18,418 16,697
amortization of initial direct costs of leases........... 1,148 1,185
Less: gain on sale of real estate............................. (7,034) --
------- -------
Funds from operations......................................... $38,853 $30,805
======= =======
</TABLE>
Funds from operations increased 26% to $38.9 million in the first half of
1997 from $30.8 million in the first half of 1996.
Rental income, which consists of minimum rent, percentage rent and cost
recoveries, increased 13% from $80.7 million in the first half of 1996 to
$91.0 million in the first half of 1997. If properties purchased and sold in
1996 and 1997 are excluded, rental income increased 4%.
Minimum rent increased 12% from $64.8 million in the first half of 1996 to
$72.5 million in the first half of 1997. Excluding properties purchased and
sold in 1996 and 1997, minimum rent increased 3%.
Cost reimbursements consist of tenant reimbursements of real estate taxes
(real estate tax recovery) and common area maintenance expenses (CAM
recovery). Cost reimbursements increased 20% from $13.5 million during the
first half of 1996 to $16.3 million during the first half of 1997. Excluding
properties purchased and sold in 1996 and 1997, cost reimbursements increased
from $13.2 million to $14.7 million. Real estate tax recovery on the core
portfolio increased $448,000 as real estate taxes increased. CAM recovery
increased $1.1 million on the core portfolio, reflecting the increased
recovery of CAM in 1997 from properties under redevelopment in 1996 such as
Congressional Plaza, Brick Plaza and Bethesda Row as well as the decrease in
CAM billing adjustments from 1996 to 1997. In 1996 snow removal costs were so
high that the Trust granted concessions to tenants at certain centers.
Other property income includes items which tend to fluctuate from period to
period, such as utility reimbursements, telephone income, merchant association
dues, lease termination fees, late fees and temporary tenant income. Other
property income increased from $4.8 million during the first half of 1996 to
$5.5 million during the first half of 1997, primarily due to an increase in
lease termination fees.
Interest income increased from $1.9 million in the first half of 1996 to
$2.9 million in the first half of 1997 primarily because of interest on notes
receivable issued in 1996 and 1997.
Rental expenses have decreased 3% in the first half of 1997 from the first
half of 1996, to $21.0 million from $21.7 million. If centers acquired and
sold during 1996 and 1997 are excluded, rental expenses decreased 10%,
primarily due to decreased snow removal costs on the east coast in 1997 as
compared to 1996.
Real estate taxes have increased from $8.0 million during the first half of
1996 to $9.5 million during the first half of 1997, primarily due to taxes on
the 1996 and 1997 acquisitions. Depreciation and amortization in the first
half of 1997 was 10% greater than in the first half of 1996. Excluding the
effect from the 1996 and 1997 acquisitions, depreciation and amortization
increased 5% due to depreciation on recent tenant work and property
improvements.
S-15
<PAGE>
Interest expense increased from $22.3 million during the first half of 1996
to $24.0 million during the first half of 1997, primarily due to interest
expense on the $50 million of 7.48% Debentures issued in August 1996. The
ratio of earnings to fixed charges was 1.71x for the first half of 1997 and
1.53x for the comparable period in 1996. The ratio of funds from operations to
fixed charges was 2.47x for the first half of 1997 and 2.30x for the first
half of 1996.
Administrative expenses have increased from $3.8 million during the first
half of 1996 to $4.6 million during the first half of 1997, primarily due to
increased personnel costs as the Trust is expanding and increased state income
taxes.
In May 1997 the Trust sold Town & Country Shopping Center in Springfield,
Illinois for $7.5 million, resulting in a gain of $5.3 million and Shillington
Shopping Center in Shillington, Pennsylvania for $4.6 million, resulting in a
gain of $1.7 million.
As a result of the foregoing items, net income increased from $12.9 million
during the first half of 1996 to $26.3 million during the first half of 1997.
S-16
<PAGE>
MANAGEMENT
The Trustees and Officers of the Trust are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
NAME AGE OTHER DIRECTORSHIPS
---- --- ------------------------------------------------
<S> <C> <C>
Dennis L. Berman.......... 46 Trustee; General Partner, GDR Partnerships and
Vingarden Associates, builders/developers,
Berman Enterprises; Director, Beco Management
Kenneth D. Brody.......... 53 Trustee; Founding Partner, Winslow Partners LLC,
a private equity investment firm; Former
President and Chairman, Export-Import Bank of
the United States; Former Partner, Goldman,
Sachs & Co.; Director, Alex Brown, Inc.;
Director, Quest Diagonotics, Inc.; Director,
Yurie Systems Inc.; Director, American Red
Cross; Director, St. John's College
A. Cornet de Ways Ruart... 63 Trustee; Director, SIPEF S.A., an international
holding company principally of agricultural
interests; Director, Interbrew S.A.
Kristin Gamble............ 51 Trustee; President, Flood, Gamble Associates,
Inc., an investment counseling firm; Director,
Ethan Allan Interiors, Inc.
Samuel J. Gorlitz......... 80 Trustee and Founder; President, Gorlitz
Associates, real estate developers
Steven J. Guttman......... 51 Trustee; President and Chief Executive Officer
Ron D. Kaplan............. 33 Senior Vice President, Capital Markets; Chief
Investment Officer
Walter F. Loeb............ 72 Trustee; President, Loeb Associates, management
consulting firm; Publisher, Loeb Retail Letter,
Director, InterTAN, Inc.; Director, The Gymboree
Corp.; Director, Mothers Work Inc.; Director,
Wet Seal Inc.; Director, The Warnco Group Inc.
Retired Principal and Senior Retail Analyst,
Morgan Stanley & Co., Inc.
Catherine R. Mack......... 52 Vice President, General Counsel; Secretary
Donald H. Misner.......... 62 Trustee; Director of New Development for the
Trust
Mary Jane Morrow.......... 45 Senior Vice President, Finance; Treasurer; Chief
Financial Officer
Mark S. Ordan............. 37 Trustee; Chief Executive Officer, Chartwell
Health Management Inc.; Former Chairman,
President and Chief Executive Officer, Fresh
Fields Markets, Inc.; Director, Friedman
Billings Ramsey Family of Funds.
George L. Perry........... 63 Trustee; Senior Fellow, Brookings Institution;
Director, State Farm Life Insurance Company;
Director, State Farm Mutual Automobile Company
and various mutual funds managed by the Dryfuss
Corporation
Hal A. Vasvari............ 53 Executive Vice President and Chief Operating
Officer
</TABLE>
The Trustees and Officers as a group beneficially own approximately 5% of
the outstanding Shares of the Trust.
S-17
<PAGE>
DESCRIPTION OF SERIES A PREFERRED SHARES
The following summary sets forth the material terms and provisions of the
Series A Preferred Shares, and is qualified in its entirety by reference to
the provisions of the statement of designations relating to the Series A
Preferred Shares set forth in a resolution adopted by the Trustees of the
Trust (the "Statement of Designations") and the Declaration of Trust and
Bylaws of the Trust, which are incorporated by reference herein. The following
description of the particular terms of the Series A Preferred Shares
supplements, and to the extent inconsistent therewith, replaces, the
description of the general terms of the Preferred Shares set forth in the
accompanying Prospectus, to which description reference is hereby made.
GENERAL
Subject to limitations prescribed by the laws of the District of Columbia,
and the Declaration of Trust and Bylaws of the Trust, the Board of Trustees is
authorized to issue, from the authorized but unissued capital shares of the
Trust, Preferred Shares in such classes or series as the Board of Trustees may
determine and to establish from time to time the number of shares to be
included in any such series and to fix the designation and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the shares
of each such series. The Company currently has no Preferred Shares
outstanding. The Board of Trustees has authorized the Trust to designate and
issue the Series A Preferred Shares.
When issued, the Series A Preferred Shares will be validly issued, fully
paid and nonassessable, except to the extent described in the Prospectus. The
holders of the Series A Preferred Shares will have no preemptive rights with
respect to any capital shares of the Trust or any other securities of the
Trust convertible into or carrying rights or options to purchase any such
shares. The Series A Preferred Shares will not be subject to any sinking fund
or other obligation of the Trust to redeem or retire the Series A Preferred
Shares.
The transfer agent, registrar and dividend disbursing agent for the Series A
Preferred Shares will be American Stock Transfer & Trust Company.
RANKING
With respect to payment of dividends and amounts upon liquidation,
dissolution or winding up, the Series A Preferred Shares will rank equally
with any other Preferred Shares that become outstanding and senior to the
Common Shares.
While any Series A Preferred Shares are outstanding, the Trust may not
authorize, create or increase the authorized amount of any class of security
that ranks senior to the Series A Preferred Shares with respect to the payment
of dividends or amounts payable upon liquidation, dissolution or winding up,
or any class of security convertible into shares of such a class, without the
consent of the holders of two-thirds of the outstanding Series A Preferred
Shares and Parity Shares (as defined below), voting as a single class.
However, the Trust may create additional classes of other shares, increase the
authorized number of Preferred Shares or issue series of Preferred Shares
ranking on a parity with the Series A Preferred Shares with respect, in each
case, to the payment of dividends and amounts upon liquidation, dissolution
and winding up (a "Parity Share") without the consent of any holder of Series
A Preferred Shares. See "--Voting Rights" below.
DIVIDENDS
Holders of the Series A Preferred Shares will be entitled to receive, when
and as declared by the Board of Trustees, out of funds legally available for
the payment of dividends, cumulative preferential
S-18
<PAGE>
cash dividends at the rate of 7.95% of the liquidation preference per annum
(equivalent to $1.9875 per share per annum). Such dividends will be cumulative
from the date of original issue and payable quarterly in arrears on the last
calendar day (or, if such day is not a business day, the next business day) of
each January, April, July and October (each, a "Dividend Payment Date"). The
first dividend, which will be paid on or about October 31, 1997, will be for
less than a full quarter. Such first dividend and any dividends payable on the
Series A Preferred Shares for any partial dividend period will be computed on
the basis of the actual number of days in such period. Dividends will be
payable to holders of record as they appear in the records of the Trust at the
close of business on the applicable record date, which will be the date
designated as such by the Board of Trustees of the Trust that is not more than
fifty nor less than ten days prior to such Dividend Payment Date (each, a
"Dividend Record Date"). Accrued and unpaid dividends for any past dividend
periods may be declared and paid at any time and for such interim periods to
holders of record on the applicable Dividend Record Date. Any dividend payment
made on the Series A Preferred Shares will first be credited against the
earliest accrued but unpaid dividend due with respect to the Series A
Preferred Shares that remains payable.
Dividends on Series A Preferred Shares will accrue whether or not the Trust
has earnings, whether or not there are funds legally available for the payment
of such dividends and whether or not such dividends are declared. No interest,
or sum of money in lieu of interest, will be payable in respect of any
dividend payment or payments on the Series A Preferred Shares that may be in
arrears. Holders of Series A Preferred Shares will not be entitled to any
dividends, whether payable in cash, property or shares, in excess of the full
cumulative dividends, as described herein, on the Series A Preferred Shares.
If, for any taxable year, the Trust elects to designate as "capital gain
dividends" (as defined in Section 857 of the Internal Revenue Code of 1986, as
amended, or any successor revenue code or section (the "Code")) any portion
(the "Capital Gains Amount") of the dividends (within the meaning of the Code)
paid or made available for the year to holders of all classes of capital
shares (the "Total Dividends"), then the portion of the Capital Gains Amount
that will be allocable to holders of Series A Preferred Shares will be in the
same portion that the Total Dividends paid or made available to the holders of
Series A Preferred Shares for the year bears to the Total Dividends.
Except as provided in the next sentence, no dividends will be declared or
paid on any Parity Shares unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for the
payment thereof set aside for such payment on the Series A Preferred Shares
for all prior dividend periods. If accrued dividends on the Series A Preferred
Shares for all prior dividend periods have not been paid in full, then any
dividend declared on the Series A Preferred Shares and on any Parity Shares
for any dividend period will be declared ratably in proportion to accrued and
unpaid dividends on the Series A Preferred Shares and such Parity Shares.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Shares (as
defined below) or (ii) redeem, purchase or otherwise acquire for consideration
any Junior Shares through a sinking fund or otherwise (other than a redemption
or purchase or other acquisition of Common Shares made for purposes of any
employee incentive or benefit plan of the Trust or any subsidiary), unless (A)
all cumulative dividends with respect to the Series A Preferred Shares and any
Parity Shares at the time such dividends are payable have been paid or
declared and funds have been set apart for payment of such dividends and (B)
sufficient funds have been paid or declared and set apart for the payment of
the dividends for the current dividend period with respect to the Series A
Preferred Shares and any Parity Shares.
As used herein, (i) the term "dividend" does not include dividends or other
distributions payable solely in Fully Junior Shares, or in options, warrants
or rights to subscribe for or purchase any Fully Junior Shares, (ii) the term
"Junior Shares" means the Common Shares and any other class or series
S-19
<PAGE>
of capital shares of the Trust now or hereafter issued and outstanding that
ranks junior to the Series A Preferred Shares as to the payment of dividends
or in the distribution of assets or amounts upon liquidation, dissolution and
winding up and (iii) the term "Fully Junior Shares" means Junior Shares that
rank junior to the Series A Preferred Shares both as to the payment of
dividends and distribution of assets upon liquidation, dissolution and winding
up.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Trust, the holders of Series A Preferred Shares will be entitled to
receive out of assets of the Trust legally available for distribution to
shareholders a liquidation preference of $25.00 per Series A Preferred Share,
plus an amount per Series A Preferred Share equal to all dividends (whether or
not earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders, and no more.
Until the holders of Series A Preferred Shares and Parity Shares have been
paid their liquidation preference in full, no payment will be made to any
holder of Junior Shares upon the liquidation, dissolution or winding up of the
Trust. If upon any liquidation, dissolution or winding up of the Trust, the
assets of the Trust, or proceeds thereof, distributable among the holders of
the Series A Preferred Shares are insufficient to pay in full the amount
payable upon liquidation with respect to the Series A Preferred Shares and any
other Parity Shares, then such assets, or the proceeds thereof will be
distributed among the holders of Series A Preferred Shares and any such Parity
Shares ratably in accordance with the respective amounts which would be
payable on such Series A Preferred Shares and any such Parity Shares if all
amounts payable thereon were paid in full. Neither a consolidation or merger
of the Trust with another entity, a statutory share exchange by the Trust nor
a sale, lease or transfer of all or substantially all of the Trust's assets
will be considered a liquidation, dissolution or winding up, voluntary or
involuntary, of the Trust.
REDEMPTION
The Series A Preferred Shares are not redeemable by the Trust prior to
October 6, 2002. On and after October 6, 2002, the Trust, at its option, upon
not less than 30 or more than 90 days' written notice, may redeem the Series A
Preferred Shares, in whole or in part, at any time or from time to time, for
cash at a redemption price of $25.00 per share, plus accumulated, accrued and
unpaid dividends thereon to the date fixed for redemption, without interest.
The redemption price of the Series A Preferred Shares (other than the portion
thereof consisting of accrued and unpaid dividends) is payable solely out of
proceeds from the sale of other capital shares of the Trust, which may include
Common Shares, Preferred Shares, depositary shares, interests, participations
or other ownership interests in the Trust however designated (other than debt
securities converted into or exchangeable for capital shares), and any rights,
warrants or options to purchase any thereof. If fewer than all of the
outstanding Series A Preferred Shares are to be redeemed, the number of shares
to be redeemed will be determined by the Trust and such shares may be redeemed
pro rata from the holders of record of such shares in proportion to the number
of such shares held by such holders (with adjustments to avoid redemption of
fractional shares), by lot or by any other method determined by the Trust in
its sole discretion to be equitable.
Unless full cumulative dividends on all Series A Preferred Shares and any
Parity Shares have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all
past dividend periods and the then current dividend period, no Series A
Preferred Shares or Parity Shares may be redeemed or purchased by the Trust
except pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Series A Preferred Shares or Parity Shares, as the
case may be.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date to each holder of record of Series A Preferred
Shares at the address shown on the
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<PAGE>
stock transfer books of the Trust. Each notice shall state: (i) the redemption
date; (ii) the number of Series A Preferred Shares to be redeemed; (iii) the
redemption price per share; (iv) the place or places where certificates for
Series A Preferred Shares are to be surrendered for payment of the redemption
price; and (v) that dividends on the Series A Preferred Shares will cease to
accrue on such redemption date. If fewer than all Series A Preferred Shares
are to be redeemed, the notice mailed to each such holder thereof shall also
specify the number of Series A Preferred Shares to be redeemed from such
holder. If notice of redemption of any Series A Preferred Shares has been
given and if the funds necessary for such redemption have been set aside by
the Trust in trust for the benefit of the holders of Series A Preferred Shares
so called for redemption, then from and after the redemption date, dividends
will cease to accrue on the Series A Preferred Shares, such Series A Preferred
Shares shall no longer be deemed outstanding and all rights of the holders of
such shares will terminate, except the right to receive the redemption price.
The holders of Series A Preferred Shares at the close of business on a
Dividend Record Date will be entitled to receive the dividends payable with
respect to such Series A Preferred Shares on the corresponding Dividend
Payment Date notwithstanding the redemption thereof between such Dividend
Record Date and the corresponding Dividend Payment Date or the Trust's default
in the payment of the dividend due. Except as provided above, the Trust will
make no payment or allowance for unpaid dividends, whether or not in arrears,
on Series A Preferred Shares which have been called for redemption.
The Series A Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption.
VOTING RIGHTS
Except as indicated below, or except as otherwise from time to time required
by applicable law, the holders of Series A Preferred Shares will have no
voting rights.
If six consecutive quarterly dividends payable on the Series A Preferred
Shares or any Parity Shares are in arrears, whether or not earned or declared,
the number of trustees then constituting the Board of Trustees of the Trust
will be increased by two, and the holders of Series A Preferred Shares, voting
together as a class with the holders of any other series of Parity Shares,
will have the right to elect two additional trustees to serve on the Trust's
Board of Trustees at any annual meeting of shareholders or a properly called
special meeting of the holders of the voting Parity Shares until all such
dividends and dividends for the current quarterly period on the Series A
Preferred Shares and such other voting Parity Shares have been declared and
paid or set aside for payment. Such voting rights will terminate when all such
accrued and unpaid dividends have been declared and paid or set aside for
payment. The terms of office of all Trustees so elected will terminate with
the termination of such voting rights.
The approval of two-thirds of the outstanding Series A Preferred Shares and
all other Parity Shares similarly affected, voting as a single class, is
required in order to (i) amend the Declaration of Trust to affect materially
and adversely the rights, preferences or voting power of the holders of the
Series A Preferred Shares; (ii) enter into a share exchange that affects the
Series A Preferred Shares, or consolidate the Trust with or merge the Trust
with another entity, unless in each such case each Series A Preferred Share
remains outstanding without a material adverse change to its terms and rights
or is converted into or exchanged for preferred stock of the surviving entity
having preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption thereof identical to that of the Series A Preferred Shares (except
for changes that do not materially and adversely affect the holders of Series
A Preferred Shares), or (iii) authorize, reclassify, create or increase the
authorized amount of any shares of any class, or any security convertible into
shares of any class, having rights senior to the Series A Preferred Shares
with
S-21
<PAGE>
respect to the payment of dividends or amounts upon liquidation, dissolution
or winding up of the Trust. However, the Trust may create additional classes
of Parity Shares and Junior Shares, increase the authorized number of Parity
Shares and Junior Shares and issue additional series of Parity Shares and
Junior Shares without the consent of any holder of Series A Preferred Shares.
Except as provided above and as required by applicable law, the holders of
Series A Preferred Shares are not entitled to vote on any merger or
consolidation involving the Trust, on any share exchange or on a sale of all
or substantially all of the assets of the Trust.
CONVERSION
The Series A Preferred Shares are not convertible into or exchangeable for
any other property or securities of the Trust at the option of the holder.
RESTRICTIONS ON TRANSFER; OWNERSHIP LIMITS
For the Trust to qualify as a REIT under the Code, no more than 50% in value
of its outstanding shares may be owned, directly or indirectly, by five or
fewer "individuals" during the last half of a full taxable year or during a
proportionate part of a shorter taxable year. Under the constructive ownership
provisions of the Code, stock owned by an entity, including a corporation,
life insurance company, mutual fund or pension trust, is treated as owned by
the ultimate individual beneficial owners of the entity. Because the Trust
intends to maintain its qualification as a REIT, the Declaration of Trust
contains certain restrictions on the ownership and transfer of shares,
including the Series A Preferred Shares, intended to assist the Trust in
complying with these requirements. For a complete description of these
restrictions, see "Description of Common Shares--REIT Qualification" in the
accompanying Prospectus.
Subject to certain exceptions specified in the Declaration of Trust, no
person may own, directly or indirectly, more than 9.8% of the Trust's
outstanding equity securities, including Preferred Shares.
S-22
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations is based
on current law, is for general information only, and is not tax advice. 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 (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The Trust intends to operate in a manner that will enable it to qualify as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code").
Although management of the Trust believes that the Trust is organized and
operates in such a manner, no assurance can be given that the Trust qualifies
or will remain qualified as a REIT. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there
are only limited judicial and administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Trust's control may affect the Trust's ability to qualify as a REIT. If
the Trust fails to qualify as a REIT, it will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. In addition, unless entitled to relief under certain
statutory provisions, the Trust will be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. The additional tax would significantly reduce the cash flow available
for distribution to shareholders. This Prospectus Supplement does not address
the taxation of the Trust or the impact on the Trust of its election to be
taxed as REIT. The discussion set forth below assumes that the Trust qualifies
as a REIT under the Code.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
Dividends and Other Distributions. As long as the Trust qualifies as a REIT,
distributions made to the Trust's taxable U.S. shareholders (including holders
of Series A Preferred Shares) out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction generally available to corporations. As used herein, the
term "U.S. shareholder" means a shareholder of the Trust that for U.S. federal
income tax purposes is (i) a citizen or resident of the United States, (ii) a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an
estate, the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust, if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States persons have the authority to
control all substantial decisions of the trust, and that (v) is not an entity
that has special status under the Code (such as a tax-exempt organization or a
dealer in securities). For purposes of determining whether distributions on
the Series A Preferred Shares are out of the current or accumulated earnings
and profits, the earnings and profits of the Trust will be allocated first to
the Trust's outstanding Series A Preferred Shares and then to the Trust's
Common Shares. Subject to the discussion below regarding changes to the
capital gain tax rates, distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed the Trust's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held his Series A Preferred
Shares. However, corporate holders 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 will not be taxable to a
shareholder to the extent that they do not exceed the adjusted tax basis of
the shareholder's shares, but rather will reduce the adjusted basis of such
shares. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a shareholder's
shares, such distributions will be included in income as long-term capital
gain (characterized, in the case of
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<PAGE>
individuals, trusts, and estates, as mid-term capital gain if the shares have
been held for more than one year but not more than 18 months), 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 shareholder. In addition, any
dividend declared by the Trust in October, November or December of any year
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by the Trust and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Trust 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 the Trust. Instead, such losses would be
carried over by the Trust for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Trust and
gain from the disposition of Series A Preferred Shares will not be treated as
passive activity income and, therefore, holders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which the holder is a limited partner) against such
income. In addition, taxable distributions from the Trust generally will be
treated as investment income for purposes of the investment interest deduction
limitations. Capital gain distributions and capital gains from the disposition
of Series A Preferred Shares (and distributions treated as such) will be
treated as investment income for purposes of the investment interest deduction
limitations only if and to the extent the holder so elects, in which case such
capital gain distributions and capital gains will be taxed at ordinary income
rates to the extent of such election. The Trust will notify holders after the
close of the Trust's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and capital gain.
The Trust may elect to retain and pay income tax on its net long-term
capital gains received during the taxable year. For taxable years beginning
after December 31, 1997, if the Trust so elects for a taxable year, the
holders would include in income as long-term capital gains their proportionate
share of such portion of the Trust's undistributed long-term capital gains for
the taxable year as the Trust may designate. A holder would be deemed to have
paid his share of the tax paid by the Trust on such undistributed capital
gains, which would be credited or refunded to the holder. The holder's basis
in his Series A Preferred Shares would be increased by the amount of
undistributed long-term capital gains (less the capital gains tax paid by the
Trust) included in the holder's long-term capital gains.
The Taxpayer Relief Act of 1997 (the "Act") alters the taxation of capital
gain income. Under the Act, individuals, trusts, and estates that hold certain
investments for more than 18 months may be taxed at a maximum long-term
capital gain rate of 20% on the sale or exchange of those investments.
Individuals who hold certain assets for more than one year but not more than
18 months may be taxed at a maximum mid-term capital gain rate of 28% on the
sale or exchange of those investments. The Act also provides a maximum rate of
25% for "unrecaptured section 1250 gain" for individuals, trusts, and estates,
special rules for "qualified 5-year gain," as well as other changes to prior
law. The Act allows the Internal Revenue Service (the "IRS") to prescribe
regulations on how the Act's new capital gain rates will apply to sales of
capital assets by "pass-thru entities," which include REITs such as the Trust.
To date regulations have not yet been prescribed, and it remains unclear how
the Act's new rates will apply to capital gain dividends and undistributed
capital gains, including, for example, the extent, if any, to which capital
gain dividends and undistributed capital gains from the Trust will be taxed to
individuals at the new rates for mid-term capital gains and unrecaptured
section 1250 gain, rather than the long-term capital gain rates. Investors are
urged to consult their own tax advisors with respect to the new rules
contained in the Act.
Sale or Redemption of Series A Preferred Shares. On the sale of Series A
Preferred Shares, gain or loss will be recognized by the holder in an amount
equal to the difference between (i) the amount of cash and fair market value
of any property received on such sale, and (ii) the holder's adjusted basis in
the Series A Preferred Shares. In general, any gain or loss realized upon a
taxable
S-24
<PAGE>
disposition of the Series A Preferred Shares by a holder who is not a dealer
in securities will be treated as long-term capital gain or loss if the Series
A Preferred Shares have been held for more than one year (characterized, in
the case of individuals, trusts, and estates, as a mid-term capital gain or
loss if the shares have been held for more than one year but not more than 18
months and a long-term capital gain or loss if the shares have been held for
more than 18 months), and otherwise as short-term capital gain or loss.
However, any loss upon a sale or exchange of shares by a holder who has held
such shares for six months or less (after applying certain holding period
rules) will be treated as a long-term capital loss to the extent of
distributions from the Trust of undistributed capital gains required to be
treated by such holder as long-term capital gain. All or a portion of any loss
realized by a shareholder upon a taxable disposition of Series A Preferred
Shares may be disallowed if other Series A Preferred Shares are purchased
within 30 days before or after the disposition.
A redemption of Series A Preferred Shares will be treated under Section 302
of the Code as a distribution that is taxable at ordinary income tax rates as
a dividend (to the extent of the Trust's current or accumulated earnings and
profits), unless the redemption satisfies certain tests set forth in Section
302(b) of the Code enabling the redemption to be treated as a sale of the
Series A Preferred Shares. The redemption will satisfy such tests if it (i) is
"substantially disproportionate" with respect to the holder (which will not be
the case if only Series A Preferred Shares are redeemed, since they generally
do not have voting rights), (ii) results in a "complete termination" of the
holder's share interest in the Trust, or (iii) is "not essentially equivalent
to a dividend" with respect to the holder, all within the meaning of Section
302(b) of the Code. In determining whether any of these tests have been met,
shares considered to be owned by the holder by reason of certain constructive
ownership rules set forth in the Code, as well as shares actually owned, must
generally be taken into account. Because the determination as to whether any
of the alternative tests of Section 302(b) of the Code will be satisfied with
respect to any particular holder of Series A Preferred Shares depends upon the
facts and circumstances at the time that the determination must be made,
prospective investors are advised to consult their own tax advisors to
determine such tax treatment.
If a redemption of the Series A Preferred Shares is treated as a
distribution that is taxable as a dividend, the amount of the distribution
will be measured by the amount of cash and the fair market value of any
property received by the shareholders. The shareholder's adjusted tax basis in
such redeemed Series A Preferred Shares will be transferred to the holder's
remaining shareholdings in the Trust. If, however, the shareholder has no
remaining shareholdings in the Trust, such basis could be transferred to a
related person or it may be lost.
BACKUP WITHHOLDING
The Trust will report to its U.S. shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid and
redemptions unless such holder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact, or (b)
provides a taxpayer identification number, certifies that the holder is not
subject to backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder that does not
provide the Trust with his correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the shareholder's income tax liability. In
addition, the Trust may be required to withhold a portion of capital gain
distributions to any shareholders who fail to certify their non-foreign status
to the Trust.
TAXATION OF CERTAIN TAX-EXEMPT SHAREHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account ("IRA") or a Section 401(k)
plan, that holds the Series A Preferred
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<PAGE>
Shares as an investment will not be subject to tax on dividends paid by the
Trust. However, if such tax-exempt investor is treated as having purchased its
Series A Preferred Shares with borrowed funds, some or all of its dividends
from the Series A Preferred Shares will be subject to tax. In addition, under
some circumstances certain pension plans (including Section 401(k) plans but
not, for example, IRAs) that own more than 10% (by value) of the Trust's
outstanding capital shares, including Series A Preferred Shares, could be
subject to tax on a portion of their Series A Preferred Share dividends even
if their Series A Preferred Shares are held for investment and are not treated
as acquired with borrowed funds.
OTHER TAX CONSEQUENCES
The Trust and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they own
property, transact business or reside. The state and local tax treatment of
the Trust and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax
laws on an investment in the Trust.
S-26
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the Trust
has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of such Underwriters has severally agreed to
purchase, the respective number of Series A Preferred Shares set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SERIES A
UNDERWRITER PREFERRED SHARES
----------- ------------------
<S> <C>
Goldman, Sachs & Co. ........................................ 2,000,000
Prudential Securities Incorporated........................... 1,000,000
Smith Barney Inc. ........................................... 1,000,000
---------
Total...................................................... 4,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Series A Preferred
Shares offered hereby, if any are taken.
The Underwriters propose to offer the Series A Preferred Shares in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain securities
dealers at such price less a concession of $0.50 per Series A Preferred Share.
The Underwriters may allow, and such dealers may reallow, a concession not to
exceed $0.40 per Series A Preferred Share to certain brokers and dealers.
After the Series A Preferred Shares are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
In connection with the Offering, the Underwriters may purchase and sell the
Series A Preferred Shares in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the Offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the Series A
Preferred Shares, and short positions created by the Underwriters involve the
sale by the Underwriters of a greater number of Series A Preferred Shares than
they are required to purchase from the Trust in the offering. The Underwriters
also may impose a penalty bid, whereby selling concessions allowed to broker-
dealers in respect of the Series A Preferred Shares sold in the Offering may
be reclaimed by the Underwriters if such Series A Preferred Shares are
repurchased by the Underwriters in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Series A Preferred Shares, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may
be discontinued at any time. These transactions may be effected on the New
York Stock Exchange, in the over-the-counter market or otherwise.
The Series A Preferred Shares are a new issue of securities with no
established trading market. The Trust has been advised by the Underwriters
that they intend to make a market in the Series A Preferred Shares but are not
obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market
for the Series A Preferred Shares.
The Trust has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
S-27
<PAGE>
[LOGO OF FEDERAL REALTY INVESTMENT TRUST APPEARS HERE]
$480,000,000
DEBT SECURITIES, PREFERRED SHARES AND COMMON SHARES
Federal Realty Investment Trust (the "Trust") may from time to time offer in
one or more series (i) its unsecured debt securities (the "Debt Securities"),
(ii) its preferred shares (the "Preferred Shares"), and (iii) its common
shares, no par value (the "Common Shares"), with an aggregate public offering
price of up to $480,000,000 (or its equivalent based on the exchange rate at
the time of sale) in amounts, at prices and on terms to be determined at the
time of offering. The Debt Securities, Preferred Shares, and Common Shares
(collectively, the "Securities") may be offered, separately or together, in
separate series in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The Debt Securities will be direct unsecured obligations of the Trust and
may be either senior Debt Securities ("Senior Securities") or subordinated
Debt Securities ("Subordinated Securities"). The Senior Securities will rank
equally with all other unsecured and unsubordinated indebtedness of the Trust.
The Subordinated Securities will be subordinated to all existing and future
Senior Debt of the Trust, as defined. See "Description of Debt Securities."
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the
specific title, aggregate principal amount, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Trust or repayment at the
option of the Holder, terms for sinking fund payments, terms for conversion
into Preferred Shares or Common Shares, covenants and the initial public
offering price; (ii) in the case of Preferred Shares, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and the initial public offering price; and (iii) in the case of
Common Shares, the initial public offering price. In addition, such specific
terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Securities, in each case as may be appropriate
to preserve the status of the Trust as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Trust, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their
names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable
from the information set forth, in the applicable Prospectus Supplement. See
"Plan of Distribution." No Securities may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the
offering of such series of Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
THE 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.
----------------
The date of this Prospectus is November 7, 1995.
<PAGE>
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the Public Reference Section
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and Northeast Regional Office, 7 World Trade Center,
New York, New York 10048. Such reports, proxy statements and other information
concerning the Trust can also be inspected at the office of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The Trust will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon their written or oral request, a copy of any or
all of the documents incorporated herein by reference (other than exhibits to
such documents). Written requests for such copies should be addressed to Kathy
Klein, Vice President, Corporate Communications, Federal Realty Investment
Trust, 4800 Hampden Lane, Bethesda, Maryland 20814 (telephone 301/652-3360).
The Trust has filed with the Commission a registration statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. For
further information with respect to the Trust and the Securities offered
hereby, reference is made to the Registration Statement and exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference
is made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Trust with the Commission are
incorporated in this Prospectus by reference and are made a part hereof:
1. The Trust's Annual Report on Form 10-K, as amended, for the fiscal
year ended December 31, 1994.
2. The Trust's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
3. The Trust's Current Reports on Form 8-K filed with the Commission on
March 31, 1995, May 26, 1995, August 16, 1995 and September 22, 1995.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement herein, in any
accompanying Prospectus Supplement relating to a specific offering of
Securities or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information
appearing in the documents incorporated by reference.
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<PAGE>
THE TRUST
Federal Realty Investment Trust (the "Trust") is an owner, operator and
redeveloper of community and neighborhood shopping centers and retail
buildings. Founded in 1962, the Trust is a self-administered real estate
investment trust ("REIT") that manages, leases and supervises renovation of
its properties. At October 6, 1995, the Trust owned 53 community and
neighborhood shopping centers, one apartment complex and 14 retail buildings.
The shopping center portfolio has approximately 11.7 million rentable square
feet and 1,600 tenants. At June 30, 1995, the occupancy rate of the shopping
center portfolio was 94%.
The Trust's properties are located in thirteen states with approximately 72%
of the Trust's rental income for the six months ended June 30, 1995 generated
by the properties located in three major metropolitan areas: New York/New
Jersey, Philadelphia and Baltimore/Washington, D.C. The Trust's properties are
located in well established, densely populated communities with attractive
retailing demographics and limited opportunities for new competing
developments. The typical Trust property is located on a major traffic artery,
with good visibility and access.
The Trust's strategy is to acquire older, well-located properties and to
enhance their operating performance through a program of renovation,
expansion, re-configuration, re-leasing and re-merchandising. The Trust's core
focus is on community and neighborhood shopping centers that are anchored by
supermarkets, drug stores or high volume, value oriented retailers that
provide consumer necessities. The Trust's shopping center leases typically are
structured to include minimum rents and percentage rents based on tenants'
sales volumes and reimbursement of operating and real estate tax expenses.
Beginning in late 1994, the Trust expanded its focus to include retail
buildings in densely developed urban and suburban areas ("main street
retail"), in order to capitalize on the demand by retailers for space in these
areas. To date, the Trust has purchased fourteen such main street retail
properties, for a total price of $46.7 million.
In addition to the acquisition of the main street retail properties, since
the beginning of 1993, the Trust has purchased 13 shopping centers and two
properties abutting properties it already owned for a total initial investment
of $210.9 million.
The Trust intends to continue its acquisition and redevelopment activities.
Acquisitions are being considered primarily in the Trust's core major
metropolitan markets of New York/New Jersey, Philadelphia and
Baltimore/Washington, D.C. as well as the Chicago, Illinois and Boston,
Massachusetts markets. In addition, the Trust is seeking to acquire additional
retail buildings in densely developed urban and suburban areas and is also
pursuing site acquisitions in its core markets to permit the Trust to develop
new shopping centers.
The Trust continually evaluates its properties for renovation, re-tenanting
and expansion opportunities. Similarly, the Trust regularly reviews its
portfolio and from time to time considers selling certain of its properties.
The Trust's operating results are affected by general economic and real estate
conditions, including conditions specific to the markets where the Trust's
properties are located.
The Trust has made 132 consecutive quarterly distributions and has increased
its distribution rate for each of the last 28 years. This is the longest
record of annual distribution increases in the REIT industry. The current
annual indicated distribution rate is $1.64 per share.
The Trust, a District of Columbia business trust of unlimited duration,
maintains its offices at 4800 Hampden Lane, Bethesda, Maryland 20814
(telephone 301/652-3360).
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USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for any
offering of Securities, the Trust intends to use the majority of the net
proceeds from the sale of Securities offered by the Trust to repay debt
(including repayments of amounts drawn on lines of credit for property
acquisitions), make improvements to properties, acquire additional properties
and for working capital.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Trust's consolidated ratios of earnings
to fixed charges for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1994 1995
----- ----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1.06X 1.09X 1.19X 1.50X 1.61X 1.56X 1.61X
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income before gain on
sale of real estate and extraordinary items and fixed charges. Fixed charges
consist of interest expense (including interest costs capitalized) and the
portion of rent expense representing an interest factor. To date, the Trust
has not issued any Preferred Shares; therefore, the ratios of earnings to
combined fixed charges and preferred share dividends are unchanged from the
ratios presented in this section.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Senior Securities are to be issued under an indenture dated as of
December 1, 1993, as supplemented from time to time (the "Senior Indenture"),
between the Trust and Signet Trust Company, Trustee, and the Subordinated
Securities are to be issued under an indenture dated as of December 1, 1993,
as supplemented from time to time (the "Subordinated Indenture"), between the
Trust and First Union National Bank of North Carolina, Trustee. The term
"Trustee" as used herein shall refer to either Signet Trust Company or First
Union National Bank of North Carolina as appropriate for Senior Securities or
Subordinated Securities. The forms of the Senior Indenture and the
Subordinated Indenture (being sometimes referred to herein collectively as the
"Indentures" and individually as an "Indenture") are filed as exhibits to the
registration statement. The Indentures are subject to and governed by the
Trust Indenture Act of 1939, as amended (the "TIA"). The statements made under
this heading relating to the Debt Securities and the Indentures are summaries
of the provisions thereof and do not purport to be complete and are qualified
in their entirety by reference to the Indentures and such Debt Securities.
Parenthetical references below are to the Indentures and capitalized terms
used but not defined herein shall have the respective meanings set forth in
the Indentures.
TERMS
The Debt Securities will be direct, unsecured obligations of the Trust. The
indebtedness represented by the Senior Securities will rank equally with all
other unsecured and unsubordinated indebtedness of the Trust. The indebtedness
represented by the Subordinated Securities will be subordinated in right of
payment to the prior payment in full of the Senior Debt of the Trust as
described under "Subordination."
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<PAGE>
Each Indenture provides that the Debt Securities may be issued without limit
as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Trustees of the Trust or as established in one or
more indentures supplemental to such Indenture. All Debt Securities of one
series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series (Section 301 of each Indenture).
Each Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
either Indenture may resign or be removed with respect to one or more series
of Debt Securities, and a successor Trustee may be appointed to act with
respect to such series (Section 608 of each Indenture). In the event that two
or more persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee (Section 609 of each Indenture), and, except as otherwise
indicated herein, any action described herein to be taken by each Trustee may
be taken by each such Trustee with respect to, and only with respect to, the
one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the portion
of the principal amount thereof payable upon declaration of acceleration of
the maturity thereof, or (if applicable) the portion of the principal
amount of such Debt Securities that is convertible into Common Shares or
Preferred Shares, or the method by which any such portion shall be
determined;
(4) if convertible, in connection with the preservation of the Trust's
status as a REIT, any applicable limitations on the ownership or
transferability of the Common Shares or Preferred Shares into which such
Debt Securities are convertible;
(5) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(7) the date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the Interest Payment Dates on
which any such interest will be payable, the Regular Record Dates for such
Interest Payment Dates, or the method by which such Dates shall be
determined, the Persons to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a 360-
day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and where notices or demands to or upon the Trust in respect of
such Debt Securities and the applicable Indenture may be served;
(9) the period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Trust, if the Trust
is to have such an option;
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<PAGE>
(10) the obligation, if any, of the Trust to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which,
the price or prices at which and the other terms and conditions upon which
such Debt Securities will be redeemed, repaid or purchased, as a whole or
in part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(14) whether such Debt Securities will be issued in certificated or book-
entry form;
(15) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article XIV of the applicable Indenture;
(17) the terms, if any, upon which such Debt Securities may be
convertible into Common Shares or Preferred Shares of the Trust and the
terms and conditions upon which such conversion will be effected,
including, without limitation, the initial conversion price or rate and the
conversion period;
(18) whether and under what circumstances the Trust will pay Additional
Amounts as contemplated in the applicable Indenture on such Debt Securities
in respect of any tax, assessment or governmental charge and, if so,
whether the Trust will have the option to redeem such Debt Securities in
lieu of making such payment; and
(19) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301 of each Indenture).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities") (Section 502 of each Indenture).
Special U.S. federal income tax, accounting and other considerations
applicable to Original Issue Discount Securities will be described in the
applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the ability of the Trust to
incur indebtedness or that would afford Holders of Debt Securities protection
in the event of a highly leveraged or similar transaction involving the Trust
or in the event of a change of control. Restrictions on ownership and
transfers of the Trust's Common Shares and Preferred Shares are designed to
preserve its status as a REIT and, therefore, may act to prevent or hinder a
change of control. See "Description of Common Shares" and "Description of
Preferred Shares." Reference is made to the applicable Prospectus Supplement
for information with respect to any deletions from, modifications of, or
additions to, the Events of Default or covenants of the Trust that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
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<PAGE>
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302 of each Indenture).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of
Debt Securities will be payable at the corporate trust office of the Trustee,
initially located at Signet Trust Company, 7 St. Paul Street, 2nd Floor,
Baltimore, Maryland 21202 in the case of the Senior Securities and First Union
National Bank of North Carolina, 230 S. Tryon Street, 8th Floor, Charlotte,
North Carolina 28288 in the case of the Subordinated Securities, provided
that, at the option of the Trust, payment of interest may be made by check
mailed to the address of the Person entitled thereto as it appears in the
Security Register or by wire transfer of funds to such Person at an account
maintained within the United States (Sections 301, 305, 306, 307, and 1002 of
each Indenture).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof shall be given to each Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described
in the applicable Indenture (Section 307 of each Indenture).
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee referred to
above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer thereof at the
corporate trust office of the applicable Trustee referred to above. Every Debt
Security surrendered for conversion, registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer. No
service charge will be made for any registration of transfer or exchange of
any Debt Securities, but the Trust may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith
(Section 305 of each Indenture). If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the applicable Trustee) initially
designated by the Trust with respect to any series of Debt Securities, the
Trust may at any time rescind the designation of any such transfer agent or
approve a change in the location through which any such transfer agent acts,
except that the Trust will be required to maintain a transfer agent in each
Place of Payment for such series. The Trust may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002 of each Indenture).
Neither the Trust nor either Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption; (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security
being redeemed in part; or (iii) issue, register the transfer of or exchange
any Debt Security that has been surrendered for repayment at the option of the
Holder, except the portion, if any, of such Debt Security not to be so repaid
(Section 305 of each Indenture).
MERGER, CONSOLIDATION OR SALE
The Trust may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other
corporation or trust or entity provided that (a) either the Trust shall be the
continuing corporation, or the successor corporation (if other than the Trust)
formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall expressly assume payment
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<PAGE>
of the principal of (and premium, if any) and interest on all of the Debt
Securities and the due and punctual performance and observance of all of the
covenants and conditions contained in each Indenture; (b) immediately after
giving effect to such transaction and treating any indebtedness that becomes
an obligation of the Trust or any Subsidiary as a result thereof as having
been incurred by the Trust or such Subsidiary at the time of such transaction,
no Event of Default under the Indenture, and no event which, after notice or
the lapse of time, or both, would become such an Event of Default, shall have
occurred and be continuing; and (c) an officers' certificate and legal opinion
covering such conditions shall be delivered to each Trustee (Sections 801 and
803 of each Indenture).
CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Trust will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights (charter and statutory)
and franchises; provided, however, that the Trust shall not be required to
preserve any right or franchise if it determines that the preservation thereof
is no longer desirable in the conduct of its business (Section 1004 of each
Indenture).
Maintenance of Properties. The Trust will cause all of its material
properties used or useful in the conduct of its business or the business of
any Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Trust may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times (Section 1005 of each Indenture).
Insurance. The Trust will, and will cause each of its Subsidiaries to, keep
all of its insurable properties insured against loss or damage at least equal
to their then full insurable value with insurers of recognized responsibility
and having a rating of at least A-:XII in Best's Key Rating Guide (Section
1006 of each Indenture).
Payment of Taxes and Other Claims. The Trust will pay or discharge or cause
to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Trust or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Trust or
any Subsidiary; provided, however, that the Trust shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith (Section 1007 of each Indenture).
Provision of Financial Information. Whether or not the Trust is subject to
Section 13 or 15(d) of the Exchange Act, the Trust will within 15 days of each
of the respective dates by which the Trust would have been required to file
annual reports, quarterly reports and other documents with the Commission if
the Trust were so subject (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders copies of the annual reports, quarterly reports
and other documents that the Trust would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Trust
were subject to such Sections, (ii) file with the applicable Trustee copies of
the annual reports, quarterly reports and other documents that the Trust would
have been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if the Trust were subject to such Sections and (iii)
promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holder (Section 1008 of each Indenture).
Additional Covenants. Any additional covenants of the Trust with respect to
any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default
for 30 days in the payment of any installment of interest on any Debt Security
of such series; (b) default in the payment of the principal of (or premium, if
any, on) any Debt Security of such series at its Maturity; (c) default in
making any sinking fund payment as required for any Debt Security of such
series; (d) default in the performance or breach of any other covenant or
warranty of the Trust contained in the Indenture (other than a covenant added
to the Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), continued for 60 days after written notice
as provided in the applicable Indenture; (e) a default under any bond,
debenture, note or other evidence of indebtedness for money borrowed by the
Trust (including obligations under leases required to be capitalized on the
balance sheet of the lessee under generally accepted accounting principles but
not including any indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $5,000,000
or under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by the Trust (including such leases but not including such
indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $5,000,000 by the
Trust, whether such indebtedness now exists or shall hereafter be created
which default shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Trust or any Significant Subsidiary or either of
its properties; and (g) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 501 of each Indenture). The term
"Significant Subsidiary" means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Trust.
If an Event of Default under either Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing,
then in every such case the applicable Trustee or the Holders of not less than
25% in principal amount of the Outstanding Debt Securities of that series may
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or Indexed Securities, such portion of the
principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Trust (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding
under either Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Trustee, the Holders of not less than a majority in principal
amount of Outstanding Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) the
Trust shall have deposited with the applicable Trustee all required payments
of the principal of (and premium, if any) and interest on the Debt Securities
of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of the applicable Trustee and (b) all Events of
Default, other than the non-payment of accelerated principal (or specified
portion thereof), with respect to Debt Securities of such series (or of all
Debt Securities then Outstanding under the applicable Indenture, as the case
may be) have been cured or waived as provided in each Indenture (Section 502
of each Indenture). Each Indenture also provides that the Holders of not less
than a majority in principal amount of the Outstanding Debt Securities of any
series (or of all Debt Securities then Outstanding under the applicable
Indenture, as the case may be) may waive any past default with respect to such
series and its consequences, except a default (x) in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or (y) in respect of a covenant or provision contained in the
applicable Indenture that cannot be modified or amended without the consent of
the Holder of each Outstanding Debt Security affected thereby (Section 513 of
each Indenture).
Each Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the applicable Indenture unless such default
shall have been cured or waived; provided, however, that such Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect
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to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of
such series) if the Responsible Officers of such Trustee consider such
withholding to be in the interest of such Holders (Section 601 of each
Indenture).
Each Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507 of each Indenture). This provision will not
prevent, however, any Holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest
on such Debt Securities at the respective due dates thereof (Section 508 of
each Indenture).
Subject to provisions in each Indenture relating to its duties in case of
default, neither Trustee is under an obligation to exercise any of its rights
or powers under such Indenture at the request or direction of any Holders of
any series of Debt Securities then Outstanding under such Indenture, unless
such Holders shall have offered to the Trustee thereunder reasonable security
or indemnity (Section 602 of each Indenture). The Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under each Indenture, as the case
may be) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Trustee,
or of exercising any trust or power conferred upon such Trustee. However, each
Trustee may refuse to follow any direction which is in conflict with any law
or the applicable Indenture, which may involve such Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 512 of each Indenture).
Within 120 days after the close of each fiscal year, the Trust must deliver
to each Trustee a certificate, signed by one of several specified officers,
stating whether or not such officer has knowledge of any default under the
applicable Indenture and, if so, specifying each such default and the nature
and status thereof (Section 1009 of each Indenture).
MODIFICATION OF THE INDENTURES
Modifications and amendments of either Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities issued under such Indenture which are affected by
such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (b)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the
Holder of any such Debt Security; (c) change the Place of Payment, or the coin
or currency, for payment of principal of, premium, if any, or interest on any
such Debt Security; (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security; (e) reduce the
above-stated percentage of Outstanding Debt Securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the applicable
Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the Holder of such Debt Security (Section 902 of each
Indenture).
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The Holders of not less than a majority in principal amount of Outstanding
Debt Securities issued under either Indenture have the right to waive
compliance by the Trust with certain covenants in such Indenture (Section 1011
of each Indenture).
Modifications and amendments of either Indenture may be made by the Trust
and the respective Trustee thereunder without the consent of any Holder of
Debt Securities for any of the following purposes: (i) to evidence the
succession of another Person to the Trust as obligor under such Indenture;
(ii) to add to the covenants of the Trust for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Trust in such Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to
add or change any provisions of either Indenture to facilitate the issuance
of, or to liberalize certain terms of, Debt Securities in bearer form, or to
permit or facilitate the issuance of Debt Securities in uncertificated form,
provided that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series in any material respect; (v) to
change or eliminate any provisions of either Indenture, provided that any such
change or elimination shall become effective only when there are no Debt
Securities Outstanding of any series created prior thereto which are entitled
to the benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Shares or Preferred Shares of the Trust; (viii) to
provide for the acceptance of appointment by a successor Trustee or facilitate
the administration of the trusts under either Indenture by more than one
Trustee; (ix) to cure any ambiguity, defect or inconsistency in either
Indenture, provided that such action shall not adversely affect the interests
of Holders of Debt Securities of any series issued under such Indenture; or
(x) to supplement any of the provisions of either Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of
such Debt Securities, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series (Section 901 of
each Indenture).
Each Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon declaration of acceleration of the maturity thereof, (ii) the principal
amount of a Debt Security denominated in a Foreign Currency that shall be
deemed outstanding shall be the U.S. dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of
an Original Issue Discount Security, the U.S. dollar equivalent on the issue
date of such Debt Security of the amount determined as provided in (i) above),
(iii) the principal amount of an Indexed Security that shall be deemed
outstanding shall be the principal face amount of such Indexed Security at
original issuance, unless otherwise provided with respect to such Indexed
Security pursuant to Section 301 of each Indenture, and (iv) Debt Securities
owned by the Trust or any other obligor upon the Debt Securities or any
Affiliate of the Trust or of such other obligor shall be disregarded (Section
101 of each Indenture).
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501 of each Indenture). A meeting may be
called at any time by the applicable Trustee, and also, upon request, by the
Trust or the Holders of at least 10% in principal amount of the Outstanding
Debt Securities of such series, in any such case upon notice given as provided
in the Indenture (Section 1502 of each Indenture). Except for any consent that
must be given by the Holder of each Debt Security affected by certain
modifications and amendments of either Indenture, any resolution presented at
a meeting or adjourned meeting duly reconvened at which a quorum is present
may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except as referred to above, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the Holders of a specified
percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or
adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of such
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specified percentage in principal amount of the Outstanding Debt Securities of
that series. Any resolution passed or decision taken at any meeting of Holders
of Debt Securities of any series duly held in accordance with either Indenture
will be binding on all Holders of Debt Securities of that series. The quorum
at any meeting called to adopt a resolution, and at any reconvened meeting,
will be Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may
be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504 of each
Indenture).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that either Indenture expressly provides may be made, given or taken by
the Holders of a specified percentage in principal amount of all Outstanding
Debt Securities affected thereby, or of the Holders of such series and one or
more additional series: (i) there shall be no minimum quorum requirement for
such meeting and (ii) the principal amount of the Outstanding Debt Securities
of such series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under such
Indenture (Section 1504 of each Indenture).
SUBORDINATION
Upon any distribution to creditors of the Trust in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
the Subordinated Securities will be subordinated to the extent provided in the
Subordinated Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Trust to make payment of the principal and interest on the
Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). No payment of principal or interest may be made on
the Subordinated Securities at any time if a default on Senior Debt exists
that permits the holders of such Senior Debt to accelerate its maturity and
the default is the subject of judicial proceedings or the Trust receives
notice of the default (Section 1603 of the Subordinated Indenture). After all
Senior Debt is paid in full and until the Subordinated Securities are paid in
full, holders will be subrogated to the rights of holders of Senior Debt to
the extent that distributions otherwise payable to holders have been applied
to the payment of Senior Debt (Section 1607 of the Subordinated Indenture). By
reason of such subordination, in the event of a distribution of assets upon
insolvency, certain general creditors of the Trust may recover more, ratably,
than holders of the Subordinated Securities.
Senior Debt is defined in the Subordinated Indenture as the principal of and
interest on, or substantially similar payments to be made by the Trust in
respect of, the following, whether outstanding at the date of execution of the
Subordinated Indenture or thereafter incurred, created or assumed:
(a) indebtedness of the Trust for money borrowed or represented by purchase-
money obligations, (b) indebtedness of the Trust evidenced by notes,
debentures, or bonds, or other securities issued under the provisions of an
indenture, fiscal agency agreement or other instrument, (c) obligations of the
Trust as lessee under leases of property either made as part of any sale and
leaseback transaction to which the Trust is a party or otherwise,
(d) indebtedness of partnerships and joint ventures which is included in the
consolidated financial statements of the Trust, (e) indebtedness, obligations
and liabilities of others in respect of which the Trust is liable contingently
or otherwise to pay or advance money or property or as guarantor, endorser or
otherwise or which the Trust has agreed to purchase or otherwise acquire, and
(f) any binding commitment of the Trust to fund any real estate investment or
to fund any investment in any entity making such real estate investment, in
each case other than (1) any such indebtedness, obligation or liability
referred to in clauses (a) through (f) above as to which, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding,
it is provided that such indebtedness,
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obligation or liability is not superior in right of payment to the
Subordinated Securities or ranks pari passu with the Subordinated Securities,
(2) any such indebtedness, obligation or liability which is subordinated to
indebtedness of the Trust to substantially the same extent as or to a greater
extent than the Subordinated Securities are subordinated, and (3) the
Subordinated Securities (Section 101 of the Subordinated Indenture). At June
30, 1995, Senior Debt aggregated approximately $365 million. There are no
restrictions in the Subordinated Indenture upon the creation of additional
Senior Debt.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under each Indenture, the Trust may discharge certain obligations to Holders
of any series of Debt Securities issued thereunder that have not already been
delivered to the applicable Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal (and premium, if any) and
interest to the date of such deposit (if such Debt Securities have become due
and payable) or to the Stated Maturity or Redemption Date, as the case may be
(Section 401 of each Indenture).
Each Indenture provides that, if the provisions of Article Fourteen thereof
are made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Trust may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay Additional Amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge
with respect to payments on such Debt Securities and the obligations to
register the transfer or exchange of such Debt Securities, to replace
temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain
an office or agency in respect of such Debt Securities and to hold moneys for
payment in trust) ("defeasance") (Section 1402 of each Indenture) or (b) to be
released from its obligations with respect to such Debt Securities under
Sections 1004 to 1008, inclusive, of each Indenture (being the restrictions
described under "Certain Covenants") or, if provided pursuant to Section 301
of each Indenture, its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(Section 1403 of each Indenture), in either case upon the irrevocable deposit
by the Trust with the applicable Trustee, in trust, of an amount, in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at Stated Maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and premium, if any) and interest on such Debt Securities,
and any mandatory sinking fund or analogous payments thereon, on the scheduled
due dates therefor (Section 1404 of each Indenture).
Such a trust may only be established if, among other things, the Trust has
delivered to the applicable Trustee an Opinion of Counsel (as specified in
each Indenture) to the effect that the Holders of such Debt Securities will
not recognize income, gain or loss for U.S. federal income tax purposes as a
result of such defeasance or covenant defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such Opinion of Counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable U. S. federal income tax law occurring after the date of
the Indenture (Section 1404 of each Indenture).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the Foreign Currency in which the Debt Securities of such series are
payable, the payment of which
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is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian
with respect to any such Government Obligation or a specific payment of
interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the
Government Obligation evidenced by such depository receipt (Section 101 of
each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Trust has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to Section 301 of either Indenture or the terms of such
Debt Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of
such Debt Security, or (b) a Conversion Event (as defined below) occurs in
respect of the currency, currency unit or composite currency in which such
deposit has been made, the indebtedness represented by such Debt Security
shall be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of such Debt Security into the
currency, currency unit or composite currency in which such Debt Security
becomes payable as a result of such election or such cessation of usage based
on the applicable market exchange rate (Section 1405 of each Indenture).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium,
if any) and interest on any Debt Security that is payable in a Foreign
Currency that ceases to be used by its government of issuance shall be made in
U.S. dollars (Section 101 of each Indenture).
In the event the Trust effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default
described in clause (d) under "Events of Default, Notice and Waiver" with
respect to Sections 1004 to 1008, inclusive, of each Indenture (which Sections
would no longer be applicable to such Debt Securities) or described in clause
(g) under "Events of Default, Notice and Waiver" with respect to any other
covenant as to which there has been covenant defeasance, the amount in such
currency, currency unit or composite currency in which such Debt Securities
are payable, and Government Obligations on deposit with the applicable
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Trust would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Shares or Preferred Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Shares or Preferred
Shares, the conversion
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price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the Holders or the Trust, the
events requiring an adjustment of the conversion price and provisions
affecting conversion in the event of the redemption of such Debt Securities.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global
Securities may be issued in either registered or bearer form and in either
temporary or permanent form. The specific terms of the depositary arrangement
with respect to a series of Debt Securities will be described in the
applicable Prospectus Supplement relating to such series.
DESCRIPTION OF PREFERRED SHARES
GENERAL
The Trust is authorized to issue an unlimited number of preferred shares
(the "Preferred Shares") of which no Preferred Shares are outstanding.
The following description of the Preferred Shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate. The statements below describing the Preferred Shares
are in all respects subject to and qualified in their entirety by reference to
the applicable provisions of the Trust's Third Amended and Restated
Declaration of Trust (the "Declaration of Trust") and Bylaws and applicable
statement of designations (the "Statement of Designations").
TERMS
Subject to the limitations prescribed by the Declaration of Trust, the Board
of Trustees is authorized to fix the number of shares constituting each series
of Preferred Shares and the designations and powers, preferences and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the Board of Trustees. The Preferred
Shares will, when issued, be fully paid and nonassessable by the Trust (except
as described under "Shareholder Liability" below) and will have no preemptive
rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Shares;
(2) The number of such Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Trust, including the
conversion price (or manner of calculation thereof);
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(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(11) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(12) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Trust;
(13) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Trust; and
(14) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Trust as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Trust, rank (i) senior to all classes or
series of Common Shares or other capital shares of the Trust, and to all
equity securities ranking junior to such Preferred Shares; (ii) on a parity
with all equity securities issued by the Trust the terms of which specifically
provide that such equity securities rank on a parity with the Preferred
Shares; and (iii) junior to all equity securities issued by the Trust the
terms of which specifically provide that such equity securities rank senior to
the Preferred Shares. The term "equity securities" does not include
convertible debt securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Trust, out of assets
of the Trust legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement.
Each such dividend shall be payable to holders of record as they appear on the
share transfer books of the Trust on such record dates as shall be fixed by
the Board of Trustees of the Trust.
Dividends on any series of the Preferred Shares may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Trust fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are noncumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend
in respect of the dividend period ending on such dividend payment date, and
the Trust will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no dividends will be
declared or paid or set apart for payment on the Preferred Shares of the Trust
of any other series ranking, as to dividends, on a parity with or junior to
the Preferred Shares of such series for any period unless (i) if such series
of Preferred Shares has a cumulative dividend, full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Preferred Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of
Preferred Shares ranking on a parity as to dividends with such Preferred
Shares shall be declared pro rata so that the amount of dividends declared per
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Preferred Share of such series and such other series of Preferred Shares shall
in all cases bear to each other the same ratio that accrued dividends per
share on the Preferred Shares of such series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
Preferred Shares do not have a cumulative dividend) and such other series of
Preferred Shares bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Preferred Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period and (ii) if such series of Preferred Shares
does not have a cumulative dividend, full dividends on the Preferred Shares of
such series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period, no dividends (other than in Common Shares or
other capital shares ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common
Shares, or any other capital shares of the Trust ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation, nor shall any Common Shares, or any other capital shares of the
Trust ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for
a sinking fund for the redemption of any such shares) by the Trust (except by
conversion into or exchange for other capital shares of the Trust ranking
junior to the Preferred Shares of such series as to dividends and upon
liquidation).
Any dividend payment made on shares of a series of Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Trust, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred
Shares that shall be redeemed by the Trust in each year commencing after a
date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Shares do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Shares of any series is payable only
from the net proceeds of the issuance of capital shares of the Trust, the
terms of such Preferred Shares may provide that, if no such capital shares
shall have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares shall automatically and mandatorily be converted into the
applicable capital shares of the Trust pursuant to conversion provisions
specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Shares shall have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart
for payment for all past dividend periods and the then current dividend period
and (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, no shares of any series of Preferred Shares shall be redeemed unless
all outstanding
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Preferred Shares of such series are simultaneously redeemed; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
Preferred Shares of such series to preserve the REIT status of the Trust or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Preferred Shares of such series, and, unless (i) if such
series of Preferred Shares has a cumulative dividend, full cumulative
dividends on all outstanding shares of any series of Preferred Shares have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period and (ii) if such series of
Preferred Shares does not have a cumulative dividend, full dividends on the
Preferred Shares of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Trust shall not purchase or
otherwise acquire directly or indirectly any Preferred Shares of such series
(except by conversion into or exchange for capital shares of the Trust ranking
junior to the Preferred Shares of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of Preferred Shares of such series to preserve the
REIT status of the Trust or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Trust and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by the Trust.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the share transfer books
of the Trust. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Shares are to be surrendered for payment of the redemption price;
(v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the Preferred
Shares of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of Preferred Shares to be redeemed from
each such holder. If notice of redemption of any Preferred Shares has been
given and if the funds necessary for such redemption have been set aside by
the Trust in trust for the benefit of the holders of any Preferred Shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Shares, and all rights of the holders of
such shares will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Trust, then, before any distribution or payment shall be
made to the holders of any Common Shares, excess shares or any other class or
series of capital shares of the Trust ranking junior to the Preferred Shares
in the distribution of assets upon any liquidation, dissolution or winding up
of the Trust, the holders of each series of Preferred Shares shall be entitled
to receive out of assets of the Trust legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Shares do not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Shares will have no right or claim to any
of the remaining assets of the Trust. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the available
assets of the Trust are insufficient to pay the amount of the liquidating
distributions on all outstanding Preferred Shares and the corresponding
amounts payable on all shares of other classes or series of capital shares of
the Trust
18
<PAGE>
ranking on a parity with the Preferred Shares in the distribution of assets,
then the holders of the Preferred Shares and all other such classes or series
of capital shares shall share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Trust shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Shares upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Trust with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Trust, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Trust.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any Preferred Shares shall be in arrears for six
consecutive quarterly periods, the holders of such Preferred Shares (voting
separately as a class with all other series of Preferred Shares upon which
like voting rights have been conferred and are exercisable) will be entitled
to vote for the election of two additional Trustees of the Trust at the next
annual meeting of shareholders and at each subsequent meeting until (i) if
such series of Preferred Shares has a cumulative dividend, all dividends
accumulated on such shares of Preferred Shares for the past dividend periods
and the then current dividend period shall have been fully paid or declared
and a sum sufficient for the payment thereof set aside for payment or (ii) if
such series of Preferred Shares does not have a cumulative dividend, four
consecutive quarterly dividends shall have been fully paid or declared and a
sum sufficient for the payment thereof set aside for payment. In such case,
the entire Board of Trustees of the Trust will be increased by two Trustees.
Unless provided otherwise for any series of Preferred Shares, so long as any
Preferred Shares remain outstanding, the Trust will not, without the
affirmative vote or consent of the holders of at least two-thirds of the
shares of each series of Preferred Shares outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital shares ranking prior to such
series of Preferred Shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital shares of the Trust into any such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or
repeal the provisions of the Trust's Declaration of Trust or the Statement of
Designations for such series of Preferred Shares, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Shares or the holders thereof; provided, however, with respect to
the occurrence of any of the Events set forth in (ii) above, so long as the
Preferred Shares remain outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event, the Trust
may not be the surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of Preferred Shares and provided further that
(x) any increase in the amount of the authorized Preferred Shares or the
creation or issuance of any other series of Preferred Shares, or (y) any
increase in the amount of authorized shares of such series or any other series
of Preferred Shares, in each case ranking on a parity with or junior to the
Preferred Shares of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
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The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
are convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Common Shares into which the Preferred Shares are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Shares or the Trust, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
such series of Preferred Shares.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Shares--Shareholder
Liability," the Declaration of Trust provides that no shareholder, including
holders of Preferred Shares, shall be personally liable for the acts and
obligations of the Trust and that the funds and property of the Trust shall be
solely liable for such acts or obligations. The Declaration of Trust provides
that, to the extent practicable, each written instrument creating an
obligation of the Trust shall contain a provision to that effect. The
Declaration of Trust also provides that the Trust shall indemnify and hold
harmless shareholders against all claims and liabilities and related
reasonable expenses to which they may become subject by reason of their being
or having been shareholders. In some jurisdictions, however, with respect to
tort and contract claims where shareholder liability is not so negated, claims
for taxes and certain statutory liability, shareholders may be personally
liable to the extent that such claims are not satisfied by the Trust. The
Trust carries public liability insurance that the Trustees consider adequate.
Thus, any risk of personal liability to shareholders is limited to situations
in which the Trust's assets plus its insurance coverage would be insufficient
to satisfy the claims against the Trust and its shareholders.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Shares--REIT Qualification,"
for the Trust to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"), not more than 50% in value of its outstanding capital
shares may be owned, directly or constructively, by five or fewer individuals
(as defined in the Code to include certain entities) during the last half of a
taxable year. To assist the Trust in meeting this requirement, the Trust may
take certain other actions to limit the beneficial ownership, directly or
indirectly, by a single person of more than 9.8% of the Trust's outstanding
equity securities, including any Preferred Shares of the Trust. Therefore, the
Statement of Designations for each series of Preferred Shares will contain
certain provisions restricting the ownership and transfer of the Preferred
Shares. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Shares.
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<PAGE>
DESCRIPTION OF COMMON SHARES
GENERAL
The Common Shares are issued pursuant to the Declaration of Trust. The
Common Shares (no par or stated value) are equal with respect to distribution
and liquidation rights, are not convertible, have no preemptive rights to
subscribe for additional Common Shares, are nonassessable (except as described
under "Shareholder Liability" below) and are transferable in the same manner
as shares of a corporation. Each shareholder is entitled to one vote in person
or by proxy for each Common Share registered in his name and has the right to
vote on the election or removal of Trustees, amendments to the Declaration of
Trust, proposals to terminate, reorganize, merge or consolidate the Trust or
to sell or dispose of substantially all of the Trust's property and with
respect to certain business combinations. The Trust will have perpetual
existence unless and until dissolved and terminated. Except with respect to
the foregoing matters, no action taken by the shareholders at any meeting
shall in any way bind the Trustees. The Common Shares offered by the Trust
will be, when issued, fully paid and nonassessable (except as described under
"Shareholder Liability" below).
Without shareholder approval, the Trust may issue an unlimited number of
securities, warrants, rights, or other options to purchase Common Shares and
other securities convertible into Common Shares.
Several provisions in the Declaration of Trust may have the effect of
deterring a takeover of the Trust. These provisions (i) establish the
percentage of outstanding Common Shares required to approve certain matters,
including removal of a Trustee, amendment of any section of the Declaration of
Trust that provides for a shareholder vote, the reorganization, merger,
consolidation, sale or termination of the Trust and a sale of substantially
all of the assets of the Trust, at 80% unless the matter to be acted upon is
approved or recommended by the Board of Trustees in which event the percentage
is 66 2/3%; (ii) restrict ownership of the Trust's outstanding capital shares
by a single person to 9.8% of such capital shares unless otherwise approved by
the Board of Trustees to assist in protecting and preserving the qualification
of the Trust as a real estate investment trust under the Code; and (iii)
include a "fair price" provision that would deter a "two-stage" takeover
transaction by requiring an 80% vote of outstanding Common Shares for certain
defined "business combinations" with shareholders owning more than 9.8% of
Common Shares or their affiliates if the transaction is neither approved by
the Board of Trustees nor meets certain price and procedural conditions.
In addition, the Declaration of Trust includes provisions for (i) the
classification of Trustees into three classes serving three year staggered
terms and (ii) the authorization of Trustees to issue an unlimited number of
Common Shares and to issue additional classes of equity securities in
unlimited numbers with such rights, qualifications, limitations or
restrictions as are stated in the Board of Trustees' resolution establishing
such class of securities.
In 1989, the Trustees adopted a Shareholder Rights Plan (the "Plan"). Under
the Plan, one right was issued for each outstanding Common Share and a right
will be attached to each Share issued in the future. The rights authorize the
holders to purchase Common Shares at a price below market upon the occurrence
of certain events, including, unless approved by the Board of Trustees,
acquisition by a person or group of certain levels of beneficial ownership of
the Trust or a tender offer. The rights are redeemable by the Trust for $.01
and expire in 1999.
REIT QUALIFICATION
The Trust operates in a manner intended to qualify for treatment as a real
estate investment trust under Sections 856 to 860 of the Code. In general, a
REIT that distributes to its shareholders at least 95% of its taxable income
(other than net capital gain) for a taxable year and that meets certain other
conditions will not be taxed on income (including net capital gain)
distributed for that year. If the Trust fails to qualify as a REIT in any
taxable year, it will be taxed as a corporation for that year on all its
income, regardless of whether that income is distributed to shareholders, and
its shareholders will be separately taxed on the amount of any such
distributions.
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<PAGE>
Under such circumstances, the Trust also will be disqualified from being
treated as a REIT for the ensuing four taxable years. Failure to qualify as a
REIT could result in the Trust incurring indebtedness and perhaps liquidating
investments in order to pay its taxes.
Among the requirements which must be met in order for the Trust to qualify
as a REIT is that not more than 50% in value of the outstanding capital
shares, including in some circumstances capital shares into which outstanding
securities (including the Securities) might be converted, may be owned
actually or constructively by five or fewer individuals or certain other
entities at any time during the last half of the Trust's taxable year. To
assist the Trust in meeting this requirement, the Trust (a) by lot or other
equitable means, may prevent the transfer of and/or may call for redemption a
number of capital shares sufficient for the continued qualification of the
Trust as a REIT and (b) may refuse to register the transfer of capital shares
and may take certain other actions to limit the beneficial ownership, directly
or indirectly, by a single person of more than 9.8% of the Trust's outstanding
equity securities. Capital shares reserved for issuance upon conversion of any
class of then outstanding convertible securities of the Trust may be
considered outstanding capital shares for purposes of this provision if the
effect thereof would be to cause a single person to own or to be deemed to own
more than 9.8% of the Trust's outstanding capital shares. Without shareholder
approval, the Trust may issue an unlimited number of securities, warrants,
rights or other options to purchase Common Shares and other securities
convertible into Common Shares.
FEDERAL INCOME TAX CONSIDERATIONS
In any year which the Trust qualifies to be taxed as a REIT, distributions
made to its shareholders out of current or accumulated earnings and profits
will be taxed to shareholders as ordinary income except that distributions of
net capital gains designated by the Trust as capital gain dividends will be
taxed as long-term capital gain income to the shareholders. To the extent that
distributions exceed current or accumulated earnings and profits, they will
constitute a return of capital, rather than dividend or capital gain income,
and will reduce the basis for the shareholder's Common Shares with respect to
which the distribution is paid or, to the extent that they exceed such basis,
will be taxed in the same manner as gain from the sale of those Common Shares.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Common Shares and with respect to the
tax consequences arising under the laws of any state, municipality or other
taxing jurisdiction, as well as the Federal tax consequences resulting from
such investor's own tax characteristics. Foreign investors should consult
their own tax advisors concerning the tax consequences to them of an
investment in the Trust, including the possibility of United States income tax
withholding on Trust distributions.
SHAREHOLDER LIABILITY
The Declaration of Trust provides that no shareholder shall be personally
liable in connection with the Trust's property or the affairs of the Trust.
The Declaration of Trust further provides that the Trust shall indemnify and
hold harmless shareholders against all claims and liabilities and related
reasonable expenses to which they may become subject by reason of their being
or having been shareholders. In addition, the Trust is required to, and as a
matter of practice does, insert a clause in its contracts that provides that
shareholders shall not be personally liable thereunder. However, in respect to
tort claims and contract claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, the shareholders may, in
some jurisdictions, be personally liable to the extent that such claims are
not satisfied by the Trust. The Trust carries public liability insurance that
the Trustees consider adequate. Thus, any risk of personal liability to
shareholders is limited to situations in which the Trust's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Trust and its shareholders.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Shares is American Stock
Transfer & Trust Company, New York, New York.
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<PAGE>
PLAN OF DISTRIBUTION
The Trust may sell Securities to or through underwriters, and also may sell
Securities directly to other purchasers or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Trust or from purchasers of Securities, for whom they
may act as agents, in the form of discounts, concessions, or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions, or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers, and agents that participate in the
distribution of Securities may be deemed to be underwriters, and any discounts
or commissions they receive from the Trust, and any profit on the resale of
Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Trust will be
described, in the Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each series
of Securities will be a new issue with no established trading market, other
than the Common Shares which are listed on the New York Stock Exchange. Any
Common Shares sold pursuant to a Prospectus Supplement will be listed on such
exchange, subject to official notice of issuance. The Trust may elect to list
any series of Debt Securities or Preferred Shares on an exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the
Securities.
Under agreements the Trust may enter into, underwriters, dealers, and agents
who participate in the distribution of Securities may be entitled to
indemnification by the Trust against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be customers of, the Trust in the ordinary course of
business.
If so indicated in the Prospectus Supplement, the Trust will authorize
underwriters or other persons acting as the Trust's agents to solicit offers
by certain institutions to purchase Securities from the Trust pursuant to
contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Trust. The obligations of any purchaser under any such
contract will be subject to the condition that the purchase of the Securities
shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
LEGAL OPINIONS
The legality of the Securities offered hereby is being passed upon for the
Trust by Kirkpatrick & Lockhart LLP, 1800 M Street, N.W., Washington, D.C.
20036. Certain REIT tax matters relating to the Trust are being passed upon by
Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts 02109. Brown &
Wood, One World Trade Center, New York, New York 10048-0557 will act as
counsel to any underwriters, dealers or agents.
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<PAGE>
EXPERTS
The Consolidated FInancial Statements and Schedules of the Trust as of
December 31, 1994 and 1993 and for each of the years in the three year period
ended December 31, 1994 incorporated herein by reference have been
incorporated herein in reliance on the reports dated February 10, 1995 of
Grant Thornton LLP, independent certified public accountants, also
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
With respect to the unaudited interim financial information included in the
Trust's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995
and June 30, 1995 which are incorporated herein by reference, Grant Thornton
LLP has applied limited procedures in accordance with professional standards
for a review of such information. However, as stated in their reports dated
May 5, 1995 and August 8, 1995 included in the Trust's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995 and
incorporated by reference herein, they did not audit and they do not express
an opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Grant Thornton LLP is not
subject to the liability provisions of Section 11 of the Securities Act of
1933 for their reports on the unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act.
The Statement of Revenue and Certain Expenses of Sidcor Finley Associates
for the year ended December 31, 1994, included in the Trust's Current Report
on Form 8-K filed with the Commission on September 22, 1995, incorporated by
reference herein, has been incorporated herein in reliance on the report dated
June 13, 1995 of Warady & Davis LLP, independent certified public accountants,
also incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SE-
CURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS 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 TRUST SINCE
THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust................................................................ S-2
The Offering............................................................. S-3
Use of Proceeds.......................................................... S-4
Capitalization........................................................... S-5
Summary Selected Financial Information................................... S-6
Properties............................................................... S-8
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ S-10
Management............................................................... S-17
Description of Series A Preferred Shares................................. S-18
Certain Federal Income Tax Considerations................................ S-23
Underwriting............................................................. S-27
PROSPECTUS
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
The Trust................................................................ 3
Use of Proceeds.......................................................... 4
Ratios of Earnings to Fixed Charges...................................... 4
Description of Debt Securities........................................... 4
Description of Preferred Shares.......................................... 15
Description of Common Shares............................................. 21
Plan of Distribution..................................................... 23
Legal Opinions........................................................... 23
Experts.................................................................. 24
</TABLE>
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4,000,000 SHARES
[LOGO OF FEDERAL REALTY INVESTMENT TRUST APPEARS HERE]
7.95% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES
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PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
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