<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been declared effective
by the Securities and Exchange Commission under the Securities Act of 1933. A
final Prospectus Supplement and Prospectus will be delivered to purchasers of
these securities. This Prospectus Supplement and the accompanying Prospectus
shall not constitute an offer to sell nor the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of such State.
SUBJECT TO COMPLETION, DATED JANUARY 8, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 13, 1997)
[LOGO]
10,000,000 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 (a "REIT"). The Company currently owns a portfolio of
real estate assets located primarily in the Mid-Atlantic Region (as defined
below) and believes it is one of the largest owners of office and industrial
properties in the Suburban Philadelphia Office and Industrial Market (as
defined in the accompanying Prospectus). The Company's portfolio includes 118
office properties and 22 industrial facilities (collectively, the "Properties")
that contain an aggregate of approximately 9.1 million net rentable square feet
and economic interests in five office development entities (the "Development
Entities"). In addition, the Company expects to enter into an agreement,
subject to certain material conditions, to purchase 14 office and industrial
properties (the "Pending Acquisition") containing an aggregate of approximately
929,000 net rentable square feet for an aggregate purchase price of
approximately $55.5 million. If the Pending Acquisition is consummated, the
Company will have acquired 117 properties for an aggregate purchase price of
approximately $686.7 million since January 1, 1997 and its portfolio will
contain approximately 10.0 million net rentable square feet. There can be no
assurance that the Pending Acquisition will be consummated.
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 January 7, 1998, the last
reported sale price for the Common Shares was $26 3/8. Total return to
shareholders from the closing of the Company's public offering on December 2,
1996 through January 7, 1998 was approximately 69%, including share price
appreciation and distributions. There can be no assurance that comparable
results will be achieved by the Company's shareholders in the future. See
"Price Range of Common Shares and Distribution History."
The Company initially qualified to be taxed as a REIT for federal income
tax purposes commencing with its taxable year ended December 31, 1986 and has
qualified to be taxed as a REIT for all years subsequent to its 1986 tax year.
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 4 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 COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
===============================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- -------------------------------------------------------------------------------
Per Share $ $ $
- -------------------------------------------------------------------------------
Total(3) $ $ $
===============================================================================
(1) The Company has agreed to indemnify the Underwriters 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 $400,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,500,000 additional Common Shares solely to cover over-allotments, if
any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be , and , respectively.
-----------
The Common Shares are being offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to certain conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and reject orders in whole or in part. It
is expected that certificates for the Common Shares offered hereby will be
available for delivery on or about , 1998, at the offices of Smith
Barney Inc., 333 West 34th Street, New York, NY 10001.
-----------
Salomon Smith Barney
Donaldson, Lufkin & Jenrette
Securities Corporation
Legg Mason Wood Walker
Incorporated
Merrill Lynch & Co.
NationsBanc Montgomery
Securities LLC
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
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 otherwise
indicated, the information contained in this Prospectus Supplement assumes that
the Underwriters' over-allotment option is not exercised. Unless the context
otherwise requires: (i) 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"); (ii) all references
to the "Mid-Atlantic Region" shall mean the states of Delaware, Maryland, New
Jersey, New York, Ohio, Pennsylvania, Virginia and the District of Columbia;
and (iii) all references to the number of properties and square footage in the
Company's portfolio, and the number of properties acquired since January 1,
1997, assume consummation of the Frederick Property acquisition discussed below
but do not assume consummation of the Pending Acquisition.
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 and the Securities Exchange Act of 1934, as
amended, and as such may involve known and unknown risks, uncertainties and
other factors that 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
the Pending Acquisition to be consummated, 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 space, the failure to timely re-lease occupied space 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, the failure of the Company to manage its growth effectively and
other risks described 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, developing, redeveloping, leasing and managing suburban
office and industrial properties. The Company currently owns a portfolio of
real estate assets located primarily in portions of the Mid-Atlantic Region and
believes it is one of the largest owners of office and industrial properties in
the Suburban Philadelphia Office and Industrial Market. The Company's portfolio
includes 118 office properties and 22 industrial facilities (128 of which are
Class A Properties) that contain an aggregate of approximately 9.1 million net
rentable square feet. Certain of the Properties serve as flex facilities,
accommodating office use, warehouse space and research and development
activities. As of January 6, 1998, the Properties (excluding Properties under
development or redevelopment) were approximately 92.5% leased to 883 tenants.
The Company also owns, and holds options to purchase, approximately 245.5 acres
of undeveloped land directly, and owns or holds options to purchase
approximately 35.5 acres of undeveloped land through its economic interests in
the Development Entities. The Company believes that this undeveloped land can
accommodate development of at least 1.5 million net rentable square feet of
office space and 340,000 net rentable square feet of industrial space. Two of
the Development Entities are currently constructing two Class A suburban office
properties which are scheduled for completion in 1998 and are expected to
contain an aggregate of approximately 235,000 net rentable square feet. The
Company considers Class A suburban office and industrial properties to be those
that have desirable locations, are well-maintained and professionally managed
and have the potential to achieve rental and occupancy rates that are typically
at or above those prevailing in their respective markets.
S-3
<PAGE>
As a result of its business objective of increasing cash available for
distribution and maximizing shareholder value, the Company has recently
experienced rapid growth. Since January 1, 1997, the Company has acquired 84
office properties containing approximately 5.9 million net rentable square feet
and 19 industrial facilities containing approximately 1.2 million net rentable
square feet and, together with the Development Entities, has acquired ownership
of, or options to purchase, approximately 281 acres of undeveloped land. The
aggregate purchase price for the 103 Properties acquired by the Company since
January 1, 1997 was approximately $631.2 million. The Company believes that,
through the expertise and extensive relationships of its management and its
flexible capital structure, it will continue to identify and capitalize on
substantial opportunities for additional real estate investments from a variety
of sources, including institutional and private holders of real estate seeking
liquidity or reduction in their holdings or tax-deferred dispositions.
The Company believes it has established an effective platform in the
Philadelphia Suburban Office and Industrial Market that provides a foundation
for achieving the Company's goal of maximizing market penetration and operating
economies of scale. The Company believes this platform provides a basis to
continue its penetration into additional submarkets in the Mid-Atlantic Region
through strategic acquisitions structured to increase cash available for
distribution and maximize shareholder value. An example of such penetration is
the Company's January 5, 1998 acquisition of a portfolio of 22 office
properties (21 of which are Class A) and its agreement to acquire an additional
Class A office property located in Frederick, Maryland (the "Frederick
Property") that is currently under construction and scheduled for completion
during the first quarter of 1998 and is expected to contain approximately
209,000 net rentable square feet. These Properties (including the Frederick
Property) contain an aggregate of approximately 2.0 million net rentable square
feet in several submarkets in the Mid-Atlantic Region. The Company acquired
(and, with respect to the Frederick Property, agreed to acquire) these
Properties from several third parties, including Whitehall Street Real Estate
Limited Partnership VII, for an aggregate purchase price of $229.0 million
($116 per square foot).
The Company seeks to foster a culture that combines an entrepreneurial
environment with the strategic and operational policies necessary to control an
aggressive growth program. Accordingly, to ensure complete integration of its
recent activities and create a platform for future growth, the Company has
increased the number of its employees from 35 at January 1, 1997 to 110 at
January 6, 1998. The majority of these personnel additions provide property
management and maintenance services and were made in conjunction with property
acquisitions. The Company has also expanded its executive management team to
position the Company for additional growth. These employees expand the
Company's expertise in real estate development and redevelopment, marketing and
tenant services, acquisitions and leasing, accounting and financial management
and real estate law. Consistent with its view that real estate is a local
business, dependent on knowledge of the submarkets in which properties are
located, the Company has also established four full-service, fully-integrated
regional offices, each having responsibility for implementing the Company's
objectives in its designated region. The Company anticipates that as it expands
operations into new target markets within the Mid-Atlantic Region, it will
continue to establish additional full-service, fully-integrated regional
offices.
The Company's business objective is to increase cash available for
distribution and to maximize shareholder value by:
o maximizing cash flow through leasing strategies designed to capture
potential rental growth as rental rates increase and as below-market
leases are renewed;
o ensuring a high tenant retention rate through an aggressive tenant
services program responsive to the varying needs of the Company's diverse
base of 883 tenants;
o broadening its geographic and economic diversification while maximizing
economies of scale;
o acquiring high-quality office and industrial properties and portfolios of
such properties at attractive yields in selected submarkets within the
Mid-Atlantic Region, which management expects will experience economic
growth;
S-4
<PAGE>
o capitalizing on management's redevelopment expertise to selectively
acquire, redevelop and reposition underperforming Properties in desirable
locations;
o acquiring land in anticipation of developing office or industrial
properties on a build-to-suit basis, under circumstances where significant
pre-leasing can be arranged or as otherwise warranted by market
conditions;
o enhancing the Company's investment strategy through the pursuit of joint
venture opportunities with high quality partners having attractive real
estate holdings or significant financial resources; and
o optimizing the use of debt and equity financing to create a flexible and
conservative capital structure that will enable the Company to continue
its aggressive growth strategy.
The Company expects to continue to concentrate its real estate activities
in submarkets within the Mid-Atlantic Region where it believes that: (i)
barriers to entry (such as zoning restrictions, infrastructure limitations and
limited developable land) are likely to create supply constraints on office and
industrial space; (ii) current market rents do not justify new construction;
(iii) it can maximize market penetration by accumulating a critical mass of
properties and thereby enhance operating efficiencies; and (iv) there is
potential for economic growth.
The Company believes that its proven ability to structure innovative
transactions provides it with a competitive advantage in making real estate
investments and enhances its ability to execute its investment strategy. The
Company is led by an experienced management team, the senior members of which
are Anthony A. Nichols, Sr., Chairman of the Board, and Gerard H. Sweeney,
President and Chief Executive Officer. The Company's 10 senior executives have
an average of approximately 17 years of real estate experience. In the
aggregate, the Company's management team has been responsible for the
management of in excess of 13 million net rentable square feet (excluding
properties acquired since January 1, 1997) and the development and
redevelopment of approximately 5.3 million net rentable square feet of office
and industrial properties primarily within the Suburban Philadelphia Office and
Industrial Market.
Total return to shareholders from the December 2, 1996 offering through
January 7, 1998 was approximately 69%, comprised of share price appreciation of
approximately 60% and cumulative distributions of $1.55 per share. There can be
no assurance that comparable results will be achieved by the Company's
shareholders in the future.
Risk Factors
An investment in the Common Shares involves various risks, and investors
should carefully consider the matters discussed under the caption "Risk
Factors" beginning on page 4 of the accompanying Prospectus.
Recent Developments
Property Acquisitions
Since January 1, 1997, the Company has acquired 84 office properties
containing approximately 5.9 million net rentable square feet and 19 industrial
properties containing approximately 1.2 million net rentable square feet, for
an aggregate purchase price of approximately $631.2 million. This represents a
weighted average purchase price of approximately $89.12 per square foot
(approximately $100.45 per square foot for the office property acquisitions and
approximately $35.94 per square foot for the industrial property acquisitions).
The Company estimates that the weighted average purchase price of its office
property acquisitions (including the land acquired as part of such
acquisitions) represents approximately 78% of their weighted average
replacement cost and that the weighted average purchase price of its industrial
property acquisitions (including the land acquired as part of such
acquisitions) represents approximately 77% of their weighted average
replacement cost.
S-5
<PAGE>
Portfolio Growth Since January 1, 1997
Net Rentable Square Feet
(in millions)
Date Industrial Office Total
12/31/96 0 2 2
1/31/97 0 2 2
2/28/97 0 2 2
3/31/97 0 2 3
4/30/97 0 3 3
5/31/97 1 3 4
6/30/97 1 4 4
7/31/97 1 4 5
8/31/97 1 5 5
9/30/97 1 5 6
10/31/97 1 5 6
11/30/97 1 5 6
12/31/97 1 6 7
1/31/98 1 8 9
During December 1997, the Company acquired 10 office properties containing
an aggregate of approximately 493,000 net rentable square feet and six
industrial facilities containing an aggregate of approximately 283,000 net
rentable square feet for an aggregate purchase price of approximately $65.1
million. These acquisitions included:
o Bala Pointe Office Centre: This two-story office property, located in
Bala Cynwyd, Montgomery County, Pennsylvania, contains approximately
173,000 net rentable square feet and was acquired for a purchase price of
approximately $26.8 million. This property is 100% leased to 55 tenants.
o Scarborough Portfolio: This portfolio, located in Atlantic and Camden
counties, New Jersey, is comprised of nine office properties containing
approximately 320,000 net rentable square feet and five industrial
properties containing approximately 242,000 net rentable square feet and
was acquired at a purchase price of approximately $37.1 million. The
Company paid approximately $27.6 million of the purchase price in cash and
paid the balance in units of limited partnership interests in the
Operating Partnership. As of the date of the acquisition of this
portfolio, in the aggregate these properties were approximately 84% leased
to 50 tenants.
On January 5, 1998, the Company acquired a portfolio of 22 office
properties (21 of which are Class A) containing an aggregate of approximately
1.8 million net rentable square feet located in Delaware, Maryland, New Jersey,
Ohio and Pennsylvania, and agreed to acquire the Frederick Property, located in
Frederick, Maryland, which is expected to contain an aggregate of 209,000 net
rentable square feet upon completion of construction, which is scheduled for
the first quarter of 1998. Ameridata Inc. has entered into a lease, effective
upon completion of construction, for 100% of the Frederick Property. The
aggregate purchase price of these 23 properties was approximately $229.0
million (approximately $116 per square foot). The Company acquired these
properties and agreed to acquire the Frederick Property from several third
parties, including Whitehall Street Real Estate Limited Partnership VII.
S-6
<PAGE>
The following table sets forth certain information regarding Property
acquisitions completed by the Company since January 1, 1997:
Property Acquisitions Completed since January 1, 1997
<TABLE>
<CAPTION>
Percent
Net Leased Purchase
Rentable as of Price
Number of Square January 6, (in
Properties Feet 1998 thousands)
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
PENNSYLVANIA
Reading/Allentown, PA ............... 7 670,046 87.0% $ 46,080
King of Prussia/Valley Forge ...... 7 608,386 99.6% 81,335
Blue Bell/Plymouth Meeting/Fort
Washington ........................ 6 444,916 96.4% 40,879
Main Line ........................... 5 366,632 97.6% 45,613
Southern Bucks County ............... 5 244,049 89.3% 19,278
Bala Cynwyd ........................ 1 173,079 100.0% 26,750
Southern Route 202 Corridor ......... 3 103,064 100.0% 8,850
Horsham/Willow Grove/Jenkintown (5) 3 87,793 90.5% 6,300
NEW JERSEY
Burlington County .................. 16 1,127,502 92.0% 113,846
Camden County (6) .................. 16 637,271 95.7% 44,905
Bergen County ..................... 2 483,189 78.7% 71,464
Atlantic County ..................... 2 89,500 83.2% 7,400
DELAWARE ........................... 8 348,744 89.6% 25,597
OHIO ................................. 1 156,175 100.0% 14,696
MARYLAND (7) ........................ 2 329,008 94.4% 33,571
-- --------- ----- --------
Total - Office Properties ............ 84 5,869,354 92.3% 586,564
-- --------- ----- --------
INDUSTRIAL PROPERTIES
PENNSYLVANIA
Southern Bucks County ............... 7 447,000 92.7% 16,049
King of Prussia/Valley Forge ...... 2 124,960 100.0% 3,500
NEW JERSEY
Burlington County .................. 5 429,367 97.3% 17,285
Camden County ..................... 5 242,088 75.4% 7,850
-- --------- ----- --------
Total - Industrial Properties ...... 19 1,243,415 91.6% 44,684
-- --------- ----- --------
Total/Weighted Average ............... 103 7,112,769 92.2% $631,248
=== ========= ===== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Weighted Average Average Average
Average Estimated Escalated Current
Purchase Replacement Rent Per Asking
Price Per Cost Per Escalated Leased Rent Per
Square Square Rent (in Square Square
Foot Foot (1) thousands) (2) Foot (3) Foot (4)
----------- ------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
OFFICE PROPERTIES
PENNSYLVANIA
Reading/Allentown, PA ............... $ 68.77 $ 99.94 $ 10,372 $ 17.80 $ 18.87
King of Prussia/Valley Forge ...... 133.69 148.20 11,432 18.87 22.79
Blue Bell/Plymouth Meeting/Fort
Washington ........................ 91.88 120.44 7,916 18.45 20.34
Main Line ........................... 124.41 150.57 7,820 21.86 24.88
Southern Bucks County ............... 78.99 87.91 2,721 12.49 15.95
Bala Cynwyd ........................ 154.55 170.00 4,261 24.62 29.00
Southern Route 202 Corridor ......... 85.87 111.05 1,758 17.06 18.69
Horsham/Willow Grove/Jenkintown (5) 109.00 130.00 1,513 19.05 20.99
NEW JERSEY
Burlington County .................. 100.97 132.48 20,613 19.87 21.47
Camden County (6) .................. 70.46 114.71 7,621 17.09 18.38
Bergen County ..................... 147.90 175.00 9,079 23.89 26.43
Atlantic County ..................... 82.68 130.00 1,429 19.20 21.50
DELAWARE ........................... 73.40 103.35 4,853 15.53 17.76
OHIO ................................. 94.10 105.00 2,464 15.78 16.00
MARYLAND (7) ........................ 102.04 126.44 2,436 21.47 23.50
--------- -------- -------- ------- -------
Total - Office Properties ............ 100.45 128.18 96,288 19.00 21.20
--------- -------- -------- ------- -------
INDUSTRIAL PROPERTIES
PENNSYLVANIA
Southern Bucks County ............... 35.90 45.00 3,259 7.87 6.25
King of Prussia/Valley Forge ...... 28.01 35.00 787 6.29 6.00
NEW JERSEY
Burlington County .................. 40.26 49.53 2,808 6.72 10.72
Camden County ..................... 32.43 51.53 1,467 8.03 8.39
--------- -------- -------- ------- -------
Total - Industrial Properties ...... 35.94 46.83 8,321 7.30 8.19
--------- -------- -------- ------- -------
Total/Weighted Average ............... $ 89.12 $ 113.96 $104,609 $ 16.85 $ 18.79
========= ======== ======== ======= =======
</TABLE>
- -------------
(1) Weighted Average Estimated Replacement Cost Per Square Foot represents the
estimated replacement cost of the acquired Properties divided by the total
net rentable square feet and is based on the Company's estimates,
assumptions and calculations at the time of the acquisitions.
(2) Escalated Rent represents fixed base rental amounts plus pass-throughs of
operating expenses, including electricity costs. The Company estimates
operating expense pass-throughs based on historical amounts and comparable
market data.
(3) Weighted Average Escalated Rent Per Leased Square Foot is the Escalated
Rent divided by the total square footage leased as of January 6, 1998.
(4) Weighted Average Current Asking Rent Per Square Foot is based on the
Company's estimate of the current asking Escalated Rent. These rates do
not necessarily represent the amounts at which available space will be
leased.
(5) Data for 30,000 square foot two-story office building developed by the
Company are not included in Purchase Price, Weighted Average Purchase
Price Per Square Foot, and Weighted Average Estimated Replacement Cost Per
Square Foot.
(6) Data for Pending Redevelopment Properties (as hereinafter defined)
aggregating 171,200 square feet included in Number of Properties, Net
Rentable Square Feet, Purchase Price, Weighted Average Purchase Price Per
Square Foot and Weighted Average Estimated Replacement Cost Per Square
Foot data only.
(7) Data for the 208,774 square foot Frederick Property included in Number of
Properties, Net Rentable Square Feet, Purchase Price, Weighted Average
Purchase Price Per Square Foot and Weighted Average Estimated Replacement
Cost Per Square Foot data only.
S-7
<PAGE>
Land Acquisitions
Since January 1, 1997, the Company purchased or acquired options to
purchase, directly and indirectly through the Development Entities,
approximately 281 acres of undeveloped land. The Company believes this
undeveloped land provides attractive investment opportunities that will enable
the Company to accommodate future demand for Class A suburban office and
industrial space, including build-to-suit arrangements. In certain
circumstances, development of such land is subject to receipt of land
development and other necessary approvals, and there can be no assurance that
the Company would be able to obtain all such approvals if and when it seeks to
develop such land.
The following table sets forth certain information regarding land
acquisitions since January 1, 1997:
<TABLE>
<CAPTION>
Buildable
Submarket Location Acres Square Feet (1)
--------- -------- ----- ---------------
<S> <C> <C> <C>
OFFICE
Western Philadelphia Suburbs West Conshohocken 1.9 85,000(2)(3)
Western Philadelphia Suburbs West Conshohocken 9.3 210,000(2)(4)
Western Philadelphia Suburbs Newtown Square 25.0 214,000
Western Philadelphia Suburbs Berwyn 12.5 130,000
Western Philadelphia Suburbs Valley Forge 9.5 90,000
Northern Philadelphia Suburbs Horsham 4.0 90,000
Reading/Allentown Reading 133.6 -- (5)
Southern New Jersey Mt. Laurel 8.0 108,000
Southern New Jersey Voorhees 9.3 235,000
Southern New Jersey Gibbsboro 10.9 90,000
Delaware Newark 13.3 150,000(3)(6)
Delaware Newark 11.0 100,000(6)
-------
Total Office 248.3 1,502,000
----- ---------
INDUSTRIAL
Northern Philadelphia Suburbs Trevose 2.7 40,000
Southern New Jersey Westampton 30.0 300,000
---------
Total Industrial 32.7 340,000
----- ---------
TOTAL 281.0 1,842,000
===== =========
</TABLE>
- ---------------
(1) Buildable square feet represents the Company's estimate of the net rentable
square feet of office or industrial space that the applicable land can
accommodate. Development of such land is subject to receipt of land
development, zoning and other necessary approvals in certain
circumstances.
(2) Held through a Development Entity in which the Company owns a 65% economic
interest.
(3) Currently under development.
(4) Held through a purchase option.
(5) Management is unable to estimate buildable square feet at this time.
(6) Held through a Development Entity in which the Company owns a 50% economic
interest.
[MAP]
S-8
<PAGE>
Developments and Redevelopments
The Company has recently developed, and is currently in the process of
developing or redeveloping, eight properties.
Developments
o Horsham Business Center: During the fourth quarter of 1997, the Company
completed development of a two-story office property containing
approximately 30,000 net rentable square feet within the Horsham Business
Center in Horsham, Pennsylvania at a total project cost of approximately
$3.8 million. This property is approximately 72% leased under: (i) a
ten-year lease for approximately 15,000 square feet at an Escalated Rent
per square foot of approximately $18.40 (based on 1998 estimated
operating and other expenses); and (ii) a five-year lease for
approximately 6,622 square feet at an Escalated Rent per square foot of
approximately $18.75 (based on 1998 estimated operating and other
expenses).
o Christiana Corporate Center: A Development Entity in which the Company
owns a 50% interest and an affiliate of The Commonwealth Group owns a 50%
interest is currently in the process of developing a three-story office
property in Newark, Delaware which is expected to contain approximately
150,000 net rentable square feet upon completion. Total project costs are
estimated to be $17.0 million, with construction scheduled to be
completed during the second quarter of 1998. This property has been fully
pre-leased to Computer Sciences Corporation under a nine-year lease.
Project costs are being financed primarily through a $14.5 million third
party construction loan, the repayment of which has been guaranteed by
the Company.
o Tower Bridge Corporate Center: A Development Entity in which the Company
owns a 65% interest and an affiliate of Oliver Tyrone Pulver Corporation
owns a 35% interest is currently in the process of developing a
four-story office property (to be known as "Four Tower Bridge") in West
Conshohocken, Pennsylvania which is expected to contain approximately
85,000 net rentable square feet upon completion. Total project costs are
estimated at $16.8 million, with construction scheduled to be completed
during the fourth quarter of 1998. The Company anticipates financing such
project costs primarily through a $16.8 million third-party construction
loan, the terms of which are currently being negotiated. The Company
anticipates that it will be required to guaranty repayment of such
construction loan. In conjunction with the Four Tower Bridge transaction,
an affiliate of Oliver Tyrone Pulver Corporation agreed to admit the
Company as a 35% partner in an existing partnership that owns a
four-story office property (known as "Two Tower Bridge") containing
approximately 83,000 net rentable square feet. Two Tower Bridge, located
in Conshohocken, Pennsylvania, was 100% leased as of December 31, 1997.
The Company expects to acquire its 35% interest in such partnership for
approximately $2.5 million during the second quarter of 1998 and the
amount invested by the Company in such partnership will be entitled to a
10% preferred return.
Redevelopments
o 8000 Lincoln Drive: This three-story office property, located in
Marlton, New Jersey and in close proximity to 11 other Properties owned
by the Company, was acquired in December 1996 at a purchase price of
approximately $3.0 million ($55 per square foot). The Company completed
an extensive renovation of this Property during the first quarter of 1997
at a cost of approximately $1.6 million. This Property is currently fully
leased to two tenants, Computer Sciences Corporation and Blue Cross Blue
Shield of New Jersey, Incorporated.
o 4000 Midlantic Drive: This four-story office property, located in Mount
Laurel, New Jersey, contains approximately 46,945 net rentable square
feet and was acquired in May 1997 as part of a six-property portfolio
acquisition. The Company expects to complete an extensive renovation of
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this Property by the end of the second quarter of 1998 at a cost of
approximately $1.4 million ($30 per square foot). This Property has been
fully leased to Axiom, Inc. under a 10-year lease scheduled to commence
upon completion of the renovation.
o 5 and 6 Cherry Hill Executive Campus: These two-story and five-story
office properties (collectively, the "Pending Redevelopment Properties")
located in Cherry Hill, New Jersey, were acquired in October 1997. The
Pending Redevelopment Properties contain approximately 171,200 net
rentable square feet and were purchased for an aggregate price of
approximately $3.5 million ($20 per square feet). The Company expects to
complete an extensive renovation of the Pending Redevelopment Properties
by the end of the fourth quarter of 1998 and, concurrent with renovation
activities, to institute a marketing program designed to fully lease
them.
o Route 202 Venture: On December 31, 1997, a Development Entity in which
the Company owns a 50% interest acquired a two-story property located in
Delaware County, Pennsylvania containing approximately 72,000 net
rentable square feet for a purchase price of approximately $2.5 million.
The Company expects to complete an extensive renovation of this property
during 1998 through its interest in such Development Entity and to
re-lease the property for office use.
The Company directly, and indirectly through Development Entities, is
actively evaluating the timing of commencement of six additional development
and redevelopment projects aggregating approximately 700,000 net rentable
square feet. The Company anticipates commencing development and redevelopment
of certain of these projects by the second quarter of 1998. Two of the
development projects aggregating approximately 370,000 net rentable square feet
would be conducted through joint ventures the terms of which the Company is
currently negotiating. There can be no assurance that any or all of these
developments or redevelopments will be commenced or completed.
Since the third quarter of 1997, the Company has acquired equity interests
in five Development Entities in order to pursue specific acquisition and
development opportunities consistent with the Company's investment strategy. As
of January 6, 1998, the Company has invested or committed to invest an
aggregate of approximately $11.3 million in the Development Entities, and such
investments, when funded, are generally entitled to a 10% preferred return. The
total amount invested or committed for investment in the Development Entities
represents approximately 1.8% of the Company's aggregate investments since
January 1, 1997. The Company has also provided, and expects to continue to
provide, guaranties of construction loans that will fund the developments being
undertaken by the Development Entities. As of January 6, 1998, the Company has
guaranteed payment of a $14.5 million construction loan, has guaranteed payment
of up to $500,000 of a property acquisition loan and expects to guaranty
payment of a $16.8 million construction loan that is currently being
negotiated. Payment under these guaranties would constitute loan obligations of
the applicable Development Entity payable to the Company or preferred equity
positions in the applicable Development Entity in favor of the Company.
Pending Acquisition
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 expects to enter into an agreement to acquire
the properties comprising the Pending Acquisition, which consists of eight
office properties and six industrial facilities that contain an aggregate of
approximately 929,000 net rentable square feet, for an aggregate purchase price
of approximately $55.5 million, or approximately $60 per square foot. The
Company estimates that the weighted average purchase price of the Pending
Acquisition (including the approximately 19 acres of land to be acquired as
part of such acquisition) represents approximately 85% of its weighted average
replacement cost. If the Company were to consummate the purchase of the Pending
Acquisition, the Company's portfolio would consist of 154 properties (126 of
which are office properties and 28 of which are industrial properties)
containing an aggregate of approximately 10.0 million net rentable square feet.
The Company expects to pay the purchase price of the Pending Acquisition with
borrowings under the Credit Facility. The consummation of the purchase of the
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Pending Acquisition is subject to satisfaction of numerous conditions,
including, without limitation, the completion of due diligence and approval of
the Company's Board of Trustees. No assurances can be given that the Company
will successfully consummate the Pending Acquisition.
Other Potential Acquisitions
Although no definitive agreements have been entered into, the Company is
in various stages of negotiation with respect to the acquisition of numerous
interests in additional office buildings and industrial facilities. No
assurance can be given that the Company will be successful in acquiring any or
all of such properties.
Distributions
On December 5, 1997, the Company announced a 2.8% increase in its regular
quarterly distribution on its Common Shares from $0.36 per share to $0.37 per
share, which on an annualized basis is equal to $1.48 per Common Share. This
represents the fifth increase in the Company's quarterly distribution in the
last six quarters. There can be no assurance that future distributions will
increase at the historical rate or that the current distribution rate will be
maintained. See "Price Range of Common Shares and Distribution History."
Expansion of Credit Facility
On January 5, 1998, the Company replaced its $150 million secured
revolving credit facility (the "1997 Credit Facility") with a $300 million
unsecured revolving credit facility (the "Credit Facility"). The Credit
Facility enables the Company to borrow funds at a reduced interest rate equal
to the 30, 60, 90 or 180-day LIBOR, plus, in each case, a range of 100 to 137.5
basis points, depending on the Company's then existing leverage and debt
rating. Alternatively, the Company can borrow funds at the Prime Rate plus 25
basis points or the Fed Funds Rate plus 50 basis points. As of January 6, 1998,
amounts outstanding under the Credit Facility bore interest at the rate of
7.07% per annum. Following the Offering and the application of the net proceeds
therefrom, approximately $71.7 million will be outstanding under the Credit
Facility. The Credit Facility matures on January 5, 2001 and is extendable to
January 5, 2002 by the Company in the absence of default and upon payment of a
fee. The Credit Facility requires the Company to maintain compliance with a
number of customary financial and other covenants on an ongoing basis,
including leverage ratios based on book value and debt service coverage ratios,
limitations on additional indebtedness, liens and distributions and a minimum
net worth requirement.
To facilitate certain 1998 property acquisitions, on January 5, 1998, the
Company also obtained an additional unsecured credit facility (the "Additional
Credit Facility") permitting advances of up to $100 million. The Additional
Credit Facility bears interest at a per annum floating rate equal to the 30-day
LIBOR plus 150 basis points and matures on May 5, 1998, subject to a 90-day
extension upon satisfaction of certain conditions. The Company expects to repay
all amounts outstanding under the Additional Credit Facility with proceeds of
the Offering.
New York Stock Exchange Listing
On October 21, 1997, the Company changed the listing of its Common Shares
from the American Stock Exchange to the NYSE. The Company believes that its
listing on the NYSE will enhance shareholder value by increasing the liquidity
of the Common Shares and increasing the appeal of the Common Shares to
institutional investors.
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The Offering
<TABLE>
<S> <C>
Common Shares offered hereby ........................... 10,000,000
Common Shares to be outstanding after the Offering ...... 35,238,298(1)
Use of Proceeds .......................................... To repay amounts outstanding under the
Additional Credit Facility and the Credit Facility.
NYSE Symbol ............................................. BDN
</TABLE>
- ---------------
(1) Includes: (i) 443,557 "restricted" Common Shares issued to executives of
the Company on January 2, 1998 of which 396,040 shares vest over an
eight-year period and 47,517 shares vest over a five-year period; and (ii)
455,039 Common Shares reserved for issuance upon the conversion of units
of limited partnership interests ("Units") in the Operating Partnership
into Common Shares. Excludes 2,805,808 Common Shares reserved for issuance
upon the exercise of warrants and options. Options to purchase 1,737,261
of such Common Shares have been granted subject to shareholder approval
and, if not approved by shareholders, convert into share appreciation
rights exercisable for a cash payment from the Company.
Summary Selected Financial Information
The following table sets forth summary selected consolidated financial and
operating data for the Company as of September 30, 1997, and for the nine
months ended September 30, 1997 and 1996, and for the year ended December 31,
1996. The historical financial data for the year ended December 31, 1996 have
been derived from the Company's audited financial statements. The historical
financial data for the nine months ended September 30, 1997 and 1996 have been
derived from the Company's unaudited financial statements. The unaudited
financial statements include all adjustments (consisting of normal recurring
adjustments) that management considers necessary for a fair presentation of the
financial position and results of operations for these periods. Operating
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the entire year ended December 31,
1997.
The unaudited selected pro forma financial and operating information is
presented as if (i) the Company had consummated all of its property
acquisitions (other than the Pending Acquisition) and all of its Common Share
offerings completed to date on September 30, 1997 for balance sheet and
property data purposes and at the beginning of the period presented for
purposes of the operating and other data, and (ii) the Company had consummated
the Offering and applied the net proceeds thereof as set forth herein under the
caption "Use of Proceeds." The pro forma financial information is not
necessarily indicative of what the results of operations of the Company would
have been for the periods indicated, nor does it purport to represent the
Company's future results of operations.
S-12
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<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
----------------------------------------- ----------------------------
Historical
Pro Forma -------------------------- Pro Forma Historical
1997 1997 1996 1996 1996
------------- ------------- ----------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue-
Base rents ........................... $ 78,418 $ 32,290 $ 4,063 $ 96,503 $ 8,462
Tenant reimbursements ............... 11,003 5,731 467 13,964 1,372
Other .............................. 1,220 818 69 979 196
----------- ----------- -------- ----------- ----------
Total revenue ..................... 90,641 38,839 4,599 111,446 10,030
----------- ----------- -------- ----------- ----------
Expenses-
Interest ........................... 7,376 4,899 1,342 10,006 2,751
Depreciation and amortization ...... 22,170 10,051 1,173 27,970 2,836
Property expenses .................. 35,190 14,805 1,867 46,728 3,709
General and administrative ......... 705 705 439 973 825
----------- ----------- -------- ----------- ----------
Total expenses ..................... 65,441 30,460 4,821 85,677 10,121
----------- ----------- -------- ----------- ----------
Income (loss) before equity in income
of management company and
minority interest .................. 25,200 8,379 (222) 25,769 (91)
Equity in income (loss) of management
company............................... 1,002 332 54 1,234 (26)
----------- ----------- -------- ----------- ----------
Income (loss) before minority interest 26,202 8,711 168 27,003 (117)
Minority interest in (income) loss ... (524) (256) 40 (540) (45)
----------- ----------- -------- ----------- ----------
Income (loss) ........................ 25,678 8,455 (128) 26,463 (162)
Income allocated to Preferred Shares.... (499) (499) ---- (2,248) (401)
----------- ----------- -------- ----------- ----------
Income (loss) allocated to Common
Shares .............................. $ 25,179 $ 7,956 $ (128) $ 24,215 $ (563)
=========== =========== ======== =========== ==========
Weighted average number of shares
outstanding ........................ 34,134,025 12,285,557 676,801 32,329,515 1,302,648
Earnings per share:
Income (loss) allocated to Common
Shares .............................. $ 0.74 $ 0.65 $ (0.19) $ 0.75 $ (0.43)
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
-------------------------
Pro Forma Historical
----------- -----------
<S> <C> <C>
Balance Sheet Data:
Real estate investments, net of accumulated depreciation $793,128 $462,772
Total assets .......................................... 824,694 494,338
Mortgages and notes payable ........................... 115,439 61,984
Total liabilities .................................... 132,555 79,100
Minority interest .................................... 14,402 4,894
Beneficiaries' equity ................................. 677,737 410,344
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------------------------------- ---------------------------
Historical
Pro Forma --------------------------- Pro Forma Historical
1997 1997 1996 1996 1996
------------- ------------- ----------- ------------- -----------
(in thousands, except per share data and number of Properties)
<S> <C> <C> <C> <C> <C>
Other Data:
Funds from Operations (a) ............... $47,737 $ 18,127 $ 1,001 $54,402 $ 2,103
Cash flows provided by (used in):
Operating activities .................. (b) 20,462 887 (b) 2,536
Investing activities .................. (b) (319,963) (9,914) (b) (35,369)
Financing activities .................. (b) 301,187 10,046 (b) 50,272
Cash distributions per share ............ (b) $ 1.07 $ 0.57 (b) $ 0.82
Property Data:
Number of Properties owned at period end . 140 93 24 140 37
Gross net rentable square feet owned at
period end ........................... 9,106 5,845 1,334 9,106 1,994
</TABLE>
- ---------------
(a) Management generally considers Funds from Operations to be a useful measure
of the operating performance of an equity REIT because, together with net
income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service
debt and to fund acquisitions and other capital expenditures. Funds from
Operations does not represent net income or cash flows from operations as
defined by generally accepted accounting principles ("GAAP") and does not
necessarily indicate that cash flows will be sufficient to fund cash
needs. It should not be considered as an alternative to net income as an
indicator of the Company's operating performance or to cash flows as a
measure of liquidity. Funds from Operations does not measure whether cash
flow is sufficient to fund all of the Company's cash needs, including
principal amortization, capital improvements and distributions to
shareholders. Funds from Operations also does not represent cash flows
generated from operating, investing or financing activities as defined by
GAAP. Further, Funds from Operations as disclosed by other REITs may not
be comparable to the Company's calculation of Funds from Operations. The
Company adopted the NAREIT definition of Funds from Operations in 1996 and
has used it for all periods presented. Funds from Operations is calculated
as net income (loss) adjusted for depreciation expense attributable to
real property, amortization expense attributable to capitalized leasing
costs, tenant allowances and improvements, gains on sales of real estate
investments and extraordinary and nonrecurring items. Funds from
Operations for the year ended December 31, 1996 (historical) was
calculated on a net minority interest basis; all other periods presented
are calculated assuming all Units have been converted into Common Shares.
(b) Pro forma information relating to cash flows from operating, investing and
financing activities and cash distribution information has not been
included because management believes that the information would not be
meaningful due to the number of assumptions required in order to calculate
this information.
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<PAGE>
THE COMPANY
The Company is a self-administered, self-managed and fully integrated REIT
active in acquiring, developing, redeveloping, leasing and managing suburban
office and industrial properties. The Company currently owns a portfolio of
real estate assets located primarily in portions of the Mid-Atlantic Region and
believes it is one of the largest owners of office and industrial properties in
the Suburban Philadelphia Office and Industrial Market. The Company's portfolio
includes 118 office properties and 22 industrial facilities (128 of which are
Class A Properties) that contain an aggregate of approximately 9.1 million net
rentable square feet. Certain of the Properties serve as flex facilities,
accommodating office use, warehouse space and research and development
activities. As of January 6, 1998, the Properties (excluding Properties under
development or redevelopment) were approximately 92.5% leased to 883 tenants.
The Company also owns, and holds options to purchase, approximately 245.5 acres
of undeveloped land directly, and owns or holds options to purchase
approximately 35.5 acres of undeveloped land through its economic interests in
the Development Entities. The Company believes that this undeveloped land can
accommodate development of at least 1.5 million net rentable square feet of
office space and 340,000 net rentable square feet of industrial space. Two of
the Development Entities are currently constructing two Class A suburban office
properties which are scheduled for completion in 1998 and are expected to
contain an aggregate of approximately 235,000 net rentable square feet.
As a result of its business objective of increasing cash available for
distribution and maximizing shareholder value, the Company has recently
experienced rapid growth. Since January 1, 1997, the Company has acquired 84
office properties containing approximately 5.9 million net rentable square feet
and 19 industrial facilities containing approximately 1.2 million net rentable
square feet and, together with the Development Entities, has acquired ownership
of, or options to purchase, approximately 281 acres of undeveloped land. The
aggregate purchase price for the 103 Properties acquired by the Company since
January 1, 1997 was approximately $631.2 million. The Company believes that,
through the expertise and extensive relationships of its management and its
flexible capital structure, it will continue to identify and capitalize on
substantial opportunities for additional real estate investments from a variety
of sources, including institutional and private holders of real estate seeking
liquidity or reduction in their holdings or tax-deferred dispositions.
The Company's business objective is to increase cash available for
distribution and to maximize shareholder value. The Company believes that its
proven ability to structure innovative transactions provides it with a
competitive advantage in making real estate investments and enhances its
ability to execute its investment strategy. Total return to shareholders from
the Company's December 2, 1996 public offering through January 7, 1998 was
approximately 69%, comprised of share price appreciation of approximately 60%
and cumulative distributions of $1.55 per share. There can be no assurance that
comparable results will be achieved by the Company's shareholders in the
future.
The Company believes it has established an effective platform in the
Philadelphia Suburban Office and Industrial Market that provides a foundation
for achieving the Company's goal of maximizing market penetration and operating
economies of scale. The Company believes this platform provides a basis to
continue its penetration into additional submarkets in the Mid-Atlantic Region
through strategic acquisitions structured to increase cash available for
distribution and maximize shareholder value. The Company continuously evaluates
submarkets within the Mid-Atlantic Region for attractive investment
opportunities. Based on its evaluation of market conditions, the Company
believes that those submarkets of the Mid-Atlantic Region where it expects to
target future acquisitions offer attractive investment opportunities for
companies that are well-capitalized, managed by experienced real estate owners
with extensive knowledge of local market conditions, and able to realize
operating efficiencies associated with an increasing scale of operations. The
Company further believes that the foundation of its growth will consist of: (i)
the quality and strategic location of the Properties and additional properties
added to its portfolio; (ii) the Company's ability to provide superior services
to its tenants; (iii) the knowledge and experience of its senior management
team; (iv) the limited new construction of office space in those submarkets of
the Mid-Atlantic Region where it expects to target future acquisitions; (v) the
presence of motivated institutional sellers; and (vi) the limited capital
available to some of the Company's competitors for acquisitions and capital
improvements. The Company believes that its January 5, 1998 acquisition of a
portfolio of 22 office properties (21 of which are Class A) and its agreement
to acquire the Frederick Property in selected submarkets in the Mid-Atlantic
Region represent a significant step in its continuing economic diversification
and provides it with a platform to continue to make strategic acquisitions
structured to maximize shareholder value.
S-15
<PAGE>
Business and Growth Strategies
The Company's strategy is to concentrate its real estate activities in
submarkets within the Mid-Atlantic Region where it believes that: (i) barriers
to entry (such as zoning restrictions, infrastructure limitations and limited
developable land) are likely to create supply constraints on office and
industrial space; (ii) current market rents do not justify new construction;
(iii) it can maximize market penetration by accumulating a critical mass of
properties and thereby enhance operating efficiencies; and (iv) there is
potential for economic growth. The Company believes that certain economic
fundamentals in the Mid-Atlantic Region provide an attractive environment for
owning, acquiring, operating and selectively developing and redeveloping Class
A office and industrial properties. The Mid-Atlantic Region is estimated to
have a population in excess of 62 million people, approximately one-quarter of
the total population of the United States. Within the Mid-Atlantic Region, the
Company has targeted several markets, including the Suburban Philadelphia
Office and Industrial Market, Northern/Central New Jersey, Delaware,
Pittsburgh, Baltimore, Harrisburg and Cincinnati, for future office and
industrial property acquisitions.
The Company's business objective is to increase cash available for
distribution and to maximize shareholder value by: (i) maximizing cash flow
through leasing strategies designed to capture potential rental growth as
rental rates increase and as below-market leases are renewed; (ii) ensuring a
high tenant retention rate through an aggressive tenant services program
responsive to the varying needs of the Company's diverse base of 883 tenants;
(iii) broadening its geographic and economic diversification while maximizing
economies of scale; (iv) acquiring high-quality office and industrial
properties and portfolios of such properties at attractive yields in selected
submarkets within the Mid-Atlantic Region, which management expects will
experience economic growth; (v) capitalizing on management's redevelopment
expertise to selectively acquire, redevelop and reposition underperforming
properties in desirable locations; (vi) acquiring land in anticipation of
developing office or industrial properties on a build-to-suit basis, under
circumstances where significant pre-leasing can be arranged or as otherwise
warranted by market conditions; (vii) enhancing the Company's investment
strategy through the pursuit of joint venture opportunities with high quality
partners having attractive real estate holdings or significant financial
resources; and (viii) optimizing the use of debt and equity financing to create
a flexible and conservative capital structure that will enable the Company to
continue its aggressive growth strategy.
Management and Operating Strategy
The Company expects to realize and increase growth in cash available for
distribution and to maximize shareholder value due to the strength and
experience of its management team through:
o Continued Emphasis on Full-Service Regional Offices: Consistent with its
view that real estate is a local business, the Company has established
four full-service, fully integrated regional offices. These offices engage
in a full range of asset management services, including leasing,
marketing, property management, maintenance and construction services, and
each is headed by a senior executive who maintains extensive relationships
within the local brokerage and business community. These offices are
designed to work in concert with the Company's centralized accounting,
financial reporting, acquisition and development teams.
o Tenant Services: The accumulation of a large property portfolio has
enabled the Company to improve tenant services at a decreased marginal
cost. Through a program designed to ensure consistent and responsive
services to a diverse and expanding tenant base, the Company seeks to
foster tenant loyalty and maintain a high tenant retention rate. The
Company believes that its tenant services program will contribute to the
Company's cash available for distribution by minimizing vacancies and
expenditures associated with the re-leasing of space.
o Contractual Rental Rate Increases: As of January 6, 1998, 404 leases,
representing approximately 52.8% of the leased square feet at the
Properties, include built-in contractual rental rate increases. Between
January 6, 1998 and December 31, 1999, the contractual base rents under
such leases are expected to increase by an aggregate of approximately $6.4
million (not including increases attributable to the transition from free
or partial rent to full rent, or rent increases under leases that are tied
to indices such as the consumer price index).
S-16
<PAGE>
o Lease-up of Expiring/Vacant Space: The Company expects to experience cash
flow growth through the potential re-leasing of approximately 2.5 million
net rentable square feet of space (approximately 77% of which is office
space) under leases at the Properties that expire between January 6, 1998
and December 31, 1999. The office leases and industrial leases have a
weighted average Escalated Rent as of their expiration dates of $17.80 per
square foot and $7.80 per square foot, respectively. The Company believes
that this weighted average Escalated Rent per square foot is below rental
rates achievable at the Properties. In addition, the Company expects to
realize additional cash flow through the potential leasing of
approximately 221,000 net rentable square feet of vacant space at the
Properties as of January 6, 1998 (based on the assumption that the
Company's percentage of leased square footage increases from approximately
92.5% to approximately 95%). There can be no assurance, however, that the
Company will meet any of the foregoing expectations.
Acquisition Strategy
The Company believes that it will continue to be able to identify and
capitalize on acquisition opportunities through: (i) the significant real
estate market expertise of its management; (ii) its relationships with private
and institutional real estate owners, potential sellers of individual and
portfolio properties, real estate brokers and tenants in the Suburban
Philadelphia Office and Industrial Market, which relationships have been
developed over time by the Company's management and Board of Trustees; (iii)
its current market penetration in the Suburban Philadelphia Office and
Industrial Market and its growing presence in additional submarkets in the
Mid-Atlantic Region; (iv) its access to capital as a public company, including
but not limited to proceeds available under the Credit Facility and the ability
to exchange limited partnership interests in the Operating Partnership for
interests in properties, thereby permitting certain sellers to defer the tax
gain associated with the sale of such properties; and (v) its fully integrated
real estate operations, which allow the Company to respond quickly to
acquisition opportunities. The Company's acquisition program will continue to
concentrate on both portfolio and individual acquisitions in selected
submarkets in the Mid-Atlantic Region.
The Company will seek to acquire additional office and industrial
properties that meet one or more of the following investment criteria: (i) the
property is well-designed, well-constructed and well-situated within the
Mid-Atlantic Region; (ii) the property offers attractive current yield and
long-term growth potential based on its occupancy characteristics, including
lease structure, tenant credit and occupancy history; (iii) the property can be
acquired at a discount from replacement cost; (iv) the property is subject to
below-market leases that create the potential for significant rental rate
increases; and (v) the property is located in a submarket of the Mid-Atlantic
Region that contains barriers to entry and repositioning opportunities.
Consistent with this acquisition strategy, since January 1, 1997, the Company
has purchased 103 Properties containing approximately 7.1 million net rentable
square feet for an aggregate purchase price of approximately $631.2 million.
This investment represents a weighted average purchase price of $100.45 per
square foot for the office properties and $35.94 per square foot for the
industrial properties.
Development and Redevelopment Strategy
As the real estate markets continue to improve, with rental rates
increasing and approaching levels that support new construction, the Company
expects to aggressively pursue a land acquisition, development and
redevelopment strategy. The Company seeks to acquire land and to develop
properties in markets where (i) strong demand for office and industrial space
has caused, or is expected to cause, occupancy rates to remain high and (ii)
there is a limited supply of land available for new development. In furtherance
of its strategy, the Company, directly and indirectly through the Development
Entities, owns or holds options to purchase approximately 281 acres of
undeveloped land. The Company believes that such undeveloped land can
accommodate at least 1.5 million net rentable square feet of office space and
340,000 net rentable square feet of industrial space. The Company will seek to
develop this land on a build-to-suit basis, under circumstances where
significant pre-leasing can be arranged or as otherwise warranted by market
conditions. In certain circumstances, development of such land is subject to
receipt of land development, zoning and other necessary approvals, and there
can be no assurance that the Company will be able to obtain any such approvals.
The Company's management team has experience in all phases of the
development and redevelopment process, including market analysis, site
selection, zoning, design, pre-development leasing, construction and permanent
financing and construction management.
S-17
<PAGE>
During the fourth quarter of 1997, the Company completed development of a
two-story office property containing approximately 30,000 net rentable square
feet within the Horsham Business Center in Horsham, Pennsylvania at a total
project cost of approximately $3.8 million. During 1998, the Company, through
its interest in two Development Entities, expects to complete the development
of a three-story office property containing approximately 150,000 net rentable
square feet in Newark, Delaware and a four-story office property containing
approximately 85,000 net rentable square feet in West Conshohocken,
Pennsylvania. In addition, during the first quarter of 1997, the Company
completed an extensive renovation of a three-story office property located in
Marlton, New Jersey, and during 1998 expects to complete the redevelopment of
three mid-rise office properties in Mount Laurel Township and Cherry Hill, New
Jersey and, through its interest in a Development Entity, a two-story office
property in Delaware County, Pennsylvania.
Financing Policies
As a general policy, the Company intends, but is not obligated, to adhere
to a policy of maintaining a debt-to-total market capitalization ratio of no
more than 50%. This policy is intended to provide the Company with financial
flexibility to select the optimal source of capital with which to finance its
growth. Upon the closing of the Offering and the application of the net
proceeds therefrom, and assuming the Pending Acquisition is not consummated,
the Company's debt-to-total market capitalization ratio will be approximately
11.5% (approximately 7.9% if the Underwriters' over-allotment option is
exercised in full). Because such ratio is based upon the market values of
equity, it will fluctuate with changes in the price of the Common Shares.
Organization
Brandywine Realty Trust is organized as a Maryland real estate investment
trust and owns its assets and conducts its operations through the Operating
Partnership and subsidiaries of the Operating Partnership. As of the date of
this Prospectus Supplement, the Company owns an approximately 98.2% interest in
the Operating Partnership. The structure of the Company as an "UPREIT" is
designed to permit persons contributing properties (or interests therein) to
the Company to defer some or all of the tax liability they might otherwise
incur. The Company conducts its real estate management services through a
management company. The Company, through its indirect ownership of stock of the
management company, is entitled to receive 95% of amounts paid as dividends by
the management company.
The Company's executive offices are located at 16 Campus Boulevard,
Newtown Square, Pennsylvania 19073 and its telephone number is (610) 325-5600.
S-18
<PAGE>
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 $249.8 million (approximately $287.3
million if the Underwriters' over-allotment option is exercised in full). The
Company will contribute all of the net proceeds to the Operating Partnership,
which will use such contribution to repay all amounts outstanding under the
Additional Credit Facility ($23 million plus accrued interest) and
approximately $226.8 million of the $298.5 million outstanding under the Credit
Facility, which amounts had been used by the Company to finance a portion of
the Properties acquired during 1997 and 1998. If the Underwriters'
over-allotment option is exercised in full, the Company expects to use the
additional net proceeds to repay additional amounts under the Credit Facility
and for working capital purposes. As of January 6, 1998, the weighted average
interest rate on the indebtedness expected to be repaid with net proceeds of
the Offering was 7.1% and the maturity date of such indebtedness was May 5,
1998 (in the case of the Additional Credit Facility) and January 5, 2001 (in
the case of the Credit Facility). Immediately following the consummation of the
Offering and assuming the Pending Acquisition is not consummated, the Company
expects to have remaining outstanding indebtedness of approximately $120.4
million. See "Business and Properties--Debt."
S-19
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares are traded on the NYSE under the symbol "BDN." On
January 2, 1998, there were approximately 316 holders of record of the Common
Shares. On January 7, 1998, the last reported sale price of the Common Shares
on the NYSE was $26 3/8. 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. The data below has been adjusted
to give effect to the one-for-three reverse split of the Common Shares effected
on November 25, 1996.
<TABLE>
<CAPTION>
Share Price Share Price Distributions
High Low Declared for Quarter
---- --- --------------------
<S> <C> <C> <C>
First Quarter 1996 ................................. $16 5/16 $10 5/16 $0.18(1)
Second Quarter 1996 .............................. $22 1/8 $15 15/16 $0.18(2)
Third Quarter 1996 ................................. $18 3/8 $16 7/8 $0.21(3)
Fourth Quarter 1996 .............................. $19 3/4 $15 $0.25(4)
-------- -------- -------
First Quarter 1997 ................................. $22 $19 3/8 $0.35
Second Quarter 1997 .............................. $20 3/4 $18 3/8 $0.36
Third Quarter 1997 ................................. $23 15/16 $20 1/4 $0.36
Fourth Quarter 1997 .............................. $25 1/8 $22 7/8 $0.37(5)
-------- -------- -------
First Quarter 1998 (through January 7, 1998) ...... $26 3/8 $25 1/4 N/A
</TABLE>
- ------------
(1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
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.
S-20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on a
historical basis as of September 30, 1997 and as adjusted to give effect to:
(i) the Property acquisitions consummated subsequent to September 30, 1997;
(ii) 751,269 Common Shares issued in a public offering in December 1997; and
(iii) the issuance of Common Shares in the Offering and the application of the
net proceeds therefrom as described under "Use of Proceeds." The information
set forth in the table should be read in conjunction with the summary selected
financial information presented elsewhere in this Prospectus Supplement and the
financial statements of the Company and notes thereto incorporated by reference
in the accompanying Prospectus.
<TABLE>
<CAPTION>
As of September 30, 1997
------------------------------
Historical As Adjusted
------------ ---------------
(in thousands)
<S> <C> <C>
Debt:
Mortgages and notes payable ....................................... $ 47,984 $ 47,984
Credit Facility ................................................... 14,000 67,455(1)
Minority Interest in the Operating Partnership ........................ 4,894 14,402
Preferred Shares, $.01 par value per share; 5,000,000 shares authorized -- --
Beneficiaries' Equity:
Common Shares of beneficial interest, $.01 par value per share;
100,000,000 shares authorized; 23,336,046 historical and
34,087,315 as adjusted shares issued and outstanding ............ 234 341(2)
Additional paid-in capital ....................................... 428,787 696,073
Share warrants ................................................... 962 962
Cumulative earnings ................................................ 5,209 5,209
Cumulative distribution .......................................... (24,848) (24,848)
--------- ---------
Total beneficiaries' equity .................................... 410,344 677,737
--------- ---------
Total capitalization ....................................... $ 477,222 $ 807,578
========= =========
</TABLE>
- ------------
(1) Subsequent to September 30, 1997, the Company borrowed additional amounts
under the 1997 Credit Facility, the Additional Credit Facility and the
Credit Facility to fund the purchase of certain of the Properties and for
working capital purposes. The 1997 Credit Facility was repaid and fully
retired with the proceeds of the Credit Facility. As of January 7, 1998,
the amounts outstanding under the Additional Credit Facility and Credit
Facility aggregated $321.5 million. The Company expects to use net
proceeds from the Offering to repay an aggregate of $249.8 million under
the Additional Credit Facility and the Credit Facility and accrued
interest thereon. See "Use of Proceeds."
(2) Excludes: (i) 252,387 Common Shares issued upon redemption of Units after
September 30, 1997; (ii) 455,039 Common Shares reserved for issuance upon
the redemption of Units into Common Shares; (iii) 443,557 "restricted"
Common Shares issued to executives of the Company on January 2, 1998 of
which 396,040 shares vest over an eight-year period and 47,517 shares vest
over a five-year period; and (iv) 2,805,808 Common Shares reserved for
issuance, upon the exercise of warrants and options. Options to purchase
1,737,261 of such Common Shares have been granted subject to shareholder
approval and, if not approved by shareholders, convert into share
appreciation rights exercisable for a cash payment from the Company.
S-21
<PAGE>
BUSINESS AND PROPERTIES
General
The Properties include (i) 118 suburban office properties totaling
approximately 7.6 million net rentable square feet and (ii) 22 industrial
facilities totaling approximately 1.5 million net rentable square feet. The
Company and/or its predecessor developed 20 of the Properties and the Company,
through its real estate management services company, currently manages 138 of
the Properties. The Properties are located in Pennsylvania, New Jersey,
Delaware, Maryland, North Carolina and Ohio. As of January 6, 1998, 122 of the
Properties, or approximately 82% of the Company's portfolio based on net
rentable square feet, were located in the Suburban Philadelphia Office and
Industrial Market.
The Properties are easily accessible from major thoroughfares and are in
close proximity to numerous amenities, including restaurants, retail shopping
malls, hotels, schools and banks. As of January 6, 1998, the Properties
(excluding Properties under development or redevelopment) were approximately
92.5% leased to 883 tenants. The Company's tenants include many service sector
employers, as well as a large number of professional firms and local, national
and international businesses.
The weighted average age of the Properties is approximately 13 years. The
Company's 20 largest tenants (based on Escalated Rent at January 6, 1998)
account for approximately 27.7% of the Company's total Escalated Rent and
approximately 26.1% of the Company's leased square feet and have a weighted
average remaining lease term of approximately 5.3 years. As of January 6, 1998,
affiliates of General Electric Company, the Company's largest tenant, accounted
for approximately 4.5% of the Company's aggregate Escalated Rent, and only nine
other tenants individually represented more than 1.0% of such aggregate
Escalated Rent.
The Company's leases are typically structured for terms of three, five,
seven or ten years. Due to conditions within the Company's markets, the Company
utilizes three primary lease structures: (i) triple net leases under which
tenants are required to pay all real property taxes, insurance and expenses of
maintaining the leased space); (ii) full service leases under which tenants
typically pay for all real estate taxes and operating expenses above those for
an established base year); and (iii) gross leases under which tenants pay a
fixed rent without responsibility to make additional payment for expenses.
Expansion Within the Mid-Atlantic Region
The primary focus of the Company's activities has historically been in the
Suburban Philadelphia Office and Industrial Market and, as of January 6, 1998,
approximately 82% of the Company's net rentable office and industrial space was
located within that market. As the Company has grown, it has been assessing,
and continues to assess, expansion opportunities in additional markets. Based
on its assessment of real estate conditions in the Mid-Atlantic Region and
economic conditions and trends, the Company believes that it will continue its
selective expansion in various submarkets throughout the Mid-Atlantic Region.
Suburban Philadelphia Office and Industrial Market
Philadelphia is the nation's fifth largest metropolitan area and is
located at the center of the Northeast Corridor. The Philadelphia metropolitan
area is served by an excellent transportation system. The combination of
Interstate 95, Interstate 295, Interstate 476 (referred to locally as the "Blue
Route") and the Pennsylvania and New Jersey Turnpikes form an integrated
roadway system that loops the entire Philadelphia area and provides ready
access, via car or bus, to all points in the Northeast Corridor, the Midwest
and New England. Philadelphia's Amtrak station is one of the busiest train
stations in the U.S., with hourly trains reaching Washington, D.C. in less than
two hours and New York City in approximately one hour. In addition, the
Philadelphia International Airport is served by national and international
carriers flying to numerous domestic and foreign destinations.
S-22
<PAGE>
The Suburban Philadelphia Office and Industrial Market provides a
well-diversified economic base which helps to insulate the region from the
types of market vicissitudes that can adversely affect a single-sector economy.
The Company's tenant mix is representative of the region's diversity as
illustrated below.
Brandywine's Diversified Tenant Mix in the
Suburban Philadelphia Office and Industrial Market
Communications/Utilities 10%
Finance, Insurance & Real Estate 21%
Transportation 8%
Other 8%
Engineering/Technical/Software 9%
Business/Consulting 7%
Manufacturing 20%
Health Care 9%
Retail Trade 8%
The Company believes that current and projected economic trends in the
Suburban Philadelphia Office and Industrial Market present a favorable economic
climate for commercial real estate. According to Cushman & Wakefield of
Pennsylvania, Inc., ("C&W"), there has been a decrease in the Class A office
direct vacancy rate and an increase in the Class A office rental rates in the
Pennsylvania submarkets of the Suburban Philadelphia Office and Industrial
Market (identified in the Office Market Statistics table) from 1992 through
September 30, 1997, as shown below.
Historical Overall Vacancy and Rental Rates
in the Pennsylvania Submarkets
Vacancy Rate(%) Rental Rate($)
1992 21.8% 18.28
1993 18.0% 18.62
1994 15.6% 19.05
1995 14.4% 19.19
1996 9.1% 19.43
1997 8.4% 19.93
The Company believes that the momentum in leasing activity and the minimal
new construction that the Suburban Philadelphia Office and Industrial Market
has experienced has had a positive impact on rental rates within the Suburban
Philadelphia Office and Industrial Market. The Company further believes that
the existence of below-market leases in its portfolio presents the opportunity
to realize additional cash flow growth as its leases expire. In addition, the
Company believes that the economics and fundamentals in the Suburban
Philadelphia Office and Industrial Market are such that there are opportunities
to acquire office and industrial properties at attractive yields. The following
table indicates the inventories and availabilities of Class A office properties
in the Suburban Philadelphia Office and Industrial Market as of September 30,
1997, based on information provided by C&W.
S-23
<PAGE>
Suburban Philadelphia
Office Market Statistics
(excludes Philadelphia County)
<TABLE>
<CAPTION>
Overall Class A
Class A Available Overall
Inventory Space Vacancy
Submarket Name (Square Feet) (Square Feet) Rate(1)
-------------- ------------- ------------- -------
<S> <C> <C> <C>
King of Prussia/Valley Forge ............ 7,069,466 254,506 3.6%
Lehigh & Northampton .................. 3,795,822 481,382 12.7%
Southern Route 202 Corridor ............ 3,030,522 588,439 19.4%
Blue Bell/Plymouth Mtg./Ft. Washington 2,559,568 121,584 4.8%
Horsham/Willow Grove/Jenkintown ......... 2,037,839 197,378 9.7%
Bala Cynwyd ........................... 1,912,927 103,600 5.4%
Main Line .............................. 1,796,290 76,052 4.2%
Southern Bucks County .................. 1,527,169 210,085 13.8%
Conshohocken ........................... 776,018 17,100 2.2%
--------- ------- ----
Total/Weighted Average Pennsylvania
Suburbs .............................. 24,505,621 2,050,126 8.4%
---------- --------- ----
Burlington County ..................... 1,251,569 148,254 11.8%
Camden County ........................... 733,900 74,625 10.2%
---------- --------- ----
Total/Weighted Average Southern
New Jersey ........................... 1,985,469 222,879 11.2%
---------- --------- ----
Total/Weighted Average Suburban
Philadelphia ........................... 26,491,090 2,273,005 8.6%
========== ========= ====
Leasing
Absorption Activity C&W
January 1, 1997 January 1, 1997 Weighted
to September 30, to September 30, Average
1997 1997 Rental
Submarket Name (Square Feet) (Square Feet)(2) Rates(3)
-------------- ------------- ---------------- --------
King of Prussia/Valley Forge ............ 135,053 858,351 $ 23.23
Lehigh & Northampton .................. (97,881) 110,680 14.69
Southern Route 202 Corridor ............ 29,352 340,132 22.03
Blue Bell/Plymouth Mtg./Ft. Washington (5,066) 327,104 20.26
Horsham/Willow Grove/Jenkintown ......... (27,441) 154,137 19.76
Bala Cynwyd ........................... 19,021 173,554 27.46
Main Line .............................. 53,087 109,997 25.15
Southern Bucks County .................. 8,416 150,936 18.48
Conshohocken ........................... 44,112 102,058 23.25
------- ------- -------
Total/Weighted Average Pennsylvania
Suburbs .............................. 158,653 2,326,949 19.93
------- --------- -------
Burlington County ..................... (28,668) 293,628 21.39
Camden County ........................... (15,671) 285,327 22.35
------- --------- -------
Total/Weighted Average Southern
New Jersey ........................... (44,339) 578,955 21.72
------- --------- -------
Total/Weighted Average Suburban
Philadelphia ........................... 114,314 2,905,904 $ 20.14
======= ========= =======
</TABLE>
Source: C&W
- ------------
(1) C&W defines "Class A" as buildings that are well-leased, professionally
managed, attract high quality tenants and command upper tier rental rates.
(2) C&W defines "Leasing Activity" as the sum of all finished/closed
transactions for a given period of time, including subleasing activity.
(3) C&W defines "Weighted Average Rental Rates" as the gross annual asking
rates of existing buildings (excluding rates quoted for sublease). The
Company believes that the methodology used by C&W to calculate Weighted
Average Rental Rates approximates the methodology used by the Company to
calculate Escalated Rent.
Additional Markets
The Company believes that is has established an effective platform in the
Philadelphia Suburban Office and Industrial Market that will enable it to
continue its penetration into additional submarkets in the Mid-Atlantic Region
through strategic acquisitions structured to increase cash available for
distribution and maximize shareholder value. Those additional submarkets in the
Mid-Atlantic Region where the Company currently expects to target future
acquisitions contain a large supply of Class A office and industrial properties
and, in the Company's view, offer attractive opportunities for owning,
acquiring, operating and selectively developing and redeveloping such
properties.
S-24
<PAGE>
Properties
The following table summarizes certain information as of January 6, 1998
with respect to the Properties.
<TABLE>
<CAPTION>
Percent
Net Leased
Rentable as of
Property Name and Year Built/ Number of Square January 6,
Location Acquired Properties Feet 1998
----------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
Northern Philadelphia Suburbs
Blue Bell/Plymouth Meeting/
Fort Washington, PA
501 Office Center Drive ............... 1974/1997 1 110,514 85.9%
500 Office Center Drive ............... 1974/1997 1 100,447 100.0%
323 Norristown Road .................. 1988/1997 1 79,083 100.0%
321 Norristown Road .................. 1972/1997(4) 1 60,384 99.4%
2240/50 Butler Pike .................. 1984/1996 1 52,183 99.4%
520 Virginia Drive ..................... 1987/1998 1 48,122 100.0%
220 Commerce Drive ..................... 1985/1997 1 46,366 100.0%
2260 Butler Pike ..................... 1984/1996 1 31,892 100.0%
120 West Germantown Pike ............... 1984/1996 1 30,546 100.0%
140 West Germantown Pike ............... 1984/1996 1 25,947 98.7%
-- -------
10 585,484
-- -------
Southern Bucks County, PA
33 Street Road -- Greenwood Square ... 1985/1996 3 165,929 76.9%
105 Terry Drive ........................ 1982/1998 1 84,730 94.2%
2010 Cabot Boulevard .................. 1985/1997 1 53,421 85.7%
140 Terry Drive ........................ 1982/1998 1 43,929 86.0%
2000 Cabot Boulevard .................. 1985/1997 1 39,969 81.4%
3000 Cabot Boulevard .................. 1986/1996 1 34,640 96.3%
2260/2270 Cabot Boulevard ............ 1984/1996 2 29,638 95.4%
2005 Cabot Boulevard .................. 1985/1997 1 22,000 100.0%
-- -------
11 474,256
-- -------
Horsham/Willow Grove/
Jenkintown, PA
700/800 Business Center Drive ......... 1986/1996 2 82,009 99.2%
One Progress Avenue .................. 1986/1996 1 79,204 100.0%
500 Enterprise Road .................. 1990/1996 1 67,800 98.5%
300 Welsh Road ........................ 1985/1997 2 57,793 100.0%
1155 Business Center Drive ............ 1990/1996 1 51,388 99.4%
650 Dresher Road ..................... 1984/1996 1 30,138 100.0%
655 Business Center Drive ............ 1997/1997 1 30,000 72.1%
-- -------
9 398,332
-- -------
Total Northern Philadelphia Suburbs .... 30 1,458,072
-- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annualized
Escalated Percent Net Effective
Rent per of Rent Per
Number Leased Total Leased
Property Name and of Escalated Square Escalated Square
Location Tenants Rent(1) Foot(2) Rent Foot(3)
----------------- ------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OFFICE PROPERTIES
Northern Philadelphia Suburbs
Blue Bell/Plymouth Meeting/
Fort Washington, PA
501 Office Center Drive ............... 30 $ 1,800,632 $ 18.97 1.3% $ 18.96
500 Office Center Drive ............... 15 1,937,947 19.29 1.4% 19.29
323 Norristown Road .................. 5 1,458,899 18.45 1.1% 18.44
321 Norristown Road .................. 11 1,163,202 19.38 0.9% 18.04
2240/50 Butler Pike .................. 3 1,037,737 20.01 0.8% 18.29
520 Virginia Drive ..................... 1 714,612 14.85 0.5% 14.85
220 Commerce Drive ..................... 11 840,260 18.12 0.6% 18.12
2260 Butler Pike ..................... 3 656,594 20.59 0.5% 18.66
120 West Germantown Pike ............... 3 598,471 19.59 0.4% 18.49
140 West Germantown Pike ............... 4 505,443 19.73 0.4% 17.58
-- ----------- ------- -------
86 10,713,797 18.83 18.27
-- ----------- ------- -------
Southern Bucks County, PA
33 Street Road -- Greenwood Square ... 32 2,425,747 19.00 1.8% 17.57
105 Terry Drive ........................ 9 891,644 11.17 0.7% 11.35
2010 Cabot Boulevard .................. 3 540,239 11.80 0.4% 9.17
140 Terry Drive ........................ 3 558,812 14.79 0.4% 15.07
2000 Cabot Boulevard .................. 4 409,963 12.60 0.3% 12.54
3000 Cabot Boulevard .................. 8 636,481 19.07 0.5% 18.87
2260/2270 Cabot Boulevard ............ 11 412,651 14.60 0.3% 14.09
2005 Cabot Boulevard .................. 1 320,463 14.57 0.2% 14.57
-- ----------- ------- -------
71 6,196,000 15.21 14.48
-- ----------- ------- -------
Horsham/Willow Grove/
Jenkintown, PA
700/800 Business Center Drive ......... 5 1,378,854 16.94 1.0% 16.76
One Progress Avenue .................. 1 1,247,463 15.75 0.9% 15.57
500 Enterprise Road .................. 2 1,097,344 16.44 0.8% 12.85
300 Welsh Road ........................ 8 1,085,172 18.78 0.8% 18.78
1155 Business Center Drive ............ 3 1,033,720 20.24 0.8% 16.05
650 Dresher Road ..................... 1 548,211 18.19 0.4% 16.11
655 Business Center Drive ............ 2 427,657 19.78 0.3% 16.63
-- ----------- ------- -------
22 6,818,421 17.57 15.99
-- ----------- ------- -------
Total Northern Philadelphia Suburbs .... 179 23,728,218 17.39 16.49
--- ----------- ------- -------
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
Percent
Net Leased
Rentable as of
Property Name and Year Built/ Number of Square January 6,
Location Acquired Properties Feet 1998
----------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Western Philadelphia Suburbs
King of Prussia/Valley Forge, PA
640 Freedom Business Center Drive ... 1991/1998 1 132,000 100.0%
7000 Geerdes Boulevard ............ 1988/1997 1 112,905 100.0%
1111 Old Eagle School Road ......... 1962/1997 1 107,000 100.0%
500 North Gulph Road ............... 1979/1996 1 92,851 100.0%
620 Freedom Business Center Drive ... 1986/1998 1 86,559 100.0%
630 Freedom Business Center Drive ... 1989/1998 1 86,291 99.9%
610 Freedom Business Center Drive ... 1985/1998 1 63,031 96.5%
2490 Boulevard of the Generals ...... 1975/1998 1 20,600 100.0%
- -------
8 701,237
- -------
Main Line, PA
300 Berwyn Park ..................... 1989/1997 1 107,919 100.0%
200 Berwyn Park ..................... 1987/1997 1 76,065 100.0%
16 Campus Boulevard ............... 1990/1996 1 65,463 100.0%
1974 Sproul Road .................. 1972/1997(5) 1 62,934 89.3%
426 Lancaster Avenue ............... 1990/1998 1 61,102 100.0%
100 Berwyn Park ..................... 1986/1997 1 58,612 96.4%
18 Campus Boulevard ............... 1990/1996 1 37,700 83.0%
- -------
7 469,795
- -------
Southern Route 202 Corridor, PA
486 Thomas Jones Way ............... 1990/1996 1 51,500 80.5%
855 Springdale Drive ............... 1986/1997 1 50,750 100.0%
456 Creamery Way .................. 1987/1996 1 47,604 100.0%
110 Summit Drive .................. 1985/1996 1 43,660 100.0%
1336 Enterprise Drive ............... 1989/1997 1 38,470 100.0%
468 Creamery Way .................. 1990/1996 1 28,934 100.0%
748 Springdale Drive ............... 1986/1997 1 13,844 100.0%
- -------
7 274,762
- -------
Bala Cynwyd, PA
111 Presidential Boulevard ......... 1974/1997(6) 1 173,079 100.0%
- -------
Total Western Philadelphia Suburbs 23 1,618,873
-- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annualized
Escalated Percent Net Effective
Rent per of Rent Per
Number Leased Total Leased
Property Name and of Escalated Square Escalated Square
Location Tenants Rent(1) Foot(2) Rent Foot(3)
------------------ ------- --------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Western Philadelphia Suburbs
King of Prussia/Valley Forge, PA
640 Freedom Business Center Drive ... 1 2,409,000 18.25 1.8% 18.25
7000 Geerdes Boulevard ............ 1 2,235,519 19.80 1.6% 19.80
1111 Old Eagle School Road ......... 1 1,738,750 16.25 1.3% 16.25
500 North Gulph Road ............... 16 1,838,768 19.81 1.3% 18.62
620 Freedom Business Center Drive ... 3 1,684,475 19.46 1.2% 19.46
630 Freedom Business Center Drive ... 12 1,798,931 20.88 1.3% 20.88
610 Freedom Business Center Drive ... 4 1,118,787 18.40 0.8% 18.40
2490 Boulevard of the Generals ...... 1 446,814 21.69 0.3% 21.69
-- --------- ----- -----
39 13,271,044 18.99 18.83
-- ---------- ----- -----
Main Line, PA
300 Berwyn Park ..................... 7 2,452,696 22.73 1.8% 22.73
200 Berwyn Park ..................... 8 1,898,430 24.96 1.4% 24.96
16 Campus Boulevard ............... 4 1,097,193 16.76 0.8% 15.49
1974 Sproul Road .................. 7 929,052 16.53 0.7% 16.53
426 Lancaster Avenue ............... 2 1,216,004 19.90 0.9% 19.90
100 Berwyn Park ..................... 6 1,323,540 23.42 1.0% 23.42
18 Campus Boulevard ............... 4 668,537 21.36 0.5% 19.70
-- ---------- ----- -----
38 9,585,452 21.09 20.79
-- ---------- ----- -----
Southern Route 202 Corridor, PA
486 Thomas Jones Way ............... 9 755,213 18.21 0.6% 14.98
855 Springdale Drive ............... 1 850,063 16.75 0.6% 16.75
456 Creamery Way .................. 1 659,791 13.86 0.5% 13.02
110 Summit Drive .................. 4 573,121 13.13 0.4% 12.01
1336 Enterprise Drive ............... 1 660,146 17.16 0.5% 17.16
468 Creamery Way .................. 2 484,948 16.76 0.4% 14.58
748 Springdale Drive ............... 2 247,785 17.90 0.2% 17.90
-- ---------- ----- -----
20 4,231,067 15.98 14.90
-- ---------- ----- -----
Bala Cynwyd, PA
111 Presidential Boulevard ......... 55 4,261,133 24.62 3.1% 24.62
-- ---------- ----- -----
Total Western Philadelphia Suburbs 152 31,348,696 19.70 19.37
--- ---------- ----- -----
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
Percent
Net Leased
Rentable as of
Property Name and Year Built/ Number of Square January 6,
Location Acquired Properties Feet 1998
----------------- ----------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Reading/Allentown, PA
100-300 Gundy Drive ............ 1970/1997 4 443,165 83.1%
100 Katchel Blvd ............... 1970/1997 1 131,076 97.5%
1105 Berkshire Boulevard ...... 1987/1998 1 68,984 91.4%
6675 Snowdrift Road ............ 1988/1996 1 46,250 100.0%
7248 Tilghman Street ............ 1987/1996 1 42,863 93.8%
7310 Tilghman Street ............ 1985/1996 1 40,000 78.0%
1150 Berkshire Boulevard ...... 1979/1998 1 26,821 87.6%
- -------
10 799,159
-- -------
Southern New Jersey
Burlington County
10000 Midlantic Drive ......... 1990/1997 1 175,573 85.3%
2000 Midlantic Drive ............ 1989/1997 1 121,658 97.9%
1000 Howard Boulevard ......... 1988/1997 1 105,312 99.6%
1000 Atrium Way ............... 1989/1997 1 96,660 84.0%
1120 Executive Plaza ............ 1987/1997 1 95,124 94.4%
15000 Midlantic Drive ......... 1991/1997 1 84,056 100.0%
Three Greentree Centre ......... 1984/1986 1 69,101 88.2%
9000 Midlantic Drive ............ 1989/1997 1 67,299 100.0%
4000/5000 West Lincoln Drive ... 1982/1997 1 60,010 91.2%
1000/2000 West Lincoln Drive ... 1982/1997 1 60,001 91.2%
Two Greentree Centre ............ 1983/1986 1 56,075 100.0%
One Greentree Centre ............ 1982/1986 1 55,838 84.3%
8000 Lincoln Drive ............ 1983/1996(7) 1 54,923 100.0%
4000 Midlantic Drive ............ 1981/1997(8) 1 46,945 100.0%
Five Eves Drive ............... 1986/1997 1 45,889 65.1%
9000 West Lincoln Drive ......... 1983/1997 1 43,719 88.7%
Two Eves Drive .................. 1987/1997 1 37,517 95.0%
3000 West Lincoln Drive ......... 1982/1997 1 36,070 86.1%
Four B Eves Drive ............... 1987/1997 1 27,038 99.9%
Four A Eves Drive ............... 1987/1997 1 24,631 80.8%
-- -------
20 1,363,439
-- ---------
Camden County, NJ
Main Street--Plaza 1000 ......... 1988/1997 1 162,364 97.6%
457 Haddonfield Road ............ 1990/1996 1 121,737 82.9%
One South Union Place ......... 1982/1997 1 105,972 (9)
1007 Laurel Oak Road ............ 1996/1997 1 78,205 100.0%
6 East Clementon Road ......... 1980/1997 1 66,043 94.1%
King Avenue and Harvard Avenue 1974/1997 1 65,223 (9)
Main Street--Piazza ............ 1990/1997 4 41,400 100.0%
20 East Clementon Road ......... 1986/1997 1 40,755 75.7%
Main Street--Promenade ......... 1988/1997 2 31,445 100.0%
7 Foster Avenue ............... 1983/1997 1 21,843 90.2%
10 Foster Avenue ............... 1983/1997 1 18,941 98.5%
50 East Clementon Road ......... 1986/1997 1 3,080 100.0%
5 Foster Avenue ............... 1968/1997 1 2,000 100.0%
-- ---------
17 759,008
-- ---------
Total Southern New Jersey ...... 37 2,122,447
== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annualized
Escalated Percent Net Effective
Rent Per of Rent Per
Number Leased Total Leased
Property Name and of Escalated Square Escalated Square
Location Tenants Rent(1) Foot(2) Rent Foot(3)
------------------ ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Reading/Allentown, PA
100-300 Gundy Drive ............ 12 6,237,463 16.94 4.6% 16.94
100 Katchel Blvd ............... 4 2,789,119 21.82 2.0% 21.82
1105 Berkshire Boulevard ...... 6 952,750 15.12 0.7% 15.12
6675 Snowdrift Road ............ 1 544,826 11.78 0.4% 9.88
7248 Tilghman Street ............ 4 700,859 17.43 0.5% 16.25
7310 Tilghman Street ............ 3 435,402 13.96 0.3% 12.38
1150 Berkshire Boulevard ...... 10 392,960 16.72 0.3% 16.72
---- ----------- ----- -----
40 12,053,379 17.21 16.95
---- ----------- ----- -----
Southern New Jersey
Burlington County
10000 Midlantic Drive ......... 15 3,367,141 22.49 2.5% 22.56
2000 Midlantic Drive ............ 6 2,241,102 18.82 1.6% 18.82
1000 Howard Boulevard ......... 5 2,412,927 23.01 1.8% 22.45
1000 Atrium Way ............... 10 1,563,903 19.27 1.1% 19.25
1120 Executive Plaza ............ 7 2,260,601 25.18 1.7% 24.39
15000 Midlantic Drive ......... 2 1,620,086 19.27 1.2% 18.96
Three Greentree Centre ......... 7 1,131,315 18.55 0.8% 16.31
9000 Midlantic Drive ............ 1 1,322,425 19.65 1.0% 19.65
4000/5000 West Lincoln Drive ... 29 845,305 15.45 0.6% 15.41
1000/2000 West Lincoln Drive ... 30 891,298 15.45 0.7% 15.16
Two Greentree Centre ............ 11 1,135,659 20.25 0.8% 15.48
One Greentree Centre ............ 11 917,395 19.50 0.7% 17.69
8000 Lincoln Drive ............ 2 1,059,982 19.30 0.8% 15.54
4000 Midlantic Drive ............ 1 1,032,790 22.00 0.8% 22.00
Five Eves Drive ............... 5 455,971 15.26 0.3% 15.26
9000 West Lincoln Drive ......... 22 625,101 16.13 0.5% 15.98
Two Eves Drive .................. 11 687,747 19.30 0.5% 17.58
3000 West Lincoln Drive ......... 19 488,639 15.73 0.4% 15.69
Four B Eves Drive ............... 3 463,010 17.14 0.3% 16.63
Four A Eves Drive ............... 5 335,452 16.86 0.2% 16.86
---- ----------- ----- -----
202 24,857,849 19.78 19.03
---- ----------- ----- -----
Camden County, NJ
Main Street--Plaza 1000 ......... 32 3,178,354 20.07 2.3% 20.01
457 Haddonfield Road ............ 14 2,231,689 22.13 1.6% 20.51
One South Union Place ......... (9) (9) (9) (9) (9)
1007 Laurel Oak Road ............ 1 777,358 9.94 0.6% 9.94
6 East Clementon Road ......... 9 1,156,399 18.60 0.8% 18.60
King Avenue and Harvard Avenue (9) (9) (9) (9) (9)
Main Street--Piazza ............ 8 654,888 15.82 0.5% 15.82
20 East Clementon Road ......... 10 615,244 19.95 0.5% 19.95
Main Street--Promenade ......... 12 462,146 14.70 0.3% 14.70
7 Foster Avenue ............... 3 343,006 17.41 0.3% 17.41
10 Foster Avenue ............... 9 289,622 15.53 0.2% 15.53
50 East Clementon Road ......... 1 143,817 46.69 0.1% 46.69
5 Foster Avenue ............... -- -- -- 0.0% --
---- ----------- ------ ------
99 9,852,523 18.02 17.71
---- ----------- ------ ------
Total Southern New Jersey ...... 301 34,710,372 19.25 18.63
==== =========== ====== ======
</TABLE>
S-27
<PAGE>
<TABLE>
<CAPTION>
Percent
Net Leased
Rentable as of
Property Name and Year Built/ Number of Square January 6,
Location Acquired Properties Feet 1998
----------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Delaware
University Plaza ........................ 1976/1998(10) 6 179,722 82.4%
4550 New Linden Hill Road ............... 1988/1998(11) 1 105,000 96.8%
One Righter Parkway ..................... 1989/1996 1 104,828 97.5%
100 Commerce Drive ..................... 1989/1997 1 63,898 98.3%
--- -------
9 453,448
--- -------
Other Markets
Bergen County, NJ
Gardenstate Pkwy & Rte 80 - Plaza II ... 1988/1998 1 266,173 95.1%
Gardenstate Pky & Rte 80 - Plaza I ... 1970/1998 1 217,016 58.5%
Frederick, MD
Bowman Plains Industrial Park ......... 1998/1998(12) 1 208,774 (12)
Cincinnati, OH
5300 Kings Island Drive ............... 1995/1998(13) 1 156,175 100.0%
Towson, MD
100 West Road ........................ 1988/1998 1 120,234 94.4%
Twin Forks Office Park,
Raleigh, NC
5910-6090 Six Forks .................. 1982/1986 1 73,340 91.6%
Atlantic County, NJ
500 Scarborough Drive .................. 1987/1997 1 44,750 66.4%
501 Scarborough Drive .................. 1987/1997 1 44,750 100.0%
Lawrenceville, NJ
168 Franklin Corner Road ............... 1976/1996 1 32,000 55.8%
--- ---------
Total Office Properties ............... 118 7,615,211
--- ---------
Annualized
Escalated Percent Net Effective
Rent Per of Rent Per
Number Leased Total Leased
Property Name and of Escalated Square Escalated Square
Location Tenants Rent(1) Foot(2) Rent Foot(3)
------------------ ------- ---------- --------- --------- ------------
Delaware
University Plaza ........................ 51 2,216,326 14.96 1.6% 14.96
4550 New Linden Hill Road ............... 8 1,650,597 16.24 1.2% 16.24
One Righter Parkway ..................... 4 2,188,735 21.43 1.6% 21.43
100 Commerce Drive ..................... 6 986,543 15.71 0.7% 15.71
-- ---------- ----- -----
69 7,042,201 16.98 16.98
-- ---------- ----- -----
Other Markets
Bergen County, NJ
Gardenstate Pkwy & Rte 80 - Plaza II . 28 6,087,167 24.05 4.5% 24.05
Gardenstate Pky & Rte 80 - Plaza I ... 34 2,992,056 23.57 2.2% 23.57
Frederick, MD
Bowman Plains Industrial Park ......... (12) (12) (12) (12) (12)
Cincinnati, OH
5300 Kings Island Drive ............... 1 2,463,732 15.78 1.8% 15.78
Towson, MD
100 West Road ........................ 23 2,435,633 21.47 1.8% 21.47
Twin Forks Office Park,
Raleigh, NC
5910-6090 Six Forks .................. 44 1,154,442 17.19 0.8% 14.85
Atlantic County, NJ
500 Scarborough Drive .................. 7 648,691 21.84 0.5% 21.84
501 Scarborough Drive .................. 3 780,280 17.44 0.6% 17.44
Lawrenceville, NJ
168 Franklin Corner Road ............... 7 291,228 16.31 0.2% 16.21
--- ---------- ----- -----
Total Office Properties ............... 888 125,736,095 18.82 18.33
--- ----------- ----- -----
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
Percent
Net Leased
Rentable as of
Property Name and Year Built/ Number of Square January 6,
Location Acquired Properties Feet 1998
----------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
Northern Philadelphia Suburbs
Southern Bucks County, PA
4667 Somerton Road ..................... 1974/1997 1 118,000 83.1%
2595 Metropolitan Drive ............... 1981/1997 1 80,000 100.0%
2560 Metropolitan Drive ............... 1983/1997 1 70,000 81.7%
2575 Metropolitan Drive ............... 1981/1997 1 60,000 100.0%
2200 Cabot Boulevard .................. 1979/1996 1 55,081 98.2%
2535 Metropolitan Drive ............... 1974/1997 1 42,000 100.0%
2510 Metropolitan Drive ............... 1981/1997 1 40,000 100.0%
2250 Cabot Boulevard .................. 1982/1996 1 40,000 100.0%
2520 Metropolitan Drive ............... 1981/1997 1 37,000 100.0%
--- -------
Total Northern Philadelphia Suburbs ..... 9 542,081
--- -------
Western Philadelphia Suburbs
Lansdale, PA
1510 Gehman Road ........................ 1990/1996 1 152,625 100.0%
King of Prussia, PA
201/221 King Manor Drive ............... 1964/1997 2 124,960 100.0%
--- -------
Total Western Philadelphia Suburbs ...... 3 277,585
--- -------
Southern New Jersey
Burlington County, NJ
500 Highland Drive ..................... 1990/1997 1 127,340 100.0%
300 Highland Drive ..................... 1990/1997 1 126,905 100.0%
400 Highland Drive ..................... 1990/1997 1 68,660 100.0%
600 Highland Drive ..................... 1990/1997 1 65,862 82.5%
1000 East Lincoln Drive ............... 1981/1997 1 40,600 100.0%
--- -------
5 429,367
--- -------
Camden County, NJ
55 U.S. Avenue ........................ 1982/1997 1 138,700 59.1%
2 Foster Avenue ........................ 1974/1997 1 50,761 94.6%
1 Foster Avenue ........................ 1972/1997 1 24,255 100.0%
4 Foster Avenue ........................ 1974/1997 1 23,372 100.0%
5 U.S. Avenue ........................... 1987/1997 1 5,000 100.0%
--- -------
5 242,088
--- -------
Total Southern New Jersey ............... 10 671,455
--- -------
Total Industrial Properties ......... 22 1,491,121
--- ---------
TOTAL/WEIGHTED AVERAGE ................ 140 9,106,332 92.5%
=== ========= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annualized
Escalated Percent Net Effective
Rent Per of Rent Per
Number Leased Total Leased
Property Name and of Escalated Square Escalated Square
Location Tenants Rent(1) Foot(2) Rent Foot(3)
----------------- ------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
Northern Philadelphia Suburbs
Southern Bucks County, PA
4667 Somerton Road ..................... 6 701,562 7.16 0.5% 7.16
2595 Metropolitan Drive ............... 1 747,680 9.35 0.5% 9.35
2560 Metropolitan Drive ............... 3 563,725 9.86 0.4% 9.86
2575 Metropolitan Drive ............... 1 354,074 5.90 0.3% 5.90
2200 Cabot Boulevard .................. 3 477,998 8.84 0.4% 8.69
2535 Metropolitan Drive ............... 1 297,150 7.08 0.2% 7.08
2510 Metropolitan Drive ............... 1 288,480 7.21 0.2% 7.21
2250 Cabot Boulevard .................. 1 311,200 7.78 0.2% 7.78
2520 Metropolitan Drive ............... 4 306,801 8.29 0.2% 8.29
--- --------- ------- -------
Total Northern Philadelphia Suburbs ..... 21 4,048,670 7.97 7.95
--- --------- ------- -------
Western Philadelphia Suburbs
Lansdale, PA
1510 Gehman Road ........................ 2 1,361,103 8.92 1.0% 8.84
King of Prussia, PA
201/221 King Manor Drive ............... 7 786,552 6.29 0.6% 6.29
--- --------- ------- -------
Total Western Philadelphia Suburbs ...... 9 2,147,655 7.74 7.69
--- --------- ------- -------
Southern New Jersey
Burlington County, NJ
500 Highland Drive ..................... 1 869,910 6.83 0.6% 6.83
300 Highland Drive ..................... 4 816,945 6.44 0.6% 6.42
400 Highland Drive ..................... 1 386,144 5.62 0.3% 5.62
600 Highland Drive ..................... 5 513,727 9.46 0.4% 9.46
1000 East Lincoln Drive ............... 2 221,270 5.45 0.2% 5.45
--- --------- ------- -------
13 2,807,996 6.72 6.71
--- --------- ------- -------
Camden County, NJ
55 U.S. Avenue ........................ 1 789,496 9.63 0.6% 9.63
2 Foster Avenue ........................ 1 272,618 5.68 0.2% 5.68
1 Foster Avenue ........................ 1 153,317 6.32 0.1% 6.32
4 Foster Avenue ........................ 3 223,347 9.56 0.2% 9.56
5 U.S. Avenue ........................... 1 28,000 5.60 0.0% 5.60
--- --------- ------- -------
7 1,466,778 8.03 8.03
--- --------- ------- -------
Total Southern New Jersey ............... 20 4,274,774 7.12 7.12
--- --------- ------- -------
Total Industrial Properties ......... 50 10,471,099 7.55 7.54
--- ---------- ------- -------
TOTAL/WEIGHTED AVERAGE ............... 938 $136,207,194 $ 16.88 $ 16.48
=== ============ ======= =======
</TABLE>
S-29
<PAGE>
- ------------
(1) Escalated Rent represents fixed base rental amounts plus pass-throughs of
operating expenses, including electricity costs. The Company estimates
operating expense pass-throughs based on historical amounts and comparable
market data.
(2) Escalated Rent Per Leased Square Foot is the Escalated Rent divided by
the total square footage leased as of January 6, 1998.
(3) Annualized Net Effective Rent Per Leased Square Foot represents the
Escalated Rent reduced to reflect amortization of tenant improvements and
leasing commissions, if any, paid or payable by the Company with respect
to leases entered into subsequent to the date of acquisition of the
relevant Property, divided by the total square footage leased as of
January 6, 1998.
(4) This Property was renovated in 1988.
(5) This Property was renovated in 1995.
(6) This Property was renovated in 1990.
(7) This Property was renovated in 1997.
(8) This Property is currently undergoing renovations.
(9) This is a Pending Redevelopment Property and as such is not currently
leasable on customary terms. The data in the table (other than the net
rentable square footage of this Property) do not give effect to this
Property.
(10) Two of these properties were renovated in 1996.
(11) This Property was renovated in 1988.
(12) The Company has agreed to acquire the Frederick Property effective upon
completion of construction, which is expected to be completed in the first
quarter of 1998, and commencement of a lease with Ameridata, Inc. for 100%
of the property.
(13) This Property was renovated in 1995.
S-30
<PAGE>
Tenants
Properties. The Properties are leased to 883 tenants that are engaged in a
variety of businesses. The following table sets forth information regarding the
Company's leases with its 20 largest tenants based upon annualized Escalated
Rent for the Properties as of January 6, 1998.
<TABLE>
<CAPTION>
Remaining Aggregate
Number Lease Term Square Feet
Tenant Name(a) of Leases in Months Leased
- -------------- ----------- ------------ -------------
<S> <C> <C> <C>
General Electric Company ........................ 4 (c) 350,268
Parsons Corporation ........................... 4 87 200,000
Penske Truck Leasing Company, L.P. ............ 9 96 194,740
Lockheed Martin Corporation ..................... 5 (d) 184,389
Computer Sciences Corporation .................. 3 (e) 99,006
Kimberly Clark Corporation ..................... 1 96 93,014
Consolidated Rail Corporation ("Conrail") ...... 1 30 69,511
New Jersey Bell Telephone Company ............... 1 103 74,728
QAD, Inc ....................................... 1 44 61,900
Reliance Insurance Company ..................... 3 (f) 72,340
Axiom, Inc .................................... 2 124 62,752
Automotive Rentals, Inc ........................ 1 32 67,299
Delaware Valley Financial Services, Inc. ...... 7 (g) 57,057
PECO Energy Company ........................... 1 30 107,000
Northtec LLC .................................... 3 (h) 140,000
West Jersey Health Systems, Inc. ............... 6 (i) 73,612
Bisys Plan Services ........................... 5 55 58,586
UGI Utilities, Inc. ........................... 4 63 44,665
Advanta Corporation ........................... 3 (j) 52,763
Devon Direct Marketing & Advertising, Inc. ...... 2 (k) 39,330
-- --- ---------
Consolidated Total/Weighted Average ............ 66 63 2,102,960
== === =========
Percentage of
Percentage of Annualized Aggregate
Aggregate Escalated Annualized
Leased Rent (in Escalated
Tenant Name(a) Square Feet thousands)(b) Rent
- -------------- --------------- --------------- --------------
General Electric Company ........................ 4.3% $ 6,093 4.5%
Parsons Corporation ........................... 2.5% 3,583 2.6%
Penske Truck Leasing Company, L.P. ............ 2.4% 3,545 2.6%
Lockheed Martin Corporation ..................... 2.3% 3,001 2.2%
Computer Sciences Corporation .................. 1.2% 2,266 1.7%
Kimberly Clark Corporation ..................... 1.2% 2,000 1.5%
Consolidated Rail Corporation ("Conrail") ...... 0.9% 1,746 1.3%
New Jersey Bell Telephone Company ............... 0.9% 1,482 1.1%
QAD, Inc ....................................... 0.8% 1,377 1.0%
Reliance Insurance Company ..................... 0.9% 1,340 1.0%
Axiom, Inc .................................... 0.8% 1,335 1.0%
Automotive Rentals, Inc ........................ 0.8% 1,322 1.0%
Delaware Valley Financial Services, Inc. ...... 0.7% 1,293 0.9%
PECO Energy Company ........................... 1.3% 1,231 0.9%
Northtec LLC .................................... 1.7% 1,102 0.8%
West Jersey Health Systems, Inc. ............... 0.9% 1,034 0.8%
Bisys Plan Services ........................... 0.7% 1,025 0.8%
UGI Utilities, Inc. ........................... 0.6% 1,022 0.8%
Advanta Corporation ........................... 0.7% 994 0.7%
Devon Direct Marketing & Advertising, Inc. ...... 0.5% 976 0.7%
---- ------- ----
Consolidated Total/Weighted Average ............ 26.1% $37,767 27.7%
==== ======= ====
</TABLE>
<PAGE>
- --------------
(a) The identified tenant may include affiliates in certain circumstances.
(b) Annualized Escalated Rent represents the monthly Escalated Rent for each
lease in effect at January 6, 1998, multiplied by 12.
(c) Consists of four leases: a lease representing 156,175 net rentable square
feet that expires in May 2005, a lease representing 132,000 net rentable
square feet that expires in September 2001, a lease representing 61,102
net rentable square feet that expires in September 2003 and a lease
representing 991 net rentable square feet that expires in June 1999.
(d) Consists of five leases: a lease representing 112,905 net rentable square
feet that expires in December 1998, a lease representing 30,280 net
rentable square feet that expires in May 1999, a lease representing
14,750 net rentable square feet that expires in January 2001, a lease
representing 13,956 net rentable square feet that expires in October 2004
and a lease representing 12,498 net rentable square feet that expires in
June 1998.
(e) Consists of three leases: a lease representing 47,176 net rentable square
feet that expires in May 2002, a lease representing 36,830 net rentable
square feet that expires in November 2001 and a lease representing 15,000
net rentable square feet that expires in October 2000.
(f) Consists of three leases: a lease representing 55,160 net rentable square
feet that expires in October 2002, a lease representing 13,681 net
rentable square feet that expires in October 2002 and a lease
representing 3,499 net rentable square feet that expires in April 1999.
S-31
<PAGE>
(g) Consists of seven leases: six leases representing 55,857 net rentable
square feet in the aggregate that expire in March 2004 and a lease
representing 1,200 net rentable square feet (storage) that is leased on a
month-to-month basis.
(h) Consists of three leases: a lease representing 80,000 net rentable square
feet that expires in June 2006, a lease representing 38,775 net rentable
square feet that expires in June 2006, and a lease representing 21,225
net rentable square feet that is occupied on a month-to-month basis.
(i) Consists of six leases: a lease representing 24,255 net rentable square
feet that expires in March 1998, a lease representing 20,000 net rentable
square feet that expires in March 2001, a lease representing 9,875 net
rentable square feet that expires in August 1998, a lease representing
8,387 net rentable square feet that expires in April 2001, a lease
representing 7,976 net rentable square feet that expires in March 2000
and a lease representing 3,119 net rentable square feet that expires in
June 1998.
(j) Consists of three leases: a lease representing 43,130 net rentable square
feet that expires in September 1998, a lease representing 8,339 net
rentable square feet that expires in June 1999 and a lease representing
1,294 net rentable square feet that expires in January 1998.
(k) Consists of two leases: a lease representing 38,055 net rentable square
feet that expires in December 1998 and a lease representing 1,275 net
rentable square feet, which the tenant occupies on a month-to-month
basis.
Lease Expirations
Properties. The following table sets forth detailed lease expiration
information for the Properties for leases in place as of January 6, 1998,
assuming that none of the tenants exercise renewal options or termination
rights, if any, at or prior to the scheduled expirations:
<TABLE>
<CAPTION>
Final Percentage
Rentable Final Annualized of Total Final
Number of Square Annualized Base Rent Annualized
Leases Footage Base Rent Per Square Base Rent
Expiring Subject to Under Foot Under Under
Year of Lease Expiration Within the Expiring Expiring Expiring Expiring Cumulative
December 31 Year Leases Leases(1) Leases Leases(1) Total
- --------------------------- ------------ ------------ -------------- ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998 ..................... 325 1,287,146 $ 15,890,527 $ 12.35 14.1% 14.1%
1999 ..................... 197 1,245,425 13,592,817 10.91 12.1% 26.1%
2000 ..................... 151 1,042,645 13,513,431 12.96 12.0% 38.1%
2001 ..................... 143 1,397,631 20,606,381 14.74 18.3% 56.4%
2002 ..................... 119 1,074,507 16,640,355 15.49 14.8% 71.2%
2003 ..................... 43 387,176 6,717,544 17.35 6.0% 77.1%
2004 ..................... 17 167,924 3,186,427 18.98 2.8% 79.9%
2005 ..................... 21 707,938 13,381,512 18.90 12.0% 91.8%
2006 ..................... 12 422,107 4,317,557 10.23 4.0% 95.6%
2007 ..................... 6 76,950 1,443,795 18.76 1.0% 96.9%
2008 and thereafter ...... 8 251,351 3,489,097 13.88 3.0% 100.0%
--- --------- ------------ -------
Consolidated Total/
Weighted Average ......... 1,042 8,060,800 $112,779,443 $ 13.99
===== ========= ============ =======
</TABLE>
- --------------
(1) Final Annualized Base Rent for each lease scheduled to expire represents
the cash rental rate of base rents, excluding tenant reimbursements, in
the final months prior to expiration multiplied by 12. Tenant
reimbursements generally include payments on account of real estate taxes,
operating expense escalations and common area utility charges.
Debt
Credit Facility. Following the Offering and the application of the net
proceeds therefrom, the Company expects to have repaid in full all amounts
outstanding under the Additional Credit Facility, and expects that
S-32
<PAGE>
approximately $71.7 million will remain outstanding under the Credit Facility
($34.2 million if the Underwriters' overallotment option is exercised in full).
The Credit Facility enables the Company to borrow funds at the 30, 60, 90 or
180-day LIBOR, plus, in each case, a range of 100 to 137.5 basis points,
depending on the Company's then existing leverage and debt rating.
Alternatively, the Company can borrow funds at the Prime Rate plus 25 basis
points or the Fed Funds Rate plus 50 basis points. The Credit Facility matures
on January 5, 2001 and is extendable to January 5, 2002 by the Company in the
absence of default and upon payment of a fee.
Mortgage Indebtedness. The following table sets forth the Company's
mortgage indebtedness that will remain outstanding after the closing of the
Offering and the application of the net proceeds therefrom.
Properties--Indebtedness
<TABLE>
<CAPTION>
Principal Balance
as of January 6, 1998 Interest Rate at
Property/Location (in thousands) January 6, 1998
----------------- ---------------------- ------------------
<S> <C> <C>
Exton, PA
486 Thomas Jones Way(2)
468 Creamery Way(2) ............... $ 6,269 8.00 %
Horsham, PA
Lot 17 and 18
Business Center Drive ............ 369 0.00 %
Newtown Square, PA
Lots 7, 8 and 9 in Newtown
Square Business Campus ............ 1,638 9.00 %
Allentown, PA
7310 Tilghman Street ............... 2,502 9.25 %
6575 Snowdrift Road ............... 2,291 8.00 %
Reading, PA
Green Hills Corporate Center
(undeveloped land) ............... 1,500 5.00 %
Marlton, New Jersey
One Greentree Centre(3)
Two Greentree Centre(3)
Three Greentree Centre(3) ......... 7,138 7.56 %
Cherry Hill, New Jersey
457 Haddonfield Road (4) (5) ...... 8,294 8.00 %
805 9.25 %
Mt. Laurel, New Jersey
1120 Executive Plaza ............... 5,901 9.875%
1000 Howard Boulevard ............ 5,762 9.25 %
Raleigh, NC
5910-6090 Six Forks (3) ............ 2,658 7.56 %
-------
Total Mortgage Indebtedness ......... $45,127
=======
Annual Debt
Service Prepayment
Property/Location (in thousands)(1) Maturity Date Premiums
- ------------------------------------- ------------------- --------------- -----------
<S> <C> <C> <C>
Exton, PA
486 Thomas Jones Way(2)
468 Creamery Way(2) ............... $ 53 2/1998 None
Horsham, PA
Lot 17 and 18
Business Center Drive ............ - 3/1998 None
Newtown Square, PA
Lots 7, 8 and 9 in Newtown
Square Business Campus ............ 905 (6) None
Allentown, PA
7310 Tilghman Street ............... 257 3/2000 (5)
6575 Snowdrift Road ............... 19 2/1998 None
Reading, PA
Green Hills Corporate Center
(undeveloped land) ............... 565 8/2000 None
Marlton, New Jersey
One Greentree Centre(3)
Two Greentree Centre(3)
Three Greentree Centre(3) ......... 708 1/2002 (7)
Cherry Hill, New Jersey
457 Haddonfield Road (4) (5) ...... 814 1/1999 (8)
74 1/1999 None
Mt. Laurel, New Jersey
1120 Executive Plaza ............... 832 3/2002 (9)
1000 Howard Boulevard ............ 803 11/2004 (10)
Raleigh, NC
5910-6090 Six Forks (3) ............ 264 1/2002 (11)
------
Total Mortgage Indebtedness ......... $5,294
======
</TABLE>
<PAGE>
- --------------
(1) Annual Debt Service is calculated for the twelve-month period ending
December 31, 1998 and represents normal principal and interest
amortization. For loans that bear interest at a variable rate, the rates
in effect at January 6, 1998 have been assumed to remain constant for the
balance of 1998.
(2) Both of these Properties secure a single loan.
(3) All of these Properties secure a single loan.
(4) The $8,362,000 debt was incurred as a result of the acquisition of the
Property on July 19, 1996. Pursuant to the terms of this loan, the Company
has the right to borrow up to approximately $1.3 million to fund tenant
improvements and leasing commissions and has a current outstanding balance
of $805,000.
S-33
<PAGE>
(5) Two percent through December 31, 1998, which prepayment penalty is reduced
by 1% for each subsequent year through 1999.
(6) This debt is comprised of two notes, each having a balloon payment of
$819,000. One note matures in July 1998 and the other note matures in
February 1999.
(7) This loan may not be prepaid unless the Six Forks loan is also prepaid.
The prepayment penalty equals greater of 1% of principal amount prepaid or
a yield maintenance premium.
(8) One percent of any portion of the original acquisition portion of the loan
prepaid.
(9) No prepayment is permitted until November, 1999, at which time the loan
can be prepaid in full (but not in part) along with a penalty equal to the
greater of 1% of this outstanding principal balance being prepaid or a
yield maintenance premium.
(10) No prepayment is permitted until March, 1999, at which time the loan can
be prepaid in full (but not in part) along with a penalty equal to the
greater of 1% of the outstanding principal balance being prepaid or a
yield maintenance premium.
(11) This loan may be prepaid without prepayment of the loan secured by One
Greentree Centre, Two Greentree Centre and Three Greentree Centre,
provided certain loan-to-value ratios and coverage tests with regard to
the Greentree Centre loan are satisfied and upon payment of a premium
equal to the greater of 1% of the principal amount prepaid or yield
maintenance premium.
Other Indebtedness. The Company incurred unsecured debt in the principal
amount of $3.8 million on November 14, 1996 in connection with its acquisition
of a property portfolio. The debt does not bear interest and is payable in two
installments: $2.5 million on June 30, 1998 and $1.3 million on December 31,
1999. The Company recorded a $548,000 adjustment to the purchase price and a
corresponding reduction in debt to reflect the fair value of the note payable
to the seller and will accrue interest expense to the date of maturity.
Guaranties. As of January 6, 1998, the Company has guaranteed repayment of
a $14.5 million construction loan made to a Development Entity, repayment of a
$500,000 loan made to a Development Entity and expects to guaranty repayment of
a $16.8 million construction loan that it is currently negotiating on behalf of
its interest in another Development Entity. Payment under these guaranties
would constitute loan obligations of the applicable Development Entity payable
to the Company or preferred equity positions in the applicable Development
Entity in favor of the Company.
S-34
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
officers, significant employees and Trustees of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Anthony A. Nichols, Sr ...... 58 Chairman of the Board and Trustee
Gerard H. Sweeney ............ 41 President, Chief Executive Officer and Trustee
Mark S. Kripke ............... 41 Chief Financial Officer
Anthony S. Rimikis ......... 49 Senior Vice President--Development and Construction
John M. Adderly, Jr ......... 37 Senior Vice President--Operations
Anthony A. Nichols, Jr ...... 31 Vice President--Operations
H. Jeffrey DeVuono ......... 32 Vice President--Operations
Brad A. Molotsky ............ 33 General Counsel and Secretary
Barbara L. Yamarick ......... 45 Director of Tenant Services and Property Management
David Mackey ............... 39 Regional Director--Operations and New Markets
Warren V. Musser ............ 70 Trustee
Walter D'Alessio ............ 63 Trustee
Charles P. Pizzi ............ 47 Trustee
</TABLE>
The following are biographical summaries of the officers, significant
employees and Trustees of the Company:
Anthony A. Nichols, Sr., Chairman of the Board and Trustee. Mr. Nichols
was elected Chairman of the Board on August 22, 1996. Mr. Nichols founded The
Nichols Company, a private real estate development company, through a corporate
joint venture with Safeguard Scientifics, Inc. ("SSI") and was President and
Chief Executive Officer from 1982 through August 22, 1996. From 1968 to 1982,
Mr. Nichols was Senior Vice President of Colonial Mortgage Service Company (now
GMAC Mortgage Corporation), a subsidiary of CoreStates Bank, N.A. Mr. Nichols
has been a member of the National Association of Real Estate Investment Trusts
("NAREIT"), a member of the Board of Governors of the Mortgage Banking
Association and Chairman of the Income Loan Committee of the regional Mortgage
Bankers Association. Mr. Nichols also serves on the Board of Directors of
CenterCore Inc. and is a member of the National Association of Industrial and
Office Parks ("NAIOP"), the Philadelphia Board of Realtors and the Urban Land
Institute ("ULI").
Gerard H. Sweeney, President, Chief Executive Officer and Trustee. Mr.
Sweeney was elected a Trustee on February 9, 1996. Mr. Sweeney has served as
President and Chief Executive Officer of the Company since August 8, 1994 and
as President since November 9, 1989. Prior to August 8, 1994, Mr. Sweeney
served as Vice President of LCOR, Incorporated ("LCOR"), a real estate
development firm. Mr. Sweeney was employed by The Linpro Company (a predecessor
of LCOR) from 1983 to 1994 and served in several capacities, including
Financial Vice President and General Partner. Mr. Sweeney is a member of
NAREIT, the ULI, the American Institute of Certified Public Accountants
("AICPA") and the Pennsylvania Institute of Certified Public Accountants
("PICPA").
Mark S. Kripke, Chief Financial Officer. Mr. Kripke became Chief Financial
Officer of the Company on April 7, 1997. During the preceding thirteen years,
Mr. Kripke was Chief Financial Officer for privately held real estate
investment companies, Stoltz Management (and its predecessor, Cynwyd
Investments) from November 1992 to April 1997 and St. John Group from January
1984 to October 1992. Mr. Kripke is a certified public accountant and had
previously served as a tax manager with Price Waterhouse. Mr. Kripke is a
member of NAREIT, the AICPA and the PICPA.
Anthony S. Rimikis, Senior Vice President--Development and Construction.
Mr. Rimikis became an executive of the Company on October 13, 1997. Mr. Rimikis
previously served as Vice President of Emmes Realty Services, Inc., a New York
based real estate services company where he managed the company's construction
and development activities in New Jersey and Maryland. Prior to joining Emmes,
he served as Vice President of Development for DKM Properties Corp. from 1988
to 1994. Mr. Rimikis is a certified Commercial Investment Member of the
Realtors National Marketing Institute.
S-35
<PAGE>
John M. Adderly, Jr., Senior Vice President--Operations. Mr. Adderly has
served as an officer of the Company since January 1995. Mr. Adderly was
employed by the Rodin Group, a Philadelphia-based real estate development,
management and brokerage firm from 1982 until 1995, where he served as Vice
President and Chief Financial Officer from 1986 until 1995, and as Corporate
Controller from 1982 until 1986. Mr. Adderly serves on the Jefferson Bank
Advisory Council and is a member of the Board of Directors of Businesses
Committed to Burlington County.
Anthony A. Nichols, Jr., Vice President--Operations. Mr. Nichols became an
officer of the Company on August 22, 1996. Previously Mr. Nichols was employed
at TNC, which he joined in 1989 as a marketing representative. In 1992 Mr.
Nichols became an Assistant Vice President--Property Management of TNC and in
1995 he became Vice President--Marketing. Mr. Nichols is a member of the Board
of Directors for the Eastern Pennsylvania Region of the NAIOP. Mr. Nichols is
the son of Anthony A. Nichols, Sr., the Company's Chairman of the Board.
H. Jeffrey DeVuono, Vice President--Operations. Mr. DeVuono became an
officer of the Company on January 15, 1997. From January 1993 until that time
he was employed in several capacities by LCOR, Incorporated, a real estate
development firm.
Brad A. Molotsky, General Counsel and Secretary. Mr. Molotsky became
General Counsel of the Company on October 27, 1997 and Secretary of the Company
on November 18, 1997. Prior to joining the Company he was an associate at
Pepper Hamilton LLP, Philadelphia, Pennsylvania where he practiced law since
September 1989. Mr. Molotsky is a member of NAIOP, NAREIT, the American Society
of Corporate Secretaries, the American Bar Association, the New Jersey Bar
Association and the Pennsylvania Bar Association. He also serves on the Board
of Directors of Philadelphia Volunteer Lawyers for the Arts, Triple Threat
Productions, Inc. and Businesses Committed to Burlington County.
Barbara L. Yamarick, Director of Tenant Services and Property Management.
Ms. Yamarick joined the Company on October 20, 1997. Prior to joining the
Company she was a Regional Vice President of Premisys Real Estate Services,
Inc., a subsidiary of Prudential Insurance Company engaged in the management
and leasing of real estate, which she joined in 1991.
David Mackey, Regional Director--Operations and New Markets. Mr. Mackey
joined the Company on October 1, 1997. Prior to joining the Company he was a
Vice President of Premisys Real Estate Services, Inc., a subsidiary of
Prudential Insurance Company engaged in the management and leasing of real
estate, which he joined in November 1993. Prior to joining Premisys, Mr. Mackey
was a partner with The Linpro Company, a real estate development firm, which he
joined in 1986.
Warren V. Musser, Trustee. Mr. Musser was elected a Trustee on August 22,
1996. He has served as Chairman and Chief Executive Officer of SSI since 1953.
Mr. Musser also serves as the Chairman of the Board of Directors of Cambridge
Technology Partners, Inc., and is a director of Coherent Communications Systems
Corporation, CompuCom Systems, Inc. and National Media Corp. Mr. Musser also
serves on a variety of civic, educational, and charitable Boards of Directors,
including the Franklin Institute and the Board of Overseers of the Wharton
School of the University of Pennsylvania. He also serves as Vice
President/Development, Cradle of Liberty Council, Boy Scouts of America and as
Vice Chairman of the Technology Council of the Philadelphia metropolitan area.
Walter D'Alessio, Trustee. Mr. D'Alessio was elected a Trustee on August
22, 1996. He has served as President and Chief Executive Officer of Legg Mason
Real Estate Services, Inc., a mortgage banking firm headquartered in
Philadelphia, Pennsylvania since 1982. Previously, Mr. D'Alessio served as
Executive Vice President of the Philadelphia Industrial Development Corporation
and Executive Director of the Philadelphia Redevelopment Authority. He also
serves on the Board of Directors of PECO Energy Company, Pennsylvania Blue
Shield and Independence Blue Cross, the Philadelphia Private Industry Council
and the Greater Philadelphia Chamber of Commerce.
Charles P. Pizzi, Trustee. Mr. Pizzi was elected a Trustee on August 22,
1996. Mr. Pizzi has served as President of the Greater Philadelphia Chamber of
Commerce since 1989. Mr. Pizzi is a director of Vestaur Securities, Inc. and
also serves on a variety of civic, educational and charitable Boards of
Directors, including the
S-36
<PAGE>
American Chamber of Commerce Executives, Boy Scouts of America (Philadelphia
Council), Drexel University, Greater Philadelphia Chamber of Commerce,
Independence Blue Cross, Pennsylvania Academy of the Fine Arts, Philadelphia
Convention & Visitors Bureau, Temple University School of Business Management,
United Way of Southeastern Pennsylvania, University of Pennsylvania Graduate
School of Education Board of Overseers and the Urban League of Philadelphia.
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter, the
number of Common Shares set forth opposite the name of such Underwriter.
Number of
Shares
-----------
Smith Barney Inc ..........................................
Donaldson, Lufkin & Jenrette Securities Corporation ......
Legg Mason Wood Walker, Incorporated .....................
Merrill Lynch, Pierce, Fenner & Smith Incorporated ......
NationsBanc Montgomery Securities LLC .....................
----------
Total ................................................ 10,000,000
==========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares offered hereby are
subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
Common Shares offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
Prospectus Supplement and part of the shares to the other Underwriters or to
certain dealers at a price which represents a concession not in excess of $
per share under the public offering price. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of $ per share to certain
other dealers. After the offering of the shares to the public, the public
offering price and such concessions may be changed by the Underwriters. The
Underwriters have advised the Company that the Underwriters do not intend to
confirm any sales to any accounts over which they exercise discretionary
authority.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus Supplement, to purchase up to
1,500,000 additional Common Shares at the price to public set forth on the
cover page of this Prospectus Supplement minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with the Offering of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will be obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number of shares listed in
such table.
In connection with this Offering and in compliance with applicable law,
the Underwriters may over-allot (i.e., sell more Common Shares than the total
amount shown on the list of Underwriters and participations which appears
above) and may effect transactions which stabilize, maintain or otherwise
affect the market price of the Common Shares at levels above those which might
otherwise prevail in the open market. Such transactions may include placing
bids for the Common Shares or effecting purchases of the Common Shares for the
purpose of pegging, fixing or maintaining the price of the Common Shares or for
the purpose of reducing a syndicate short position created in connection with
the Offering. A syndicate short position may be covered by exercise of the
option described above in lieu of or in addition to open market purchases. In
addition, the contractual arrangements among the Underwriters include a
provision whereby, if an Underwriter purchases Common Shares in the open market
for the account of the underwriting syndicate and the securities purchased can
be traced to a particular Underwriter or member of the selling group, the
underwriting syndicate may require the Underwriter or selling group member in
question to purchase the Common Shares in question at the cost price to the
syndicate
S-37
<PAGE>
or may recover from (or decline to pay to) the Underwriter or selling group
member in question the selling concession applicable to the securities in
question. The Underwriters are not required to engage in any of these
activities and any such activities, if commenced, may be discontinued at any
time.
In connection with the Offering, the Operating Partnership, the Company,
its Trustees and executive officers have agreed, subject to certain limited
exceptions, not to sell, offer to sell, solicit an offer to buy, contract to
sell, grant any option to purchase or otherwise transfer or dispose of any
Common Shares or any securities convertible into or exchangeable or exercisable
for Common Shares until expiration of the 90-day period after the effective
date of this Prospectus, without the prior written consent of Smith Barney
Inc., except, in the case of the Company and the Operating Partnership, for the
issuance of such securities in connection with the acquisition of any office or
industrial property, upon the redemption of any Units, or upon the exercise of
any options or warrants of the Company.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
NationsBank, N.A., an affiliate of NationsBanc Montgomery Securities LLC,
is the lender under the Additional Credit Facility and the Credit Facility and
will be repaid approximately $249.8 million (exclusive of accrued interest)
outstanding under the Additional Credit Facility and the Credit Facility from
the net proceeds of the Offering.
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
Underwriters have engaged, and may in the future engage, in investment banking
activities on behalf of the Company.
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.
The statistical information included in this Prospectus Supplement
attributable to Cushman & Wakefield of Pennsylvania, Inc. has been included
herein in reliance upon C&W's expertise as a real estate service firm with
respect to the Suburban Philadelphia Office and Industrial Market. C&W is a
real estate service firm with significant expertise and experience relating to
the Suburban Philadelphia Office and Industrial Market and is part of a
national network of affiliated companies providing real estate related
services.
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 LLP, Philadelphia, Pennsylvania. Certain legal matters related to the
Offering will be passed upon for the Underwriters by Battle Fowler LLP, New
York, New York. Pepper Hamilton LLP and Battle Fowler LLP will rely on Ballard
Spahr Andrews & Ingersoll, Baltimore, Maryland, as to certain matters of
Maryland law.
TAX MATTERS
The statements in the accompanying Prospectus under the caption "Federal
Income Tax Considerations" and the other statements herein and therein relating
to the Company's qualification as a REIT and the taxation of the Company's
shareholders are based upon the opinion of Arthur Andersen LLP.
S-38
<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 4 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 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;
2
<PAGE>
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).
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.
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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.
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
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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.
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.
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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 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
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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 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.
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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 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.
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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. 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.
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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 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
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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 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
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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 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.
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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.
For the Six Months
Ended June 30, For the Years Ended December 31,
--------------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
2.09 1.00 (2) (2) (2) N/A (1) N/A (1)
- ------------
(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.
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.
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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.
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:
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(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;
(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
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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.
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 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
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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.
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.
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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 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
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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.
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
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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.
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.
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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.
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
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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 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 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.
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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.
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.
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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, 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.
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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 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.
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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, 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
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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.
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.
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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.
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.
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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;
(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
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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 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.
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"
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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).
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
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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, (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
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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").
Classification of the Operating Partnership and Title Holding, Partnerships as
Partnerships
As of the date of this Prospectus, the Company owns all of the Properties
or the economic interests 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.
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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.
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.
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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, 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,
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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 distribu tions 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 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
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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 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.
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Taxation of Foreign Shareholders
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and
no attempt 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 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
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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.
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
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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.
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.
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===============================================================================
No dealer, salesperson or any other person 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 the Prospectus in
connection with the offer contained herein, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or by any of the Underwriters. This Prospectus
Supplement and the Prospectus do not constitute an offer of any securities
other than those to which they relate or an offer to sell, or a solicitation
of an offer to buy, those to which they relate in any state to any person to
whom it is not lawful to make such offer in such state. The delivery of the
Prospectus Supplement or the Prospectus at any time does not imply that the
information herein is correct as of any time subsequent to its date.
--------------------------
TABLE OF CONTENTS
Page
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Prospectus Supplement
Prospectus Supplement Summary ..................... S-3
The Company ....................................... S-15
Use of Proceeds .................................... S-19
Price Range of Common Shares and
Distribution History ........................... S-20
Capitalization .................................... S-21
Business and Properties ........................... S-22
Management ....................................... S-35
Underwriting ....................................... S-37
Experts .......................................... S-38
Legal Matters .................................... S-38
Tax Matters ....................................... S-38
Prospectus
Available Information .............................. 2
Incorporation of Certain Documents by
Reference ....................................... 2
The Company ....................................... 3
Risk Factors ....................................... 4
Ratios of Earnings to Combined Fixed Charges
and Preferred Share Distributions ............... 13
Use of Proceeds .................................... 13
Description of Shares of Beneficial Interest ...... 13
Description of Depositary Shares .................. 17
Description of Warrants ........................... 21
Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws 21
Policies with Respect to Certain Activities ...... 25
Federal Income Tax Considerations .................. 27
Plan of Distribution .............................. 39
Experts .......................................... 40
Legal Matters .................................... 40
Tax Matters ....................................... 40
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<PAGE>
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10,000,000 Shares
Brandywine Realty
Trust
Common Shares
of
Beneficial Interest
[LOGO]
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P R O S P E C T U S
, 1998
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Salomon Smith Barney
Donaldson, Lufkin & Jenrette
Securities Corporation
Legg Mason Wood Walker
Incorporated
Merrill Lynch & Co.
NationsBanc Montgomery
Securities LLC
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