<PAGE> 1
This filing is made
pursuant to Rule
424(b)(5) under the
Securities Act of 1933
in connection with
Registration No.
333-24615
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 9, 1997)
$75,000,000
EXCEL REALTY TRUST, INC.
6 7/8% SENIOR NOTES DUE 2004
------------------------
The 6 7/8% Senior Notes due 2004 (the "Notes") offered hereby (the
"Offering") are being issued by Excel Realty Trust, Inc., a Maryland corporation
(the "Company"), in an aggregate principal amount of $75,000,000. Interest on
the Notes will accrue at the rate of 6 7/8% per annum and will be payable
semi-annually in arrears on April 15 and October 15 of each year, commencing on
April 15, 1998. The Notes will mature on October 15, 2004, but are subject to
redemption at the option of the Company, in whole or in part, at any time on or
after October 15, 2002, at the redemption prices set forth herein, plus accrued
and unpaid interest. See "Description of the Notes."
The Notes will be represented by a single fully-registered Note in
book-entry form (the "Global Note") registered in the name of the nominee of The
Depository Trust Company ("DTC"). Beneficial interests in the Global Note will
be shown on, and transfers thereof will be effected only through, records
maintained by DTC (with respect to beneficial interests of participants) or by
participants or persons that hold interests through participants (with respect
to beneficial interests of beneficial owners). Owners of beneficial interests in
the Global Note will be entitled to physical delivery of Notes in certificated
form equal in principal amount to their respective beneficial interests only
under the limited circumstances described under "Description of the
Notes -- Book-Entry System." Settlement for the Notes will be made in
immediately available funds. The Notes will trade in DTC's Same-Day Funds
Entitlement System until maturity or earlier redemption, as the case may be, or
until the Notes are issued in certificated form, and secondary market trading
activity in the Notes will therefore settle in immediately available funds. All
payments of principal and interest in respect of the Notes will be made by the
Company in immediately available funds. See "Description of the
Notes -- Same-Day Settlement and Payment."
SEE "RISK FACTORS" BEGINNING ON PAGE S-9 FOR A DISCUSSION OF CERTAIN
FACTORS RELATING TO AN INVESTMENT IN THE NOTES.
------------------------
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.
<TABLE>
<CAPTION>
======================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............................... 99.415% .625% 98.79%
- ------------------------------------------------------------------------------------------------------
Total.................................. $74,561,250 $468,750 $74,092,500
======================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from October 15, 1997.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $200,000 payable by the Company.
------------------------
The Notes are offered by the several Underwriters subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Global
Note will be made in New York, New York on or about October 15, 1997.
------------------------
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
SALOMON BROTHERS INC
SMITH BARNEY INC.
UBS SECURITIES
The date of this Prospectus Supplement is October 9, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO COVER SHORT
POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial information appearing elsewhere in this Prospectus
Supplement or the accompanying Prospectus or incorporated herein or therein by
reference. Capitalized terms used in this Prospectus Supplement Summary and not
defined herein have the meanings set forth elsewhere in this Prospectus
Supplement or the accompanying Prospectus. 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 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 June 30, 1997, the Company owned or managed 66 shopping centers
(the "Shopping Centers"), 68 single tenant properties (the "Single Tenant
Properties"), four commercial properties and office buildings (the "Commercial
Properties") and one additional property which is in the process of
construction. 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 74%, 23% and 3%, respectively,
of the annualized base rental income ("ABR") of the Company at June 30, 1997. As
of June 30, 1997, the Company's 138 operating properties were located in 28
states, contained approximately 11.4 million square feet of gross leasable area
("GLA") and were 97% 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 81 properties for an aggregate purchase price of
approximately $612.9 million (representing approximately 9.8 million square feet
of GLA) and disposed of 25 properties for an aggregate sales price of
approximately $45.7 million (representing approximately 927,000 square feet of
GLA).
The Company intends to maintain a flexible and conservative capital
structure that enables it to both continue to access the capital markets on
favorable terms and to enhance earnings growth. The Company's financial position
reflects its conservative financial strategy:
- As of June 30, 1997, the Company had 88 properties unencumbered by
mortgage debt with over $302 million of undepreciated book value
supporting the Company's unsecured debt.
- On a pro forma basis, giving effect to the Offering and the application
of the net proceeds therefrom as described in "Use of Proceeds" and to
the Pending Acquisitions (as defined below) and not giving
S-3
<PAGE> 4
effect to any guarantees of the Company, the ratio of Debt to Total
Assets would have been 39%, secured Debt to Total Assets would have been
27%, Consolidated Income Available for Debt Service would have been 2.6
times the Maximum Annual Service Charge, and Unencumbered Total Asset
Value would have been 317% of the aggregate principal amount of all
unsecured Debt for the six months ended June 30, 1997.
- As of June 30, 1997, the Company's weighted average debt maturity was 9.8
years. On a pro forma basis, the Company's weighted average debt maturity
would have been 9.1 years.
- The Company's payout ratio, based on funds from operations ("FFO"), was
80% and 78% for the years ended December 31, 1996 and 1995, respectively.
For the six months ended June 30, 1997 and 1996, the payout ratio was
70.5% and 81.8%, respectively.
RECENT DEVELOPMENTS
Corporate Developments
In February 1997, the Company issued in a public offering 4,600,000 shares
of 8 1/2% Series A Cumulative Convertible Preferred Stock (the "Series A
Preferred Stock"). The net proceeds to the Company of approximately $111.4
million were used to repay certain indebtedness under the Company's unsecured,
two-year revolving credit facility (the "Unsecured Revolving Credit Facility")
and for the acquisition of six Shopping Centers and one Single Tenant Property.
In its financial statements, the Company consolidated Excel Realty
Partners, L.P., a Delaware limited partnership ("ERP"), beginning April 1, 1997.
ERP was previously accounted for in the Company's financial statements under the
equity method. Loans from the Company to ERP in the aggregate amount of
approximately $23.0 million were converted into an equity investment in ERP.
This consolidation has added 19 Shopping Centers to the Company's portfolio with
a total purchase price of $157.0 million, consisting of $66.2 million in
mortgage debt and $90.8 million in equity. The consolidation has added
approximately 2.6 million square feet of GLA and $17.5 million in ABR. The
properties will continue to be managed from the Company's seven regional
property management offices.
In July 1997, the Company issued in a public offering 2,500,000 shares of
the Company's Common Stock, par value $.01 per share (the "Common Stock"). The
net proceeds to the Company of approximately $66.5 million were used to repay
certain indebtedness under the Unsecured Revolving Credit Facility and for the
acquisition of four Shopping Centers and one Single Tenant Property.
In July and August 1997, the Company received investment grade ratings of
Baa3 and BBB- from Moody's Investors Service, Inc. and Standard & Poor's
Corporation, respectively, with respect to prospective issuances of senior
unsecured debt, including the Notes.
In September 1997, the Board of Directors of the Company authorized
management to examine the feasibility of a spin-off of a newly-formed public
company. The spin-off would involve (i) the transfer from the Company and ERT
Development Corporation ("EDV"), a company organized in 1995 to acquire,
develop, hold and sell real estate in the short-term for capital gains and/or
income, of certain properties currently held by them which are not long-term
REIT properties to the newly-formed company, (ii) the possible conversion of
part of EDV's borrowings from the Company into shares of common stock of the
newly-formed company, and (iii) the distribution of such shares to the common
stockholders of the Company. Although this transaction is being considered by
the Company, there can be no assurance that it will take place or whether the
final terms of any such transaction will be as discussed above.
Property Acquisitions and Dispositions
Between July 1, 1997 and September 30, 1997, the Company purchased five
Shopping Centers located in Arizona, California, Pennsylvania and Tennessee and
one Single Tenant Property located in Minnesota. These properties were purchased
for an aggregate purchase price of approximately $52.7 million and have added
S-4
<PAGE> 5
approximately 536,000 square feet of GLA and $5.7 million in ABR. The properties
were subject to secured debt of $8.8 million.
On October 6 and 7, 1997, the Company acquired an additional six Shopping
Centers, five of which were partially owned by, and are leased to, Kmart
Corporation ("Kmart"), containing approximately 1.3 million square feet of GLA
for a total purchase price of approximately $98.5 million (the "Recent
Acquisitions"). The Company intends to use a portion of the net proceeds from
the Offering to repay indebtedness incurred to acquire certain of the Recent
Acquisitions. The six properties acquired include:
<TABLE>
<CAPTION>
PERCENT
LEASED PURCHASE
TOTAL GLA AS OF PRICE
PROPERTY NAME LOCATION (SQ. FT.) 10/01/97 (000S)
------------------------------ ------------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
Market Street Square Elizabethtown, PA 169,481 100% $12,056
Island Plaza James Island, SC 167,101 95 9,635
Bardin Place Center Arlington, TX 399,892 98 27,346
Miami Gardens Miami, FL 244,719 100 19,692
Freedom Square Naples, FL 212,183 88 11,603
San Dimas Plaza San Dimas, CA 119,157 97 18,122
---------- --- ---------
1,312,533 96% $98,454
========= ======= =======
</TABLE>
On October 6, 1997, the Company also sold two Single Tenant Properties leased to
Kmart comprising approximately 147,065 square feet of GLA for a total sales
price of approximately $5.2 million.
S-5
<PAGE> 6
THE OFFERING
For a more complete description of the terms of the Notes specified in the
following summary, see "Description of the Notes" herein and "Description of
Debt Securities" in the accompanying Prospectus.
Securities Offered.......... $75,000,000 aggregate principal amount of 6 7/8%
Senior Notes due 2004 (the "Notes").
Maturity.................... The Notes will mature on October 15, 2004.
Interest Payment Dates...... Interest on the Notes will accrue at the rate of
6 7/8% per annum and will be payable
semi-annually in arrears on April 15 and October
15 of each year, commencing on April 15, 1998.
Optional Redemption......... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after October 15, 2002, at the redemption prices
set forth herein, plus accrued and unpaid
interest.
Ranking..................... The Notes will be direct, unsecured obligations
of the Company and will rank equally with all
other unsecured and unsubordinated indebtedness
of the Company.
Use of Proceeds............. The net proceeds from the Offering are expected
to be used primarily to repay indebtedness and to
acquire certain of the Pending Acquisitions. See
"Use of Proceeds."
Limitations on Incurrence of
Debt........................ The Notes contain various covenants, including
the following:
(1) The Company will not incur any Debt if, after
giving effect thereto, the aggregate
principal amount of all outstanding Debt of
the Company is greater than 60% of the sum of
(i) Total Assets as of the end of the most
recent calendar quarter and (ii) the purchase
price of any real estate assets acquired by
the Company since the end of such quarter,
including those obtained in connection with
the incurrence of such additional Debt. On a
pro forma basis, as of June 30, 1997, the
Company's aggregate principal amount of all
outstanding Debt would have been 39% of Total
Assets plus the purchase price of other real
estate assets acquired subsequent to June 30,
1997.
(2) The Company will not incur any secured Debt
if, after giving effect thereto, the
aggregate amount of all outstanding secured
Debt of the Company is greater than 40% of
the sum of (i) Total Assets as of the end of
the most recent calendar quarter and (ii) the
purchase price of any real estate assets
acquired by the Company since the end of such
quarter, including those obtained in
connection with the incurrence of such
additional Debt. On a pro forma basis, as of
June 30, 1997, the Company's aggregate
principal amount of all outstanding secured
Debt would have been 27% of Total Assets plus
the purchase price of other real estate
assets acquired subsequent to June 30, 1997.
(3) The Company will not incur any Debt if
Consolidated Income Available for Debt
Service for any 12 consecutive calendar
months within the 15 calendar months
immediately preceding the date on which such
additional Debt is to be incurred would have
been less than 1.5 times the Maximum Annual
Service Charge on the Debt of the Company to
be outstanding after the incurring of such
additional Debt. The Company's pro forma
Consolidated Income Available for Debt
Service would have been 2.6 times the Maximum
Annual Service Charge for the period ended
June 30, 1997.
(4) The Company will at all times maintain an
Unencumbered Total Asset Value in an amount
not less than 150% of the aggregate principal
amount of all outstanding Debt of the Company
that is unsecured. On a pro forma basis, the
Company's Unencumbered Total Asset Value
would have been 317% of the aggregate
principal amount of all outstanding Debt of
the Company that was unsecured as of June 30,
1997.
S-6
<PAGE> 7
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 six
months ended June 30, 1997 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>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue................... $ 43,665 $ 30,034 $ 63,135 $ 59,370 $ 42,259 $ 23,082 $ 6,029
Interest expense................ 9,835 9,610 19,450 22,458 14,190 9,360 2,218
Total operating expenses........ 22,457 18,984 37,562 44,861 28,355 20,250 5,575
Income before real estate
sales......................... 21,208 11,050 25,573 14,509 13,904 2,832 454
Real estate sales and
impairment.................... 293 (1,098) (1,777) 3,683 (108) 399 0
Net income...................... 21,501 9,952 23,796 18,192 13,796 3,231 454
Net income per share............ 0.93 0.75 1.62 1.51 1.27 0.55 0.41
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate after accumulated
depreciation.................. $ 664,540 $ 423,790 $457,502 $372,016 $349,255 $273,362 $112,971
Total assets.................... 759,287 500,186 558,628 428,307 375,100 290,226 116,621
Mortgages payable............... 220,967 141,164 157,716 123,813 201,157 113,487 89,442
Total liabilities............... 296,030 258,180 81,032 219,629 211,202 128,264 93,343
Minority interest(1)............ 32,884 -- -- -- -- -- --
Stockholders' equity............ 430,373 242,006 312,654 208,678 163,898 161,962 22,312
OTHER DATA:
EBITDA(2)....................... $ 36,094 $ 23,220 $ 50,921 $ 47,583 $ 34,873 $ 16,778 $ 3,280
Funds from operations(3)........ 26,531 14,317 33,067 26,536 21,964 8,891 998
Cash flows provided (used):
Operating activities.......... 24,631 12,741 28,080 28,895 24,652 6,263 1,364
Investing activities.......... (72,980) (20,143) (96,200) (28,425) (58,872) (110,605) (11,308)
Financing activities.......... 48,865 4,749 63,346 5,211 32,975 109,281 9,534
Ratios:
Debt as a percentage of Total
Assets(4)................... 36% 48% 41% 48% 52% 41% 77%
Secured Debt as a percentage
of Total Assets(4).......... 31% 27% 27% 28% 52% 39% 76%
Ratio of Consolidated Income
Available for Debt Service
to Maximum Annual Service
Charge(4)................... 2.96x 2.04x 2.21x 1.69x 1.85x 1.50x 1.22x
Unencumbered Total Asset Value
as a percentage of
Debt(4)..................... 791% 236% 333% 257% -- -- --
Ratio of earnings to fixed
charges(5).................. 3.16x 2.15x 2.31x 1.65x 1.98x 1.30x 1.20x
Distributions................... 18,284 11,774 25,568 16,264 18,604 8,881 1,156
Distributions per share(6)...... 0.92 0.89 1.81 1.32 1.71 1.42 1.14
Common shares outstanding
(weighted average)............ 18,823,936 13,312,720 14,539 12,084 10,883 5,878 1,110
Gross leasable area (sq. ft. at
end of period)................ 11,400 7,416 8,200 7,374 7,163 5,866 2,158
Number of operating properties
(at end of period)............ 138 114 112 112 110 98 42
</TABLE>
- ---------------
(1) Represents the minority partner's proportionate share of the equity of ERP
which the Company consolidated beginning April 1, 1997.
(2) 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.
S-7
<PAGE> 8
(3) 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.
(4) For definitions of "Debt," "Total Assets," "Consolidated Income Available
for Debt Service," "Maximum Annual Service Charge" and "Unencumbered Total
Asset Value," see "Description of Debt Securities -- Certain Covenants" in
the accompanying Prospectus.
(5) 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.
(6) 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 distribution would have been $1.77 for
the year ended December 31, 1995.
S-8
<PAGE> 9
RISK FACTORS
An investment in the Notes 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 Notes 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 (the "Exchange Act"). 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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<PAGE> 10
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. See "Business and Properties -- Environmental Conditions."
RELIANCE ON MAJOR TENANTS
As of June 30, 1997, the Company's two largest tenants were Wal-Mart
Stores, Inc. ("Wal-Mart") and Kmart, which accounted for approximately 11.8% and
9.6%, respectively, of the Company's ABR as of such date. The Recent
Acquisitions will increase K-Mart's representation in the Company's ABR. 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 June 30, 1997, directors and executive officers of the Company
beneficially owned approximately 9.3% 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 Internal Revenue Code of 1986, as amended (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
S-10
<PAGE> 11
Prospectus. Although the Company's Board of Directors presently has 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 1998, 1999 and 2000. 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.
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 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.
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
S-11
<PAGE> 12
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 EDV held by the
Company is less than 5% of the value of the Company's total assets.
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.
S-12
<PAGE> 13
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 June 30, 1997, the Company
owned or managed 66 shopping centers (the "Shopping Centers"), 68 single tenant
properties (the "Single Tenant Properties"), four commercial properties and
office buildings (the "Commercial Properties") and one additional property which
is in the process of construction. 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 74%, 23% and
3%, respectively, of the annualized base rental income ("ABR") of the Company at
June 30, 1997. As of June 30, 1997, the Company's 138 operating properties were
located in 28 states, contained approximately 11.4 million square feet of gross
leasable area ("GLA") and were 97% 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
June 30, 1997, management of the Company owned approximately 9.3% 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 100, 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 138 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 81 properties for an aggregate purchase price of
approximately $612.9 million (representing approximately 9.8 million square feet
of GLA) and disposed of 25 properties for an aggregate sales price of
approximately $45.7 million (representing approximately 927,000 square feet of
GLA).
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
S-13
<PAGE> 14
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 30 employees at the Company's San Diego, California
headquarters, the Company employs approximately 83 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 $100 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.
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, ERP, to facilitate additional potential acquisitions.
Joint Venture Development. The Company may from time to time finance
properties under development, provided that the developer of each such property
has previously (i) obtained all necessary entitlements allowing completion of
the property and (ii) identified 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.
S-14
<PAGE> 15
A summary of acquisition and consolidation 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.) 06/30/97 (000S)
- -------------- ------------------------------- ---------------------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
4th Qtr. 1997 San Dimas Plaza San Dimas, CA 100% 119,157 97% $18,122
4th Qtr. 1997 Market Street Square Elizabethtown, PA 100 169,481 100 12,056
4th Qtr. 1997 Island Plaza James Island, SC 100 167,101 95 9,635
4th Qtr. 1997 Bardin Pl. Ctr. Arlington, TX 100 399,892 98 27,346
4th Qtr. 1997 Miami Gardens Miami, FL 100 244,719 100 19,692
4th Qtr. 1997 Freedom Square Naples, FL 100 212,183 88 11,603
3rd Qtr. 1997 Metro 580 Shopping Ctr. Pleasanton, CA 100 174,586 100 21,733
3rd Qtr. 1997 Firstar Bank Building Burnsville, MN 100 17,275 100 1,250
3rd Qtr. 1997 Apison Crossing Ooltewah, TN 100 79,048 98 6,463
3rd Qtr. 1997 Johnstown Galleria Richland Township, PA 100 61,698 100 5,260
3rd Qtr. 1997 Megafoods Shopping Center Mesa, AZ 100 84,160 100 6,947
3rd Qtr. 1997 Glendale Galleria Glendale, AZ 100 119,461 98 11,053
2nd Qtr. 1997 Bakersfield Plaza Bakersfield, CA (1)(2) 213,372 97 17,442
2nd Qtr. 1997 Cudahy Plaza Cudahy, CA (1)(2) 138,670 98 5,383
2nd Qtr. 1997 Bristol Plaza Santa Ana, CA (1)(2) 112,379 98 10,496
2nd Qtr. 1997 Briggsmore Plaza Modesto, CA (2) 96,800 99 5,528
2nd Qtr. 1997 Montebello Plaza Montebello, CA (2) 284,718 98 22,199
2nd Qtr. 1997 Paradise Plaza Paradise, CA (2) 198,562 98 4,725
2nd Qtr. 1997 Kietzke Center Reno, NV (2) 165,350 100 10,335
2nd Qtr. 1997 Riverview Plaza Gadsden, AL (3) 147,615 100 7,202
2nd Qtr. 1997 Northside Plaza Dalton, GA (3) 67,831 95 3,618
2nd Qtr. 1997 Wisteria Village Snellville, GA (3) 164,646 99 8,969
2nd Qtr. 1997 Green River Campbellsville, KY (3) 190,316 100 8,430
2nd Qtr. 1997 Stratford Commons Winston-Salem, NC (3) 72,308 95 8,138
2nd Qtr. 1997 Remount Village N. Charleston, SC (3) 60,238 97 5,216
2nd Qtr. 1997 St. Elmo Central Chattanooga, TN (3) 74,978 100 5,816
2nd Qtr. 1997 Habersham Hills Cornelia, GA (3) 161,278 96 6,249
2nd Qtr. 1997 Kimball Crossing Kimball, TN (3) 139,455 100 6,689
2nd Qtr. 1997 Red Food Center Shelbyville, TN (3) 52,335 94 2,791
2nd Qtr. 1997 Commerce Central Tullahoma, TN (3) 182,401 99 11,576
2nd Qtr. 1997 Unity Professional Bldg. Fridley, MN (3) 62,556 92 6,237
2nd Qtr. 1997 Coachella Plaza Coachella, CA 100 11,182 100 1,349
2nd Qtr. 1997 Carmen Plaza Camarillo, CA 100 128,904 66 7,080
2nd Qtr. 1997 Kmart Brooksville, FL 100 94,841 100 5,050
2nd Qtr. 1997 Broadway Faire Shopping Ctr. Fresno, CA 100 60,383 100 9,108
2nd Qtr. 1997 Arbor Faire Shopping Ctr. Fresno, CA 100 199,986 100 18,492
2nd Qtr. 1997 Thomasville Crossing Thomasville, NC 100 78,505 98 5,691
1st Qtr. 1997 Market Central Dalton, GA 100 34,000 91 3,443
1st Qtr. 1997 Winn-Dixie Chattanooga, TN 100 43,848 100 2,144
4th Qtr. 1996 Northmall Centre Tucson, AZ 100 157,057 98 15,100
4th Qtr. 1996 Valley Fair Mall W. Valley City, UT 100 608,000 92 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 98 4,839
1st Qtr. 1996 Crossroads Statesville, NC 100 246,791 100 16,665
1st Qtr. 1996 Granville Corners Oxford, NC 100 136,549 96 8,203
1st Qtr. 1996 The Shops of Riverdale Riverdale, GA 100 34,255 91 2,752
</TABLE>
S-15
<PAGE> 16
<TABLE>
<CAPTION>
PERCENT PURCHASE
ACQUISITION COMPANY'S TOTAL GLA LEASED AS OF PRICE
DATE PROPERTY NAME LOCATION INTEREST (SQ. FT.) 06/30/97 (000S)
- -------------- ------------------------------- ---------------------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1st Qtr. 1996 Roanoke Landing Williamston, NC 100% 156,561 99% $ 8,390
4th Qtr. 1995 Farrar Place Manchester, TN 100 39,220 100 2,306
4th Qtr. 1995 Hazel Path Shopping Ctr. Hendersonville, TN 100 68,345 95 3,786
4th Qtr. 1995 Palmetto Crossing Hilton Head, SC 100 40,920 98 3,306
3rd Qtr. 1995 Anson Station Wadesboro, NC 100 130,800 99 6,478
3rd Qtr. 1995 Kinston Pointe Kinston, NC 100 170,166 95 8,217
2nd Qtr. 1995 Foothills Market Jonesville, NC 100 44,350 100 2,355
2nd Qtr. 1995 Piney Grove Plaza Kernersville, NC 100 49,709 93 3,143
2nd Qtr. 1995 Roxboro Square Roxboro, NC 100 98,980 99 5,275
2nd Qtr. 1995 Siler Crossing Siler City, NC 100 132,639 95 6,672
2nd Qtr. 1995 Village Marketplace Asheboro, NC 100 87,800 98 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 95 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(4) 30,000 86 1,877
1st Qtr. 1994 Stanly County Plaza Albermarle, NC 100(4) 63,637 95 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 96 6,946
1st Qtr. 1994 Lakewood Village Celina, OH 100(4) 113,897 100 4,434
1st Qtr. 1994 Woodland Plaza Warsaw, IN 100(4) 31,000 87 1,625
1st Qtr. 1994 Wabash Valley Plaza Terre Haute, IN 100(4) 79,135 73 4,631
1st Qtr. 1994 Brooksville Square Brooksville, FL 100(4) 96,562 94 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 97 9,110
4th Qtr. 1993 Ashland Square Ashland, OH 100 162,749 100 7,683
3rd Qtr. 1993 Galleria Scottsdale, AZ 100 670,000 0 6,000
3rd Qtr. 1993 Irving West Irving, TX 100 70,056 96 4,729
--------- --------
Total 9,827,945 $612,893
========= ========
</TABLE>
- ---------------
(1) These properties are master-leased by ERP. At the termination of each lease
and under certain circumstances, ERP has an option to purchase each property
at a fixed price.
(2) These properties were acquired by ERP following the Company's consolidation
of ERP. See "Prospectus Supplement Summary -- The Company -- Recent
Developments." The Company is the sole general partner of ERP and, as of
June 30, 1997, owned a 47% interest in these properties.
(3) These properties were acquired by ERP prior to the Company's consolidation
of ERP and have been added to the Company's portfolio as a result of such
consolidation. See "Prospectus Supplement Summary -- The Company -- Recent
Developments." The Company is the sole general partner of ERP and, as of
June 30, 1997, owned a 47% interest in these properties.
(4) 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.
S-16
<PAGE> 17
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 25 properties for an
aggregate sales price (or exchange value) of approximately $45.7 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. 1997 Kmart Springfield, MO 106,747 $ 3,809
4th Qtr. 1997 Kmart Waverly, OH 40,318 1,363
2nd Qtr. 1997 Lucky/ABCO Tucson, AZ 29,700 1,328
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 926,878 $ 45,659
======= =======
</TABLE>
- ---------------
(1) The Company received a lease termination fee from this tenant in addition to
sales proceeds.
(2) Represents total square footage of land.
S-17
<PAGE> 18
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).
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.
After giving effect to the Offering, the Company's ratio of debt to total
market capitalization at June 30, 1997 on a pro forma basis would have been
approximately 39%. In addition, approximately 64% of the Company's portfolio of
properties was unencumbered as of June 30, 1997.
The Company has an unsecured, two-year revolving credit facility (the
"Unsecured Revolving Credit Facility") of up to $150.0 million from a group of
seven banks led by the First National Bank of Boston ("FNBB"). With the
Company's unsecured real estate base at June 30, 1997, the Company had
approximately $100.5 million available under the Unsecured Revolving Credit
Facility. See "Certain Indebtedness."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
(after deducting underwriting discounts and commissions and estimated offering
expenses) are estimated to be approximately $73.9 million. The Company presently
intends to use the net proceeds of the Offering to repay approximately $73.9
million of indebtedness currently outstanding under the Unsecured Revolving
Credit Facility. The outstanding balance of the Unsecured Revolving Credit
Facility as of October 8, 1997 was $117.8 million ($74.2 million of which was
incurred to acquire certain of the Recent Acquisitions). The interest rate on
borrowings under the Unsecured Revolving Credit Facility was approximately 6.8%
at October 1, 1997. Such borrowings are available for, among other things,
acquisitions and working capital, and mature in December 1999.
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-18
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1997, (ii) as adjusted to give effect to the issuance of 2,500,000
shares of the Company's Common Stock in July 1997, and (iii) as further adjusted
to give effect to the issuance of the Notes offered hereby and the application
of the net proceeds therefrom.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(IN
THOUSANDS)
<S> <C> <C> <C>
Debt:
Notes payable and capital leases.................... $ 65,421 $ 26,656 $ 26,656
The Notes........................................... -- -- 75,000
Mortgages payable................................... 220,967 220,967 220,967
-------- -------- --------
Total debt....................................... $286,388 $ 247,623 $322,623
-------- -------- --------
Stockholders' equity:
Preferred Stock, par value $.01 per share,
10,000,000 shares authorized, 4,600,000 shares of
8 1/2% Series A Cumulative Convertible Preferred
Stock issued and outstanding..................... 46 46 46
Common Stock, par value $.01 per share, 100,000,000
shares authorized, 18,377,444 shares issued and
outstanding, 20,877,444 shares issued and
outstanding as adjusted and as further
adjusted(1)...................................... 184 209 209
Additional paid-in capital.......................... 438,683 505,359 505,359
Accumulated distributions in excess of net income... (8,540) (8,539) (8,539)
-------- -------- --------
Total stockholders' equity....................... $430,373 $ 497,073 $497,073
-------- -------- --------
Total capitalization........................ $716,761 $ 744,696 $819,696
======== ======== ========
</TABLE>
- ---------------
(1) Does not include approximately 1,092,514 shares of Common Stock issuable
upon the exercise of options and warrants presently outstanding and up to
approximately 1,404,810 other shares of Common Stock issuable to various
parties upon the occurrence of certain events; and assumes that none of the
4,600,000 shares of Series A Preferred Stock which are presently outstanding
has been converted into Common Stock.
S-19
<PAGE> 20
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, 1996 and the Condensed
Consolidated Financial Statements and Notes thereto included in the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1997, each
incorporated by reference herein. Operating results for the period ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1997.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue................... $ 43,665 $ 30,034 $ 63,135 $ 59,370 $ 42,259 $ 23,082 $ 6,029
Interest expense................ 9,835 9,610 19,450 22,458 14,190 9,360 2,218
Total operating expenses........ 22,457 18,984 37,562 44,861 28,355 20,250 5,575
Income before real estate
sales......................... 21,208 11,050 25,573 14,509 13,904 2,832 454
Real estate sales and
impairment.................... 293 (1,098) (1,777) 3,683 (108) 399 0
Net income...................... 21,501 9,952 23,796 18,192 13,796 3,231 454
Net income per share............ 0.93 0.75 1.62 1.51 1.27 0.55 0.41
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate after accumulated
depreciation.................. $ 664,540 $ 423,790 $457,502 $372,016 $349,255 $273,362 $112,971
Total assets.................... 759,287 500,186 558,628 428,307 375,100 290,226 116,621
Mortgages payable............... 220,967 141,164 157,716 123,813 201,157 113,487 89,442
Total liabilities............... 296,030 258,180 81,032 219,629 211,202 128,264 93,343
Minority interest(1)............ 32,884 -- -- -- -- -- --
Stockholders' equity............ 430,373 242,006 312,654 208,678 163,898 161,962 22,312
OTHER DATA:
EBITDA(2)....................... $ 36,094 $ 23,220 $ 50,921 $ 47,583 $ 34,873 $ 16,778 $ 3,280
Funds from operations(3)........ 26,531 14,317 33,067 26,536 21,964 8,891 998
Cash flows provided (used):
Operating activities.......... 24,631 12,741 28,080 28,895 24,652 6,263 1,364
Investing activities.......... (72,980) (20,143) (96,200) (28,425) (58,872) (110,605) (11,308)
Financing activities.......... 48,865 4,749 63,346 5,211 32,975 109,281 9,534
Ratios:
Debt as a percentage of Total
Assets(4)................... 36% 48% 41% 48% 52% 41% 77%
Secured Debt as a percentage
of Total Assets(4).......... 31% 27% 27% 28% 52% 39% 76%
Ratio of Consolidated Income
Available for Debt Service
to Maximum Annual Service
Charge(4)................... 2.96x 2.04x 2.21x 1.69x 1.85x 1.50x 1.22x
Unencumbered Total Asset Value
as a percentage of
Debt(4)..................... 791% 236% 333% 257% -- -- --
Ratio of earnings to fixed
charges(5).................. 3.16x 2.15x 2.31x 1.65x 1.98x 1.30x 1.20x
Distributions................... 18,284 11,774 25,568 16,264 18,604 8,881 1,156
Distributions per share(6)...... 0.92 0.89 1.81 1.32 1.71 1.42 1.14
Common shares outstanding
(weighted average)............ 18,823,936 13,312,720 14,539 12,084 10,883 5,878 1,110
Gross leasable area (sq. ft. at
end of period)................ 11,400 7,416 8,200 7,374 7,163 5,866 2,158
Number of operating properties
(at end of period)............ 138 114 112 112 110 98 42
</TABLE>
- ---------------
(1) Represents the minority partner's proportionate share of the equity of ERP
which the Company consolidated beginning April 1, 1997.
S-20
<PAGE> 21
(2) 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.
(3) 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.
(4) For definitions of "Debt," "Total Assets," "Consolidated Income Available
for Debt Service," "Maximum Annual Service Charge" and "Unencumbered Total
Asset Value," see "Description of Debt Securities -- Certain Covenants" in
the accompanying Prospectus.
(5) 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.
(6) 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 distribution would have been $1.77 for
the year ended December 31, 1995.
S-21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NATURE OF BUSINESS
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. The terms of such leases
typically provide that the tenant is responsible for all costs and expenses
associated with the ongoing maintenance of the property, including but not
limited to property taxes, insurance and common area maintenance. The majority
of the single tenant property leases also require that tenants pay for roof and
structure repairs and maintenance.
The Company has operated and intends to operate in a manner to qualify as a
REIT under Sections 856 through 860 of the Code. As a REIT, the Company is not
subject to federal income tax with respect to that portion of its income which
meets certain criteria and is distributed annually to the stockholders.
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 1997 to the three months ended
June 30, 1996.
Rental revenue and expense reimbursements increased $5.5 million, or 41% to
$18.9 million in the three months ended June 30, 1997 from $13.4 million in the
three months ended June 30, 1996. This increase related primarily to the
consolidation of the operating partnership, Excel Realty Partners, L.P. ("ERP"),
which accounted for $3.1 million in 1997. In addition, the Company acquired
eleven properties subsequent to June 30, 1996 (excluding properties acquired by
ERP) that contributed to operations in the three months ended June 30, 1997.
These properties accounted for $3.1 million in rental revenues and
reimbursements in 1997. The remaining net decrease of $0.7 million primarily
related to lease terminations fees received in 1996 but not in 1997, and
properties sold subsequent to April 1, 1996.
Interest income increased $2.3 million, or 164% to $3.7 million in 1997
from $1.4 million in 1996. This increase was primarily related to additional
notes receivable issued during the period. The Company's outstanding notes
receivable were $74.5 million at June 30, 1997 compared to $42.3 million at June
30, 1996. Loans made to ERT Development Corporation ("EDV") to facilitate the
development of various projects increased by $50.3 million over the first twelve
months. On April 1, 1997, outstanding note receivables from ERP were converted
into equity interests in ERP. The outstanding amount at June 30, 1996 from ERP
was $10.8 million. Finally, in the quarter ended June 30, 1997, the Company
reversed a reserve of $776,000 related to a $10.8 million note. The $776,000 was
recognized as interest income and was made due to increased leasing activity on
the collateralized property and current market conditions.
Other income in the three months ended June 30, 1997 of $0.9 million
related primarily to the Company's equity interest in the income of EDV. In the
three months ended June 30, 1996, the Company recognized $0.6 million in other
income primarily related to its equity interest in EDV in addition to ERP, which
was accounted for on the equity method of accounting in 1996.
There was no significant change in interest expense between the periods
ended June 30, 1997 and 1996. Although the balance of mortgages payable at June
30, 1997 was $79.8 million greater than at June 30, 1996 (primarily due to the
consolidation of ERP and additional acquisitions), the notes payable at June 30,
1997 was $69.1 million less than at June 30, 1996. This was a result of the
Company repaying outstanding amounts in notes payable in February 1997 from
proceeds from a preferred stock offering.
Depreciation and amortization expenses increased $0.8 million or 42% in
1997 when compared to the three months ended June 30, 1996. This related to the
increase in property value as a result of acquisitions from $274 million at June
30, 1996 to $463 million at June 30, 1997.
Property taxes, repairs and maintenance and other property expenses totaled
$3.0 million in 1997 compared to $2.0 million in 1996. This increase primarily
related to the inclusion of properties held by ERP
S-22
<PAGE> 23
and property acquisitions made. The increase of $1.0 million was consistent with
the increase of expense reimbursement revenue of $0.9 million. The percentage of
expenses recovered increased slightly in 1997 to 71% from 63%. General and
administrative expenses increased by $0.4 million in 1997 from 1996 which was a
decrease as a percentage of total revenues from 5.7% to 5.5%.
In 1996, the Company wrote down the value of one of its real estate
properties held for sale by $1.2 million to its estimated selling price. There
were no such write-downs in 1997.
Net income increased $7.1 million, or 173% to $11.2 million, or $0.47 per
share, in the three months ended June 30, 1997 from $4.1 million, or $0.31 per
share for the three months ended June 30, 1996. Distributions per share
increased to $0.46 for the three months ended June 30, 1997 from $0.445 for the
same period in 1996.
Comparison of the six months ended June 30, 1997 to the six months ended June
30, 1996.
Rental revenue and expense reimbursements increased $7.4 million, or 28% to
$33.5 million in the six months ended June 30, 1997 from $26.1 million in the
six months ended June 30, 1996. This increase related primarily to the
consolidation of ERP on April 1, 1997 which accounted for $3.1 million. In
addition, the Company acquired eleven properties subsequent to June 30, 1996
(excluding properties acquired by ERP) that contributed to operations in the six
months ended June 30, 1997. These properties accounted for $5.2 million in
rental revenues and reimbursements in 1997. The remaining net decrease of $0.9
million primarily related to lease termination fees received in 1996 but not in
1997, and properties sold subsequent to January 1, 1996.
Interest income increased $4.7 million, or 188% to $7.2 million in 1997
from $2.5 million in 1996. This increase was primarily related to additional
notes receivable issued during the period including an increase of $50.3 million
over the past twelve months related to loans made to EDV and the reversal of a
reserve of $776,000 as previously discussed. On April 1, 1997, outstanding note
receivables from ERP were converted into equity interests in ERP. Interest
income of $0.5 million was recognized in 1997 before the notes were converted,
compared to $0.6 million in 1996.
Other income in the six months ended June 30, 1997 of $2.9 million related
primarily to $2.0 million of development fees that were received from EDV.
Additionally, the Company's equity interest in ERP amounted to $0.4 million. In
the six months ended June 30, 1996, the Company recognized $1.4 million in other
income primarily related to its equity interest in EDV and ERP, and fees paid
from EDV.
There was no significant change in interest expense between the periods
ended June 30, 1997 and 1996. Depreciation and amortization expenses increased
$1.1 million or 30% in 1997 when compared to the six months ended June 30, 1996.
This related primarily to the increase in property value as a result of
acquisitions made since June 30, 1996 and the consolidation of ERP.
Property taxes, repairs and maintenance, and other property expenses
totaled $5.4 million in 1997 compared to $3.8 million in 1996. This increase
primarily related to the inclusion of properties held by ERP and property
acquisitions. The increase of $1.6 million was consistent with the increase of
expense reimbursement revenue of $1.3 million. The percentage of expenses
recovered increased slightly in the six months ended June 30, 1997 to 69% from
63%. General and administrative expenses increased by $0.8 million in 1997 from
1996 which was an increase as a percentage of total revenues from 5.1% to 5.4%.
Net income increased $11.5 million, or 115% to $21.5 million, or $0.93 per
share, in the six months ended June 30, 1997 from $10.0 million, or $0.75 per
share for the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations has been the principal source of capital to fund
the Company's ongoing operations. The Company's issuance of common and preferred
shares, use of the Company's credit facilities and long-term mortgage financing
have been the principal sources of capital required to fund its growth.
S-23
<PAGE> 24
In order to continue to expand and develop its portfolio of properties and
other investments, the Company intends to finance future acquisitions and growth
through the most advantageous sources of capital available to the Company at the
time, which may include the sale of Common Stock, Preferred Stock or debt
securities through public offerings or private placements, the incurrence of
additional indebtedness through secured or unsecured borrowings and the
reinvestment of proceeds from the disposition of assets.
In February 1997, the Company issued 4,600,000 shares of Series A Preferred
Stock at $25.00 per share. The Series A Preferred Stock has an annual
distribution of $2.125 per share payable quarterly and is convertible by the
holder at any time into shares of the Company's Common Stock at a conversion
price of $26.06 per share. Net proceeds of approximately $111.4 million were
used to repay the Company's outstanding balance on its credit facility, purchase
properties and for general corporate purposes.
In July 1997, the Company issued 2,500,000 shares of Common Stock with a
market price of $28.00 per share. The net proceeds to the Company were $26.6875
per share or $66.7 million. The proceeds were used to repay outstanding amounts
on the Company's credit facility, acquire properties and for general corporate
purposes.
The Company has an Unsecured Revolving Credit Facility of up to $150.0
million from a group of seven banks led by FNBB. Borrowings under the Unsecured
Revolving Credit Facility bear interest at a rate of LIBOR plus 1.2%
(approximately 6.8% at October 1, 1997) 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 1999. At October 8, 1997, outstanding borrowings under the
Unsecured Revolving Credit Facility totalled approximately $117.8 million.
In 1995, the Company formed ERP to own and manage certain real estate
properties and on April 1, 1997, the Company began consolidating the accounts of
ERP. At June 30, 1997, there were 1,404,810 limited partner units of ERP held by
third parties. The units are due quarterly distributions which range from $0.43
to $0.50 and are redeemable by cash or Common Stock of the Company at certain
dates. The Company may, from time to time, contribute additional capital to ERP
to facilitate property acquisitions, capital improvements or other events which
may require capital in excess of ERP's operations.
In 1995, EDV was organized to acquire, develop, hold and sell real estate
in the short-term for capital gains and/or income. The Company owns 100% of the
outstanding preferred shares of EDV. The preferred shares are entitled to
receive dividends equal to 95% of net income from cash flows, if any. Cash
requirements to facilitate EDV's transactions have primarily been obtained
through borrowings from the Company. Interest and principal payments are repaid
to the Company as excess cash is available which is primarily expected to occur
when development projects are completed and sold. The Company has guaranteed $30
million of a $85 million construction loan related to a retail development
project in Orlando, Florida. This project is expected to be completed in
November 1997. As noted above under "Prospectus Supplement Summary -- Recent
Developments," in September 1997, the Board of Directors of the Company
authorized management to examine the feasibility of a spin-off of a newly-formed
public company which would hold certain properties currently held by the Company
and EDV that are not long-term REIT properties.
The Company has elected REIT status for federal income tax purposes and
must distribute at least 95% of its taxable income to its stockholders in order
to avoid income taxes. Although the Company receives most of its rental payments
on a monthly basis, it intends to make quarterly distribution payments. Amounts
accumulated for distributions will be invested by the Company in short-term
marketable instruments including deposits at commercial banks, money market
accounts, certificates of deposit, U.S. government securities or other liquid
investments (including GNMA, FNMA, and FHLMC mortgage-backed securities) as the
Board of Directors deems appropriate.
ECONOMIC CONDITIONS
The majority of the Company's leases contain provisions designed to
mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rents which generally increase as
prices rise, and/or escalation clauses which are typically related to increases
in the consumer price
S-24
<PAGE> 25
index or similar inflation indices. In addition, the Company believes that many
of its existing lease rates are below current market levels for comparable space
and that upon renewal or re-rental such rates may be increased to current market
rates. This belief is based upon an analysis of relevant market conditions,
including a comparison of comparable market rental rates, and upon the fact that
many of such leases have been in place for a number of years and may not contain
escalation clauses sufficient to match the increases in market rental rates over
such time. Most of the Company's leases require the tenant to pay its share of
operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation. In addition, the Company
periodically evaluates its exposure to interest rate fluctuations, and may enter
into interest rate protection agreements which mitigate, but do not eliminate,
the effect of changes in interest rates on its floating rate loans.
Many regions of the United States, including regions in which the Company
owns property, may experience economic recessions. Such recessions, or other
adverse changes in general or local economic conditions, could result in the
inability of some existing tenants of the Company to meet their lease
obligations and could otherwise adversely affect the Company's ability to
attract or retain tenants. The Company's Shopping Centers are typically anchored
by discount department stores, supermarkets and drug stores which usually offer
day-to-day necessities rather than high priced luxury items. These types of
tenants, in the experience of the Company, generally continue to maintain their
volume of sales despite a slowdown in economic conditions.
S-25
<PAGE> 26
BUSINESS AND PROPERTIES
PROPERTY PORTFOLIO
As of June 30, 1997, the Company's properties consisted of 66 Shopping
Centers, 68 Single Tenant Properties, four Commercial Properties and one
additional property which is in the process of construction. As set forth in the
following table, such properties were located in 28 states, contained
approximately 11.4 million square feet of GLA and generated approximately $74.1
million in ABR as of June 30, 1997.
<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 4 100.0% 241,944 $ 1,360,295 1.8%
Arizona 10 98.2 904,175 7,407,761 10.0
Arkansas 2 100.0 105,459 528,883 0.7
California 12 95.6 1,479,514 11,711,458 15.8
Colorado 3 100.0 156,776 627,770 0.8
Florida 7 94.9 637,663 3,829,308 5.2
Georgia 11 97.9 993,667 6,601,407 8.9
Illinois 9 100.0 397,127 2,596,479 3.5
Indiana 13 94.0 490,309 2,658,841 3.6
Iowa 3 100.0 104,208 562,969 0.8
Kentucky 5 99.9 802,838 4,679,385 6.3
Louisiana 1 100.0 41,293 228,671 0.3
Michigan 3 100.0 107,614 557,713 0.8
Minnesota 3 93.4 74,531 1,523,466 2.1
Missouri 4 61.4 188,957 1,116,859 1.5
Nebraska 3 100.0 70,513 429,978 0.6
Nevada 1 100.0 165,350 981,553 1.2
New Jersey 1 100.0 55,552 271,780 0.4
North Carolina 14 97.5 1,538,275 9,940,731 13.4
Ohio 4 100.0 443,783 2,252,946 3.0
Oklahoma 1 100.0 45,510 280,344 0.4
Pennsylvania 3 100.0 180,288 1,156,348 1.6
South Carolina 4 97.6 208,901 1,694,625 2.3
Tennessee 8 98.9 790,053 4,401,475 5.9
Texas 6 99.1 301,066 1,847,802 2.5
Utah 1 91.5 588,296 3,536,885 4.8
Virginia 1 100.0 193,238 1,127,490 1.5
Wisconsin 1 100.0 59,097 218,017 0.3
--- ---- ---------- ----------- -----
Total 138(1) 96.9%(2) 11,365,997 $74,131,239(3) 100.0%
=== ==== ========== =========== =====
</TABLE>
- ---------------
(1) The Company had 138 operating properties and one property in the process of
construction as of June 30, 1997.
(2) Percent of total GLA leased as of June 30, 1997.
(3) Includes income from space leased for which rent is being paid but which is
not presently occupied. See "Single Tenant Properties" table below.
S-26
<PAGE> 27
The following table contains a summary of certain information regarding the
Company's properties as of June 30, 1997.
<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 8,358,538 73.5% 96.8% $54,924,910 74.1%
Single Tenant Properties 2,894,306 25.5 97.5 17,295,075 23.3
Commercial Properties 113,153 1.0 95.7 1,911,254 2.6
--------- ----- ----- ----------- -----
Total 11,365,997 100.0% 96.9%(1) $74,131,239(2) 100.0%
========= ===== ===== =========== =====
</TABLE>
- ---------------
(1) Percent of total GLA leased as of June 30, 1997.
(2) Includes income from space leased for which rent is being paid but which is
not presently occupied. See "Single Tenant Properties" table below.
Shopping Centers. The Company's Shopping Centers consist of 66 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 June 30, 1997 contained approximately 8.4 million square feet of GLA
and accounted for approximately 74% of the Company's ABR. The table below sets
forth certain pertinent information regarding the Shopping Centers as of June
30, 1997.
<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>
ALABAMA
Gadsden
Riverview
Plaza(1) 147,615 14 $ 829,710 $ 5.62 100% Wal-Mart 79% 2010
ARIZONA
Mesa
Sun
Valley
Shopping
Ctr. 107,533 19 664,921 6.18 95 ABCO 33 2001
Phoenix Newspaper Inc. 20 2000
Kmart
Plaza 182,581 11 728,824 3.99 99 Kmart 65 1998
Phoenix
Metro
Marketplace 251,156 40 2,281,771 9.08 97 Toys-R-Us 18 2014
Sheplers 17 1997
Officemax 13 2001
Tucson
Northmall
Centre 168,719 11 1,589,444 9.42 98 Home Express 25 2011
Stein Mart 20 2010
Lil' Things 18 2010
CALIFORNIA
Bakersfield
Bakersfield
Plaza(1)(2) 213,372 21 1,878,054 8.80 97 Vons 22 2014
Circuit City 16 2016
Long's Drug Store 14 2012
Burbank
Sony/Kinkos
Building 14,616 2 527,043 36.06 100 Sony 72 1999
Kinko 28 1998
Camarillo
Carmen
Plaza 128,904 20 822,789 6.38 66 Sav-on 14 2019
Michaels Crafts 14 2000
Coachella
Coachella
Plaza 11,182 6 182,977 16.36 100 Payless ShoeSource 27 1997
Cudahy
Cudahy
Plaza(1)(2) 138,670 11 554,063 4.00 98 Kmart 67 2002
Pic N Save 18 2001
</TABLE>
S-27
<PAGE> 28
<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>
CALIFORNIA--(CONTINUED)
Fresno
Arbor
Faire 199,986 14 $ 1,956,729 $ 9.78 100% Home Depot 51% 2009
Home Express 20 2009
PetsMart 13 2008
Broadway
Faire 60,383 6 965,081 15.98 100 United Artists 66 2016
Blockbuster 22 2005
Modesto
Briggsmore
Plaza(1) 96,800 15 640,025 6.61 99 Grocery Outlet 24 2002
MacFrugals 22 2001
Montebello
Montebello
Plaza(1) 284,718 38 2,437,254 8.56 98 Albertsons 18 2001
Circuit City 18 2004
Sav-on 11 2004
Paradise
Paradise
Plaza(1) 198,562 18 643,089 3.24 98 Kmart 41 2004
Albertsons 19 2009
Payless Drug 19 2009
Santa Ana
Bristol
Plaza(1)(2) 112,379 17 960,553 8.55 98 Lucky 25 2002
Pic N Save 19 2006
Thrifty Drug 18 2001
FLORIDA
Brooksville
Brooksville
Square(3) 96,391 22 691,100 7.16 94 Publix 44 2007
Walgreen 13 2037
Deland
Northgate
Shopping
Ctr. 186,074 8 1,171,343 6.30 97 Kmart 60 2018
Publix 30 2013
Lake Wales
Eastgate
Center 102,161 2 544,303 5.33 100 Kmart 93 2019
Leesburg
Leesburg
Square 91,846 14 555,360 6.05 77 Publix 43 2006
Walgreen 14 2026
GEORGIA
Atlanta
Shops of
Riverdale 34,255 10 331,148 9.66 91 Famous Footwear 16 2005
Cornelia
Habersham
Hills(1) 161,278 16 680,629 4.22 99 Wal-Mart 61 2009
Food Lion 16 2010
Covington
Covington
Gallery 174,882 18 1,047,738 5.99 97 Kmart 49 2016
Ingles 25 2011
Dalton
Market
Central 34,000 12 316,264 9.30 91 Cato 21 2000
Northside
Plaza(1) 67,831 15 407,686 6.01 95 Bi-Lo 48 2010
</TABLE>
S-28
<PAGE> 29
<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>
GEORGIA--(CONTINUED)
Perry
Perry
Marketplace 179,973 18 $ 1,172,000 $ 6.51 100% Kmart 53% 2017
Kroger 21 2012
B.C. Moore 9 2008
Snellville
Wisteria
Village(1) 164,646 18 1,052,230 6.39 99 Kmart 51 2010
Winn Dixie 27 2005
Statesboro
University
Commons 59,814 8 531,033 8.88 100 Publix 80 2014
INDIANA
Marion
Valley
View
Plaza(3) 29,975 13 234,339 7.81 86 Webb's Hallmark 16 1999
Terre
Haute
Wabash
Valley
Plaza(3) 79,135 7 368,763 4.65 73 Supervalue Store 58 2009
Warsaw
Woodland
Plaza(3) 31,007 15 229,880 7.41 100 Shoe Show 15 1999
Broadway Video 13 1997
KENTUCKY
Campbellsville
Green
River(1) 190,316 25 926,026 4.87 100 Wal-Mart 35 2009
Kroger 20 2008
JC Penneys 12 2005
Elizabethtown
Kmart
Plaza 130,466 8 775,117 5.94 100 Kmart 70 2017
Food Lion 22 2011
Glasgow
Highland
Commons 130,466 7 724,207 5.55 99 Kmart 70 2017
Food Lion 22 2012
London
London
Marketplace 169,032 7 1,040,164 6.15 100 Kmart 56 2018
Kroger 24 2014
Goody's 12 2003
Versailles
Lexington
Road
Plaza 182,558 10 1,213,871 6.65 100 Kmart 52 2018
Kroger 33 2014
NEVADA
Reno
Kietzke
Center(1) 165,350 24 981,553 5.94 100 Mervyn's 41 2002
Ernst Home Center 30 2002
NORTH
CAROLINA
Albemarle
Stanly
County
Plaza(3) 63,637 17 371,225 5.84 95 Ingles 50 2008
Ashboro
Village
Marketplace 87,800 27 729,933 8.32 98 Harris-Teeter 34 2008
Old America 19 2000
Jonesville
Foothills
Market 49,630 9 272,298 5.49 100 Food Lion 61 2008
Kannapolis
Chapel
Square 45,450 7 366,011 8.06 100 Food Lion 64 2013
Revco 19 2008
Kernersville
Piney
Grove
Plaza 49,709 6 322,576 6.49 93 Lowe's Food 64 2008
Scotty Drugs 12 1998
</TABLE>
S-29
<PAGE> 30
<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)
Kinston
Kinston
Pointe 170,166 24 $ 886,345 $ 5.21 95% Wal-Mart 53% 2011
Food Lion 15 2011
Oxford
Granville
Corners 136,549 26 844,987 6.19 96 Wal-Mart 52 2012
Byrd's Foods 20 2011
Roxoboro
Roxoboro
Square 98,980 15 578,478 5.85 99 Wal-Mart 70 2009
Cato 6 1999
Siler City
Siler
Crossing 132,639 16 697,851 5.26 95 Rose's Department Store 34 2008
Food Lion 19 2008
Belk-Yates 17 2008
REVCO 6 2003
Cato 5 1998
Statesville
Crossroads
Center 265,541 33 1,747,031 6.58 100 Wal-Mart 45 2011
Bi-Lo Foods 12 2011
Cato 4 2001
Goody's 9 2001
Thomasville
Thomasville
Crossing 78,505 14 622,968 7.94 98 Lowe's Food 50 2015
Thrifty Drug 12 2011
Wadesboro
Anson
Station 130,800 18 714,346 5.47 99 Wal-Mart 40 2008
BCMoore 14 2004
Food Lion 19 2008
REVCO 6 2004
Williamston
Roanoke
Landing 156,561 23 946,716 6.05 99 Wal-Mart 45 2011
Winn-Dixie 23 2011
REVCO 5 2006
Cato 3 2001
Winston-Salem
Stratford
Commons(1) 72,308 5 839,965 11.62 95 Office Max 32 2015
Michaels Store 25 2006
OHIO
Ashland
Ashland
Square 163,168 15 888,335 5.44 100 Wal-Mart 42 2010
Food Town 26 2010
JC Penneys 14 2008
Celina
Lakewood
Village(3) 113,897 11 573,611 5.04 100 Wal-Mart 60 2010
Uhlmans 16 2005
SOUTH
CAROLINA
Hilton
Head
Circle
Center 65,613 12 622,035 9.48 96 Bi-Lo 56 2012
Revco 13 2004
Hilton
Head
Palmetto
Crossing 40,920 6 300,964 7.35 98 Food Lion 71 2010
N.
Charleston
Remount
Village(1) 60,238 7 548,338 9.10 97 Bi-Lo 64 2016
</TABLE>
S-30
<PAGE> 31
<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>
TENNESSEE
Chattanooga
St. Elmo
Central(1) 74,978 9 $ 649,528 $ 8.66 100% Winn Dixie 60% 2015
Hendersonville
Hazel
Path
Commons 68,345 18 455,504 6.67 95 Food Lion 42 2010
Cato 9 1999
Kimball
Kimball
Crossing(1) 139,322 16 692,485 4.97 100 Wal-Mart 47 2007
Bi-Lo 18 2007
Knoxville
Chapman
Ford
Crossing(4) 185,604 16 497,921 2.68 100 Wal-Mart 51 2010
Food Lion 16 2010
Goody's 14 2000
Manchester
Farrar
Place 43,220 5 355,479 8.22 100 Food-Lion 67 2016
Rite Aid 16 1999
Shelbyville
Red Food
Center(1) 52,335 10 306,099 5.85 94 Bi-Lo 48 2005
Eckerd Drug 17 2005
Tullahoma
Commerce
Central(1) 182,401 14 1,207,046 6.62 99 Wal-Mart 80 2015
TEXAS
Irving
Irving
West
Shopping
Center 70,056 16 565,376 8.07 96 Winn Dixie 64 2007
UTAH
West
Valley
City
Valley
Fair
Mall 588,296 110 3,536,885 6.02 93 JC Penneys 24 2000
ZCMI 18 2009
Mervyns 15 2005
VIRGINIA
Norton
VA-KY
Regional
Shopping
Ctr. 193,238 21 1,127,493 5.84 100 Wal-Mart 45 2009
Ingles 17 2009
Goody's 16 1999
--------- ----------- --------
Total 8,358,538 $54,924,910 $ 6.57
======== ========== =======
</TABLE>
- ---------------
(1) These properties are held in ERP. The Company is the sole general partner of
ERP and, as of June 30, 1997, owned a 47% interest in these
properties.
(2) These properties are master-leased by ERP. At the termination of each lease
and under certain circumstances, ERP has an option to purchase each property
at a fixed price.
(3) 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.
(4) The Company owns a 50.0% interest in this property.
S-31
<PAGE> 32
Single Tenant Properties. The Company's Single Tenant Properties consist of
68 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 2.9 million square feet of GLA and
accounted for approximately 23% of the Company's ABR as of June 30, 1997. The
table below sets forth certain pertinent information regarding the Single Tenant
Properties as of June 30, 1997.
<TABLE>
<CAPTION>
ANNUALIZED
------------------------
TOTAL BASE
GLA RENTAL RENT PER LEASE
LOCATION TENANT SUBTENANT (SQ. FT.) INCOME SQ. FT. EXPIRATION
- ---------------- ------- ----------------------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA
Muscle Shoals Kroger(1)(2) Sack N Save 42,130 $252,780 $ 6.00 2007
Muscle Shoals Super X(1)(2) Handy TV 10,069 60,414 6.00 2007
Scottsboro Kroger(1) Bruno's (Food World) 42,130 217,391 5.16 2007
ARKANSAS
Pine Bluff Kmart(1) Country Market 60,842 288,232 4.74 2006
Sherwood Safeway(1) Kroger 44,617 240,651 5.39 2002
ARIZONA
Mesa Lucky(1) ABCO 29,827 126,438 4.24 2002
Phoenix Lucky(1) ABCO 28,217 154,620 5.48 2001
Phoenix Q-Club 44,374 720,795 16.24 2019
Phoenix Q-Club 44,374 743,590 15.94 2019
Yuma Rite Aid(1) Payless Drugs 25,834 113,050 4.38 2001
COLORADO
Brighton Wal-Mart 94,220 343,021 3.64 2008
Durango Rite Aid(1) Payless Drugs 50,000 201,738 4.03 2002
Pueblo United Artists 12,556 83,011 6.61 2002
FLORIDA
Brandon Food Lion(1) Kash n' Karry 36,750 202,582 5.51 2002
Brooksville Kmart 94,841 540,510 5.69 2019
Homosassa Food Lion(1) Kash n' Karry 29,600 124,110 4.19 2002
Springs
GEORGIA
Albany (3) 72,900 810,500 11.12 1997
East Albany Kroger(1) JH Harvey 34,019 197,612 5.81 2007
East Albany SuperX(1) Rite Aid 10,069 54,567 5.42 2007
IOWA
Atlantic Kmart 40,318 160,000 3.97 2005
Coralville Lucky/Eagle(2)(4) 28,875 172,669 5.98 2006
Dubuque Lucky/Eagle(4) 35,015 230,300 6.58 2000
ILLINOIS
Decatur Lucky/Eagle(4) 29,000 181,996 6.28 2003
Moline Lucky/Eagle(2)(4) 38,681 227,420 5.88 2001
New Lenox Lucky/Eagle(4) 39,410 259,016 6.57 2002
Orland Hills Wal-Mart 114,513 824,075 7.20 2009
Ottawa Kroger 44,088 278,866 6.33 2007
Peoria Lucky/Eagle(4) 30,000 208,133 6.94 2003
Springfield Lucky/Eagle(4) 30,000 180,090 6.00 2002
Sterling Lucky/Eagle(4) 40,265 229,748 5.71 2000
Waterloo Kroger(1) National Super Markets 31,170 207,135 6.65 2007
</TABLE>
S-32
<PAGE> 33
<TABLE>
<CAPTION>
ANNUALIZED
------------------------
TOTAL BASE
GLA RENTAL RENT PER LEASE
LOCATION TENANT SUBTENANT (SQ. FT.) INCOME SQ. FT. EXPIRATION
- ---------------- ------------------------------- ------------------ --------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
INDIANA
Decatur Wal-Mart 72,200 $324,301 $ 4.49 2009
Fort Wayne Kindercare 4,584 49,694 10.84 2000
Hobart Eagle(2) 29,300 190,792 6.51 2003
Indianapolis Kindercare 4,212 49,694 11.80 2000
Indianapolis Kindercare 4,452 49,694 11.16 2000
Indianapolis Kindercare 4,268 49,694 11.64 2000
Indianapolis Kindercare 4,452 21,600 4.85 2000
Michigan City Eagle 29,000 158,000 5.45 2003
Terre Haute Lowes Home Center 104,259 557,786 5.35 2013
Wabash Wal-Mart 93,465 374,604 4.01 2008
LOUISIANA
West Monroe Safeway(1) Brookshire Grocery 41,293 228,671 5.54 2002
MICHIGAN
Big Rapids Wal-Mart 91,440 337,628 3.69 2008
Dearborne Mountain Jacks 9,914 150,000 15.13 2006
Heights
Kalamazoo Kindercare 6,260 70,085 11.20 2005
MINNESOTA
Maplewood Dayton Hudson 2,880 40,320 14.00 2000
MISSOURI
Fenton Kinderdare 4,659 22,560 4.84 1997
High Ridge Kindercare 4,654 32,299 6.94 2000
Springfield Kmart 106,747 400,000 3.75 2007
St. Charles (3) 72,897 662,000 9.08 1997
NEBRASKA
Grand Island Autoworks 5,671 68,303 12.04 2008
Hastings Autoworks 4,000 48,900 12.23 2008
Omaha Kmart(1) Gold's Gym 60,842 312,775 5.14 2006
NEW JERSEY
Somerville Kmart 55,552 271,780 4.89 2007
OHIO
Middletown Lowes Home Supply 126,400 650,000 5.14 2013
Waverly Kmart 40,318 141,000 3.50 2006
OKLAHOMA
Muskogee Safeway(1) Homeland 45,510 280,344 6.16 2002
PENNSYLVANIA
Clearfield Kroger(1) Super Value 31,170 210,000 6.74 2007
Pittsburgh Kroger(1) Giant Eagle 34,026 266,680 7.84 2007
Wyomissing Wal-Mart 115,092 679,668 5.91 2008
SOUTH CAROLINA
James Island Kroger(1) Bi Lo 42,130 223,289 5.30 2007
TENNESSEE
Chattanooga Winn-Dixie 43,848 237,413 5.41 2005
TEXAS
DeSoto Kmart 72,897 299,910 4.11 2005
Houston Diversified Hospitality Grp(2) 1,675 42,887 25.60 2011
Houston Diversified Hospitality Grp(2) 1,675 30,568 18.25 2011
Missouri City Kroger 44,183 229,289 5.19 2002
Temple Wal-Mart 110,580 679,771 6.15 2008
WISCONSIN
Berlin Wal-Mart 59,097 218,016 3.69 2009
--------- ----------- ------
Total 2,894,306 $17,295,075 $ 5.98
========= =========== ======
</TABLE>
S-33
<PAGE> 34
- ---------------
(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) 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.
(4) 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 three
office buildings and one commercial property, which contained approximately
113,000 square feet of GLA and accounted for approximately 3% of the Company's
ABR as of June 30, 1997. 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 June 30, 1997.
<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 $ 284,307 $13.19 100% Genzyme Corp. 100% 2005
CALIFORNIA
San Diego
Excel Building 19,942 8 143,801 7.21 100 Excel Realty Trust 48 N/A
MINNESOTA
Fridley
Unity Professional
Bldg.(1) 62,556 25 1,342,583 21.46 92 Unity Hospital 13 1999
Stillwater
Stillwater
Government Bldg. 9,095 4 140,563 14.98 100 Washington County 76 2000
--------- ---------- --------
Total 113,153 $1,911,254 $16.89
======= ========= =======
</TABLE>
- ---------------
(1) This property is held in ERP. The Company is the sole general partner of ERP
and, as of June 30, 1997, owned a 47% interest in this property.
PRINCIPAL LESSEES
Wal-Mart is the Company's largest lessee in terms of ABR, representing
approximately 11.8% of the Company's ABR (approximately 17.9% of GLA) at June
30, 1997. 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 New York Stock Exchange (the "NYSE") and, as of September 1997,
had credit ratings of AA from Standard & Poor's Corporation ("Standard &
Poor's") and Aa2 from Moody's Investors Service, Inc. ("Moody's").
Kmart is the Company's second largest lessee in terms of ABR, representing
approximately 9.6% of the Company's ABR (approximately 18.6% of GLA) at June 30,
1997. The Recent Acquisitions will increase K-Mart's representation in the
Company's portfolio in terms of both GLA and ABR. 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
S-34
<PAGE> 35
stores. Kmart's credit ratings as of September 1997 were Ba3 and B+ according to
Moody's and Standard & 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. 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 (the "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 15 properties and accounted for
approximately 5.1% of the Company's GLA and 4.9% of its ABR at June 30, 1997.
Kroger's primary focus is combination food and drug stores (with over 1,300
supermarkets operating in 1996), 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 September 1997 were Baa3 and BBB- according
to Moody's and Standard & Poor's, respectively. Lucky (including Eagle Food
Centers, Inc. on whose leases Lucky is a guarantor) leases 13 properties,
representing approximately 3.7% of the Company's GLA and 3.2% of its ABR at June
30, 1997. Lucky, a national supermarket chain, is owned by American Stores,
Inc., a NYSE company which had credit ratings as of September 1997 of Baa2 and
BBB+ from Moody's and Standard & Poor's, respectively. Food Lion leases 14
properties from the Company, accounting for approximately 3.5% of the Company's
GLA and 3.2% of its ABR at June 30, 1997. 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 September 1997 of A3 and A- according to Moody's and
Standard & Poor's, respectively.
The Company's lessees also include other companies with a national or
regional presence, such as Winn-Dixie Stores, Inc., Sports & Fitness Clubs of
America, Inc., Bi-Lo, Inc., Publix Super Markets, Inc. and Lowe's Home Centers,
Inc. As of June 30, 1997, over 80% of the Company's ABR was derived from major
national or regional lessees.
Certain information as of June 30, 1997 with respect to the ten largest
lessees of the Company is set forth in the following table.
<TABLE>
<CAPTION>
ANNUALIZED BASE
GROSS LEASABLE AREA 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 23 2,035,455 17.9% $ 8,741,970 11.8%
Kmart 20 2,117,828 18.6 7,081,652 9.6
Kroger 15 577,379 5.1 3,659,602 4.9
Lucky 13 415,790 3.7 2,399,884 3.2
Food Lion 14 399,630 3.5 2,393,376 3.2
Winn Dixie 5 213,810 1.9 1,438,896 1.9
Q-Club 2 88,748 0.8 1,427,922 1.9
Bi-Lo 6 191,256 1.7 1,290,629 1.7
Publix 4 185,721 1.6 1,283,740 1.7
Lowe's Home Centers 2 230,659 2.0 1,207,786 1.6
--- --------- ---- ----------- ----
Total 104 6,456,276 56.8% $30,925,457 41.5%
=== ========= ==== =========== ====
</TABLE>
S-35
<PAGE> 36
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. 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.
ENVIRONMENTAL CONDITIONS
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.
Except as discussed below, the Company is not aware of any significant
environmental condition at any of its properties. Soil and groundwater
contamination exists at Carmen Plaza in Camarillo, California, Cudahy Plaza in
Cudahy, California, and Bristol Plaza in Santa Ana, California. With regard to
Carmen Plaza, the primary contaminants of concern are perchloroethylene (PCE)
associated with operations of an on-site dry cleaner, methyl tertiary butyl
ether (MTBE) from an unknown source and petroleum hydrocarbons associated with
operations of an on-site auto repair facility. With regard to Cudahy Plaza, the
primary contaminants of concern are PCE associated with operations of a former
on-site dry cleaner and petroleum hydrocarbons associated with operations of an
existing on-site auto repair facility. With regard to Bristol Plaza, the primary
contaminants of concern are PCE and trichloroethylene (TCE) associated with
operations of an on-site dry cleaner and petroleum hydrocarbons associated with
operations of an on-site auto repair facility. Environmental professionals
retained by the Company estimate that the total, cumulative cost of remediation
for these three properties will be between approximately $1.8 million and $5.5
million. In connection with each of these properties, the Company has entered
into a remediation and indemnity agreement, which obligates the prior owner of
the properties (including in some cases, principals of the prior owner) to
perform the remediation and to indemnify the Company for any losses it may
suffer because of the contamination or remediation. Although there can be no
assurance that the remediation estimates of the environmental professionals are
accurate or that the prior owners will perform their obligations under the
remediation and indemnity agreements, the Company does not expect the
environmental conditions at these properties to have a material adverse effect
on the Company. In addition, groundwater contamination exists at Briggsmore
Plaza in Modesto, California. The primary contaminant of concern is gasoline
associated with a former on-site service station. The former tenant at the
property is in the process of performing the necessary remediation. Although
there can be no assurance that such remediation will be satisfactory, the
Company does not expect the environmental condition of this property to have a
material adverse effect on the Company.
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<PAGE> 37
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 43 Chairman, President and Chief Executive Officer
Richard B. Muir 42 Director, Executive Vice President and Secretary
Graham R. Bullick, Ph.D. 47 Senior Vice President
Ronald H. Sabin 47 Senior Vice President
David A. Lund 45 Chief Financial Officer
S. Eric Ottesen 42 Senior Vice President, General Counsel and
Assistant Secretary
Mark T. Burton 36 Senior Vice President Acquisitions
Boyd A. Lindquist 60 Director
D. Charles Marston 80 Director
Robert E. Parsons, Jr. 41 Director
Bruce A. Staller 56 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 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 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. Mr.
Lund is a Certified Public Accountant and, prior to 1983, was a partner in a
public accounting firm.
S. Eric Ottesen has served as General Counsel of the Company since January
1995, as Senior Vice President since October 1995 and as Assistant Secretary
since September 1996. 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
S-37
<PAGE> 38
in July 1991, Mr. Lindquist served since prior to 1987 as President and Chief
Executive Officer of the Bank of 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, Kates, 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.
DESCRIPTION OF THE NOTES
GENERAL
The Notes constitute a separate series of securities (which are more fully
described in the accompanying Prospectus), to be issued pursuant to an
Indenture, dated as of May 8, 1995, as amended by a First Supplemental Indenture
dated as of April 4, 1997 and a Second Supplemental Indenture dated as of July
3, 1997 (the "Indenture"), between the Company and State Street Bank and Trust
Company of California, N.A. (as successor to The First National Bank of Boston),
as trustee (the "Trustee"), and will be limited to $75,000,000 in aggregate
principal amount. The terms of the Notes include those provisions contained in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof. The following description
of the Notes offered hereby (referred to herein as the "Notes" and in the
Prospectus as the "Debt Securities") supplements, and to the extent inconsistent
therewith, replaces, the description of the general terms and provisions of the
Debt Securities set forth in the Prospectus, to which description reference is
hereby made. The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to and qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below.
The Notes will be direct, unsecured obligations of the Company and will
rank equally with all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. However, the Notes are effectively
subordinated to mortgages and other secured indebtedness of the Company
(approximately $221.0 million at June 30, 1997), which encumber certain assets
of the Company. Subject to certain limitations set forth in the Indenture and as
described under "Description of Debt Securities -- Certain Covenants" and
" -- Merger, Consolidation or Sale of Assets" in the accompanying Prospectus,
the Company may incur additional secured and unsecured indebtedness in the
future.
The Notes will be issued only in fully registered, book-entry form without
coupons, in denominations of $1,000 and integral multiples thereof, except under
the limited circumstances described below under "-- Book-Entry System."
S-38
<PAGE> 39
Reference is made to the section entitled "Description of Debt
Securities -- Certain Covenants" in the accompanying Prospectus for a
description of the covenants applicable to the Notes. Compliance with such
covenants generally may not be waived by the Company's Board of Directors or the
Trustee unless the Holders (as defined below) of at least a majority in
principal amount of all outstanding Notes consent to such waiver; provided,
however, that the defeasance and covenant defeasance provisions in the Indenture
described under "Description of Debt Securities -- Discharge, Defeasance and
Covenant Defeasance" in the accompanying Prospectus will apply to the Notes.
Except as described under "Description of Debt Securities -- Certain
Covenants -- Limitations on Incurrence of Debt" and "Description of Debt
Securities -- Merger, Consolidation or Sale of Assets" in the accompanying
Prospectus, the Indenture does not contain any other provisions that would limit
the ability of the Company to incur indebtedness or that would afford Holders of
the Notes protection in the event of (i) a highly leveraged or similar
transaction involving the Company, the management of the Company, or any
affiliate of either such party, (ii) a change of control or (iii) a
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect the Holders of the Notes. In addition, subject
to the limitations set forth under "Description of Debt Securities -- Certain
Covenants -- Limitations on Incurrence of Debt" and "Description of Debt
Securities -- Merger, Consolidation or Sale of Assets" in the accompanying
Prospectus, the Company may, in the future, enter into certain transactions such
as the sale of all or substantially all of its assets or the merger or
consolidation of the Company with another entity that would increase the amount
of the Company's indebtedness or substantially reduce or eliminate the Company's
assets, which may have an adverse effect on the Company's ability to service its
indebtedness, including the Notes.
The Company and its management have no present intention of engaging in a
highly leveraged or similar transaction involving the Company. In addition,
restrictions on ownership and transfers of the Company's Common Stock and
Preferred Stock are designed to preserve its status as a REIT and, therefore,
may act to prevent or hinder a change of control.
PRINCIPAL AND INTEREST
Interest on the Notes will accrue at the rate of 6 7/8% per annum and will
be payable semi-annually in arrears on April 15 and October 15 of each year,
commencing on April 15, 1998 (each, an "Interest Payment Date"), and on the date
of maturity or earlier redemption of the Notes, as the case may be (the
"Maturity Date"). The interest so payable will be paid to the person (the
"Holder") in whose name the applicable Note is registered at the close of
business on the date (whether or not a Business Day) 15 calendar days preceding
the applicable Interest Payment Date or Maturity Date (each, a "Regular Record
Date"). The principal of each Note payable on the applicable Maturity Date will
be paid against presentation and surrender thereof at the corporate trust office
of the Trustee, located initially at 725 South Figueroa Street, Suite 3100, Los
Angeles, California 90017, in such coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public or
private debts. Interest on the Notes will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
MATURITY AND OPTIONAL REDEMPTION
The Notes will mature on October 15, 2004, but are subject to redemption at
the option of the Company, in whole or in part, at any time on or after October
15, 2002, at a redemption price equal to the sum of (i) the principal amount of
the Notes being redeemed, plus accrued and unpaid interest thereon to the
redemption date, and (ii) the Make-Whole Amount (as defined below), if any, with
respect to such Notes (the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes called for redemption shall have been made available on
the redemption date referred to in such notice, such Notes will cease to bear
interest on the date fixed for such redemption specified in such notice and the
only right of the Holders from and after the redemption date will be to receive
payment of the Redemption Price upon surrender of such Notes in accordance with
such notice.
S-39
<PAGE> 40
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the security register for the Notes, not less than
30 nor more than 60 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes held by such Holder to be redeemed. If less than
all of the Notes are to be redeemed, the particular Notes to be redeemed shall
be selected by such method as the Trustee deems fair and appropriate.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption
of any Notes, the excess, if any, of (i) the aggregate present value as of
the date of such redemption of each dollar of principal being redeemed and
the amount of any interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of each such dollar if
such redemption had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the applicable
Reinvestment Rate (determined on the third Business Day preceding the date
such notice of redemption is given) from the respective dates on which such
principal and interest would have been payable if such redemption had not
been made, over (ii) the aggregate principal amount of the Notes being
redeemed.
"Reinvestment Rate" means 0.25% plus the yield on treasury securities
at a constant maturity under the heading "Week Ending" published in the
most recent Statistical Release under the caption "Treasury Constant
Maturities" for the maturity (rounded to the nearest month) corresponding
to the remaining life to maturity, as of the payment date of the principal
being redeemed. If no maturity exactly corresponds to such maturity, yields
for the two published maturities most closely corresponding to such
maturity shall be calculated pursuant to the immediately preceding sentence
and the Reinvestment Rate shall be interpolated or extrapolated from such
yields on a straight-line basis, rounding in each of such relevant periods
to the nearest month. For the purpose of calculating the Reinvestment Rate,
the most recent Statistical Release published prior to the date of
determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded
United States government securities adjusted to constant maturities, or, if
such statistical release is not published at the time of any determination
under the Indenture, then such other reasonably comparable index which
shall be designated by the Company.
The Notes are not subject to repayment at the option of the Holders
thereof. In addition, the Notes will not be entitled to the benefit of any
sinking fund.
BOOK-ENTRY SYSTEM
The Notes will be issued in the form of a single fully-registered Note in
book-entry form (the "Global Note") which will be deposited with, or on behalf
of, The Depository Trust Company ("DTC") and registered in the name of DTC's
nominee. Except as set forth below, the Global Note may not be transferred
except as a whole (i) by DTC to a nominee of DTC, (ii) by a nominee of DTC to
DTC or another nominee of DTC, or (iii) by DTC or any such nominee to a
successor of DTC or a nominee of such successor.
So long as DTC or its nominee is the registered owner of the Global Note,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Notes represented by the Global Note for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in the Global Note will
not be entitled to have Notes represented by the Global Note registered in their
names, will not receive or be entitled to receive physical delivery of Notes in
certificated form and will not be considered the registered owners or Holders
thereof under the Indenture. The laws of some states require that certain
purchasers of securities take physical delivery of securities in certificated
form; accordingly, such laws may limit the transferability of beneficial
interests in the Global Note.
If DTC is at any time unwilling or unable to continue as depository or if
at any time DTC ceases to be a clearing agency registered under the Exchange
Act, and a successor depository is not appointed by the Company within 90 days,
the Company will issue individual Notes in certificated form in exchange for the
Global Note. In any such instance, an owner of a beneficial interest in the
Global Note will be entitled to physical delivery of individual Notes in
certificated form of like tenor, equal in principal amount to such beneficial
interest and to have such Notes in certificated form registered in its name.
Notes so issued in
S-40
<PAGE> 41
certificated form will be issued in denominations of $1,000 or any integral
multiple thereof, and will be issued in registered form only, without coupons.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Notes. The Notes will be
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully registered Note certificate will be
issued for the Notes, in the aggregate principal amount of the Notes, and
will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on
file with the Commission.
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each actual purchaser of each Note
("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written
confirmation from DTC of its purchase, but such Beneficial Owner is
expected to receive a written confirmation providing details of the
transaction, as well as periodic statements of its holdings, from the
Direct or Indirect Participant through which such Beneficial Owner entered
into the transaction. Transfers of ownerships interests in Notes are
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners do not receive certificates
representing their ownership interests in Notes, except in the event that
use of the book-entry system for the Notes is discontinued.
To facilitate subsequent transfers, the Notes are registered in the
name of DTC's partnership nominee, Cede & Co. The deposit of the Notes with
DTC and their registration in the name of Cede & Co. effects no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners
of the Notes; DTC records reflect only the identity of the Direct
Participants to whose accounts Notes are credited, which may or may not be
the Beneficial Owners. The Participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Notes represented by the Global Note are to be redeemed, DTC's practice is
to determine by lot the amount of the interest of each Direct Participant
to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Notes. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co's consenting or voting rights to those Direct
Participants to whose accounts the Notes are credited on the record date
(identified on a list attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made by the
Company to the Trustee and from the Trustee to DTC. DTC's practice is to
credit Direct Participant's accounts on the payable date in
S-41
<PAGE> 42
accordance with their respective holdings as shown on DTC's records unless
DTC has reason to believe that it will not receive payment on the payable
date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such Participant and
not of DTC, the Trustee or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to DTC is the responsibility of the Company or the
Trustee, payments to the Beneficial Owners is the responsibility of Direct
and Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a
successor securities depository is not appointed, Note certificates are
required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that
event, Note certificates will be printed and delivered.
None of the Company, the Underwriters or the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in the Global Note, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest in respect of the Notes
will be made by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or earlier
redemption, as the case may be, or until the Notes are issued in certificated
form, and secondary market trading activity in the Notes will therefore be
required by DTC to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Notes.
CERTAIN INDEBTEDNESS
The Company has an unsecured, two-year revolving credit facility (the
"Unsecured Revolving Credit Facility") of up to $150.0 million from a group of
seven banks led by FNBB. Borrowings under the Unsecured Revolving Credit
Facility bear interest at a rate of LIBOR plus 1.2% (approximately 6.8% at
October 1, 1997) 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 1999. At
October 8, 1997, outstanding borrowings under the Unsecured Revolving Credit
Facility totalled approximately $117.8 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 outstanding
principal balance of all loans outstanding under the Unsecured Revolving Credit
Facility must not exceed the Company's borrowing base upon which such loans are
determined, (ii) the ratio of total liabilities of the Company to total assets
of the Company must not exceed 0.50 to 1, (iii) the sum of (A) consolidated
operating cash flow of the Company for any four consecutive quarters (the "Test
Period") minus (B) the Company's capital improvement reserve for all of its real
estate for the Test Period must be at least 2.0 times the Company's interest
expense for the Test Period, (iv) the ratio of consolidated operating cash flow
of the Company for the Test Period must be at least 1.75 times the sum of (A)
the Company's debt service plus (B) the Company's capital improvement reserve
for all of its real estate for the Test Period, (v) the stockholders' equity of
the Company must be at least equal to the sum of (A) $350.0 million plus (B) 90%
of the net proceeds from any equity offering of the Company, and (vi) the
Company must not permit its interest in (A) undeveloped or non-income producing
land to exceed 5.0% of the Company's total assets and (B) commercial properties
to exceed 15.0% of the Company's total assets.
S-42
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
related underwriting agreement (collectively, the "Underwriting Agreement"), the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of the Underwriters has agreed to purchase, the
respective principal amount of the Notes set forth opposite their names below.
The Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters will be
obligated to purchase all of the Notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
------------------------------------------------------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... $ 33,750,000
Prudential Securities Incorporated........................... 7,500,000
Salomon Brothers Inc......................................... 18,750,000
Smith Barney Inc. ........................................... 7,500,000
UBS Securities LLC........................................... 7,500,000
=============
Total........................................... $ 75,000,000
=============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of .375% of principal amount thereof. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of .25% of principal amount to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The Company has not applied for listing of the Notes on any securities
exchange. The Notes are a new issue of securities with no established trading
market. The Company has been advised by the Underwriters that the Underwriters
intend to make a market in the Notes as permitted by applicable laws and
regulations, but the Underwriters are not obligated to do so and may discontinue
market-making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters to bid for and purchase the Notes. As
an exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Notes. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price of
the Notes.
If the Underwriters create a short position in the Notes in connection with
the Offering, i.e., if they sell more of the Notes than are set forth on the
cover page of this Prospectus Supplement, the Underwriters may reduce that short
position by purchasing Notes in the open market. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Notes. In addition, neither the
Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
S-43
<PAGE> 44
PROSPECTUS
EXCEL REALTY TRUST, INC.
$500,000,000
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
$500,000,000 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 October 9, 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 and Series A Preferred Stock (as defined
below) are 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,
1996, filed with the Commission on March 10, 1997;
b. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1997, filed with the Commission on May 9, 1997;
c. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997, filed with the Commission on August 13, 1997;
d. Current Report on Form 8-K, filed with the Commission on January
17, 1997;
e. Current Report on Form 8-K/A, filed with the Commission on January
22, 1997;
f. Current Report on Form 8-K, filed with the Commission on February
7, 1997;
g. Current Reports on Form 8-K, filed with the Commission on July 3,
1997;
h. Current Report on Form 8-K, filed with the Commission on July 17,
1997;
i. Current Report on Form 8-K, filed with the Commission on September
18, 1997;
j. Current Report on Form 8-K, filed with the Commission on October 3,
1997;
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<PAGE> 46
k. 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,
1996;
l. 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; and
m. The description of the Company's Series A Preferred Stock contained
in the Company's Registration Statement on Form 8-A, filed with the
Commission on January 30, 1997.
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 100, 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 June 30, 1997, the Company
owned or managed 66 shopping centers (the "Shopping Centers"), 68 single tenant
properties (the "Single Tenant Properties"), four commercial properties and
office buildings (the "Commercial Properties") and one additional property which
is in the process of construction. 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 74%, 23% and
3%, respectively, of the annualized base rental income ("ABR") of the Company at
June 30, 1997. As of June 30, 1997, the Company's 138 operating properties were
located in 28 states, contained approximately 11.4 million square feet of gross
leasable area ("GLA") and were 97% 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
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<PAGE> 47
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 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 Common Stock or Preferred Stock by any single
person is limited to 9.8% by value of such Common Stock or Preferred 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 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 100, San Diego, California
92127, and the Company's telephone number is (619) 485-9400.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 and the six months ended June 30,
1997 were 2.31, 1.65, 1.98, 1.30, 1.20 and 3.16, respectively.
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, dated as of May 8,
1995, as amended by a First Supplemental Indenture dated as of April 4, 1997, a
Second Supplemental Indenture dated as of July 3, 1997, and as further amended,
supplemented or modified from time to time (the "Indenture"), between the
Company and State Street Bank and Trust Company of California, N.A. (as
successor to 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 725 South Figueroa Street, Suite 3100, Los Angeles,
California 90017 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
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<PAGE> 48
be issued thereunder are summaries of certain provisions thereof and do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of the Indenture and such Debt Securities. All
section references appearing herein are to sections of the Indenture, and
capitalized terms used but not defined herein shall have the respective meanings
set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company
and will rank equally with all other unsecured and unsubordinated indebtedness
of the Company. The Indenture provides that the Debt Securities may be issued
without limit as to aggregate principal amount, in one or more series, in each
case as established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series may
be reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one 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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<PAGE> 50
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 725 South Figueroa Street, Suite 3100, Los Angeles, California 90017,
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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<PAGE> 51
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) Total 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) Total 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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<PAGE> 52
principal amount of all outstanding Debt of the Company and its Subsidiaries
that is unsecured (Section 1014).
Existence. Except as permitted under "Merger, Consolidation or Sale of
Assets," the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and that of
each of its Subsidiaries and their respective rights (charter and statutory) and
franchises; provided, however, that the foregoing shall not obligate the Company
or any Subsidiary to preserve any right or franchise (or, in the case of any
Subsidiary, its existence) if the Company or such Subsidiary determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities (Section 1006).
Maintenance of Properties. The Company will cause all of its Properties
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Company and its Subsidiaries shall not be prevented
from selling or otherwise disposing for value its properties in the ordinary
course of business (Section 1007).
Insurance. The Company will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage at least
equal to their then full insurable value with insurers of recognized
responsibility and having a rating of at least A:VIII in Best's Key Rating Guide
(Section 1008).
Payment of Taxes and Other Claims. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 1009).
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 or 15(d) (the "Financial
Statements") if the Company were so subject, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (x) within 15 days
of each Required Filing Date (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders copies of the annual reports and quarterly reports
which the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections and (ii) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were subject to such Sections and (y) if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective Holder (Section
1010).
Additional Covenants. Any additional covenants of the Company with respect
to a series of the Debt Securities will be set forth in the Prospectus
Supplement relating thereto.
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
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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.
"Net Operating Income" means, with respect to any property, the gross
revenues derived from such property less direct property operating expenses (but
excluding depreciation, debt service, general and administrative expenses, and
any other such items of a non-recurring nature).
"Total Assets" as of any date means the greater of (a) the sum of (i)
property Net Operating Income divided by 0.0975 and (ii) all other assets of the
Company and its Subsidiaries determined on a consolidated basis in accordance
with generally accepted accounting principles (but excluding intangibles), or
(b) the sum of (i) Undepreciated Real Estate Assets (as defined below) and (ii)
all other assets of the Company and its Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles
(but excluding 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.
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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).
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
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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).
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
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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 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
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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 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
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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.
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.
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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 June 30, 1997, the
Company had outstanding 18,377,444 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 and the Maryland General
Corporation Law ("MGCL").
Subject to the preferential rights of any other shares or series of capital
stock, holders of the Company's Common Stock will be entitled to receive
dividends when, as and if authorized and declared by the Board of Directors of
the Company, out of funds legally available therefor. Payment and declaration of
dividends on the Common Stock and purchases of shares thereof by the Company may
be subject to certain restrictions if the Company fails to pay dividends on the
Preferred Stock. See "Description of Preferred Stock." Upon the distribution of
assets upon any liquidation, dissolution or winding up of the Company, holders
of Common Stock will be entitled to share equally and ratably in any assets
available for distribution to them, after payment or provision for payment of
all known debts and liabilities of the Company and any preferential amounts
owing with respect to any outstanding Preferred Stock. Subject to certain
provisions of Maryland law and the Company's Charter and Bylaws, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as otherwise required by law or except as provided with respect to any
other class or series of stock, the holders of such shares will possess the
exclusive voting power. Holders of Common Stock will not have cumulative voting
rights in the election of directors, which means that holders of more than 50%
of all of the shares of the Company's Common Stock voting for the election of
directors will be able to elect all of the directors if they choose to do so
and, accordingly, the holders of the remaining shares will be unable to elect
any directors. Holders of shares of Common Stock will not have preemptive
rights, which means they have no right to acquire any additional shares of
Common Stock that may be issued by the Company at a subsequent date. Holders of
Common Stock also will have no conversion, sinking fund, redemption, preference
or exchange rights. The Common Stock will, when issued, be fully paid and
nonassessable and will not be subject to preemptive or other similar rights.
RESTRICTIONS ON OWNERSHIP
With certain exceptions, the Company's Charter provides that no person may
own, actually or constructively, more than 9.8% by value of the Company's Common
Stock or Preferred 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.
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DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"), 4,600,000 shares of which have
been classified as 8 1/2% Series A Cumulative Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"). At June 30, 1997, the
Company had outstanding 4,600,000 shares of Series A Preferred Stock.
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 MGCL 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 and the MGCL.
GENERAL
Subject to limitations prescribed by Maryland law and the Company's Charter
and Bylaws, the Board of Directors is authorized to fix the number of shares
constituting each series of Preferred Stock and the designations and powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including such provisions
as may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the Board of Directors or duly
authorized committee thereof. The Preferred Stock will, when issued, be fully
paid and nonassessable and will not have, or be subject to, any preemptive or
similar rights.
Reference is made to the Prospectus Supplement relating to the series of
Preferred Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) Whether dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provisions for a sinking fund, if any, for such Preferred
Stock;
(7) The provisions for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
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(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 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
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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, and except for a
redemption or purchase or other acquisition of shares of Common Stock made for
purposes of an employee benefit plan of the Company or any subsidiary or as
provided for under the Company's Charter to protect the Company's status as a
REIT).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such
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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.
In addition, and the foregoing to the contrary notwithstanding, the shares
of Preferred Stock will be issued subject to the terms and provisions of the
Charter providing for a purchase option in favor of the Company in respect of
those shares, to protect the Company's status as a REIT.
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
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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 indicated in the applicable Prospectus Supplement and
Articles Supplementary.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the number of directors then
constituting the Board of Directors of the Company, if not then previously
increased by reason of a similar arrearage with respect to any series of
Preferred Stock with like rights, will automatically be increased by two (2) and
the holders of each series 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 of the shares of
Preferred Stock of any series so in arrears or at the next annual meeting of
stockholders, and at each subsequent annual meeting at which their successors
are to be elected, 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; whereupon, in either such case, either such directors shall
resign or their term of office shall expire, and the number of directors
constituting the Board of Directors shall be decreased accordingly.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least 66 2/3% of the shares of
each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking senior to such series of Preferred
Stock with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the Company or reclassify any
authorized capital stock of the Company into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Charter (including the Articles Supplementary for such series
of Preferred Stock), whether by merger, consolidation or otherwise, so as to
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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 Common
Stock or Preferred Stock. See "Restrictions on Ownership of Capital Stock."
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate Deposit Agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (the "Preferred
Stock Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the Deposit Agreement, each owner of a Depositary
Receipt will be entitled, in proportion to the fractional interest of a share of
a particular series of Preferred Stock represented by the Depositary Shares
evidenced by such Depositary Receipt, to all the rights and preferences of the
Preferred Stock represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to the Preferred Stock
Depositary, the Company will cause the Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipts to be issued thereunder are summaries of certain
provisions thereof and do not purport to be complete and are subject to, and
qualified in their entirety by reference to, all of the provisions of the
applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to the record
holders of Depositary Receipts evidencing the related Depositary
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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 (as defined
below).
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption and surrender thereof to the Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Preferred Stock Depositary
as
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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 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
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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 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.
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RESTRICTIONS ON OWNERSHIP
Holders of Depositary Receipts will be subject to the ownership
restrictions of the Company's Charter which provides, with certain exceptions,
that no person may own, actually or constructively, more than 9.8% by value of
the Company's Common Stock or Preferred Stock. See "Restrictions on Ownership of
Capital Stock."
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 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 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 Common Stock or Preferred Stock of the
Company. The Charter further provides that any purported issuance or transfer of
Common Stock or Preferred Stock in violation of the Ownership Limit shall be
void ab initio. If shares of Common Stock or Preferred Stock in excess of the
Ownership Limit, or shares of Common Stock or Preferred 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 Common Stock or Preferred Stock transferred in excess of the Ownership Limit,
or shares of Common Stock or Preferred 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
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ownership will not violate the Ownership Limit or the other limitations
applicable to the intended transferee. If such a transfer is made by the
trustee, the sale proceeds shall be paid to the intended transferee to the
extent of the lesser of (a) the price paid by the intended transferee for the
shares in the Excess Transfer (or, if the Excess Transfer was a gift or similar
transaction, the market value of such shares at the time of the Excess Transfer)
and (b) the price realized by the trustee on the sale or other disposition of
such shares; any remaining proceeds, together with any dividends received by the
trustee, will be paid to the charitable beneficiaries. The Charter also provides
that shares of Common Stock or Preferred 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 Common
Stock or Preferred Stock of the Company (or the acquisition of an interest in an
entity which owns such Common Stock or Preferred 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 Common Stock or
Preferred Stock, and thus subject such Common Stock or Preferred 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 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.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO THE COMPANY OF ITS REIT ELECTION
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not tax
advice. The tax treatment of a holder of any of the Offered Securities will vary
depending upon the terms of the specific securities acquired by such holder, as
well as his particular situation, and this discussion does not attempt to
address any aspects of federal income taxation relating to holders of Offered
Securities. Certain federal income tax considerations relevant to holders of the
Offered Securities will be provided in the applicable Prospectus Supplement
relating thereto.
EACH 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, 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).
Latham & Watkins has rendered an opinion to the Company as of April 4, 1997
to the effect that the Company is organized in conformity with the requirements
for qualification as a REIT, and that the Company's proposed 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 and that
Latham & Watkins undertakes no obligation hereby to update any such opinion
subsequent to its date. 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
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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 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 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 believes that it has previously issued sufficient shares to
allow it to satisfy conditions (5) and (6). In addition, the Company's Charter
and Articles Supplementary provide for restrictions regarding ownership and
transfer of the Company's Common Stock and Preferred Stock, which restrictions
are intended to assist the Company in continuing to satisfy the share ownership
requirements described in (5) and (6) above. Such ownership and transfer
restrictions are described in "Restrictions on Ownership of Capital Stock."
There can be no assurance, however, that such transfer restrictions will in all
cases prevent a violation of the share ownership provisions described in (5) and
(6) above.
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.
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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 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 believes that it 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, 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. This 30% gross income test has been
repealed for tax years beginning on or after January 1, 1998. See "-- Recently
Enacted Legislation."
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. However, the REIT 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) except for certain development, property
management, administrative and miscellaneous services, perform services which
are not usually or customarily
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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. See
"-- Recently Enacted Legislation" for modifications to certain of the rules
described in this paragraph.
ERT Development Corporation ("EDV") 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 EDV, 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.
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 will generally be available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. 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 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,
until December 31, 1997, 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 included for purposes of the 30% gross 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 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 of sale or (b) the aggregate tax basis of property sold during the year of
sale 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.
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<PAGE> 75
Based on these rules, if the Company sells a property that it has held more
than four years and otherwise satisfies the "safe harbor" described in the
preceding paragraph, 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 the
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 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.
Until December 31, 1997, 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% gross 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% gross 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 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 EDV. Such shares
of nonvoting preferred stock will not constitute voting securities for purposes
of the asset tests. Furthermore, the Company has not
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<PAGE> 76
owned and will not own any of the voting securities of EDV. 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 EDV 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 meeting the asset tests at the close of any quarter, the Company will
not lose its status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If the failure
to satisfy the asset tests results from an acquisition of securities or other
property during a quarter, the failure can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter. The Company
intends to maintain adequate records of the value of its assets to ensure
compliance with the asset tests and to take such other 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 has made and 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
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<PAGE> 77
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. As a result, the Company's failure to
qualify as a REIT would reduce the cash available for distribution by the
Company to its stockholders. In addition, if the Company fails to qualify as a
REIT, all distributions to stockholders will be taxable as ordinary income to
the extent of current and accumulated earnings and profits, 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.
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 IRS recently
finalized and published Treasury Regulations (the "Final Regulations") which
provide that a domestic business entity not otherwise classified as a
corporation and which has at least two members (an "Eligible Entity") may elect
to be taxed as a partnership for federal income tax purposes. The Final
Regulations apply for tax periods beginning on or after January 1, 1997 (the
"Effective Date"). Unless it elects otherwise, an Eligible Entity in existence
prior to the Effective Date will have the same classification for federal income
tax purposes that it claimed under the entity classification Treasury
Regulations in effect prior to the Effective Date. Such an entity's claimed
classification will be respected for all prior periods so long as the entity had
a reasonable basis for its claimed classification and certain other requirements
have been satisfied. The Company believes that each of the partnerships met the
requirements for classification as a partnership under prior law for all periods
prior to the Effective Date and, therefore, under the Final Regulations, will be
treated for tax purposes as a partnership (not as an association or publicly
traded partnership taxable as a corporation) for periods beginning on or after
the Effective Date. 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 EDV through dividends on nonvoting preferred stock
held by the Company. EDV 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 EDV is required to pay reduces the cash
available for distribution by the Company to its stockholders.
As described above, the value of EDV'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 EDV to
increase the size of its business unless the value of the assets of the Company
is increasing at a commensurate rate.
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RECENTLY ENACTED LEGISLATION
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (H.R. 2014), which will have the effect of modifying certain
REIT-related Code provisions for tax years of the Company beginning on or after
January 1, 1998. The following list sets forth the significant changes contained
in this legislation: (i) the rule disqualifying a REIT for any year in which it
fails to comply with certain regulations requiring the REIT to monitor its stock
ownership is replaced with an intermediate financial penalty; (ii) the rule
disqualifying a REIT that is "closely held" (i.e., during the last half of each
taxable year, 50% or more in value of a REIT's outstanding stock is owned by
five or fewer individuals) does not apply if during such year the REIT complied
with certain regulations which require the REIT to monitor its stock ownership,
and the REIT did not know or have reason to know that it was closely held; (iii)
a REIT is permitted to render a de minimis amount of impermissible services to
tenants in connection with the management of property and still treat amounts
received with respect to such property (other than certain amounts relating to
such services) as qualified rent; (iv) the rules regarding attribution to
partnerships for purposes of defining qualified rent and independent contractors
are modified so that attribution occurs only when a partner owns a 25% or
greater interest in the partnership; (v) the 30% gross income test is repealed;
(vi) any corporation wholly-owned by a REIT is permitted to be treated as a
qualified REIT subsidiary regardless of whether such subsidiary has always been
owned by the REIT; (vii) the class of excess noncash items for purposes of the
REIT distribution requirements is expanded; (viii) property that is
involuntarily converted is excluded from the prohibited transaction rules; (ix)
the rules relating to shared appreciation mortgages are modified; (x) income
from all hedges that reduce the interest rate risk of REIT liabilities,
including rate swap or cap agreements, options, futures and forward rate
contracts, is included in qualifying income for purposes of the 95% gross income
tax; (xi) a REIT is able to elect to retain and pay income tax on its net
long-term capital gain, and if such election is made, the REIT's shareholders
include in income their proportionate share of the undistributed long-term
capital gain and are deemed to have paid their proportionate share of tax paid
by the REIT; (xii) the rules relating to the grace period for foreclosure
property are modified; and (xiii) certain other Code provisions relating to
REITs are amended.
STATE AND LOCAL TAXES
The Company may be subject to state or local taxes in other jurisdictions
such as those in which the Company may be deemed to be engaged in activities or
own property or other interests. Such tax treatment of the Company in states
having taxing jurisdiction over it may differ from the federal income tax
treatment described in this summary. Consequently, prospective investors should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
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, 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> 79
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.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Latham & Watkins, San Diego, California and for any underwriters, dealers or
agents by Brown & Wood LLP, New York, New York. Latham & Watkins and Brown &
Wood LLP will rely as to certain matters of Maryland law, including the legality
of certain of the securities registered hereby, on the opinion of Ballard Spahr
Andrews & Ingersoll, Baltimore, Maryland. In addition, the description of
federal income tax consequences contained in this Prospectus is based upon the
opinion of Latham & Watkins.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995, 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, 1996
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 IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF
WHICH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.......... S-3
Risk Factors........................... S-9
The Company............................ S-13
Use of Proceeds........................ S-18
Capitalization......................... S-19
Selected Consolidated Financial Data... S-20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... S-22
Business and Properties................ S-26
Management............................. S-37
Description of the Notes............... S-38
Certain Indebtedness................... S-42
Underwriting........................... 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........................ 28
Plan of Distribution................... 35
Legal Matters.......................... 36
Experts................................ 36
</TABLE>
======================================================
======================================================
$75,000,000
EXCEL REALTY
TRUST, INC.
6 7/8% SENIOR NOTES DUE 2004
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
SALOMON BROTHERS INC
SMITH BARNEY INC.
UBS SECURITIES
OCTOBER 9, 1997
======================================================
