<PAGE> 1
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JANUARY 17, 1997
This filing is made pursuant
to Rule 424(b)(5) under
the Securities Act of
1933 in connection with
Registration No. 033-59195
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 17, 1997)
3,000,000 SHARES
EXCEL REALTY TRUST, INC.
$ SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
------------------------
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 which are primarily leased on a long-term basis to major
retail companies throughout the United States. As of September 30, 1996, the
Company owned or managed 40 shopping centers, 71 single tenant properties, three
commercial properties and office buildings, and one additional property which is
held for disposition. See "Business and Properties."
Dividends on the shares of $ Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") are cumulative from the date of
issue and are payable quarterly in arrears on the 15th day (or the next
succeeding business day) of January, April, July and October of each year in an
amount per share equal to the greater of $ per annum or the cash
dividends (determined on each of the quarterly dividend payment dates referred
to above) on the shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), (or portion thereof), into which a share of Series A
Preferred Stock is convertible. Such dividends will equal the number of shares
of Common Stock, or portion thereof, into which a share of Series A Preferred
Stock is convertible, multiplied by the most current quarterly distribution on
or before the applicable dividend payment date. The first record date for
determination of stockholders entitled to receive dividends on the Series A
Preferred Stock following completion of this offering (the "Offering") is
expected to be , 1997 with respect to dividends for the period from
the date of issue of the Series A Preferred Stock through , 1997. See
"Description of Series A Preferred Stock -- Dividends."
Shares of Series A Preferred Stock are convertible at any time at the option
of the holder thereof into shares of Common Stock at a conversion price of $
per share of Common Stock (equivalent to a conversion rate of of a share of
Common Stock for each share of Series A Preferred Stock), subject to adjustment
in certain circumstances (the "Conversion Price"). See "Description of Series A
Preferred Stock -- Conversion Rights."
The Series A Preferred Stock is not redeemable prior to , 2002.
On and after , 2002, the Series A Preferred Stock will be redeemable,
in whole or in part, at the option of the Company, (i) for such number of shares
of Common Stock as equals the per share liquidation preference of the Series A
Preferred Stock (without regard to accumulated, accrued and unpaid dividends,
which are to be paid in cash) divided by the Conversion Price, subject to
adjustment in certain circumstances, plus cash in the amount of any accumulated,
accrued and unpaid dividends, or (ii) for cash at a redemption price equal to
$25.00 per share of Series A Preferred Stock, plus any accumulated, accrued and
unpaid dividends. The Series A Preferred Stock will not be entitled to the
benefit of any sinking fund.
Prior to this offering, there has been no public market for the Series A
Preferred Stock. The Company has applied for listing of the Series A Preferred
Stock on the New York Stock Exchange (the "NYSE") under the symbol "XELPrA." The
Common Stock is listed on the NYSE under the symbol "XEL." On January 16, 1997,
the last reported sales price of the Common Stock on the NYSE was $24.25 per
share.
In order to maintain the Company's qualification as a REIT, ownership by any
person of the Common Stock or Series A Preferred Stock is limited, with certain
exceptions, to 9.8% by value of the outstanding capital stock of the Company.
SEE "RISK FACTORS" BEGINNING ON PAGE S-8 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE SERIES A PREFERRED STOCK.
------------------------
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>
<CAPTION>
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C>
Per Share.................................. $25.00 $ $
- ----------------------------------------------------------------------------------------------------------------
Total(4)................................... $75,000,000 $ $
- ----------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Plus accrued dividends, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $ payable by the Company.
(4) The Company has granted the Underwriter an option to purchase up to an
additional 450,000 shares of Series A Preferred Stock on the same terms set
forth above to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Series A Preferred Stock are offered by the Underwriter,
subject to prior sale, when, as and if issued by the Company, delivered to and
accepted by the Underwriter, subject to approval of certain legal matters by
counsel for the Underwriter and certain other conditions. The Underwriter
reserves 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 Series A
Preferred Stock will be made in New York, New York on or about ,
1997.
FURMAN SELZ
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 1997.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
SERIES A PREFERRED 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.
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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 the accompanying Prospectus or incorporated herein or therein by
reference. Unless otherwise indicated, the financial and statistical information
contained in this Prospectus Supplement assumes that the Underwriter's
over-allotment option will not be 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 which are primarily leased on a long-term basis to major
retail companies throughout the United States. As of September 30, 1996, the
Company owned or managed 40 shopping centers (the "Shopping Centers"), 71 single
tenant properties (the "Single Tenant Properties"), three commercial properties
and office buildings (the "Commercial Properties") and one additional property
which is held for disposition. The Shopping Centers consist of neighborhood and
community shopping centers which typically range from 100,000 to 200,000 square
feet in size. The Single Tenant Properties typically are either anchor stores
within shopping centers not owned by the Company or free standing properties
located in commercial areas, with triple net leases which 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. The Commercial Properties consist
of office buildings and commercial properties which the Company typically
purchases at an attractive price to take advantage of a distressed situation or
underutilized space. The Shopping Centers, Single Tenant Properties and
Commercial Properties accounted for approximately 62%, 37% and 1%, respectively,
of the annualized base rental income ("ABR") of the Company at September 30,
1996. As of September 30, 1996, the Company's 114 operating properties were
located in 26 states, contained approximately 7.4 million square feet of gross
leasable area ("GLA"), had an average age of seven years and were 97.3% leased.
The Company emphasizes investments in retail properties where a substantial
portion of such properties' GLA is subject to long-term net leases to national
or regional retail tenants. The Company seeks to lease to national or regional
retail tenants that market basic goods and services to consumers and enjoy a
leading position in their respective industries.
The Company's primary objective is to acquire, own and manage a portfolio
of commercial 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 this objective
by (i) aggressively managing its existing properties, (ii) continuing to acquire
well-located neighborhood and community shopping centers with tenants that have
a national or regional presence and an established credit quality, (iii)
disposing of mature properties to continually update its core property
portfolio, and (iv) continuing to maintain a strong and flexible financial
position to facilitate growth.
Since the Company's public offering in August 1993, the Company has
successfully acquired 42 properties for an aggregate purchase price of
approximately $252.3 million (representing 4.1 million square feet of GLA) and
disposed of 22 properties for an aggregate sales price of approximately $39.2
million (representing approximately 750,000 square feet of GLA). In addition,
for the nine months ended September 30, 1996 compared to the same period in the
prior year, the Company increased its ABR from $44.0 million to approximately
$46.1 million and increased its funds from operations ("FFO") from $19.1 million
to approximately $23.2 million.
RECENT DEVELOPMENTS
In December 1996, the Company issued in a public offering 2,990,000 shares
of Common Stock. The net proceeds to the Company were approximately $65.6
million and were used to repay certain indebtedness under
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the Company's unsecured, two-year revolving credit facility and for the
acquisition of two shopping centers and land adjacent to centers the Company
presently owns, as described below.
The Company purchased the Valley Fair Mall, a 608,000 square foot shopping
center located in West Valley City, a suburb of Salt Lake City, Utah. The
Company is currently in discussions with an institutional joint venture partner
for the redevelopment of the property which may include the addition of a fourth
anchor, the development of four to six possible out-parcels and the development
of four acres of undeveloped land included with the purchase. The center is
currently 85% occupied and was purchased for approximately $37.3 million subject
to a 7.6% fixed rate mortgage of $17.9 million. The Company also purchased
Northmall Centre, a 157,000 square foot "power center" located in Tucson,
Arizona, for $15.1 million. The Northmall Centre was acquired at cost from ERT
Development Corporation, the Company's development affiliate, which originally
funded the development of the center. The center is currently 100% occupied. The
Company also purchased two additional parcels of vacant land adjacent to
shopping centers currently owned by the Company. Land was purchased next to
Kinston Crossing in Kinston, North Carolina, and Crossroads Shopping Center in
Statesville, North Carolina for potential expansion of both of these centers.
In addition, during December 1996, the Company sold a single tenant
property located in Tucson, Arizona originally leased to Osco Drugs. The sale
price was approximately $1.25 million.
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THE OFFERING
Securities Offered.............. 3,000,000 shares of $ Series A
Cumulative Convertible Preferred Stock,
liquidation preference $25.00 per share.
Dividends....................... Cumulative commencing on the date of issue in
an amount per share equal to the greater of
$ per annum or the cash dividends
(determined on each of the quarterly dividend
payment dates referred to below) on the
shares of Common Stock (or portion thereof)
into which a share of Series A Preferred
Stock is convertible, payable quarterly in
arrears on the 15th day of January, April,
July and October of each year, commencing
, 1997 with respect to the period
commencing on the date of issue and ending on
, 1997. Such dividends will equal
the number of shares of Common Stock, or
portion thereof, into which a share of Series
A Preferred Stock is convertible, multiplied
by the most current quarterly distribution on
or before the applicable dividend payment
date.
Conversion Rights............... The Series A Preferred Stock will be
convertible, in whole or in part, at the
option of the holder at any time, unless
previously redeemed, into shares of Common
Stock, at a conversion price of $ per
share of Common Stock (equivalent to a
conversion rate of of a share of Common
Stock per share of Series A Preferred Stock),
subject to adjustment in certain
circumstances (the "Conversion Price").
Liquidation Preference.......... $25.00 per share, plus an amount equal to
accumulated, accrued and unpaid dividends.
Redemption of Option of the
Company......................... The Series A Preferred Stock will not be
redeemable by the Company prior to
, 2002. On and after ,
2002, the Series A Preferred Stock will be
redeemable by the Company, in whole or in
part, at the option of the Company, (i) for
such number of shares of Common Stock as
equals the per share liquidation preference
of the Series A Preferred Stock to be
redeemed (without regard to accumulated,
accrued and unpaid dividends, which are to be
paid in cash) divided by the Conversion
Price, or (ii) for cash at a redemption price
of $25.00 per share, plus any accumulated,
accrued and unpaid dividends. In order to
exercise its redemption option, the Company
must give not less than 30 nor more than 60
days' notice of its intention to do so.
Voting Rights................... If dividends on the Series A Preferred Stock
or any Parity Stock (as defined below) are in
arrears for six quarterly dividend periods,
holders of the Series A Preferred Stock
(voting as a single class with holders of
shares of any series of Preferred Stock
ranking on a parity with the Series A
Preferred Stock with respect, in each case,
to the payment of dividends and amounts upon
liquidation, dissolution and winding up
("Parity Stock")) will have the right to
elect two additional directors to
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serve on the Company's Board of Directors
until such dividend arrearage is eliminated.
In addition, certain changes that would be
materially adverse to the rights of holders
of the Series A Preferred Stock or Parity
Stock cannot be made without the affirmative
vote of two-thirds of the shares of Series A
Preferred Stock and the shares of any Parity
Stock similarly affected, voting as a single
class, entitled to be cast thereon.
Ownership Limit................. With certain exceptions, no person may own,
or be deemed to own by virtue of the
attribution provisions of the Internal
Revenue Code of 1986, as amended (the
"Code"), more than 9.8% by value of the
Company's capital stock.
Ranking......................... The Series A Preferred Stock will rank senior
to the Common Stock with respect to the
payment of dividends and amounts payable upon
liquidation, dissolution or winding up of the
Company.
NYSE Listing.................... The Company has applied for listing of the
Series A Preferred Stock on the NYSE under
the symbol "XELPrA."
Use of Proceeds................. The net proceeds from the Offering will be
used primarily to repay indebtedness and for
general working capital purposes. See "Use of
Proceeds."
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SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR NUMBER OF OPERATING PROPERTIES AND PER SHARE DATA)
The following table sets forth selected consolidated financial data for the
Company. The consolidated financial data of the Company as of and for the nine
months ended September 30, 1996 have been derived from unaudited financial
statements which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the unaudited interim periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue................................... $ 39,566 $ 39,928 $ 55,229 $ 41,014 $ 22,525 $ 5,827 $ 2,472
Depreciation and amortization................... 5,552 5,103 6,933 6,887 4,186 608 280
Total operating expenses........................ 13,516 15,772 22,403 14,165 9,235 3,357 1,162
Net operating income............................ 26,050 24,156 32,826 26,849 13,290 2,470 1,310
Interest expense................................ 14,911 14,038 22,458 14,190 9,360 2,218 1,340
Net income...................................... 16,851 13,144 18,192 13,796 3,232 454 65
Net income per share............................ 1.21 1.12 1.51 1.27 0.55 0.41 0.11
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate after accumulated depreciation...... $409,362 $374,578 $372,016 $349,255 $ 273,362 $112,971 $22,890
Total assets.................................... 473,631 418,851 428,307 375,100 290,226 116,621 24,768
Mortgages payable............................... 143,661 198,158 123,813 201,157 113,487 89,442 14,582
Total debt...................................... 230,785 210,234 219,629 211,202 128,264 93,343 15,119
Stockholders' equity............................ 242,846 208,617 208,678 163,898 161,962 22,312 9,649
OTHER DATA:
EBITDA(1)....................................... $ 37,314 $ 32,285 $ 47,583 $ 34,873 $ 16,778 $ 3,280 $ 1,685
Funds from operations(2)........................ 23,188 19,050 26,536 21,964 8,891 998 313
Cash flows provided (used):
Operating activities.......................... 20,047 21,903 28,895 24,652 6,263 1,364 666
Investing activities.......................... (26,389) (29,244) (28,425) (58,872) (110,605) (11,308) (2,249)
Financing activities.......................... 1,909 7,605 5,211 32,975 109,281 9,534 2,099
Distributions................................... 18,660 10,427 16,264 18,604 8,881 1,156 65
Distributions per share(3)...................... 1.35 0.88 1.32 1.71 1.42 1.13 1.02
Common shares outstanding (weighted average).... 13,924 11,684 12,084 10,883 5,878 1,110 615
Gross leasable area (sq. ft. at end of
period)....................................... 7,400 7,700 7,374 7,163 5,866 2,158 516
Number of operating properties (at end of
period)....................................... 114 111 112 110 98 42 9
</TABLE>
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(1) For purposes of this calculation, EBITDA is defined as earnings before
interest expense, taxes, depreciation and amortization. EBITDA is not
intended to represent cash flow for the period nor has it been presented as
an alternative to earnings from operations as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
(2) FFO does not represent cash flows from operations and may not be comparable
to similarly titled measures of other REITs. The Company believes that to
facilitate a clear understanding of its operating results, however, FFO
should be examined in conjunction with its net income. The Company is
accounting for FFO as net income before gains or losses on sales of real
estate (net of gains or losses on sales of undepreciated property), plus
depreciation on real estate, amortization, amortized 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. In May 1995, the National
Association of Real Estate Investment Trusts (NAREIT) issued a clarification
of its definition of FFO. Beginning in 1996, the Company revised its
definition of FFO to exclude the amortization of loan costs and depreciation
of furniture, equipment and vehicles as add-back items. FFO for periods
prior to 1996 has been restated to conform with the revised definition.
(3) In April 1995, the Company adopted a policy of declaring distributions to
stockholders of record on the first day of the succeeding quarter, instead
of the last day of the current quarter. The payment date of 15 days
following each quarter remained unchanged. Had the Company not changed its
distribution declaration date, the distributions would have been $1.32 and
$1.77 for the nine months ended September 30, 1995 and the year ended
December 31, 1995, respectively.
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RISK FACTORS
An investment in the Series A Preferred Stock offered hereby involves a
high degree of risk. Prospective investors should consider carefully the
following factors, in addition to other information contained in this Prospectus
Supplement, in connection with an investment in the Series A Preferred Stock
offered hereby.
This Prospectus Supplement includes certain statements that may be deemed
to be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Prospectus Supplement that
address activities, events or developments that the Company expects, believes or
anticipates will or may occur in the future, including such matters as future
capital expenditures, dividends and acquisitions (including the amount and
nature thereof), the use of proceeds of this Offering, expansion and other
development trends of the real estate industry, business strategies, expansion
and growth of the Company's operations and other such matters are forward-
looking statements. These statements are based on certain assumptions and
analyses made by the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate. Such statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors discussed
below, general economic and business conditions, the business opportunities that
may be presented to and pursued by the Company, changes in laws or regulations
and other factors, many of which are beyond the control of the Company.
Prospective investors are cautioned that any such statements are not guarantees
of future performance and that actual results or developments may differ
materially from those anticipated in the forward-looking statements.
GENERAL REAL ESTATE INVESTMENT RISKS
Economic Performance and Value of Centers Dependent on Many Factors. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climates, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs. In recent years, there has been a
proliferation of new retailers and a growing consumer preference for
value-oriented shopping alternatives that have, among other factors, heightened
competitive pressures. In certain areas of the country, there may also be an
oversupply of retail space. As a consequence, many companies in all sectors of
the retailing industry have encountered significant financial difficulties. A
substantial portion of the Company's income is derived from rental revenues from
retailers in neighborhood and community shopping centers. Accordingly, no
assurance can be given that the Company's financial results will not be
adversely affected by these developments in the retail industry.
Dependence on Rental Income from Real Property. Since substantially all of
the Company's income is derived from rental income from real property, the
Company's income and funds for distribution would be adversely affected if a
significant number of the Company's tenants were unable to meet their
obligations to the Company or if the Company were unable to lease a significant
amount of space in its properties on economically favorable lease terms. There
can be no assurance that any tenant whose lease expires in the future will renew
such lease or that the Company will be able to release space on economically
advantageous terms.
Illiquidity of Real Estate Investments. Equity real estate investments are
relatively illiquid and therefore tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. In addition, mortgage payments and, to the extent the properties are
not subject to triple net leases, certain significant expenditures such as real
estate taxes and maintenance costs, are generally not reduced when circumstances
cause a reduction in income from the investment, and should such events occur,
the Company's income and funds for distribution would be adversely affected. A
portion of the Company's properties are mortgaged to secure payment of
indebtedness, and if the Company were unable to meet its mortgage payments, a
loss could be sustained as a result of foreclosure on such properties by the
mortgagee.
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Risk of Bankruptcy of Major Tenants. The bankruptcy or insolvency of a
major tenant or a number of smaller tenants may have an adverse impact on the
properties affected and on the income produced by such properties. Under
bankruptcy law, a tenant has the option of affirming (continuing) or rejecting
(terminating) any unexpired lease. If the tenant affirms its lease with the
Company, the tenant must cure all defaults under the lease and provide the
Company with adequate assurance of its future performance under the lease. If
the tenant rejects the lease, the Company's claim for breach of the lease would
(absent collateral securing the claim) be treated as a general unsecured claim.
The amount of the claim would be capped at the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of one
years' lease payments or 15% of the remaining lease payments payable under the
lease (but not to exceed the amount of three years' lease payments).
Environmental Risks. Under various federal, state and local laws,
ordinances and regulations, the Company may be considered an owner or operator
of real property or may have arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, may become liable for the costs of removal
or remediation of certain hazardous substances released on or in its property or
disposed of by it, as well as certain other potential costs which could relate
to hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the Company
knew of, or was responsible for, the presence of such hazardous or toxic
substances.
RELIANCE ON MAJOR TENANTS
As of September 30, 1996, the Company's two largest tenants were Wal-Mart
Stores, Inc. ("Wal-Mart") and Kmart Corporation ("Kmart"), which accounted for
approximately 14.4% and 13.9%, respectively, of the Company's ABR as of such
date. The financial position of the Company and its ability to make
distributions may be adversely affected by financial difficulties experienced by
either of such tenants, or any other major tenant of the Company, including a
bankruptcy, insolvency or general downturn in the business of any such tenant,
or in the event any such tenant does not renew its leases as they expire. In
that regard, it has been reported in the media that Kmart is experiencing
operating and financial difficulties. See "Business and Properties -- Principal
Lessees."
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
As of September 30, 1996, directors and executive officers of the Company
beneficially owned approximately 7.5% of the Company's Common Stock (including
shares representing approximately 4.0% of the Common Stock which may be acquired
upon the exercise of options exercisable within 60 days). Accordingly, such
persons should continue to have substantial influence over the Company and on
the outcome of matters submitted to the Company's stockholders for approval.
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
Ownership Limit. In order for the Company to maintain its qualification as
a REIT, not more than 50% in value of the outstanding shares of its capital
stock may be owned, actually or constructively, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year. Furthermore, the Company's shares must be held by a minimum of 100
persons for at least 335 days of a 12-month taxable year (or proportionate part
of a short tax year). In addition, if the Company, or an actual or constructive
owner of 10% or more of the Company, actually or constructively owns 10% or more
of a tenant of the Company (or a tenant of any partnership in which the Company
is a partner), the rent received by the Company (either directly or through any
such partnership) from such tenant will not be qualifying income for purposes of
the REIT gross income tests of the Code. See "Certain Federal Income Tax
Considerations to the Company of its REIT Election -- Taxation of the Company as
a REIT" in the accompanying Prospectus. In order to protect the Company against
the risk of losing REIT status due to a concentration of ownership among its
stockholders, the Company's Articles of Amendment and Restatement (the
"Charter") provides for limitation of actual or constructive ownership of the
outstanding shares of the Company's capital stock by a single person to 9.8% by
value of the then outstanding shares of capital stock. See "Restrictions on
Ownership of Capital Stock" in the accompanying Prospectus. Although the
Company's Board of Directors presently has
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no intention of doing so, the Board of Directors could waive this restriction
with respect to a particular stockholder if it were satisfied, based upon the
advice of tax counsel or otherwise, that ownership by such stockholder in excess
of the Ownership Limit (as defined in the accompanying Prospectus) would not
jeopardize the Company's status as a REIT.
The Charter of the Company further provides that actual or constructive
ownership of shares of capital stock in excess of the Ownership Limit will cause
the violative transfer of ownership to be void with respect to the transferee as
to that number of shares in excess of the Ownership Limit and such shares will
be automatically transferred to a trust for the benefit of a qualified
charitable organization. Such purported transferee would have no right to vote
such shares or be entitled to dividends or other distributions with respect to
such shares. See "Restrictions on Ownership of Capital Stock" in the
accompanying Prospectus for additional information regarding the Ownership
Limit.
Staggered Board. The Board of Directors of the Company has three classes of
directors, the terms of which will expire in 1997, 1998 and 1999. Directors for
each class are chosen for a three-year term.
The percentage ownership limit and the staggered terms for directors could
have the effect of (i) delaying or preventing a change in control of the Company
even if a change in control were in the stockholders' interest, (ii) deterring
tender offers for the Common Stock that may be beneficial to the stockholders,
or (iii) limiting the opportunity for stockholders to receive a premium for
their Common Stock that might otherwise exist if an investor attempted to
assemble a block of shares of Common Stock in excess of the percentage ownership
limit or otherwise to effect a change in control of the Company.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The Company currently has a policy of limiting the extent of its borrowing
to approximately 50% of its total market capitalization (i.e., the sum of the
aggregate market value of the Company's Common Stock, the liquidation preference
of any preferred shares outstanding, and the Company's total debt), but the
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness the Company may incur. Accordingly, the
Board of Directors could alter or eliminate the current policy on borrowing. If
this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's FFO and ability to make expected distributions to stockholders and in
an increased risk of default on its obligations.
MARKET FOR SERIES A PREFERRED STOCK
There has been no public market for the Series A Preferred Stock prior to
this offering. Due to the absence of any prior public market for the Series A
Preferred Stock, there can be no assurance that the initial public offering
price will correspond to the price at which the Series A Preferred Stock will
trade in the public market subsequent to this offering. The Company has applied
for the listing of the Series A Preferred Stock on the NYSE. Prices for the
Series A Preferred Stock will be determined in the marketplace and may be
influenced by many factors, including the liquidity of the market for the Series
A Preferred Stock, investor perceptions of the Company, the market price of the
Common Stock and general industry and economic conditions. The Company has
applied for listing on the NYSE of the shares of Common Stock into which the
Series A Preferred Stock will be convertible.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
The Company has elected to be taxed as a REIT for federal income tax
purposes commencing with its taxable year ended December 31, 1987, and believes
that, commencing with such taxable year, it has been organized and has operated
in conformity with the requirements for qualification as a REIT under the Code.
Although the Company believes that it will continue to operate in such a manner,
no assurance can be given that the Company will remain qualified as a REIT.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and others on a quarterly basis) established under highly technical
and complex Code provisions for which there are only limited judicial and
administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely
S-10
<PAGE> 11
within the Company's control. For example, in order to qualify as a REIT, at
least 95% of the Company's gross income in any year must be derived from
qualifying sources and the Company must pay distributions to stockholders
aggregating annually at least 95% of its REIT taxable income (determined without
regard to the dividends-paid deduction and by excluding net capital gains). The
complexity of these provisions and of the applicable Treasury Regulations that
have been promulgated under the Code is greater in the case of a REIT that holds
assets in partnership form. No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of such qualification. See "Certain Federal
Income Tax Considerations to the Company of its REIT Election -- Failure to
Qualify" in the accompanying Prospectus. The Company is relying on the opinion
of Latham & Watkins, tax counsel to the Company, regarding various issues
affecting the Company's ability to qualify, and continue to qualify, as a REIT.
See "Legal Matters" herein and "Certain Federal Income Tax Considerations to the
Company of its REIT Election -- Taxation of the Company as a REIT" in the
accompanying Prospectus. Such legal opinion is based on various assumptions and
factual representations by the Company regarding the Company's ability to meet
the various requirements for qualification as a REIT, and no assurance can be
given that actual operating results will meet these requirements. Such legal
opinion is not binding on the Internal Revenue Service ("IRS") or any court.
Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed 5% of the REIT's total assets
on certain testing dates. See "Federal Income Tax Considerations to the Company
of its REIT Election -- Taxation of the Company as a REIT -- Requirements for
Qualification" in the accompanying Prospectus. The Company believes that the
aggregate value of the securities of ERT Development Corporation ("ERT") held by
the Company are less than 5% of the value of the Company's total assets. In
rendering its opinion as to the qualification of the Company as a REIT, Latham &
Watkins is relying on the conclusions of the Company regarding the value of ERT.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates and
would not be allowed a deduction in computing its taxable income for amounts
distributed to its stockholders. Moreover, unless entitled to relief under
certain statutory provisions, the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the
Company available for investment or distribution to stockholders because of the
additional tax liability of the Company for the years involved. In addition,
distributions to stockholders would no longer be required to be made. See
"Federal Income Tax Considerations to the Company of its REIT
Election -- Taxation of the Company as a REIT -- Requirements for Qualification"
in the accompanying Prospectus.
ADVERSE CONSEQUENCES OF FAILURE OF PARTNERSHIPS IN WHICH THE COMPANY IS A
PARTNER TO QUALIFY AS PARTNERSHIPS FOR FEDERAL INCOME TAX PURPOSES
The Company holds a number of properties indirectly through partnerships.
If the IRS were to successfully challenge the tax status of any such partnership
as a partnership for federal income tax purposes, such partnership would be
treated as an association taxable as a corporation. In such event, the character
of the Company's assets held through such partnership and income derived from
such partnership would change, which would preclude the Company from satisfying
the asset tests and possibly the income tests (as imposed by the REIT provisions
of the Code) and, in turn, would prevent the Company from qualifying as a REIT.
The imposition of a corporate tax on any partnership treated as an association
for tax purposes, combined with the loss of REIT status of the Company, would
also materially adversely affect the amount of cash available for distribution
to the Company and its stockholders. See "Federal Income Tax Considerations to
the Company of its REIT Election -- Other Tax Matters" in the accompanying
Prospectus.
S-11
<PAGE> 12
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 which are primarily leased on a long-term basis to major
retail companies throughout the United States. As of September 30, 1996, the
Company owned or managed 40 shopping centers (the "Shopping Centers"), 71 single
tenant properties (the "Single Tenant Properties"), three commercial properties
and office buildings (the "Commercial Properties") and one additional property
which is held for disposition. The Shopping Centers consist of neighborhood and
community shopping centers which typically range from 100,000 to 200,000 square
feet in size. The Single Tenant Properties typically are either anchor stores
within shopping centers not owned by the Company or free standing properties
located in commercial areas, with triple net leases which 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. The Commercial Properties consist
of office buildings and commercial properties which the Company typically
purchases at an attractive price to take advantage of a distressed situation or
underutilized space. The Shopping Centers, Single Tenant Properties and
Commercial Properties accounted for approximately 62%, 37% and 1%, respectively,
of the annualized base rental income ("ABR") of the Company at September 30,
1996. As of September 30, 1996, the Company's 114 operating properties were
located in 26 states, contained approximately 7.4 million square feet of gross
leasable area ("GLA"), had an average age of seven years and were 97.3% leased.
The Company emphasizes investments in retail properties where a substantial
portion of such properties' GLA is subject to long-term net leases to national
or regional retail tenants. The Company seeks to lease to national or regional
retail tenants that market basic goods and services to consumers and enjoy a
leading position in their respective industries.
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. As of
September 30, 1996, management of the Company owned approximately 7.5% of the
Company's Common Stock (including shares representing approximately 4.0% of the
Common Stock which may be acquired upon the exercise of options exercisable
within 60 days).
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 primary objective is to acquire, own and manage a portfolio
of commercial 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 this objective
by (i) aggressively managing its 114 existing operating properties, (ii)
continuing to acquire well-located neighborhood and community shopping centers
with tenants that have a national or regional presence and an established credit
quality, (iii) disposing of mature properties to continually update its core
property portfolio, and (iv) continuing to maintain a strong and flexible
financial position to facilitate growth.
Since the Company's public offering in August 1993, the Company has
successfully acquired 42 properties for an aggregate purchase price of
approximately $252.3 million (representing approximately 4.1 million square feet
of GLA) and disposed of 22 properties for an aggregate sales price of
approximately $39.2 million (representing approximately 750,000 square feet of
GLA). In addition, for the nine months ended September 30, 1996 compared to the
same period in the prior year, the Company increased its ABR from $44.0 million
to approximately $46.1 million and increased its FFO from $19.1 million to
approximately $23.2 million.
S-12
<PAGE> 13
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. The
Company follows a schedule of regular physical maintenance with a view towards
tenant expansion, renovations and refurbishing to preserve and increase the
value of its properties. Renovations include upgrading of existing facades,
updating signage, resurfacing parking lots and improving parking lot and
exterior building lighting. Through the maintenance and repair of its own
parking lots and roofs, the Company estimates that it saves approximately 30% of
such costs annually.
In addition to the 22 employees at the Company's San Diego, California
headquarters, the Company employs approximately 47 property management personnel
at its seven field offices in Phoenix, Arizona; Orlando, Florida; Atlanta,
Georgia; Lexington, Kentucky; Raleigh, North Carolina, Chattanooga, Tennessee;
and Salt Lake City, Utah. Each of the Company's field offices is responsible for
managing the leasing, property management and maintenance of the Company's
properties in its region. The Company also employs a team of eight people at its
Salt Lake City, Utah office whose efforts are dedicated solely to acquisitions
and dispositions of the Company's properties.
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.
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 an established credit quality and that the Company believes will
have the ability to make timely lease payments over the term of the lease. When
acquiring properties, however, primary emphasis is placed on the quality of the
location and comparable market rents as opposed to a particular tenant. The
Company intends to continue to concentrate its property acquisitions in the
southwestern and southeastern United States, where a majority of its current
properties are located. Management believes that such emphasis will allow the
Company to utilize its current property management and maintenance personnel in
these areas. The Company may, however, acquire properties in other areas of the
United States. Additionally, the Company intends to continue to evaluate its
property type mix and may purchase from time to time other properties that the
Company believes will meet its objectives. The Company has identified
approximately $200.0 million of properties which are in various stages of the
Company's acquisition process and which meet its general investment objectives.
There can be no assurance, however, that the acquisition of all or any of these
properties will be consummated.
During the nine months ended September 30, 1996, the Company acquired seven
Shopping Centers, the aggregate cost of which was approximately $41.8 million.
In connection with such purchases, the Company assumed $25.4 million of existing
indebtedness. Since September 30, 1996, the Company has acquired two additional
Shopping Centers. See "Prospectus Supplement Summary -- The Company -- Recent
Developments."
Acquisitions through Partnerships. The Company may from time to time enter
into joint venture partnership arrangements with certain institutions for the
purchase and management of properties. The Company may also 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
("ERP"), to facilitate additional potential acquisitions. During the nine months
ended September 30, 1996,
S-13
<PAGE> 14
ERP acquired six properties with a value of approximately $43.2 million in
exchange for partnership units, assumption of mortgage debt and cash.
Joint Venture Development. The Company may from time to time finance
properties under development, provided that the developer of each such property
has previously obtained (i) all necessary entitlements allowing completion of
the property and (ii) signed leases from the principal tenant(s) who will occupy
the property. Under this financing method, the Company either purchases the
undeveloped property and leases such property back to the developer or makes a
subordinated loan to the developer, and upon completion, the Company has the
option to purchase the development. The Company believes that these methods of
financing give the Company opportunities to purchase developed properties at
capitalization rates slightly above those which might otherwise be available
after completion of development. The Company financed the development of five
properties during the nine months ended September 30, 1996 using the foregoing
financing method.
A summary of acquisition activity since the Company's public offering in
August 1993 is set forth below.
<TABLE>
<CAPTION>
PERCENT PURCHASE
ACQUISITION COMPANY'S TOTAL GLA LEASED AS OF PRICE
DATE PROPERTY NAME LOCATION INTEREST (SQ. FT.) 09/30/96 (000S)
- -------------- ------------------------- ---------------------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
4th Qtr. 1996 Northmall Centre Tucson, AZ 100% 157,057 100 $ 15,100
4th Qtr. 1996 Valley Fair Mall W. Valley City, UT 100 608,000 85 37,300
3rd Qtr. 1996 Chili's Tucson, AZ 100 5,997 100 507
3rd Qtr. 1996 Ruby Tuesday Tucson, AZ 100 5,665 100 468
3rd Qtr. 1996 University Commons Statesboro, GA 100 59,814 100 4,839
1st Qtr. 1996 Crossroads Statesville, NC 100 246,791 100 16,665
1st Qtr. 1996 Granville Corners Oxford, NC 100 136,549 100 8,203
1st Qtr. 1996 The Shops of Riverdale Riverdale, GA 100 34,255 88 2,752
1st Qtr. 1996 Roanoke Landing Williamston, NC 100 156,561 98 8,390
4th Qtr. 1995 Farrar Place Manchester, TN 100 39,220 100 2,306
4th Qtr. 1995 Hazel Path Shopping Hendersonville, TN 100 68,345 100 3,786
Center
4th Qtr. 1995 Palmetto Crossing Hilton Head, SC 100 40,920 100 3,306
3rd Qtr. 1995 Anson Station Wadesboro, NC 100 130,800 100 6,478
3rd Qtr. 1995 Kinston Pointe Kinston, NC 100 170,166 88 8,217
2nd Qtr. 1995 Foothills Market Jonesville, NC 100 44,350 91 2,355
2nd Qtr. 1995 Piney Grove Plaza Kernersville, NC 100 49,709 98 3,143
2nd Qtr. 1995 Roxboro Square Roxboro, NC 100 98,980 100 5,275
2nd Qtr. 1995 Siler Crossing Siler City, NC 100 132,639 96 6,672
2nd Qtr. 1995 Village Marketplace Asheboro, NC 100 87,800 96 6,026
4th Qtr. 1994 Chapel Square Kannapolis, NC 100 45,450 100 2,959
3rd Qtr. 1994 Q-Club Scottsdale, AZ 100 44,374 100 5,207
2nd Qtr. 1994 Q-Club Phoenix, AZ 100 44,374 100 5,179
2nd Qtr. 1994 Lexington Road Plaza Versailles, KY 100 182,732 100 11,091
2nd Qtr. 1994 Sun Valley Plaza Mesa, AZ 100 80,678 79 3,012
2nd Qtr. 1994 Lake Wales Center Lake Wales, FL 100 102,161 100 5,795
1st Qtr. 1994 Valley View Plaza Marion, IN 100(1) 30,000 88 1,877
1st Qtr. 1994 Stanly County Plaza Albermarle, NC 100(1) 63,637 96 2,811
1st Qtr. 1994 London Marketplace London, KY 100 169,032 100 9,574
1st Qtr. 1994 Circle Center Hilton Head, SC 100 65,313 99 6,946
1st Qtr. 1994 Lakewood Village Celina, OH 100(1) 113,897 96 4,434
1st Qtr. 1994 Woodland Plaza Warsaw, IN 100(1) 31,000 93 1,625
1st Qtr. 1994 Wabash Valley Plaza Terre Haute, IN 100(1) 79,135 98 4,631
1st Qtr. 1994 Brooksville Square Brooksville, FL 100(1) 96,562 89 5,084
1st Qtr. 1994 Lowes Home Centers, Inc. Middletown, OH 100 126,400 100 6,248
1st Qtr. 1994 Lucky Phoenix, AZ 100 28,217 100 1,346
1st Qtr. 1994 Kmart Atlantic, IA 100 40,318 100 1,613
1st Qtr. 1994 Excel Building San Diego, CA 100 19,942 100 2,515
1st Qtr. 1994 Kash n Karry Homosassa Springs, FL 100 29,600 100 1,080
4th Qtr. 1993 Covington Gallery Covington, GA 100 172,482 99 9,110
4th Qtr. 1993 Ashland Square Ashland, OH 100 162,749 100 7,683
3rd Qtr. 1993 Galleria Scottsdale, AZ 100 670,000 100 6,000
3rd Qtr. 1993 Irving West Irving, TX 100 70,056 100 4,729
--------- --------
Total 4,141,727 $252,337
========= ========
</TABLE>
S-14
<PAGE> 15
- ---------------
(1) The Company owns a 99.82% interest in these properties, as the sole general
partner of the partnership holding the properties, E.H. Properties, L.P. The
limited partner has an option to convert its equity interest of 0.18% into
Common Stock of the Company at $22.25 per share. Upon such conversion, the
partnership will be dissolved.
Disposition of Properties
The Company continually analyzes each asset in its portfolio and identifies
those properties which can be sold or exchanged (to the extent consistent with
REIT qualification requirements) for optimal sales prices (or exchange values)
given prevailing market conditions and the particular characteristics of each
property. Through this strategy, the Company seeks to continually update its
core property portfolio by disposing of properties which have limited
appreciation potential and redeploy capital into newer properties or properties
where its aggressive management techniques may maximize property values. The
Company engages from time to time in like-kind property exchanges (i.e., Code
Section 1031 exchanges) which allow the Company to dispose of properties and
redeploy proceeds in a tax efficient manner. Since the Company's public offering
in August 1993, the Company has disposed of or exchanged 22 properties for an
aggregate sales price (or exchange value) of approximately $39.2 million.
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. 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 or
exchanged (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
take appropriate measures before entering into any binding agreement to dispose
of an asset to determine that such disposition will not result in the
disqualification of the Company as a REIT.
A summary of disposition activity since the Company's public offering in
August 1993 is set forth below.
<TABLE>
<CAPTION>
SALES
DISPOSITION TOTAL GLA PRICE
DATE PROPERTY NAME LOCATION (SQ. FT.) (000S)
- ------------------- ------------------------------------- --------------------- --------- ----------
<S> <C> <C> <C> <C>
4th Qtr. 1996 Ben Franklin(1) Tucson, AZ 25,818 $ 1,179
4th Qtr. 1996 Mountain Jacks Mentor, OH 6,040 1,078
3rd Qtr. 1996 Q-Club Pad Phoenix, AZ 24,000(2) 517
3rd Qtr. 1996 Kmart(1) Fargo, ND 55,552 1,172
1st Qtr. 1996 Kindercare Ventura, CA 7,472 814
4th Qtr. 1995 Kmart(1) Goose Creek, SC 72,897 1,916
4th Qtr. 1995 Talley Plaza Phoenix, AZ 225,870 16,335
4th Qtr. 1995 Osco Drug(1) Phoenix, AZ 25,625 747
4th Qtr. 1995 Kmart(1) Casa Grande, AZ 50,000 750
3rd Qtr. 1995 Payless ShoeSource Veradale, WA 3,010 545
2nd Qtr. 1995 Safeway Colorado Springs, CO 44,240 3,334
2nd Qtr. 1995 Safeway Houston, TX 50,848 2,807
2nd Qtr. 1995 Safeway Chehalis, WA 24,960 1,524
1st Qtr. 1995 Osco Drug(1) Mesa, AZ 24,789 1,091
1st Qtr. 1995 Chester's Roseville, MN 5,000 377
4th Qtr. 1994 Lucky(1) Champaign, IL 29,427 1,597
3rd Qtr. 1994 Otero Savings & Loan Pueblo, CO 4,000 263
2nd Qtr. 1994 Miami Wings & Things Miami, FL 2,768 384
1st Qtr. 1994 Safeway(1) Odessa, TX 44,382 844
1st Qtr. 1994 Diversified Hospitality Group, Inc. League City, TX 1,675 196
4th Qtr. 1993 Green Mill St. Paul, MN 14,240 791
4th Qtr. 1993 Fuddruckers Tucson, AZ 7,500 898
------- -------
Total 750,113 $ 39,159
======= =======
</TABLE>
S-15
<PAGE> 16
- ---------------
(1) The Company received a lease termination fee from this tenant in addition to
sales proceeds.
(2) Represents total square footage of land.
FINANCING STRATEGY
The Company intends to finance future acquisitions with the most
advantageous sources of capital available to the Company at that 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's financing strategy is to
maintain a strong and flexible financial position by (i) maintaining a prudent
level of leverage, (ii) maintaining a large pool of unencumbered properties,
(iii) managing its variable rate exposure, (iv) amortizing existing mortgages
over the term of the leases for such mortgaged properties, and (v) maintaining a
low distribution payout ratio (i.e., distributions paid in respect of a year as
a percentage of FFO for such year).
After giving effect to the Offering, the Company's ratio of debt to total
market capitalization at September 30, 1996 on a pro forma basis would be
approximately 27.0%. In addition, since the repayment in full of the Company's
REMIC in December 1995 (as described below), approximately 69% of the Company's
portfolio of properties is unencumbered.
The Company may seek variable rate financing from time to time if such
financing appears advantageous in light of then-prevailing market conditions. In
such case, the Company will consider hedging against interest rate risk through
interest rate protection agreements, interest rate swaps or other means.
In December 1995, the Company obtained an unsecured, two-year revolving
credit facility (the "Unsecured Revolving Credit Facility") of up to $150.0
million from a group of six banks led by the First National Bank of Boston
("FNBB"). Upon obtaining the Unsecured Revolving Credit Facility, the Company
borrowed $82.8 million and used approximately $76.0 million of such borrowings
to repay in full the outstanding balance of the Company's securitized mortgage
financing known as a real estate mortgage investment conduit ("REMIC"), and the
balance to repay in full the Company's former secured revolving credit facility
with FNBB (the "Secured Revolving Credit Facility") and for loan fees. With the
Company's unsecured real estate base at September 30, 1996, the Company had an
additional $34.4 million available under the Unsecured Revolving Credit
Facility. See "Certain Indebtedness."
The Company's distribution payout ratio for the period ended September 30,
1996 was approximately 80%, allowing the Company to retain capital to maintain
the quality of its portfolio, as well as to develop and expand properties.
Distribution payout ratio represents distributions divided by FFO (as described
in Note 2 to the Selected Consolidated Financial Data).
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Series A Preferred
Stock offered hereby (after deducting underwriting discounts and commissions and
estimated offering expenses) are approximately $ million ($ million if
the Underwriters' over-allotment option is exercised in full). The Company
presently intends to use the net proceeds of the Offering to repay approximately
$70.0 million of indebtedness currently outstanding under the Unsecured
Revolving Credit Facility and for general corporate purposes. Borrowings under
the Unsecured Revolving Credit Facility bear interest at a rate of LIBOR plus
1.75% (approximately 7.2% at September 30, 1996), are available for, among other
things, acquisitions and working capital, and mature in December 1997.
Pending such use, the Company may invest proceeds of the Offering in
short-term investment grade, income producing investments such as investments in
commercial paper, government securities or money market funds that invest in
government securities.
S-16
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1996, (ii) as adjusted to give effect to an offering of 2,990,000
shares of Common Stock which was completed in December, 1996 and (iii) as
further adjusted to give effect to the Offering and the anticipated use of
proceeds of the Offering as described under "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------------
OUTSTANDING AS ADJUSTED AS FURTHER ADJUSTED
----------- ----------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Notes payable(1)................................. $ 78,267 $ 12,822 $ --
Mortgages payable................................ 143,661 143,661 143,661
--------- --------- ---------
Total debt.................................... $ 221,928 $ 156,483 143,661
========= ========= =========
Stockholders' equity:
Preferred stock, par value $.01 per share,
10,000,000 shares authorized, no shares issued
and outstanding as adjusted; 3,000,000 shares
issued and outstanding, as further adjusted... -- -- 30(2)
Common stock, par value $.01 per share,
100,000,000 shares authorized, 15,023,564
shares issued and outstanding, 18,013,564
shares issued and outstanding as adjusted and
as further adjusted........................... 150(2) 180(3) 180(3)
Additional paid-in capital....................... 254,490 319,905(3) 392,425(3)
--------- --------- ---------
Accumulated distributions in excess of net
income........................................ (11,794) (11,794) (11,794)
--------- --------- ---------
Total stockholders' equity.................... $ 242,846 $ 308,291(3) $ 380,841(3)
--------- --------- ---------
Total capitalization..................... $ 464,774 $ 464,774(3) $ 524,502(3)
========= ========= =========
</TABLE>
- ---------------
(1) Includes approximately $75.0 million outstanding under the Unsecured
Revolving Credit Facility as of September 30, 1996. Subsequent to September
30, 1996, the Company has borrowed a net additional $57.8 million under the
Unsecured Revolving Credit Facility, before repayments made.
(2) Assumes that the Underwriter does not exercise the over-allotment option.
(3) Does not include approximately 847,052 shares of Common Stock issuable upon
the exercise of options and warrants presently outstanding and up to
approximately 350,237 other shares of Common Stock issuable to various
parties upon the occurrence of certain events as of September 30, 1996.
S-17
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR NUMBER 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 Annual
Report on Form 10-K for the year ended December 31, 1995, as amended, and the
Condensed Consolidated Financial Statements and Notes thereto included in the
Company's Quarterly Report on Form 10-Q for the nine months ended September 30,
1996, each incorporated by reference herein. Operating results for the nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the entire year ended December 31, 1996.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue....................... $ 39,566 $ 39,928 $ 55,229 $ 41,014 $ 22,525 $ 5,827 $ 2,472
Depreciation and amortization....... 5,552 5,103 6,933 6,887 4,186 608 280
Total operating expenses............ 13,516 15,772 22,403 14,165 9,235 3,357 1,162
Net operating income................ 26,050 24,156 32,826 26,849 13,290 2,470 1,310
Interest expense.................... 14,911 14,038 22,458 14,190 9,360 2,218 1,340
Net income.......................... 16,851 13,144 18,192 13,796 3,232 454 65
Net income per share................ 1.21 1.12 1.51 1.27 0.55 0.41 0.11
BALANCE SHEET DATA (AT END OF
PERIOD):
Real estate after accumulated
depreciation...................... $409,362 $374,578 $372,016 $349,255 $273,362 $112,971 $22,890
Total assets........................ 473,631 418,851 428,307 375,100 290,226 116,621 24,768
Mortgages payable................... 143,661 198,158 123,813 201,157 113,487 89,442 14,582
Total debt.......................... 230,785 210,234 219,629 211,202 128,264 93,343 15,119
Stockholders' equity................ 242,846 208,617 208,678 163,898 161,962 22,312 9,649
Other Data:
EBITDA(1)........................... $ 37,314 $ 32,285 $ 47,583 $ 34,873 $ 16,778 $ 3,280 $ 1,685
Funds from operations(2)............ 23,188 19,050 26,536 21,964 8,891 998 313
Cash flows provided (used):
Operating activities.............. 20,047 21,903 28,895 24,652 6,263 1,364 666
Investing activities.............. (26,389) (29,244) (28,425) (58,872) (110,605) (11,308) (2,249)
Financing activities.............. 1,909 7,605 5,211 32,975 109,281 9,534 2,099
Distributions....................... 18,660 10,427 16,264 18,604 8,881 1,156 65
Distributions per share(3).......... 1.35 0.88 1.32 1.71 1.42 1.13 1.02
Common shares outstanding (weighted
average).......................... 13,924 11,684 12,084 10,883 5,878 1,110 615
Gross leasable area (sq. ft. at end
of period)........................ 7,400 7,700 7,374 7,163 5,866 2,158 516
Number of operating properties (at
end of period).................... 114 111 112 110 98 42 9
</TABLE>
- ---------------
(1) For purposes of this calculation, EBITDA is defined as earnings before
interest expense, taxes, depreciation and amortization. EBITDA is not
intended to represent cash flow for the period nor has it been presented as
an alternative to earnings from operations as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
(2) FFO does not represent cash flows from operations and may not be comparable
to similarly titled measures of other REITs. The Company believes that to
facilitate a clear understanding of its operating results, however, FFO
should be examined in conjunction with its net income. The Company is
accounting for FFO as net income before gains or losses on sales of real
estate (net of gains or losses on sales of undepreciated property), plus
depreciation on real estate, amortization, amortized 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. In May 1995, the National
Association of Real Estate Investment Trusts (NAREIT) issued a clarification
of its definition of FFO. Beginning in 1996, the Company revised its
definition of FFO to exclude the amortization of loan costs and depreciation
of furniture, equipment and vehicles as add-back items. FFO for periods
prior to 1996 has been restated to conform with the revised definition.
(3) In April 1995, the Company adopted a policy of declaring distributions to
stockholders of record on the first day of the succeeding quarter, instead
of the last day of the current quarter. The payment date of 15 days
following each quarter remained unchanged. Had the Company not changed its
distribution declaration date, the distributions would have been $1.32 and
$1.77 for the nine months ended September 30, 1995 and the year ended
December 31, 1995, respectively.
S-18
<PAGE> 19
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 sales prices for the Common Stock for the fiscal
periods indicated as reported by the NYSE and the distributions per share paid
by the Company with respect to each such period.
On January 16, 1997, the last reported sales price of the Common Stock on
the NYSE was $24.25.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
------- ------- -------------
<S> <C> <C> <C>
1995:
First Quarter............................. $19.125 $16.375 $ 0.430
Second Quarter............................ $20.750 $18.125 $ 0.000(1)
Third Quarter............................. $20.125 $19.000 $ 0.445
Fourth Quarter............................ $21.125 $18.250 $ 0.445
1996:
First Quarter............................. $20.875 $19.125 $ 0.445
Second Quarter............................ $21.250 $18.000 $ 0.460
Third Quarter............................. $22.500 $19.500 $ 0.460
Fourth Quarter............................ $25.375 $21.500 $ 0.460
1997:
First Quarter (through January 16)........ $25.125 $23.375
</TABLE>
- ---------------
(1) In April 1995, the Company adopted a policy of declaring distributions to
stockholders of record on the first day of the succeeding quarter, instead
of the last day of the current quarter. The payment date of 15 days
following each quarter remained unchanged.
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 Code 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 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 72.7% of the distributions paid during 1995
represented ordinary dividend income to its stockholders and approximately 27.3%
represented return of capital. Distributions paid during 1994 have been
determined by the Company to be comprised of approximately 86.2% ordinary
dividend income and 13.8% 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, cause shares of Common
Stock to be repurchased 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-19
<PAGE> 20
BUSINESS AND PROPERTIES
PROPERTY PORTFOLIO
As of September 30, 1996, the Company's properties consisted of 40 Shopping
Centers, 71 Single Tenant Properties, three Commercial Properties and one
additional property which is held for disposition. As set forth in the following
table, such properties were located in 26 states, contained approximately 7.4
million square feet of GLA and generated approximately $46.1 million in ABR as
of September 30, 1996.
<TABLE>
<CAPTION>
PERCENT OF
SCHEDULED
NUMBER OF PERCENT TOTAL GLA ANNUALIZED BASE ANNUAL BASE
STATE PROPERTIES LEASED (SQ. FT.) RENTAL INCOME RENTAL INCOME
- ------------------------------- ---------- -------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Alabama 3 100.0% 94,329 $ 530,585 1.2%
Arizona 13 97.1 802,618 6,048,433 13.1
Arkansas 2 100.0 105,459 528,883 1.1
California 2 87.6 34,558 627,831 1.4
Colorado 3 100.0 156,776 627,770 1.4
Florida 6 97.6 542,822 3,536,452 7.7
Georgia 7 97.8 565,912 4,091,119 8.9
Illinois 9 100.0 397,127 2,596,479 5.6
Indiana 13 95.4 490,302 2,693,471 5.8
Iowa 3 100.0 104,208 562,969 1.2
Kentucky 4 99.2 612,696 3,726,985 8.1
Louisiana 1 100.0 41,293 228,671 0.5
Michigan 3 100.0 107,614 555,691 1.2
Minnesota 2 100.0 12,263 185,324 0.4
Missouri 4 61.4 188,957 1,116,859 2.4
Nebraska 3 100.0 70,513 429,978 0.9
New Jersey 1 100.0 55,552 271,780 0.6
North Carolina 12 97.1 1,363,432 8,312,372 18.0
Ohio 5 99.1 449,823 2,326,240 5.0
Oklahoma 1 100.0 45,510 280,344 0.6
Pennsylvania 3 100.0 180,288 1,156,348 2.5
South Carolina 3 98.9 148,363 1,164,181 2.5
Tennessee 3 98.7 297,169 1,297,067 2.8
Texas 6 100.0 301,066 1,874,205 4.1
Virginia 1 100.0 193,238 1,124,764 2.4
Wisconsin 1 100.0 59,097 218,017 0.5
--- ---- --------- --------- -----------
Total 114(1) 97.3%(2) 7,420,985 $46,112,818(3) 100.0%
=== ==== ========= ========= ===========
</TABLE>
- ---------------
(1) The Company had 114 operating properties and one property held for sale as
of September 30, 1996.
(2) Percent of total GLA leased as of September 30, 1996.
(3) Includes income from space leased for which rent is being paid but which is
not presently occupied. See "Single Tenant Properties" table below.
The following table contains a summary of certain information regarding the
Company's properties as of September 30, 1996.
<TABLE>
<CAPTION>
GROSS LEASABLE AREA ANNUALIZED BASE RENTAL INCOME
--------------------------- -----------------------------
PERCENT OF PERCENT PERCENT OF
PROPERTY TYPE SQ. FT. COMPANY TOTAL LEASED AMOUNT COMPANY TOTAL
- ---------------------------- --------- ------------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Shopping Centers 4,541,281 61.2% 97.2% $28,568,293 62.0%
Single Tenant Properties 2,828,819 38.1 100.0 17,003,742 36.9
Commercial Properties 50,885 0.7 91.5 540,783 1.1
--------- ----- ----- ----------- -----
Total 7,420,985 100.0% 97.3%(1) $46,112,818(2) 100.0%
========= ===== ===== =========== =====
</TABLE>
- ---------------
(1) Percent of total GLA leased as of September 30, 1996.
(2) Includes income from space leased for which rent is being paid but which is
not presently occupied. See "Single Tenant Properties" table below.
S-20
<PAGE> 21
Shopping Centers. The Company's Shopping Centers consist of 40 neighborhood
and community centers that are leased primarily to major retail companies. The
Shopping Centers typically range from 100,000 to 200,000 square feet in size,
and as of September 30, 1996 contained approximately 4.5 million square feet of
GLA and accounted for approximately 62% of the Company's ABR. The table below
sets forth certain pertinent information regarding the Shopping Centers as of
September 30, 1996.
<TABLE>
<CAPTION>
ANNUALIZED PERCENT OF
---------------------- PERCENT OF CENTER LEASE
TOTAL BASE TOTAL LEASED BY EXPIRATION OF
GLA NUMBER RENTAL RENT PER CENTER PRINCIPAL PRINCIPAL 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
Shopping
Ctr. 107,533 19 $ 625,459 $ 5.82 88% ABCO 33% 2001
Phoenix Newspaper Inc. 20 2001
Kmart
Plaza 182,581 12 730,983 4.00 100 Kmart 65 1998
Phoenix
Metro
Marketplace 251,156 39 2,176,972 8.67 96 Toys-R-Us 18 2014
Sheplers 17 1997
Officemax 13 2001
CALIFORNIA
Burbank
Sony/Kinkos
Building 14,616 2 507,216 34.70 100 Sony 72 1999
Kinko 28 1998
FLORIDA
Brooksville
Brooksville
Square(1) 96,391 23 697,088 7.23 95 Publix 44 2007
Walgreen 13 2037
Deland
Northgate
Shopping
Ctr. 186,074 8 1,254,131 6.74 100 Kmart 60 2018
Publix 30 2013
Lake Wales
Eastgate
Center 102,161 2 613,843 6.01 100 Kmart 93 2019
Leesburg
Leesburg
Square 91,846 15 644,699 7.02 90 Publix 43 2006
Walgreen 14 2026
GEORGIA
Atlanta
Shops of
Riverdale 34,255 11 345,080 10.07 87 Famous Footwear 16 2005
Covington
Covington
Gallery 174,882 18 1,047,853 5.99 98 Kmart 49 2016
Ingles 25 2011
Perry
Perry
Marketplace 179,973 15 1,108,475 6.16 97 Kmart 53 2017
Kroger 21 2012
B.C. Moore 9 2008
Statesboro
University
Commons 59,814 8 527,032 8.81 100 Publix 80 2014
INDIANA
Marion
Valley
View
Plaza(1) 29,975 11 195,187 6.51 75 Webb's Hallmark 16 1999
Terre
Haute
Wabash
Valley
Plaza(1) 79,135 9 442,473 5.59 84 Supervalue Store 58 2009
Warsaw
Woodland
Plaza(1) 31,000 14 229,953 7.42 93 Shoe Show 15 1999
Broadway Video 13 1997
</TABLE>
S-21
<PAGE> 22
<TABLE>
<CAPTION>
ANNUALIZED PERCENT OF
---------------------- PERCENT OF CENTER LEASE
TOTAL BASE TOTAL LEASED BY EXPIRATION OF
GLA NUMBER RENTAL RENT PER CENTER PRINCIPAL PRINCIPAL 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>
KENTUCKY
Elizabethtown
Kmart
Plaza 130,466 8 $ 774,382 $ 5.94 99% Kmart 70% 2017
Food Lion 22 2011
Glasgow
Highland
Commons 130,466 6 701,407 5.38 97 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
Versailles
Lexington
Road
Plaza 182,732 9 1,213,432 6.64 100 Kmart 52 2018
Kroger 33 2014
NORTH
CAROLINA
Albemarle
Stanly
County
Plaza(1) 63,637 17 359,500 5.65 95 Ingles 50 2008
Ashboro
Village
Marketplace 87,800 26 669,111 7.62 97 Harris-Teeter 34 2008
Old America 19 2000
Jonesville
Foothills
Market 44,350 6 246,230 5.55 91 Food Lion 56 2008
Family Dollar 14 2000
Kannapolis
Chapel
Square 45,450 7 365,822 8.05 100 Food Lion 64 2013
Revco 19 2008
Kenersville
Piney
Grove
Plaza 49,709 9 358,418 7.21 100 Lowe's Food 64 2008
Scotty Drugs 12 1998
Kinston
Kinston
Pointe 170,166 24 865,495 5.09 89 Wal-Mart 53 2011
Food Lion 15 2011
Oxford
Granville
Corners 136,549 26 866,128 6.34 98 Wal-Mart 52 2012
Byrd's Foods 20 2011
Roxoboro
Roxoboro
Square 98,980 16 579,329 5.85 100 Wal-Mart 70 2009
Cato 6 1999
Siler City
Siler
Crossing 132,639 16 697,681 5.26 96 Rose's Department Store 34 2008
Food Lion 19 2008
Belk-Yates 17 2008
REVCO 6 2003
Cato 5 1998
Statesville
Crossroads
Center 246,791 34 1,633,431 6.62 100 Wal-Mart 48 2011
Bi-Lo Foods 13 2011
Cato 4 2001
Goody's 9 2001
Wadesboro
Anson
Station 130,800 18 706,592 5.40 99 Wal-Mart 40 2008
BCMoore 14 2004
Food Lion 19 2008
REVCO 6 2004
</TABLE>
S-22
<PAGE> 23
<TABLE>
<CAPTION>
ANNUALIZED PERCENT OF
---------------------- PERCENT OF CENTER LEASE
TOTAL BASE TOTAL LEASED BY EXPIRATION OF
GLA NUMBER RENTAL RENT PER CENTER PRINCIPAL PRINCIPAL 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>
NORTH
CAROLINA--(CONTINUED)
Williamston
Roanoke
Landing 156,561 24 $ 964,636 $ 6.16 99% Wal-Mart 45% 2011
Winn-Dixie 23 2011
REVCO 5 2006
Cato 3 2001
OHIO
Ashland
Ashland
Square 163,168 15 883,529 5.41 100 Wal-Mart 42 2010
Food Town 26 2010
JC Penneys 14 2008
Celina
Lakewood
Village(1) 113,897 10 544,461 4.78 96 Wal-Mart 60 2010
Uhlmans 16 2005
SOUTH
CAROLINA
Hilton
Head
Circle
Center 65,313 14 635,436 9.73 99 Bi-Lo 56 2012
Revco 13 2004
Hilton
Head
Palmetto
Crossing 40,920 6 305,456 7.46 98 Food Lion 71 2010
TENNESSEE
Hendersonville
Hazel
Path
Commons 68,345 17 448,435 6.56 95 Food Lion 42 2010
Cato 9 1999
Knoxville
Chapman
Ford
Crossing(2) 185,604 16 495,328 2.67 100 Wal-Mart 51 2010
Food Lion 16 2010
Goody's 14 2000
Manchester
Farrar
Place 43,220 5 353,304 8.17 100 Food-Lion 67 2016
Rite Aid 16 1999
TEXAS
Irving
Irving
West
Shopping
Center 70,056 18 591,780 8.45 100 Winn Dixie 64 2007
VIRGINIA
Norton
VA-KY
Regional
Shopping
Ctr. 193,238 21 1,124,764 5.82 100 Wal-Mart 45 2009
Ingles 17 2009
Goody's 16 1999
--------- ----------- --------
Total 4,541,281 $28,568,293 $ 6.29
======== ========== =======
</TABLE>
- ---------------
(1) The Company owns a 99.82% interest in these properties, as the sole general
partner of the partnership holding the properties, E.H. Properties, L.P. The
limited partner has an option to convert its equity interest of 0.18% into
Common Stock of the Company at $22.25 per share. Upon such conversion, the
partnership will be dissolved.
(2) The Company owns a 50.0% interest in this property.
S-23
<PAGE> 24
Single Tenant Properties. The Company's Single Tenant Properties consist of
71 properties leased primarily to major retail companies. Approximately 80% 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 20% of such ABR comes 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. The Single
Tenant Properties contained approximately 2.8 million square feet of GLA and
accounted for approximately 37% of the Company's ABR as of September 30, 1996.
The table below sets forth certain pertinent information regarding the Single
Tenant Properties as of September 30, 1996.
<TABLE>
<CAPTION>
ANNUALIZED
------------------------
TOTAL BASE
GLA RENTAL RENT PER
LOCATION TENANT SUBTENANT (SQ. FT.) INCOME SQ. FT.
- ---------------- ------------------------------- ----------------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
ALABAMA
Muscle Shoals Kroger(1) Sack N Save 42,130 $252,780 $ 6.00
Muscle Shoals Super X(1) Handy TV 10,069 60,414 6.00
Scottsboro Kroger(1) Bruno's (Food World) 42,130 217,391 5.16
ARKANSAS
Pine Bluff Kmart(1) Country Market 60,842 288,232 4.74
Sherwood Safeway(1) Harvest Foods 44,617 240,651 5.39
ARIZONA
Mesa Lucky(1) ABCO 29,827 126,438 4.24
Phoenix Lucky(1) ABCO 28,217 154,620 5.48
Phoenix Q-Club 44,374 720,795 16.24
Phoenix Q-Club 44,374 707,127 15.94
Tucson Chili's 5,997 69,000 11.51
Tucson Lucky(2) 29,700 149,779 5.04
Tucson Ben Franklin Crafts 25,800 135,545 5.25
Tucson Ruby Tuesday 5,665 63,500 11.21
Yuma Longs(1) Payless Drugs 25,834 113,050 4.38
COLORADO
Brighton Wal-Mart 94,220 343,021 3.64
Durango Kmart(1) Payless Drugs 50,000 201,738 4.03
Pueblo United Artists 12,556 83,011 6.61
FLORIDA
Brandon Lucky/Kash N Karry(3) 36,750 202,582 5.51
Homosassa Lucky/Kash N Karry(3) 29,600 124,110 4.19
Springs
GEORGIA
Albany (4) 72,897 810,500 11.12
East Albany Kroger(1) JH Harvey 34,019 197,612 5.81
East Albany SuperX(1) Rite Aid 10,069 54,567 5.42
IOWA
Atlantic Kmart 40,318 160,000 3.97
Coralville Lucky/Eagle(2)(5) 28,875 172,669 5.98
Dubuque Lucky/Eagle(5) 35,015 230,300 6.58
ILLINOIS
Decatur Lucky/Eagle(5) 29,000 181,996 6.28
Moline Lucky/Eagle(2)(5) 38,681 227,420 5.88
New Lenox Lucky/Eagle(5) 39,410 259,016 6.57
Orland Hills Wal-Mart 114,513 824,075 7.20
Ottawa Kroger 44,088 278,866 6.33
Peoria Lucky/Eagle(5) 30,000 208,133 6.94
Springfield Lucky/Eagle(5) 30,000 180,090 6.00
Sterling Lucky/Eagle(5) 40,265 229,748 5.71
Waterloo Kroger(1) National Super Markets 31,170 207,135 6.65
<CAPTION>
LEASE
LOCATION EXPIRATION
- ---------------- ----------
<S> <C>
ALABAMA
Muscle Shoals 2007
Muscle Shoals 2007
Scottsboro 2007
ARKANSAS
Pine Bluff 2006
Sherwood 2002
ARIZONA
Mesa 2002
Phoenix 2001
Phoenix 2019
Phoenix 2019
Tucson 2005
Tucson 2003
Tucson 2005
Tucson 2011
Yuma 2001
COLORADO
Brighton 2008
Durango 2003
Pueblo 2002
FLORIDA
Brandon 2002
Homosassa 2002
Springs
GEORGIA
Albany 1997
East Albany 2007
East Albany 2007
IOWA
Atlantic 2005
Coralville 2006
Dubuque 2000
ILLINOIS
Decatur 2003
Moline 2001
New Lenox 2002
Orland Hills 2009
Ottawa 2007
Peoria 2003
Springfield 2002
Sterling 2000
Waterloo 2007
</TABLE>
S-24
<PAGE> 25
<TABLE>
<CAPTION>
ANNUALIZED
TOTAL BASE
GLA RENTAL RENT PER
LOCATION TENANT SUBTENANT (SQ. FT.) INCOME SQ. FT.
- ---------------- ------------------------------- ----------------------- --------- ----------- ------
<S> <C> <C> <C> <C> <C>
INDIANA
Decatur Wal-Mart 72,200 $324,301 $ 4.49
Fort Wayne Kindercare 4,584 49,694 10.84
Hobart Eagle(2) 29,300 190,792 6.51
Indianapolis Kindercare 4,212 49,694 11.80
Indianapolis Kindercare 4,452 49,694 11.16
Indianapolis Kindercare 4,268 49,694 11.64
Indianapolis Kindercare 4,452 21,600 4.85
Michigan City Eagle 29,000 158,000 5.45
Terre Haute Lowes Home Center 104,259 557,786 5.35
Wabash Wal-Mart 93,465 374,604 4.01
LOUISIANA
West Monroe Safeway(1) Brookshire Grocery 41,293 228,671 5.54
MICHIGAN
Big Rapids Wal-Mart 91,440 337,628 3.69
Dearborne Mountain Jacks 9,914 150,000 15.13
Heights
Kalamazoo Kindercare 6,260 68,063 10.87
MINNESOTA
Maplewood Egghead Discount 2,880 40,320 14.00
MISSOURI
Fenton Kinderdare 4,659 22,560 4.84
High Ridge Kindercare 4,654 32,299 6.94
Springfield Kmart 106,747 400,000 3.75
St. Charles (4) 72,897 662,000 9.08
NEBRASKA
Grand Island Autoworks 5,671 68,303 12.04
Hastings Autoworks 4,000 48,900 12.23
Omaha Kmart 60,842 312,775 5.14
NEW JERSEY
Somerville Kmart 55,552 271,780 4.89
OHIO
Mentor Mountain Jacks 6,040 107,250 17.76
Middletown Lowes Home Supply 126,400 650,000 5.14
Waverly Kmart 40,318 141,000 3.50
OKLAHOMA
Muskogee Safeway(1) Homeland 45,510 280,344 6.16
PENNSYLVANIA
Clearfield Kroger(1) Super Value 31,170 210,000 6.74
Pittsburgh Kroger(1) Giant Eagle 34,026 266,680 7.84
Wyomissing Wal-Mart 115,092 679,668 5.91
SOUTH CAROLINA
James Island Kroger(1) Bi Lo 42,130 223,289 5.30
TEXAS
DeSoto Kmart 72,897 299,910 4.11
Houston Diversified Hospitality Grp(2) 1,675 42,887 25.60
Houston Diversified Hospitality Grp(2) 1,675 30,568 18.25
Missouri City Kroger 44,183 229,289 5.19
Temple Wal-Mart 110,580 679,771 6.15
WISCONSIN
Berlin Wal-Mart 59,097 218,017 3.69
--------- ----------- ------
Total 2,828,819 $17,003,742 $ 6.01
========= =========== ======
<CAPTION>
LEASE
LOCATION EXPIRATION
- ---------------- ----------
<S> <C>
INDIANA
Decatur 2009
Fort Wayne 2000
Hobart 2003
Indianapolis 2000
Indianapolis 2000
Indianapolis 2000
Indianapolis 2000
Michigan City 2003
Terre Haute 2013
Wabash 2008
LOUISIANA
West Monroe 2002
MICHIGAN
Big Rapids 2008
Dearborne 2006
Heights
Kalamazoo 2005
MINNESOTA
Maplewood 1997
MISSOURI
Fenton 1997
High Ridge 2000
Springfield 2007
St. Charles 1997
NEBRASKA
Grand Island 2008
Hastings 2008
Omaha 2006
NEW JERSEY
Somerville 2007
OHIO
Mentor 2005
Middletown 2013
Waverly 2006
OKLAHOMA
Muskogee 2002
PENNSYLVANIA
Clearfield 2007
Pittsburgh 2007
Wyomissing 2008
SOUTH CAROLINA
James Island 2007
TEXAS
DeSoto 2005
Houston 2011
Houston 2011
Missouri City 2002
Temple 2008
WISCONSIN
Berlin 2009
Total
</TABLE>
S-25
<PAGE> 26
- ---------------
(1) Property is subleased. Nevertheless, the tenant under the lease remains
responsible for payment of all rents due under such lease.
(2) Property is currently unoccupied. Nevertheless, the tenant under the lease
remains responsible for payment of all rents due under such lease.
(3) 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 under this lease.
(4) The Company received a lease termination fee from the former tenant of this
property, which is treated as pre-paid rent and is being amortized using the
straight line method over the estimated time to re-lease or sell the related
property.
(5) This property was originally built by Lucky for its subsidiary Eagle Food
Centers, Inc. Lucky has subsequently sold such subsidiary but remains
obligated under this lease.
Commercial Properties. The Company's Commercial Properties consist of two
office buildings and one commercial property, which contained approximately
50,000 square feet of GLA and accounted for approximately 1% of the Company's
ABR as of September 30, 1996. Although the Company's stated focus is on
retail-oriented properties, under certain circumstances the Company may acquire
properties that are not necessarily retail-oriented, but where management views
an opportunity to take advantage of a distressed situation or underutilized
space and is able to purchase the property at an attractive price. The table
below sets forth certain pertinent information regarding the Commercial
Properties as of September 30, 1996.
<TABLE>
<CAPTION>
ANNUALIZED PERCENT OF LEASE
------------------- PROPERTY EXPIRATION
TOTAL BASE PERCENT OF LEASED BY OF
GLA NUMBER RENTAL RENT PER PROPERTY PRINCIPAL PRINCIPAL 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
Scottsdale
Genzyme Corp. 21,560 1 $275,165 $12.76 100% Genzyme Corp. 100% 2005
CALIFORNIA
San Diego
Excel Building 19,942 7 120,615 6.05 79 Excel Realty Trust 32 N/A
MINNESOTA
Stillwater
Stillwater
Government Bldg. 9,383 4 145,003 15.45 100 Washington County 76 2000
--------- -------- --------
Total 50,885 $540,783 $11.42
======= ======== =======
</TABLE>
PRINCIPAL LESSEES
Wal-Mart is the Company's largest lessee in terms of both GLA and ABR,
representing approximately 20.8% of the Company's GLA and approximately 14.4% of
the Company's ABR at September 30, 1996. Wal-Mart is the nation's largest
retailer and operates approximately 2,000 discount department stores and over
400 warehouse clubs. Wal-Mart is listed on the NYSE and, as of December 1996,
had credit ratings of AA from Standard and Poor's Corporation ("Standard and
Poor's") and Aa2 from Moody's Investor Services, Inc. ("Moody's"). Of the 18
stores which Wal-Mart currently leases from the Company, 12 were less than five
years old as of September 30, 1996.
Kmart is the Company's second largest lessee in terms of both GLA and ABR,
representing approximately 18.4% of the Company's GLA and approximately 13.9% of
the Company's ABR at September 30, 1996. 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 certain of its existing stores.
Kmart's credit ratings as of December 1996 were B2 and B+ according to Moody's
and Standard and Poor's, respectively. Kmart has closed five stores that were
leased from the Company. The Company received lease termination fees with
respect to all five of these properties, three of which were subsequently sold.
The Company is currently in the process of re-leasing or selling the other two
properties. Of
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<PAGE> 27
the 17 stores which Kmart currently leases from the Company, eight were less
than five years old as of September 30, 1996. 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 unless lease termination
fees were negotiated, 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 and Kmart are publicly-traded companies, and financial and other
information regarding these lessees is on file with the Securities and Exchange
Commission.
Other significant lessees include three major operators of retail
supermarkets: The Kroger Co. ("Kroger"), Lucky Stores, Inc. ("Lucky") and Food
Lion, Inc. ("Food Lion"). Leases to Kroger (including SuperX Drugs Corporation,
on whose leases Kroger is a guarantor) involve 14 properties and accounted for
approximately 6.8% of the Company's GLA and 7.0% of its ABR at September 30,
1996. Kroger's primary focus is combination food and drug stores (with over
1,300 supermarkets operating in 1995), and it also operates food wholesaling and
specialty retailing businesses at various locations. Kroger is listed on the
NYSE, and its credit ratings as of December 1996 were Ba1 and BB+ according to
Moody's and Standard and Poor's, respectively. 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 6.5% of the
Company's GLA and 6.1% of its ABR at September 30, 1996. Lucky, a national
supermarket chain, is owned by American Stores, Inc., a NYSE company which had
credit ratings as of December 1996 of Baa2 and BBB+ from Moody's and Standard
and Poor's, respectively. Food Lion leases 11 properties from the Company,
accounting for approximately 4.1% of the Company's GLA and 4.3% of its ABR at
September 30, 1996. Food Lion is a major operator of retail supermarkets in the
United States and Canada, is listed on the NYSE and had credit ratings as of
December 1996 of A2 and A- according to Moody's and Standard and Poor's,
respectively.
The Company's lessees also include other companies with a national or
regional presence, such as Sports & Fitness Clubs of America, Inc., Lowe's Home
Centers, Inc., Publix Super Markets, Inc., Safeway, Inc. and The Cato
Corporation. As of September 30, 1996, over 82% of the Company's ABR was derived
from major national or regional lessees.
Certain information as of September 30, 1996 with respect to the ten
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>
Wal-Mart 18 1,543,281 20.8% $ 6,617,848 14.4%
Kmart 17 1,367,770 18.4 6,409,160 13.9
Kroger 14 504,249 6.8 3,242,026 7.0
Lucky(1) 15 483,640 6.5 2,795,693 6.1
Food Lion 11 303,000 4.1 2,002,029 4.3
Sports & Fitness Club 2 88,748 1.2 1,382,979 3.0
Publix 4 185,721 2.5 1,283,740 2.8
Lowe's 2 230,659 3.1 1,207,786 2.6
Safeway 3 131,420 1.8 749,666 1.6
Cato Stores 14 83,550 1.1 676,631 1.5
--- --------- ---- ----------- ----
Total 100 4,922,038 66.3% $26,367,558 57.2%
=== ========= ==== =========== ====
</TABLE>
- ---------------
(1) Figures include two currently unoccupied properties for which Lucky remains
responsible for payment of all rents due under the leases.
Certain leases related to the lessees in the table above have either been
subleased or assigned to such party. Nevertheless, the original lessee under the
lease remains responsible for payment of all rents and other obligations due
under such lease. An assignment of the lease would not affect the terms of the
lease.
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<PAGE> 28
Generally, all subtenants are currently required to pay the same rent to the
lessee as the lessee is required to pay to the Company. Subleased properties
generally have been subleased for a term that is approximately the same as the
remaining term of the 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 and other obligations due under the lease
for the full remaining term of the lease.
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<PAGE> 29
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Gary B. Sabin 42 Chairman, President and Chief Executive Officer
Richard B. Muir 41 Director, Executive Vice President and Secretary
Graham R. Bullick, Ph.D. 46 Senior Vice President and Assistant Secretary
Ronald H. Sabin 46 Senior Vice President
David A. Lund 44 Chief Financial Officer
S. Eric Ottesen 41 Senior Vice President and General Counsel
Mark T. Burton 36 Senior Vice President Acquisitions
Boyd A. Lindquist 58 Director
D. Charles Marston 80 Director
Robert E. Parsons, Jr. 41 Director
Bruce A. Staller 57 Director
John H. Wilmot 54 Director
</TABLE>
Gary B. Sabin has served as 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 the
predecessor 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 has served as Director, Executive Vice President and
Secretary of the Company since January 1989. Mr. Muir has served as an officer
and director for various affiliates of the Company since 1978, primarily in
administrative and executive capacities, including asset acquisition, financing
and management.
Graham R. Bullick, Ph.D. has served as 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. From 1985 to 1991,
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 has served as Senior Vice President of the Company since
January 1989. Mr. Sabin has served as an officer or otherwise been employed by
affiliates of the Company 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 has served as Chief Financial Officer of the Company since
1994 and as a Vice President of the Company since 1988. Mr. Lund has served as
an officer and director of certain affiliates of the Company since 1983.
S. Eric Ottesen has served as General Counsel of the Company since January
1995 and as Senior Vice President since October 1995. Previously, Mr. Ottesen
was a senior partner in a San Diego law firm from 1987 to 1995.
Mark T. Burton has served as Senior Vice President Acquisitions of the
Company since October 1995 and as a Vice President 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.
Boyd A. Lindquist has served as a Director of the Company since February
1992. Mr. Lindquist is presently President, Chief Executive Officer and a
Director of Republic Bank. Prior to joining Republic Bank in July 1991, Mr.
Lindquist served since prior to 1987 as President and Chief Executive Officer of
the Bank of
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<PAGE> 30
San Diego, where he was responsible for the management of the six-branch bank.
Mr. Lindquist has over 30 years experience in managing financial institutions.
D. Charles Marston has served as a Director of the Company since February
1992. Mr. Marston is the owner and designated supervising broker for Acacia
Realty, a real estate brokerage firm specializing in commercial real estate in
northern San Diego County, California. Since prior to 1987, Mr. Marston has
served as a mediator with the Mediation Tribunal Associations for the U.S.
District Court, Detroit, Michigan, and the Wayne County Circuit Court in
Michigan. Mr. Marston was a senior partner and litigation counsel for the firm
of Marston, Sachs, Nunn, Kahn, Kadushin and O'Hare until his retirement in 1980.
Robert E. Parsons, Jr. has served as a Director of the Company since
January 1989. Mr. Parsons is presently Executive Vice President and Chief
Financial Officer of Host Marriott Corporation, a company he joined in 1981. He
also serves as a Director and an officer of several Host Marriott subsidiaries,
and as a Director of Merrill Financial Corporation, a privately-held real estate
company.
Bruce A. Staller has served as a Director of the Company since its
inception. Prior to establishing Bruce Atwater Staller, Registered Investment
Advisor in 1995, Mr. Staller served as President and Director of First Wilshire
Securities Management, Inc., a privately-held securities brokerage firm, from
1988 to 1995. Mr. Staller is also a founder and Director of The Monrovia Schools
Foundation, Inc., a privately-held company which provides financial support to
the Monrovia Unified School District.
John H. Wilmot has served as a Director of the Company since 1989. Mr.
Wilmot, individually and through his wholly-owned corporations, develops and
manages real property, primarily in the Phoenix/Scottsdale area, and has been
active in such business since prior to 1989.
The Company has entered into separate employment agreements with Gary
Sabin, Richard Muir, Ronald Sabin and Graham Bullick. Each of these agreements
is automatically extended for an additional year at the end of each year of the
agreement, subject to the right of either the Company or said employees to
terminate the contract voluntarily by giving at least three months' prior
written notice. Each of the employment agreements contains severance provisions
which provide that, under certain circumstances, the employee is entitled to a
lump sum severance payment.
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<PAGE> 31
DESCRIPTION OF SERIES A PREFERRED STOCK
The summary of certain terms and provisions of the Series A Preferred Stock
contained in this Prospectus Supplement does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the terms and
provisions of the Company's Charter, including the Articles Supplementary
setting forth the particular terms of the Series A Preferred Stock (the
"Articles Supplementary"), and the Company's Amended and Restated Bylaws (the
"Bylaws").
The Charter authorizes the issuance of 10,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"), of which no shares are
currently outstanding. The Preferred Stock may be issued from time to time in
one or more series, without stockholder approval, with such preferences,
conversion and other rights, voting powers, restrictions and limitations as to
dividends, qualifications and terms and conditions of redemption thereof as
shall be established by the Board of Directors. Thus, without stockholder
approval, the Company could authorize the issuance of Preferred Stock with
voting, conversion and other rights that could dilute the voting power and other
rights of the holders of Common Stock and Series A Preferred Stock.
GENERAL
Prior to the completion of the Offering, the Board of Directors will adopt
and cause to be filed the Articles Supplementary.
When issued, the Series A Preferred Stock will be validly issued, fully
paid and nonassessable. The holders of the Series A Preferred Stock will have no
preemptive rights with respect to any shares of capital stock of the Company or
any other securities of the Company convertible into or carrying rights or
options to purchase any such shares. The Series A Preferred Stock will not be
subject to any sinking fund or other obligation of the Company to redeem or
retire the Series A Preferred Stock. Unless converted into shares of Common
Stock or redeemed by the Company, the Series A Preferred Stock will have a
perpetual term, with no maturity. The Company has applied for listing of the
Series A Preferred Stock on the NYSE under the symbol "XELPrA."
RANKING
The Series A Preferred Stock will rank senior to the Common Stock with
respect to payment of dividends and amounts upon liquidation, dissolution or
winding up of the Company.
While any shares of Series A Preferred Stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of stock that ranks prior or senior to the Series A Preferred Stock with
respect to the payment of dividends or amounts upon liquidation, dissolution or
winding up without the consent of the holders of two-thirds of the outstanding
shares of Series A Preferred Stock and all other shares of Voting Preferred
Stock (defined below), if any, voting as a single class. However, the Company
may create additional classes of stock, increase the authorized number of shares
of Preferred Stock or issue series of Preferred Stock which rank junior to or on
a parity with the Series A Preferred Stock with respect, in each case, to the
payment of dividends and amounts upon liquidation, dissolution or winding up of
the Company (a "Parity Stock") without the consent of any holder of Series A
Preferred Stock. See "-- Voting Rights."
DIVIDENDS
Holders of shares of Series A Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
of the Company legally available for payment thereof, cumulative cash dividends
payable in an amount per share equal to the greater of (i) $ per
quarter (equivalent to $ per annum) or (ii) the cash dividends
(determined on each of the quarterly dividend payment dates referred to below)
on the shares of Common Stock (or portion thereof) into which a share of Series
A Preferred Stock is convertible. Such dividends will equal the number of shares
of Common Stock, or portion thereof, into which a share of Series A Preferred
Stock is convertible, multiplied by the most current quarterly distribution on
or before the applicable dividend payment date. Dividends on the Series A
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<PAGE> 32
Preferred Stock will be payable quarterly in arrears on the 15th day (or the
next succeeding business day) of January, April, July and October, commencing
, 1997 with respect to the period commencing on the date of issue and
ending , 1997 (and, in the case of any accumulated or accrued but
unpaid dividends, at such additional times and for such interim periods, if any,
as determined by the Board of Directors). Each such dividend will be payable to
holders of record as they appear on the stock records of the Company at the
close of business on such record dates, not exceeding 60 days preceding the
payment dates thereof, as shall be fixed by the Board of Directors of the
Company. Dividends will accrue from the date of original issuance of the Series
A Preferred Stock. Dividends will be cumulative from such date, whether or not
in any dividend period or periods such dividends shall be declared or there
shall be funds of the Company legally available for the payment of such
dividends. Accumulated dividends on shares of Series A Preferred Stock will not
bear interest. The first dividend will be for less than a full quarter. Such
dividend and any other dividends payable on the Series A Preferred Stock for any
period less than a full dividend period will be computed pro-rata on the basis
of twelve 30-day months and a 360-day year.
Except as provided in the next sentence, no dividend will be declared or
paid or other distribution of cash or other property declared or made directly
by the Company or any person acting on behalf of the Company on any Parity Stock
unless full cumulative dividends have been declared and paid or are
contemporaneously declared and funds sufficient for payment set aside on the
Series A Preferred Stock for all prior and contemporaneous dividend periods. If
accumulated and accrued dividends on the Series A Preferred Stock for all prior
and contemporaneous dividend periods have not been paid in full, then any
dividend declared on the Series A Preferred Stock for any dividend period and on
any Parity Stock will be declared ratably in proportion to accumulated, accrued
and unpaid dividends on the Series A Preferred Stock and the Parity Stock.
Neither the Company nor any person acting on behalf of the Company will (i)
declare, pay or set apart funds for the payment of any dividend or other
distribution of cash or other property declared or made directly or indirectly
by the Company or any such affiliate or person with respect to any Junior Stock
(as defined below) or (ii) redeem, purchase or otherwise acquire for
consideration any Junior Stock through a sinking fund or otherwise (other than a
redemption or purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan of the Company or any
subsidiary or as provided under the Charter to protect the Company's status as a
REIT) or (iii) pay or distribute any cash or other property for the benefit of
any holder of Junior Stock in respect thereof, directly or indirectly, unless
(A) all cumulative dividends with respect to the Series A Preferred Stock and
any Parity Stock at the time such dividends are payable have been paid or such
dividends have been declared and funds have been set apart for payment of such
dividends and (B) sufficient funds have been paid or set apart for the payment
of the dividend for the current dividend period with respect to the Series A
Preferred Stock and any Parity Stock. The foregoing limitations do not restrict
the Company's ability to take the foregoing actions with respect to any Parity
Stock.
As used herein, (i) the term "dividend" does not include dividends payable
solely in shares of Junior Stock on Junior Stock, or in options, warrants or
rights to holders of Junior Stock to subscribe for or purchase any Junior Stock,
and (ii) the term "Junior Stock" means the Common Stock, and any other class of
capital stock of the Company now or hereafter issued and outstanding that ranks
junior to the Series A Preferred Stock as to the payment of dividends or amounts
upon liquidation, dissolution or winding up of the Company.
REDEMPTION
Shares of Series A Preferred Stock will not be redeemable by the Company
prior to , 2002. On and after , 2002, the shares of Series A
Preferred Stock will be redeemable at the option of the Company, in whole or in
part, either (i) for such number of authorized but previously unissued shares of
Common Stock as equals the per share liquidation preference of the Series A
Preferred Stock to be redeemed (without regard to accumulated, accrued and
unpaid dividends, if any, to the date set for redemption, which are to be paid
in cash, whether or not earned or declared) divided by the Conversion Price (as
defined below under "Conversion Rights") as of the opening of business on the
date set for such redemption (equivalent to a conversion rate of of a share
of Common Stock for each share of Series A Preferred Stock), subject to
adjustment in certain circumstances, or (ii) for cash at a redemption price of
$25.00, plus any accumulated,
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<PAGE> 33
accrued and unpaid dividends, whether or not earned or declared.
Notice of redemption will be given by mail or by publication (with
subsequent prompt notice by mail) to the holders of record of the Series A
Preferred Stock not less than 30 nor more than 60 days prior to the date of
redemption. The redemption date will be a date selected by the Company not less
than 30 nor more than 60 days after the date on which the Company gives the
notice of redemption announcing its intention to redeem the Series A Preferred
Stock. If fewer than all of the shares of Series A Preferred Stock are to be
redeemed, the shares to be redeemed shall be selected by lot or pro rata or in
some other equitable manner determined by the Company.
On the redemption date, the Company must pay in cash on each share of
Series A Preferred Stock to be redeemed any accumulated, accrued and unpaid
dividends, if any, on the redemption date, whether or not earned or declared. In
the case of a redemption date falling after a dividend record date and prior to
the related dividend payment date, the holders of the Series A Preferred Stock
at the close of business on such record date will be entitled to receive the pro
rata dividend payable on such shares on the corresponding dividend payment date,
notwithstanding the redemption of such shares following such dividend record
date. Except as provided for in the preceding sentences, no payment or allowance
will be made for accumulated or accrued dividends on any shares of Series A
Preferred Stock called for redemption or on the shares of Common Stock issuable
upon such redemption.
In the event that full cumulative dividends on the Series A Preferred Stock
and any Parity Stock have not been paid or declared and set apart for payment,
the Series A Preferred Stock may not be redeemed in part and the Company may not
purchase or acquire shares of Series A Preferred Stock otherwise than pursuant
to a purchase or exchange offer made on the same terms to all holders of shares
of Series A Preferred Stock.
On and after the date fixed for redemption, provided that the Company has
made available at the office of the Registrar and Transfer Agent a sufficient
number of shares of Common Stock and/or an amount of cash to effect the
redemption, dividends will cease to accumulate or accrue on the Series A
Preferred Stock called for redemption (except that, in the case of a redemption
date after a dividend record date and prior to the related dividend payment
date, holders of Series A Preferred Stock on the dividend record date will be
entitled on such dividend payment date to receive the dividend payable on such
shares), such shares shall no longer be deemed to be outstanding and all rights
of the holders of such shares of Series A Preferred Stock shall cease except the
right to receive the shares of Common Stock upon such redemption and/or any cash
payable upon such redemption, without interest from the date of such redemption.
At the close of business on the redemption date, each holder of Series A
Preferred Stock to be redeemed (unless the Company defaults in the delivery of
the Common Stock or cash) will be, without any further action, deemed a holder
of the number of shares of Common Stock and/or the amount of cash for which such
Series A Preferred Stock is redeemable.
Fractional shares of Common Stock will not be issued upon redemption of the
Series A Preferred Stock, but, in lieu thereof, the Company will pay an amount
in cash based on the current market price of the Common Stock on the day prior
to the redemption date.
LIQUIDATION PREFERENCE
The holders of shares of Series A Preferred Stock will be entitled to
receive in the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, $25.00 per share of Series A
Preferred Stock plus an amount per share of Series A Preferred Stock equal to
all dividends (whether or not earned or declared) accumulated, accrued and
unpaid thereon to the date of final distribution to such holders (the
"Liquidation Preference"), and no more.
Until the holders of the Series A Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Junior
Stock upon the liquidation, dissolution or winding up of the
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<PAGE> 34
Company. If, upon any liquidation, dissolution or winding up of the Company, the
assets of the Company, or proceeds thereof, distributable among the holders of
the shares of Series A Preferred Stock are insufficient to pay in full the
Liquidation Preference and the liquidation preference with respect to any other
shares of Parity Stock, then such assets, or the proceeds thereof, will be
distributed among the holders of shares of Series A Preferred Stock and such
Parity Stock ratably in accordance with the respective amounts which would be
payable on such shares of Series A Preferred Stock and such Parity Stock if all
amounts payable thereon were paid in full. Neither a consolidation or merger of
the Company with another corporation, a statutory share exchange by the Company
nor a sale or transfer of all or substantially all of the Company's assets will
be considered a liquidation, dissolution or winding up, voluntary or
involuntary, of the Company. In determining whether a distribution (other than
upon voluntary or involuntary liquidation) by dividend, redemption or other
acquisition of shares of stock of the Company or otherwise is permitted under
the Maryland General Corporation Law, no effect shall be given to amounts that
would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
shares of stock of the Company whose preferential rights upon dissolution are
superior to those receiving the distribution.
VOTING RIGHTS
Except as indicated below, the holders of shares of Series A Preferred
Stock will have no voting rights.
If six quarterly dividends payable on the Series A Preferred Stock or any
other Parity Stock are in arrears, whether or not earned or declared, the number
of directors then constituting the Board of Directors of the Company will be
increased by two and the holders of shares of Series A Preferred Stock, voting
together as a class with the holders of any other series of Parity Stock (any
such other series, the "Voting Preferred Stock") entitled to vote thereon, will
have the right to elect two additional directors to serve on the Company's Board
of Directors at an annual meeting of stockholders or special meeting held in
place thereof, or at a properly called special meeting of the holders of the
Series A Preferred Stock and such Voting Preferred Stock and at each subsequent
annual meeting of stockholders or special meeting held in place thereof, and
which directors, as a qualification for election, will agree to resign effective
upon such time as all such dividends in arrears and dividends for the current
quarterly period on the Series A Preferred Stock and such Voting Preferred Stock
have been paid or declared and set aside for payment.
The approval of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock and all other series of Voting Preferred Stock
similarly affected, voting as a single class, will be required in order to amend
the Charter to affect materially and adversely the rights, preferences or voting
power of the holders of the Series A Preferred Stock or the Voting Preferred
Stock or to authorize, create, or increase the authorized amount of, any class
of stock having rights prior or senior to the Series A Preferred Stock with
respect to the payment of dividends or amounts upon liquidation, dissolution or
winding up. However, the Company may create additional classes of Parity or
Junior Stock, increase the authorized number of shares of Parity or Junior Stock
and issue additional series of Parity or Junior Stock without the consent of any
holder of Series A Preferred Stock.
The holders of Series A Preferred Stock will not be entitled to vote on any
merger or consolidation involving the Company or a sale of all or substantially
all of the assets of the Company, irrespective of the effect that such merger,
consolidation or sale may have upon the rights, preferences or voting power of
the holders of the Series A Preferred Stock or of the Voting Preferred Stock.
See "-- Conversion Price Adjustments."
CONVERSION RIGHTS
Shares of Series A Preferred Stock will be convertible, in whole or in
part, at any time, at the option of the holder thereof, into authorized but
previously unissued shares of Common Stock at a conversion price of $ per
share of Common Stock (equivalent to a conversion rate of of a share of
Common Stock for each share of Series A Preferred Stock), subject to adjustment
as described below (the "Conversion Price"). The right to convert shares of
Series A Preferred Stock called for redemption will terminate at the close of
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<PAGE> 35
business on the redemption date for such shares. For information as to notices
of redemption, see "-- Redemption."
Conversion of shares of Series A Preferred Stock, or a specified portion
thereof, may be effected by delivering certificates evidencing such shares,
together with written notice of conversion and a proper assignment of such
certificates to the Company or in blank, to the office or agency to be
maintained by the Company for that purpose. Initially such office will be at the
principal corporate office of The First National Bank of Boston.
Each conversion will be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of Series
A Preferred Stock shall have been surrendered and notice shall have been
received by the Company as aforesaid (and, if applicable, payment of an amount
equal to the dividend payable on such shares shall have been received by the
Company as described below) and the conversion shall be at the Conversion Price
in effect at such time and on such date.
Holders of shares of Series A Preferred Stock at the close of business on a
dividend record date will be entitled to receive the dividend payable on such
shares on the corresponding dividend payment date notwithstanding the conversion
of such shares following such dividend record date and prior to such dividend
payment date. However, shares of Series A Preferred Stock surrendered for
conversion during the period between the close of business on any dividend
record date and the opening of business on any corresponding dividend payment
date (except shares converted after the issuance of a notice of redemption with
respect to a redemption date during such period) must be accompanied by payment
of an amount equal to the dividend payable on such shares on such dividend
payment date. A holder of shares of Series A Preferred Stock on a dividend
record date who (or whose transferee) tenders any such shares for conversion
into shares of Common Stock on such dividend payment date will receive the
dividend payable by the Company on such shares of Series A Preferred Stock on
such date, and the converting holder need not include payment of the amount of
such dividend upon surrender of shares of Series A Preferred Stock for
conversion. Except as provided above, the Company will make no payment or
allowance for unpaid dividends, whether or not in arrears, on converted shares
or for dividends on the shares of Common Stock issued upon such conversion.
Fractional shares of Common Stock will not be issued upon conversion but,
in lieu thereof, the Company will pay an amount in cash based on the closing
market price of the Common Stock on the day prior to the conversion date.
CONVERSION PRICE ADJUSTMENTS
The Conversion Price is subject to adjustment upon certain events,
including (i) dividends (and other distributions) payable in Common Stock or any
class of capital stock of the Company (but excluding issuances of Common Stock
pursuant to the Company's dividend reinvestment plan), (ii) the issuance to all
holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase Common Stock at a price per share less than the fair
market value per share of Common Stock (but excluding issuances of Common Stock
pursuant to the Company's dividend reinvestment plan), (iii) subdivisions,
combinations and reclassifications of Common Stock, and (iv) distributions to
all holders of Common Stock of evidences of indebtedness of the Company or of
assets (including securities and cash, but excluding those dividends, rights,
warrants and distributions referred to in clause (i), (ii) or (iii) above and
excluding cash dividends or distributions out of current or accumulated funds
from operations to the extent the same result in a payment of an equal cash
dividend to the holders of shares of Series A Preferred Stock (see
"-- Dividends")). In addition to the foregoing adjustments, the Company will be
permitted to make such reductions in the Conversion Price as it considers to be
advisable in order that any event treated for federal income tax purposes as a
dividend of stock or stock rights will not be taxable to the holders of the
Common Stock or, if that is not possible, to diminish any income taxes that are
otherwise payable because of such event.
In case the Company shall be a party to any transaction (including without
limitation a merger, consolidation, statutory share exchange, tender offer for
all or substantially all of the shares of Common Stock or sale of all or
substantially all of the Company's assets), in each case as a result of which
shares of Common Stock will be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series A Preferred Stock, if convertible after the consummation of the
transaction, will thereafter be convertible into the kind and amount of shares
of stock, securities and other
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property receivable (including cash or any combination thereof) upon the
consummation of such transaction by a holder of that number of shares or
fraction thereof of Common Stock into which one share of Series A Preferred
Stock was convertible immediately prior to such transaction (assuming such
holder of Common Stock failed to exercise any rights of election and received
per share the kind and amount of stock, securities and other property (including
cash or any combination thereof) received per share by a plurality of
nonelecting shares). The Company may not become a party to any such transaction
unless the terms thereof are consistent with the foregoing.
No adjustment of the Conversion Price will be required to be made in any
case until cumulative adjustments amount to 1% or more of the Conversion Price.
Any adjustments not so required to be made will be carried forward and taken
into account in subsequent adjustments.
RESTRICTIONS ON TRANSFER
With certain exceptions, no person may own, or be deemed to own by virtue
of the attribution provisions of the Code, more than 9.8% by value of the
Company's capital stock. See "Restrictions on Ownership of Capital Stock" in the
accompanying Prospectus.
TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND REDEMPTION AGENT
The transfer agent, registrar, dividend disbursing agent and redemption
agent for the shares of Series A Preferred Stock will be The First National Bank
of Boston.
CERTAIN INDEBTEDNESS
In December 1995, the Company obtained an unsecured, two-year revolving
credit facility (the "Unsecured Revolving Credit Facility") of up to $150.0
million from a group of six banks led by FNBB. Upon obtaining the Unsecured
Revolving Credit Facility, the Company borrowed $82.8 million and used
approximately $76.0 million of such borrowings to repay in full the outstanding
balance of the Company's REMIC, and the balance to repay in full the Company's
Secured Revolving Credit Facility and for loan fees. Borrowings under the
Unsecured Revolving Credit Facility bear interest at a rate of LIBOR plus 1.75%
(approximately 7.2% at September 30, 1996) and are available for, among other
things, acquisitions, working capital and repayment of indebtedness. The
principal amount outstanding under the Unsecured Revolving Credit Facility is
due in December 1997. At January 13, 1997, outstanding borrowings under the
Unsecured Revolving Credit Facility totalled approximately $83.0 million.
The actual amount available to the Company under the Unsecured Revolving
Credit Facility is dependent upon the Company's meeting certain covenants and
ratios. These covenants and ratios include, among others, (i) the Company's
total unsecured debt must be no more than 50% of the value of the Company's
unencumbered real estate assets, (ii) a debt service coverage ratio of at least
1.6:1 on the Company's total unsecured debt, (iii) the Company's maximum
recourse debt (other than the Unsecured Revolving Credit Facility) is limited to
10% of the Company's total indebtedness, (iv) the ratio of total debt to "fair
market" net worth (valuing the Company's properties at a 10% capitalization rate
less total liabilities) must not exceed 1:1 from the date of the loan until the
Company's first equity offering after such date and 0.9:1 thereafter until the
Company becomes an investment-grade rated company, at which point the ratio
reverts to 1:1, (v) the Company's maximum secured debt is limited to 40% of
total assets, (vi) the ratio of earnings before interest, depreciation and
amortization ("EBIDA") (adjusted for development properties) to interest expense
must be at least 2:1, (vii) the ratio of EBIDA (adjusted for development
properties) to fixed charges must be at least 1.75:1, (viii) the ratio of the
Company's net operating income to interest expense on unsecured debt must not be
less than 2.25:1, and (ix) certain debt restrictions at the investment
partnership level (including, without limitation, ERP).
The Company also has a $4.0 million line of credit that is collateralized
by certain notes receivable, and previously had an unsecured $1.0 million
revolving bank line which expired on December 31, 1996. At September 30, 1996,
$1.7 million was available under the collateralized line.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO HOLDERS OF SERIES A PREFERRED STOCK
The following summary of certain federal income tax considerations to
holders of Series A Preferred Stock is based on current law, is for general
information only, and is not tax advice. The tax treatment of a holder of Series
A Preferred 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, subject to special
treatment under the federal income tax laws, including, without limitation, life
insurance companies, certain financial institutions, dealers in securities or
currencies, stockholders holding Series A Preferred Stock as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes, tax-exempt organizations (except to the
extent discussed under the heading "-- Taxation of Tax-Exempt Stockholders"),
foreign corporations, foreign partnerships and persons who are not citizens or
residents of the United States (except to the extent discussed under the heading
"-- Taxation of Non-U.S. Stockholders"). In addition, the summary below does not
consider the effects of any foreign, state, local or other tax laws that may be
applicable to prospective stockholders.
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 of its election to be taxed as
a REIT is provided in the accompanying 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 SERIES A PREFERRED 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
Series A Preferred 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
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction otherwise available with respect
to dividends received by 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 Series A Preferred 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 Series A Preferred 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 long-term
capital gains (or short-term capital gains if the shares have been held for one
year or less), provided that the shares have been held as a capital asset.
Dividends 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
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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 Series A Preferred 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 Series A Preferred Stock and capital gain dividends,
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.
Upon any sale or other disposition of shares of Series A Preferred 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 basis in such shares of Series A Preferred Stock 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
Series A Preferred Stock that have been held for six months or less (after
applying certain holding period rules) will be treated as 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.
REDEMPTION AND CONVERSION
Cash Redemption of Series A Preferred Stock. A cash redemption of shares of
the Series A Preferred Stock will be treated under Section 302 of the Code as a
distribution taxable as a dividend (to the extent of the Company's current and
accumulated earnings and profits) at ordinary income rates unless the redemption
satisfies one of the tests set forth in Section 302(b) of the Code and is
therefore treated as a sale or exchange of the redeemed shares. The cash
redemption will be treated as a sale or exchange if it (i) is "substantially
disproportionate" with respect to the holder, (ii) results in a "complete
termination" of the holder's stock interest in the Company, or (iii) is "not
essentially equivalent to a dividend" with respect to the holder, all within the
meaning of Section 302(b) of the Code. In determining whether any of these tests
have been met, shares of capital stock (including Common Stock and other equity
interests in the Company) considered to be owned by the holder by reason of
certain constructive ownership rules set forth in the Code, as well as shares of
capital stock actually owned by the holder, must generally be taken into
account. Because the determination as to whether any of the alternative tests of
Section 302(b) of the Code will be satisfied with respect to any particular
holder of the Series A Preferred Stock depends upon the facts and circumstances
at the time that the determination must be made, prospective holders of the
Series A Preferred Stock are advised to consult their own tax advisors to
determine such tax treatment.
If a cash redemption of shares of the Series A Preferred Stock is not
treated as a distribution taxable as a dividend to a particular holder, it will
be treated, as to that holder, as a taxable sale or exchange. As a result, such
holder 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 (less any portion thereof attributable to accumulated
and declared but unpaid dividends, which will be taxable as a dividend to the
extent of the Company's current and accumulated earnings and profits), and (ii)
the holder's adjusted basis in the shares of the Series A Preferred Stock for
tax purposes. Such gain or loss will be capital gain or loss if the shares of
the Series A Preferred Stock have been held as a capital asset, and will be
long-term gain or loss if such shares have been held for more than one year.
If a cash redemption of shares of the Series A Preferred Stock is treated
as a distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
the Series A Preferred Stock for tax purposes will be transferred to the
holder's remaining shares of capital stock in the
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Company, if any. If the holder owns no other shares of capital stock in the
Company, such basis may, under certain circumstances, be transferred to a
related person or it may be lost entirely.
Redemption Premium. Under Section 305 (c) of the Code and applicable
Treasury Regulations, if the redemption price of the Series A Preferred Stock
exceeds its issue price the difference ("redemption premium") may be taxable as
a constructive distribution of additional Series A Preferred Stock to the holder
(treated as a dividend to the extent of the Company's current and accumulated
earnings and profits and otherwise subject to the treatment described above for
distributions) over a certain period. Because Series A Preferred Stock provides
for an optional right of redemption by the Company at a price that may exceed
the issue price, stockholders could be required to recognize such redemption
premium under a constant interest rate method similar to that for accruing
original issue discount if, based on all of the facts and circumstances, the
optional redemption is more likely than not to occur. If stock may be redeemed
at more than one time, the time and price at which such redemption is most
likely to occur must be determined based on all of the facts and circumstances.
Applicable Treasury Regulations provide a "safe harbor" under which a right to
redeem will not be treated as more likely than not to occur if (i) the issuer
and the stockholder are not related within the meaning of such regulations; (ii)
there are no plans, arrangements, or agreements that effectively require or are
intended to compel the issuer to redeem the stock (disregarding, for this
purpose, a separate mandatory redemption), and (iii) exercise of the right to
redeem would not reduce the yield of the stock, as determined under the
regulations. Regardless of whether the optional redemption is more than likely
not to occur, constructive dividend treatment will not result if the redemption
premium does not exceed a de minimis amount. The Company intends to take the
position that the existence of the Company's optional redemption right does not
result in a constructive distribution to the holders of Series A Preferred
Stock.
A redemption of shares of the Series A Preferred Stock for shares of Common
Stock will be treated as a conversion of the Series A Preferred Stock into
Common Stock. See "-- Conversion of Series A Preferred Stock into Common Stock."
Conversion of Series A Preferred Stock into Common Stock. In general, no
gain or loss will be recognized for federal income tax purposes upon conversion
of the Series A Preferred Stock solely into shares of Common Stock. The basis
that a holder will have for tax purposes in the shares of Common Stock received
upon conversion will be equal to the adjusted basis for the holder in the shares
of Series A Preferred Stock so converted, and, provided that the shares of
Series A Preferred Stock were held as a capital asset, the holding period for
the shares of Common Stock received would include the holding period for the
shares of Series A Preferred Stock converted. A holder will, however, recognize
gain or loss on the receipt of cash in lieu of fractional shares of Common Stock
in an amount equal to the difference between the amount of cash received and the
holder's adjusted basis for tax purposes in the Series A Preferred Stock for
which cash was received. Furthermore, under certain circumstances, a holder of
shares of Series A Preferred Stock may recognize gain or dividend income to the
extent that there are dividends in arrears on the shares at the time of
conversion into Common Stock.
Adjustments to Conversion Price. Adjustments in the Conversion Price (or
the failure to make such adjustments) pursuant to the antidilution provisions of
the Series A Preferred Stock or otherwise may result in constructive
distributions to the holders of Series A Preferred Stock that could, under
certain circumstances, be taxable to them as dividends pursuant to Section 305
of the Code. If such a constructive distribution were to occur, a holder of
Series A Preferred Stock could be required to recognize ordinary income for tax
purposes without receiving a corresponding distribution of cash.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a 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,
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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 nonforeign 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 Series A Preferred 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 Series A Preferred Stock with borrowed funds,
some or all of its distributions on such stock will be subject to tax. In
addition, 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 Series A Preferred Stock,
could be subject to tax on a portion of their distributions on such stock even
if their Series A Preferred 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 "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 his particular
circumstances, including, for example, if the investment in the Company is
connected to the conduct by a Non-U.S. Stockholder of a U.S. trade or business.
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 advisors to
determine the impact of federal, state, local and foreign income tax laws with
regard to an investment in Series A Preferred 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
gain 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
States trade or business or, if an income tax treaty applies, as attributable to
a U.S. permanent establishment of the Non-U.S. Stockholder. Distributions that
are effectively connected with such a trade or business or are attributable to
such a U.S. permanent establishment 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 would be
required to satisfy certain certification requirements. Under certain treaties,
lower
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withholding rates generally applicable to dividends do not apply to
distributions from a REIT, such as the Company. Certain certification
requirements must be satisfied to be exempt from withholding under the
effectively connected income and permanent establishment exemptions 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 Series A Preferred
Stock, but rather will reduce the adjusted basis of such stock. For FIRPTA
withholding purposes (discussed below), such distributions (i.e. distributions
that are not made out of earnings and profits) will be treated as consideration
for the sale or exchange of shares of Series A Preferred Stock. To the extent
that such distributions exceed the adjusted basis of a Non-U.S. Stockholder's
Series A Preferred 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. A Non-U.S. Stockholder may obtain such a refund by filing the
appropriate claim for refund with the IRS.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gain 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 Series A Preferred Stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business (or, if an income tax treaty
applies, is attributable to a U.S. permanent establishment of the Non-U.S.
Stockholder), 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 and is
not entitled to treaty relief or exemption, as discussed above. The Company is
required to withhold 35% of any such distribution that could be designated by
the Company as a capital gain dividend. Any such withheld amount is creditable
against the Non-U.S. Stockholder's United States federal income tax liability.
Sale of Series A Preferred Stock. Gain recognized by a Non-U.S. Stockholder
upon the sale or exchange of shares of Series A Preferred Stock generally will
not be subject to United States taxation unless such shares constitute a "United
States real property interest" within the meaning of the Foreign Investment in
Real Property Tax Act of 1980 ("FIRPTA"). The Series A Preferred 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. The Company
believes that at the closing of the Offering it will be a "domestically
controlled REIT," and, therefore, that the sale of shares of Series A Preferred
Stock will not be subject to taxation under FIRPTA. However, because the shares
of Series A Preferred Stock will be publicly traded, no assurance can be given
that the Company will continue to be a "domestically controlled REIT." 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 Series A Preferred 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 either (i) investment in the stock
is effectively connected with the Non-U.S. Stockholder's United States trade or
business (or, if an income tax treaty applies, as attributable to a U.S.
permanent establishment of the Non-U.S. Stockholder), in which case the
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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 Series A Preferred 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 NYSE) 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 Series A Preferred 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
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the stock would be required to withhold and
remit to the IRS 10% of the purchase price. The 10% withholding tax will not
apply if the shares are "regularly traded" on an established securities market
during the calendar year in which such sale or disposition occurs; moreover,
regular United States income tax will not be imposed on such gain if the shares
are so traded and if the Non-U.S. Stockholder does not own, actually or
constructively, 5% or more of the stock of the Company during certain specified
periods.
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 gain dividends or
(iii) distribution 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 Series A Preferred 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 Series A Preferred 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 Series A
Preferred Stock is subject to both backup withholding and information reporting
unless the stockholder certifies under penalty 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 would be revised by
recently proposed Treasury Regulations. The proposed Treasury Regulations would,
if adopted, alter the foregoing rules in certain aspects. Among other things,
the proposed Treasury Regulations provide certain presumptions under which Non-
U.S. Stockholders may be subject to backup withholding in the absence of
required certifications.
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 in this Prospectus Supplement and the accompanying Prospectus.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
Company.
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UNDERWRITING
Subject to the terms and conditions in the terms agreement and related
underwriting agreement (collectively, the "Underwriting Agreement"), Furman Selz
LLC (the "Underwriter") has agreed to purchase from the Company, the 3,000,000
shares of Series A Preferred Stock offered hereby.
The Company is obligated to sell, and the Underwriter is obligated to
purchase, all of the shares of Series A Preferred Stock offered hereby if any
are purchased.
The Underwriter has advised the Company that it proposes to offer the
shares of Series A Preferred Stock initially at the public offering price set
forth on the cover page of this Prospectus Supplement, that the Underwriter may
allow to selected dealers a concession of $ per share, and that such
dealers may reallow a concession of $ per share to certain other
dealers. After the initial public offering, the offering price and the
concessions may be changed by the Underwriter.
The Company has granted the Underwriter an option, exercisable for 30 days
from the date of this Prospectus Supplement, to purchase up to 450,000
additional shares of Series A Preferred Stock at the initial public offering
price, less the underwriting discounts and commissions, as set forth on the
cover page of this Prospectus Supplement. The Underwriter may exercise such
option solely for the purpose of covering over-allotments incurred in the sale
of shares of Series A Preferred Stock offered hereby. To the extent such option
to purchase is exercised, the Underwriter will become obligated, subject to
certain conditions, to purchase such additional shares.
The Company has agreed to indemnify the Underwriter or to contribute to
losses arising out of certain liabilities, including liabilities under the
Securities Act.
The Company has agreed that it will not, subject to certain exceptions,
directly or indirectly, offer or sell, grant any option for the sale of, or
enter into any agreement to sell, any shares of Series A Preferred Stock or
other capital stock ranking on parity with the Series A Preferred Stock, or any
Common Stock or any securities convertible into any shares of Common Stock, for
a period of 45 days from the date of this Prospectus Supplement, without the
prior written consent of the Underwriter.
The Company has applied for the listing of the Series A Preferred Stock on
the NYSE under the symbol "XELPrA." The Common Stock is listed on the NYSE under
the symbol "XEL."
LEGAL MATTERS
The validity of the shares of Series A Preferred Stock offered hereby will
be passed upon for the Company by Latham & Watkins, San Diego, California and
for the Underwriters by Brown & Wood LLP, New York, New York. Latham & Watkins
and Brown & Wood LLP will rely as to certain matters of Maryland law, including
the legality of the shares offered hereby, on the opinion of Ballard Spahr
Andrews & Ingersoll, Baltimore, Maryland. In addition, the description of
federal income tax consequences contained in this Prospectus Supplement is based
on the opinion of Latham & Watkins.
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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 actual and constructive 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 January 17, 1997.
<PAGE> 45
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 Company's Exchange
Act file number is 1-12244. 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. Electronic reports, proxy statements and other information filed through
the Commission's Electronic Data Gathering, Analysis and Retrieval system are
publicly available through the Commission's Web site (http://www.sec.gov). 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,
1995, filed with the Commission on March 31, 1996, as amended by Amendment
No. 1 on Form 10-K/A, filed with the Commission on May 8, 1996, and
Amendment No. 2 on Form 10-K/A, filed with the Commission on June 4, 1996;
b. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1996, filed with the Commission on May 9, 1996, as amended by Amendment
No. 1 on Form 10-Q/A, filed with the Commission on June 13, 1996;
c. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996, filed with the Commission on August 12, 1996;
d. Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996, filed with the Commission on November 4, 1996;
e. Current Report on Form 8-K, filed with the Commission on July 2,
1996;
f. Current Report on Form 8-K, filed with the Commission on December
16, 1996;
g. Current Report on Form 8-K, filed with the Commission on January
17, 1996;
h. All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the Company's fiscal year ended December 31,
1995; and
i. 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.
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<PAGE> 46
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).
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 which are primarily leased on a long-term basis to major
retail companies throughout the United States. As of September 30, 1996, the
Company owned or managed 40 shopping centers (the "Shopping Centers"), 71 single
tenant properties (the "Single Tenant Properties"), three commercial properties
and office buildings (the "Commercial Properties") and one additional property
which is held for disposition. The Shopping Centers consist of neighborhood and
community shopping centers which typically range from 100,000 to 200,000 square
feet in size. The Single Tenant Properties typically are either anchor stores
within shopping centers not owned by the Company or free standing properties
located in commercial areas, with triple net leases which 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. The Commercial Properties consist
of office buildings and commercial properties which the Company typically
purchases at an attractive price to take advantage of a distressed situation or
underutilized space. The Shopping Centers, Single Tenant Properties and
Commercial Properties accounted for approximately 62%, 37% and 1%, respectively,
of the annualized base rental income ("ABR") of the Company at September 30,
1996. As of September 30, 1996, the Company's operating 114 properties were
located in 26 states, contained approximately 7.4 million square feet of gross
leasable area ("GLA"), had an average age of seven years and were 97.3% leased.
The Company emphasizes investments in retail properties where a substantial
portion of such properties' GLA is subject to long-term net leases to national
or regional retail tenants. The Company seeks to lease to national or regional
retail tenants that market basic goods and services to consumers and enjoy a
leading position in their respective industries.
The Company's primary objective is to acquire, own and manage a portfolio
of commercial 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 this objective
by (i) aggressively managing its existing properties, (ii) continuing to acquire
well-located neighborhood and community shopping centers with tenants that have
a national or regional presence and an established credit quality, (iii)
disposing of mature properties to continually update its core property
portfolio, and (iv) continuing to maintain a strong and flexible financial
position to facilitate growth.
The Company has elected to be taxed as a REIT for federal income tax
purposes commencing with its taxable year ended December 31, 1987, and believes
that, commencing with such taxable year, it has been organized and has operated
in conformity with the requirements for qualification as a REIT under the
Internal
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<PAGE> 47
Revenue Code of 1986, as amended (the "Code"). Although the Company believes
that it will continue to operate in such a manner, 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 actual
or constructive 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 Common Stock in
the fourth quarter of 1987 to $0.46 per share of Common Stock for the fourth
quarter of 1996. 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 nine months ended
September 30, 1996 was 2.19, and for the years ended December 31, 1995, 1994,
1993, 1992 and 1991 was 1.65, 1.98, 1.30, 1.20 and 1.05, 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
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<PAGE> 48
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 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;
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<PAGE> 49
(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;
(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
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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. 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, 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).
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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).
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
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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
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 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
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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.
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.
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"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 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).
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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 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).
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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 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
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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 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
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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
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.
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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
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 September 30, 1996, the
Company had outstanding 15,023,564 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.
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RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Charter provides that no person may
own, actually or constructively, 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.
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;
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(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;
(12) In addition to those limitations described below, any other
limitations on actual and constructive ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of the
Company as a REIT; and
(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
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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 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
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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 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.
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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 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,
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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.
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 exceptions, the Company's Charter provides that no person may
own, actually or constructively, 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.
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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.
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.
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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.
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
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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.
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
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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 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, actually or constructively,
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
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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 actually 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 (the "IRS"),
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.
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, actually or constructively, 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 actual 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
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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 PROSPECTIVE 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 REIT under Sections 856
through 860 of the Code, commencing with its taxable year ended December 31,
1987. The Company believes that, commencing with such taxable year, it has been
organized and has operated in such a manner as to qualify for taxation as a REIT
under the Code, commencing with such taxable year, and the Company intends to
continue to operate in such a manner, but no assurance can be given that it has
operated or will continue to operate in a manner so as to qualify or remain
qualified.
The REIT provisions of the Code and the corresponding Treasury Regulations
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).
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 have not been and will not be reviewed by
Latham & Watkins. Accordingly, no assurance can be given that the actual results
of the Company's operation for any particular taxable year have satisfied or
will satisfy such requirements. Further, the anticipated income tax treatment
described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. 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 "REIT 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 REIT 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 REIT ordinary income for such
year, (ii) 95% of its
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REIT 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 Treasury 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, actually 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 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. For
purposes of conditions (5) and (6), pension funds and certain other tax-exempt
entities are treated as individuals, subject to a "look-through" exception in
the case of condition (6).
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."
In addition, a corporation may not elect to be taxed as a REIT unless its
taxable year is the calendar year. The Company has a calendar taxable year.
The Company owns and operates a number of properties through wholly-owned
subsidiaries (the "QRSs"). The Company has owned 100% of the stock of each of
the QRSs at all times that each of the QRSs has been in existence. As a result,
the QRSs will be treated as "qualified REIT subsidiaries" under the Code. 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 QRSs will be ignored,
and all assets, liabilities and items of income, deduction, and credit of such
QRSs 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 the QRSs
are qualified REIT subsidiaries.
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, Treasury
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
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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. Certain
special tax risks which may arise as a result of the Company investing in
certain properties through partnerships are described below under the heading
"-- Other Tax Matters." The Company has direct control of the partnerships in
which it is a partner and has operated and intends to continue to operate such
partnerships consistent with the requirements for qualification as a REIT.
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, subject to certain exceptions in the year in which the
Company is liquidated, 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 if the REIT, or an actual
or constructive owner of 10% or more of the REIT, actually or constructively
owns 10% or more of a tenant of the REIT (or a tenant of any partnership in
which the REIT is a partner) (a "Related Party Tenant"), the rent received by
the REIT (either directly or through any such partnership) from such tenant will
not qualify as "rents from real property" in satisfying the gross income tests
of the Code. 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 customarily rendered" in connection with the
rental of space for occupancy only and 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
(unless the Board of Directors of the Company determines in its discretion that
the rent received from such Related Party Tenant is not material and will not
jeopardize the Company's status as a REIT), (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 in connection with the rental of space for
occupancy only or 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.
ERT Development Corporation ("ERT") receives fees in exchange for the
performance of certain development activities. Such fees will not accrue to the
Company, but the Company will derive dividends from ERT, which qualify under the
95% gross income test, but not the 75% gross income test. The Company believes
that the aggregate amount of any nonqualifying income in any taxable year has
not exceeded and will not exceed the limit on nonqualifying income under the
gross income tests.
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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 gross
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 are generally expected to be available if the Company can establish
that its 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. If these relief provisions are inapplicable to a
particular set of circumstances involving the Company, the Company would not
qualify as a REIT. As discussed above under "-- General," even if these relief
provisions apply, a 100% tax would be imposed with respect to the excess net
income. No similar mitigation provision provides relief if the Company fails the
30% gross income test. In such case, the Company would cease to qualify as a
REIT.
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 may 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 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 small, 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
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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. 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 (including assets held by
the Company's qualified REIT subsidiaries and the Company's allocable share of
the assets held by partnerships in which the Company owns an interest) must be
represented by real estate assets including (i) real estate 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) public debt
offering of the Company, cash, cash items and government securities. Second, not
more than 25% of the Company's total assets (including assets held by the
Company's qualified REIT subsidiaries and the Company's allocable share of
assets held by partnerships in which the Company owns an interest) 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 (including assets held by the Company's qualified REIT subsidiaries
and the Company's allocable share of the assets held by partnerships in which
the Company owns an interest) and the Company may not own more than 10% of any
one issuer's outstanding voting securities.
The Company currently holds 100% of the stock of each of the QRSs. As set
forth above, the asset tests provide that a REIT may not own securities of any
one issuer which constitute more than 10% of such issuer's voting securities or
more than 5% of the value of the REIT's total assets. 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. Because the QRSs will be treated as "qualified REIT subsidiaries," the
Company's ownership of the stock of the QRSs will not cause the Company to fail
the asset tests.
The Company owns 100% of the nonvoting preferred stock of ERT. Such shares
of nonvoting preferred stock will not constitute voting securities for purposes
of the asset tests. Furthermore, the Company has not owned and will not own any
of the voting securities of ERT. Therefore, the Company will not be considered
to own more than 10% of the voting securities of such corporation. In addition,
the Company believes (and has represented to tax counsel to the Company for
purposes of its opinion, as described above) that the value of its securities of
ERT have not exceeded 5% of the total value of the Company's assets, and will
not exceed such amount in the future. Latham & Watkins, in rendering its opinion
as to the qualification of the Company as a REIT, is relying on the
representation of the Company to such effect. No independent appraisals have
been obtained to support this conclusion.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a
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<PAGE> 76
quarter, the failure can be cured by disposition of sufficient nonqualifying
assets within 30 days after the close of that quarter. The Company intends to
maintain adequate records of the value of its assets to ensure compliance with
the asset tests and to take such other actions within 30 days after the close of
any quarter as may be required to cure any noncompliance. If the Company fails
to cure noncompliance with the asset tests within such time period, the Company
would cease to qualify as a REIT.
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 by excluding the Company's net capital gain) and (ii) 95% of the
net income (after tax), if any, from foreclosure property, minus (B) the excess
of the sum of certain items of non-cash income over 5% of "REIT taxable income"
as described in clause (A)(i) above. In addition, if the Company disposes of any
Built-In Gain Asset during its Recognition Period, the Company will be required,
pursuant to Treasury 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 taxable 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 these annual distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet these distribution requirements 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 these distribution requirements,
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.
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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 or publicly traded partnerships taxable as
corporations) for income tax purposes. If any of the partnerships is treated as
an association or a publicly traded partnership, 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 total 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 or a publicly traded partnership 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.
A portion of the cash to be used by the Company to fund distributions to
its stockholders comes from ERT through dividends on nonvoting preferred stock
held by the Company. ERT does not qualify as a REIT and pays federal, state and
local income taxes on its taxable income at normal corporate rates. The federal,
state and local income taxes that ERT is required to pay reduces the cash
available for distribution by the Company to its stockholders.
As described above, the value of ERT's nonvoting preferred stock held by
the Company cannot exceed 5% of the value of the Company's total assets at the
end of any calendar quarter in which the Company acquires such securities or
increases its interest in such securities. See "-- Taxation of the Company as a
REIT -- Asset Tests." This limitation may restrict the ability of ERT to
increase the size of its business unless the value of the assets of the Company
is increasing at a commensurate rate.
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
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<PAGE> 78
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 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, 1995 and 1994, 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, 1995
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.
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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 UNDERWRITER. 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.......... S-3
Risk Factors........................... S-8
The Company............................ S-12
Use of Proceeds........................ S-16
Capitalization......................... S-17
Selected Consolidated Financial Data... S-18
Price Range of Common Stock and
Distributions........................ S-19
Business and Properties................ S-20
Management............................. S-29
Description of Series A Preferred
Stock................................ S-31
Certain Indebtedness................... S-36
Certain Federal Income Tax
Considerations to Holders of Series A
Preferred Stock...................... S-37
Underwriting........................... S-43
Legal Matters.......................... S-43
PROSPECTUS
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 2
The Company............................ 3
Ratios of Earnings to Fixed Charges.... 4
Use of Proceeds........................ 4
Description of Debt Securities......... 4
Description of Common Stock............ 16
Description of Preferred Stock......... 17
Description of Depositary Shares....... 22
Description of Warrants................ 26
Restrictions on Ownership of Capital
Stock................................ 26
Certain Federal Income Tax
Considerations to the Company of its
REIT Election........................ 27
Plan of Distribution................... 34
Experts................................ 35
</TABLE>
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3,000,000 SHARES
EXCEL REALTY
TRUST, INC.
$ SERIES A CUMULATIVE
CONVERTIBLE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
-------------------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------------------
FURMAN SELZ
, 1997
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- ------------------------------------------------------
