<PAGE> 1
This filing is made pursuant
to Rule 424(b)(5) under the
Securities Act of 1933 in
connection with Registration
No. 33-59195
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 20, 1995)
2,000,000 SHARES
EXCEL REALTY TRUST, INC.
COMMON STOCK
------------------------
Excel Realty Trust, Inc. (the "Company") is a self-administered,
self-managed real estate investment trust ("REIT") which acquires, owns and
manages neighborhood and community shopping centers and other retail and
commercial properties leased primarily to major retail companies. As of March
31, 1995, the Company owned or managed 37 shopping centers, 78 single tenant
properties and four commercial properties and office buildings.
The 2,000,000 shares of common stock of the Company, par value $.01 per
share (the "Common Stock"), offered hereby (the "Offering") are being sold by
the Company. The Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "XEL." The last reported sale price of the shares of
Common Stock on the NYSE on June 20, 1995 was $20 1/8 per share. See "Price
Range of Common Stock and Distributions."
The shares of Common Stock are subject to certain restrictions on ownership
designed to preserve the Company's status as a REIT for federal income tax
purposes. See "Description of Common Stock" and "Restrictions on Ownership of
Capital Stock" in the accompanying Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
Per Share............................ $20.125 $1.11 $19.015
- ------------------------------------------------------------------------------------------------------
Total(3)............................. $40,250,000 $2,220,000 $38,030,000
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $150,000 payable by the Company.
(3) The Company has granted the Underwriters an option to purchase up to an
additional 300,000 shares of Common Stock to cover over-allotments. If all
such shares are purchased, the total Price to Public, Underwriting Discount
and Proceeds to Company will be $46,287,500, $2,553,000 and $43,734,500,
respectively. See "Underwriting."
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued by the Company, delivered to and accepted
by the Underwriters, subject to approval of certain legal matters by counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of the shares of Common Stock will be made
in New York, New York on or about June 26, 1995.
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
------------------------
The date of this Prospectus Supplement is June 20, 1995.
<PAGE> 2
[Photographs of certain of the Company's properties]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial information appearing elsewhere in this Prospectus
Supplement or incorporated herein by reference. Unless otherwise indicated, the
information contained in this Prospectus Supplement assumes that the
Underwriters' over-allotment option is not exercised. All references to the
Company in this Prospectus Supplement include the Company and those entities
owned or controlled by the Company, unless the context indicates otherwise.
THE COMPANY
The Company is a self-administered, self-managed REIT which acquires, owns
and manages neighborhood and community shopping centers and other retail and
commercial properties leased primarily to major retail companies. As of March
31, 1995, the Company owned or managed 37 shopping centers (the "Shopping
Centers"), 78 single tenant properties (the "Single Tenant Properties") and four
commercial properties and office buildings (the "Commercial Properties"). The
Shopping Centers, Single Tenant Properties and Commercial Properties accounted
for approximately 56%, 37% and 7%, respectively, of the annualized base rental
income ("ABR") of the Company at March 31, 1995. As of March 31, 1995, the
Company's 119 properties were located in 28 states, contained approximately 8.6
million square feet of gross leasable area ("GLA") and were 98.4% leased.
Sixty percent of the Company's ABR at March 31, 1995 was derived from
lessees with 10 years or more remaining on their leases, over 60% was derived
from lessees with investment grade credit ratings and over 90% was derived from
major national or regional lessees. In addition, leases representing over 95% of
the Company's ABR at March 31, 1995 provide that the lessee is responsible for
substantially all costs and expenses associated with the ongoing maintenance of
the property, including but not limited to property taxes, insurance and common
area maintenance.
THE OFFERING
<TABLE>
<S> <C>
Shares Offered.............................. 2,000,000 shares of Common Stock(1)
Shares to be Outstanding After the
Offering.................................. 12,903,109 shares of Common Stock(1)(2)
Use of Proceeds............................. To repay certain indebtedness, to acquire
neighborhood and community shopping centers
and for general corporate purposes. See "Use
of Proceeds."
New York Stock Exchange Symbol.............. "XEL"
</TABLE>
- ---------------
(1) Does not include up to 300,000 shares of Common Stock that may be issued
upon exercise of the Underwriters' over-allotment option.
(2) Does not include approximately 610,000 shares of Common Stock issuable upon
the exercise of options and warrants which are presently outstanding and up
to approximately 67,000 other shares of Common Stock issuable to various
parties upon the occurrence of certain events.
S-3
<PAGE> 4
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR NUMBERS OF OPERATING PROPERTIES AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Total revenue from operating
properties........................ $ 13,426 $ 9,127 $ 41,014 $ 22,525 $ 5,827 $ 2,472 $ 1,021
Operating expenses.................. 3,874 1,687 7,278 5,049 2,749 882 313
Net operating income................ 9,552 7,440 33,736 17,476 3,078 1,590 708
Depreciation and amortization....... 1,649 1,578 6,887 4,186 608 280 125
Interest expense.................... 4,441 2,804 14,190 9,360 2,218 1,340 741
Net income.......................... 3,917 3,244 13,796 3,232 454 65 782
Net income per share................ 0.36 0.30 1.27 0.55 0.41 0.11 2.07
OTHER DATA(1):
Funds from operations(2)............ $ 6,060 $ 5,050 $ 21,869 $ 9,058 $ 1,141 $ 346 $ 64
Distributions....................... 4,679 4,523 18,604 8,811 1,156 65 104
Distributions per share............. 0.43 0.42 1.71 1.42 1.13 1.02 0.72
Common shares outstanding (weighted
average).......................... 10,909 10,746 10,883 5,878 1,110 615 378
Gross leasable area (sq. ft. at end
of period)........................ 8,556 6,708 7,163 5,866 2,158 516 243
Number of operating properties (at
end of period).................... 119 109 110 98 42 9 6
BALANCE SHEET DATA (AT END OF
PERIOD):
Real estate after accumulated
depreciation...................... $348,791 $318,925 $349,225 $273,362 $112,971 $22,890 $14,524
Total assets........................ 379,904 375,608 375,100 290,226 116,621 24,768 15,887
Mortgages payable................... 196,868 199,162 201,157 113,487 89,442 14,582 9,468
Stockholders' equity................ 163,148 167,687 163,898 161,962 22,312 9,649 5,208
</TABLE>
- ---------------
(1) March 31, 1995 amounts include 11 properties containing approximately 1.4
million square feet of GLA master leased by the Company starting January 1,
1995. See "Recent Developments -- Property Acquisitions."
(2) The Company believes that to facilitate a clear understanding of its
operating results, funds from operations should be examined in conjunction
with its net income. The Company is accounting for funds from operations as
net income before gains (losses) on sales of real estate plus real estate
depreciation, amortization, amortized loan and leasing commission costs, and
loan costs written off. Management believes that reductions for these
charges are not meaningful in evaluating income-producing real estate, which
historically has not depreciated.
S-4
<PAGE> 5
THE COMPANY
The Company is a self-administered, self-managed REIT which acquires, owns
and manages neighborhood and community shopping centers and other retail and
commercial properties leased primarily to major retail companies. As of March
31, 1995, the Company owned or managed 37 Shopping Centers, 78 Single Tenant
Properties and four Commercial Properties, which accounted for approximately
56%, 37% and 7%, respectively, of the ABR of the Company at March 31, 1995.
Approximately 81% of the Company's ABR derived from Single Tenant Properties at
March 31, 1995 was attributable to properties located within shopping centers
not otherwise owned by the Company, while approximately 19% of such ABR came
from free standing properties located in commercial areas. As of March 31, 1995,
the Company's 119 properties were located in 28 states, contained approximately
8.6 million square feet of GLA and were 98.4% leased.
Sixty percent of the Company's ABR at March 31, 1995 was derived from
lessees with 10 years or more remaining on their leases, over 60% was derived
from lessees with investment grade credit ratings and over 90% was derived from
major national or regional lessees. In addition, leases representing over 95% of
the Company's ABR at March 31, 1995 provide that the lessee is responsible for
substantially all costs and expenses associated with the ongoing maintenance of
the property, including but not limited to property taxes, insurance and common
area maintenance.
The Company has paid regular and uninterrupted distributions on the Common
Stock since it commenced operations as a REIT in 1987. These distributions have
increased from $0.18 per share of Common Stock in the fourth quarter of 1987 to
$0.43 per share of Common Stock for the first quarter of 1995. On April 28,
1995, the Company declared a distribution for the second quarter of 1995 of
$0.445 per share of Common Stock (representing an annualized distribution rate
of $1.78 per share) payable to all stockholders of record on July 1, 1995.
Purchasers of the Common Stock offered hereby are entitled to participate in
such second quarter distribution. The Company intends to continue making regular
quarterly distributions to holders of Common Stock. Distributions depend upon a
variety of factors, however, and there can be no assurance that distributions
will continue to be made.
The Company's principal executive officers have worked together in
acquiring and managing retail and commercial real estate for over 15 years and
have administered the investments and affairs of the Company since 1989. After
giving effect to the Offering, management of the Company will own approximately
8.3% of the outstanding Common Stock.
The Company was incorporated under the laws of California in 1985 and
reincorporated as a Maryland corporation in July 1993. The Company's executive
offices are located at 16955 Via Del Campo, Suite 110, San Diego, California
92127, and the Company's telephone number is (619) 485-9400.
GROWTH STRATEGY
The Company's objectives are to acquire, own and manage a portfolio of
retail properties that will provide cash for quarterly distributions to
stockholders, while protecting investor capital and providing potential for
capital appreciation. The Company seeks to achieve these objectives through a
variety of methods discussed below, although no assurance can be made that such
objectives will be achieved.
Aggressive Management
The Company aggressively manages its properties, with an emphasis on
maintaining high occupancy rates and a strong base of nationally recognized
anchor tenants. In addition, the Company emphasizes monitoring of the physical
condition of the properties and the financial condition of the tenants. Over
time, the Company will seek to increase cash flow and portfolio value primarily
through contractual rent increases during the terms of its leases, reletting of
existing space at higher rents, expansion of existing properties and the
minimization of overhead and operating costs.
S-5
<PAGE> 6
Acquisition of Properties
The Company intends to continue its portfolio focus on retail properties
with predictable cash flow and growth potential. The Company seeks to expand its
portfolio by acquiring well-located neighborhood and community shopping centers
and other retail properties with tenants that have a national or regional
presence and established credit quality and that the Company believes will have
the ability to make timely lease payments over the term of the lease.
Acquisitions through Partnerships. The Company may from time to time
acquire properties from unaffiliated property owners by forming partnerships and
exchanging limited partnership units in such partnerships for the property
owners' equity in the acquired properties. Such partnership units are generally
exchangeable for shares of Common Stock under certain circumstances. The Company
believes that this acquisition method may permit the Company to acquire
properties at attractive prices from property owners wishing to enter into tax
deferred transactions. In 1994, the Company acquired six properties through a
single partnership using the foregoing structure. In 1995, the Company formed a
second partnership, Excel Realty Partners, L.P., a Delaware limited partnership
("ER Partners"), to facilitate additional potential acquisitions, which may
include the Southeast Properties (as described under "Recent
Developments -- Property Acquisitions" below).
Ground Lease Development. The Company may from time to time finance
properties under development, provided that the developer of each such property
has previously obtained (i) a bond guaranteeing completion of the property and
(ii) signed leases from the principal tenant(s) who will occupy the property.
Under this financing method, the Company purchases the undeveloped property and
leases such property back to the developer, and upon completion, the Company has
the option to purchase the developments. The Company believes that this method
of financing may give the Company opportunities to purchase developed properties
at capitalization rates slightly above those which might otherwise be available
after completion of development. In 1994, the Company acquired two properties
using the foregoing financing method.
Disposition of Properties
The Company continually analyzes each asset in its portfolio and identifies
those properties which can be sold (to the extent consistent with REIT
qualification requirements) for optimal capital gain given prevailing market
conditions and the particular characteristics of each property. Through this
strategy, the Company seeks to continually update its core property portfolio
and redeploy capital into newer properties or properties where its aggressive
management techniques may maximize property values. The Company, however, holds
its properties for investment and the production of rental income and not for
sale to customers or other buyers in the ordinary course of the Company's
business. If the Company were treated as holding properties for sale to
customers in the ordinary course of its business, it would be subject to tax
equal to 100% of its gain from each property sold (with no offset allowed for
properties sold at a loss). In addition, if the gain recognized in any taxable
year from certain asset dispositions were to exceed specified limits, such gain
could cause the disqualification of the Company as a REIT. See "Certain Federal
Income Tax Considerations to the Company of its REIT Election -- Taxation of the
Company as a REIT -- Sales or Dispositions of Assets" in the accompanying
Prospectus. The Company intends to rely on the advice of counsel before entering
into any binding agreement to dispose of an asset that such disposition will not
result in the imposition of such tax on the Company and will not result in the
disqualification of the Company as a REIT. Any such advice will, however, not be
binding on the Internal Revenue Service.
FINANCE STRATEGY
The Company intends to finance future acquisitions with the most
advantageous sources of capital available to the Company at the time, which may
include the sale of common stock, preferred stock or debt securities through
public offerings or private placements, the incurrence of additional
indebtedness through secured or unsecured borrowings and the reinvestment of
proceeds from the disposition of assets. The Company may acquire properties
subject to seller financing, existing loans secured by mortgages, deeds of
S-6
<PAGE> 7
trust or similar liens. The Company also may obtain mortgage financing for
properties it acquires and refinance its existing properties.
The Company has used REMIC (as hereinafter defined) financing to refinance
certain of its properties, as described under "Recent Developments -- Financing
Arrangements" below.
RECENT DEVELOPMENTS
PROPERTY ACQUISITIONS
In January 1995, the Company entered into master lease and option
agreements with respect to 11 shopping centers, containing approximately 1.4
million square feet of GLA, located in North Carolina (the "North Carolina
Properties"). The master leases require the Company to pay an amount equal to
8.0% of the lessor/seller's equity in such properties to the lessor/seller, and
give the Company all management and operating responsibilities for the shopping
centers. Under the master leases, the Company receives all cash flow, if any, in
excess of the payment required to be made to the lessor/seller. Each master
lease has a term of five years. In addition, the option agreements give the
Company the option to purchase each of such properties at any time prior to
February 1, 1996. If all such properties are purchased, the estimated total
purchase price would be approximately $73.7 million, at least $18.7 million of
which would be payable in cash and up to $55 million of which would be payable
through the assumption of existing indebtedness on such properties.
As of June 20, 1995, the Company had acquired five of the North Carolina
Properties. These shopping centers are located in Asheboro, Roxboro, Jonesville,
Kernersville and Siler City, North Carolina, and were acquired for an aggregate
purchase price of approximately $23.0 million (consisting of $17.7 million of
existing indebtedness on such properties and $5.3 million in cash). Each such
center is anchored by one or more drug, discount department, grocery or junior
department stores, and the five properties together contain an aggregate of
approximately 413,500 square feet of GLA and had approximately $2.5 million in
ABR as of March 31, 1995.
The Company has exercised its option to acquire five of the remaining six
North Carolina Properties, and expects to acquire the first of such additional
properties, a shopping center located in Kinston, North Carolina, on or before
July 1, 1995. Acquisition of such five additional properties as well as the one
remaining North Carolina Property that the Company has the option to purchase
remains subject to a number of contingencies, and there can be no assurance that
all or any of such properties will be acquired.
In May 1995, ER Partners entered into an agreement with an unaffiliated
developer with respect to the acquisition by ER Partners of up to 25 shopping
centers, containing approximately 2.4 million square feet of GLA, located in the
southeastern United States (the "Southeast Properties"). Acquisition of the
Southeast Properties in whole or in part is subject to substantial
contingencies, and there can be no assurance that all or any of such properties
will be acquired. If all of the Southeast Properties are acquired by ER
Partners, it is anticipated that ER Partners would (i) assume approximately $107
million of existing indebtedness on such properties, (ii) issue limited
partnership units to such developer in an amount valued at approximately $10
million to $13 million (which partnership units would be exchangeable for up to
650,000 shares of Common Stock at the option of the Company under certain
circumstances) and (iii) pay approximately $6 million to $9 million in cash to
such developer. It is anticipated that such cash amount would be contributed to
ER Partners by the Company.
S-7
<PAGE> 8
A summary of acquisition activity since the Company's public offering in
August 1993 is set forth below.
<TABLE>
<CAPTION>
PERCENT
ACQUISITION COMPANY'S TOTAL GLA LEASED AS OF PURCHASE
DATE PROPERTY NAME LOCATION INTEREST (SQ.FT.) 03/31/95 PRICE
- -------------- ------------------------- ---------------------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
2nd Qtr. 1995 Foothills Market Jonesville, NC 100% 44,350 89% $ 2,320,000
2nd Qtr. 1995 Piney Grove Plaza Kernersville, NC 100 49,709 98 2,909,000
2nd Qtr. 1995 Roxboro Square Roxboro, NC 100 98,980 100 5,158,000
2nd Qtr. 1995 Siler Crossing Siler City, NC 100 132,639 98 6,563,000
2nd Qtr. 1995 Village Marketplace Asheboro, NC 100 87,800 93 6,026,000
4th Qtr. 1994 Chapel Square Kannapolis, NC 100 45,450 97 2,959,000
3rd Qtr. 1994 Q-Club Scottsdale, AZ 100 44,374 100 5,207,000
2nd Qtr. 1994 Q-Club Phoenix, AZ 100 44,374 100 5,179,000
2nd Qtr. 1994 Lexington Road Plaza Versailles, KY 100 182,732 100 11,091,000
2nd Qtr. 1994 Sun Valley Plaza Mesa, AZ 100 80,678 86 3,012,000
2nd Qtr. 1994 Lake Wales Center Lake Wales, FL 100 102,161 100 5,795,000
1st Qtr. 1994 Valley View Plaza(1) Marion, IN 93 30,000 95 1,877,000
1st Qtr. 1994 Stanly County Plaza(1) Albemarle, NC 93 63,637 98 2,811,000
1st Qtr. 1994 London Marketplace London, KY 100 169,032 100 9,574,000
1st Qtr. 1994 Circle Center Hilton Head, SC 100 65,313 98 6,946,000
1st Qtr. 1994 Lakewood Village(1) Celina, OH 93 113,897 100 4,434,000
1st Qtr. 1994 Woodland Plaza(1) Warsaw, IN 93 31,000 93 1,625,000
1st Qtr. 1994 Wabash Valley Plaza(1) Terre Haute, IN 93 79,135 100 4,631,000
1st Qtr. 1994 Brooksville Square(1) Brooksville, FL 93 96,562 88 5,084,000
1st Qtr. 1994 Lowes Home Centers, Inc. Middletown, OH 100 126,400 100 6,248,000
1st Qtr. 1994 Lucky Phoenix, AZ 100 28,217 100 1,346,000
1st Qtr. 1994 Kmart Atlantic, IA 100 40,318 100 1,613,000
1st Qtr. 1994 Excel Building San Diego, CA 100 19,942 92 2,515,000
1st Qtr. 1994 Kash n Karry Homosassa Springs, FL 100 29,600 100 1,080,000
4th Qtr. 1993 Covington Gallery Covington, GA 100 172,482 98 9,110,000
4th Qtr. 1993 Ashland Square Ashland, OH 100 162,749 99 7,683,000
3rd Qtr. 1993 Galleria(2) Scottsdale, AZ 100 670,000 100 6,000,000
3rd Qtr. 1993 Irving West Irving, TX 100 70,056 96 4,729,000
--------- ------------
Total 2,881,587 $133,525,000
========== ============
</TABLE>
- ---------------
(1) The Company owns a 93.2% interest in these properties, as the sole general
partner of the partnership holding the properties, EH Properties, L.P. The
limited partner has an option to convert its equity interest of 6.8% into
Common Stock of the Company at a conversion price of $22.25 per share. Upon
such conversion, the partnership would be dissolved.
(2) In addition to the purchase price, the Company paid approximately $2.0
million in back taxes for this property.
PROPERTY DISPOSITIONS
The Company holds its properties for investment and the production of
rental income and not for sale to customers or other buyers in the ordinary
course of the Company's business. However, the Company has determined from time
to time that the value of certain properties has been maximized in the Company's
hands and has (to the extent consistent with REIT qualification requirements)
sold such properties and redeployed the sales proceeds to purchase other income
properties that meet the Company's business objectives.
In June 1995, the Company sold three Single Tenant Properties, accounting
for an aggregate of approximately 120,000 square feet of GLA and approximately
$812,000 in ABR at March 31, 1995, to a single buyer for an aggregate purchase
price of approximately $7.7 million. In addition, the Company has entered into a
letter of intent with an unaffiliated party with respect to the disposition of
Talley Plaza, an office building owned by the Company located in Phoenix,
Arizona, for a price of approximately $17.8 million. The closing of this
transaction is subject to a number of contingencies, and there can be no
assurance that it will occur. The Company also may sell or exchange (to the
extent consistent with REIT qualification requirements) additional properties in
its portfolio in the future. See "Certain Federal Income Tax Considerations to
the Company of its REIT Election -- Taxation of the Company as a REIT -- Sales
or Dispositions of Assets" in the accompanying Prospectus.
S-8
<PAGE> 9
A summary of disposition activity since the Company's public offering in
August 1993 is set forth below.
<TABLE>
<CAPTION>
DISPOSITION TOTAL GLA SALE
DATE PROPERTY NAME LOCATION (SQ. FT.) PRICE
- ---------------- ------------------------------ --------------------- --------- -----------
<S> <C> <C> <C> <C>
2nd Qtr. 1995 Safeway Colorado Springs, CO 44,240 $ 3,334,000
2nd Qtr. 1995 Safeway Houston, TX 50,848 2,807,000
2nd Qtr. 1995 Safeway Chehalis, WA 24,960 1,524,000
1st Qtr. 1995 Osco Drug Mesa, AZ 24,789 1,091,000
1st Qtr. 1995 Chester's Roseville, MN 5,000 377,000
4th Qtr. 1994 Lucky(1) Champaign, IL 29,427 1,597,000
2nd Qtr. 1994 Miami Wings & Things Miami, FL 2,768 384,000
2nd Qtr. 1994 Otero Savings & Loan Pueblo, CO 4,000 263,000
1st Qtr. 1994 Safeway(1) Odessa, TX 44,382 844,000
Diversified Hospitality Group,
1st Qtr. 1994 Inc. League City, TX 1,675 196,000
4th Qtr. 1993 Green Mill St. Paul, MN 14,240 791,000
4th Qtr. 1993 Fuddruckers Tucson, AZ 7,500 898,000
------- -----------
Total 253,829 $14,106,000
======= ===========
</TABLE>
- ---------------
(1) The Company received a lease termination fee from this tenant in addition to
sales proceeds.
FINANCING ARRANGEMENTS
In December 1994, the Company obtained a $25 million secured revolving
credit facility (the "Secured Revolving Credit Facility") from The First
National Bank of Boston ("FNBB"). Borrowings under the Secured Revolving Credit
Facility bear interest at a rate of LIBOR plus 2.0% and are available for
general corporate purposes, including property acquisitions. The Secured
Revolving Credit Facility matures in December 1997. Borrowings outstanding under
the Secured Revolving Credit Facility as of March 31, 1995 totalled $9.8
million. The Company has received a commitment letter from FNBB to increase the
Secured Revolving Credit Facility from $25 million to $65 million and to
decrease the interest rate thereon to LIBOR plus 1.75%. There can be no
assurance that either of these changes will occur.
In March 1994, the Company's wholly-owned subsidiary, Excel Mortgage
Funding Corporation ("EMFC"), and EMFC's wholly-owned subsidiary, Excel Credit
Corporation ("ECC"), completed a securitized mortgage financing known as a real
estate mortgage investment conduit (a "REMIC"). Pursuant to this transaction,
ECC issued and sold publicly, in an underwritten offering, $100 million
aggregate principal amount of its Commercial Mortgage Pass-Through Certificates,
Series 1994-1, Class A and Class B (respectively, the "Class A Certificates" and
the "Class B Certificates," and collectively, the "Certificates"). The Class A
Certificates were rated AAA and the Class B Certificates were rated AA by Fitch
Investors Services, Inc. and Duff and Phelps Credit Rating Co. The Class A
Certificates bear interest at a variable rate equal to one-month LIBOR plus
0.6%, and the Class B Certificates bear interest at a variable rate equal to
one-month LIBOR plus 0.8%. The Certificates mature in February 2001. To protect
against future increases in interest rates, ECC entered into interest rate
protection agreements which limit ECC's maximum all-inclusive interest rate
exposure to 8.5% per annum. The Certificates are fully prepayable at any time
without penalty. The net proceeds of the offering of the Certificates were used
to retire existing mortgage financing and to acquire properties.
The Company is required to prepay 125% of a property's allocated loan
balance under the REMIC financing documents to release it from collateralization
under the REMIC. In December 1994, the Company sold one of the REMIC properties
and used proceeds to repay $1,284,000 aggregate principal amount of the
Certificates. In January 1995, the Company repaid an additional $2,057,000
aggregate principal amount of the Certificates in connection with the sale of
one of the REMIC properties and the transfer of one of the REMIC properties from
EMFC to the Company. The aggregate principal amount of the Certificates
outstanding at March 31, 1995 was approximately $94 million, secured by 63
properties owned by EMFC. In June 1995, the Company repaid an additional
$5,635,000 aggregate principal amount of the Certificates in connection with the
sale of three additional REMIC properties.
S-9
<PAGE> 10
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby is estimated at approximately $38 million ($44 million if the
Underwriters' over-allotment option to purchase 300,000 additional shares of
Common Stock from the Company is exercised in full). The Company presently
intends to use the net proceeds from the Offering to repay approximately $15
million of indebtedness currently outstanding under the Secured Revolving Credit
Facility, for property acquisitions (which may include the North Carolina
Properties and the Southeast Properties) and for general corporate purposes. The
borrowings outstanding under the Secured Revolving Credit Facility were incurred
within the last year to acquire properties and to repay certain indebtedness
outstanding under the REMIC financing. Such borrowings presently bear interest
at a rate of 8.125% and mature in December 1997.
Pending such use, the Company may invest proceeds of the Offering in
short-term income producing investments such as investments in commercial paper,
government securities or money market funds that invest in government
securities.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1995, and as adjusted to give effect to the Offering and the
anticipated use of proceeds of the Offering to repay indebtedness under the
Secured Revolving Credit Facility, as described under "Use of Proceeds."
<TABLE>
<CAPTION>
OUTSTANDING AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Notes payable................................................. $ 9,812 $ 12
Mortgages payable(1).......................................... 196,868 196,868
--------- ---------
Total Debt................................................. $ 206,680 $ 196,880
--------- ---------
Stockholders' equity:
Preferred stock, par value $.01 per share, 10,000,000 shares
authorized, none issued and outstanding.................... -- --
Common stock, par value $.01 per share, 100,000,000 shares
authorized, 10,880,949 shares issued and outstanding and
12,880,949 shares issued and outstanding, as adjusted...... $ 109(2) $ 129(2)(3)
Additional paid-in capital.................................... 175,714 215,794
Accumulated distributions in excess of net income............. (12,675) (12,675)
--------- ---------
Total stockholders' equity................................. $ 163,148 $ 203,248
--------- ---------
Total capitalization..................................... $ 369,828 $ 400,128
========= =========
</TABLE>
- ---------------
(1) Includes approximately $94 million outstanding under the REMIC financing at
March 31, 1995. In June 1995, the Company repaid an additional $5.635
million aggregate principal amount of indebtedness outstanding under the
REMIC financing in connection with the sale of three additional REMIC
properties. See "Recent Developments -- Financing Arrangements."
(2) Does not include approximately 610,000 shares of Common Stock issuable upon
the exercise of options and warrants which are presently outstanding and up
to approximately 67,000 other shares of Common Stock issuable to various
parties upon the occurrence of certain events.
(3) Assumes that the Underwriters do not exercise the over-allotment option to
purchase up to 300,000 additional shares of Common Stock from the Company.
S-10
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR NUMBERS OF OPERATING PROPERTIES AND PER SHARE DATA)
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto included in the Company's 1994
Annual Report and the Condensed Consolidated Financial Statements and Notes
thereto included in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, each incorporated by reference herein. Operating results
for the three months ended March 31, 1995 are not necessarily indicative of the
results that may be expected for the entire year ended December 31, 1995.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA(1):
Total revenue from operating
properties.......................... $ 13,426 $ 9,127 $ 41,014 $ 22,525 $ 5,827 $ 2,472 $ 1,021
Operating expenses.................... 3,874 1,687 7,278 5,049 2,749 882 313
Net operating income.................. 9,552 7,440 33,736 17,476 3,078 1,590 708
Depreciation and amortization......... 1,649 1,578 6,887 4,186 608 280 125
Interest expense...................... 4,441 2,804 14,190 9,360 2,218 1,340 741
Net income............................ 3,917 3,244 13,796 3,232 454 65 782
Net income per share.................. 0.36 0.30 1.27 0.55 0.41 0.11 2.07
OTHER DATA(1):
Funds from operations(2).............. $ 6,060 $ 5,050 $ 21,869 $ 9,058 $ 1,141 $ 346 $ 64
Distributions......................... 4,679 4,523 18,604 8,811 1,156 65 104
Distributions per share............... 0.43 0.42 1.71 1.42 1.13 1.02 0.72
Common shares outstanding (weighted
average)............................ 10,909 10,746 10,883 5,878 1,110 615 378
Gross leasable area (sq. ft. at end of
period)............................. 8,556 6,708 7,163 5,866 2,158 516 243
Number of operating properties (at end
of period).......................... 119 109 110 98 42 9 6
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate after accumulated
depreciation........................ $348,791 $318,925 $349,225 $273,362 $112,971 $22,890 $14,524
Total assets.......................... 379,904 375,608 375,100 290,226 116,621 24,768 15,887
Mortgages payable..................... 196,868 199,162 201,157 113,487 89,442 14,582 9,468
Stockholders' equity.................. 163,148 167,687 163,898 161,962 22,312 9,649 5,208
</TABLE>
- ---------------
(1) March 31, 1995 amounts include 11 properties containing approximately 1.4
million square feet of GLA master leased by the Company starting January 1,
1995. See "Recent Developments -- Property Acquisitions."
(2) The Company believes that to facilitate a clear understanding of its
operating results, funds from operations should be examined in conjunction
with its net income. The Company is accounting for funds from operations as
net income before gains (losses) on sales of real estate plus real estate
depreciation, amortization, amortized loan and leasing commission costs, and
loan costs written off. Management believes that reductions for these
charges are not meaningful in evaluating income-producing real estate, which
historically has not depreciated.
S-11
<PAGE> 12
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
Since the Company's public offering in August 1993, the Company's Common
Stock has been listed on the NYSE under the symbol "XEL." The following sets
forth the high and low closing sale prices for the Common Stock for the fiscal
periods indicated as reported by the New York Stock Exchange Composite Tape and
the distributions per share paid by the Company with respect to each such
period.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
------- ------- -------------
<S> <C> <C> <C>
1993
August 5 through September 30................................. $20.500 $18.375 $ 0.230(1)
Fourth Quarter................................................ $21.250 $17.625 $ 0.415
1994
First Quarter................................................. $22.250 $18.125 $ 0.415
Second Quarter................................................ $20.875 $19.500 $ 0.430
Third Quarter................................................. $20.375 $18.000 $ 0.430
Fourth Quarter................................................ $18.375 $15.625 $ 0.430
1995
First Quarter................................................. $19.125 $16.375 $ 0.430
April 1 through June 20....................................... $20.625 $18.125 $ 0.445(2)
</TABLE>
- ---------------
(1) Represents distributions for the partial quarter subsequent to the public
offering. Distributions declared in respect of the full third quarter of
1993 totaled $0.370 per share of Common Stock.
(2) On April 28, 1995, the Company declared a second quarter 1995 distribution
of $0.445 per share payable to all stockholders of record on July 1, 1995.
Purchasers of the Common Stock offered hereby are entitled to participate in
such second quarter distribution.
On June 20, 1995, the last reported sale price of the Common Stock on the
NYSE was $20 1/8.
Future distributions by the Company will be at the discretion of the Board
of Directors 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 Directors deems relevant, and there can be no
assurance that distributions will be made at historical rates, or at all.
Distributions by the Company to the extent of its current earnings and
profits for federal income tax purposes are taxable to stockholders as ordinary
dividend income (unless such distributions are designated as capital gain
distributions). Distributions in excess of earnings and profits generally are
treated as a non-taxable return of capital to the extent of a stockholder's
basis in the Common Stock. A return of capital distribution has the effect of
deferring taxation until a stockholder's sale of the Common Stock. See "Certain
Federal Income Tax Considerations to Holders of Common Stock." The Company has
determined that approximately 86% of the distributions paid during 1994
represented ordinary dividend income to its stockholders and approximately 14%
represented return of capital. Distributions paid during 1993 have been
determined by the Company to be comprised of approximately 71% ordinary dividend
income and 29% return of capital.
DIVIDEND REINVESTMENT PLAN
The Company has implemented a dividend reinvestment plan under which common
stockholders may elect to automatically reinvest their distributions in shares
of Common Stock. The Company may, from time to time, repurchase shares of Common
Stock in the open market for purposes of fulfilling its obligations under this
dividend reinvestment plan or may elect to issue additional shares of Common
Stock.
S-12
<PAGE> 13
BUSINESS AND PROPERTIES
PROPERTY PORTFOLIO
As set forth in the following table, the Company's property portfolio at
March 31, 1995 contained approximately 8.6 million square feet of GLA in 119
properties, with approximately $48.4 million in ABR as of March 31, 1995.
<TABLE>
<CAPTION>
ANNUALIZED PERCENT OF
TOTAL BASE SCHEDULED
NUMBER OF PERCENT GLA RENTAL ANNUAL BASE
STATE PROPERTIES LEASED (SQ. FT.) INCOME RENTAL INCOME
- ------------------ --------- ------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Alabama 3 100% 94,329 $ 530,584 1.1%
Arkansas 2 100 105,459 528,882 1.1
Arizona 15 98 1,762,451 9,738,079 20.1
California 3 92 42,030 624,855 1.3
Colorado 4(1) 100 201,016 981,130 2.0
Florida 6 96 540,637 3,416,576 7.1
Georgia 5 99 469,440 2,712,483 5.6
Iowa 3 100 104,208 562,966 1.2
Illinois 9 100 397,127 2,596,479 5.4
Indiana 13 99 490,309 2,675,442 5.5
Kentucky 4 100 612,696 3,690,380 7.6
Louisiana 1 100 41,293 228,671 0.5
Michigan 3 100 107,614 551,190 1.1
Minnesota 2 100 11,562 166,209 0.3
Missouri 4 100 188,957 757,357 1.6
Nebraska 3 100 70,513 410,442 0.8
New Jersey 1 100 55,552 271,779 0.6
North Carolina 13(2) 97 1,531,378 8,673,359 17.9
North Dakota 1 100 55,552 294,999 0.6
Ohio 5 100 449,823 2,298,837 4.8
Oklahoma 1 100 45,510 280,344 0.6
Pennsylvania 3 100 180,288 1,156,348 2.4
South Carolina 3 100 180,740 1,164,215 2.4
Tennessee 1 90 185,679 419,564 0.9
Texas 7(1) 99 351,914 2,086,707 4.3
Virginia 1 99 193,238 1,105,399 2.3
Washington 2(1) 100 27,970 210,927 0.4
Wisconsin 1 100 59,097 218,017 0.5
--- --- --------- ----------- -----
Total 119 99%(3) 8,556,382 $48,352,220(4) 100.0%
=== === ========= =========== =====
</TABLE>
- ---------------
(1) In June 1995, the Company sold three Single Tenant Properties located in
Colorado, Texas and Washington. See "Recent Developments -- Property
Dispositions."
(2) Includes 11 properties that the Company operated at March 31, 1995 under a
master lease. In April 1995, the Company acquired one of these properties,
and in June 1995 the Company acquired an additional four of these
properties. The Company has exercised an option to acquire five of the
remaining six of such properties, subject to certain conditions. See "Recent
Developments -- Property Acquisitions."
(3) Percent of total GLA leased as of March 31, 1995.
(4) Includes income from space leased for which rent is being paid but which is
not presently occupied. See "Single Tenant Properties" table below.
S-13
<PAGE> 14
Shopping Centers. At March 31, 1995, the Company's Shopping Centers
consisted of 37 neighborhood and community centers leased primarily to major
retail companies. The Shopping Centers contained approximately 5.1 million
square feet of GLA and accounted for approximately 56% of the Company's ABR as
of March 31, 1995. The table below sets forth certain pertinent information
regarding the Shopping Centers as of March 31, 1995.
<TABLE>
<CAPTION>
ANNUALIZED
--------------------- PERCENT PERCENT OF LEASE
TOTAL BASE OF TOTAL CENTER LEASED EXPIRATION
GLA NUMBER RENTAL RENT PER CENTER PRINCIPAL BY PRINCIPAL OF PRINCIPAL
LOCATION (SQ. FT.) OF TENANTS INCOME SQ. FT. LEASED TENANT(S) TENANT(S) TENANT(S)
- ------------------ --------- ----------- ----------- -------- --------- ----------------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ARIZONA
Mesa
Sun Valley
Plaza....... 107,533 15 $ 616,043 $ 6.46 86% ABCO 33% 2001
Phoenix Newspaper, Inc. 24 2000
Kmart Plaza... 182,581 13 701,905 3.84 100 Kmart 65 1998
Phoenix
Metro
Marketplace... 251,156 37 2,020,413 8.04 98 Toys "R" Us 18 2014
Shepler's 17 1997
Officemax 13 2001
Scottsdale
Galleria(1)... 670,000 1 960,000 1.43 100 B.G. Development 100 2069
CALIFORNIA
Burbank
Sony/Kinko
Building.... 14,616 2 413,880 28.32 100 Sony 72 1999
Kinkos 28 1998
FLORIDA
Brooksville
Brooksville
Square(2)... 96,391 17 599,938 6.22 88 Publix 33 2007
Walgreens 13 1997
Deland
Northgate
Shopping
Ctr......... 186,074 8 1,247,169 6.70 100 Kmart 60 2018
Publix 30 2013
Lake Wales
Eastgate
Center...... 102,161 2 613,843 6.01 100 Kmart 93 2019
Petrie 7 1999
Leesburg
Leesburg
Square...... 89,661 14 628,934 7.01 90 Publix 44 2006
Walgreens 14 2026
Fashion Bug 13 2000
GEORGIA
Covington
Covington
Gallery..... 172,482 14 984,912 5.71 98 Kmart 50 2016
Ingles 26 2011
Perry
Perry
Marketplace... 179,973 17 1,142,834 6.35 99 Kmart 53 2017
Kroger 21 2012
B.C. Moore 9 2008
INDIANA
Marion
Valley View
Plaza(2).... 29,975 13 236,946 7.90 95 Webb's Hallmark 16 1999
Sycamore Stores 10 2000
Terre Haute
Wabash Valley
Plaza(2).... 79,135 12 534,061 6.75 100 Supervalue Store 58 2009
Clothes Quarters of
T.H. 9 1996
Warsaw
Woodland
Plaza(2).... 31,007 13 208,954 6.74 93 Shoe Show 15 1999
Broadway Video 13 1997
KENTUCKY
Elizabethtown
Kmart Plaza... 130,466 8 767,358 5.88 100 Kmart 70 2017
Food Lion 22 2011
Glasgow
Highland
Commons..... 130,466 5 673,507 5.16 98 Kmart 70 2017
Food Lion 22 2012
London
London
Marketplace... 169,032 7 1,037,764 6.14 100 Kmart 56 2018
Kroger 24 2014
Goody's 12 2003
</TABLE>
S-14
<PAGE> 15
<TABLE>
<CAPTION>
ANNUALIZED
--------------------- PERCENT PERCENT OF LEASE
TOTAL BASE OF TOTAL CENTER LEASED EXPIRATION
GLA NUMBER RENTAL RENT PER CENTER PRINCIPAL BY PRINCIPAL OF PRINCIPAL
LOCATION (SQ. FT.) OF TENANTS INCOME SQ. FT. LEASED TENANT(S) TENANT(S) TENANT(S)
- ------------------ --------- ----------- ----------- -------- --------- ----------------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Versailles
Lexington Road
Plaza....... 182,732 9 $ 1,211,751 $ 6.63 100% Kmart 52% 2018
Kroger 33 2014
Fashion Bug 5 2004
NORTH CAROLINA
Albemarle
Stanly County
Plaza(2).... 63,637 17 321,952 5.06 98 Ingles 50 2008
Asheboro
Village
Marketplace... 87,800 25 645,465 7.35 93 Harris-Teeter 34 2008
Old America 19 2000
Hillsborough
Hillsborough
Commons(3)..... 107,740 17 602,352 5.59 100 Wal-Mart 61 2009
Byrd's Foods 23 2009
Jonesville
Foothills
Market...... 44,350 5 239,628 5.40 89 Food Lion 56 2008
Family Dollar 14 2000
Kannapolis
Chapel
Square...... 45,450 6 350,842 7.72 97 Food Lion 64 2013
Revco 19 2008
Kernersville
Piney Grove
Plaza....... 49,709 9 344,676 6.93 98 Lowe's Food 64 2008
Scotty Drugs 12 1998
Kinston
Kinston
Pointe(3)... 170,166 23 793,560 4.66 86 Wal-Mart 53 2011
Food Lion 15 2011
Oxford
Granville
Corners(3)... 201,107(4) 29 870,528 4.33 100 Wal-Mart 35 2012
Byrd's Foods 14 2011
Central Carolina Bank 10 1996
Roxboro
Roxboro
Square...... 98,980 17 569,484 5.75 100 Wal-Mart 70 2009
Cato 6 1999
Siler City
Siler
Crossing.... 132,639 20 731,028 5.51 98 Rose's Department Store 34 2008
Food Lion 19 2008
Belk-Yates 17 2008
Revco 6 2003
Cato 5 1998
Statesville
Crossroads
Center(3)... 242,439 35 1,603,272 6.61 100 Wal-Mart 47 2011
Bi-Lo Foods 14 2011
Cato 4 2001
Goody's 9 2001
Wadesboro
Anson
Station(3)... 130,800 19 699,036 5.34 99 Wal-Mart 40 2008
B.C. Moore 14 2004
Food Lion 19 2008
Revco 6 2004
Williamston
Roanoke
Landing(3)... 156,561 22 901,536 5.76 97 Wal-Mart 45 2011
Revco 5 2006
Cato 3 1996
OHIO
Ashland
Ashland
Square...... 163,168 14 882,599 5.41 99 Wal-Mart 42 2010
Food Town 26 2010
Celina
Lakewood
Village(2)... 113,897 11 517,989 4.55 100 Wal-Mart 61 2010
Ulmans 16 2005
SOUTH CAROLINA
Hilton Head
Circle
Center...... 65,713 14 607,926 9.25 98 Bi-Lo Foods 56 2012
Revco 13 2004
</TABLE>
S-15
<PAGE> 16
<TABLE>
<CAPTION>
ANNUALIZED
--------------------- PERCENT PERCENT OF LEASE
TOTAL BASE OF TOTAL CENTER LEASED EXPIRATION
GLA NUMBER RENTAL RENT PER CENTER PRINCIPAL BY PRINCIPAL OF PRINCIPAL
LOCATION (SQ. FT.) OF TENANTS INCOME SQ. FT. LEASED TENANT(S) TENANT(S) TENANT(S)
- ------------------ --------- ----------- ----------- -------- --------- ----------------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TENNESSEE
Knoxville
Chapman Ford
Crossing(5)... 185,679 10 $ 419,564 $ 2.26 90% Wal-Mart 51% 2009
Food Lion 16 2010
Goody's 14 2000
TEXAS
Irving
Irving West
Shopping
Ctr......... 70,056 16 563,972 8.05 96 Winn Dixie 64 2007
VIRGINIA
Norton
VA-KY Regional
Shopping
Ctr......... 193,238 21 1,105,399 5.72 100 Wal-Mart 45 2009
--------- ----------- ------
Ingles 17 2009
Goody's 16 1999
Total......... 5,128,570 $27,371,020 $ 5.34
========= =========== ======
</TABLE>
- ---------------
(1) This property is master leased to a development company that is in the
process of redeveloping the center.
(2) The Company owns a 93.2% interest in this property.
(3) This property is operated by the Company under a master lease. See "Recent
Developments -- Property Acquisitions."
(4) Includes a ground lease of approximately 45,000 square feet.
(5) The Company owns a 50% interest in this property.
Single Tenant Properties. At March 31, 1995, the Company's Single Tenant
Properties consisted of 78 properties leased primarily to major retail
companies. Approximately 81% of the Company's ABR derived from Single Tenant
Properties at March 31, 1995 was attributable to properties located within
shopping centers not otherwise owned by the Company, while approximately 19% of
such ABR came from free standing properties located in commercial areas. In
general, the leases on the Single Tenant Properties require the lessee to be
responsible for substantially all of the costs and expenses associated with the
ongoing maintenance of the property, including but not limited to property
taxes, insurance and common area maintenance. Single Tenant Properties contained
approximately 3.2 million square feet of GLA and accounted for approximately 37%
of the Company's ABR at March 31, 1995. The table below sets forth certain
pertinent information regarding the Single Tenant Properties as of March 31,
1995.
<TABLE>
<CAPTION>
ANNUALIZED
---------------------------
TOTAL BASE RENT
GLA RENTAL PER LEASE
LOCATION TENANT SUBTENANT (SQ. FT.) INCOME SQ.FT. EXPIRATION
- ---------- ----------------------- ---------------------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA
Muscle
Shoals Kroger(1) Sack N Save 42,130 $ 252,780 $ 6.00 2007
Muscle
Shoals SuperX(1) Handy TV 10,069 60,414 6.00 2007
Scottsboro Kroger(1) Bruno's (Food World) 42,130 217,390 5.16 2007
ARKANSAS
Pine
Bluff Kmart(1) Country Market 60,842 288,231 4.74 2006
Sherwood Safeway(1) Harvest Foods 44,617 240,651 5.39 2002
ARIZONA
Casa Grande Kmart(2)(3) 50,000 145,396 2.91 2002
Mesa Lucky(1) ABCO 29,827 126,437 4.24 2002
Phoenix Lucky(1) ABCO 28,217 154,620 5.48 2001
Phoenix Phoenix Newspaper, Inc. 25,625 127,751 4.99 2000
Phoenix Q-Club 44,374 643,749 14.51 2019
Scottsdale Q-Club 44,374 643,749 14.51 2019
Tucson Lucky(2)(3) 29,700 149,778 5.04 2003
Tucson Vacant(4) 25,800 148,334(4) 5.75(4) 1996(4)
Yuma Longs(1) Payless Drugs 25,834 113,050 4.38 2001
CALIFORNIA
Ventura Kindercare(5) 7,472 80,755 10.81 2006
COLORADO
Brighton Wal-Mart 94,220 343,020 3.64 2008
Colorado
Springs(6) Safeway 44,240 353,363 7.99 2002
Durango Kmart(1) Payless Drugs 50,000 201,737 4.03 2002
Pueblo United Artist 12,556 83,010 6.61 2002
</TABLE>
S-16
<PAGE> 17
<TABLE>
<CAPTION>
ANNUALIZED
---------------------------
TOTAL BASE RENT
GLA RENTAL PER LEASE
LOCATION TENANT SUBTENANT (SQ. FT.) INCOME SQ.FT. EXPIRATION
- ---------- ------ --------- --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
FLORIDA
Brandon Lucky/Kash n Karry(7) 36,750 $ 202,582 $ 5.51 2002
Homosassa
Springs Lucky/Kash n Karry(7) 29,600 124,110 4.19 2002
GEORGIA
Albany Kmart(2)(3) 72,897 332,559 4.56 2006
East
Albany Kroger(1) JH Harvey 34,019 197,611 5.81 2007
East
Albany SuperX(1) Rite Aid 10,069 54,567 5.42 2007
IOWA
Atlantic Kmart 40,318 159,999 3.97 2005
Coralville Lucky/Eagle(8) 28,875 172,668 5.98 2006
Dubuque Lucky/Eagle(8) 35,015 230,299 6.58 2000
ILLINOIS
Decatur Lucky/Eagle(8) 29,000 181,996 6.28 2002
Moline Lucky/Eagle(8) 38,681 227,420 5.88 2001
New
Lenox Lucky/Eagle(8) 39,410 259,016 6.57 2002
Orland
Hills Wal-Mart 114,513 824,075 7.20 2009
Ottawa Kroger 44,088 278,866 6.33 2007
Peoria Lucky/Eagle(8) 30,000 208,133 6.94 2007
Springfield Lucky/Eagle(8) 30,000 180,090 6.00 2002
Sterling Lucky/Eagle(8) 40,265 229,748 5.71 2000
Waterloo Kroger(1) National Super Markets 31,170 207,135 6.65 2007
INDIANA
Decatur Wal-Mart 72,200 324,301 4.49 2009
Fort
Wayne Kindercare 4,584 18,000 3.93 1995
Hobart Eagle(2)(3) 29,300 190,791 6.51 2003
Indianapolis Kindercare 4,212 18,000 4.27 1995
Indianapolis Kindercare 4,452 18,000 4.04 1995
Indianapolis Kindercare 4,268 18,000 4.22 1995
Indianapolis Kindercare 4,452 18,000 4.04 1995
Michigan
City Eagle 29,000 158,000 5.45 2003
Terre
Haute Lowes Home Center 104,259 557,785 5.35 2012
Wabash Wal-Mart 93,465 374,604 4.01 2008
LOUISIANA
West
Monroe Safeway(1) Brookshire Grocery 41,293 228,671 5.54 2002
MICHIGAN
Big
Rapids Wal-Mart 91,440 337,628 3.69 2008
Dearborn
Heights Mountain Jacks 9,914 150,000 15.13 2006
Kalamazoo Kindercare 6,260 63,562 10.15 2006
MINNESOTA
Maplewood Egghead Discount 2,880 40,320 14.00 1997
MISSOURI
Fenton Kindercare 4,659 22,560 4.84 1997
High
Ridge Kindercare 4,654 32,299 6.94 2000
Springfield Kmart 106,747 399,999 3.75 2007
St.
Charles Kmart(2)(3) 72,897 302,499 4.15 2006
NORTH
DAKOTA
Fargo Kmart(2)(3) 55,552 294,999 5.31 2007
NEBRASKA
Grand
Island Autoworks 5,671 56,919 10.04 2008
Hastings Autoworks 4,000 40,749 10.19 2008
Omaha Kmart 60,842 312,774 5.14 2006
NEW JERSEY
Somerville Kmart 55,552 271,779 4.89 2007
OHIO
Mentor Mountain Jacks 6,040 107,250 17.76 2005
Middletown Lowes Home Center 126,400 649,999 5.14 2013
Waverly Kmart 40,318 141,000 3.50 2006
OKLAHOMA
Muskogee Safeway(1) Homeland 45,510 280,344 6.16 2002
PENNSYLVANIA
Clearfield Kroger(1) Super Value 31,170 210,000 6.74 2007
Pittsburgh Kroger(1) Giant Eagle 34,026 266,680 7.84 2007
Wyomissing Wal-Mart 115,092 679,668 5.91 2008
SOUTH
CAROLINA
Goose
Creek Kmart(2)(3) 72,897 333,000 4.57 2007
James
Island Kroger(1) Bi-Lo Foods 42,130 223,289 5.30 2007
</TABLE>
S-17
<PAGE> 18
<TABLE>
<CAPTION>
ANNUALIZED
---------------------------
TOTAL BASE RENT
GLA RENTAL PER LEASE
LOCATION TENANT SUBTENANT (SQ. FT.) INCOME SQ.FT. EXPIRATION
-------- ------ --------- --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DeSoto Kmart 72,897 $ 298,487 $ 4.09 2005
Houston Diversified Hospitality Grp 1,675 39,477 23.57 2011
Houston Diversified Hospitality Grp(2)(3) 1,675 28,138 16.80 2011
Houston(6) Safeway(1) Kroger 50,848 297,575 5.85 2002
Missouri
City Kroger 44,183 229,288 5.19 2002
Temple Wal-Mart 110,580 629,770 5.70 2008
WASHINGTON
Chehalis(6) Safeway 24,960 161,519 6.47 2002
Veradale Payless Shoesource 3,010 49,408 16.41 2000
WISCONSIN
Berlin Wal-Mart 59,097 218,017 3.69 2009
--------- ----------- ------
Total 3,151,758 $17,538,237(1)(3) $ 5.56
========= =========== ======
</TABLE>
- ---------------
(1) Subleased properties accounted for 7.1% of the Company's total ABR at March
31, 1995.
(2) Property is currently unoccupied. Nevertheless, the tenant under the lease
remains responsible for payment of all rents due under such lease.
(3) Unoccupied properties accounted for 3.7% of the Company's total ABR at March
31, 1995.
(4) Amount shown is original lease amount. Such lease has been terminated, and
the Company received a lease termination fee of $525,000 which the Company
is recognizing over two years, beginning in November 1994. There is
currently a new lease pending.
(5) The Company owns a 61% interest in this property.
(6) This property was sold by the Company in June 1995.
(7) This property was originally built by Lucky for its subsidiary Kash n Karry
Food Stores, Inc. Lucky has subsequently sold such subsidiary but remains
obligated on this lease.
(8) This property was originally built by Lucky for its subsidiary Eagle Food
Centers, Inc. Lucky has subsequently sold such subsidiary but remains
obligated on this lease.
Properties for which a subtenant is listed have been subleased to such
subtenant. Nevertheless, in each case the original lessee under the lease
pertaining to the property remains responsible for payment of all rents due
under such lease. Subleased properties generally have been subleased for a term
and rent that is approximately the same as the remaining term and rent of the
original lease. In the event that the subtenant defaults under the sublease and
vacates the property, or in the event that the term of the sublease expires
earlier than the term of the lease, the property could remain unoccupied until a
new subtenant is located. In any event, the original lessee will remain
responsible for payment of all rents due under the lease for the full remaining
term of the lease.
S-18
<PAGE> 19
Commercial Properties. At March 31, 1995, the Company's Commercial
Properties consisted of three office buildings and one other commercial
property. The Commercial Properties contained approximately 276,000 square feet
of GLA and accounted for approximately 7.4% of the Company's ABR at March 31,
1995. The table below sets forth certain pertinent information regarding the
Commercial Properties as of March 31, 1995.
<TABLE>
<CAPTION>
ANNUALIZED
--------------------
TOTAL BASE PERCENT OF PERCENT OF
GLA NUMBER RENTAL RENT PER PROPERTY PRINCIPAL PROPERTY LEASED
LOCATION (SQ. FT.) OF TENANTS INCOME SQ. FT. LEASED TENANT(S) BY PRINCIPAL TENANT(S)
- ----------------------- --------- ---------- ---------- -------- ------------ ------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ARIZONA
Phoenix
Talley Plaza 225,870 30 $2,925,493 $12.95 97% Intergroup 22%
Alexander & Alexander 13
Talley Industries, Inc. 10
Scottsdale
Genetrix(1) 21,560 1 261,361 12.12 100 Genetrix 100
CALIFORNIA
San Diego
Excel Building 19,942 9 130,220 6.53 92 Excel Realty Trust, Inc. 32
MINNESOTA
Stillwater
Government Bldg. 8,682 4 125,889 14.50 100 Washington County 67
------- ---------- ------
Total 276,054 $3,442,963 $12.47
======= ========== ======
</TABLE>
<TABLE>
<CAPTION>
LEASE
EXPIRATION
LOCATION OF PRINCIPAL TENANT(S)
- ----------------------- ----------------------
<S> <C>
ARIZONA
Phoenix
Talley Plaza 2003
1997
1999
Scottsdale
Genetrix(1) 2005
CALIFORNIA
San Diego
Excel Building N/A
MINNESOTA
Stillwater
Government Bldg. 1995
Total
</TABLE>
- ---------------
(1) Commercial property whose lessee is responsible for substantially all costs
and expenses associated with the ongoing maintenance of the property,
including but not limited to property taxes, insurance and common area
maintenance.
PRINCIPAL LESSEES
Kmart Corporation ("Kmart") is the Company's largest lessee in terms of
both GLA and ABR, representing approximately 19.8% of the Company's GLA and
approximately 16.2% of the Company's ABR at March 31, 1995. Kmart's principal
business is general merchandise retailing through a chain of discount department
stores. It is one of the world's largest retailers based on sales volume. Kmart
has experienced flat or declining earnings in recent periods and has announced
plans to eliminate a significant number of jobs and close over 100 of its
existing stores. In January 1995, Moody's Investor Services, Inc. ("Moody's")
lowered its rating on Kmart's long-term debt to Baa1 and Standard and Poor's
Corporation ("Standard and Poor's") lowered its rating on Kmart's long-term debt
to BBB. Although five of the Kmart stores closed were leased from the Company
(comprising 3.8% of the Company's GLA and 2.8% of the Company's ABR as of
December 31, 1994), Kmart has continued to make its lease payments and is in the
process of subleasing all five locations. As such, the Company did not
experience any lost rents in 1994 and does not anticipate material future lost
rents due to the closing of such stores. Should Kmart in the future announce
additional store closures, the Company believes that Kmart would continue its
lease payments for the term of the leases, or that the properties could be
re-leased at rental rates which would not cause a material loss of revenue for
the Company. However, the Company cannot fully predict the effect on the Company
of material deterioration in Kmart's financial position.
Wal-Mart Stores, Inc. ("Wal-Mart") is the Company's second largest lessee
in terms of both GLA and ABR, representing approximately 18.8% of the Company's
GLA and approximately 14.2% of the Company's ABR at March 31, 1995. Wal-Mart is
the nation's largest retailer and operates over 2,000 discount department
stores, over 400 warehouse clubs and four hypermarkets. Wal-Mart is listed on
the NYSE and as of December 31, 1994 had credit ratings of AA from Standard and
Poor's and Aa1 from Moody's.
Other significant lessees include three major operators of retail
supermarkets: Lucky Stores, Inc. ("Lucky"), The Kroger Co. ("Kroger") and
Safeway, Inc. ("Safeway"). Lucky (including Eagle Food Centers, Inc. and Kash n
Karry Food Stores, Inc., on whose leases Lucky is a guarantor) leases 15
properties, representing approximately 5.7% of the Company's GLA and 5.8% of its
ABR at March 31, 1995. Lucky, a national supermarket chain, is owned by American
Stores, Inc., a NYSE company which as of January 1995 had credit ratings of Baa3
and BBB+ from Moody's and Standard and Poor's, respectively. Leases to Kroger
(including SuperX Drugs Corporation, on whose leases Kroger is a guarantor)
involving 14 properties accounted for approximately 5.9% of GLA and 6.7% of ABR
at March 31, 1995. Kroger's primary focus is combination food and drug stores
(with over 1,300 supermarkets operating in 1994), and it also
S-19
<PAGE> 20
operates food wholesaling and specialty retailing businesses at various
locations. Kroger is listed on the NYSE, and its credit ratings as of January
1995 were Ba1 and BB according to Moody's and Standard and Poor's, respectively.
Safeway leased six properties from the Company, accounting for approximately
2.9% of GLA and 3.2% of ABR at March 31, 1995. Three of these properties,
accounting for an aggregate of approximately 120,000 square feet of GLA and
approximately $812,000 in ABR at March 31, 1995, were sold by the Company in
June 1995. Safeway is a major operator of retail supermarkets in the United
States and Canada, is listed on the NYSE and as of January 1995 had credit
ratings of Ba2 and BB according to Moody's and Standard and Poor's,
respectively.
The Company's lessees also include Walgreen Co., Publix Super Markets,
Inc., Food Lion, Inc., Lowe's Home Centers, Inc. and Toys "R" Us, Inc. As of
March 31, 1995, over 60% of the Company's revenues were derived from rents paid
by lessees with investment grade credit ratings, as determined by Standard and
Poor's and Moody's.
Information as of March 31, 1995 with respect to the five largest lessees
of the Company is set forth in the following table.
<TABLE>
<CAPTION>
GROSS LEASABLE AREA ANNUALIZED BASE RENTAL INCOME
--------------------------- -----------------------------
NUMBER OF PERCENT OF PERCENT OF
LESSEE LEASES SQ. FT. COMPANY TOTAL AMOUNT COMPANY TOTAL
- ------------------------------------ --------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Kmart(1)............................ 22 1,692,013 19.8% $ 7,816,184 16.2%
Wal-Mart............................ 19 1,604,859 18.8 6,872,995 14.2
Lucky(2)............................ 15 483,640 5.7 2,795,688 5.8
Kroger.............................. 14 504,249 5.9 3,242,023 6.7
Safeway(3).......................... 6 251,468 2.9 1,562,123 3.2
-- --------- ---- ----------- ----
Total............................. 76 4,536,229 53.1% $22,289,013 46.1%
== ========= ==== =========== ====
</TABLE>
- ---------------
(1) Figures include five stores recently closed by Kmart, as described above.
(2) Figures include two currently unoccupied properties for which Lucky remains
responsible for payment of all rents due under the leases.
(3) Three of these properties, accounting for an aggregate of approximately
120,000 square feet of GLA and approximately $812,000 in ABR at March 31,
1995, were sold by the Company in June 1995.
S-20
<PAGE> 21
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Gary B. Sabin................. 41 Chairman of the Board of Directors, President and Chief
Executive Officer of the Company since January 1989. Mr.
Sabin has served as Chief Executive Officer of various
companies since his founding of a property management
company and its affiliates starting in 1977. He has been
active in diverse aspects of the financial services
industry including the evaluation and negotiation of
real estate acquisitions, management, financing and
disposition.
Richard B. Muir............... 40 Director, Executive Vice President and Secretary of the
Company since January 1989. Mr. Muir has served as an
officer and director for various affiliates since 1978,
primarily in administrative and executive capacities,
including asset acquisition, financing and management.
Graham R. Bullick, Ph.D....... 45 Senior Vice President and Assistant Secretary of the
Company since January 1991. Previously Dr. Bullick was
associated with the Company as a director from 1991 to
1992. Dr. Bullick served as Vice President and Chief
Operations Officer for Gemini Properties Inc., an
Arizona-based real estate investment firm, where his
responsibilities included acquisition and financing of
investment real estate projects.
Ronald H. Sabin............... 44 Senior Vice President of the Company since January 1989.
Mr. Sabin has served as an officer or otherwise been
employed by affiliates since 1979, primarily providing
property management services. Mr. Sabin has managed the
Company's properties for 15 years. He is a licensed real
estate broker and a licensed property and casualty
insurance agent. Ronald Sabin is the brother of Gary
Sabin.
David A. Lund................. 43 Chief Financial Officer of the Company since 1994. Vice
President of the Company since 1988. Mr. Lund has served
as an officer and director of certain affiliates since
1983.
S. Eric Ottesen............... 40 General Counsel of the Company since 1995. Mr. Ottesen
previously was a senior partner in a San Diego law firm.
Mark T. Burton................ 35 Vice President -- Acquisitions of the Company since
January 1989. Mr. Burton has been associated with the
Company, its predecessor and its affiliates since 1983,
primarily in the evaluation and selection of property
acquisitions.
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO HOLDERS OF COMMON STOCK
The following summary of certain federal income tax considerations to
holders of Common Stock is based on current law, is for general information
only, and is not tax advice. The tax treatment of a holder of Common Stock will
vary depending upon such holder's particular situation, and this discussion does
not purport to deal with all aspects of taxation that may be relevant to
particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including insurance
companies, financial institutions or broker-dealers, tax-exempt organizations,
foreign corporations, and persons who are not citizens or residents of the
United States, except to the extent discussed under the heading "Taxation of
S-21
<PAGE> 22
Tax-Exempt Stockholders" and "Taxation of Non-U.S. Stockholders") subject to
special treatment under the Federal income tax laws.
This discussion does not address any aspects of federal income taxation to
the Company relating to its election to be taxed as a REIT. A summary of certain
federal income tax considerations to the Company is provided in the Prospectus.
EACH INVESTOR SHOULD REFER TO THE PROSPECTUS FOR A SUMMARY OF THE FEDERAL
INCOME TAX CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION. EACH INVESTOR IS
ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO
HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF COMMON STOCK, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States Federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof or (iii) is an estate or trust the income
of which is subject to United States Federal income taxation regardless of its
source.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Stockholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to taxable
U.S. Stockholders as long-term capital gains (to the extent that they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which a U.S. Stockholder has held his shares of stock.
U.S. Stockholders that are corporations may, however, be required to treat up to
20% of certain capital gain dividends as ordinary income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in his shares of stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset). Distributions declared by
the Company in October, November or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Stockholder of shares of Common Stock will not be treated as
passive activity income, and, as a result, U.S. Stockholders generally will not
be able to apply any "passive losses" against such income or gain. Distributions
made by the Company (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition of
Common Stock, however, will not be treated as investment income unless the U.S.
Stockholder elects to reduce the amount of such U.S. Stockholder's total net
capital gain eligible for the 28% maximum capital gains rate by the amount of
such gain with respect to the shares.
Upon any sale or other disposition of shares of Common Stock, a U.S.
Stockholder will recognize gain or loss for Federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition and (ii)
the holder's adjusted
S-22
<PAGE> 23
basis in the shares for tax purposes. Such gain or loss will be capital gain or
loss if the shares have been held by the U.S. Stockholder as a capital asset,
and will be long-term gain or loss if such shares have been held for more than
one year. In general, any loss recognized by a U.S. Stockholder upon the sale or
other disposition of shares of the Company that have been held for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss, to the extent of distributions received by such U.S.
Stockholder from the Company which were required to be treated as long-term
capital gains.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and the Internal Revenue
Service (the "IRS") the amount of dividends paid during each calendar year, and
the amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends 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 U.S. Stockholder that does not
provide the Company with the 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 stockholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
to any stockholders who fail to certify their non-foreign status to the Company.
See "-- Taxation of Non-U.S. Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account ("IRA") or a 401(k) plan, that
holds the Common Stock as an investment will not be subject to tax on dividends
paid by the Company. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its distributions
will be subject to tax. In addition, after 1993, under some circumstances
certain pension plans (including 401(k) plans but not including IRAs and
government pension plans) that own more than 10% (by value) of the Company's
outstanding stock, including preferred stock, could be subject to tax on a
portion of their distributions even if their stock is held for investment and is
not treated as acquired with borrowed funds. The ownership limit provisions (see
the discussion in the Prospectus under the heading "Description of Common
Stock -- Restrictions on Ownership" and "Restrictions on Ownership of Capital
Stock"), however, should prevent this result in most cases.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States Federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
Federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances. In addition, this discussion is based on current law, which is
subject to change, and assumes that the Company qualifies for taxation as a
REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisers to determine the impact of Federal, state, local and foreign income tax
laws with regard to an investment in stock, including any reporting
requirements.
Distributions. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor 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 ordinarily will be subject to withholding of United
States Federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the distributions are treated as
effectively connected with the conduct by the Non-U.S. Stockholder of a United
S-23
<PAGE> 24
States trade or business. Distributions that are effectively connected with such
a trade or business will be subject to tax on a net basis (that is, after
allowance of deductions) at graduated rates, in the same manner as U.S.
Stockholders are taxed with respect to such distributions, and are generally not
subject to withholding. Any such distributions received by a Non-U.S.
Stockholder that is a corporation may also be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Pursuant to current Treasury regulations, distributions paid to an address
in a country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury regulations, not currently in effect, however, a Non-U.S.
Stockholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to distributions from a REIT, such as the Company. Certain
certification and disclosure requirements must be satisfied to be exempt from
withholding under the effectively connected income exemption discussed above.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's stock, but rather
will reduce the adjusted basis of such stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's stock, they
will give rise to gain from the sale or exchange of such stock, the tax
treatment of which is described below. For withholding purposes, the Company is
required to treat all distributions as if made out of current or accumulated
earnings and profits. However, amounts thus withheld are generally refundable if
it is subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States Federal income taxation, unless (i) investment
in the stock is effectively connected with the Non-U.S. Stockholder's United
States trade or business, in which case the Non U.S. Stockholder will be subject
to the same treatment as U.S. Stockholders with respect to such gain (except
that a stockholder that is a foreign corporation may also be subject to the 30%
branch profits tax, as discussed above), or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same rates applicable to U.S.
Stockholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, such gain may be subject to a 30% branch
profits tax in the hands of a Non-U.S. Stockholder that is a corporation, as
discussed above. The Company is required to withhold 35% of any such
distribution that could be designated by the Company as a capital gains
dividend. Any such withheld amount is creditable against the Non-U.S.
Stockholder's United States Federal income tax liability.
Sale of Stock. Gain recognized by a Non-U.S. Stockholder upon the sale or
exchange of shares of stock generally will not be subject to United States
taxation unless the stock constitutes a "United States real property interest"
within the meaning of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). The stock will not constitute a "United States real property
interest" so long as the Company is a "domestically controlled REIT." A
"domestically controlled REIT" is a REIT in which at all times during a
specified testing period less than 50% in value of its stock is held directly or
indirectly by Non-U.S. Stockholders. In addition, FIRPTA does not apply to gain
recognized upon a sale of shares of a class of the Company's stock regularly
traded on an established securities market by a Non-U.S. Stockholder holding
(during specified periods) 5% or less of such class of stock. Notwithstanding
the foregoing, gain from the sale or exchange of shares of stock not otherwise
subject to FIRPTA will be taxable to a Non-U.S. Stockholder if
S-24
<PAGE> 25
either (i) investment in the stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as a U.S. Stockholder with
respect to such gain (a Non-U.S. Stockholder that is a foreign corporation may
also be subject to a 30% branch profits tax, as discussed above), or (ii) the
Non-U.S. Stockholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% United States withholding tax on the amount of such
individual's gain.
If the Company is not or ceases to be a "domestically-controlled REIT,"
whether gain arising from the sale or exchange by a Non-U.S. Stockholder of
shares of stock would be subject to United States taxation under FIRPTA as a
sale of a "United States real property interest" will depend on whether the
shares are "regularly traded" (as defined by applicable Treasury regulations),
on an established securities market (e.g., the New York Stock Exchange) and on
the size of the selling Non-U.S. Stockholder's interest in the Company. If gain
on the sale or exchange of shares of stock were subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to regular United States
income tax with respect to such gain in the same manner as a U.S. Stockholder
(subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals), and the purchaser of
the stock would be required to withhold and remit to the IRS 10% of the purchase
price.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of stock by or through a foreign office of a foreign broker.
Information reporting (but not backup withholding) will apply, however, to a
payment of the proceeds of a sale of stock by a foreign office of a broker that
(a) is a United States person, (b) derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States or
(c) is a "controlled foreign corporation" (generally, a foreign corporation
controlled by United States stockholders) for United States tax purposes, unless
the broker has documentary evidence in its records that the holder is a Non-U.S.
Stockholder and certain other conditions are met, or the stockholder otherwise
establishes an exemption. Payment to or through a United States office of a
broker of the proceeds of sale of stock is subject to both backup withholding
and information reporting unless the stockholder certifies under penalties of
perjury that the stockholder is a Non-U.S. Stockholder, or otherwise establishes
an exemption. A Non-U.S. Stockholder may obtain a refund of any amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.
The backup withholding and information reporting rules are under review by
the United States Treasury, and their application to the Common Stock could be
changed prospectively by future Treasury regulations.
OTHER TAX CONSEQUENCES
The Company and its stockholders 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
and its stockholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
S-25
<PAGE> 26
UNDERWRITING
Subject to the terms and conditions set forth in the terms agreement and
related underwriting agreement (collectively, the "Underwriting Agreement"), the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Dean Witter Reynolds Inc., Prudential Securities Incorporated and Smith Barney
Inc. are acting as representatives (the "Representatives"), has severally agreed
to purchase from the Company, the number of shares of Common Stock set forth
below opposite their respective names. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions precedent,
and that the Underwriters are committed to purchase all of such shares of Common
Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................. 305,000
Dean Witter Reynolds Inc. ................................................ 305,000
Prudential Securities Incorporated........................................ 305,000
Smith Barney Inc. ........................................................ 305,000
Alex. Brown & Sons Incorporated........................................... 40,000
Donaldson, Lufkin & Jenrette Securities Corporation....................... 40,000
A.G. Edwards & Sons, Inc.................................................. 40,000
Oppenheimer & Co., Inc.................................................... 40,000
PaineWebber Incorporated.................................................. 40,000
Wertheim Schroder & Co. Incorporated...................................... 40,000
Advest, Inc............................................................... 20,000
Robert W. Baird & Co. Incorporated........................................ 20,000
M.R. Beal & Company....................................................... 20,000
J.C. Bradford & Co........................................................ 20,000
Cowen & Company........................................................... 20,000
Dain Bosworth Incorporated................................................ 20,000
First Albany Corporation.................................................. 20,000
First of Michigan Corporation............................................. 20,000
J.J.B. Hilliard, W. L. Lyons, Inc. ....................................... 20,000
Interstate/Johnson Lane Corporation....................................... 20,000
Janney Montgomery Scott Inc............................................... 20,000
Edward D. Jones & Co...................................................... 20,000
Kemper Securities, Inc. .................................................. 20,000
Legg Mason Wood Walker, Incorporated...................................... 20,000
McDonald & Company Securities, Inc........................................ 20,000
Mesirow Financial, Inc. .................................................. 20,000
Morgan Keegan & Company, Inc. ............................................ 20,000
Piper Jaffray Inc. ....................................................... 20,000
Principal Financial Securities, Inc....................................... 20,000
Ragen MacKenzie Incorporated.............................................. 20,000
Rauscher Pierce Refsnes, Inc.............................................. 20,000
Raymond James & Associates, Inc. ......................................... 20,000
The Robinson-Humphrey Company, Inc. ...................................... 20,000
Sutro & Co. Incorporated.................................................. 20,000
Traub and Company, Inc. .................................................. 20,000
Tucker Anthony Incorporated............................................... 20,000
Wheat, First Securities, Inc. ............................................ 20,000
---------
Total........................................................ 2,000,000
=========
</TABLE>
S-26
<PAGE> 27
The Representatives have advised the Company that the Underwriters propose
initially to offer such shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus Supplement and to
certain dealers at such price less a concession not in excess of $.60 per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $.10 per share on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to 300,000
additional shares of Common Stock to cover over-allotments, if any, at the
initial public offering price less the sum of the underwriting discount set
forth on the cover page of this Prospectus Supplement. If the Underwriters
exercise this option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the foregoing table bears to the shares of Common Stock initially offered
hereby.
In the Underwriting Agreement, the Company has agreed to indemnify the
several Underwriters against certain civil liabilities, including liabilities
under the Securities Act.
Subject to certain exceptions, the Company has agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock for a period
of 90 days after the date of this Prospectus Supplement without prior written
consent of the Representatives.
S-27
<PAGE> 28
PROSPECTUS
EXCEL REALTY TRUST, INC.
$250,000,000
DEBT SECURITIES, PREFERRED STOCK
DEPOSITARY SHARES, COMMON STOCK AND WARRANTS
Excel Realty Trust, Inc. ("Excel" or the "Company") may from time to time
offer in one or more series (i) its unsecured senior debt securities (the "Debt
Securities"), (ii) shares or fractional shares of its preferred stock, par value
$.01 per share (the "Preferred Stock"), (iii) shares of its Preferred Stock
represented by depositary shares (the "Depositary Shares"), (iv) shares of its
common stock, par value $.01 per share (the "Common Stock"), or (v) warrants to
purchase Common Stock, Preferred Stock, Depositary Shares or Debt Securities
(the "Warrants"), with an aggregate initial public offering price of up to
$250,000,000 on terms to be determined at the time of offering. The Debt
Securities, Preferred Stock, Depositary Shares, Common Stock and Warrants
(collectively, the "Offered Securities") may be offered, separately or together,
in separate series in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency of
denomination and payment, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner of
calculation thereof) and time of payment of interest, terms for redemption at
the option of the Company or repayment at the option of the Holder, terms for
sinking fund payments, terms for conversion into Preferred Stock or Common
Stock, and any initial public offering price; (ii) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights, and any initial public offering
price; (iii) in the case of Depositary Shares, the fractional share of Preferred
Stock represented by each such Depositary Share; (iv) in the case of Common
Stock, any initial public offering price; and (v) 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 Offered Securities, in each case as may be appropriate to
preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered 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 Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is June 20, 1995.
<PAGE> 29
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"). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Company's Common
Stock is listed on the New York Stock Exchange and similar information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. Annual Report on Form 10-K for the fiscal year ended December 31,
1994;
b. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1995; and
c. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, filed with the Commission on
July 30, 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner of the Offered
Securities, to whom this Prospectus is delivered, upon written or oral request.
Requests should be directed to the Secretary of the Company, 16955 Via Del
Campo, Suite 110, San Diego, California 92127 (telephone number: (619)
485-9400).
2
<PAGE> 30
THE COMPANY
The Company is a self-administered, self-managed REIT which acquires, owns
and manages neighborhood and community shopping centers and other retail and
commercial properties leased primarily to major retail companies. As of March
31, 1995, the Company owned or managed 37 shopping centers (the "Shopping
Centers"), 78 single tenant properties (the "Single Tenant Properties") and four
commercial properties and office buildings (the "Commercial Properties"), which
accounted for approximately 56%, 37% and 7%, respectively, of the annualized
base rental income ("ABR") of the Company at March 31, 1995. Approximately 81%
of the Company's ABR derived from Single Tenant Properties is attributable to
properties located within shopping centers not otherwise owned by the Company,
while approximately 19% of such ABR comes from free standing properties located
in commercial areas. As of March 31, 1995, the Company's 119 properties were
located in 28 states, contained approximately 8.6 million square feet of gross
leasable area ("GLA") and were 98.4% leased.
Sixty percent of the Company's ABR at March 31, 1995 was derived from
lessees with 10 years or more remaining on their leases, over 60% was derived
from lessees with investment grade credit ratings and over 90% was derived from
major national or regional lessees. In addition, leases representing over 95% of
the Company's ABR at March 31, 1995 provide that the lessee is responsible for
substantially all costs and expenses associated with the ongoing maintenance of
the property, including but not limited to property taxes, insurance and common
area maintenance.
The Company's objectives are to acquire, own and manage a portfolio of
retail properties that will provide cash for quarterly distributions to
stockholders, while protecting investor capital and providing potential for
capital appreciation. The Company has increased its property portfolio from 42
properties at December 31, 1992 to 119 properties at March 31, 1995. As of March
31, 1995, 63 of such properties were owned through the Company's wholly-owned
subsidiary, Excel Mortgage Funding Corporation, a Delaware corporation ("EM
Funding"), and six of such properties were owned through EH Properties, L.P., a
Delaware limited partnership of which the Company was the general partner and
owner of approximately 93% of the partnership interests as of such date.
The Company intends to continue its current strategy of acquiring shopping
centers and retail properties under long-term leases to creditworthy national or
regional tenants. Additionally, the Company plans to continually analyze each
asset in its portfolio and identify those properties that have matured and can
be sold (to the extent consistent with REIT qualification requirements) for the
optimal price given prevailing market conditions. However, there is no assurance
that this strategy will be successful or that it will not be changed by
management in the future.
The Company has elected to be taxed as a REIT for federal income tax
purposes since 1987, and expects to continue to elect such status. Although the
Company believes that it was organized and has been operating in conformity with
the requirements for qualification under the Internal Revenue Code of 1986, as
amended (the "Code"), no assurance can be given that the Company will continue
to qualify as a REIT. Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations. 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 stockholders in computing taxable income and would be subject
to federal taxation at regular corporate rates. As a result, such a failure
would adversely affect the Company's ability to make distributions to its
stockholders and could have an adverse affect on the market value and
marketability of the Offered Securities.
To ensure that the Company qualifies as a REIT, transfer of the shares of
Common Stock and Preferred Stock is subject to certain restrictions, and
ownership of capital stock by any single person is limited to 9.8% by value of
such capital stock, subject to certain exceptions. The Company's Charter
provides that any purported transfer in violation of the above-described
ownership limitations shall be void ab initio.
The shares of Common Stock of the Company are listed on the New York Stock
Exchange under the symbol "XEL." The Company has paid regular and uninterrupted
distributions on its Common Stock since it commenced operations as a REIT in
1987. These distributions have increased from $0.18 per share of
3
<PAGE> 31
Common Stock in the fourth quarter of 1987 to $0.43 per share of Common Stock
for the first quarter of 1995. The Company intends to continue making regular
quarterly distributions to its common stockholders. Distributions depend upon a
variety of factors, and there can be no assurance that distributions will be
made.
The Company was incorporated under the laws of California in 1985 and
reincorporated as a Maryland corporation in July 1993. The Company's executive
offices are located at 16955 Via Del Campo, Suite 110, San Diego, California
92127, and the Company's telephone number is (619) 485-9400.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the three months ended
March 31, 1995 was 1.88, and for the years ended December 31, 1994, 1993, 1992,
1991 and 1990 was 1.98, 1.30, 1.20, 1.05 and 0.92, respectively. To date, the
Company has not issued any Preferred Stock. Therefore, the ratio of earnings to
combined fixed charges and dividend requirements are unchanged from the
foregoing ratios.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income (loss) before
real estate sales, income taxes and extraordinary items. Fixed charges consist
of interest costs, whether expensed or capitalized, the interest component of
rental expense, and amortization and write-off of debt discounts and issue
costs, whether expensed or capitalized.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered Securities
for general corporate purposes, which may include the acquisition of
multi-tenant retail properties, single tenant properties or commercial
properties as suitable opportunities arise, the expansion and improvement of
certain properties in the Company's portfolio, and the repayment of certain
outstanding indebtedness at such time.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, to be dated as of
May 8, 1995, as amended, supplemented or modified from time to time (the
"Indenture"), between the Company and The First National Bank of Boston, as
trustee (the "Trustee"). The Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available for
inspection at the corporate trust office of the Trustee at 150 Royall St.,
Canton, Massachusetts 02021 or as described above under "Available Information."
The Indenture is subject to, and governed by, the Trust Indenture Act of 1939,
as amended (the "TIA"). The statements made hereunder relating to the Indenture
and the Debt Securities to be issued thereunder are summaries of certain
provisions thereof and do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all provisions of the Indenture and
such Debt Securities. All section references appearing herein are to sections of
the Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company
and will rank equally with all other unsecured and unsubordinated indebtedness
of the Company. The Indenture provides that the Debt Securities may be issued
without limit as to aggregate principal amount, in one or more series, in each
case as established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series may
be reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one
4
<PAGE> 32
or more series of Debt Securities, and a successor Trustee may be appointed to
act with respect to such series (Section 608). In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the Indenture
separate and apart from the trust administered by any other Trustee (Section
609), and, except as otherwise indicated herein, any action described herein to
be taken by the Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) if other than the principal amount thereof, the portion of the
principal amount thereof payable upon declaration of acceleration of the
maturity thereof, or (if applicable) the portion of the principal amount of
such Debt Securities which is convertible into Common Stock or Preferred
Stock, or the method by which any such portion shall be determined;
(4) if convertible, in connection with the preservation of the
Company's status as a REIT, any applicable limitations on the ownership or
transferability of the Common Stock or Preferred Stock into which such Debt
Securities are convertible;
(5) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) the date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the Interest Payment Dates
on which any such interest will be payable, the Regular Record Dates for
such Interest Payment Dates, or the method by which such Dates shall be
determined, the Person to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and notices or demands to or upon the Company in respect of such
Debt Securities and the Indenture may be served;
(9) the date or dates on which, or period or periods within which, the
price or prices at which and the terms and conditions upon which such Debt
Securities may be redeemed, as a whole or in part, at the option of the
Company, if the Company is to have such an option;
(10) the obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the date or dates on
which, or period or periods within which, the price or prices at which and
the terms and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, as a whole or in part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be units of two
or more foreign currencies or a composite currency or currencies, and the
terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
5
<PAGE> 33
(13) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default and notice and
waiver thereof or covenants set forth in the Indenture;
(14) whether such Debt Securities will be issued in certificated or
book-entry form;
(15) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(16) the applicability, if any, of the defeasance and covenant
defeasance provisions of Article XIV of the Indenture;
(17) if such Debt Securities are to be issued upon the exercise of
debt warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(18) the terms and conditions, if any, upon which such Debt Securities
may be convertible into Common Stock or Preferred Stock of the Company and
the terms and conditions upon which such conversion will be effected,
including, without limitation, the initial conversion price or rate and the
conversion period;
(19) whether and under what circumstances the Company will pay
Additional Amounts as contemplated in the Indenture on such Debt Securities
in respect of any tax, assessment or governmental charge and, if so,
whether the Company will have the option to redeem such Debt Securities in
lieu of making such payment; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as set forth below under "Certain Covenants -- Limitations on
Incurrence of Debt" and "Merger, Consolidation or Sale of Assets," the Indenture
does not contain any provisions that would limit the ability of the Company to
incur indebtedness or to substantially reduce or eliminate the Company's assets,
which may have an adverse affect on the Company's ability to service its
indebtedness (including the Debt Securities) or that would afford Holders of
Debt Securities protection in the event of a highly leveraged or similar
transaction involving the Company or in the event of a change of control.
However, restrictions on ownership and transfers of the Company's Common Stock
and Preferred Stock designed to preserve its status as a REIT may act to prevent
or hinder a change of control. See "Description of Common Stock" and
"Description of Preferred Stock." Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications of
or additions to the Events of Default or covenants of the Company that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
A significant number of the Company's properties are owned through its
subsidiaries (including EM Funding). Therefore, the rights of the Company and
its creditors, including holders of Debt Securities, to participate in the
assets of such subsidiaries upon the liquidation or recapitalization of such
subsidiaries or otherwise will be subject to the prior claims of such
subsidiaries' respective creditors (except to the extent that claims of the
Company itself as a creditor may be recognized).
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee,
6
<PAGE> 34
initially located at 150 Royall St., Canton, Massachusetts 02021, provided that,
at the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register or by wire transfer of funds to such Person at an account maintained
within the United States (Sections 301, 305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the Trustee referred to above. Every Debt Security surrendered
for conversion, registration of transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer. No service charge will be made
for any registration of transfer or exchange of any Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305). If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the Trustee) initially designated by the Company with respect to any series of
Debt Securities, the Company may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, except that the Company will be required to maintain a
transfer agent in each Place of Payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Company nor the Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE OF ASSETS
For so long as the Debt Securities are outstanding, the Company may
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other corporation, only to the extent that
(a) either the Company shall be the continuing corporation, or the successor
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
shall be a corporation duly organized and validly existing under the laws of the
United States or any state thereof or the District of Columbia, and shall
expressly assume payment of the principal of (and premium, if any) and interest
on all of the Debt Securities and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(b) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as a
result thereof as having been incurred by the Company or such Subsidiary at the
time of such transaction, no Event of Default under the Indenture, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
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CERTAIN COVENANTS
The Indenture provides that the Company will comply with the covenants set
forth below so long as the Debt Securities are outstanding.
Limitations on Incurrence of Debt. The Company will not, and will not
permit any Subsidiary to, incur any Debt (as defined below) if, immediately
after giving effect to the incurrence of such additional Debt, the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries on
a consolidated basis determined in accordance with generally accepted accounting
principles is greater than 60% of the sum of (i) Undepreciated Real Estate
Assets (as defined below) as of the end of the calendar quarter covered in the
Company's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the
case may be, most recently filed with the Commission (or, if such filing is not
permitted under the Exchange Act, with the Trustee) prior to the incurrence of
such additional Debt and (ii) the purchase price of any real estate assets
acquired by the Company or any Subsidiary since the end of such calendar
quarter, including those obtained in connection with the incurrence of such
additional Debt (to the extent that such proceeds were not used to acquire such
real estate assets or mortgages receivable or used to reduce Debt) (Section
1004).
In addition to the foregoing limitation on the incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Debt secured
by any mortgage, lien, charge, pledge, encumbrance or security interest of any
kind upon any of the property of the Company or any Subsidiary if, immediately
after giving effect to the incurrence of such additional Debt, the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries on
a consolidated basis which is secured by any mortgage, lien, charge, pledge,
encumbrance or security interest on property of the Company or any Subsidiary is
greater than 40% of the sum of (i) Undepreciated Real Estate Assets as of the
end of the calendar quarter covered in the Company's Annual Report on Form 10-K
or Quarterly Report on Form 10-Q, as the case may be, most recently filed with
the Commission (or, if such filing is not permitted under the Exchange Act, with
the Trustee) prior to the incurrence of such additional Debt and (ii) the
purchase price of any real estate assets acquired by the Company or any
Subsidiary since the end of such calendar quarter, including those obtained in
connection with the incurrence of such additional Debt (Section 1004).
In addition to the foregoing limitations on the incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Debt if
Consolidated Income Available for Debt Service (as defined below) for any 12
consecutive calendar months within the 15 calendar months immediately preceding
the date on which such additional Debt is to be incurred shall have been less
than 1.5 times the Maximum Annual Service Charge (as defined below) on the Debt
of the Company and all Subsidiaries to be outstanding immediately after the
incurring of such additional Debt (Section 1004).
Maintenance of Unencumbered Total Asset Value. The Company will at all
times maintain an Unencumbered Total Asset Value (as defined below) in an amount
not less than 150% of the aggregate principal amount of all outstanding Debt of
the Company and its Subsidiaries that is unsecured (Section 1014).
Restrictions on Dividends and Other Distributions. The Company will not, in
respect of any shares of any class of its capital stock, (a) declare or pay any
dividends (other than dividends payable in capital stock of the Company)
thereon, (b) apply any of its property or assets to the purchase, redemption or
other acquisition or retirement thereof, (c) set apart any sum for the purchase,
redemption or other acquisition or retirement thereof, or (d) make any other
distribution, by reduction of capital or otherwise if, immediately after such
declaration or other action referred to above, the aggregate of all such
declarations and other actions since the date on which the Indenture was
originally executed shall exceed the sum of (i) Funds from Operations (as
defined below) from April 1, 1995 until the end of the calendar quarter covered
in the Company's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as
the case may be, most recently filed with the Commission prior to such
declaration or action and (ii) $32,800,000; provided, however, that the
foregoing limitation shall not apply to any declaration or other action referred
to above which is necessary to maintain the Company's status as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), if the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries at
such time is less than 65% of Undepreciated Real Estate Assets as of the end of
the calendar quarter covered in the Company's
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<PAGE> 36
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
most recently filed with the Commission (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to such declaration or other
action (Section 1005).
Notwithstanding the foregoing, the Company will not be prohibited from
making the payment of any dividend within 30 days of the declaration thereof if
at such date of declaration such payment would have complied with the provisions
of the immediately preceding paragraph (Section 1005).
Existence. Except as permitted under "Merger, Consolidation or Sale of
Assets," the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and that of
each of its Subsidiaries and their respective rights (charter and statutory) and
franchises; provided, however, that the foregoing shall not obligate the Company
or any Subsidiary to preserve any right or franchise (or, in the case of any
Subsidiary, its existence) if the Company or such Subsidiary determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities (Section 1006).
Maintenance of Properties. The Company will cause all of its Properties
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Company and its Subsidiaries shall not be prevented
from selling or otherwise disposing for value its properties in the ordinary
course of business (Section 1007).
Insurance. The Company will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage at least
equal to their then full insurable value with insurers of recognized
responsibility and having a rating of at least A:VIII in Best's Key Rating Guide
(Section 1008).
Payment of Taxes and Other Claims. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 1009).
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 or 15(d) (the "Financial
Statements") if the Company were so subject, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (x) within 15 days
of each Required Filing Date (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders copies of the annual reports and quarterly reports
which the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections and (ii) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were subject to such Sections and (y) if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective Holder (Section
1010).
Additional Covenants. Any additional covenants of the Company with respect
to a series of the Debt Securities will be set forth in the Prospectus
Supplement relating thereto.
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As used herein,
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income (as defined below) of the Company and its Subsidiaries
plus amounts which have been deducted for (a) interest on Debt of the Company
and its Subsidiaries, (b) provision for taxes of the Company and its
Subsidiaries based on income, (c) amortization of debt discount, (d) property
depreciation and amortization and (e) the effect of any noncash charge resulting
from a change in accounting principles in determining Consolidated Net Income
for such period.
"Consolidated Net Income" for any period means the amount of consolidated
net income (or loss) of the Company and its Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Debt" of the Company or any Subsidiary means any indebtedness of the
Company or any Subsidiary, whether or not contingent, in respect of (i) borrowed
money or evidenced by bonds, notes, debentures or similar instruments, (ii)
indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or any
security interest existing on property owned by the Company or any Subsidiary,
(iii) letters of credit or amounts representing the balance deferred and unpaid
of the purchase price of any property except any such balance that constitutes
an accrued expense or trade payable or (iv) any lease of property by the Company
or any Subsidiary as lessee which is reflected on the Company's Consolidated
Balance Sheet as a capitalized lease in accordance with generally accepted
accounting principles, in the case of items of indebtedness under (i) through
(iii) above to the extent that any such items (other than letters of credit)
would appear as a liability on the Company's Consolidated Balance Sheet in
accordance with generally accepted accounting principles, and also includes, to
the extent not otherwise included, any obligation by the Company or any
Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of business),
indebtedness of another person (other than the Company or any Subsidiary) (it
being understood that Debt shall be deemed to be incurred by the Company or any
Subsidiary whenever the Company or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof).
"Funds from Operations" for any period means the Consolidated Net Income of
the Company and its Subsidiaries for such period computed in accordance with
generally accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
"Maximum Annual Service Charge" as of any date means the maximum amount
which may become payable in any period of 12 consecutive calendar months from
such date for interest on, and required amortization of, Debt. The amount
payable for amortization shall include the amount of any sinking fund or other
analogous fund for the retirement of Debt and the amount payable on account of
principal on any such Debt which matures serially other than at the final
maturity date of such Debt.
"Total Assets" as of any date means the sum of (i) Undepreciated Real
Estate Assets (as defined) and (ii) all other assets of the Company and its
Subsidiaries determined in accordance with generally accepted accounting
principles (but excluding accounts receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the amount of real
estate assets of the Company and its Subsidiaries on such date, before
depreciation and amortization, determined on a consolidated basis in accordance
with generally accepted accounting principles.
"Unencumbered Total Asset Value" as of any date means the sum of Total
Assets which are unencumbered by any mortgage, lien, charge, pledge or security
interest that secures the payment of any obligations under any Debt.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest on any
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Debt Security of such series; (b) default in the payment of the principal of (or
premium, if any, on) any Debt Security of such series at its Maturity; (c)
default in making any sinking fund payment as required for any Debt Security of
such series; (d) default in the performance of any other covenant of the Company
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of Debt Securities issued thereunder other than such
series), continued for 60 days after written notice as provided in the
Indenture; (e) default under any evidence of indebtedness of the Company or any
mortgage, indenture or other instrument under which such indebtedness is issued
or by which such indebtedness is secured, which results in the acceleration of
such indebtedness prior to its maturity, if such indebtedness so accelerated
exceeds $10,000,000 in aggregate principal amount, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled in
accordance with the Indenture; (f) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Company or any Significant Subsidiary or either of its property; and (g) any
other Event of Default provided with respect to a particular series of Debt
Securities (Section 501). The term "Significant Subsidiary" means each
significant subsidiary (as defined in Regulation S-X promulgated under the
Securities Act) of the Company.
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Company (and to
the Trustee if given by the Holders). However, at any time after such a
declaration of acceleration with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the Indenture, as the case may be)
has been made, but before a judgment or decree for payment of the money due has
been obtained by the Trustee, the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of such series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be) may rescind
and annul such declaration and its consequences if (a) the Company shall have
deposited with the Trustee all required payments of the principal of (and
premium, if any) and interest on the Debt Securities of such series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be), plus
certain fees, expenses, disbursements and advances of the Trustee and (b) all
Events of Default, other than the non-payment of accelerated principal (or
specified portion hereof), with respect to Debt Securities of such series (or of
all Debt Securities then Outstanding under the Indenture, as the case may be)
have been cured or waived as provided in the Indenture (Section 502). The
Indenture also provides that the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be) may
waive any past default with respect to such series and its consequences, except
a default (x) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or (y) in respect of a covenant or
provision contained in the Indenture that cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security affected thereby
(Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if the Responsible Officers of the Trustee consider
such withholding to be in the best interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of indemnity reasonably satisfactory to it (Section 507). This
provision will not prevent, however, any Holder of Debt Securities from
instituting suit for the enforcement of
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payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof or to convert any of the Debt
Securities in accordance with its terms (if applicable) (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred upon the
Trustee. However, the Trustee may refuse to follow any direction which is in
conflict with any law or the Indenture, which may involve the Trustee in
personal liability or which may be unduly prejudicial to the Holders of Debt
Securities of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Company must
deliver to the Trustee a certificate, signed by one of several specified
officers, stating whether or not such officer has knowledge of any default under
the Indenture and, if so, specifying each such default and the nature and status
thereof (Section 1011).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Debt Security affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
interest (or premium, if any) on, any such Debt Security; (b) reduce the
principal amount of, or the rate (or change the manner of calculating the rate)
or amount of interest on, or any premium payable on redemption or repayment of,
any such Debt Security, or reduce the amount of principal of an Original Issue
Discount Security or Indexed Security that would be due and payable upon
declaration of acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the Holder of any such
Debt Security; (c) change the Place of Payment, or the coin or currency, for
payment of principal of, or premium, if any, or interest on, any such Debt
Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security or to convert any such Debt
Security in accordance with its terms (if applicable); (e) reduce the
above-stated percentage of Outstanding Debt Securities of any series necessary
to modify or amend the Indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the quorum
or voting requirements set forth in the Indenture; (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security; or
(g) modify any of the conversion provisions applicable to any Debt Security in a
manner adverse to the Holder thereof (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities have the right to waive compliance by the Company of certain
covenants in the Indenture (Section 1013).
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of any Holder of Debt Securities for any of
the following purposes: (i) to evidence the succession of another Person to the
Company as obligor under the Indenture; (ii) to add to the covenants of the
Company for the benefit of the Holders of all or any series of Debt Securities
or to surrender any right or power conferred upon the Company in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Securities; (iv) to add or change any provisions of the Indenture to
facilitate the issuance of, or to liberalize certain terms of, Debt Securities
in bearer form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect; (v) to change or eliminate any provisions of the Indenture, provided
that any such change or elimination shall become effective only
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<PAGE> 40
when there are no Debt Securities Outstanding of any series created prior
thereto which are entitled to the benefit of such provision; (vi) to secure the
Debt Securities; (vii) to establish the form or terms of Debt Securities of any
series, including the provisions and procedures, if applicable, for the
conversion of such Debt Securities into Common Stock or Preferred Stock of the
Company; (viii) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in
the Indenture, provided that such action shall not adversely affect the
interests of Holders of Debt Securities of any series in any material respect;
or (x) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal amount of such Indexed Security on the issue date, unless
otherwise provided with respect to such Indexed Security pursuant to Section 301
of the Indenture, and (iv) Debt Securities owned by the Company or any other
obligor upon the Debt Securities or any Affiliate of the Company or of such
other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by the Company or the Holders of not
less than 10% in principal amount of the Outstanding Debt Securities of such
series, in any such case upon notice given as provided in the Indenture (Section
1502). Except for any consent that must be given by the Holder of each Debt
Security affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the Holders of not
less than a majority in principal amount of the Outstanding Debt Securities of
that series; provided, however, that, except as referred to above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of Holders of Debt Securities of any series duly
held in accordance with the Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such series
will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such
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<PAGE> 41
meeting and (ii) the principal amount of the Outstanding Debt Securities of such
series that vote in favor of such request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into account in
determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture (Section 1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may discharge certain obligations to Holders of any series of
Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal (and premium, if
any) and interest to the date of such deposit (if such Debt Securities have
become due and payable) or to the Stated Maturity or date of redemption or
repayment, as the case may be (Section 401).
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for the obligation (i) to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, (ii) to convert the Debt Securities
in accordance with their terms (if applicable), (iii) to register the transfer
or exchange of such Debt Securities, (iv) to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, (v) to maintain an office or agency
in respect of such Debt Securities and (vi) to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under Sections 1004 to 1010, inclusive, and
Section 1014 of the Indenture (being the restrictions described under "Certain
Covenants") or, if provided pursuant to Section 301 of the Indenture, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute a default or an Event of Default with
respect to such Debt Securities ("covenant defeasance") (Section 1403), in
either case upon the irrevocable deposit by the Company with the Trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Company
has delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
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payable to the holder of such depository receipt from any amount received by the
custodian in respect of any such Government Obligation or the specific payment
of interest on or principal of any such Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate (Section 1405).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars (Section 101).
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (d) under "Events of Default, Notice and Waiver" with respect to
Sections 1004 to 1010, inclusive, and Section 1014 of the Indenture (which
Sections would no longer be applicable to such Debt Securities) or described in
clause (g) under "Events of Default, Notice and Waiver" with respect to any
other covenant as to which there has been covenant defeasance, the amount in
such currency, currency unit or composite currency in which such Debt Securities
are payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
Stated Maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Event of Default.
However, the Company would remain liable to make payment of such amounts due at
the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
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may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF COMMON STOCK
The Company has the authority to issue up to 100,000,000 shares of common
stock, par value $.01 per share (the "Common Stock"). At March 31, 1995, the
Company had outstanding 10,880,949 shares of Common Stock.
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Debt Securities or Preferred Stock of the Company or
upon the exercise of the Warrants to purchase Common Stock issued by the
Company. The statements below describing the Common Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Company's Charter and Bylaws.
Subject to the preferential rights of any other shares or series of capital
stock, holders of the Company's Common Stock will be entitled to receive
dividends when, as and if authorized and declared by the Board of Directors of
the Company, out of funds legally available therefor. Payment and declaration of
dividends on the Common Stock and purchases of shares thereof by the Company may
be subject to certain restrictions if the Company fails to pay dividends on the
Preferred Stock. See "Description of Preferred Stock." Upon the distribution of
assets upon any liquidation, dissolution or winding up of the Company, holders
of Common Stock will be entitled to share equally and ratably in any assets
available for distribution to them, after payment or provision for payment of
all known debts and liabilities of the Company and any preferential amounts
owing with respect to any outstanding Preferred Stock. Subject to certain
provisions of Maryland law and the Company's Charter and Bylaws, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as otherwise required by law or except as provided with respect to any
other class or series of stock, the holders of such shares will possess the
exclusive voting power. Holders of Common Stock will not have cumulative voting
rights in the election of directors, which means that holders of more than 50%
of all of the shares of the Company's Common Stock voting for the election of
directors will be able to elect all of the directors if they choose to do so
and, accordingly, the holders of the remaining shares will be unable to elect
any directors. Holders of shares of Common Stock will not have preemptive
rights, which means they have no right to acquire any additional shares of
Common Stock that may be issued by the Company at a subsequent date. Holders of
Common Stock also will have no conversion, sinking fund, redemption, preference
or exchange rights. The Common Stock will, when issued, be fully paid and
nonassessable and will not be subject to preemptive or other similar rights.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Charter provides that no person may
own, or be deemed to own by virtue of the attribution power of the Code, more
than 9.8% by value of the Company's capital stock. See "Restrictions on
Ownership of Capital Stock."
TRANSFER AGENT
The Registrar and Transfer Agent for the Company's Common Stock is The
First National Bank of Boston.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
par value $.01 per share. No shares of Preferred Stock are outstanding as of the
date hereof.
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Under the Company's Charter, shares of Preferred Stock may be issued from
time to time, in one or more series, as authorized by the Board of Directors,
generally without the approval of the stockholders. Prior to issuance of shares
of each series, the Board of Directors is required by the Maryland General
Corporation Law and the Company's Charter to adopt resolutions and file Articles
Supplementary (the "Articles Supplementary") with the State Department of
Assessments and Taxation of Maryland, fixing for each such series the
designations, powers, preferences and rights of the shares of such series and
the qualifications, limitations or restrictions thereon, including, but not
limited to, dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as are permitted by
Maryland law. The Board of Directors could authorize the issuance of shares of
Preferred Stock with terms and conditions which could have the effect of
discouraging a takeover or other transaction which holders of some, or a
majority, of such shares might believe to be in their best interests or in which
holders of some, or a majority, of such shares might receive a premium for their
shares over the then market price of such shares.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Charter (including the applicable
Articles Supplementary) and Bylaws.
GENERAL
Subject to limitations prescribed by Maryland law and the Company's Charter
and Bylaws, the Board of Directors is authorized to fix the number of shares
constituting each series of Preferred Stock and the designations and powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including such provisions
as may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the Board of Directors or duly
authorized committee thereof. The Preferred Stock will, when issued, be fully
paid and nonassessable and will not have, or be subject to, any preemptive or
similar rights.
Reference is made to the Prospectus Supplement relating to the series of
Preferred Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) Whether dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provisions for a sinking fund, if any, for such Preferred
Stock;
(7) The provisions for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof) and conversion period;
(10) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11) A discussion of federal income tax considerations applicable to
such Preferred Stock;
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(12) In addition to those limitations described below, any other
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;
(13) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Stock with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Company; and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank senior
to the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company. As used in the Company's
Charter for these purposes, the term "equity securities" does not include
convertible debt securities.
DIVIDENDS
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will have the rights with respect to payment of dividends set forth below.
Holders of shares of the Preferred Stock of each series shall be entitled
to receive, when, as and if declared and authorized by the Board of Directors of
the Company, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such dividend shall be payable to holders of record
as they appear on the stock transfer books of the Company on such record dates
as shall be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will accumulate from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If any shares of the Preferred Stock of any series are outstanding, no full
dividends shall be declared or paid or set apart for payment on the Preferred
Stock of the Company of any other series ranking, as to dividends, on a parity
with or junior to the Preferred Stock of such series for any period unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof irrevocably set apart for such payment on
the Preferred Stock of such series for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for such payment on the Preferred
Stock of such series. When dividends are not paid in full (or a sum sufficient
for such full payment is not so irrevocably set apart) upon the shares of
Preferred Stock of any series and the shares of any other series of preferred
stock ranking on a parity as to dividends with the Preferred Stock of such
series, all dividends declared upon shares of Preferred Stock of such series and
any other series of preferred stock ranking on a parity as to dividends with
such Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on the
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Preferred Stock of such series and such other series of preferred stock shall in
all cases bear to each other the same ratio that accrued and unpaid dividends
per share on the shares of Preferred Stock of such series (which shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of preferred stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for all past dividend periods and the then
current dividend period and (ii) if such series of Preferred Stock does not have
a cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for payment for the then current
dividend period, no dividends (other than in Common Stock or other capital stock
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or winding up of the Company) shall be declared or paid
or set aside for payment or other distribution shall be declared or made upon
the Common Stock or any other capital stock of the Company ranking junior to or
on a parity with the Preferred Stock of such series as to dividends or upon
liquidation, dissolution or winding up of the Company, nor shall any Common
Stock or any other capital stock of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to dividends or upon liquidation,
dissolution or winding up of the Company be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the Company
(except by conversion into or exchange for other capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or winding up of the Company).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into shares of the applicable capital
stock of the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof irrevocably set apart for
payment for all past dividend periods and the then current dividend period and
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for the then current dividend period, no
shares of any series of Preferred Stock shall be
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redeemed unless all outstanding shares of Preferred Stock of such series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of shares of Preferred Stock of such series pursuant
to a purchase or exchange offer made on the same terms to holders of all
outstanding shares of Preferred Stock of such series, and, unless (i) if such
series of Preferred Stock has a cumulative dividend, full cumulative dividends
on all outstanding shares of any series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment for all past dividend periods
and the then current dividend period and (ii) if such series of Preferred Stock
does not have a cumulative dividend, full dividends on the Preferred Stock of
any series have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof irrevocably set apart for payment for
the then current dividend period, the Company shall not purchase or otherwise
acquire directly or indirectly any shares of Preferred Stock of such series
(except by conversion into or exchange for capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation, dissolution or winding up of the Company).
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
by such holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by the Company that will not result in
violation of the ownership limitations set forth in the Charter.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a share of Preferred
Stock of any series to be redeemed at the address shown on the stock transfer
books of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Stock are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the shares of Preferred Stock of
any series are to be redeemed, the notice mailed to each such holder thereof
shall also specify the number of shares of Preferred Stock to be redeemed from
each such holder. If notice of redemption of any shares of Preferred Stock has
been given and if the funds necessary for such redemption have been irrevocably
set apart by the Company in trust for the benefit of the holders of any shares
of Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such shares of Preferred Stock, such
shares of Preferred Stock shall no longer be deemed outstanding and all rights
of the holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement and Articles Supplementary),
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Preferred Stock will have no right or claim to any of
the remaining assets of the Company. In the event that, upon any such voluntary
or involuntary liquidation, dissolution or winding up, the legally available
assets of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with the Preferred Stock in the distribution of
assets upon liquidation, dissolution or winding up of the Company, then the
holders of the Preferred Stock and all other such classes or series of capital
stock shall
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share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
shares of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up of the Company, according to their respective rights and preferences and in
each case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders or record of at least 10% of
the shares of Preferred Stock of any series so in arrears (unless such request
is received less than 90 days before the date fixed for the next annual or
special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting, until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof irrevocably set apart for payment or (ii) if such series of
Preferred Stock does not have a cumulative dividend, four consecutive quarterly
dividends shall have been fully paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment. In such case, the entire
Board of Directors of the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least 66 2/3% of the shares of
each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking senior to such series of Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the Company or reclassify any
authorized capital stock of the Company into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Charter (including the Articles Supplementary for such series
of Preferred Stock), whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference, privilege or voting power
of such series of Preferred Stock or the holders thereof; provided, however,
that any increase in the amount of the authorized preferred stock or the
creation or issuance of any other series of preferred stock, or any increase in
the amount of authorized shares of such series or any other series of Preferred
Stock, in each case ranking on a parity with or junior to the Preferred Stock of
such series with respect to payment of dividends and the distribution of assets
upon liquidation, dissolution or winding up of the Company, shall not be deemed
to materially and adversely affect such rights, preferences, privileges or
voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.
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CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
RESTRICTIONS ON OWNERSHIP
With certain restrictions, the Company's Charter provides that no person
may own, or be deemed to own by virtue of the attribution power of the Code,
more than 9.8% by value of the Company's capital stock. See "Restrictions on
Ownership of Capital Stock."
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 Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock 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
Stock 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 Stock represented by the Depositary Shares
evidenced by such Depositary Receipt, to all the rights and preferences of the
Preferred Stock represented by such Depositary Shares (including dividend,
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 Stock by the Company to the Preferred Stock
Depositary, the Company will cause the Preferred Stock 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 statements made hereunder relating to the Deposit Agreement and
the Depositary Receipts to be issued thereunder are summaries of certain
provisions thereof and do not purport to be complete and are subject to, and
qualified in their entirety by reference to, all of the provisions of the
applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock 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 Stock
Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock 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 Stock converted into other securities.
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WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into other securities), 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 shares of the Preferred
Stock 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 Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock 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 shares of Preferred Stock to be withdrawn, the
Preferred Stock 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 shares of Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of Depositary Shares representing shares of the
Preferred Stock so redeemed, provided the Company shall have paid in full to the
Preferred Stock Depositary the redemption price of the Preferred Stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the corresponding proportion of the redemption price and any other
amounts per share payable with respect to the Preferred Stock. 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 a violation of the Ownership Limit.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock 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 moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption and surrender thereof to the Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Preferred Stock 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 Stock. 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 Stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of Preferred
Stock represented by such holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of Preferred Stock 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 Stock Depositary in order to enable the Preferred Stock Depositary to
do so. The Preferred Stock Depositary will abstain from voting the amount of
Preferred Stock represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Stock 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 wilful misconduct of the
Preferred Stock Depositary.
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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 share of
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, are not convertible into Common Stock or
any other securities or property of the Company. 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 Stock Depositary with written instructions to the Preferred Stock
Depositary to instruct the Company to cause conversion of the Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipts into
whole shares of Common Stock, other shares of Preferred Stock of the Company or
other shares of stock, 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 Stock 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 shares of Common Stock will be issued upon conversion,
and if such conversion would 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 Stock 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 Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Stock
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 Stock will not be effective unless such amendment has been approved by
the existing holders of at least 66 2/3% 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 Stock 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 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 Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series of Preferred Stock affected by such termination consents
to such termination, whereupon the Preferred Stock 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
shares of Preferred Stock as are represented by the Depositary Shares evidenced
by such Depositary Receipts together with any other property held by the
Preferred Stock Depositary with respect to such Depositary Receipts. The Company
has agreed that if the Deposit Agreement is terminated to preserve the Company's
status as a REIT, then the Company will use its best efforts to list the
Preferred Stock issued upon surrender of the related Depositary Shares on a
national securities exchange. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been
redeemed, (ii) there shall have been a final distribution in respect of the
related Preferred Stock 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 Stock or (iii) each share of the related Preferred Stock shall
have been converted into securities of the Company not so represented by
Depositary Shares.
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CHARGES OF PREFERRED STOCK 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 Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Stock 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 DEPOSITORY
The Preferred Stock 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 Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock 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 Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock 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 Stock 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
Stock represented by the Depositary Shares), gross negligence or willful
misconduct, and the Company and the Preferred Stock Depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or shares of Preferred Stock represented
thereby unless satisfactory indemnity is furnished. The Company and the
Preferred Stock Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting shares of Preferred Stock
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 Stock 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 Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities,
Preferred Stock, Depositary Shares or Common Stock. Warrants may be issued
independently or together with any Offered 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 warrant agent specified therein ("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: (1) the title of such Warrants; (2) the aggregate number of such
Warrants; (3) the price or prices at which such Warrants will be issued; (4) the
currencies in which the price or prices of such Warrants may be payable; (5) the
designation, amount and terms of the Offered Securities purchasable upon
exercise of such Warrants; (6) the designation and terms of
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the other Offered Securities with which such Warrants are issued and the number
of such Warrants issued with each such security; (7) if applicable, the date on
and after which such Warrants and the Offered Securities purchasable upon
exercise of such Warrants will be separately transferable; (8) the price or
prices at which and currency or currencies in which the Offered Securities
purchasable upon exercise of such Warrants may be purchased; (9) the date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (10) the minimum or maximum amount of such Warrants
which may be exercised at any one time; (11) information with respect to
book-entry procedures, if any; (12) a discussion of certain Federal income tax
considerations; and (13) any other material terms of such Warrants, including
terms, procedures and limitations relating to the exchange and exercise of such
Warrants.
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year, and its capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year.
The Company's Charter provides, subject to certain exceptions specified
therein, that no holder may own, or be deemed to own by virtue of the
constructive ownership provisions of the Code, more than 9.8% by value (the
"Ownership Limit") of the outstanding capital stock of the Company. The Charter
further provides that any purported issuance or transfer of capital stock in
violation of the Ownership Limit shall be void ab initio. If shares of capital
stock in excess of the Ownership Limit, or shares of capital stock that would
cause the Company to be beneficially owned by less than 100 persons, are issued
or transferred to any person, the Charter provides that, subject to certain
exceptions, the intended transferee will acquire no rights in the stock. Shares
of capital stock transferred in excess of the Ownership Limit, or shares of
capital stock otherwise resulting in beneficial ownership of the Company being
vested in fewer than 100 persons or loss of the Company's REIT status
(collectively, an "Excess Transfer"), will automatically be transferred to an
independent trustee for the benefit of one or more charitable organizations to
be selected by the Company. While held by such trustee, the Charter provides
that such shares will continue to have voting and dividend rights and will
remain outstanding. The trustee may transfer such shares to any person whose
ownership will not violate the Ownership Limit or the other limitations
applicable to the intended transferee. If such a transfer is made by the
trustee, the sale proceeds shall be paid to the intended transferee to the
extent of the lesser of (a) the price paid by the intended transferee for the
shares in the Excess Transfer (or, if the Excess Transfer was a gift or similar
transaction, the market value of such shares at the time of the Excess Transfer)
and (b) the price realized by the trustee on the sale or other disposition of
such shares; any remaining proceeds, together with any dividends received by the
trustee, will be paid to the charitable beneficiaries. The Charter also provides
that shares of capital stock held by the trustee will be subject to a purchase
option in favor of the Company for a 90-day period following the Excess
Transfer.
The constructive ownership rules are complex and may cause Common Stock or
Preferred Stock owned directly or constructively by a group of related
individuals and/or entities to be deemed constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8% by value of the
capital stock of the Company (or the acquisition of an interest in an entity
which owns such capital stock) by an individual or entity could cause that
individual or entity (or another individual or entity) to own constructively in
excess of 9.8% by value of the capital stock, and thus subject such capital
stock to the Ownership Limit.
The Board of Directors may waive the Ownership Limit with respect to a
particular stockholder if evidence satisfactory to the Board of Directors is
presented that such ownership will not then or in the future jeopardize the
Company's status as a REIT. As a condition of such waiver, the Board of
Directors will require a ruling from the Internal Revenue Service, opinions of
counsel or other evidence satisfactory to the Board of Directors with respect to
preserving the REIT status of the Company. The foregoing restrictions on
transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interests of the Company to attempt
to qualify, or to continue to qualify, as a REIT.
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The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the Board of Directors and the stockholders of
the Company determine that it is no longer in the best interest of the Company
to attempt to qualify, or to continue to qualify, as REIT. Except as otherwise
described above, any change of the Ownership Limit would require an amendment to
the Charter of the Company. Such amendments require the affirmative vote of
holders owning a majority of the outstanding shares of Common Stock. In addition
to preserving the Company's status as a REIT, the Ownership Limit may have the
effect of precluding an acquisition of control of the REIT without the approval
of the Board of Directors.
All certificates representing shares of Common Stock and Preferred Stock
will bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than a specified percentage of the outstanding shares of Common
Stock or Preferred Stock must file an affidavit with the Company containing the
information specified in the Charter within 30 days after January 1 of each
year. In addition, each such stockholder 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 Board of Directors deems
necessary to comply with the provisions of the Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of capital stock of the Company might receive a premium for their shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO THE COMPANY OF ITS REIT ELECTION
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not tax
advice. The tax treatment of a holder of any of the Offered Securities will vary
depending upon the terms of the specific securities acquired by such holder, as
well as his particular situation, and this discussion does not attempt to
address any aspects of federal income taxation relating to holders of Offered
Securities. Certain federal income tax considerations relevant to holders of the
Offered Securities will be provided in the applicable Prospectus Supplement
relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT,
AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
General. The Company has elected to be taxed as a real estate investment
trust under Sections 856 through 860 of the Code from the Company's formation in
1987. The Company believes that it is organized and is operating in such a
manner as to qualify for taxation as a REIT under the Code and the Company
intends to continue to operate in such a manner, but no assurance can be given
that it will operate in a manner so as to qualify or remain qualified.
The REIT provisions of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change (which change may apply retroactively).
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In the opinion of Latham & Watkins, the Company is organized in conformity
with the requirements for qualification as a REIT, and its method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code. It must be emphasized that this opinion is
based on various assumptions and is conditioned upon such assumptions and
certain representations made by the Company as to factual matters. Moreover,
such qualification and taxation as a REIT depends upon the Company's ability to
meet, through actual annual operating results, distribution levels and diversity
of stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of the Company's
operation of any particular taxable year will satisfy such requirements. See
"-- Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows: First, the Company will be taxed at regular
corporate rates on any undistributed real estate investment trust taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if the Company has (i) net income from the
sale or other disposition of "foreclosure property" which is held primarily for
sale to customers in the ordinary course of business or (ii) other
non-qualifying income from foreclosure property, it will be subject to tax at
the highest corporate rate on such income. Fourth, if the Company has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be subject
to a 100% tax. Fifth, if the Company should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a real estate investment trust because certain
other requirements have been met, it will be subject to a 100% tax on an amount
equal to (a) the gross income attributable to the greater of the amount by which
the Company fails the 75% or 95% test, multiplied by (b) a fraction intended to
reflect the Company's profitability. Sixth, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its real
estate investment trust ordinary income for such year, (ii) 95% of its real
estate investment trust capital gain net 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. Seventh, with respect to an asset (a "Built-In Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (i.e., generally, a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the ten-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-In Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
corporate tax rate pursuant to Internal Revenue Service ("IRS") regulations that
have not yet been promulgated. 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.
Requirements for Qualification. 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) the beneficial ownership of which is held by 100 or
more persons, (6) during the last half of each taxable year, not more than 50%
in value of the outstanding stock of which is owned, directly or constructively,
by five or fewer individuals (as defined in the Code to include certain
entities) and (7) which meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (1) to
(4), inclusive, must be met during
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the entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months.
The Company has previously issued sufficient shares to allow it to satisfy
conditions (5) and (6). In addition, the Company's Charter provides (and the
Articles Supplementary for any series of Preferred Stock will provide) for
restrictions regarding ownership and transfer of the Company's capital stock,
which restrictions are intended to assist the Company in continuing to satisfy
the share ownership requirements described in (5) and (6) above. The ownership
and transfer restrictions pertaining to a particular series of Preferred Stock
are described in "Description of Preferred Stock -- Restrictions on Ownership."
The Company owns and operates a number of properties through a direct
wholly-owned subsidiary, EM Funding. Code Section 856(i) provides that a
corporation which is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities and such items (as the case may be) of the REIT. Thus, in
applying the requirements described herein, the Company's "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities and items of income,
deduction, and credit of such subsidiaries will be treated as assets,
liabilities and items of the Company. The Company has not, however, sought or
received a ruling from the IRS that EM Funding is a "qualified REIT subsidiary."
The Company also owns and operates a number of properties through
partnerships. In the case of a REIT that is a partner in a partnership, IRS
regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and the asset tests. Thus, the Company's proportionate
share of the assets, liabilities and items of income of the partnerships in
which the Company is a partner will be treated as assets, liabilities and items
of income of the Company for purposes of applying the requirements described
herein.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. 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, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, 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. See "-- Sales or Dispositions of Assets."
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally 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" in satisfying the gross
income tests 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").
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 from whom the REIT derives no revenue;
provided, however, the Company may directly perform certain services that are
"usually or
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customarily rendered" in connection with the rental of space for occupancy only
or are not otherwise considered "rendered to the occupant" of the property. The
Company 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 (except by reason of
being based on a fixed percentage of receipts or sales, as described above),
(ii) rent any property to a Related Party Tenant, (iii) derive rental income
attributable to personal property (other than personal property leased in
connection with the lease of real property, the amount of which is less than 15%
of the total rent received under the lease), or (iv) perform services which are
not usually or customarily rendered and which are considered to be rendered to
the occupant of the property, other than through an independent contractor from
whom the Company derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends 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 "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. As discussed above under "-- General," even if these relief
provisions apply, a tax would be imposed with respect to the excess net income.
Sales or Dispositions of Assets. The Company, as a REIT, is generally
subject to two restrictions that limit its ability to sell real property. First,
as previously discussed, to qualify as a REIT, the Company must satisfy a 30%
gross income limitation. Under this limitation, less than 30% of its gross
income must be derived from the sale or disposition of (i) stock or securities
held for less than one year, (ii) property (excluding certain property obtained
through foreclosure) in which the Company is a "dealer," and (iii) real property
held for less than four years. Gain from the sale or disposition of certain real
property received in foreclosure or from involuntary conversion (e.g., eminent
domain or accidental destruction) of any real property is not counted in the 30%
income limitation calculation. Second, the Company is subject to a tax of 100%
on its gain (i.e., the excess, if any, of the amount realized over the Company's
adjusted basis in the property) from each sale of property (excluding certain
property obtained through foreclosure) in which it is a dealer. In calculating
its gains subject to the 100% tax, the Company is not allowed to offset gains on
sales of property with losses on other sales of property in which it is a
dealer.
Under the Code, the Company would be deemed to be a dealer in any property
that the Company holds primarily for sale to customers in the ordinary course of
its business. Such determination is a factual inquiry, and absolute legal
certainty of the Company's status generally cannot be provided. However, the
Company will not be treated as a dealer in real property for either the 30%
gross income limitation or the 100% tax if (i) it has held the property for at
least four years for the production of rental income, (ii) capitalized
expenditures on the property in the four years preceding sale are less than 30%
of the net selling price of the property, and (iii) the Company either (a) has
seven or fewer sales of property (excluding certain property obtained through
foreclosure) for the year or (b) the aggregate tax basis of property sold is 10%
or less of the aggregate tax basis of all assets of the Company as of the
beginning of the taxable year and substantially all of the marketing and
development expenditures with respect to the property sold are made through an
independent contractor from whom the Company derives no income. The sale of more
than one property to one buyer as part of one transaction constitutes one sale.
However, the failure of the Company to meet these "safe harbor" requirements
does not necessarily mean that it is a dealer in real property.
Based on these rules, if the Company sells a property that it has held more
than four years and the Company satisfies the seven sales/10% tax basis safe
harbor described above, such sale will not cause the Company to violate the 30%
gross income limitation and thereby lose its REIT status, or result in the
imposition of the 100% tax on the gain. Even if the Company's disposition of
property does not qualify for the
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safe harbor, the Company can maintain its REIT status by limiting sales so that
the potential gain would not exceed the 30% gross income limitation. However,
because any dealer gain that is not covered by the safe harbor is subject to the
100% tax, any sale not covered by the safe harbor creates a risk that the REIT
will be considered to be a dealer in real property. Although any risk from a
single isolated sale may be virtually nonexistent, the more regular, continuous,
and ongoing the Company's sales of assets are, the more likely the Company will
be treated as a dealer with respect to sales or dispositions of real property.
Moreover, except for certain sales of property obtained through foreclosure, all
sales, including sales of property held less than four years, count toward the
seven sales/10% tax basis safe harbor for purposes of determining whether the
Company qualifies for the safe harbor on any sales of property held for four
years or more. Furthermore, once the Company has exceeded the seven sales/10%
tax basis safe harbor, gain from all sales and not just the gain from sales in
excess of such safe harbor are potentially subject to the 100% tax.
The Company may be able to avoid triggering gain for purposes of the 30%
gross income limitation on real property it has held less than four years if it
exchanges such property for other property in a transaction that qualifies as a
like-kind exchange under the Code, because the like-kind exchange provisions
result in the deferral of gain. The like-kind exchange provisions of the Code,
however, are not available to the Company on any property that it holds
primarily for sale rather than investment or the production of income even if
the Company is not a dealer with respect to such property. An exchange of
property for tax purposes that does not qualify for like-kind exchange treatment
or some other nonrecognition provision is treated the same as a sale for cash.
The Company may dispose of certain properties that it has held less than four
years in transactions intended to qualify as like-kind exchanges. The Company
intends to limit the gain realized from such transactions such that if it were
to be required to immediately recognize all such gain it would nevertheless
continue to satisfy the 30% income limitation. However, the failure of the
transaction to qualify as a like-kind exchange could subject the Company to the
100% tax on its gains as described above even though the 30% income limitation
was satisfied.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) assets held by the Company's qualified REIT
subsidiaries and the Company's allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
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 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.
The Company currently has one direct wholly-owned subsidiary, EM Funding,
and one indirect wholly-owned subsidiary, Excel Credit Corporation. As set forth
above, the ownership of more than 10% of the voting securities of any one issuer
by a REIT is prohibited by the asset tests. However, if the Company's
subsidiaries are "qualified REIT subsidiaries" as defined in the Code, such
subsidiaries will not be treated as separate corporations for federal income tax
purposes. Thus, the Company's ownership of stock of a "qualified REIT
subsidiary" will not cause the Company to fail the asset tests.
The Company presently intends to acquire all the nonvoting preferred stock
to be issued by ERT Development Corporation, a newly formed corporation.
Although ERT Development Corporation will not be a "qualified REIT subsidiary"
with respect to the Company, shares of nonvoting preferred stock in such
corporation will not constitute voting securities for purposes of the asset
tests.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders 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 Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of non-cash income. In addition, if the
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Company disposes of any Built-In Gain Asset during its Recognition Period, the
Company will be required, pursuant to IRS regulations which have not yet been
promulgated, to distribute at least 95% of the Built-in Gain (after tax), if
any, recognized on the disposition of such asset. 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 income," as adjusted,
it will be subject to tax thereon at regular ordinary and capital gain 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 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. The Company intends to make timely distributions
sufficient to satisfy this annual distribution requirement.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends 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 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 alternative minimum tax) on its taxable income at
regular corporate rates. Such a failure could have an adverse effect on the
market value and marketability of the Offered Securities. Distributions to
stockholders 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 stockholders will be taxable 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 will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
To qualify as a REIT, the Company must establish, among other things, that
it is not "closely held" (i.e., during the last half of each taxable year, not
more than 50% in value of the Company's outstanding stock may have been owned,
directly or constructively, by five or fewer individuals (as defined in the Code
to include certain entities)). See "-- Taxation of the Company as a
REIT -- Requirements for Qualification." In order to ascertain the actual
ownership of the Company's outstanding shares, IRS regulations require that the
Company demand from certain stockholders written statements disclosing the
actual owners of the Company's stock. The Company unintentionally failed to make
the required demands for shareholder statements for taxable years 1987 through
and including 1991. As a consequence, the IRS may contend that the Company
failed to qualify as a REIT for some or all of such years. The Company, however,
believes that it has substantially complied with the purposes of the shareholder
demand regulation. At its own initiative, the Company has requested that the IRS
enter into a closing agreement with the Company whereby the IRS would agree not
to treat the Company as failing to qualify as a REIT because of the Company's
failure strictly to comply with the shareholder demand regulation for 1987-91.
The IRS has neither accepted nor rejected the Company's offer to enter into such
closing agreement, although the IRS has requested certain additional information
from the Company. If the IRS declines to enter into the proposed closing
agreement and instead
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successfully challenges the Company's qualification as a REIT for a failure to
make the shareholder demands in 1987-91, the Company nevertheless believes that
(a) it should still qualify as a REIT for 1992 and subsequent periods and (b)
any liability for income taxes and interest for 1987-91 would not be material
because of net operating loss carryforwards. If the IRS were to be successful in
challenging the Company's REIT status for failure to satisfy the shareholder
demand regulation, the Company's qualification as a REIT for 1992 would depend
on the Company's ability to prove that its failure to make the shareholder
demand was due to reasonable cause and not due to willful neglect. Otherwise,
the Company could not elect REIT status until 1993. The Company estimates that,
if it is unable to elect REIT status until 1993, its aggregate liability for
income taxes and interest for 1987-92 would be approximately $330,000.
OTHER TAX MATTERS
Certain of the Company's investments are through partnerships which may
involve special tax risks. Such risks include possible challenge by the IRS of
(a) allocations of income and expense items, which could affect the computation
of income of the Company and (b) the status of the partnerships as partnerships
(as opposed to associations taxable as corporations) for income tax purposes. If
any of the partnerships is treated as an association, it would be taxable as a
corporation. In such a situation, if the Company's ownership in any of the
partnerships exceeded 10% of the partnership's voting interests or the value of
such interest exceeded 5% of the value of the Company's assets, the Company
would cease to qualify as a REIT. Furthermore, in such a situation,
distributions from any of the partnerships to the Company would be treated as
dividends, which are not taken into account in satisfying the 75% gross income
test described above and which could therefore make it more difficult for the
Company to qualify as a REIT for the taxable year in which such distribution was
received. In addition, in such a situation, the interest in any of the
partnerships held by the Company would not qualify as a "real estate asset,"
which could make it more difficult for the Company to meet the 75% asset test
described above. Finally, in such a situation, the Company would not be able to
deduct its share of losses generated by the partnerships in computing its
taxable income. See "Failure to Qualify" above for a discussion of the effect of
the Company's failure to meet such tests for a taxable year. The Company
believes that each of the partnerships will be treated for tax purposes as a
partnership (and not as an association taxable as a corporation). However, no
assurance can be given that the IRS may not successfully challenge the tax
status of any of the partnerships.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered 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. The Company also may offer and sell
the Offered Securities in exchange for one or more of its then outstanding
issues of debt or convertible debt securities. The Company also may, from time
to time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from any entity for whom they may act as agent. Underwriters
may sell Offered 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 Offered 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 Offered Securities may be
deemed to be underwriters, and any discounts, concessions and commissions
received by them and any profit realized by them on resale of the
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Offered 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 Offered 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 Offered 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 Offered 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 Offered Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1993, and the
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1994
incorporated by reference herein have been incorporated herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Latham & Watkins, San Diego, California and for any underwriters, dealers or
agents by Brown & Wood, New York, New York. Latham & Watkins and Brown & Wood
will rely as to all matters of Maryland law, including the legality of the
securities registered hereby, on the opinion of Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland. In addition, the description of federal income
tax consequences contained in this Prospectus is based upon the opinion of
Latham & Watkins.
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[Map illustrating locations of Company's properties]
<PAGE> 63
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.......... S-3
The Company............................ S-5
Recent Developments.................... S-7
Use of Proceeds........................ S-10
Capitalization......................... S-10
Selected Consolidated Financial Data... S-11
Price Range of Common Stock and
Distributions........................ S-12
Business and Properties................ S-13
Management............................. S-21
Certain Federal Income Tax
Considerations to Holders of Common
Stock................................ S-21
Underwriting........................... S-26
PROSPECTUS
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 2
The Company............................ 3
Ratio of Earnings to Fixed Charges..... 4
Use of Proceeds........................ 4
Description of Debt Securities......... 4
Description of Common Stock............ 16
Description of Preferred Stock......... 16
Description of Depositary Shares....... 22
Description of Warrants................ 25
Restrictions on Ownership of
Capital Stock........................ 26
Certain Federal Income Tax
Considerations to the Company of its
REIT Election........................ 27
Plan of Distribution................... 33
Experts................................ 34
Legal Matters.......................... 34
</TABLE>
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2,000,000 SHARES
EXCEL REALTY
TRUST, INC.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
JUNE 20, 1995
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