<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 13, 1997)
[GRAPHIC OMITTED]
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 has entered into an agreement, subject to certain material conditions,
to purchase 14 office and industrial properties (the "Pending Acquisition")
containing an aggregate of approximately 941,000 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 29, 1998, the last reported sale
price for the Common Shares was $24 3/16. Total return to shareholders from the
closing of the Company's public offering on December 2, 1996 through January 29,
1998 was approximately 56%, 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.
===============================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- -------------------------------------------------------------------------------
Per Share $24.00 $1.23 $22.77
- -------------------------------------------------------------------------------
Total(3) $240,000,000 $12,300,000 $227,700,000
===============================================================================
<PAGE>
(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 276,000,000, 14,145,000 and 261,855,000, 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 February 4, 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
January 29, 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 29, 1998 was approximately 56%, comprised of share price appreciation of
approximately 47% 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(4)
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.
[GRAPHIC OMITTED]
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. Project costs are being financed primarily through
a $16.8 million third-party construction loan. The Company has committed
funds to provide for the repayment of such 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
S-9
<PAGE>
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 has guaranteed payment of a
$16.8 million construction loan. 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 has entered 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 941,000 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
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<PAGE>
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 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 29, 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 $94.2 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.
S-11
<PAGE>
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 Addi-
tional 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
(including 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
<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)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue-
Base rents .............................. $ 81,538 $ 32,290 $ 4,063 $ 100,554 $ 8,462
Tenant reimbursements ................... 11,532 5,731 467 14,607 1,372
Other ................................... 1,220 818 69 979 196
----------- ----------- -------- ----------- ----------
Total revenue .......................... 94,290 38,839 4,599 116,140 10,030
----------- ----------- -------- ----------- ----------
Expenses-
Interest ................................ 11,824 4,899 1,342 15,945 2,751
Depreciation and amortization ........... 23,527 10,051 1,173 29,784 2,836
Property expenses ....................... 36,129 14,805 1,867 48,016 3,709
General and administrative .............. 705 705 439 973 825
----------- ----------- -------- ----------- ----------
Total expenses ......................... 72,185 30,460 4,821 94,718 10,121
----------- ----------- -------- ----------- ----------
Income (loss) before equity in income
of management company and
minority interest ....................... 22,105 8,379 (222) 21,422 (91)
Equity in income (loss) of management
company ................................. 1,203 332 54 1,331 (26)
----------- ----------- -------- ----------- ----------
Income (loss) before minority interest 23,308 8,711 168 22,753 (117)
Minority interest in (income) loss ........ (484) (256) 40 (472) (45)
----------- ----------- -------- ----------- ----------
Income (loss) ............................. 22,824 8,455 (128) 22,281 (162)
Income allocated to Preferred Shares ...... (499) (499) ---- (2,248) (401)
----------- ----------- -------- ----------- ----------
Income (loss) allocated to Common
Shares .................................. $ 22,325 $ 7,956 $ (128) $ 20,033 $ (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 ................................. $ 0.65 $ 0.65 $ (0.19) $ 0.62 $ (0.43)
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
-------------------------
Pro Forma Historical
----------- -----------
<S> <C> <C>
Balance Sheet Data:
Real estate investments, net of accumulated depreciation $849,808 $462,772
Total assets ........................................... 881,374 494,338
Mortgages and notes payable ............................ 194,619 61,984
Total liabilities ...................................... 211,735 79,100
Minority interest ...................................... 14,402 4,894
Beneficiaries' equity .................................. 655,237 410,344
</TABLE>
S-13
<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) ................ $46,216 $ 18,127 $ 1,001 $51,966 $ 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.. 154 93 24 154 37
Gross net rentable square feet owned at
period end ............................. 10,048 5,845 1,334 10,048 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.
S-14
<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 29, 1998 was
approximately 56%, comprised of share price appreciation of approximately 47%
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 may realize
additional cash flow through the potential leasing of part or all of the
approximately 683,000 net rentable square feet of vacant space at the
Properties as of January 6, 1998. 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 consummated, the Company's
debt-to-total market capitalization ratio will be approximately 19.1%
(approximately 15.8% 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 $227.3 million (approximately $261.5
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 ($24.7 million plus accrued interest) and
approximately $202.6 million of the $296.8 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 29, 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 consummated, the Company expects to have remaining
outstanding indebtedness of approximately $199.6 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 29, 1998, the last reported sale price of the Common Shares on the NYSE
was $24 3/16. 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 29, 1998) ......... $ 26 3/8 $ 23 5/8 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) the
consummation of the Pending Acquisition; (iii) 751,269 Common Shares issued in a
public offering in December 1997; and (iv) 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 .................................................... 14,000 146,635(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 ......................................... 428,787 673,573
Share warrants ..................................................... 962 962
Cumulative earnings ................................................ 5,209 5,209
Cumulative distribution ............................................ (24,848) (24,848)
--------- ------------
Total beneficiaries' equity ..................................... 410,344 655,237
--------- ------------
Total capitalization ......................................... $ 477,222 $ 864,258
========= ============
</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 29, 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 $227.3 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 eight
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)
-------------- ------------------ ------------------ -----------
<S> <C> <C> <C>
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 96.0%
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
== === =========
<CAPTION>
Percentage of
Percentage of Annualized Aggregate
Aggregate Escalated Annualized
Leased Rent (in Escalated
Tenant Name(a) Square Feet thousands)(b) Rent
- -------------- --------------- --------------- --------------
<S> <C> <C> <C>
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 $94.2 million will remain outstanding under the Credit Facility
($60.0 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
=======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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>
- --------------
(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 29, 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 repayment of a $16.8 million
construction loan made to a 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.
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
S-35
<PAGE>
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 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.
S-36
<PAGE>
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 ............................................ 2,000,000
Donaldson, Lufkin & Jenrette Securities Corporation ......... 2,000,000
Legg Mason Wood Walker, Incorporated ........................ 2,000,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated .......... 2,000,000
NationsBanc Montgomery Securities LLC ....................... 2,000,000
---------
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 $0.74
per share under the public offering price. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of $0.10 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 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
S-37
<PAGE>
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 $227.3 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
11
<PAGE>
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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<PAGE>
RATIOS OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED SHARE DISTRIBUTIONS
The following table sets forth the Company's ratios of earnings to
combined fixed charges and preferred share distributions for the periods shown.
The ratio of earnings to combined fixed charges and preferred share
distributions represents the number of times fixed charges were covered by
earnings. The ratio is computed by dividing fixed charges and preferred share
distributions into earnings before extraordinary items plus fixed charges.
Fixed charges include interest expense and amortization of debt issuance costs.
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
- ----------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
- ------ ---- ---- ---- ---- ---- ----
2.09 1.00 (2) (2) (2) N/A (1) N/A (1)
</TABLE>
- ------------
(1) Ratio cannot be computed as there were no fixed charges during fiscal years
1993 and 1992.
(2) Ratio calculated to be less than one-to-one coverage; the amount of the
deficiency to cover fixed charges is $162,000, $824,000 and $1,841,000 for
fiscal years 1996, 1995 and 1994, respectively.
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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<PAGE>
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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<PAGE>
(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.
<PAGE>
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
15
<PAGE>
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
16
<PAGE>
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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<PAGE>
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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<PAGE>
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.
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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
[GRAPHIC OMITTED]
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P R O S P E C T U S
January 29, 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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