<PAGE>
File Pursuant to Rule 424(b)(5)
Registration Number 333-39155
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 13, 1997)
751,269 Shares
Brandywine Realty Trust
Common Shares of Beneficial Interest
____________
Brandywine Realty Trust (collectively with its subsidiaries, the
"Company") is a self-administered, self-managed and fully integrated real
estate investment trust ("REIT") that currently owns a portfolio of 116
properties (100 office properties and 16 industrial facilities)
(collectively, the "Properties") that contain an aggregate of approximately
7.1 million net rentable square feet. An aggregate of 112 of the Properties
are located in the Suburban Philadelphia Office and Industrial Market (as
defined in the accompanying Prospectus). In addition, the Company currently
owns or holds options to purchase approximately 246 acres of undeveloped land
directly, and holds economic interests in four office development entities
(collectively, the "Development Entities") that own or have options to
purchase an aggregate of approximately 36.5 acres of undeveloped land and
that are currently in the process of constructing two Class A mid-rise office
buildings that will contain an aggregate of approximately 235,000 net
rentable square feet. The Company has entered into agreements, subject to
certain conditions, to purchase 23 additional office properties (the "Pending
Acquisitions") containing an aggregate of approximately 2.0 million net
rentable square feet.
All of the common shares of beneficial interest, par value $.01 per share,
of the Company (the "Common Shares") offered hereby (the "Offering") are being
sold by the Company. The Common Shares are traded on the New York Stock Exchange
(the "NYSE") under the symbol "BDN." On December 18, 1997, the last reported
sale price for the Common Shares was $24-5/8. See "Price Range of Common
Shares and Distribution History."
The Company qualified as a REIT for federal income tax purposes commencing
with its taxable year ended December 31, 1986. To assist the Company in
complying with certain qualification requirements applicable to REITs, the
Company's Declaration of Trust provides that no shareholder or group of
affiliated shareholders may actually or constructively own more than 9.8% in
value of the outstanding Common Shares, subject to certain exceptions. See
"Description of Shares of Beneficial Interest -- Restrictions on Transfer" in
the accompanying Prospectus.
______________
See "Risk Factors" beginning on page 5 of the accompanying Prospectus for a
discussion of certain factors relevant to an investment in the Common Shares.
______________
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 COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________________________________________________________________________
_______________________________________________________________________________
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company (2)
_______________________________________________________________________________
Per Share $24.6250 $1.1081 $23.5169
_______________________________________________________________________________
Total $18,499,999.125 $832,481.179 $17,667,517.946
_______________________________________________________________________________
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $75,000.
________________________
The Common Shares offered by this Prospectus Supplement are offered by the
Underwriter, subject to prior sale, when, as and if delivered to and accepted by
the Underwriter and subject to its right to reject orders in whole or in part.
It is expected that delivery of the Common Shares offered hereby will be made at
the offices of Legg Mason Wood Walker, Incorporated, Baltimore, Maryland, on or
about December 23, 1997.
_______________________
LEGG MASON WOOD WALKER
Incorporated
The date of this Prospectus Supplement is December 18, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF
THE COMMON SHARES. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON
SHARES TO COVER A SYNDICATE SHORT POSITION IN THE COMMON SHARES OR FOR
THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON SHARES AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus Supplement
and the accompanying Prospectus or incorporated therein by reference.
Unless the context otherwise requires, all references to the "Company"
shall mean Brandywine Realty Trust and its subsidiaries and affiliated
entities, including Brandywine Operating Partnership, L.P. (the
"Operating Partnership").
Certain matters discussed under the caption "The Company," and
elsewhere in this Prospectus Supplement, the accompanying Prospectus,
and the information incorporated by reference therein, constitute
forward-looking statements for purposes of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended, and as
such may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements
of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, there can be no assurance that these expectations will be
realized. Factors that could cause actual results to differ materially
from current expectations include the failure of Pending Acquisitions to
close, changes in general economic conditions, changes in local real
estate conditions, changes in industries in which the Company's
principal tenants compete, the failure to timely lease unoccupied square
footage, the failure to timely re-lease occupied square footage upon
expiration of leases, the inability to generate sufficient revenues to
meet debt service payments and operating expenses, the unavailability of
equity and debt financing (including the failure of the Company to close
on the contemplated increase of its revolving credit facility) and other
risks described in this Prospectus Supplement or in the accompanying
Prospectus or incorporated therein by reference.
THE COMPANY
The Company is a self-administered, self-managed and fully integrated
REIT active in acquiring, leasing, developing, redeveloping and managing
primarily suburban office and industrial properties. The Company's portfolio
currently consists of 116 Properties (100 office properties and 16 industrial
facilities) that contain an aggregate of approximately 7.1 million net
rentable square feet. An aggregate of 112 of the Properties are located in
the Suburban Philadelphia Office and Industrial Market (constituting
approximately 96% of the Company's portfolio, based on total net rentable
square feet). As of December 18, 1997, the Properties were approximately
89.7% leased to 689 tenants under 823 leases. The Company also owns or
holds options to purchase approximately 246 acres of undeveloped land
directly, and owns or holds options to purchase approximately 36.5 acres of
undeveloped land through its economic interests in the Development Entities.
Two of the Development Entities are currently constructing two Class A
mid-rise office buildings which are expected to contain an aggregate of
approximately 235,000 net rentable square feet upon completion.
Since January 1, 1997, the Company has acquired 66 office properties
containing approximately 4.1 million net rentable square feet and 13
industrial facilities containing approximately 1.0 million net rentable
square feet and has acquired directly and through its economic interests in
the Development Entities ownership of, or options to purchase, approximately
282.5 acres of undeveloped land. If the Pending Acquisitions are consummated,
the Company will have completed over $650 million in real estate investments
since the closing of its public offering on December 2, 1996.
S-2
<PAGE>
RECENT DEVELOPMENTS
PENDING ACQUISITIONS
As part of its ongoing business, the Company actively seeks opportunities
to acquire additional properties on favorable terms. In furtherance of its
business objectives, the Company has entered into agreements to acquire the
Pending Acquisitions, which consist of 23 office properties that contain an
aggregate of approximately 2.0 million net rentable square feet, for an
aggregate purchase price of approximately $231.5 million, or approximately
$117 per square foot. If the Company were to consummate the purchase of the
Pending Acquisitions, the Company's portfolio would consist of 139 properties
(123 of which are office properties and 16 of which are industrial
properties) containing an aggregate of approximately 9.1 million net rentable
square feet. Set forth below is certain information relating to the Pending
Acquisitions:
Net Rentable Number of
Property Name Location Square Feet Properties
- ------------- ------------------ ------------ ----------
Freedom Business Center King of Prussia,PA 367,881 4
Trend Office Building King of Prussia,PA 20,600 1
Newtown Commons Newtown, PA 128,659 2
Devon West Devon, PA 61,102 1
King's Mill Cincinnati, OH 156,175 1
Atlantic Federal Building Towson, MD 120,234 1
Linden Park Wilmington, DE 105,000 1
1105 Berkshire Boulevard Reading, PA 68,984 1
1150 Berkshire Boulevard Reading, PA 26,821 1
Park 80 West Saddlebrook, NJ 483,189 2
University Plaza Newark, DE 179,722 6
520 Virginia Drive Fort Washington,PA 48,122 1
AmeriData(1) Frederick, MD 208,774 1
--------- --
Total 1,975,263 23
--------- --
--------- --
- ------------------
(1) As part of the Pending Acquisitions, the Company will purchase an office
property in Frederick, MD which is currently under construction and is
expected to contain approximately 208,774 net rentable square feet upon
completion. This property acquisition is contingent upon commencement of
a lease with AmeriData, which will occupy 100% of the rentable space upon
completion of construction which is anticipated to occur in the first
quarter of 1998.
As of December 17, 1997, the office buildings comprising the Pending
Acquisitions were approximately 90.3% leased to 191 tenants, excluding the
AmeriData Building discussed above. No tenant individually occupies more than
10% of the total net rentable area of the properties.
The Pending Acquisitions represent a significant step in the Company's
investment strategy to expand beyond the Suburban Philadelphia Office and
Industrial Market into additional markets within the Mid-Atlantic region.
The Company has made a non-refundable deposit totaling $11.3 million
in connection with the Pending Acquisitions. The consummation of the
purchase of the Pending Acquisitions is subject to satisfaction of
certain conditions and no assurances can be given that the Company will
consummate the Pending Acquisitions.
PROPERTIES UNDER NEGOTIATION
As of the date of this Prospectus, the Company is negotiating the
terms of agreements of sale and collateral documents with various
unaffiliated sellers for the acquisition of additional office and
industrial properties and unimproved land. The aggregate purchase price
of these properties and land is approximately $73.5 million. The
Company anticipates that, if and when entered into, the agreements of
sale for the properties under negotiation will contain due diligence
contingency provisions that will allow the Company to conduct extensive
investigations of such properties and will give the Company the right to
terminate such contracts with a full refund of earnest money if the
Company becomes dissatisfied with the properties, in its sole
discretion, during the review period or will contain specified
conditions to the obligation of the Company to consummate the
transactions provided for therein. The purchase price for the
properties under negotiation is expected to be funded primarily from
borrowings
S-3
<PAGE>
under the Credit Facility (as defined below) and additional equity
offerings. There can be no assurance, however, that any of the
properties under negotiation will be acquired.
As of the date of this Prospectus, the Company is also negotiating
with third parties the terms of joint venture agreements pursuant to
which the Company would acquire, through joint ventures, additional
office and industrial properties and undeveloped land involving equity
contributions and loans by the Company aggregating approximately $14.4
million. There can be no assurance, however, that the Company will
enter into any of such joint ventures or, if entered into, that such
joint ventures will receive approvals necessary to permit development of
buildings thereon if and when such joint ventures seek to develop the
land.
EXPANSION OF CREDIT FACILITY
As part of its debt strategy, the Company is currently negotiating
with its existing lead lender to increase its revolving credit facility
(the "Credit Facility") from $150.0 million to $300.0 million and to
convert the facility to an unsecured facility. The interest rate would
be reduced by 37.5 to 60 basis points depending on the Company's degree
of leverage. Upon attainment of an investment rating, the overall
interest rate reduction would be between 60 to 75 basis points
regardless of the degree of leverage. In addition, to facilitate
consummation of the Pending Acquisitions, the Company is also
negotiating with its existing lead lender the terms of a $100.0 million
unsecured credit facility (the "Additional Credit Facility") that would
bear interest at either 30-day LIBOR plus 150 basis points or prime plus
25 basis points. The Additional Credit Facility would have a 120-day
term, subject to a 90-day extension. During the extended term, the
interest rate would increase to 30-day LIBOR plus 175 basis points or
the prime rate plus 50 basis points, and the lender would have the
option to take collateral. There can be no assurance that the Company
will be able to increase its Credit Facility, to convert its Credit
Facility to an unsecured facility, to have the interest rate on the
Credit Facility reduced or to obtain the Additional Credit Facility.
Failure to obtain the Credit Facility and the Additional Credit Facility
would adversely impact the Company's ability to complete the Pending
Acquisitions. If the Company consummates the increase to its Credit
Facility and, in addition, obtains the Additional Credit Facility, and
if the Pending Acquisitions are consummated, the Company's debt-to-total
market capitalization ratio (i.e., the total consolidated debt of the
Company as a percentage of the market value of the issued and
outstanding Common Shares and units of limited partnership interest in
the Operating Partnership plus total consolidated debt), after giving
effect to the application of the net proceeds from the Offering, will be
approximately 38.4%.
PUBLIC OFFERINGS
Since January 1, 1997, the Company has raised aggregate gross
proceeds of approximately $305.2 million pursuant to three separate
public offerings of its Common Shares. Net proceeds from these
offerings were used to fund property acquisitions, repay outstanding
debt and for working capital purposes.
FILINGS WITH SECURITIES AND EXCHANGE COMMISSION
The Company files information electronically with the Securities
and Exchange Commission (the "Commission") and the Commission maintains
a Website that contains reports, proxy and information statements and
other information regarding registrants (including the Company) that
file electronically with the Commission. The address of the
Commission's Website is (http://www.sec.gov). The Company's filings
with the Commission contain detailed descriptions of the Company's
recent acquisition, investment and financing activities.
S-4
<PAGE>
THE OFFERING
Common Shares offered hereby........................ 751,269
Common Shares to be outstanding
after the Offering................................ 24,794,741(1)
Use of Proceeds..................................... To fund property
acquisitions and for
working capital purposes.
NYSE Symbol......................................... BDN
______________
(1) Includes: 707,426 Common Shares reserved for issuance upon the
conversion of units of limited partnership interests ("Units") in
the Operating Partnership into Common Shares. Excludes: (i) 715,438
Common Shares reserved for issuance, at exercise prices of $19.50
and $25.50 per share, upon the exercise of warrants, in respect of
582,105 and 133,333 Common Shares, respectively; and (ii) 46,666
Common Shares reserved for issuance, at exercise prices of $14.31
and $6.21 per share, upon the exercise of options in respect of
33,333 and 13,333 Common Shares, respectively. Also excludes (i)
2,068,704 Common Shares reserved for issuance upon exercise of
options awarded on December 17, 1997 (and effective January 2, 1998)
at a per share exercise price equal to the fair market value of a Common
Share on January 2, 1998, a 10% premium above such fair market value, and
a 15% premium above such fair market, upon the exercise of options in
respect of 554,034 Common Shares, 753,296 Common Shares, and 761,374
Common Shares, respectively; and (ii) such number of "restricted" Common
Shares issuable on or about January 2, 1998 equal to $11.2 million
divided by the market price of a Common Share on January 2, 1998.
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting
estimated underwriting discounts and commissions and estimated expenses
of the Offering, are expected to be approximately $17.6 million. The
Company will contribute all of the net proceeds to the Operating
Partnership, which will use such contribution to make additional
acquisitions of office or industrial properties and for working capital
purposes. Pending the application of the net proceeds from the
Offering, the Company will invest such portion of the net proceeds in
interest-bearing accounts and short-term, interest-bearing securities,
which are consistent with the Company's intention to continue to qualify for
taxation as a REIT.
S-5
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares are traded on the NYSE under the symbol "BDN." On
December 12, 1997, there were approximately 312 holders of record of the
Common Shares. On December 18, 1997, the last reported sale price of the
Common Shares on the NYSE was $24-5/8. The following table sets forth
the quarterly high and low closing sale price per share reported on the
American Stock Exchange for the indicated periods through October 20,
1997 and on the NYSE for the indicated periods subsequent to October 20,
1997 and the distributions paid by the Company with respect to each such
period after giving effect to the one-for-three reverse split of the
Common Shares effected on November 25, 1996.
Share Price Share Price Distributions
High Low Declared for Quarter
----------- ----------- --------------------
First Quarter 1995...... $14-1/4 $10-1/2 $1.20(1)
Second Quarter 1995..... $12-3/8 $10-11/16 $0.15
Third Quarter 1995...... $11-13/16 $10-11/16 $0.15
Fourth Quarter 1995..... $11-1/4 $10-1/8 $0.15
-------- --------- --------
First Quarter 1996...... $16-5/16 $10-1/2 $0.18(2)
Second Quarter 1996..... $22-1/8 $15-15/16 $0.18(3)
Third Quarter 1996...... $18-3/8 $17-1/16 $0.21(4)
Fourth Quarter 1996..... $19-3/4 $15 $0.25(5)
-------- --------- --------
First Quarter 1997...... $22 $19-3/8 $0.35(6)
Second Quarter 1997..... $20-3/4 $18-3/8 $0.36(7)
Third Quarter 1997...... $22-3/8 $20-1/4 $0.36(8)
Fourth Quarter 1997
(through December 18,
1997)................. $24-15/16 $22-7/8 $0.37(9)
___________
(1) Includes a regular distribution of $0.15 plus extraordinary
distributions related to the refinancing of properties in 1995.
(2) On May 1, 1996, the Company declared a distribution of $0.18 per
share relating to first quarter operations that was paid to
shareholders of record as of May 10, 1996.
(3) On July 11, 1996, the Company declared a distribution of $0.18 per
share relating to second quarter operations that was paid to
shareholders of record as of July 26, 1996.
(4) On November 1, 1996, the Company declared a distribution of $0.21
per share relating to third quarter operations that was paid to
shareholders of record as of November 11, 1996.
(5) Represents a distribution at a rate per share of $0.21 for the
period from October 1, 1996 through December 1, 1996 (the day prior
to the closing of the December 2, 1996 public offering of Common
Shares) and a distribution at a rate per share of $0.35 for the
period from December 2, 1996 through December 31, 1996.
(6) On March 31, 1997, the Company declared a distribution of $0.35 per
share relating to first quarter operations that were paid to
shareholders of record as of April 15, 1997.
(7) On June 23, 1997, the Company declared a distribution of $0.36 per
share relating to second quarter operations that were paid to
shareholders of record as of June 30, 1997.
(8) On August 29, 1997, the Company declared a distribution of $0.36
per share relating to third quarter operations that were paid to
shareholders of record as of September 9, 1997.
(9) Represents a distribution payable on January 15, 1998 to
shareholders of record as of December 15, 1997. This distribution
will not be payable on Common Shares purchased in the Offering.
S-6
<PAGE>
Future distributions by the Company will be at the discretion of
the Board of Trustees and will depend on the actual cash flow of the
Company, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Internal
Revenue Code of 1986, as amended, and such other factors as the Board of
Trustees deems relevant. There can be no assurance that such
distributions will be made by the Company.
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting
Agreement dated December 18, 1997, (the "Underwriting Agreement"),
between the Company, the Operating Partnership and the Underwriter, the
Company has agreed to sell to the Underwriter, and the Underwriter has
agreed to purchase from the Company, Common Shares at the public
offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus Supplement. The Underwriting
Agreement provides that the Underwriter's obligation to purchase the
Common Shares is subject to the satisfaction of certain conditions,
including the receipt of certain legal opinions. The nature of the
Underwriter's obligation is such that it is committed to purchase all of
the Common Shares if any shares are purchased.
The Underwriter intends to deposit the Common Shares offered hereby
with the trustee of Legg Mason REIT Trust, December 1997 Series (the
"Trust"), a registered unit investment trust under the Investment
Company Act of 1940, as amended, in exchange for units of the Trust. If
all of the Common Shares so deposited are valued at the last reported
sale price for the Common Shares on the NYSE on December 18, 1997, the
aggregate underwriting commissions would be $832,482. The Underwriter is
acting as sponsor and depositor of the Trust, and is therefor considered
an affiliate of the Trust.
In the Underwriting Agreement, the Company has agreed to indemnify
the Underwriter against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriter may be
required to make in respect thereof.
Walter D'Alessio, a member of the Company's Board of Trustees, is
President of Legg Mason Real Estate Services, Inc., a subsidiary of Legg
Mason, Inc., the parent of Legg Mason Wood Walker, Incorporated. In
addition, the Underwriter has engaged, and may in the future engage, in
investment banking activities on behalf of the Company and its
affiliates for which customary compensation will be received.
EXPERTS
The financial statements and schedules incorporated by reference in
the accompanying Prospectus (other than the financial statements
identified in the next sentence) have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports and
are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements with respect to 1000/2000 West Lincoln
Drive, 3000 West Lincoln Drive and 4000/5000 West Lincoln Drive
incorporated by reference in the accompanying Prospectus by reference to
the Current Report on Form 8-K of the Company, dated June 27, 1997, have
been audited by Zelenkofske, Axelrod & Company, Ltd., independent public
accountants, as indicated in their report and are included herein in
reliance upon the authority of said firm as experts in giving said
report.
LEGAL MATTERS
The validity of the Common Shares offered hereby, as well as
certain legal matters relating to the Company, will be passed upon for
the Company by Pepper, Hamilton & Scheetz LLP, Philadelphia,
Pennsylvania. Certain legal matters related to the Offering will be
passed upon for the Underwriter by Hunton & Williams, Richmond,
Virginia. Pepper, Hamilton & Scheetz LLP and Hunton & Williams will
rely on Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, as to
certain matters of Maryland law.
TAX MATTERS
In the opinion of Arthur Andersen LLP, tax advisor to the Company (the
"Tax Advisor"), beginning with its taxable year ended December 31, 1986, the
Company was organized in conformity with the requirements for qualification
as a REIT under the Internal Revenue Code of 1986, as amended, for each of
its taxable years, and the Company's current method of operation will enable
it to continue to so qualify. Investors should be aware, however, that
opinions of counsel are not binding upon the Internal Revenue Service or any
court. It must be emphasized that the Tax Advisor's opinion is based on
various assumptions and is conditioned upon certain representations made by
the Company as to factual matters, including representations regarding the
nature of the Company's properties and the future conduct of its business.
Such factual assumptions and representations are set out in the federal
income tax opinion that will be delivered by the Tax Advisor at the closing
of the Offering. The Tax Advisor will not review the Company's compliance
with those tests on a continuing basis. Accordingly, no assurance can be
given that the actual results of the Company's operations for any particular
taxable year will satisfy such requirements. For a discussion of the tax
consequences of the failure to qualify as a REIT, see "Federal Income Tax
Considerations--Failure to Qualify" in the accompanying Prospectus.
S-7
<PAGE>
BRANDYWINE REALTY TRUST
$1,000,000,000
PREFERRED SHARES, COMMON SHARES, DEPOSITARY SHARES AND WARRANTS
Brandywine Realty Trust (the "Company") may from time to time offer (i)
in one or more series its preferred shares of beneficial interest, $0.01 par
value per share ("Preferred Shares"); (ii) common shares of beneficial
interest, $0.01 par value per share ("Common Shares"); (iii) in one or more
series its Preferred Shares represented by depositary shares (the "Depositary
Shares"); and (iv) warrants to purchase Preferred Shares, Common Shares or
Depository Shares (the "Warrants") with an aggregate public offering price of
up to $1,000,000,000 (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 Preferred Shares, Common Shares, Depositary Shares and
Warrants (collectively, the "Securities") may be offered, separately or
together, in separate series (with respect to Preferred Shares and Depositary
Shares), in amounts, at prices and on terms to be described in one or more
supplements to this Prospectus (a "Prospectus Supplement").
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 Preferred Shares, the
specific title and stated value, any distribution, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
(ii) in the case of Common Shares, any initial public offering price; (iii)
in the case of Depositary Shares, the fractional Preferred Shares represented
by each Depositary Share; and (iv) in the case of Warrants, the Securities as
to which such Warrants may be exercised, the duration, offering price,
exercise price and detachability. 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 assist in
maintaining the status of the Company as a real estate investment trust for
federal income tax purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about the material U.S. federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement, not contained in this Prospectus.
The Securities may be offered directly, through agents designated from
time to time by the Company, 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 with, between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE 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 DATE OF THIS PROSPECTUS IS NOVEMBER 13, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"), pursuant to the Exchange
Act. Such reports, proxy statements and other information filed by the Company
may be examined without charge at, or copies obtained upon payment of prescribed
fees from, the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and are also available for
inspection and copying at the regional offices of the Commission located at
Seven World Trade Center, New York, New York 10048 and at Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Such material can also
be inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
The Company files information electronically with the Commission, and the
Commission maintains a Web Site that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission. The address of the Commission's
Web Site is (http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Securities. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. For further information
concerning the Company and the Securities, reference is made to the Registration
Statement and the exhibits filed therewith, which may be examined without charge
at, or copies obtained upon payment of prescribed fees from, the Commission and
its regional offices at the locations listed above. Any statements contained
herein concerning the provisions of any document are not necessarily complete,
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below filed by the Company with the Commission (File
No. 1-9106) are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended December 31,
1996, as amended by a Form 10-K/A No. 1;
b. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, as amended by a Form 10-Q/A No. 1, and Quarterly Report on Form
10-Q for the quarter ended June 30, 1997;
c. The Company's Current Reports on Form 8-K/A No. 1 dated February 5,
1997; Form 8-K dated February 7, 1997; Form 8-K/A No. 1 dated February
13, 1997; Form 8-K/A No. 2 dated February 24, 1997; Form 8-K dated
February 27, 1997; Form 8-K dated March 18, 1997; Form 8-K dated April
18, 1997; Form 8-K/A No. 1 dated April 29, 1997; Form 8-K dated May 1,
1997; Form 8-K dated May 9, 1997; Form 8-K dated June 9, 1997; Form 8-K
dated June 26, 1997; Form 8-K dated June 27, 1997; Form 8-K/A No. 1 dated
July 21, 1997; Form 8-K dated July 23, 1997; Form 8-K dated August 7,
1997; Form 8-K dated August 22, 1997; Form 8-K dated September 10, 1997;
Form 8-K dated September 11, 1997; Form 8-K dated October 3, 1997; and
Form 8-K dated October 30, 1997;
d. The combined statements of revenue and certain expenses of the
Commonwealth of Pennsylvania State Employees' Retirement System
Acquisition Properties, the Delaware Corporate Center
2
<PAGE>
Acquisition Property and the Equivest Management, Inc. Acquisition
Properties (700/800 Business Center Drive) for the year ended December
31, 1995 and the reports thereon of the Company's independent public
accountants contained on pages F-50 through F-59, inclusive, of the
Company's Prospectus filed with the Commission pursuant to Rule 424(b) on
November 27, 1996 relating to the Company's Registration Statement on
Form S-11 (Registration No. 333-13969) declared effective November 25,
1996;
e. The description of the Common Shares contained in the Company's
Registration Statement on Form 8-A dated October 14, 1997 and any other
reports or amendments filed for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Securities to which this Prospectus
relates will be deemed to be incorporated by reference in and made a part of
this Prospectus from the date of filing such documents. Any statement contained
in this Prospectus or in a document incorporated or deemed to be incorporated by
reference in this Prospectus will be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein, in
any applicable Prospectus Supplement or in any other document subsequently filed
with the Commission which also is or is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified or
superseded will 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.
Copies of all documents which are incorporated by reference (not including
the exhibits to such documents unless such exhibits are specifically
incorporated by reference in such document) will be provided without charge to
each person, including any shareholder, to whom this Prospectus is delivered,
upon written or oral request. Requests should be directed to Brandywine Realty
Trust, 16 Campus Boulevard, Newtown Square, Pennsylvania 19073, Attention: Mark
S. Kripke, Secretary (telephone number: (610) 325-5600).
3
<PAGE>
THE COMPANY
The following summary is qualified in its entirety by the more detailed
descriptions and the financial information and statements, and the notes in such
documents, appearing elsewhere and incorporated by reference in this Prospectus.
As used in this Prospectus, the term "Company" includes Brandywine Realty Trust
and its subsidiaries and affiliated entities, including the Operating
Partnership, unless the context indicates otherwise.
GENERAL
The Company is a self-administered, self-managed and fully integrated real
estate investment trust ("REIT") engaged in the ownership, management, leasing,
acquisition and development of primarily suburban office properties. As of
October 1, 1997, the Company owned a portfolio of 77 office buildings and 16
industrial facilities (collectively, the "Properties") that contain an aggregate
of approximately 5.8 million net rentable square feet. The Company also owns an
interest in a commercial real estate management services company (the
"Management Company") that as of October 1, 1997 managed approximately 6.4
million net rentable square feet (including 92 of the Properties).
The Company carries on its activities directly and through subsidiaries. As
of the date of this Prospectus, the Company holds interests in subsidiaries
(including the Operating Partnership) that, in turn, either own the Properties
in fee or the economic interests thereof. The Company is the sole general
partner of the Operating Partnership, which was formed as a vehicle to: (i)
consolidate the Company's real estate holdings; (ii) facilitate future
acquisitions; (iii) enable the Company to comply with certain requirements under
the Internal Revenue Code of 1986 (the "Code") relating to REITs; and (iv)
preserve certain tax advantages to persons contributing properties to the
Company. As the sole general partner of the Operating Partnership, the Company
generally has the exclusive power to manage and conduct the business of the
Operating Partnership. As of October 1, 1997, the Company has an approximately
98.7% interest and is the sole general partner of the Operating Partnership.
The Company conducts its real estate management services through the
Management Company. Through the Management Company, the Company also manages
properties on behalf of unaffiliated third parties. Through its ownership of
preferred stock and common stock of the Management Company, the Operating
Partnership is entitled to receive 95% of amounts paid as dividends by the
Management Company.
The Company was organized as a Maryland real estate investment trust in
1986. The Company's principal executive offices are located at 16 Campus
Boulevard, Newtown Square, Pennsylvania 19073 and its telephone number is
610-325-5600.
4
<PAGE>
RISK FACTORS
An investment in Common Shares involves various risks. Prospective investors
should carefully consider the following information in conjunction with the
other information contained in, or incorporated by reference in, this Prospectus
before making a decision to purchase Common Shares.
LIMITED GEOGRAPHIC CONCENTRATION
Ninety-one of the 93 Properties owned by the Company as of October 1, 1997
are located in the Suburban Philadelphia Office and Industrial Market (as
defined below). In addition, a fundamental element of the Company's growth
strategy is to acquire additional properties in the Suburban Philadelphia Office
and Industrial Market. Consequently, the Company is dependent upon the demand
for office and other commercial space in the Suburban Philadelphia Office and
Industrial Market. The Company's revenue and the value of the Properties may be
affected by a number of factors in the Suburban Philadelphia Office and
Industrial Market, including the local economic climate (which may be adversely
impacted by business layoffs or downsizing, industry slowdowns, changing
demographics and other factors) and local real estate conditions (such as
oversupply of, or reduced demand for, office and other competing commercial
properties). Therefore, the Company's performance and its ability to make
distributions to shareholders will likely be dependent, to a large extent, on
the economic conditions in the Suburban Philadelphia Office and Industrial
Market. The term "Suburban Philadelphia Office and Industrial Market" or
"Market" means the areas comprised of the following counties: Berks, Bucks,
Chester, Delaware, Lehigh, Montgomery and Northampton in Pennsylvania and
Burlington and Camden in New Jersey.
RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE COMPANY'S
PROPERTIES; LACK OF OPERATING HISTORY
The Company is currently experiencing a period of rapid growth. Eighty-nine
of the 93 Properties owned by the Company as of October 1, 1997 were acquired in
1996 and 1997. These recently acquired Properties may have characteristics or
deficiencies unknown to the Company affecting their valuation or revenue
potential, and it is also possible that the operating performance of such
Properties may decline under the Company's management. The Company's ability to
manage its growth effectively will require it to successfully integrate its new
acquisitions into its existing management structure. As the Company acquires
additional properties, the Company will be subject to risks associated with
managing new properties, including lease-up and tenant retention. No assurances
can be given that the Company will be able to succeed with such integration or
effectively manage additional properties or that newly acquired properties will
perform as expected.
RISKS RELATING TO DISTRIBUTIONS
The Company pays regular distributions to its shareholders. Additional
Common Shares that may in the future be issued to finance acquisitions or upon
the exercise of options or warrants or otherwise will increase required cash
available for distribution to make anticipated distributions to shareholders. In
addition, the Company's ability to make distributions will depend, in large
part, on the performance of its Properties and any other properties it may
acquire in the future, including occupancy levels, the Company's ability to
enter into new leases upon expiration of current leases and costs associated
with the renewal or reletting of space, expenditures with respect to existing
and newly acquired properties, the amount of the Company's debt and the interest
rates thereon, default or bankruptcy by tenants and other costs relating to the
Properties and any other properties the Company may acquire in the future, and
the absence of significant expenditures relating to environmental or other
regulatory matters. Most of these matters are beyond the control of the Company
and any significant difference between the Company's expectations with respect
to these matters and actual results could have a material adverse effect on the
Company and its ability to make or sustain distributions.
5
<PAGE>
REAL ESTATE INVESTMENT CONSIDERATIONS
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend in large part
on the amount of income generated and expenses incurred. If the Properties do
not generate revenue sufficient to meet operating expenses, including debt
service, tenant improvements, leasing commissions, and other capital
expenditures, the Company may have to borrow additional amounts to cover fixed
costs and the Company's cash available for distribution and ability to make
expected distributions to its shareholders will be adversely affected.
The Company's revenue and the value of the Properties may be adversely
affected by a number of factors, including the national economic climate, the
local economic climate, local real estate conditions, the perceptions of
prospective tenants of the attractiveness of a property, the ability of the
Company to manage and maintain the Properties and secure adequate insurance and
increased operating costs (including real estate taxes and utilities). In
addition, real estate values and income from properties are also affected by
such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing.
LEASE EXPIRATIONS. The Company is subject to the risk that, upon
expiration, leases may not be renewed, the space may not be relet, or the terms
of renewal or reletting (including the cost of required renovations) may be less
favorable than the current lease terms. Certain leases pertaining to the
Properties grant their tenants early termination rights upon payment of a
termination penalty. The Company has estimated the expenditures for new and
renewal leases for 1997 and 1998 but no assurances can be given that the Company
has correctly estimated such expenses. Lease expirations will require the
Company to locate new tenants and negotiate replacement leases with such
tenants. Replacement leases typically require the Company to incur tenant
improvements, other tenant inducements and leasing commissions, in each case,
which may be higher than the costs relating to renewal leases. If the Company is
unable to promptly relet or renew leases for all or a substantial portion of
expiring space, if the rental rates upon such renewal or reletting are
significantly lower than expected or if the Company's reserves for these
purposes prove inadequate, the Company's cash available for distribution and
ability to make expected distributions to shareholders could be adversely
affected.
FINANCIALLY DISTRESSED TENANTS. In the event of any lease default by a
tenant, the Company may experience delays in enforcing its rights as a landlord
and may incur substantial costs in protecting its investment. In addition, at
any time, a tenant of the Properties or any other property acquired by the
Company may seek the protection of bankruptcy laws, which could result in the
rejection and termination of such tenant's lease and thereby cause a reduction
in cash available for distribution to shareholders. There can be no assurance
that these or other tenants will not reject their leases in a bankruptcy
proceeding or that the Company will not experience significant tenant defaults
in the future, each of which could have an adverse effect on the Company's
revenues and cash available for distribution to shareholders.
COMPETITION. The Company competes with a number of real estate developers,
operators and institutions for tenants and acquisition opportunities. Some of
these competitors have significantly greater resources than the Company. No
assurances can be given that such competition will not adversely affect the
Company's revenues and cash available for distribution to shareholders.
ILLIQUIDITY OF REAL ESTATE. Equity real estate investments are relatively
illiquid and therefore tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. In
addition, the Internal Revenue Code of 1986, as amended (the "Code"), limits the
Company's ability to sell properties held for fewer than four years, which may
affect the Company's ability to sell properties without adversely affecting
returns to shareholders. Furthermore, purchase options and rights of first
refusal held by certain tenants at certain Properties may adversely affect the
Company's ability to sell such Properties.
6
<PAGE>
CHANGES IN LAWS. Because increases in income and service taxes are
generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make expected
distributions to shareholders. The Properties are also subject to various
federal, state, and local regulatory requirements, such as requirements of the
Americans with Disabilities Act of 1990 (the "ADA") and state and local fire and
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
material compliance with all such requirements. However, there can be no
assurance that these requirements will not change or that new requirements will
not be imposed which would require significant unanticipated expenditures by the
Company and could have an adverse effect on the Company's cash flow and ability
to make distributions.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Under the ADA, all public
accommodations and commercial facilities are required to meet certain federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers and noncompliance could result in imposition of fines
by the U.S. government or an award of damages to private litigants. Although the
Company believes that the Properties are in material compliance with these
requirements, the Company may incur additional costs to comply with the ADA.
Although the Company believes that such costs will not have a material adverse
effect on the Company, if required changes involved a greater expenditure than
the Company currently anticipates, the Company's ability to make expected
distributions could be adversely affected.
RISKS ASSOCIATED WITH PARTNERSHIP AND JOINT VENTURE PROPERTY OWNERSHIP
STRUCTURES. The Company owns its interests, directly or indirectly, in all but
one of its Properties through the Operating Partnership. In addition, as of
October 1, 1997, the Company serves as a member in two joint ventures it formed
in September 1997 to acquire and develop three parcels of vacant land. The
Company expects to continue to participate with other entities in property
ownership through joint ventures or partnerships in the future. Partnership or
joint venture investments may, under certain circumstances, involve risks not
otherwise present, including the possibility that the Company's partners or
coventurers might become bankrupt, that such partners or co-venturers might at
any time have economic or other business interests or goals which are
inconsistent with the business interests or goals of the Company and that such
partners or co-venturers may be in a position to take action contrary to the
Company's instructions or requests or contrary to the Company's policies or
objectives, including the Company's policy with respect to maintaining its
qualification as a REIT. The Company will, however, seek to maintain sufficient
control of such partnerships or joint ventures to permit the Company's business
objectives to be achieved. There is no limitation under the Company's
organizational documents as to the amount of funds that may be invested in
partnerships or joint ventures.
RISKS ASSOCIATED WITH INDEBTEDNESS
DEBT FINANCING AND EXISTING DEBT MATURITIES. The Company will be subject to
risks normally associated with debt financing, including the risk that the
Company's cash flow will be insufficient to meet required payments of principal
and interest, and the risk that existing indebtedness on the Properties (which
in all cases will not have been fully amortized at maturity) will not be able to
be refinanced or that the terms of such refinancing will not be as favorable as
the terms of existing indebtedness. If principal payments due at maturity cannot
be refinanced, extended, or paid with the proceeds of other capital
transactions, such as new equity capital, the Company may neither be able to pay
distributions to its shareholders at expected levels nor repay all such maturing
debt. Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates, the interest expense relating to such
refinanced indebtedness would increase, which could adversely affect the
Company's cash flow and its ability to make expected distributions to its
shareholders. In addition, if the Company is unable to meet its obligations
under any of its mortgage financings, any one or more of the Properties securing
such indebtedness could be foreclosed
7
<PAGE>
on, which would have a material adverse effect on the Company and its ability to
make distributions and, depending on the number of Properties foreclosed on,
could threaten the continued viability of the Company.
RISK OF RISING INTEREST RATES AND VARIABLE RATE DEBT. Increases in interest
rates on variable rate indebtedness would increase the Company's interest
expense, which could adversely affect the Company's cash flow and its ability to
pay distributions to shareholders.
NO LIMITATION ON DEBT. Although the Company has adopted a policy that
limits the debt-to-total market capitalization ratio of the Company to 50%, the
organizational documents of the Company do not contain any limitation on the
amount of indebtedness the Company may incur. Accordingly, the Board of Trustees
could alter or eliminate this policy. If this policy were changed, the Company
could become more highly leveraged, resulting in an increase in debt service
that could adversely affect the Company's cash flow and, consequently, cash
available for distribution to shareholders and could increase the risk of
default on the Company's indebtedness.
RISKS OF ACQUISITION, DEVELOPMENT AND RENOVATION ACTIVITIES
The Company intends to continue acquiring office and industrial properties.
Acquisitions of office and industrial properties entail risks that investments
will fail to perform in accordance with expectations. Estimates of renovation
costs and costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment. The Company anticipates that future acquisitions and
renovations may be financed through a combination of advances under lines of
credit and other forms of secured or unsecured financing. If new developments
are financed through construction loans, there is a risk that, upon completion
of construction, permanent financing for newly developed properties may not be
available or may be available only on disadvantageous terms.
While the Company has generally limited its acquisition, development,
renovation, management and leasing business primarily to the Suburban
Philadelphia Office and Industrial Market, it is possible that the Company will
in the future expand its business to new geographic markets. The Company will
not initially possess the same level of familiarity with new markets outside of
the Suburban Philadelphia Office and Industrial Market, which could adversely
affect its ability to acquire, develop, manage or lease properties in any new
localities. Changing market conditions, including competition from other
purchasers of suburban office and industrial properties, may diminish the
Company's opportunities for attractive additional acquisitions.
The Company also intends to review from time to time the possibility of
developing and constructing office buildings and other commercial properties.
Risks associated with the Company's development and construction activities may
include: (i) abandonment of development and construction opportunities; (ii)
construction costs of a property exceeding original estimates, possibly making
the property uneconomical; (iii) occupancy rates and rents at a newly completed
property may not be sufficient to make the property profitable; (iv) the
unavailability of financing on favorable terms for development of a property;
and (v) construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs. In addition, new
development activities, regardless of whether they would ultimately be
successful, typically require a substantial portion of management's time and
attention. Development activities would also be subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
TAX RISKS
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. Since 1986, the Company has
operated, and continues to operate, in such a manner as to qualify as a REIT
under the Code. Although the Company believes that
8
<PAGE>
it is currently organized and will continue to operate so as to qualify as a
REIT, no assurance can be given that the Company will qualify or remain
qualified as a REIT in the future. Qualification as a REIT involves the
application of highly technical and complex Code provisions, many of which have
only limited judicial or administrative interpretations. The determination of
various factual matters and circumstances not entirely within the Company's
control may affect its ability to qualify as a REIT. For example, in order to
qualify as a REIT, at least 95% of the Company's gross income in any year must
be derived from qualifying sources and the Company must pay distributions to its
shareholders aggregating at least 95% of its REIT taxable income (excluding net
capital gains). The complexity of these provisions and of the applicable income
tax regulations that have been promulgated under the Code is even greater in the
case of a REIT that holds its assets in partnership form. In addition, no
assurance can be given that future legislation, new regulations, administrative
interpretations, or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the Federal income tax consequences
of such qualification. See "Federal Income Tax Considerations."
One of the requirements for maintaining REIT status is that a REIT not own
more than 10% of the voting stock of a corporation other than the stock of a
qualified REIT subsidiary (of which the REIT is required to own all of such
stock) and stock in another REIT. The Operating Partnership owns 5% of the
voting common stock and all of the non-voting preferred stock of the Management
Company and, therefore, the Company believes it will comply with this rule.
However, the Internal Revenue Service ("IRS") could contend that the Operating
Partnership's ownership of all of the non-voting preferred stock of the
Management Company should be viewed as voting stock because of its substantial
economic position in the Management Company. If the IRS were to be successful in
such a contention, the Company's status as a REIT would be lost and the Company
would become subject to Federal corporate income tax on its net income, which
would have a material adverse affect on the Company's cash available for
distribution.
If in any taxable year the Company were to fail to qualify as a REIT, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at the
applicable corporate rate. In addition, unless it were entitled to relief under
certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. This disqualification would reduce the funds of the
Company available for investment or distribution to shareholders because of the
additional tax liability of the Company for the year or years involved. If the
Company were to fail to qualify as a REIT, it no longer would be subject to the
distribution requirements of the Code. To the extent that distributions to
shareholders would have been made in anticipation of the Company's qualifying as
a REIT, the Company might be required to borrow funds or to liquidate certain of
its investments to pay the applicable tax.
REQUIRED DISTRIBUTIONS; POTENTIAL REQUIREMENT TO BORROW. To obtain the
favorable tax treatment associated with qualification as a REIT, the Company
generally will be required each year to distribute to its shareholders at least
95% of its REIT taxable income (excluding net capital gain). In addition, the
Company will be subject to tax on its undistributed net taxable income and net
capital gain, and a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of 85% of its ordinary income plus 95% of its capital gain net income
for the calendar year, plus certain undistributed amounts from prior years.
The Company intends to make distributions to its shareholders to comply with
the distribution provisions of the Code and to avoid income and other taxes. The
Company's income will consist primarily of the Company's share of the income of
the Operating Partnership, and the Company's cash flow will consist primarily of
its share of distributions from the Operating Partnership. Differences in timing
between the receipt of income and the payment of expenses in arriving at taxable
income (of the Company or the Operating Partnership) and the effect of required
debt amortization payments could require the Company, on its own behalf or
through the Operating Partnership, to borrow funds on a short-term basis
9
<PAGE>
to meet the distribution requirements in order to remain qualified as a REIT. In
such instances, the Company, in order to avoid adverse tax consequences, might
need to: (i) borrow funds even if management believed that then prevailing
market conditions generally were not favorable for such borrowings or that such
borrowings would not be advisable in the absence of such tax considerations;
and/or (ii) liquidate investments on adverse terms.
CONSEQUENCES OF FAILURE OF THE OPERATING PARTNERSHIP (OR A SUBSIDIARY
PARTNERSHIP) TO BE TREATED AS A PARTNERSHIP. If the IRS were to successfully
challenge the tax status of the Operating Partnership or any of its subsidiary
partnerships for federal income tax purposes, the Operating Partnership or the
affected subsidiary partnership would be taxable as a corporation. In such
event, the Company would cease to qualify as a REIT for federal income tax
purposes. The imposition of a corporate tax on the Operating Partnership or any
of the subsidiary partnerships would also reduce the amount of cash available
for distribution to the Company and its shareholders. See "Federal Income Tax
Considerations--Income Taxation of the Operating Partnership, the Title Holding
Partnerships and Their Partners."
OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT, it will be
subject to certain federal, state and local taxes on its income and property. In
addition, the Management Company generally is subject to federal, state and
local income tax at regular corporate rates on its net taxable income, which
will include the Management Company's management, leasing and related service
business. If the Company has net income from a prohibited transaction, such
income will be subject to a 100% tax. See "Federal Income Tax
Considerations--Taxation of the Company as a REIT."
REAL ESTATE TRANSFER TAXES. The transfers of certain Properties to the
Operating Partnership or a subsidiary partnership were structured as transfers
of 89% of the capital interests and 99% of the cash flow and profits interests
in the limited partnerships owning such Properties with the residual interests
to be acquired by the Operating Partnership not later than September 1999. This
transaction structure is intended to comply with the provisions of informal
advice from the Pennsylvania Department of Revenue to the effect that such
transfers are not subject to Pennsylvania real estate transfer taxes. However,
the Company has not obtained a formal ruling from the Pennsylvania Department of
Revenue on this issue. If the Company desired or were required, for financing
purposes or otherwise, to acquire such residual interests within such period,
the Company could be required to pay real estate transfer taxes in an amount
aggregating approximately $640,000.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substances or releases at such
property and may be held liable to a governmental entity or to third parties for
property damage and for investigation and clean-up costs incurred by such
parties in connection with contamination. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate such substances, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. In connection with the ownership (direct or indirect),
operation, management and development of real properties, the Company may be
considered an owner or operator of such properties or as having arranged for the
disposal or treatment of hazardous or toxic substances and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental fines and injuries to persons and
property. All of the Properties have been subject to a Phase I or similar
environmental site assessment (which involves general inspections without soil
sampling or groundwater analysis) completed by independent environmental
consultants. Except as indicated below with respect to 110 Summit Drive at the
Whitelands Business Park in Exton, Pennsylvania (the "Whitelands Property"), the
Company is not aware of any environmental liability with respect to the
Properties that the Company's management believes would have a material adverse
effect on the Company. An environmental assessment has identified environmental
contamination of potential concern with respect to the Whitelands Property.
10
<PAGE>
Petroleum products, solvents and heavy metals were detected in the groundwater.
These contaminants are believed to be associated with debris deposited by third
parties in a quarry formerly located on the Whitelands Property. The Whitelands
Property previously appeared on the Comprehensive Environmental Response
Compensation and Liability Information System List, a list maintained by the
United States Environmental Protection Agency (the "EPA") of abandoned, inactive
or uncontrolled hazardous waste sites which may require cleanup. The EPA
conducted a preliminary assessment of the Property in 1984, and subsequently the
Whitelands Property was removed from the list. While the Company believes it is
unlikely that it will be required to undertake remedial action with respect to
such contamination, there can be no assurance in this regard. If the Company
were required to undertake remedial action on the Whitelands Property, it has
been indemnified through August 2001 against the cost of such remediation by
Safeguard Scientifics, Inc. ("SSI") subject to a limitation of approximately
$2.0 million. In the event SSI is unable to fulfill its obligations under its
indemnity agreement or the Company is required to undertake remedial action
after the expiration of the indemnity, the costs associated with any remediation
could materially and adversely impact cash available for distribution to
shareholders. Because the Company does not believe that any remediation at the
Whitelands Property is probable, no amounts have been accrued for any such
potential liability.
No assurance can be given that existing environmental studies with respect
to the Properties reveal all environmental liabilities or that any prior owner
of any such property did not create any material environmental condition not
known to the Company. Moreover, no assurance can be given that: (i) future laws,
ordinances or regulations will not impose any material environmental liability
on the Company, or (ii) the current environmental condition of the Properties
will not be affected by tenants and occupants of the Properties, by the
condition of properties in the vicinity of the Properties (such as the presence
of underground storage tanks) or by third parties unrelated to the Company.
UNINSURED LOSSES
The Company carries comprehensive liability, fire, flood (where
appropriate), extended coverage, and rental loss insurance for the Properties
with policy specification and insured limits which the Company believes are
adequate and appropriate under the circumstances. There are certain types of
losses (such as those resulting from nuclear accidents, wars, civil disturbances
and environmental matters) that generally are not insured against because they
are either uninsurable or not economically insurable. Should an uninsured loss
or a loss in excess of the insured limits occur, the Company could lose both its
investment in, and anticipated future revenues and cash flow from, the affected
Property and would continue to be obligated in respect of any recourse mortgage
indebtedness or other financial obligations on such Property. Any such loss
would adversely affect the Company. Moreover, as the general partner of the
Operating Partnership, the Company will be liable for any of the Operating
Partnership's unsatisfied obligations other than the non-recourse obligations.
RISKS OF THIRD-PARTY MANAGEMENT, LEASING AND RELATED SERVICE BUSINESS
POSSIBLE TERMINATION OF MANAGEMENT CONTRACTS. The Company intends to
selectively pursue the management of properties owned by third parties. Risks
associated with the management of properties owned by third parties include the
risk that the management contracts (which are generally cancelable upon 30 days'
notice or upon certain events, including sale of the applicable property) will
be terminated by the property owner or will be lost in connection with a sale of
such property, that contracts may not be renewed upon expiration or may not be
renewed on terms consistent with current terms and that the rental revenues upon
which management fees are based will decline as a result of general real estate
market conditions or specific market factors affecting properties managed by the
Company, resulting in decreased management fee income.
POSSIBLE ADVERSE CONSEQUENCES OF LACK OF CONTROL OVER THE BUSINESS OF THE
MANAGEMENT COMPANY. In order to satisfy certain technical requirements
applicable to REITs, certain of the executive officers of the
11
<PAGE>
Company, as partners of a general partnership that holds 95% of the voting
common stock of the Management Company, have the ability to elect the board of
directors of the Management Company. The Company itself is not able to elect
directors of the Management Company. As a result, the board of directors and
management of the Management Company may implement business policies or
decisions that would not have been implemented by persons controlled by the
Company and that are adverse to the interests of the Company or that lead to
adverse financial results, which in turn would adversely affect the Company's
ability to pay distributions to shareholders.
CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL
The investment, financing, borrowing and distribution policies of the
Company, and its policies with respect to all other activities, including its
growth, debt, capitalization, authorized shares of beneficial interest
("Shares"), distributions, REIT status and operating policies, are determined by
the Board of Trustees. Although the Board of Trustees has no present intention
to amend or revise any of these policies, these policies may be amended or
revised from time to time at the discretion of the Board of Trustees without
notice to or a vote of the shareholders of the Company. Accordingly,
shareholders may not have control over changes in policies of the Company and
changes in the Company's policies may not fully serve the interests of all
shareholders. A change in these policies could adversely affect the Company's
distributions, financial condition, results of operations or the market price of
Common Shares.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Anthony A. Nichols, Sr. and Gerard H. Sweeney. While the Company
believes that it could find replacements for these key personnel, the loss of
their services could have an adverse effect on the operations of the Company.
Messrs. Nichols and Sweeney have entered into employment agreements with the
Company. However, these agreements do not restrict the ability of either Mr.
Nichols or Mr. Sweeney to become employed by a competitor of the Company
following termination of his employment with the Company.
LIMITS ON CHANGES IN CONTROL
Certain provisions of the Declaration of Trust and Bylaws of the Company may
have the effect of delaying, deferring, or preventing a third party from making
an acquisition proposal for the Company and may thereby inhibit a change in
control of the Company. For example, such provisions may: (i) deter tender
offers for the Common Shares, which offers may be attractive to the
shareholders; or (ii) deter purchases of large blocks of Common Shares, thereby
limiting the opportunity for shareholders to receive a premium for their Common
Shares over then-prevailing market prices. These provisions include the
following:
OWNERSHIP LIMIT NECESSARY TO MAINTAIN REIT QUALIFICATION. In order for the
Company to maintain its qualification as a REIT under the Code, not more than
50% in value of the Company's outstanding Shares may be owned, actually or
constructively, under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain tax-exempt
entities, other than, in general, qualified domestic pension funds) at any time
during the last half of any taxable year (other than the first taxable year for
which the election to be taxed as a REIT has been made). In order to protect the
Company against the risk of losing REIT status due to the concentration of
ownership among its shareholders, the ownership limits (the "Ownership Limits")
adopted by the Board of Trustees pursuant to the Declaration of Trust limit
direct or indirect ownership to 9.8% in value of the outstanding Shares, subject
to certain exceptions. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer." The Board of Trustees could waive this
restriction with respect to a particular shareholder if it were satisfied, based
upon the advice of tax counsel, that ownership by such shareholder in excess of
the Ownership Limits would not jeopardize the Company's status as a REIT and the
Board of Trustees otherwise decided such action would be in the best interests
of the Company. Actual or constructive
12
<PAGE>
ownership of Common Shares in excess of the Ownership Limits will cause the
violative transfer or ownership to be void with respect to the transferee or
owner as to that number of shares in excess of the Ownership Limits and such
shares will be automatically transferred to a trust for the benefit of a person
to whom an interest in the Common Shares may be permissibly transferred. Such
transferee shall have no right to vote such shares or be entitled to
distributions with respect to such shares.
COMMON AND PREFERRED SHARES. The Company's Declaration of Trust authorizes
the Board of Trustees to issue up to 105,000,000 shares of beneficial interest
of the Company, consisting of 100,000,000 Common Shares and 5,000,000 preferred
shares and, in respect of the preferred shares, to establish the preferences,
rights, and other terms (including the right to vote and the right to convert
into Common Shares) of any shares so issued. The Board of Trustees could
establish a series of preferred shares that could have the effect of delaying,
deferring or preventing a tender offer or a change in control of the Company
that might involve a premium price of the Common Shares or otherwise be in the
best interests of the shareholders. The Declaration of Trust may be amended by
the Board of Trustees, without shareholder approval, to increase or decrease the
aggregate number of authorized shares of any class.
EXEMPTIONS FROM THE MARYLAND BUSINESS COMBINATION LAW. Under the Maryland
General Corporation Law, as amended ("MGCL"), as applicable to real estate
investment trusts, certain "business combinations" (including certain issuances
of equity securities) between a Maryland real estate investment trust and any
person who beneficially owns ten percent or more of the voting power of the
trust's shares or an affiliate of the trust who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten percent or
more of the voting power of the then outstanding voting shares of beneficial
interest of the trust (an "Interested Shareholder") or an affiliate of the
Interested Shareholder are prohibited for five years after the most recent date
on which the Interested Shareholder becomes an Interested Shareholder.
Thereafter, any such business combination must be recommended by the board of
trustees and approved by two super-majority shareholder votes unless, among
other conditions, the trust's common shareholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Shareholder for its
shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of trustees prior to the
time that the Interested Shareholder becomes an Interested Shareholder. Pursuant
to the statute, the Company has exempted any business combination involving SSI,
The Nichols Company ("TNC"), Gerard H. Sweeney (the Company's President and
Chief Executive Officer) and any affiliate or associate of theirs from the
business combination statute and, consequently, the five-year prohibition and
the super-majority vote requirements described above will not apply to business
combinations between any of them and the Company. As a result, SSI, TNC, Mr.
Sweeney, and affiliates and associates thereof (including Anthony A. Nichols,
Sr., the Company's Chairman of the Board) may be able to enter into business
combinations with the Company, which may not be in the best interest of the
shareholders, without compliance by the Company with the super-majority vote
requirements and other provisions of the statute. In addition, the Company has
exempted any business combination involving the Commonwealth of Pennsylvania
State Employees' Retirement System ("SERS") and a voting trust established for
its benefit (the "SERS Voting Trust") and any of their respective affiliates or
associates, and Morgan Stanley Asset Management Inc. and two funds (the "Morgan
Stanley Funds") managed by it and any of their respective affiliates or
associates from the business combination statute. See "Certain Provisions of
Maryland Law and the Company's Declaration of Trust and Bylaws--Business
Combinations."
MARYLAND CONTROL SHARE ACQUISITION STATUTE. The MGCL, as applicable to real
estate investment trusts, provides that "control shares" of a Maryland real
estate investment trust acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of beneficial interest owned
by the acquiror, by officers or by trustees who are employees of the trust. If
voting rights are not approved at a meeting of shareholders or if the acquiring
person does not deliver an acquiring person statement as required by the
13
<PAGE>
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value. If voting rights for control
shares are approved at a shareholders meeting and the acquiror becomes entitled
to vote a majority of the shares entitled to vote, all other shareholders may
exercise appraisal rights. Pursuant to the statute, the Company has exempted any
and all acquisitions by SSI, TNC, and any current or future affiliate or
associate of theirs from the control shares statute. As a result, SSI or TNC
will be able to possess voting power not generally available to other persons
and the effect may be to further solidify their control of the Company. In
addition, pursuant to the statute, the Company has exempted any and all
acquisitions by SERS and the SERS Voting Trust and any of their respective
current or future affiliates or associates and Morgan Stanley Asset Management
Inc. and the Morgan Stanley Funds and any of their respective current or future
affiliates or associates from the control shares statute.
EFFECT ON PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of Common Shares, or the perception that such
sales could occur, could adversely affect prevailing prices for the Common
Shares. The Company has reserved as of October 1, 1997: (i) 317,450 Common
Shares for issuance upon conversion of units of limited partnership interest
("Units") in the Operating Partnership and (ii) 762,104 Common Shares for
issuance upon exercise of outstanding options and warrants. No prediction can be
made regarding the effect that future sales of Company securities will have on
the market price of Common Shares.
EFFECT ON HOLDERS OF COMMON SHARES OF AN ISSUANCE OF PREFERRED SHARES
The Board of Trustees is empowered by the Company's Declaration of Trust to
designate and issue from time to time one or more classes or series of preferred
shares without shareholder approval. The Board of Trustees may determine the
relative rights, preferences and privileges of each class or series of preferred
shares so issued. Because the Board of Trustees has the power to establish the
preferences and rights of each class or series of preferred shares, it may
afford the holders in any series or class of preferred shares preferences,
distributions, powers and rights, voting or otherwise, senior to the rights of
holders of Common Shares.
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES
One of the factors that influences the market price of the Common Shares in
the public market is the annual distribution rate on the shares. Increasing
market interest rates may lead prospective purchasers of the Common Shares to
demand a higher annual distribution rate from future distributions. Such an
increase in the required distribution may adversely affect the market price of
the Common Shares.
RATIOS OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED SHARE DISTRIBUTIONS
The following table sets forth the Company's ratios of earnings to combined
fixed charges and preferred share distributions for the periods shown. The ratio
of earnings to combined fixed charges and preferred share distributions
represents the number of times fixed charges were covered by earnings. The ratio
is computed by dividing fixed charges and preferred share distributions into
earnings before extraordinary items plus fixed charges. Fixed charges include
interest expense and amortization of debt issuance costs.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
- -------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
- --------- --------- ----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
2.09..... 1.00 (2) (2) (2) N/A (1) N/A (1)
</TABLE>
- ------------------------
(1) Ratio cannot be computed as there were no fixed charges during fiscal years
1993 and 1992.
(2) Ratio calculated to be less than one-to-one coverage; the amount of the
deficiency to cover fixed charges is $162,000, $824,000 and $1,841,000 for
fiscal years 1996, 1995 and 1994, respectively.
14
<PAGE>
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
Company will contribute or otherwise transfer the net proceeds of any sale of
Securities to the Operating Partnership in exchange for additional partnership
interests in the Operating Partnership, the economic terms of which will be
substantially identical to the Securities sold. The Operating Partnership will
use such net proceeds for general business purposes including, without
limitation, the repayment of certain outstanding debt and the acquisition of
office and industrial properties.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the terms of the shares of beneficial interest of
the Company does not purport to be complete and is subject to and qualified in
its entirety by reference to the Declaration of Trust and Bylaws of the Company,
as amended, which are incorporated by reference into the Registration Statement
of which this Prospectus is a part.
GENERAL
The Declaration of Trust of the Company provides that the Company is
authorized to issue up to 105,000,000 shares of beneficial interest of the
Company ("Shares"), consisting of 100,000,000 common shares of beneficial
interest, par value $.01 per share ("Common Shares"), and 5,000,000 preferred
shares of beneficial interest, par value $.01 per share ("Preferred Shares").
The Declaration of Trust may be amended by the Board of Trustees, without
shareholder approval, to increase or decrease the aggregate number of authorized
Shares of any class. The authorized Common Shares and Preferred Shares are
available for future issuance without further action by the Company's
shareholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded.
Both Maryland statutory law governing real estate investment trusts
organized under Maryland law (the "Maryland REIT Law") and the Company's
Declaration of Trust provide that no shareholder of the Company will be
personally liable, by reason of his status as a shareholder of the Company, for
any obligation of the Company. The Company's Bylaws further provide that the
Company shall indemnify any shareholder or former shareholder against any claim
or liability to which such shareholder may become subject by reason of his being
or having been a shareholder, and that the Company shall reimburse each
shareholder who has been successful, on the merits or otherwise, in the defense
of a proceeding to which he has been made a party by reason of his status as
such for all reasonable expenses incurred by him in connection with any such
claim or liability. In addition, it is a requirement of the Declaration of Trust
that all written contracts to which the Company is a party shall include a
provision to the effect that shareholders shall not be personally liable
thereon.
The Declaration of Trust provides that, subject to the provisions of any
class or series of preferred shares then outstanding and to the mandatory
provisions of applicable law, the shareholders are entitled to vote only on the
following matters: (i) election or removal of Trustees; (ii) amendment of the
Declaration of Trust (other than an amendment to increase or decrease the
aggregate number of authorized Shares of any class); (iii) a determination by
the Trust to invest in commodities contracts (other than interest rate futures
intended to hedge the Company against interest rate risk), engage in securities
trading (as compared to investment) activities or hold properties primarily for
sale to customers in the ordinary course of business; and (iv) a merger of the
Company with another entity. Except with respect to the foregoing, no action
taken by the shareholders of the Company at any meeting shall in any way bind
the Board of Trustees.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is The Bank of New
York.
15
<PAGE>
SHARES
COMMON SHARES OF BENEFICIAL INTEREST
Each outstanding Common Share entitles the holder thereof to one vote on all
matters submitted to a vote of shareholders, including the election of Trustees.
There is no cumulative voting in the election of Trustees, which means that,
subject to such voting rights as may be granted by the Board of Trustees in
connection with future issuances of Preferred Shares, the holders of a majority
of the outstanding Common Shares can elect all of the Trustees then standing for
election. Subject to such preferential rights as may be granted by the Board of
Trustees of the Company in connection with the future issuance, if any, of
Preferred Shares, holders of Common Shares are entitled to such distributions as
may be declared from time to time by the Board of Trustees out of funds legally
available therefor.
Holders of Common Shares have no conversion, exchange, redemption or
preemptive rights to subscribe to any securities of the Company. All outstanding
Common Shares will be fully paid and nonassessable. In the event of any
liquidation, dissolution or winding-up of the affairs of the Company, subject to
such preferential rights as may be granted by the Board of Trustees of the
Company in connection with the future issuance, if any, of Preferred Shares,
holders of Common Shares will be entitled to share ratably in the assets of the
Company remaining after provision for payment of liabilities to creditors. All
Common Shares have equal dividend, distribution, liquidation and other rights.
PREFERRED SHARES OF BENEFICIAL INTEREST
The Preferred Shares authorized by the Company's Declaration of Trust may be
issued from time to time in one or more series. Prior to the issuance of
Preferred Shares of each such series, the Board of Trustees is required by the
Maryland REIT Law and the Company's Declaration of Trust to set for each series
the terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms or conditions of
redemption, as are permitted by the Maryland REIT Law. Such rights, powers,
restrictions and limitations could include the right to receive specified
distributions and payments on liquidation prior to any such payments being made
to the holders of Common Shares. Under certain circumstances, the issuance of
Preferred Shares could have the effect of delaying, deferring or preventing a
change of control of the Company and may adversely affect the voting and other
rights of the holders of the Common Shares.
CLASSIFICATION OR RECLASSIFICATION OF PREFERRED SHARES
The Declaration of Trust authorizes the Trustees to classify or reclassify,
in one or more series, any unissued Preferred Shares by setting or changing the
number of Preferred Shares constituting such series and the designation,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions, qualifications or terms or conditions of
redemption of such Preferred Shares.
PREFERRED SHARES
The Prospectus Supplement relating to any Preferred Shares offered thereby
will contain the specific terms thereof, including, without limitation:
(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 distribution 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 distributions on such Preferred Shares shall
accumulate, if applicable;
16
<PAGE>
(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 Company, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(12) A discussion of all material federal income tax considerations, if
any, applicable to such Preferred Shares that are not discussed in this
Prospectus;
(13) The relative ranking and preferences of such Preferred Shares as to
distribution rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(14) 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
distribution rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company; and
(15) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding Shares may be owned, directly or indirectly, by five or
fewer individuals (defined in the Code to include certain entities such as
qualified pension plans) during the last half of a taxable year and Shares must
be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of twelve months (or during a proportionate part of a shorter
taxable year).
Because the Board of Trustees believes it is at present essential for the
Company to continue to qualify as a REIT, the Declaration of Trust, subject to
certain exceptions, contains provisions that restrict the number of Shares that
a person may own and that are designed to safeguard the Company against an
inadvertent loss of REIT status. In order to prevent any shareholder from owning
Shares in an amount that would cause more than 50% in value of the outstanding
Shares to be held by five or fewer individuals, the Board, pursuant to authority
granted in the Declaration of Trust, has passed a resolution that, subject to
certain exceptions described below, provides that no person may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than
9.8% in value of the outstanding Shares, except for Safeguard Scientifics, Inc.
("SSI") which, pursuant to a separate agreement with the Company, may own no
more than 14.75% in value of the outstanding Shares (the "Ownership Limit"). The
Board of Trustees, subject to limitations, retains the authority to effect
additional increases to, or establish exemptions from, the Ownership Limit. The
Board of Trustees, pursuant to authority granted in the Declaration of Trust,
has passed a resolution that provides that, for purposes of determining
applicable ownership limitations: (i) the beneficiaries of SERS (in accord with
their actuarial interests therein), and not SERS or the SERS Voting Trust, shall
be deemed the direct owners of Shares held by the SERS Voting Trust, and (ii)
the owners of the Morgan Stanley Funds (in proportion to their ownership
therein), and not such Morgan Stanley Funds nor a related entity, shall be
deemed the direct owners of Shares held by such Morgan Stanley Funds.
17
<PAGE>
In addition, pursuant to the Declaration of Trust, no purported transfer of
Shares may be given effect if it would result in ownership of all of the
outstanding Shares by fewer than 100 persons (determined without any reference
to the rules of attribution) or result in the Company being "closely held"
within the meaning of Section 856(h) of the Code (the "Ownership Restrictions").
In the event of a purported transfer or other event that would, if effective,
result in the ownership of Shares in violation of the Ownership Limit or the
Ownership Restrictions, such transfer would be deemed void AB INITIO and such
Shares would automatically be exchanged for "Excess Shares" authorized by the
Declaration of Trust, according to rules set forth in the Declaration of Trust,
to the extent necessary to ensure that the purported transfer or other event
does not result in the ownership of Shares in violation of the Ownership Limit
or the Ownership Restrictions.
Holders of Excess Shares are not entitled to voting rights (except to the
extent required by law), dividends or distributions. If, after the purported
transfer or other event resulting in an exchange of Shares for Excess Shares and
prior to the discovery by the Company of such exchange, dividends or
distributions are paid with respect to Shares that were exchanged for Excess
Shares, then such dividends or distributions would be repayable to the Company
upon demand. While outstanding, Excess Shares would be held in trust by the
Company for the benefit of the ultimate transferee of an interest in such trust,
as described below. While Excess Shares are held in trust, an interest in that
trust may be transferred by the purported transferee or other purported holder
with respect to such Excess Shares only to a person whose ownership of the
Shares would not violate the Ownership Limit or the Ownership Restrictions, at
which time the Excess Shares would be automatically exchanged for Shares of the
same type and class as the Shares for which the Excess Shares were originally
exchanged. The Declaration of Trust contains provisions that are designed to
ensure that the purported transferee or other purported holder of the Excess
Shares may not receive in return for such a transfer an amount that reflects any
appreciation in the Shares for which such Excess Shares were exchanged during
the period that such Excess Shares were outstanding. Any amount received by a
purported transferee or other purported holder in excess of the amount permitted
to be received would be required to be turned over to the Company.
The Declaration of Trust also provides that Excess Shares shall be deemed to
have been offered for sale to the Company, or its designee, which shall have the
right to accept such offer for a period of 90 days after the later of: (i) the
date of the purported transfer or event which resulted in an exchange of Shares
for such Excess Shares; and (ii) the date the Board of Trustees determines that
a purported transfer or other event resulting in an exchange of Shares for such
Excess Shares has occurred if the Company does not receive notice of any such
transfer. The price at which the Company may purchase such Excess Shares would
be equal to the lesser of: (i) in the case of Excess Shares resulting from a
purported transfer for value, the price per share in the purported transfer that
caused the automatic exchange for such Excess Shares or, in the case of Excess
Shares resulting from some other event, the market price of such Shares on the
date of the automatic exchange for Excess Shares; or (ii) the market price of
such Shares on the date that the Company accepts such Excess Shares. Any
dividend or distribution paid to a proposed transferee on Excess Shares prior to
the discovery by the Company that such Shares have been transferred in violation
of the provisions of the Declaration of Trust shall be repaid to the Company
upon demand. If the foregoing restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the intended
transferee or holder of any Excess Shares may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring or
holding such Excess Shares and to hold such Excess Shares on behalf of the
Company.
The Trustees may waive the Ownership Restrictions if evidence satisfactory
to the Trustees and the Company's tax counsel or tax accountants is presented
showing that such waiver will not jeopardize the Company's status as a REIT
under the Code. As a condition of such waiver, the Trustees may require that an
intended transferee give written notice to the Company, furnish such opinions of
counsel, affidavits, undertakings, agreements and information as may be required
by the Trustees and/or an undertaking from the applicant with respect to
preserving the status of the Company. The Ownership Restrictions will not
18
<PAGE>
apply if the Company determines that it no longer will attempt to qualify, or
continue to qualify, as a REIT. Any transfer of Shares, or any security
convertible into Shares that would: (i) create a direct or indirect ownership of
Shares in excess of the Ownership Limit; or (ii) result in the violation of the
Ownership Restrictions will be void with respect to the intended transferee and
will result in Excess Shares as described above.
Neither the Ownership Restrictions nor the Ownership Limit will be
automatically removed even if the REIT provisions of the Code are changed so as
no longer to contain any ownership concentration limitation or if the ownership
concentration limitation is increased. Except as otherwise described above, any
change in the Ownership Restrictions would require an amendment to the
Declaration of the Trust. Amendments to the Declaration require the affirmative
vote of holders owning not less than a majority of the outstanding Shares
entitled to vote thereon. In addition to preserving the Company's status as a
REIT, the Ownership Restrictions and the Ownership Limit may have the effect of
precluding an acquisition of control of the Company without the approval of the
Board of Trustees.
All persons who own, directly or by virtue of the applicable attribution
provisions of the Code, more than 4.0% of the value of any class of outstanding
Shares, must file an affidavit with the Company containing the information
specified in the Declaration by January 31 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Company in writing
such information with respect to the direct, indirect and constructive ownership
of Shares as the Trustees deem necessary to comply with the provisions of the
Code applicable to REITs, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
The Ownership Limit could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders of the Company.
All certificates representing Shares that are hereafter issued will bear a
legend referring to the restrictions and limitations described above.
19
<PAGE>
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable Prospectus
Supplement. Preferred Shares of each series represented by Depositary Shares
will be deposited under a separate Deposit Agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (the "Preferred
Share Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the Deposit Agreement, each owner of a Depositary
Receipt will be entitled, in proportion to the fractional interest of a share of
a particular series of Preferred Shares represented by the Depositary Shares
evidenced by such Depositary Receipt, to all the rights and preferences of the
Preferred Shares represented by such Depositary Shares (including distribution,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Shares by the Company to the Preferred Share
Depositary, the Company will cause the Preferred Share Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the following summary of the form thereof filed as an exhibit to
the Registration Statement of which this Prospectus is a part is qualified in
its entirety by reference to these documents.
DISTRIBUTIONS
The Preferred Share Depositary will distribute all cash distributions
received in respect of the Preferred Shares to the record holders of Depositary
Receipts evidencing the related Depositary Shares in proportion to the number of
such Depositary Receipts owned by such holders, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Share Depositary.
In the event of a distribution other than in cash, the Preferred Share
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled to such distributions, subject to certain
obligations of holders to file proofs, certificates and other information and to
pay certain charges and expenses to the Preferred Share Depositary, unless the
Preferred Share Depositary determines that it is not feasible to make such
distribution, in which case the Preferred Share Depositary may, with the
approval of the Company, sell such property and distribute the net proceeds from
such sale to such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Shares converted into Excess Shares.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Share Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into Excess Shares), the
holders thereof will be entitled to delivery at such office, to or upon such
holder's order, of the number of whole or fractional Preferred Shares and any
money or other property represented by the Depositary Shares evidenced by such
Depositary Receipts. Holders of Depositary Receipts will be entitled to receive
whole or fractional shares of the related Preferred Shares on the basis of the
proportion of the Preferred Shares represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such Preferred
Shares will not thereafter be entitled to receive Depositary Shares therefor. If
the Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
Preferred Shares to be
20
<PAGE>
withdrawn, the Preferred Share Depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems Preferred Shares held by the Preferred Share
Depositary, the Preferred Share Depositary will redeem as of the same redemption
date the number of Depositary Shares representing the Preferred Shares so
redeemed, provided the Company shall have paid in full to the Preferred Share
Depositary the redemption price of the Preferred Shares to be redeemed plus an
amount equal to any accrued and unpaid distributions thereon to the date fixed
for redemption. The redemption price per Depositary Share will be equal to the
redemption price and any other amounts per share payable with respect to the
Preferred Shares. If fewer than all the Depositary Shares are to be redeemed,
the Depositary Shares to be redeemed will be selected pro rata (as nearly as may
be practicable without creating fractional Depositary Shares) or by any other
equitable method determined by the Company that will not result in the issuance
of any Excess Shares.
From and after the date fixed for redemption, all distributions in respect
of the Preferred Shares so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any monies payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the Preferred Share Depositary.
VOTING OF THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Share Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Shares) will be entitled to instruct the Preferred Share
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holder's Depositary Shares. The Preferred
Share Depositary will vote the amount of Preferred Shares represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Share Depositary in order to enable the Preferred Share Depositary to
do so. The Preferred Share Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Share Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or willful misconduct of the
Preferred Share Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each Preferred
Share represented by the Depositary Share evidenced by such Depositary Receipt,
as set forth in the applicable Prospectus Supplement.
21
<PAGE>
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company, except in connection with
certain conversions in connection with the preservation of the Company's status
as a REIT. Nevertheless, if so specified in the applicable Prospectus Supplement
relating to an offering of Depositary Shares, the Depositary Receipts may be
surrendered by holders thereof to the Preferred Share Depositary with written
instructions to the Preferred Share Depositary to instruct the Company to cause
conversion of the Preferred Shares represented by the Depositary Shares
evidenced by such Depositary Receipts into whole Common Shares, other Preferred
Shares (including Excess Shares) of the Company or other shares of beneficial
interest, and the Company has agreed that upon receipt of such instructions and
any amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Shares
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not to be converted. No fractional
Common Shares will be issued upon conversion, and if such conversion will result
in a fractional share being issued, an amount will be paid in cash by the
Company equal to the value of the fractional interest based upon the closing
price of the Common Shares on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Share
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
Preferred Shares will not be effective unless such amendment has been approved
by the existing holders of at least a majority of the Depositary Shares
evidenced by the Depositary Receipts then outstanding. No amendment shall impair
the right, subject to certain exceptions in the Depositary Agreement, of any
holder of Depositary Receipts to surrender any Depositary Receipt with
instructions to deliver to the holder the related Preferred Shares and all money
and other property, if any, represented thereby, except in order to comply with
law. Every holder of an outstanding Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such
Depositary Receipt, to consent and agree to such amendment and to be bound by
the Deposit Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Share Depositary if: (i) such
termination is necessary to assist in maintaining the Company's status as a REIT
or (ii) a majority of each series of Preferred Shares affected by such
termination consents to such termination, whereupon the Preferred Share
Depositary shall deliver or make available to each holder of Depositary
Receipts, upon surrender of the Depositary Receipts held by such holder, such
number of whole or fractional Preferred Shares as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any other
property held by the Preferred Share Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated to
assist in maintaining the Company's status as a REIT, then, if the Depositary
Shares are listed on a national securities exchange, the Company will use its
best efforts to list the Preferred Shares issued upon surrender of the related
Depositary Shares on a national securities exchange. In addition, the Deposit
Agreement will automatically terminate if: (i) all outstanding Depositary Shares
shall have been redeemed, (ii) there shall have been a final distribution in
respect of the related Preferred Shares in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares representing such Preferred Shares or (iii) each share of the related
Preferred Shares shall have been converted into shares of beneficial interest of
the Company not so represented by Depositary Shares.
22
<PAGE>
CHARGES OF PREFERRED SHARE DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Share Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Share Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Share Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Share Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Share Depositary. A successor
Preferred Share Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Share Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Share Depositary with respect to the related Preferred Shares.
Neither the Preferred Share Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Share Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Shares represented by the Depositary Shares), gross negligence or willful
misconduct, and the Company and the Preferred Share Depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or Preferred Shares represented thereby
unless satisfactory indemnity is furnished. The Company and the Preferred Share
Depositary may rely on written advice of counsel or accountants, or information
provided by persons presenting Preferred Shares represented thereby for deposit,
holders of Depositary Receipts or other persons believed in good faith to be
competent to give such information, and on documents believed in good faith to
be genuine and signed by a proper party.
In the event the Preferred Share Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Share Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Preferred Shares,
Depositary Shares or Common Shares. Warrants may be issued independently or
together with any Securities and may be attached to or separate from such
securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a specified warrant agent ("Warrant Agent"). The Warrant Agent will act
solely as an agent of the Company in connection with the Warrants of such series
and will not assume any obligation or relationship of agency or trust for or
with any holders or beneficial owners of Warrants.
23
<PAGE>
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the currencies in which the price or prices of such Warrants may be payable; (v)
the designation, amount and terms of the Securities purchasable upon exercise of
such Warrants; (vi) the designation and terms of the other Securities with which
such Warrants are issued and the number of such Warrants issued with each such
security; (vii) if applicable, the date on and after which such Warrants and the
Securities purchasable upon exercise of such Warrants will be separately
transferable; (viii) the price or prices at which and currency or currencies in
which the Securities purchasable upon exercise of such Warrants may be
purchased; (ix) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire; (x) the minimum or
maximum amount of such Warrants which may be exercised at any one time; (xi)
information with respect to book-entry procedures, if any; (xii) a discussion of
certain Federal income tax considerations; and (xiii) any other material terms
of such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and to the
Declaration of Trust and Bylaws of the Company, as amended, which are
incorporated by reference into this Registration Statement.
DURATION
Under the Company's Declaration of Trust, the Company has a perpetual term
and will continue perpetually subject to the authority of the Board of Trustees
to terminate the Company's existence and liquidate its assets and subject to
termination pursuant to the Maryland REIT Law.
BOARD OF TRUSTEES
The Company's Declaration of Trust provides that the number of Trustees of
the Company shall not be less than three nor more than 15. Any vacancy
(including a vacancy created by an increase in the number of Trustees) will be
filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the Trustees (although less than a quorum). The
Trustees will each serve for a term of one year (except that an individual who
has been elected to fill a vacancy will hold office only until the next annual
meeting of shareholders and until his successor has been duly elected and
qualified).
The Declaration of Trust provides that a Trustee may be removed from office
only at a meeting of the shareholders called for that purpose, by the
affirmative vote of the holders of not less than a majority of the Shares
entitled to vote in the election of Trustees; provided, however, that in the
case of any Trustees elected solely by holders of a series of Preferred Shares,
such Trustees may be removed by the affirmative vote of a majority of the
Preferred Shares of that series then outstanding and entitled to vote in the
election of Trustees, voting together as a single class.
MEETINGS OF SHAREHOLDERS
The Declaration of Trust requires the Company to hold an annual meeting of
shareholders for the election of Trustees and the transaction of any other
proper business. Special meetings of shareholders may be called upon the written
request of shareholders holding at least 10% of the Common Shares. Special
meetings of shareholders may also be called by the holders of Preferred Shares
to the extent, if any, determined by the Board of Trustees in connection with
the establishment of a class or series of Preferred
24
<PAGE>
Shares. Any action required or permitted to be taken by shareholders must be
taken at a duly called annual or special meeting of shareholders and may not be
effected by any consent in writing of shareholders.
BUSINESS COMBINATIONS
Under the MGCL, as applicable to Maryland real estate investment trusts,
certain "business combinations" (including certain mergers, consolidations,
share exchanges, or, in certain circumstances, asset transfers or issuances or
reclassifications of equity securities) between a Maryland real estate
investment trust and an Interested Shareholder or an affiliate of the Interested
Shareholder are prohibited for five (5) years after the most recent date on
which the Interested Shareholder becomes an Interested Shareholder. Thereafter,
any such business combination must be: (a) recommended by the trustees of such
trust and (b) approved by the affirmative vote of at least: (i) 80% of the votes
entitled to be cast by holders of outstanding voting shares of beneficial
interest of the trust; and (ii) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of beneficial interest other than shares
held by the Interested Shareholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
trust's common shareholders receive a minimum price (as defined in the MGCL) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for its shares. These provisions
of the MGCL do not apply, however, to business combinations that are approved or
exempted by the board of trustees of the trust prior to the time that the
Interested Shareholder becomes an Interested Shareholder. An amendment to a
Maryland REIT's declaration of trust electing not to be subject to the foregoing
requirements must be approved by the affirmative vote of at least 80% of the
votes entitled to be cast by holders of outstanding voting shares of beneficial
interest of the trust, voting together as a single voting group, and two-thirds
of the votes entitled to be cast by holders of outstanding voting shares of
beneficial interest other than shares of beneficial interest held by Interested
Shareholders. Any such amendment shall not be effective until 18 months after
the vote of shareholders and does not apply to any business combination of the
trust with an Interested Shareholder on the date of the shareholder vote. The
Board of Trustees has exempted any business combinations involving SSI, TNC,
Gerard H. Sweeney and their respective affiliates from the business combination
provisions of the MGCL and, consequently, the five-year prohibition and the
super-majority vote requirements will not apply to business combinations between
any of them and the Company. As a result, SSI, TNC, Gerard H. Sweeney and their
respective affiliates may be able to enter into business combinations that may
not be in the best interest of the shareholders without compliance by the
Company with the super-majority vote requirements and the other provisions of
the statute. In addition, the Company has exempted any business combination
involving SERS or the SERS Voting Trust and any of their respective existing or
future affiliates and Morgan Stanley Asset Management Inc. and the Morgan
Stanley Funds and any of their respective existing or future affiliates from the
business combination provisions of the MGCL.
The business combination statute could have the effect of delaying,
deferring or preventing offers to acquire the Company and of increasing the
difficulty of consummating any such offer.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, provides
that "control shares" of a Maryland real estate investment trust acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter by
shareholders, excluding shares owned by the acquiror, by officers or by trustees
who are employees of the trust in question. "Control shares" are voting shares
of beneficial interest which, if aggregated with all other shares previously
acquired by such acquiror or in respect of which the acquiror is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise the voting power in the
election of trustees within one of the following ranges of voting power: (a)
one-fifth or more but less than one-third, (b) one-third or more but less than a
majority, or (c) a
25
<PAGE>
majority or more of all voting power. Control shares do not include shares the
acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the trust's board of trustees to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares, except those for which voting rights have previously been
approved, for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by the declaration of trust
or bylaws of the trust. Pursuant to the statute, the Company has exempted any
and all acquisitions of Shares by SSI, TNC and any current or future affiliate
or associate of theirs from the control share provisions of the MGCL. As a
result, SSI or TNC and their affiliates will be able to possess voting power not
generally available to other persons and the effect may be to further enhance
their ability to control the Company. In addition, pursuant to the statute, the
Company has exempted any and all acquisitions of Shares by SERS and the SERS
Voting Trust and any of their respective current or future affiliates or
associates and Morgan Stanley Asset Management Inc. and the Morgan Stanley Funds
and any of their respective current or future affiliates or associates from the
control share provisions of the MGCL.
The control share acquisition statute could have the effect of delaying,
deferring or preventing offers to acquire the Company and of increasing the
difficulty of consummating any such offer.
AMENDMENT TO THE DECLARATION OF TRUST
The Company's Declaration of Trust may be amended only by the affirmative
vote of the holders of not less than a majority of the Shares then outstanding
and entitled to vote thereon, except for the provisions of the Declaration of
Trust relating to (i) increases or decreases in the aggregate number of Shares
of any class (which may be made by the Board of Trustees without shareholder
approval) and (ii) the MGCL provisions on business combinations, amendment of
which requires the affirmative vote of the holders of not less than 80% of the
Shares then outstanding and entitled to vote. In addition, in the event that the
Board of Trustees shall have determined, with the advice of counsel, that any
one or more of the provisions of the Company's Declaration of Trust (the
"Conflicting Provisions") are in conflict with the Maryland REIT Law, the Code
or other applicable Federal or state law(s), the Conflicting Provisions shall be
deemed never to have constituted a part of the Declaration of Trust, even
without any amendment thereof.
26
<PAGE>
TERMINATION OF THE COMPANY AND REIT STATUS
Subject to the rights of any outstanding Preferred Shares and to the
provisions of the Maryland REIT Law, the Company's Declaration of Trust permits
the Board of Trustees to terminate the Company and to discontinue the election
of the Company to be taxed as a REIT.
TRANSACTIONS BETWEEN THE COMPANY AND ITS TRUSTEES OR OFFICERS
The Company's Declaration of Trust provides that any contract or transaction
between the Company and one or more Trustees, officers, employees or agents of
the Company must be approved by a majority of the Trustees who have no interest
in the contract or transaction.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by the Maryland REIT Law.
The Company's Bylaws require it to indemnify, without requiring a
preliminary determination of the ultimate entitlement to indemnification, (a)
any present or former Trustee, officer or shareholder who has been successful,
on the merits or otherwise, in the defense of a proceeding to which he was made
a party by reason of such status, against reasonable expenses incurred by him in
connection with the proceeding; (b) any present or former Trustee or officer
against any claim or liability to which he may become subject by reason of such
status unless it is established that (i) his act or omission was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) he
actually received an improper personal benefit in money, property or services or
(iii) in the case of a criminal proceeding, he had reasonable cause to believe
that his act or omission was unlawful; and (c) each shareholder or former
shareholder against any claim or liability to which he may be subject by reason
of such status as a shareholder or former shareholder. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the Company's Bylaws
require it to pay or reimburse, in advance of final disposition of a proceeding,
reasonable expenses incurred by a present or former Trustee, officer or
shareholder made a party to a proceeding by reason of his status as a Trustee,
officer or shareholder provided that, in the case of a Trustee or officer, the
Company shall have received (i) a written affirmation by the Trustee or officer
of his good faith belief that he has met the applicable standard of conduct
necessary for indemnification by the Company as authorized by the Bylaws and
(ii) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the
applicable standard of conduct was not met. The Company's Bylaws also (i) permit
the Company, with the approval of its Trustees, to provide indemnification and
payment or reimbursement of expenses to a present or former Trustee, officer or
shareholder who served a predecessor of the Company in such capacity, and to any
employee or agent of the Company or a predecessor of the Company, (ii) provide
that any indemnification or payment or reimbursement of the expenses permitted
by the Bylaws shall be furnished in accordance with the procedures provided for
indemnification and payment or reimbursement of expenses under Section 2-418 of
the MGCL for directors of Maryland corporations and (iii) permit the Company to
provide such other and further indemnification or payment or reimbursement of
expenses as may be permitted by the MGCL for directors of Maryland corporations.
The limited partnership agreement of the Operating Partnership also provides
for indemnification by the Operating Partnership of the Company, as general
partner, and its Trustees and officers for any costs,
27
<PAGE>
expenses or liabilities incurred by them by reason of any act performed by them
for or on behalf of the Operating Partnership or the Company; provided that such
person's actions were taken in good faith and in the belief that such conduct
was in the best interests of the Operating Partnership and that such person was
not guilty of fraud, willful misconduct or gross negligence.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees and officers of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that, although
the validity and scope of the governing statute has not been tested in court, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Trustees and may be amended or revised from time to time by the Board
of Trustees without a vote of shareholders. No assurance can be given that the
Company's investment objectives will be attained or that the value of the
Company will not decrease.
INVESTMENT POLICIES
INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The primary
business objective of the Company is to realize and maximize growth in cash
available for distribution and to increase shareholder value by: (i) optimizing
cash flow from the Properties and additional properties added to its portfolio
through continued active property management and prudent operating strategies;
(ii) acquiring suburban office and industrial properties and/or portfolios of
such properties at prices that are below replacement cost and at yields which
exceed the Company's cost of capital; (iii) redeveloping and improving acquired
properties and, to a lesser extent, developing build-to-suit properties as
opportunities arise; (iv) generating third party fee-related revenue; and (v)
operating within a conservative capital structure with financing policies that
allow for continued growth.
The Company expects that future developments and acquisitions are likely to
continue to be made primarily in the Market. The Company may, however, develop
or acquire properties elsewhere if the Board of Trustees determines that such
developments or acquisitions would be desirable. Future investments are not
limited by property type, although the Company expects that it will invest
principally in suburban office and industrial properties. The Company will not
have any limit on the amount or percentage of its assets invested in one
property.
The Company may develop, purchase or lease income-producing properties for
long-term investment, expand and improve the Properties presently owned or other
properties purchased, or sell such properties, in whole or in part, when
circumstances warrant. Although there is no limitation on the types of
development activities that the Company may undertake, the Company expects that
its development activities will generally be on a build-to-suit basis for
particular tenants, or where a significant portion of the building is pre-leased
before construction begins. The Company may also participate with other entities
in property ownership and development through joint ventures or other types of
co-ownership. Equity
28
<PAGE>
investments may be subject to existing or future mortgage financing and other
indebtedness that will have priority over the equity interests in the Company.
SECURITIES OF OR INTERESTS IN ENTITIES PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. Subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification, the Company also may
invest in securities of other REITS, other entities engaged in real estate
activities or securities of other issuers. The Company may enter into joint
ventures or partnerships for the purpose of obtaining an equity interest in a
particular property in accordance with the Company's investment policies.
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company's current portfolio
consists of, and the Company's business objectives emphasize, equity investments
in commercial real estate, the Company may, in the discretion of the Board of
Trustees, invest in other types of equity real estate investments, mortgages and
other real estate interests. The Company may also invest in participating or
convertible mortgages if the Company concludes that it may benefit from the cash
flow or any appreciation in the value of the property.
INVESTMENT THROUGH THE OPERATING PARTNERSHIP. The Company has made no
determination to conduct all of its activities through the Operating
Partnership. As of the date of this Prospectus, the Company owns all of the
Properties or the economic interest therein indirectly through the Operating
Partnership. Although the Partnership Agreement of the Operating Partnership
contains no provision restricting the Company's ability to acquire additional
properties outside the Operating Partnership, the Partnership Agreement provides
that if the Company acquires additional properties outside the Operating
Partnership, the percentage of administrative fees of the Company allocated to
the Operating Partnership will be reduced to an amount that is fair and
equitable under the circumstances.
DISPOSITIONS
The Company does not currently intend to dispose of any of the Properties,
although it reserves the right to do so if, based upon management's periodic
review of the Company's portfolio, the Board of Trustees determines that such
action would be in the best interests of the Company.
FINANCING POLICIES
The Company has adopted a policy to operate with a conservative ratio of
debt-to-total market capitalization (i.e., the total consolidated debt of the
Company as a percentage of the market value of issued and outstanding Shares and
Units plus total consolidated debt) of not more than 50%. The Company's
Declaration of Trust and Bylaws do not, however, limit the amount or percentage
of indebtedness that the Company may incur. In addition, the Company may, from
time to time modify its debt policy in light of current economic conditions,
relative costs of debt and equity capital, market values of its properties,
general conditions in the market for debt and equity securities, fluctuations in
the market price of its Common Shares, growth opportunities and other factors.
Accordingly, the Company may increase or decrease its debt-to-market
capitalization ratio beyond the limit described above. To the extent that the
Board of Trustees decides to obtain additional capital, the Company may raise
such capital through additional equity offerings (including offerings of senior
or convertible securities), debt financings or retention of cash flow (subject
to provisions in the Code concerning taxability of undistributed REIT income),
or a combination of these methods. Borrowing may be unsecured or secured by any
or all of the assets of the Company, the Operating Partnership or any existing
or new property-owning partnership and may have full or limited recourse to all
or any portion of the assets of the Company, the Operating Partnership or any
existing or new property-owning partnership. Indebtedness incurred by the
Company may be in the form of bank borrowing, purchase money obligations to
sellers of the properties, publicly or privately placed debt instruments or
financing from institutional investors or other lenders. The proceeds from any
borrowing by the Company may be used for working capital, to refinance existing
indebtedness,
29
<PAGE>
to finance acquisition, expansion or development of new properties and for the
payment of distributions. The Company has not established any limit on the
number or amount of mortgages that may be placed on any single property or on
its portfolio as a whole.
The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets. The Company has used total market capitalization because it believes
that the book value of its assets (which to a large extent is the depreciated
value of real property, the Company's primary tangible asset) does not
accurately reflect its ability to borrow and to meet debt service requirements.
The market capitalization of the Company, however, is more variable than book
value, and does not necessarily reflect the fair market value of the underlying
assets of the Company at all times. The Company will also consider factors other
than market capitalization in making decisions regarding the incurrence of
indebtedness, such as the purchase price of properties to be acquired with debt
financing, the estimated market value of its properties upon refinancing and the
ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service.
WORKING CAPITAL RESERVES
The Company will maintain working capital reserves (and when not sufficient,
access to borrowings) in amounts that the Board of Trustees determines to be
adequate to meet normal contingencies in connection with the Company's business
and investments.
CONFLICT OF INTERESTS POLICIES
The Company has not adopted any formal or informal policies intended to
eliminate the influence of conflicts of interest. Under the Company's
Declaration of Trust, a transaction effected by the Company or any entity
controlled by the Company in which a Trustee or officer has a financial interest
may only be consummated if the transaction is first approved by a majority of
the Trustees who have no interest in the transaction.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer Common Shares, Preferred Shares, senior
securities or options to purchase shares in exchange for property and, to the
extent permitted by applicable law, to repurchase or otherwise acquire its
Common Shares or other securities in the open market or otherwise and may engage
in such activities in the future. The Board of Trustees has no present intention
of causing the Company to repurchase any Common Shares. The Company expects (but
is not obligated) to issue Common Shares to holders of Units in the Operating
Partnership upon exercise of their redemption rights. The Company may issue
Preferred Shares from time to time, in one or more series, as authorized by the
Board of Trustees without the need for shareholder approval. The Company has not
engaged in trading, underwriting or agency distribution or sale of securities of
issuers, nor has the Company invested in the securities of issuers (other than
the Operating Partnership and its subsidiaries and property-owning joint
ventures) for the purposes of exercising control, and does not intend to do so.
The Company intends to operate in a manner that will not subject it to
regulation as an investment company under the Investment Company Act. At all
times, the Company intends to make investments in such a manner as to qualify as
a REIT, unless because of circumstances or changes in the Code (or the Treasury
Regulations), the Board of Trustees determines that it is no longer in the best
interest of the Company to qualify as a REIT. The Company may make loans to
third parties, including, without limitation, to joint ventures in which it
participates. The Company's policies with respect to such activities may be
reviewed and modified or amended from time to time by the Company's Board of
Trustees without a vote of the shareholders.
30
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of material Federal income tax considerations is
for general information only and is not tax advice. The following discussion
summarizes all material federal income tax considerations to a holder of Common
Shares. The applicable Prospectus Supplement will contain information about
additional federal income tax considerations, if any, relating to Securities
other than Common Shares. In the opinion of Arthur Andersen LLP, tax advisor to
the Company (the "Tax Advisor") the discussion below, insofar as it relates to
Federal income tax matters, is correct in all material respects, and fairly
summarizes the federal income tax considerations that are material to a
shareholder. This discussion does not purport to deal with 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, except to the extent discussed under "Taxation
of Foreign Shareholders" below) subject to special treatment under the Federal
income tax laws. The information in this section is based on the Code, current,
temporary and proposed Treasury Regulations thereunder, the legislative history
of the Code, current administrative interpretations and practices of the IRS
(including its practices and policies as endorsed in private letter rulings,
which are not binding on the IRS except with respect to a taxpayer that receives
such a ruling), and court decisions, all as of the date hereof. The Taxpayer
Relief Act of 1997 (the "1997 Act") was enacted on August 5, 1997. The 1997 Act
contains many provisions which generally make it easier to operate and to
continue to qualify as a REIT for taxable years beginning after the date of
enactment (which, for the Company, would be applicable commencing with its
taxable year beginning January 1, 1998).
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Company first elected to be taxed as a REIT for its taxable year ended
December 31, 1986, and has operated and expects to continue to operate in such a
manner so as to remain qualified as a REIT for Federal income tax purposes. In
the opinion of the Tax Advisor, and based on certain representations made by the
Company relating to the organization and operation of the Company and the
Operating Partnership, the Company will continue to qualify as a REIT under the
Code. However, the opinion of the Tax Advisor is not binding upon the IRS and no
absolute assurance can be given that the Company will continue to operate in a
manner so as to remain qualified as a REIT.
The following is a general summary of the Code sections that govern the
Federal income tax treatment of a REIT and its shareholders. These sections of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof as currently in effect. There is no assurance that there
will not be future changes in the Code or administrative or judicial
interpretation thereof which could adversely affect the Company's ability to
continue to qualify as a REIT or adversely affect the taxation of holders of
Common Shares or which could further limit the amount of income the Company may
derive from the management, construction, development, leasing or sale of
properties owned by the Operating Partnership or by third parties or in
partnerships with third parties.
31
<PAGE>
TAXATION OF THE COMPANY AS A REIT
An entity that qualifies for taxation as a REIT and distributes to its
shareholders at least 95% of its REIT taxable income is generally not subject to
Federal corporate income taxes on net income that it currently distributes to
shareholders. This treatment substantially eliminates the "double taxation" (at
the corporate and shareholder levels) that generally results from investment in
a corporation. However, the Company will be subject to Federal income tax as
follows:
The Company will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
(i) Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any.
(ii) If the Company has net income from prohibited transactions (which
are, in general, certain sales or other dispositions of property other than
foreclosure property held primarily for sale to customers in the ordinary
course of business) such income will be subject to a 100% tax. See "--Sale
of Partnership Property."
(iii) If the Company should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75%
or 95% test, multiplied by a fraction intended to reflect the Company's
profitability.
(iv) If the Company should fail to distribute during each calendar year
at least the sum of (1) 85% of its REIT ordinary income for such year, (2)
95% of its REIT capital gain net income for such year, and (3) any
undistributed taxable income from prior years, it would be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed.
(v) If the Company has (1) net income from the sale or other disposition
of "foreclosure property" (which is, in general, property acquired by the
Company by foreclosure or otherwise or default on a loan secured by the
property) which is held primarily for sale to customers in the ordinary
course of business or (2) other nonqualifying income from foreclosure
property, it will be subject to tax on such income at the highest corporate
rate.
(vi) If the Company acquires any asset from a C corporation (i.e.,
generally a corporation subject to tax at the corporate level) in a
transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property) in
the hands of the C corporation, and the Company recognizes gain on the
disposition of such asset during the 10-year period (the "Restriction
Period") beginning on the date on which such asset was acquired by the
Company then, pursuant to guidelines issued by the IRS, the excess of the
fair market value of such property at the beginning of the applicable
Restriction Period over the Company's adjusted basis in such asset as of the
beginning of such Restriction Period will be subject to a tax at the highest
regular corporate rate. The results described above with respect to the
recognition of built-in gain assume that the Company will make an election
pursuant to IRS Notice 88-19 or applicable future administrative rules or
Treasury Regulations to avail itself of the benefits of the Restriction
Period.
QUALIFICATION OF THE COMPANY AS A REIT
The Code defines a REIT as a corporation, trust or association:
(1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
32
<PAGE>
(3) which would be taxable as a domestic corporation but for Sections
856 through 859 of the Code;
(4) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(5) which has the calendar year as its taxable year;
(6) the beneficial ownership of which is held by 100 or more persons;
(7) during the last half of each taxable year not more than 50% in value
of the outstanding stock of which is owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain exempt
organizations); and
(8) which meets certain income, asset and distribution tests, described
below.
Conditions (1) through (5), inclusive, must be satisfied during the entire
taxable year, and condition (6) must be satisfied during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. The Company has previously issued Common Shares in
sufficient proportions to allow it to satisfy requirements (6) and (7) (the "100
Shareholder" and "five-or-fewer" requirements), respectively. In addition, the
Company's Declaration of Trust provides restrictions regarding the transfer of
its Shares that are intended to assist the Company in continuing to satisfy the
share ownership requirements described in (6) and (7) above. See "Description of
Shares of Beneficial Interest--Restrictions on Transfer." However, these
restrictions may not ensure that the Company will, in all cases, be able to
satisfy the share ownership requirements described in (6) and (7) above. If the
Company fails to satisfy such share ownership requirements, the Company's status
as a REIT will terminate. Pursuant to the 1997 Act, for the Company's taxable
years commencing on and after January 1, 1998, if the Company complies with
regulatory rules pursuant to which it is required to send annual letters to
certain of its shareholders requesting information regarding the actual
ownership of its shares, but does not know, or exercising reasonable diligence
would not have known, whether it failed to meet the requirement that it not be
closely held, the Company will be treated as having met the "five or fewer"
requirement. If the Company were to fail to comply with these regulatory rules
for any year, it would be subject to a $25,000 penalty. If the Company's failure
to comply was due to intentional disregard of the requirements, the penalty
would be increased to $50,000. However, if the Company's failure to comply was
due to reasonable cause and not willful neglect, no penalty would be imposed.
See "--Failure to Qualify."
A REIT is permitted to have a wholly-owned subsidiary (also referred to as a
"qualified REIT subsidiary"). A qualified REIT subsidiary is not treated as a
separate entity for Federal income tax purposes. Rather, all of the assets and
items of income, deductions and credit of a qualified REIT subsidiary are
treated as if they were those of the REIT. The Company has formed several
qualified REIT subsidiaries and may in the future form one or more qualified
REIT subsidiaries. For the Company's 1997 taxable year, all of the stock of such
subsidiaries must be owned by the Company from the commencement of each such
subsidiary's existence. For taxable years of the Company beginning on and after
January 1, 1998, the Company must own all of the stock of each such subsidiary,
although it will not be required to own such stock of such subsidiary from the
commencement of such subsidiary's existence.
A REIT is deemed to own its proportionate share of the assets of a
partnership in which it is a partner and is deemed to receive its proportionate
share of the income of the partnership. Thus, the Company's proportionate share
of the assets and items of income of the Operating Partnership and each of the
Title Holding Partnerships will be treated as assets and items of income of the
Company for purposes of applying the requirements described herein, provided
that the Operating Partnership and its subsidiary partnerships are treated as
partnerships for Federal income tax purposes. In addition, the character of the
assets and gross income of such partnerships shall retain the same character in
the hands of the REIT for purposes of the requirements applicable to REITs under
the Code including satisfying the income tests and
33
<PAGE>
the asset tests. See "Income Taxation of the Operating Partnership, the Title
Holding Partnerships and Their Partners."
INCOME TESTS
To maintain qualification as a REIT, there are three gross income
requirements that must be satisfied annually. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and interest on obligations secured by a mortgage on real
property) or from "qualified temporary investment income" (described below).
Second, at least 95% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from investments
qualifying under the 75% test above, and from dividends, interest, and gain from
the sale or disposition of stock or securities or from any combination of the
foregoing. Third, for taxable years beginning on or before August 5, 1997,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions, and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income (including gross income from prohibited transactions) for each
taxable year. In applying these tests, the Company will be treated as realizing
its share of any income and bearing its share of any loss of the Operating
Partnership and the character of such income or loss, as well as other
partnership items, will be determined at the partnership level.
Rents received by the Company will qualify as "rents from real property" for
purposes of satisfying the 75% and 95% gross income tests only if several
conditions are met. First the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" if the REIT, or an owner of 10% or more of
the REIT, directly or constructively owns 10% or more of such tenant (a "Related
Party Tenant"). For the Company's taxable year which begins on January 1, 1998
and for all taxable years thereafter, only partners who own 25% or more of the
capital or profits interest in a partnership are included in the determination
of whether a tenant is a "Related Party Tenant." Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an "independent
contractor" who is adequately compensated and from whom the REIT does not derive
any income; provided, however, that the Company may directly perform certain
customary services (e.g., furnishing water, heat, light and air conditioning,
and cleaning windows, public entrances and lobbies) other than services which
are considered rendered to the occupant of the property (e.g., renting parking
spaces on a reserved basis to tenants).
For taxable years of the Company beginning after August 5, 1997, if the
Company provides services to a tenant that are other than those usually or
customarily provided in connection with the rental of space for occupancy only,
amounts received or accrued by the Company for any such services will not be
treated as "rents from real property" for purposes of the REIT gross income
tests but will not cause other amounts received with respect to the property to
fail to be treated as "rents from real property" if the amounts received in
respect of such services, together with amounts received for certain management
services, do not exceed 1% of all amounts received or accrued by the Company
during the taxable year with respect to such property. If the 1% threshold is
exceeded, then all amounts received or accrued by the Company with respect to
the property will not qualify as "rents from real property," even if the
impermissible services are provided to some, but not all, of the tenants of the
property.
34
<PAGE>
The Company has represented that the Company's real estate investments,
which include its allocable share of income from the Operating Partnership, will
give rise to income that qualifies as "rents from real property" for purposes of
the 75 percent and 95 percent gross income tests, other than rents received from
a Related Party Tenant. In addition, the Company has represented that the rents
received from Related Party Tenants, in addition to all other income which is
not qualifying income for the 75 percent and 95 percent gross income tests, does
not exceed five percent of the Company's gross income, and therefore, the
Company's status as a REIT should not be jeopardized.
The Company has represented that it does not and will not (i) charge rent
for any property that is based in whole or in part on the income or profits of
any person (other than being based on a percentage of receipts or sales); (ii)
receive rents in excess of a de minimis amount from Related Party Tenants; (iii)
derive rents attributable to personal property which constitute greater than 15%
of the total rents received under the lease; or (iv) perform services considered
to be rendered to the occupant of property, other than through an independent
contractor from whom the Company derives no income.
The Operating Partnership owns 5% of the voting common stock, and all of the
preferred stock of the Management Company, a corporation that is taxable as a
regular corporation. The Management Company performs management, development and
leasing services for the Operating Partnership and other real properties owned
in whole or in part by third parties. The income earned by and taxed to the
Management Company would be nonqualifying income if earned directly by the
Company. As a result of the corporate structure, the income will be earned by
and taxed to the Management Company and will be received by the Company only
indirectly as dividends. Although interest and dividends are generally
qualifying income under the 95% test, the IRS has announced a no-ruling policy
on this issue when the dividends and interest are earned in this manner.
If the Company fails to satisfy one or both of the 75% of 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its return, and
(iii) any incorrect information on the schedule was not due to fraud with intent
to evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of these relief provisions. As
discussed above in "Taxation of the Company as a REIT," even if these relief
provisions apply, a tax would be imposed with respect to the excess net income.
No similar mitigation provision applies to provide relief if the 30% income test
is failed, and if such test is not met for the taxable years of the Company
beginning before January 1, 1998, the Company would cease to qualify as a REIT.
See "--Failure to Qualify."
ASSET TESTS
In order for the Company to maintain its qualification as a REIT, at the
close of each quarter of its taxable year it must also satisfy three tests
relating to the nature of its assets. First, at least 75% of the value of the
Company's total assets must be represented by real estate assets (which for this
purpose include (i) its allocable share of real estate assets held by
partnerships in which the Company or a "qualified REIT subsidiary" of the
Company owns an interest and (ii) stock or debt instruments purchased with the
proceeds of a stock offering or a long-term (at least five years) debt offering
of the Company and held for not more than one year from the date the Company
receives such proceeds), cash, cash items, and government securities. Second,
not more than 25% of the Company's total assets may be represented by securities
other than those described above in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets, and the Company may not own more than 10% of any one issuer's
outstanding voting securities (excluding securities of a qualified REIT
subsidiary, of which the REIT is required to own all of such stock, or another
REIT).
35
<PAGE>
The Company anticipates that it will be able to comply with these asset
tests. The Company is deemed to hold directly its proportionate share of all
real estate and other assets of the Operating Partnership and should be
considered to hold its proportionate share of all assets deemed owned by the
Operating Partnership through its ownership of partnership interests in other
partnerships. As a result, the Company plans to hold more than 75% of its assets
as real estate assets. In addition, the Company does not plan to hold any
securities representing more than 10% of any one issuer's voting securities,
other than any qualified REIT subsidiary of the Company, nor securities of any
one issuer exceeding 5% of the value of the Company's gross assets (determined
in accordance with generally accepted accounting principles). As previously
discussed, the Company is deemed to own its proportionate share of the assets of
a partnership in which it is a partner so that the partnership interest, itself,
is not a security for purposes of this asset test.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests, and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance. However, there can be no assurance that such other action
will always be successful. If the Company fails to cure any noncompliance with
the asset test within such time period, its status as a REIT would be lost.
As noted above, one of the requirements for qualification as a REIT is that
a REIT not own more than 10 percent of the voting stock of a corporation other
than the stock of a qualified REIT subsidiary (of which the REIT is required to
own all of such stock) and stock in another REIT. The Operating Partnership will
own only approximately 5 percent of the voting stock and all of the non-voting
preferred stock of the Management Company and therefore will comply with this
rule. However, the IRS could contend that the Company's ownership, through its
interest in the Operating Partnership, of all of the non-voting preferred stock
in the Management Company should be viewed as voting stock because of its
substantial economic position in the Management Company. If the IRS were to be
successful in such a contention, the Company's status as a REIT would be lost
and the Company would become subject to federal corporate income tax on its net
income, which would have a material adverse affect on the Company's cash
available for distribution. The Company does not have the ability to designate a
seat on the Board of Directors of the Management Company. The Company does not
believe that it will be viewed as owning in excess of 10 percent of the voting
stock of the Management Company.
ANNUAL DISTRIBUTION REQUIREMENTS
The Company, in order to maintain its qualification as a REIT, is required
to distribute dividends (other than capital gain dividends) to its shareholders
in an amount at least equal to (A) the sum of (i) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and the
REIT's net capital gain) and (ii) 95% of the net income (after tax), if any,
from foreclosure property, minus (B) the excess of the sum of certain items of
non-cash income (income attributable to leveled stepped rents, original issue
discount on purchase money debt, or a like-kind exchange that is later
determined to be taxable (plus, for the Company's 1998 taxable year and
thereafter, income from cancellation of indebtedness, original issue discount,
and coupon interest) over 5% of the amount determined under clause (i) above).
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax on the
undistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if the Company should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year,
36
<PAGE>
(ii) 95% of its REIT net capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.
For the Company's taxable year beginning on January 1, 1998 and for all
taxable years thereafter, undistributed capital gains may be so designated by
the Company and are includable in the income of the holders of Common Shares.
Such holders are treated as having paid the capital gains tax imposed on the
Company on the designated amounts included in their income as long-term capital
gains. Such shareholders would receive an increase in their basis for income
recognized and a decrease in their basis for taxes paid by the Company. See
"--Taxation of Taxable Domestic Shareholders."
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the limited partnership
agreement of the Operating Partnership authorizes the Company, as general
partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement due primarily to the expenditure of
cash for nondeductible items such as principal amortization or capital
expenditures. In order to meet the 95% distribution requirement, the Company may
borrow or may cause the Operating Partnership to arrange for short-term or other
borrowing to permit the payment of required distributions or attempt to declare
a consent dividend, which is a hypothetical distribution to holders of Common
Shares out of the earnings and profits of the Company. The effect of such a
consent dividend (which, in conjunction with distributions actually paid, must
not be preferential to those holders who agree to such treatment) would be that
such holders would be treated for federal income tax purposes as if they had
received such amount in cash, and they then had immediately contributed such
amount back to the Company as additional paid-in capital. This would result in
taxable income to those holders without the receipt of any actual cash
distribution but would also increase their tax basis in their Common Shares by
the amount of the taxable income recognized.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year that may be included in the Company's
deduction for distributions paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay to the IRS interest based upon the
amount of any deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be deductible by the Company, nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable to them as ordinary income, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.
INCOME TAXATION OF THE OPERATING PARTNERSHIP, THE TITLE HOLDING PARTNERSHIPS AND
THEIR PARTNERS
The following discussion summarizes certain Federal income tax
considerations applicable to the Company's investment in the Operating
Partnership and its subsidiary partnerships (referred to herein as the "Title
Holding Partnerships").
37
<PAGE>
CLASSIFICATION OF THE OPERATING PARTNERSHIP AND TITLE HOLDING, PARTNERSHIPS AS
PARTNERSHIPS
As of the date of this Prospectus, the Company own all of the Properties or
the economic interest therein through the Operating Partnership. The Company
will be entitled to include in its income its distributive share of the income
and to deduct its distributive share of the losses of the Operating Partnership
(including the Operating Partnership's share of the income or losses of the
Title Holding Partnerships) only if the Operating Partnership and the Title
Holding Partnerships (collectively, the "Partnerships") are classified for
Federal income tax purposes as partnerships rather than as associations taxable
as corporations. For taxable periods prior to January 1, 1997, an organization
formed as a partnership was treated as a partnership for Federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations used to distinguish
a partnership from a corporation for tax purposes. These four characteristics
were continuity of life, centralization of management, limited liability, and
free transferability of interests.
Neither the Operating Partnership nor any of the Title Holding Partnerships
requested a ruling from the IRS that they would be treated as partnerships for
Federal income tax purposes. The Company received an opinion of the Tax Advisor,
which is not binding on the IRS, that the Operating Partnership and the Title
Holding Partnerships will each be treated as partnerships for Federal income tax
purposes and not as an association or publicly traded partnership taxable as a
corporation. The opinion of the Tax Advisor is based on the provisions of the
limited partnership agreement of the Operating Partnership and the limited
partnership agreements of the Title Holding Partnerships, respectively, and
certain factual assumptions and representations described in the opinion.
Effective January 1, 1997, newly promulgated Treasury Regulations eliminated
the four-factor test described above and, instead, permit partnerships and other
non-corporate entities to be taxed as partnerships for federal income tax
purposes without regard to the number of corporate characteristics possessed by
such entity. Under those Regulations, both the Operating Partnership and each of
the Title Holding Partnerships will be classified as partnerships for federal
income tax purposes unless an affirmative election is made by the entity to be
taxed as a corporation. The Company has represented that no such election has
been made, or is anticipated to be made, on behalf of the Operating Partnership
or any of the Title Holding Partnerships. Under a special transitional rule in
the Treasury Regulations, the IRS will not challenge the classification of an
existing entity such as the Operating Partnership or a Title Holding Partnership
for periods prior to January 1, 1997 if: (i) the entity has a "reasonable basis"
for its classification; (ii) the entity and each of its members recognized the
federal income tax consequences of any change in classification of the entity
made within the 60 months prior to January 1, 1997; and (iii) neither the entity
nor any of its members had been notified in writing on or before May 8, 1996
that its classification was under examination by the IRS. Neither the Operating
Partnership nor any of the Title Holding Partnerships changed their
classification within the 60 month period preceding May 8, 1996, nor was any one
of them notified that their classification as a partnership for federal income
tax purposes was under examination by the IRS.
If for any reason the Operating Partnership or a Title Holding Partnership
was classified as an association taxable as a corporation rather than as a
partnership for Federal income tax purposes, the Company would not be able to
satisfy the income and asset requirements for REIT status. See "--Income Tests"
and "--Asset Tests." In addition, any change in any such Partnership's status
for tax purposes might be treated as a taxable event, in which case the Company
might incur a tax liability without any related cash distribution. See "--Annual
Distribution Requirements." Further, items of income and deduction of any such
Partnership would not pass through to its partner (e.g., the Company), and its
partners would be treated as shareholders for tax purposes. Any such Partnership
would be required to pay income tax at corporate tax rates on its net income and
distributions to its partners would constitute dividends that would not be
deductible in computing such Partnership's taxable income.
38
<PAGE>
PARTNERSHIP ALLOCATIONS
Although a partnership agreement will generally determine the allocation of
income and losses among partners, such allocations will be disregarded for tax
purposes if they do not comply with the provisions of Section 704(b) and the
Treasury Regulations promulgated thereunder, which require that partnership
allocations respect the economic arrangement of the partners.
If an allocation is not recognized for Federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
The Company has represented that the fair market values of 19 of the
Properties contributed directly or indirectly to the Operating Partnership in a
transaction with SSI and TNC in August 1996 were different than the tax basis of
such Properties. Pursuant to Section 704(c) of the Code, items of income, gain,
loss, and deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated for Federal income tax purposes in a manner such that the
contributor is charged with or benefits from the unrealized gain or unrealized
loss associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of the contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution (the "Pre-Contribution Gain or Loss"). The partnership agreement of
the Operating Partnership requires allocations of income, gain, loss and
deduction attributable to such contributed property to be made in a manner that
is consistent with Section 704(c) of the Code. Thus, if the Operating
Partnership sells contributed property at a gain or loss, such gain or loss will
be allocated to the contributing partners, and away from the Company, generally
to the extent of the Pre-Contribution Gain or Loss.
The Treasury Department has issued final regulations under Section 704(c) of
the Code (the "Regulations") which give partnerships great flexibility in
ensuring that a partner contributing property to a partnership receives the tax
burdens and benefits of any Pre-Contribution Gain or Loss attributable to the
contributed property. The Regulations permit partnerships to use any "reasonable
method" of accounting for Pre-Contribution Gain or Loss. The Regulations
specifically describe three reasonable methods, including (i) the "traditional
method" under current law, (ii) the traditional method with the use of "curative
allocations" which would permit distortions caused by Pre-Contribution Gain or
Loss to be rectified on an annual basis, and (iii) the "remedial allocation
method" which is similar to the traditional method with "curative allocations."
The Partnership Agreement permits the Company, as a general partner, to select
one of these methods to account for Pre-Contribution Gain or Loss.
DEPRECIATION
The Operating Partnership's assets other than cash consist largely of
appreciated property contributed by its partners. Assets contributed to a
partnership in a tax-free transaction generally retain the same depreciation
method and recovery period as they had in the hands of the partner who
contributed them to the partnership. Accordingly, the Operating Partnership's
depreciation deductions for its real property are based largely on the historic
tax depreciation schedules for the Properties prior to their contribution to the
Operating Partnership. The Properties are being depreciated over a range of 15
to 40 years using various methods of depreciation which were determined at the
time that each item of depreciable property was placed in service. Any real
property purchased by the Partnerships will be depreciated over 40 years. In
certain instances where a partnership interest rather than real property is
contributed to the Partnership,
39
<PAGE>
the real property may not carry over its recovery period but rather may,
similarly, be subject to the lengthier recovery period.
Section 704(c) of the Code requires that depreciation as well as gain and
loss be allocated in a manner so as to take into account the variation between
the fair market value and tax basis of the property contributed. Thus, because
most of the property contributed to the Operating Partnerships is appreciated,
the Company will generally receive allocations of tax depreciation in excess of
its percentage interest in the Operating Partnership. Depreciation with respect
to any property purchased by the Operating Partnership subsequent to the
admission of its partners, however, will be allocated among the partners in
accordance with their respective percentage interests in the Partnerships.
As described above (see "--Tax Allocations with Respect to Contributed
Properties"), the Treasury Department's Regulations give partnerships
flexibility in ensuring that a partner contributing property to a partnership
receives the tax benefits and burdens of any Pre-Contribution Gain or Loss
attributable to the contributed property.
As described previously, the Company, as a general partner, may select any
permissible method to account for Pre-Contribution Gain or Loss. The use of
certain of these methods may result in the Company being allocated lower
depreciation deductions than if a different method were used. The resulting
higher taxable income and earnings and profits of the Company, as determined for
federal income tax purposes, should decrease the portion of distributions by the
Company which may be treated as a return of capital. See "--Annual Distribution
Requirements."
BASIS IN OPERATING PARTNERSHIP INTEREST
The Company's adjusted tax basis in each of the partnerships in which it has
an interest generally (i) will be equal to the amount of cash and the basis of
any other property contributed to such partnership by the Company, (ii) will be
increased by (a) its allocable share of such partnership's income and (b) its
allocable share of any indebtedness of such partnership, and (iii) will be
reduced, but not below zero, by the Company's allocable share of (a) such
partnership's loss and (b) the amount of cash and the tax basis of any property
distributed to the Company and by constructive distributions resulting from a
reduction in the Company's share of indebtedness of such partnership.
If the Company's allocable share of the loss (or portion thereof) of any
partnership in which it has an interest would reduce the adjusted tax basis of
the Company's partnership interest in such partnership below zero, the
recognition of such loss will be deferred until such time as the recognition of
such loss (or portion thereof) would not reduce the Company's adjusted tax basis
below zero. To the extent that distributions from a partnership to the Company,
or any decrease in the Company's share of the nonrecourse indebtedness of a
partnership (each such decrease being considered a constructive cash
distribution to the partners), would reduce the Company's adjusted tax basis
below zero, such distributions (including such constructive distributions) would
constitute taxable income to the Company. Such distributions and constructive
distributions normally would be characterized as long-term capital gain if the
Company's interest in such partnership has been held for longer than the
long-term capital gain holding period (currently 18 months).
SALE OF PARTNERSHIP PROPERTY
Generally, any gain realized by a partnership on the sale of property held
by the partnership for more than 18 months will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. However, under the requirements applicable to REITS under
the Code, the Company's share as a partner of any gain realized by the Operating
Partnership on the sale of any property held as inventory or other property held
primarily for sale to customers in the ordinary course of a trade or business
will be treated as income from a prohibited transaction that is subject to a
100% penalty tax. See "--Taxation of the Company as a REIT." Such prohibited
transaction income will also
40
<PAGE>
have an adverse effect upon the Company's ability to satisfy the income tests
for REIT status. See "--Income Tests." Under existing law, whether property is
held as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. A safe harbor to avoid
classification as a prohibited transaction exists as to real estate assets held
for the production of rental income by a REIT for at least four years where in
any taxable year the REIT has made no more than seven sales of property or, in
the alternative, the aggregate of the adjusted bases of all properties sold does
not exceed 10% of the adjusted bases of all of the REIT's properties during the
year and the expenditures includible in a property's net sales price. The
Company, as general partner of the Operating Partnership, has represented that
the Operating Partnership and the Title Holding Partnerships intend to hold the
Properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning, and operating and leasing
properties and to make such occasional sales of the properties as are consistent
with the Company's and the Operating Partnership's investment objectives. No
assurance can be given, however, that every property sale by the Partnerships
will constitute a sale of property held for investment.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be dividends taxable
to such U.S. shareholders as ordinary income and will not be eligible for the
dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the shareholder has held its shares
of beneficial interest. However, corporate shareholders may be required to treat
up to 20% of certain capital gain dividends as ordinary income. Distributions in
excess of current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that 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 (or
short-term capital gain if the shares have been held for 18 months or less)
assuming the shares are a capital asset in the hands of the shareholder. In
addition, any distribution declared by the Company 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 Company and received by the
shareholder on December 31 of such year, provided that the distribution is
actually paid by the Company during January of the following calendar year.
Shareholders may not include in their individual income tax returns any losses
of the Company.
For taxable years of the Company beginning after August 5, 1997, U.S.
shareholders holding Shares at the close of the Company's taxable year will be
required to include, in computing their long-term capital gains for the taxable
year in which the last day of the Company's taxable year falls, such amount as
the Company may designate in a written notice mailed to its shareholders. The
Company may not designate amounts in excess of the Company's undistributed net
capital gain for the taxable year. Each U.S. shareholder required to include
such a designated amount in determining such shareholder's long-term capital
gains will be deemed to have paid, in the taxable year of the inclusion, the tax
paid by the Company in respect of such undistributed net capital gains. U.S.
shareholders subject to these rules will be allowed a credit or a refund, as the
case may be, for the tax deemed to have been paid by such shareholders. U.S.
shareholders will increase their basis in their Shares by the difference between
the amount of such includible gains and the tax deemed paid by the shareholder
in respect of such gains.
In general, any loss upon a sale or exchange of shares by a shareholder 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
41
<PAGE>
the extent such shareholder has received distributions from the Company required
to be treated as long-term capital gain.
Distributions from the Company and gain from the disposition of Common
Shares will not be treated as passive activity income and, therefore,
shareholders may not be able to apply any "passive losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital or capital gain dividends) and, on an elective basis, capital gain
dividends and gain from the disposition of Common Shares will generally be
treated as investment income for purposes of the investment income limitation.
BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and the IRS the amount of
distributions 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 distributions paid unless such
holder (a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
A shareholder that does not provide the Company 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 Company may be required to withhold a
portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to the Company. See "--Taxation of Foreign
Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Distributions by the Company to a shareholder that is a tax-exempt entity
should not constitute "unrelated business taxable income" ("UBTI"), as defined
in Section 512(a) of the Code provided that the tax-exempt entity has not
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Code and the shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
In the case of a "qualified trust" (generally, a pension or profit-sharing
trust) holding shares in a REIT, the beneficiaries of such a trust are treated
as holding shares in the REIT in proportion to their actuarial interests in the
qualified trust, instead of treating the qualified trust as a single individual
(the "look-through exception"). A qualified trust that holds more than 10
percent of the shares of a REIT is required to treat a percentage of REIT
dividends as UBTI if the REIT incurs debt to acquire or improve real property.
This rule applies, however, only if (i) the qualification of the REIT depends
upon the application of the "look through" exception (described above) to the
restriction on REIT shareholdings by five or fewer individuals, including
qualified trusts (see "Description of Shares of Beneficial Interest--
Restrictions on Transfer") and (ii) the REIT is "predominantly held" by
qualified trusts, i.e., if either (x) a single qualified trust holds more than
25 percent by value of the interests in the REIT or (y) one or more qualified
trusts, each owning more than 10 percent by value, holds in the aggregate more
than 50 percent of the interests in the REIT. The percentage of any dividend
paid (or treated as paid) to such a qualified trust that is treated as UBTI is
equal to the amount of modified gross income (gross income less directly
connected expenses) from the unrelated trade or business of the REIT (treating
the REIT as if it were a qualified trust), divided by the total modified gross
income of the REIT. A de minimis exception applies where the percentage is less
than 5 percent.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders")
42
<PAGE>
are complex and no attempt will be made herein to provide more than a summary of
such rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of Federal, state and local income tax laws
with regard to an investment in Common Shares, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions will ordinarily be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However, if income from
the investment in the Common Shares is treated as effectively connected with the
Non-U.S. Shareholder's conduct of a United States trade or business, the
Non-U.S. Shareholder generally will be subject to a tax at graduated rates, in
the same manner as U.S. shareholders are taxed with respect to such
distributions (and may also be subject to the 30% branch profits tax in the case
of a shareholder that is a foreign corporation). The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Shareholder unless (i) a lower treaty rate
applies or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is effectively connected income. Distributions in
excess of current and accumulated earnings and profits of the Company will not
be taxable to a shareholder to the extent that such distributions do not exceed
the adjusted basis of the shareholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
Non-Shareholder's shares, such distributions will give rise to tax liability if
the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the
sale or disposition of his shares in the Company, as described below. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distributions will be subject to withholding at the same rate as dividends.
However, amounts thus withheld are refundable if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
United States real property interests are taxed to a Non-U.S. Shareholder as if
such gain were effectively connected with a United States business. Non-U.S.
Shareholders would thus be taxed at the normal capital gain rates applicable to
U.S. shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate shareholder not entitled to treaty exemption.
The Company is required by applicable Treasury Regulations to withhold 35% of
any distribution that could be designated by the Company as a capital gains
dividend. The amount is creditable against the Non-U.S. Shareholder FIRPTA tax
liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the shares of beneficial interest was
held directly or indirectly by foreign persons. It is currently anticipated that
the Company will be a "domestically controlled REIT," and therefore the sale of
Shares will not be subject to taxation under FIRPTA. However, because the Common
Shares will be publicly traded, no assurance can be given that the Company will
continue to be a "domestically controlled REIT." Gain not subject to FIRPTA will
be taxable to a Non-U.S. Shareholder if (i) investment in the shares is
effectively connected with the Non-U.S. Shareholder's United States trade or
business, in which case the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain or (ii) the Non-U.S.
Shareholder is a
43
<PAGE>
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year, in which case the nonresident alien individual
will be subject to a 30% tax on the individual's capital gains. If the gain on
the sale of Shares were to be subject to taxation under FIRPTA, the Non-U.S.
Shareholder would be subject to the same treatment as U.S. shareholders with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
STATEMENT OF STOCK OWNERSHIP
The Company is required to demand annual written statements from the record
holders of designated percentages of its Shares disclosing the actual owners of
the Shares. The Company must also maintain, within the Internal Revenue District
in which it is required to file its federal income tax return, permanent records
showing the information it has received as to the actual ownership of such
Shares and a list of those persons failing or refusing to comply with such
demand.
OTHER TAX CONSEQUENCES
The Company, the Operating Partnership, the Title Holding Partnerships and
the Company's shareholders may be subject to state or local taxation in various
state or local jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company, the
Operating Partnership, the Title Holding Partnerships and the Company's
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 Company.
POSSIBLE FEDERAL TAX DEVELOPMENTS
The rules dealing with Federal income taxation are constantly under review
by the IRS, the Treasury Department and Congress. New Federal tax legislation or
other provisions may be enacted into law or new interpretations, rulings,
Treasury Regulations or court decisions could be adopted, all of which could
adversely affect the taxation of the Company or of its shareholders. No
prediction can be made as to the likelihood of passage of any new tax
legislation or other provisions or court decisions either directly or indirectly
affecting the Company or its shareholders. Consequently, the tax treatment
described herein may be modified prospectively or retroactively by legislative,
judicial or administrative action.
REAL ESTATE TRANSFER TAXES
The transfer to the Operating Partnership of certain limited partnership
interests in Title Holding Partnerships in August 1996 was structured as
transfers of 89% of the capital interests and 99% of the cash flow and profit
interests in the Title Holding Partnership with the residual interests to be
acquired by the Operating Partnership on or before September 1999. This
transaction structure is intended to comply with non-binding informal advice
provided by the Pennsylvania Department of Revenue to the effect that such
transfers are not subject to Pennsylvania real estate transfer taxes. However,
the Company has not obtained a formal ruling from the Pennsylvania Department of
Revenue on this issue. If the Operating Partnership desired or were required,
for financing purposes or otherwise, to acquire such residual interests before
September 1999, or if the use of this structure resulted in the imposition of
Pennsylvania real estate transfer taxes, the Operating Partnership could be
required to pay such real estate transfer taxes which are estimated at $640,000.
44
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities directly to investors or
through agents or through a combination of any of such methods. Any such
underwriter or agent involved in the offer and sale of the Securities will be
named in the applicable Prospectus Supplement.
The Company or underwriters may offer and sell the Securities at a fixed
price or prices, which may be changed, at prices related to the prevailing
market prices at the time of sale or at negotiated prices for cash or assets.
The Company also may, from time to time, authorize underwriters acting as the
Company's agents to offer and sell the Securities upon the terms and conditions
as are set forth in the applicable Prospectus Supplement. In connection with the
sale of the Securities, underwriters may be deemed to have received compensation
from the Company in the form of underwriting discounts or commissions and may
also receive commissions from purchasers of the Securities for whom they may act
as agent. 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 agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of Securities sold pursuant to
Contracts shall be not less nor more than, the respective amounts stated in the
applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except:
(i) the purchase by an institution of the Securities covered by its Contracts
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may engage in transactions
with and perform services for the Company and its subsidiaries in the ordinary
course of business.
45
<PAGE>
EXPERTS
The audited financial statements and schedules (other than financial
statements identified in the next sentence) incorporated by reference in this
Prospectus and elsewhere in the Registration Statement to the extent and for the
periods indicated in their reports have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. The financial
statements with respect to 1000/2000 West Lincoln Drive, 3000 West Lincoln Drive
and 4000/5000 West Lincoln Drive incorporated by reference in this Prospectus
from the Current Report on Form 8-K of the Company, dated June 27, 1997, have
been audited by Zelenkofske, Axelrod & Company, Ltd., independent public
accountants, as indicated in their report and are included herein in reliance
upon the authority of said firm as experts in giving said report.
Any subsequently prepared audited financial statements incorporated by
reference in this Prospectus will have been examined by the independent public
accountants whose report thereon appears in the Annual Report on Form 10-K,
Quarterly Report on Form 10-Q or Current Report on Form 8-K, as applicable,
containing such financial statements. Such audited financial statements shall be
deemed to be incorporated herein from the date of filing of the applicable
report on Form 10-K, Form 10-Q or Form 8-K in reliance on the reports of such
independent public accountants, given on the authority of such firm as experts
in auditing and accounting.
LEGAL MATTERS
The validity of the issuance of the Common Shares offered hereby will be
passed upon for the Company by Pepper, Hamilton & Scheetz LLP, Philadelphia,
Pennsylvania. Pepper, Hamilton & Scheetz LLP will rely on Ballard Spahr Andrews
& Ingersoll, Baltimore, Maryland, as to certain matters of Maryland law.
TAX MATTERS
The opinion regarding the statements in this Prospectus under the caption
"Federal Income Tax Considerations" has been rendered by Arthur Andersen LLP,
independent public accountants, and has been referred to herein in reliance upon
the authority of such firm as experts in giving said opinion.
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give
any information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or the Underwriters. This Prospectus
Supplement and the Prospectus do not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or
in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus Supplement or the Prospectus nor any
sale made hereunder and thereunder shall, under any circumstance, create an
implication that there has been no change in the facts set forth in this
Prospectus Supplement or in the Prospectus or in the affairs of the Company
since the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Supplement
The Company.................................... S-2
Recent Developments............................ S-3
The Offering................................... S-5
Use of Proceeds................................ S-5
Price Range of Common Shares
and Distribution History...................... S-6
Underwriting................................... S-7
Experts........................................ S-7
Legal Matters.................................. S-7
Tax Matters.................................... S-7
Prospectus
Available Information.......................... 2
Incorporation of Certain Documents
by Reference.................................. 2
The Company.................................... 4
Risk Factors................................... 5
Ratios of Earnings to Combined Fixed
Charges and Preferred Share Distributions..... 14
Use of Proceeds................................ 15
Description of Shares of Beneficial Interest... 15
Description of Depositary Shares............... 20
Description of Warrants........................ 23
Certain Provisions of Maryland Law and
of the Company's Declaration of Trust and
Bylaws........................................ 24
Policies with Respect to Certain Activities.... 28
Federal Income Tax Considerations.............. 31
Plan of Distribution........................... 45
Experts........................................ 46
Legal Matters.................................. 46
Tax Matters.................................... 46
</TABLE>
751,269 Common Shares
of
Beneficial Interest
of
Brandywine Realty
Trust
__________
P R O S P E C T U S
December 18, 1997
__________
Legg Mason Wood Walker
Incorporated
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
