<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration Number 333-24035
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 6, 1997
LOGO
52,034,025 RIGHTS TO PURCHASE COMMON SHARES
7,433,433 COMMON SHARES
---------------
Security Capital Pacific Trust ("PTR") is a highly focused real estate
investment trust ("REIT") which engages in the development, acquisition,
operation and long-term ownership of multifamily communities in the western
United States. PTR has elected to be taxed as a REIT for federal income tax
purposes and pays regular quarterly distributions to its shareholders. The
last reported sale price of PTR's common shares of beneficial interest, par
value $1.00 per share (the "Common Shares"), which are listed under the symbol
"PTR", on the New York Stock Exchange (the "NYSE") on August 6, 1997 was $23
7/16. See "Price Range of Common Shares and Distributions".
This Prospectus Supplement relates to (a) 52,034,025 rights (the "Rights")
to subscribe for and purchase Common Shares and (b) the 7,433,433 Common
Shares that are issuable by PTR upon exercise of the Rights (the "Offering").
PTR is issuing as a dividend, at no cost, to each holder of Common Shares of
record as of the close of business on August 6, 1997 (the "Record Date"), one
right for each Common Share held. Seven Rights entitle the holder thereof to
purchase one Common Share at the subscription price of $21 13/16 per Common
Share (the "Subscription Price"). The Subscription Price is equal to 94.8% of
the average closing price of the Common Shares on the NYSE over the five-day
period prior to the Record Date. The Board of Trustees of PTR (the "Board")
set the Subscription Price at a discount to such five-day average closing
price in order to try to provide liquidity for the Rights and to raise
additional capital through the exercise of the Rights. See "The Merger
Transaction--Description of the Merger". Rights will be evidenced by
transferable Rights certificates and will expire at 5:00 p.m., Eastern
Daylight Time, on September 9, 1997, or such later date as PTR may determine
in its sole discretion (the "Expiration Date"). The rights will be traded on
the NYSE under the symbol "PTR-RT"; however, no assurance can be given that a
public market will develop or be sustained for the Rights. See "The Offering".
A holder of Common Shares on the Record Date who validly exercises all of
such shareholder's Rights may also oversubscribe (the "Oversubscription
Privilege"), at the Subscription Price, for additional Common Shares covered
by this Prospectus Supplement that have not been purchased through the
exercise of Rights ("Unsubscribed Shares"), which does not include Common
Shares underlying the Rights issued to Security Capital Group Incorporated
("Security Capital"), which will not be available for oversubscriptions or for
sales to third parties. Only holders of Common Shares on the Record Date will
be entitled to the Oversubscription Privilege. Shareholders of PTR who do not
exercise all of their Rights will own a smaller relative equity ownership and
voting interest in PTR after the Offering and Merger transaction described
below. Shareholders who do not exercise their Rights may offer to sell them
through a securities broker up to the close of the NYSE on September 8, 1997,
although no assurance of a sale can be given. There is no minimum number of
Common Shares required to be sold as a condition to the consummation of the
Offering. Simultaneously with the offering of Common Shares to Rights holders,
Security Capital Markets Group Incorporated ("Capital Markets Group"), an
affiliate of PTR's REIT manager, will act as placement agent to sell
Unsubscribed Shares to third parties, on a best efforts basis, at the
Subscription Price. See "The Offering".
The closing of the Offering is expected to be concurrent with the
consummation of the merger (the "Merger") of PTR's REIT manager, Security
Capital Pacific Incorporated (the "REIT Manager" or "REIT Management"), and
its property manager, SCG Realty Services Incorporated ("SCG Realty
Services"), into a newly formed subsidiary of PTR. The meeting of PTR's
shareholders to vote on the Merger is currently expected to be held on or
about September 8, 1997, and it is expected that the Merger will close on such
date and that the Offering will close a few days after such date. However, the
closing of the Offering is not conditioned on the closing of the Merger. The
REIT Manager and SCG Realty Services are owned by Security Capital, which
owned approximately 34% of the outstanding Common Shares at July 31, 1997
(which could increase to approximately 37% after the Offering and the Merger
if no Common Shares are purchased in the Offering). See "The Merger
Transaction". The Offering is designed to allow PTR's shareholders (other than
Security Capital) the opportunity to maintain (and, to the extent a
shareholder successfully oversubscribes for Common Shares pursuant to the
Oversubscription Privilege, to increase) their relative ownership in PTR by
purchasing additional Common Shares at a price which is below the price at
which Security Capital is receiving Common Shares in the Merger. Security
Capital has agreed that it will not exercise its Rights to purchase additional
Common Shares and that it will not sell its Rights. See "The Offering--
Principal Shareholder".
---------------
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 SUPPLEMENT OR THE
PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) PTR(2)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share........................ $21.8125 None $21.8125
Total............................ $162,141,757 None $162,141,757
</TABLE>
- -------
(1) PTR has agreed to indemnify the placement agent against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "The Offering--Unsubscribed Shares and Third-Party Sales".
(2) Before deducting expenses estimated at $300,000 payable by PTR.
---------------
The date of this Prospectus Supplement is August 6, 1997.
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
DIVERSIFIED TARGET MARKET
[MAP]
PTR OR ITS AFFILIATES MAY ENGAGE IN TRANSACTIONS WHICH STABILIZE, MAINTAIN
OR OTHERWISE AFFECT THE PRICE OF THE RIGHTS. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
PTR is a real estate operating company focused on acquiring, developing,
owning and operating multifamily communities in the western United States. PTR
believes that it distinguishes itself from its competition by being the only
company in its target market which combines all of the following:
1. A disciplined investment strategy based on proprietary research which
identifies high growth markets and submarkets with attractive long-term
demand and supply fundamentals for PTR's multifamily communities;
2. Development experience and proven capability to deliver consistent,
state-of-the-art multifamily communities which meet renter preferences and
demographic trends;
3. A focus on moderate income product which serves one of the largest
segments of the renter population and which PTR believes has very
attractive operating characteristics;
4. An investment strategy which allows PTR to redeploy its invested
capital and maximize the growth in cash flow generated by PTR's operating
multifamily communities;
5. An organization of 265 professionals in 15 offices which combines
local market expertise with broad operating company experience.
The cornerstone of PTR's growth strategy is its commitment to fundamental
real estate research, allowing PTR to deploy and redeploy its capital into
markets, products and new business opportunities which PTR believes have the
greatest potential for long-term cash flow growth. Management believes that
this unique, research-driven strategy will continue to allow PTR to produce
attractive long-term returns for its shareholders.
At June 30, 1997, PTR's portfolio consisted of 50,564 multifamily units,
including 9,778 units under construction or in planning and owned. The total
expected investment of PTR's portfolio at June 30, 1997, including budgeted
renovations and development expenditures, was $2.7 billion, including $642.7
million under construction or in planning and owned. In addition, as of the
same date, PTR had contingent contracts or letters of intent, subject to PTR's
final due diligence and approval of all entitlements, to acquire land for the
development of an estimated 6,602 multifamily units with a total budgeted
development cost of approximately $612.7 million and owned land for the future
development of an expected 1,254 multifamily units with a total budgeted
development cost of $67.2 million.
The table below illustrates the growth in PTR's multifamily portfolio, based
on total expected investment, resulting from the execution of its investment
strategy since 1991:
<TABLE>
<CAPTION>
TOTAL EXPECTED INVESTMENT(1)
---------------------------------------------------------------------
DECEMBER 31,
JUNE 30, ----------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating communities:
Acquired(2)............ $1,595,610 $1,514,018 $1,270,419 $ 937,683 $666,497 $205,600 $31,487
Developed(2)........... 464,976 377,810 244,848 171,505 66,893 54,852 24,416
---------- ---------- ---------- ---------- -------- -------- -------
Total operating
communities......... 2,060,586 1,891,828 1,515,267 1,109,188 733,390 260,452 55,903
Communities under
construction........... 435,195 354,852 297,549 170,017 140,563 73,898 16,207
Communities in planning
and owned(3)........... 207,509 209,155 118,347 194,001 73,578 -- --
---------- ---------- ---------- ---------- -------- -------- -------
Total owned
communities......... $2,703,290 $2,455,835 $1,931,163 $1,473,206 $947,531 $334,350 $72,110
========== ========== ========== ========== ======== ======== =======
</TABLE>
- --------
(1) For operating communities, represents cost plus budgeted renovations. For
communities under construction and in planning, represents cost plus
additional budgeted development expenditures, which include the cost of
land, fees, permits, payments to contractors, materials, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period. Does not include land held for future
development, which is less than 2% of assets, based on cost.
(2) Net of any dispositions.
(3) The term "in planning" means that construction is anticipated to commence
within 12 months.
S-3
<PAGE>
Highlights of PTR's recent strategic accomplishments include:
. PTR's strong growth in the second quarter of 1997 was driven primarily by
the successful implementation of its investment strategy, with
development activity generating 42% of the growth in pro forma funds from
operations and acquisition activity generating 49%. The remaining 9% of
growth in pro forma funds from operations was produced by an increase in
net operating income for PTR's same-store multifamily portfolio, which
achieved net operating income growth of 3.03% compared with 1996. For
purposes of this paragraph only, pro forma funds from operations for 1996
has been calculated as if the Homestead transaction described below had
occurred on January 1, 1996 (but without giving effect to any other
events which are adjusted for in PTR's pro forma condensed financial
statements incorporated by reference herein). For a description of how
PTR calculates funds from operations and certain limitations in the use
of funds from operations as a performance measure, see Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Liquidity and Capital Resources--Funds from Operations".
. Based on proprietary market research, PTR identified certain submarkets
in California, the Pacific Northwest and Salt Lake City which it believes
have favorable market fundamentals and high barriers to entry for new
supply that are expected to result in significant growth in multifamily
rental revenues. Through the successful execution of all three components
of PTR's investment strategy (developments, acquisitions and
dispositions) during the last 19 months, PTR has significantly increased
the percentage of its capital which is deployed in these markets. As of
June 30, 1997, 51% of PTR's capital is now deployed in California, the
Pacific Northwest and Salt Lake City (based on total expected investment
for operating communities and development communities under
construction). During the second quarter of 1997, average revenue growth
for PTR's same-store communities in these markets was 8.28%.
. The development of moderate income multifamily communities is an
important component of PTR's long-term growth strategy. In the first six
months of 1997, PTR commenced construction on 1,925 multifamily units,
representing a total expected investment of approximately $131.6 million.
Of that total, 1,084 units, or 56.3%, were moderate income. At June 30,
1997, PTR had 6,672 units under construction, representing a total
expected investment of $435.2 million.
. PTR continues to take advantage of attractive acquisition opportunities
in California, the Pacific Northwest and Salt Lake City. During the first
six months of 1997, PTR completed the acquisition of 3,717 operating
units in California and Seattle, representing a total expected investment
of $331.5 million. At June 30, 1997, PTR owned operating communities
representing a total expected investment of $875.3 million in California
and Seattle.
. Since December 1995 and through June 30, 1997, PTR has demonstrated its
ability to dispose of existing assets and efficiently redeploy the
proceeds into multifamily investments with more attractive long-term
growth prospects. The success of this asset optimization strategy was
evidenced by the disposition of 12,835 multifamily units, realizing an
aggregate gain of approximately $77.2 million on aggregate gross proceeds
of approximately $549.4 million, which were redeployed, primarily through
tax-deferred exchanges, into strategic acquisitions in targeted western
submarkets.
. PTR continues to focus on maintaining a strong balance sheet. PTR has a
significant equity base with a total equity market capitalization of $2.1
billion at June 30, 1997. A key component of PTR's conservative financial
strategy is the issuance of unsecured long-term debt that, in the
aggregate, has a relatively level amortization schedule which PTR
believes is unusual among multifamily REITs. At March 31, 1997, PTR's
$630 million in long-term unsecured debt had an effective average fixed
interest rate of 7.64% and an original weighted-average life to maturity
of 13.37 years. PTR's long-term debt as a percentage of total long-term
undepreciated book capitalization (the sum of long-term debt and
shareholders' equity after adding back accumulated depreciation) was
37.95% at March 31, 1997 on an historical basis and 34.62% at March 31,
1997 as adjusted to give effect to the Merger and PTR's public offering
of 2,500,000 Common Shares in June 1997 and the Offering (assuming the
Offering is fully subscribed) and the application of the net proceeds
therefrom.
S-4
<PAGE>
. On October 17, 1996, PTR contributed its Homestead Village(R) properties
to a newly formed company, Homestead Village Incorporated ("Homestead"),
in exchange for Homestead common stock and entered into a funding
commitment agreement to fund the development of certain of such
properties in exchange for warrants to purchase Homestead common stock.
The Homestead common stock and warrants were subsequently distributed to
PTR's common shareholders (the "Homestead Distribution"). On a fully
funded and converted basis, PTR will own 34.7% of Homestead's common
stock (assuming no further equity offerings by Homestead, conversion of
all Homestead convertible mortgage notes by PTR and Security Capital
Atlantic Incorporated ("ATLANTIC") and exercise of all outstanding
warrants) as a result of its obligation to fund up to $198.8 million to
Homestead in exchange for up to $221.3 million of Homestead convertible
mortgage notes (the "Homestead Notes"). The Homestead Notes are expected
to contribute significantly to PTR's future growth. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Homestead Interest and Homestead
Notes." The Homestead common stock and warrants trade on the American
Stock Exchange (the "ASE") under the symbols "HSD" and "HSD.W",
respectively.
Through its REIT management agreement with the REIT Manager, PTR has access
to the extensive services provided by the REIT Manager and its specialized
service affiliates, which provide PTR with access to the same resources as a
fully integrated operating company. See "The Merger Transaction" for a
description of an agreement that PTR has entered into with Security Capital,
which owns the REIT Manager and SCG Realty Services, to merge the REIT Manager
and SCG Realty Services into a newly formed subsidiary of PTR in exchange for
Common Shares.
PTR has elected to be taxed as a REIT for federal income tax purposes and
was organized in 1963 as a real estate investment trust under the laws of
Maryland. Its principal executive offices are located at 7670 South Chester
Street, Suite 100, Englewood, Colorado 80112, and its telephone number is
(303) 708-5959.
S-5
<PAGE>
TERMS OF THE OFFERING
52,034,025 Rights, exercisable for an
Securities Offered..................... aggregate of 7,433,433 Common Shares.
Subscription Right..................... One Right per Common Share issued as
a dividend to each holder of Common
Shares on the Record Date. Seven
Rights entitle the holder to purchase
one Common Share at the Subscription
Price. See "The Offering".
Oversubscription Privilege............. A holder of Common Shares on the
Record Date who validly exercises all
of such shareholder's Rights may also
oversubscribe, at the Subscription
Price, for additional Common Shares.
Only holders of Common Shares on the
Record Date will be entitled to the
Oversubscription Privilege. See "The
Offering--Oversubscription
Privilege".
Third Party Sales...................... Simultaneously with the offering of
Common Shares to Rights holders,
Capital Markets Group will act as
placement agent to sell Unsubscribed
Shares to third parties on a best
efforts basis, at the Subscription
Price. See "The Offering--
Unsubscribed Shares and Third Party
Sales".
Expiration Date........................ September 9, 1997 at 5:00 p.m.,
Eastern Daylight Time, or such later
date as PTR may determine in its sole
discretion. After such time, the
Rights will become void and have no
value.
Subscription Price..................... $21 13/16 per Common Share.
Closing Price of the Common Shares on
the NYSE on March 24, 1997 (the day
prior to announcement of the Offering
and the Merger).......................
$24 3/8 per Common Share.
Closing Price of the Common Shares on
the NYSE on August 6, 1997............
$23 7/16 per Common Share.
Transferability of Rights.............. The Rights are transferable until
their expiration, subject to certain
limitations, and may be traded on the
NYSE only up to the close of the NYSE
on September 8, 1997, the business
day preceding the Expiration Date.
See "The Offering--Method of
Transferring Rights".
Subscription Agent..................... ChaseMellon Shareholder Services,
L.L.C.
Reorganization Department
P.O. Box 3305
South Hackensack, New Jersey 07606
Common Shares Outstanding Before the
Offering and the Merger...............
79,425,564
Common Shares Outstanding After the
Offering and the Merger...............
90,154,530
Use of Proceeds........................
The Offering is intended to provide
funds to repay borrowings under
certain credit facilities. See "Use
of Proceeds".
S-6
<PAGE>
BUSINESS
PTR'S OPERATING SYSTEM AND BUSINESS STRATEGY
PTR has approximately 265 professionals dedicated to implementing PTR's
highly focused, fully integrated business strategy using PTR's "Operating
System". PTR's Operating System consists of seven functional areas:
fundamental real estate research, opportunistic acquisitions, multifamily
developments, comprehensive due diligence and investment analysis, asset
optimization, customer-focused property management and an efficient capital
markets/finance function. By focusing on a single discipline, professionals
within each of these areas develop substantial expertise commensurate with
their respective skills and responsibilities. All of these functional areas
are integrated by senior management but PTR believes that the focus on
separate disciplines by key personnel improves its overall results. PTR
utilizes the extensive capabilities of its Operating System to execute its
business strategy in order to achieve PTR's primary objective of generating
long-term, sustainable growth in per share cash flow.
Commitment to Fundamental Real Estate Research
PTR is dedicated to a continuing investment in leading edge research and
development for markets, products and new business opportunities. PTR utilizes
Security Capital Real Estate Research Group Incorporated ("Security Capital
Real Estate Research"), an affiliate of the REIT Manager, to conduct
comprehensive evaluations of its target market on a submarket-by-submarket
basis to identify those submarkets that offer strong prospects for long-term
cash flow growth. These evaluations, combined with PTR's extensive market
experience throughout its target market, enable PTR to identify submarkets
that will offer attractive growth opportunities.
For each submarket, PTR's research evaluates 24 key variables that PTR has
identified as having the greatest impact on multifamily operating performance.
This research provides PTR with the information needed to target specific
resident profiles and identify the unit mix, density and amenities for each
community which will provide the greatest opportunity for consistent rental
increases and high occupancies. The REIT Manager and its affiliates also
evaluate and continually refine PTR's multifamily communities to incorporate
technologies and designs that will enhance long-term resident satisfaction.
In addition to dedicated market research and continuous refinement of the
traditional multifamily product, considerable resources are devoted to
researching new products and businesses. The Homestead Village(R) extended-
stay lodging product is an example of PTR's research and development efforts
which resulted in the creation of an exciting new growth company, Homestead,
and resulted in the Homestead Distribution which occurred in November 1996.
Another innovative product concept developed by the REIT Manager is PTR's
master-planned apartment neighborhood, or "village", concept. These "village"
communities offer residents an extraordinary level of amenities, including
greenbelt areas, soccer and baseball fields, sports courts and large
clubhouses with features such as theaters, business centers and community
resource centers. PTR believes the "village" concept will generate consistent,
long-term growth by providing a large segment of the renter population with
amenities far beyond those which are available in traditional multifamily
developments. PTR currently has two "village" communities in operation and two
additional communities in planning.
Opportunistic Acquisitions
PTR opportunistically acquires multifamily communities where demographic and
market trends indicate a high likelihood of achieving attractive, sustainable
operating results. This strategy has resulted in multifamily community
acquisitions which have produced attractive returns. Since inception and
through June 30, 1997, PTR had acquired 44,871 operating units representing a
total expected investment of approximately $2.1 billion. Since early in 1996,
PTR specifically focused its acquisition efforts on California, because its
research identified the opportunity for very strong growth in operating
performance there. PTR acquired a total of 8,368 operating
S-7
<PAGE>
multifamily units, representing a total expected investment of $642.4 million,
in targeted California submarkets during 1996 and 1997. Additionally, at June
30, 1997, PTR had letters of intent or contingent contracts, subject to PTR's
final due diligence, for the acquisition of 328 units in Salt Lake City,
representing a total expected investment of $17.5 million. This significant
acquisition activity in California is expected to be an important source of
PTR's future growth.
PTR categorizes operating multifamily communities (which include all
communities not in development) as either "stabilized" or "pre-stabilized".
The term "stabilized" means that renovation, repositioning, new management and
new marketing programs (or development and marketing in the case of newly
developed communities) have been completed and in effect for a sufficient
period of time (but in no event longer than 12 months, except for major
rehabilitations) to achieve 93% occupancy at market rents. Prior to being
"stabilized", a community is considered "pre-stabilized". Due to its active
investment program, 24% of PTR's multifamily operating portfolio, based on
total expected investment, was classified by PTR as pre-stabilized at June 30,
1997.
At June 30, 1997, PTR's operating multifamily communities (excluding
communities in lease-up) were 94% occupied. For operating communities which
PTR has acquired, stabilized operations generally have been achieved six to 12
months after acquisition. For communities which it is developing, PTR expects
stabilized operations generally to be achieved 18 to 24 months after
construction commences.
Multifamily Developments
PTR selectively develops multifamily communities where land costs,
demographics and market trends indicate a high likelihood of achieving
sustainable operating results and consistent cash flow growth. This
disciplined approach to development has produced multifamily property
developments with desired characteristics including state-of-the-art product,
protected locations and attractive returns. Through June 30, 1997, completed
development communities, communities under construction and communities in
planning and owned represented 41.0% of PTR's multifamily portfolio, based on
total expected investment. At June 30, 1997, PTR's multifamily development
portfolio consisted of the following:
<TABLE>
<CAPTION>
NUMBER OF TOTAL EXPECTED
UNITS INVESTMENT (1)
--------- --------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Communities completed (since inception).......... 9,366 $ 464,976
Communities under construction................... 6,672 435,195
Communities in planning and owned................ 3,106 207,509
------ ----------
Total owned development communities.......... 19,144 $1,107,680
====== ==========
Communities in planning and under control........ 4,278 $ 399,876
====== ==========
</TABLE>
- --------
(1) Represents cost through June 30, 1997 plus additional budgeted development
expenditures at June 30, 1997, which include the cost of land, fees,
permits, payments to contractors, materials, architectural and engineering
fees and interest and property taxes to be capitalized during the
construction period. Does not include land held for future development,
which is less than 2% of assets, based on cost.
PTR's research-driven development strategy is to focus on developing state-
of-the-art communities in attractive submarkets to meet renter preferences and
demographic trends. Development opportunities also permit PTR to incorporate
into its multifamily communities proprietary technologies and designs aimed at
enhancing long-term rental growth while reducing ongoing maintenance costs.
PTR has had the opportunity to evaluate and refine its multifamily product
through its long history of development (PTR has developed multifamily
communities since 1970). PTR, unlike a typical merchant builder, intends to be
a long-term owner of the communities that it develops. Hence, PTR emphasizes
durability by using materials and designs with an added view toward minimizing
ongoing operating and maintenance costs.
S-8
<PAGE>
PTR carefully manages development risks by obtaining zoning and
discretionary municipal approvals prior to purchasing land. PTR does not
assume construction risk, but instead uses qualified third-party general
contractors to build its communities, using guaranteed maximum price
contracts. PTR cannot eliminate all development risk, but believes that the
opportunities to better control product and realize higher returns from
development communities compensate for the limited risk.
PTR traditionally has commenced development immediately after acquiring a
tract of land. However, in certain cases where land prices are favorable and
zoned land is very limited, PTR has acquired and will acquire, on an
unleveraged basis, prudent amounts of land zoned for multifamily use. In
addition, to allow for entitlements to be finalized prior to purchasing the
land, PTR often utilizes options and rights of first refusal in order to
control land for future developments with minimal cash investments. The land
that PTR owns or controls provides a foundation for future growth by providing
a pipeline of future developments at attractive prices.
To enhance its flexibility in developing and acquiring communities, PTR may
also from time to time enter into presale agreements with third-party
owner/developers to acquire development communities which meet PTR's
investment criteria. PTR has and will fund such developments through
development loans to these owner/developers. In addition, to provide greater
flexibility for the use of land acquired for development and to facilitate
disposition of excess parcels, PTR has and will make mortgage loans to PTR
Development Services Incorporated ("PTR Development Services") to purchase
land for development. PTR may also fund developments of multifamily
communities by PTR Development Services where the particular community or
submarket does not meet PTR's objectives for long-term ownership but presents
an attractive investment opportunity. PTR owns all of the preferred stock of
PTR Development Services, which entitles PTR to substantially all of the net
operating cash flow (95%) of PTR Development Services. All of the common stock
of PTR Development Services is owned by an unaffiliated trust. The common
stock is entitled to receive the remaining 5% of net operating cash flow. At
June 30, 1997, PTR had development and mortgage loans outstanding to third-
party owner/developers and PTR Development Services aggregating $109.0 million
and $19.4 million, respectively. The activities of PTR Development Services
and third-party owner/developers are consolidated with PTR's activities and
all intercompany transactions have been eliminated in consolidation.
Moderate Income Product
PTR focuses its development efforts primarily on moderate income
communities, which target households with incomes that range from 65-90% of
the median household income in the submarket. These households represent one
of the largest segments of the multifamily renter market. Residents in this
category are value-driven and focus on unit livability and practical amenities
such as washer/dryer hookups, storage space and lower density communities with
attractive landscaping. PTR's moderate income product comprised 71.3% of PTR's
development starts during 1996, based on number of units. Based on PTR's
review of information filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), regarding other REITs in PTR's primary target
market and other publicly available data, PTR believes that few other REITs
currently focus on the moderate income segment within PTR's primary target
market. Moreover, based on PTR's proprietary information regarding available
land parcels and construction starts in its primary target market, PTR
believes that less than 15% of the 1995 and 1996 multifamily development
starts in PTR's primary target market cities were moderate income product.
Consequently, PTR believes that the moderate income segment is a significantly
underserved market with limited competition. PTR believes that focusing on
this segment will allow PTR to achieve more consistent rental increases and
higher occupancies over the long term and, thereby, realize above average,
sustainable cash flow growth and appreciation in value.
In PTR's experience, moderate income residents are typically longer-term
residents because they often lack the financial resources required to purchase
single-family homes. As a result, resident turnover is often lower in PTR's
moderate income communities than in its upper middle income communities (which
target households with incomes that range from 115-140% of the median
household income in the submarket) and middle income
S-9
<PAGE>
communities (which target households with incomes that range from 90-115% of
the median household income in the submarket). PTR estimates that the total
cost of refurbishing and re-leasing a unit ranges from $700 to $1,500;
therefore, reducing resident turnover can have a material impact on a
community's cash flow. Due to market fundamentals and the operating
characteristics of moderate income communities, PTR believes that this product
category offers greater sustainable cash flow growth.
Comprehensive Due Diligence and Investment Analysis
PTR believes that comprehensive due diligence is essential prior to
investing in acquisitions or developments. The REIT Manager employs nine full-
time professionals who perform due diligence for PTR. This due diligence team
is an important resource which allows PTR to effectively and efficiently close
a large volume of investment transactions, while thoroughly evaluating all
potential aspects of risk in each transaction. This capability provides PTR
with a competitive advantage in acquiring both operating communities and land.
Prior to purchasing an asset, the due diligence team works in tandem with
the REIT Manager's development and operations professionals to thoroughly
investigate the following factors: market conditions; competitive communities
and developments; comparable sales and rents; existing and projected income
and expenses; current and targeted resident profiles; present and projected
capital requirements for community acquisitions; development costs for land
purchases; and potential liability issues such as environmental and title
conditions, tax increases, special assessments and code compliance. In
addition, for land acquisitions, all discretionary development approvals are
obtained prior to closing, thus ensuring that projected development costs are
quantified with a high degree of accuracy and the risk of construction delay
is minimized.
With the comprehensive data available from research, development and
operating professionals, standard financial underwriting is completed on an
unleveraged basis in order to evaluate each investment's yield and its
prospects for long-term growth in cash flow. The REIT Manager's investment
committee, which consists of five members having a combined 77 years of
experience in the real estate industry, evaluates all prospective investments
prior to submission of investment recommendations to the Board.
Asset Optimization Strategy
The ability to dispose of existing assets and efficiently redeploy the
proceeds into communities and submarkets having more attractive long-term
growth prospects is an important component of PTR's investment strategy. Each
year, REIT Management formulates operating and capital plans based on an
ongoing active review of PTR's portfolio. Based in part upon the market
research provided by Security Capital Real Estate Research and in an effort to
optimize its portfolio composition, PTR may, from time to time, seek to
dispose of assets that in management's view no longer meet PTR's long-term
investment objectives. The proceeds from these selected dispositions will be
redeployed, typically through tax-deferred exchanges, into assets that in
PTR's view offer better long-term cash flow growth prospects. This allows PTR
to continually reposition its portfolio by redeploying capital into
communities and markets with superior growth characteristics.
PTR's asset optimization strategy is based on the premise that it has a
finite amount of investment capital and that this capital should be deployed
where it can produce the highest levels of cash flow growth. PTR has
demonstrated the ability to enter and exit submarkets based on future growth
expectations and the supply/demand fundamentals of the submarkets in which it
operates. Since PTR's asset optimization program commenced in December 1995
and through June 30, 1997, PTR had completed the disposition of 12,835
multifamily units, realizing aggregate gains of $77.2 million on aggregate
gross proceeds of $549.4 million. The proceeds were redeployed into targeted
submarkets in California, the Pacific Northwest and Salt Lake City to allow
PTR to take advantage of the strong economic recovery which is underway in
these markets. PTR's expected investment in these markets grew from 17% of
PTR's total portfolio at December 31, 1995, to 51% of PTR's total portfolio at
June 30, 1997, based on total expected investment.
S-10
<PAGE>
Customer-Focused Property Management
PTR believes that its communities must be actively managed in order to
maximize cash flow and enhance long-term economic performance. Therefore, PTR
has retained SCG Realty Services, its affiliated multifamily property
management and customer service firm wholly owned by Security Capital, to
manage most of PTR's communities. At June 30, 1997, approximately 94% of PTR's
operating multifamily communities were managed by SCG Realty Services, based
on total expected investment, with the balance of the communities in various
stages of transition to SCG Realty Services' management.
SCG Realty Services has over 1,100 employees and emphasizes locally-based
management of PTR's multifamily communities. SCG Realty Services has 15 local
offices to serve PTR's target market. This network improves SCG Realty
Services' ability to anticipate and respond to changes in local market
conditions and resident needs. PTR believes that SCG Realty Services has
developed superior operating procedures, financial controls, information
systems and training programs, which it expects will positively affect growth
in rental and occupancy rates. The REIT Manager and SCG Realty Services
develop systems and procedures which facilitate effective management of PTR's
communities.
PTR recognizes that a highly focused customer service approach to day-to-day
management is essential to maximize short and long-term cash flow growth from
each of its multifamily communities. As a result, SCG Realty Services is
dedicated to maximizing the performance of PTR's communities by providing
consistent, high quality residential services to its customers. SCG Realty
Services and the REIT Manager work closely together to develop innovative
ideas to enhance customer service and resident satisfaction while maximizing
cash flow growth. See "The Merger Agreement" for a description of an agreement
that PTR has entered into with Security Capital to merge the REIT Manager and
SCG Realty Services into a newly formed subsidiary of PTR in exchange for
Common Shares.
A few of the programs which have been developed recently and are currently
in the process of being implemented are summarized below:
. During 1996, SCG Realty Services established five Regional Information
Management ("RIM") Centers. The RIM Center concept is designed to enable
property-level management personnel to focus on PTR's customers, the
residents, while moving certain accounting and administrative functions
to the regionally located RIM Center. Each RIM Center is designed to
carry out these functions for several area communities and thus benefit
from economies of scale, better accounting control and enhanced cash
management capabilities. PTR expects to eventually implement the RIM
Center concept at all of its operating communities.
. SCG Realty Services and the REIT Manager had also initiated resident
utility billing programs at approximately 90% of PTR's multifamily
operating communities at June 30, 1997. Under this arrangement, water and
sewer usage are metered and billed to individual residents, thereby
enabling PTR to better control operating expenses, while providing
residents with the incentive to minimize usage.
. In late 1996, PTR entered into revenue sharing agreements with certain
cable television and telephone service providers. The arrangements
require the telecommunication providers to continually upgrade service to
ensure state-of-the-art offerings in this rapidly changing industry. The
agreements also allow PTR to receive a percentage of the service
providers' revenues generated from subscribing residents while increasing
the quality and accessibility of these services to residents.
These creative initiatives coupled with highly focused day-to-day management
are expected to contribute to the growth in net operating income generated by
PTR's multifamily operating communities.
Capital Markets/Finance and Conservative Balance Sheet Strategy
PTR believes that a successful REIT must maintain a strong balance sheet and
have the ability to access the equity and debt markets efficiently,
expeditiously and cost effectively. PTR's ability to efficiently access the
S-11
<PAGE>
capital markets permits it to capitalize on development and acquisition
opportunities that PTR identifies in its target market.
PTR continues to focus on maintaining its strong balance sheet which has
resulted from a conservative balance sheet strategy. PTR has a significant
equity base with a total equity market capitalization of $2.1 billion at June
30, 1997. A key component of PTR's conservative balance sheet strategy is the
issuance of fixed rate, unsecured, long-term debt. In order to minimize
refinancing risk, PTR's long-term debt offerings are carefully structured to
create a relatively level principal maturity schedule, without large repayment
obligations in any future year. At March 31, 1997, PTR's $630 million in
unsecured long-term debt had an effective average fixed interest rate of 7.64%
and an original weighted-average life to maturity of 13.37 years. PTR's long-
term debt as a percentage of total long-term undepreciated book capitalization
(the sum of long-term debt and shareholders' equity after adding back
accumulated depreciation) was 37.95% at March 31, 1997 on an historical basis
and 34.62% at March 31, 1997 as adjusted to give effect to the Merger and
PTR's public offering of 2,500,000 Common Shares in June 1997 and the Offering
(assuming the Offering is fully subscribed) and the application of the net
proceeds therefrom.
PTR's credit facilities, including its $350 million unsecured revolving line
of credit, provide PTR with the financial flexibility to take advantage of
attractive investment opportunities prior to raising capital through
securities offerings. Additionally, such facilities minimize the amount of
cash which must be invested in short-term investments at low yields prior to
the deployment of the capital.
PTR's conservative balance sheet strategy is expected to provide significant
incremental debt capacity and allow PTR to take advantage of future investment
opportunities which will contribute to PTR's objective of long-term growth in
cash flow per share.
S-12
<PAGE>
GEOGRAPHIC DISTRIBUTION
To effectively manage its multifamily communities, PTR has organized its
operations into three regions (Central, Northwest and West). Within these
regions, PTR's multifamily communities are located in 23 metropolitan areas in
12 states. The table below summarizes the geographic distribution of PTR's
multifamily communities which are operating or under construction, based on
total expected investment.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------
1997(1) 1996(1) 1995(1) 1994(1)
-------- ------- ------- -------
<S> <C> <C> <C> <C>
CENTRAL REGION:
Austin, Texas......................... 2.88% 4.65% 7.26% 9.92%
Dallas, Texas......................... 2.86 3.86 5.22 7.36
Denver, Colorado...................... 5.12 4.61 5.62 7.91
El Paso, Texas........................ 3.38 4.45 5.68 7.84
Houston, Texas........................ 5.11 7.29 8.65 10.74
San Antonio, Texas.................... 5.25 6.37 9.16 13.06
------ ------ ------ ------
Central Region Total................ 24.60% 31.23% 41.59% 56.83%
------ ------ ------ ------
NORTHWEST REGION:
Portland, Oregon...................... 5.48% 6.71% 4.95% -- %
Salt Lake City, Utah.................. 4.49 4.94 2.86 --
Seattle, Washington................... 8.86 5.82 4.41 --
------ ------ ------ ------
Northwest Region Total.............. 18.83% 17.47% 12.22% -- %
------ ------ ------ ------
WEST REGION:
Albuquerque, New Mexico............... 5.28% 5.80% 6.60% 7.45%
Las Vegas, Nevada..................... 3.99 5.34 6.52 --
Northern California................... 14.02 8.99 2.15 --
Phoenix, Arizona...................... 10.92 12.95 17.70 21.15
Southern California................... 17.74 12.82 2.47 2.24
Tucson, Arizona....................... 1.62 2.73 6.46 7.12
------ ------ ------ ------
West Region Total................... 53.57% 48.63% 41.90% 37.96%
------ ------ ------ ------
Other Markets....................... 3.00% 2.67% 4.29% 5.21%
------ ------ ------ ------
Total All Markets................. 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======
</TABLE>
- --------
(1) For operating communities, represents cost plus budgeted renovations. For
communities under construction, represents cost plus additional budgeted
development expenditures, which include the cost of land, fees, permits,
payments to contractors, materials, architectural and engineering fees and
interest and property taxes to be capitalized during the construction
period.
S-13
<PAGE>
USE OF PROCEEDS
The net proceeds to PTR from the sale of the Common Shares offered hereby
are expected to be approximately $161.8 million, all of which are expected to
be used to repay borrowings under PTR's credit facilities, including its $350
million unsecured revolving line of credit and its short-term borrowing
agreement (the "TCB Agreement") with Texas Commerce Bank, National Association
("TCB"). The line of credit bears interest at the greater of the federal funds
rate plus 0.5% or prime (8.5% at July 31, 1997) or, at PTR's option, LIBOR
plus 1.125% (5.6875% at July 31, 1997). The spread over LIBOR can vary from
0.75% to 1.50% based upon PTR's current senior unsecured debt rating, and is
scheduled to mature in August 1998 (subject to extension annually for an
additional year with the approval of the lenders). PTR recently renegotiated a
number of modifications to the terms of the line of credit, which have been
approved by TCB and all of the other lenders. Among the changes expected to be
made are a reduction in the spread over LIBOR to 0.75% and an extension of the
maturity to August 1999. The new terms are expected to be effective on August
13, 1997. Loans under the TCB Agreement bear interest at an overnight rate,
which ranged from 5.94% to 7.00% during the six months ended June 30, 1997. At
July 31, 1997, $90.3 million in borrowings were outstanding under the line of
credit and $28.7 million in borrowings were outstanding under the TCB
Agreement. The aggregate amount of borrowings outstanding under all of PTR's
credit facilities as of July 31, 1997 was $218.9 million. PTR expects to make
additional borrowings under the line of credit and the TCB Agreement following
the Offering. Borrowings under the line of credit and the TCB Agreement are
used for the development and acquisition of multifamily communities and for
working capital purposes.
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS
MARKET INFORMATION
The Common Shares are listed on the NYSE under the symbol "PTR". The
following table sets forth the high and low sales prices of the Common Shares
as reported in the NYSE Composite Tape and cash distributions per Common Share
for the periods indicated.
<TABLE>
<CAPTION>
CASH
HIGH LOW DISTRIBUTIONS
------- ------- -------------
<S> <C> <C> <C>
1995:
First Quarter............................. $18 3/8 $16 3/8 $0.2875
Second Quarter............................ 18 1/8 16 5/8 0.2875
Third Quarter............................. 19 1/4 17 0.2875
Fourth Quarter............................ 20 1/2 17 1/4 0.2875
1996:
First Quarter............................. 22 1/4 19 1/4 0.31
Second Quarter............................ 22 3/8 20 1/2 0.31
Third Quarter............................. 22 5/8 20 1/4 0.31
Fourth Quarter............................ 23 5/8 19 0.31
1997:
First Quarter............................. 25 1/8 21 0.325
Second Quarter............................ 24 1/4 21 1/2 0.325
Third Quarter (through August 6).......... 23 5/8 22 0.325(1)
</TABLE>
- --------
(1) Declared on July 21, 1997 and payable on August 27, 1997 to holders of
record of Common Shares on August 13, 1997.
In addition to the quarterly cash distributions shown above, PTR made a
special distribution of 0.125694 shares of common stock of Homestead and
warrants to purchase 0.084326 shares of Homestead common stock per Common
Share on November 12, 1996. The securities distributed in the Homestead
Distribution had a market value of $3.032 per Common Share, based on the
closing prices of such securities on the ASE on November 11, 1996, the day
prior to the distribution date. The Homestead Distribution resulted in an
adjustment of $3.125 per Common Share ($21.875 before and $18.750 after) on
the NYSE on November 12, 1996.
S-14
<PAGE>
As of July 31, 1997, PTR had approximately 79,399,839 Common Shares
outstanding, approximately 3,000 record holders of Common Shares and
approximately 22,600 beneficial holders of Common Shares.
DISTRIBUTIONS
In order to qualify as a REIT, PTR is required to make distributions (other
than capital gain distributions) to its shareholders in amounts at least equal
to (i) the sum of (A) 95% of its "REIT taxable income" (computed without
regard to the dividends-paid deduction and its net capital gain) and (B) 95%
of the net income (after tax), if any, from foreclosure property, minus (ii)
the sum of certain items of noncash income. PTR's distribution strategy is to
distribute what it believes is a conservative percentage of its cash flow,
permitting PTR to retain funds for capital improvements and other investments
while funding its distributions. PTR has paid 86 consecutive quarterly cash
distributions on the Common Shares.
PTR announces the following year's projected annual distribution level after
the annual budget review and approval in December of each year by the Board.
At its December 10, 1996 meeting, the Board announced an increase in the
annual distribution level from $1.24 to $1.30 per Common Share. The payment of
distributions is subject to the discretion of the Board and is dependent upon
the financial condition and operating results of PTR.
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination thereof.
Distributions that exceed PTR's current and accumulated earnings and profits
(calculated for tax purposes) constitute a return of capital rather than a
dividend and reduce the shareholder's basis in the Common Shares. To the
extent that a distribution exceeds both current and accumulated earnings and
profits and the shareholder's basis in the Common Shares, it will generally be
treated as gain from the sale or exchange of that shareholder's Common Shares.
PTR annually notifies shareholders of the taxability of distributions paid
during the preceding year. For federal income tax purposes, the following
summarizes the taxability of cash distributions paid on the Common Shares in
1995 and 1994 and the estimated taxability for 1996:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Per Common Share:
Ordinary income....................................... $0.61 $0.92 $0.68
Capital gains......................................... 0.11 -- --
Return of capital..................................... 0.52 0.23 0.32
----- ----- -----
Total............................................... $1.24 $1.15 $1.00
===== ===== =====
</TABLE>
The Homestead securities distributed by PTR to each holder of Common Shares
in the Homestead Distribution were valued at $2.16 per Common Share for
federal income tax purposes, of which $1.06 was taxable as ordinary income,
$0.19 was taxable as a capital gain and $0.91 was treated as a return of
capital.
On July 21, 1994, in addition to the normal Common Share distributions paid,
PTR redeemed the shareholder purchase rights issued pursuant to the Rights
Agreement dated as of February 23, 1990, as amended. Pursuant to the
redemption, each holder of record at the close of business on July 21, 1994
was entitled to receive $0.01 per shareholder purchase right. The redemption
price was paid on August 12, 1994 and was taxable as ordinary income for
federal income tax purposes.
Under federal income tax rules, PTR's earnings and profits are first
allocated to its preferred shares which increases the portion of the Common
Shares distribution classified as return of capital.
PTR's tax return for the year ended December 31, 1996 has not been filed,
and the taxability information for 1996 is based upon the best available data.
PTR's tax returns for prior years have not been examined by the Internal
Revenue Service (the "IRS") and, therefore, the taxability of the dividends is
subject to change.
S-15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of PTR at March 31, 1997,
and as adjusted to give effect to the Merger and PTR's public offering of
2,500,000 Common Shares in June 1997 and the Offering (assuming the Offering
is fully subscribed) and the application of the net proceeds therefrom. The
table should be read in conjunction with the financial statements of PTR
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgages payable...................................... $ 230,578 $ 230,578
Long-term unsecured debt............................... 630,000 630,000
Shareholders' equity:
Shares of Beneficial Interest, par value $1.00 per
share; 150,000,000 shares authorized:
Series A Preferred Shares (liquidation preference
$25.00 per share); 6,080,019 shares outstanding... 152,000 152,000
Series B Preferred Shares (liquidation preference
$25.00 per share); 4,200,000 shares outstanding... 105,000 105,000
Common Shares; 76,075,971 shares outstanding;
89,304,937 shares outstanding as adjusted......... 76,076 89,305
Additional paid-in capital......................... 928,330 1,206,336
Unrealized holding gain on Homestead Notes......... 73,886 73,886
Distributions in excess of net earnings............ (28,333) (101,062)
---------- ----------
Total shareholders' equity....................... 1,306,959 1,525,465
---------- ----------
Total capitalization............................. $2,167,537 $2,386,043
========== ==========
</TABLE>
S-16
<PAGE>
THE MERGER TRANSACTION
DESCRIPTION OF THE MERGER
In January 1997, Security Capital made a proposal to the Board that Security
Capital exchange the REIT Manager and SCG Realty Services for Common Shares,
with the result that PTR would become an internally managed REIT. On March 18,
1997, a special committee of independent Trustees of the Board ("the Special
Committee") recommended that the Board approve the Merger subject to
definitive documentation. Following the meeting of the Special Committee, the
full Board approved the Merger and Issuance Agreement between PTR and Security
Capital (the "Merger Agreement") and the Merger. On March 24, 1997, PTR and
Security Capital entered into the Merger Agreement, which is subject to
customary conditions, including the approval of PTR's common shareholders.
Pursuant to the Merger Agreement, Security Capital will cause the REIT Manager
and SCG Realty Services to be merged into a newly formed subsidiary of PTR.
The meeting of PTR's shareholders to vote on the Merger is currently expected
to be held on or about September 8, 1997, and it is expected that the Merger
will close on such date and that the Offering will close a few days after such
date. However, the closing of the Offering is not conditioned on the closing
of the Merger. The employees of the REIT Manager and SCG Realty Services will
become employees of PTR as a result of the Merger, which will be consummated
as follows:
. Security Capital will transfer all of its shares of the REIT Manager and
SCG Realty Services to a newly formed subsidiary of PTR in exchange for
3,295,533 Common Shares valued at approximately $75.8 million.
. The number of Common Shares issuable to Security Capital was based on the
average closing price of the Common Shares over the five-day period prior
to the record date for determining PTR's shareholders entitled to vote at
the meeting in connection with the Merger (which was the same as the
Record Date for the Rights dividend). The average closing price of the
Common Shares over the five-day period prior to the Record Date was
$23.0125 per Common Share. The Subscription Price for the Offering is
equal to 94.8% of such average price.
. The Offering is designed to allow PTR's shareholders (other than Security
Capital) the opportunity to maintain (and, to the extent a shareholder
successfully oversubscribes for Common Shares pursuant to the
Oversubscription Privilege, to increase) their relative ownership in PTR
by purchasing additional Common Shares at a price which is below the
price at which Security Capital is receiving Common Shares in the Merger.
Security Capital has agreed that it will not exercise its Rights to
purchase additional Common Shares and that it will not sell its Rights.
See "The Offering--Principal Shareholder".
. In addition to the Offering, as part of the Merger transaction, Security
Capital will issue warrants pro rata to holders of PTR's Common Shares
and Series A Cumulative Convertible Preferred Shares (the "Series A
Preferred Shares"), other than Security Capital, to acquire shares of
Security Capital's Class B common stock, par value $.01 per share (the
"Class B Stock"), having an aggregate subscription price at the time of
the Warrant Issuance of approximately $102 million. The Warrant Issuance
is being made in order to induce holders of Common Shares to vote in
favor of the Merger transaction, to broaden Security Capital's
shareholder base, to enable Security Capital to raise additional equity
capital at a relatively low cost through exercises of warrants and to
enable Security Capital to raise additional equity capital in the long
run by preserving and enhancing its goodwill with the shareholders of
PTR. The Warrant Issuance will occur subject to and after the closing of
the Merger and after the closing of the Offering. The number of warrants
to be received by each shareholder in the Warrant Issuance will be
determined after PTR's common shareholders have approved the Merger. The
number of shares of Class B Stock subject to the warrants will be based
on the closing price of the Class B Stock on the date the warrants are
issued to the agent for the Warrant Issuance for subsequent distribution
to holders of Common Shares and Series A Preferred Shares, other than
Security Capital. The warrants will expire one year after issuance and
will contain customary provisions to protect shareholders from dilution
in certain events, including certain distributions and sales of shares of
Class B Stock at less than market price. The issuance of the warrants by
Security Capital is contingent upon the closing of the Merger. Any
securities issued pursuant to the Warrant Issuance will be offered only
by means of a separate proxy statement/prospectus which will be delivered
to PTR's shareholders.
S-17
<PAGE>
No shareholder will be required to pay any cash or other consideration for
the warrants received in the Warrant Issuance or surrender or exchange Common
Shares in order to receive warrants. However, PTR believes that a shareholder
receiving warrants pursuant to the Warrant Issuance should have ordinary
taxable income equal to the value of the warrants on the issuance date. See
"Federal Income Tax Considerations--Tax Effects of the Merger".
The Board believes that the Merger will result in an enhancement to
shareholder value. Currently, PTR pays a fee to the REIT Manager based on a
fixed percentage of PTR's cash flow (as defined) which increases
proportionately as PTR adds assets. The Board believes that PTR has reached a
sufficient size to realize economies of scale by internalizing the management
function since PTR will have sufficient depth of management and personnel such
that additional assets can be acquired, developed and managed without a
significant increase in personnel or other costs. These economies of scale
should result in an increase in the level of growth in funds from operations.
The Board believes that the Merger will further benefit PTR's long-term
performance as follows:
. The Merger will position PTR to pursue possible acquisitions of other
REITs in a more effective way.
. Investors and analysts will view an internally managed structure more
favorably since PTR's costs, after capitalization of qualifying
acquisition and development costs in accordance with generally accepted
accounting principles ("GAAP"), will be more comparable to other
multifamily REITs. These acquisition and development activities are
currently provided by the REIT Manager and paid for as part of the REIT
Management fee, which fee is expensed by PTR. Management believes that
the increased comparability, in addition to the opportunity for increased
funds from operations growth due to the economies of scale, as discussed
above, will result in a higher multiple on PTR's funds from operations
and an enhancement to shareholder value.
. As a consequence of the REIT Manager's and SCG Realty Services' personnel
becoming full-time employees of PTR, they will be able to more closely
relate the results of their efforts to PTR's performance.
. The Merger may result in improvement to PTR's debt rating, which could
have a positive impact on PTR's future debt cost.
The following are certain potential detriments of the Merger:
. Since the number of Common Shares issuable to Security Capital in the
Merger is fixed, the value of those Common Shares at the time the Merger
is completed may be greater than the value placed on the operations of
the REIT Manager and SCG Realty Services by the Board.
. The Warrant Issuance will be taxable to holders of Common Shares and
Series A Preferred Shares.
. The REIT Manager and SCG Realty Services have not been profitable. The
fees paid by PTR for the REIT Manager's and SCG Realty Services' services
in 1996 were approximately $832,000 less than the direct costs and
indirect costs incurred by Security Capital in providing these services.
. The Merger transaction would result in PTR recording higher
administrative expenses related to the internalization of the management
function in lieu of paying a fee to the REIT Manager and SCG Realty
Services. Security Capital has anticipated that PTR would incur
approximately $25.8 million of additional administrative expenses in 1998
by internalizing the management function. Of these expenses, an amount
which is subject to a maximum limit of $5.5 million for 1998, is expected
to be purchased from Security Capital under an administrative services
agreement. See "--Relationship With Security Capital After the Merger--
Administrative Services Agreement". PTR would, however, no longer pay
estimated REIT management and property management fees of $35.6 million
in 1998. The increased administrative costs of internalizing the
management function may be greater than anticipated and no assurance can
be given that the cost to PTR of providing such services internally will
not exceed the fees payable to the REIT Manager and SCG Realty Services
under the current agreements.
. Although the Merger is expected to be immediately accretive to PTR's
funds from operations, the Merger may not result in a corresponding
increase in the price at which Common Shares trade on the NYSE.
S-18
<PAGE>
The Merger transaction was initiated and structured by individuals who are
executive officers of Security Capital, the largest shareholder of PTR.
Although no independent representatives were retained to negotiate the terms
of the Merger transaction on behalf of PTR, the Board created the Special
Committee consisting of Messrs. John Schweitzer, Calvin Kessler and James
Cardwell. The Special Committee engaged Munger, Tolles & Olson LLP as its
legal counsel and engaged Robertson, Stephens & Company LLC as its financial
advisor to advise it in analyzing and evaluating, and to provide a written
opinion with respect to, the fairness of the Merger transaction to PTR and the
holders of Common Shares (other than Security Capital). No member of the
Special Committee is an officer of PTR or a director or officer of the REIT
Manager or SCG Realty Services or an officer or director of Security Capital.
However, Messrs. Schweitzer, Kessler and Cardwell beneficially own 34,602,
32,267 and 32,765 Common Shares, respectively, and Mr. Schweitzer beneficially
owns 268 shares of Security Capital's Class A common stock, par value $.01 per
share (the "Class A Stock"). Additionally, Mr. Schweitzer beneficially owns
$203,219 aggregate principal amount of Security Capital's Convertible
Subordinated Debentures due 2014 (the "2014 Convertible Debentures")
(convertible into an aggregate of 194 shares of Class A Stock). Trustees of
PTR, other than members of the Special Committee, beneficially own in the
aggregate 117,272 Common Shares, 11,054 shares of Class A Stock, $3,128,362
aggregate principal amount of 2014 Convertible Debentures (convertible into an
aggregate of 2,991 shares of Class A Stock) and $400,000 aggregate principal
amount of Security Capital's Convertible Subordinated Debentures due 2016
(convertible into an aggregate of 347 shares of Class A Stock). Beginning
January 1, 1998, each share of Class A Stock will be convertible into 50
shares of Class B Stock.
Concurrently with signing the Merger Agreement with PTR, Security Capital
also signed substantially similar agreements with each of ATLANTIC and
Security Capital Industrial Trust ("SCI"), each of which are affiliates of
Security Capital and PTR. Consummation of the Merger transaction is not
dependent upon the closing of the ATLANTIC and SCI transactions.
RELATIONSHIP WITH SECURITY CAPITAL AFTER THE MERGER
Investor Agreement
Pursuant to various agreements, as amended (the "Investor Agreement"),
between PTR and Security Capital, Security Capital is entitled to designate
three persons to be nominated for election to the Board. So long as Security
Capital beneficially owns at least 10% of the Common Shares, PTR is prohibited
from increasing the number of members of the Board to more than eight.
Additionally, the Investor Agreement, among other things, requires PTR to
obtain Security Capital's approval of (i) the annual operating budget and
substantial deviations therefrom, (ii) contracts for investment management,
property management or leasing services or that contemplate annual payments in
excess of $100,000 and (iii) acquisitions or dispositions in a single
transaction or a group of related transactions where the purchase or sale
price exceeds $5 million. The Investor Agreement also provides certain
registration rights to Security Capital in respect of Common Shares
beneficially owned by Security Capital.
As part of the Merger transaction, PTR and Security Capital will amend and
restate the Investor Agreement (as so amended and restated, the "Amended and
Restated Investor Agreement"), which will provide that, without first having
consulted with the nominees of Security Capital designated in writing, PTR may
not seek Board approval of (i) PTR's annual budget; (ii) incurring expenses in
any year exceeding (a) any line item in the annual budget by the greater of
$500,000 or 20% and (b) the total expenses set forth in the annual budget by
15%; (iii) the acquisition or sale of any assets in any single transaction or
series of related transactions in the ordinary course of PTR's business where
the aggregate purchase price paid or received by PTR exceeds $25 million; and
(iv) entering into any new contract with a service provider (a) for investment
management, property management or leasing services or (b) that reasonably
contemplates annual contract payments by PTR in excess of $1 million. PTR will
be under no obligation to accept or comply with any advice offered by Security
Capital with respect to the foregoing matters.
Additionally, so long as Security Capital beneficially owns at least 25% of
the Common Shares, Security Capital will have the right to approve the
following matters proposed by PTR: (i) the issuance or sale of any Common
Shares (including the grant of any rights, options or warrants to subscribe
for or purchase Common
S-19
<PAGE>
Shares or any security convertible into or exchangeable for Common Shares or
the issuance or sale of any security convertible into or exchangeable for
Common Shares) at a price per share less than the fair market value of a
Common Share on the date of such issuance or sale; (ii) the issuance and sale
of any disqualified shares (as defined) if, as a result thereof, PTR's Fixed
Charge Coverage Ratio (as defined) would be less than 1.4 to 1.0; (iii) the
adoption of any employee benefit plan pursuant to which shares of PTR or any
securities convertible into shares of PTR may be issued and any action with
respect to the compensation of the senior officers of PTR (including the grant
or award of any bonuses or share-based incentive awards); and (iv) the
incurrence of any additional indebtedness (including guarantees and including
renegotiations and restructurings of existing indebtedness) if, as a result
thereof, PTR's Interest Expense Coverage Ratio (as defined) would be less than
2.0 to 1.0. The restriction referred to in clause (i) above will not apply to
(A) the sale or grant of any options to purchase shares of beneficial interest
of PTR pursuant to the provisions of any benefit plan approved by the
shareholders of PTR, (B) the issuance or sale of shares of beneficial interest
of PTR upon the exercise of any rights, options or warrants granted, or upon
the conversion or exchange of any convertible or exchangeable security issued
or sold, prior to the closing date of the Merger or in accordance with the
provisions of the Amended and Restated Investor Agreement, (C) the issuance
and sale of any shares of beneficial interest of PTR pursuant to any dividend
reinvestment and share purchase plan approved by the Board or (D) the
issuance, grant or distribution of rights, options or warrants to all holders
of Common Shares entitling them to subscribe for or purchase shares of
beneficial interest of PTR or securities convertible into or exercisable for
shares of beneficial interest.
The Amended and Restated Investor Agreement will also provide that, so long
as Security Capital owns at least 10% of the outstanding Common Shares, PTR
may not increase the number of persons serving on the Board to more than
eight. Security Capital also will be entitled to designate one or more persons
to be nominated for election to the Board, as follows: (i) so long as Security
Capital owns at least 10% but less than 25% of the outstanding Common Shares,
it will be entitled to nominate one person; and (ii) so long as Security
Capital owns at least 25% of the outstanding Common Shares, it will be
entitled to nominate that number of persons as shall bear approximately the
same ratio to the total number of members of the Board as the number of Common
Shares beneficially owned by Security Capital bears to the total number of
outstanding Common Shares, provided that Security Capital will be entitled to
designate no more than three persons so long as the Board consists of no more
than eight members.
As part of the Amended and Restated Investor Agreement, Security Capital
will be permitted to make employment opportunities with Security Capital or
its affiliates available to the officers and employees of PTR. Prior to
commencing discussions with a senior officer of PTR about any such
opportunity, Security Capital will be required to give the Board 14 days'
prior written notice.
In addition, the Amended and Restated Investor Agreement will provide
Security Capital with registration rights pursuant to which, in certain
specified circumstances, Security Capital will be permitted to request at any
time, registration of all of Security Capital's Common Shares pursuant to Rule
415 under the Securities Act of 1933, as amended (the "Securities Act").
Security Capital will be permitted to request one such registration for every
$100 million (based on market value) of Common Shares it owns.
Administrative Services Agreement
Upon consummation of the Merger transaction, PTR and Security Capital will
enter into an administrative services agreement (the "Administrative Services
Agreement"), pursuant to which Security Capital will provide PTR with certain
administrative and other services with respect to certain aspects of PTR's
business, as selected from time to time by PTR at its option. These services
are expected to include, but are not limited to, payroll and tax
administration services, cash management and accounts payable services, data
processing and other computer services, human resources, research, investor
relations, insurance administration and legal administration. The fees payable
to Security Capital will be equal to Security Capital's cost of providing such
services, plus 20%, subject to a maximum amount of approximately $7.7 million
during the initial term of the agreement, of which approximately $2.2 million
will apply to the period between closing of the Merger and December 31, 1997
and the remainder will apply to 1998. Cost savings under the Administrative
Services
S-20
<PAGE>
Agreement will accrue to PTR. The agreement will be for an initial term
expiring on December 31, 1998 and will be automatically renewed for
consecutive one-year terms, subject to approval by a majority of the
independent members of the Board.
License Agreement
PTR and Security Capital will enter into a license agreement on the closing
date of the Merger (the "License Agreement") pursuant to which Security
Capital will grant PTR a non-exclusive license to use Security Capital's
registered logo and the non-exclusive right to use the name "Security
Capital". The term of the license will be for a period of 15 years, subject to
PTR's right to extend the license for up to two additional five-year periods.
As part of the License Agreement, Security Capital will agree that during the
term of the agreement, it will not exercise its rights under the Declaration
of Trust to cause PTR to change its name.
Protection of Business Agreement
PTR and Security Capital will enter into a protection of business agreement
on the closing date of the Merger (the "Protection of Business Agreement"),
which will prohibit Security Capital and its affiliates from providing,
anywhere within the United States, directly or indirectly, substantially the
same services as those currently provided by the REIT Manager and SCG Realty
Services to any entity that owns or operates multifamily communities. The
Protection of Business Agreement will not prohibit Security Capital or its
affiliates from owning the securities of any class of PTR or ATLANTIC. The
Protection of Business Agreement will terminate in the event of an
acquisition, directly or indirectly (other than by purchase from Security
Capital or any of its affiliates), by any person (or group of persons acting
in concert), other than Security Capital or any of its affiliates, of the
greater of (i) 25% or more of the outstanding shares of voting securities of
PTR and (ii) the percentage of outstanding voting securities of PTR owned
directly or indirectly by Security Capital and its affiliates, in either case
without the prior written consent of the Board. Subject to earlier termination
pursuant to the preceding sentence, the Protection of Business Agreement will
terminate on the third anniversary of the closing date of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
If the Merger transaction is consummated, the current officers and employees
of the REIT Manager and SCG Realty Services (except C. Ronald Blankenship and
Jeffrey A. Klopf) will become officers and employees of PTR and be compensated
for their services by PTR. The following table sets forth the compensation for
the Chief Executive Officer and the four other most highly compensated
executive officers of PTR (the "Named Executive Officers") who will become
employees of PTR and for all executive officers as a group (who will become
employees of PTR) for 1996. All compensation for 1996 was paid by Security
Capital.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND TITLE SALARY BONUS COMPENSATION
-------------- -------- -------- ------------
<S> <C> <C> <C>
R. Scot Sellers, Managing Director............ $214,000 $236,000 0
Patrick R. Whelan, Managing Director.......... 190,000 150,000 0
Jay S. Jacobson, Senior Vice President........ 165,000 80,000 0
Bryan J. Flanagan, Senior Vice President...... 180,000 60,750 0
Mark N. Tennison, Senior Vice President....... 150,000 88,000 0
Executive Officers as a group (5 persons)..... 899,000 614,750 0
</TABLE>
For 1997, each Named Executive Officer will remain an employee of the REIT
Manager and be compensated by Security Capital until the closing of the
Merger, at which time he will become an employee of PTR and be compensated by
PTR. For 1997, each Named Executive Officer will receive a salary and be
eligible for a target bonus. The actual amount of the bonus (which may be
higher or lower than the target bonus) will be determined by the Compensation
Committee at the end of the year and will be based on several factors,
including individual performance, PTR's performance, PTR's financial
condition, competitive conditions in the real estate industry and
recommendations of senior management. PTR will continue the same compensation
arrangements for the portion of 1997 in which the Named Executive Officers are
employees of PTR. The Named Executive Officers will be paid the following
salaries for 1997 and will be eligible for the following target bonuses for
1997:
S-21
<PAGE>
<TABLE>
<CAPTION>
TARGET
NAME AND TITLE SALARY BONUS
-------------- -------- --------
<S> <C> <C>
R. Scot Sellers, President and Chief Executive Officer. $250,000 $150,000
Patrick R. Whelan, Managing Director................... 200,000 135,000
Jay S. Jacobson, Senior Vice President................. 198,000 40,000
Bryan J. Flanagan, Senior Vice President............... 190,000 45,000
Mark N. Tennison, Senior Vice President................ 170,000 50,000
</TABLE>
In addition, subject to shareholder approval, during 1997 officers of PTR
will be granted options to purchase Common Shares. Officers and certain
employees of PTR will also be granted the right to purchase Common Shares
under the Incentive Plan (as defined below). See "Long-Term Incentive Plan".
The following table shows the option and share purchase rights that are
expected to be received by (i) the Named Executive Officers, (ii) all
executive officers as a group and (iii) all employees, including all officers
who are not executive officers, as a group.
<TABLE>
<CAPTION>
OPTION AWARDS SHARE AWARDS
------------------------------------------ ---------------------
DOLLAR VALUE
OF SHARES
SUBJECT TO NUMBER OF EXERCISE EXPIRATION DOLLAR NUMBER OF
NAME AND TITLE OPTION(1) SHARES PRICE DATE VALUE(2)(4) SHARES
- -------------- ------------ --------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
R. Scot Sellers,
President and Chief
Executive Officer...... $ 300,000 (2) (2) (3) $ 6,000,000 (2)
Patrick R. Whelan,
Managing Director...... 250,000 (2) (2) (3) 5,700,000 (2)
Jay S. Jacobson, Senior
Vice President......... 221,000 (2) (2) (3) 3,000,000 (2)
Bryan J. Flanagan,
Senior Vice President.. 149,500 (2) (2) (3) 1,350,000 (2)
Mark N. Tennison, Senior
Vice President......... 159,300 (2) (2) (3) 2,700,000 (2)
All executive officers
as a group
(5 persons)............ 1,079,800 (2) (2) (3) 18,750,000 (2)
All employees, including
all officers who are
not executive officers,
as a group (166
persons)............... $3,475,250 (2) (2) (3) $49,500,000 (2)
</TABLE>
- --------
(1) Non-qualified options with dividend equivalent units and vesting schedule
of 25% exercisable on the second anniversary of grant and an additional
25% on each of the third, fourth and fifth anniversaries of the date of
grant.
(2) The exercise price for the options and the purchase price for the share
awards will be the price of the Common Shares as of the date the
shareholders approve the Incentive Plan. The number of shares subject to
options and share awards will be determined by dividing the aggregate
exercise price or aggregate share award by the price of the Common Shares
as of the date the shareholders approve the Incentive Plan.
(3) Ten years from the date on which the shareholders approve the Incentive
Plan.
(4) Includes shares which may be purchased plus matching options for two
shares granted with respect to each Common Share purchased.
In addition to the awards under the Incentive Plan, options will be granted
to 50 officers of PTR to purchase an aggregate of $7,442,500 of shares of
Class A Stock of Security Capital (based on the exercise price).
The Board will also adopt a 401(k) plan which will permit eligible employees
to make pre-tax contributions of up to $9,500 to the plan or such other amount
as may be permitted under Section 401(k) of the Internal Revenue Code of 1986,
as amended ("the Code"). PTR will match 50% of participants' contributions
that do not exceed 6% of their compensation. PTR intends to make such matching
contributions in the form of Common Shares. Participants will become vested in
the matching contributions 20% per each year of service. Employees
S-22
<PAGE>
of the REIT Manager and SCG Realty Services will be credited for service for
the time they were employees of Security Capital.
LONG-TERM INCENTIVE PLAN
General
The Board has adopted, subject to shareholder approval, the 1997 Incentive
Plan (the "Incentive Plan") which authorizes the establishment of one or more
option programs and share purchase programs and the award of share grants. No
more than 5,650,000 Common Shares in the aggregate may be awarded under the
Incentive Plan and no individual may be granted awards with respect to more
than 500,000 Common Shares in any one-year period. The Compensation Committee
of the Board (the "Compensation Committee") will administer the Incentive
Plan. Subject to the terms of the Incentive Plan, the Compensation Committee
determines which employees shall be eligible to receive awards under the
Incentive Plan, and the amount, price, timing and other terms and conditions
applicable to such awards. Non-employee Trustees are not eligible to
participate in the Incentive Plan. All employees of PTR or any of its
subsidiaries are eligible to participate in the Incentive Plan.
Options awarded under the Incentive Plan may be either incentive share
options or non-qualified share options. Options become exercisable and expire
in accordance with the terms established by the Compensation Committee. Common
Shares transferred to a participant pursuant to the exercise of an option may
be subject to such additional restrictions or limitations as the Compensation
Committee may determine. The Incentive Plan provides generally that
participants who are awarded options will also receive dividend equivalent
units with respect to the options. The dividend equivalent units will be
subject to the same vesting schedule as the options and will be payable when
the options are exercised, unless the participant elects to defer receipt, or
expire. Each dividend equivalent unit also accumulates additional dividend
equivalent units on an annual basis. All dividend equivalent units are paid in
the form of Common Shares at the rate of one Common Share per dividend
equivalent unit.
The Incentive Plan provides that the Compensation Committee may award
participants performance stock, subject to achievement of performance
objectives. The number of Common Shares and the performance measures and
periods shall be established by the Compensation Committee at the time the
award is made, provided that any performance period shall be at least one
year.
Non-Qualified Options
Concurrently with the consummation of the Merger transaction, the Named
Executive Officers and other officers and employees of PTR will be granted
options to purchase Common Shares at the closing price of the Common Shares on
the date the Incentive Plan is approved by shareholders. The participants have
no rights as shareholders with respect to the Common Shares subject to their
options until the option is exercised. PTR ordinarily will be entitled to
claim a federal income tax deduction on account of the exercise of a non-
qualified option and payment of dividend equivalent units. The amount of the
deduction is equal to the ordinary income recognized by a participant.
Share Purchase Program
Concurrently with the consummation of the Merger transaction, PTR will
permit the Named Executive Officers and other officers and employees to
purchase up to a total of $22,750,000 of Common Shares at the closing price of
the Common Shares on the date the Incentive Plan is approved by shareholders
with two matching options for each Common Share purchased. Each matching
option shall have a subscription price equal to the closing price of one
Common Share on the date the Incentive Plan is approved by the shareholders.
No dividend equivalent units will be issued with respect to such matching
options. The Common Share purchases provide for a one-year restricted period
during which the participants may not, while employed, sell the Common Shares.
If a participant leaves the employment of PTR prior to the end of the
restricted period, PTR has the right to repurchase the Common Shares at the
fair market value of such Common Shares at the time the participant's
employment is terminated. At the end of the restricted period, the participant
shall own the Common Shares without further restriction. However, if the
participant sells the Common Shares after the end of the restricted period,
the participant's matching options may be adversely affected. PTR will make
loans for up to 95% of the purchase price available to participants. Each loan
will be full recourse to the participant and be secured by the purchased
Common Shares.
S-23
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth (1) historical selected financial data for
the periods indicated and as of the dates indicated for PTR and (2) unaudited
pro forma selected data as of March 31, 1997 and for the three months ended
March 31, 1997 and for the year ended December 31, 1996, giving effect to the
Merger, the Homestead Transaction (as defined in the pro forma financial
statements incorporated by reference herein) and the acquisition and
disposition of certain multifamily communities, as if the noted transactions
had occurred as of January 1, 1996 for the Operations Summary, Per Share Data
and Other Data information and as of March 31, 1997 for Financial Position
information. Pro forma adjustments made to arrive at the pro forma amounts set
forth below are described in PTR's pro forma financial statements incorporated
by reference herein. The following information should be read in conjunction
with and is qualified in its entirety by the PTR historical financial
statements incorporated by reference herein and the PTR pro forma financial
statements incorporated by reference herein. The unaudited pro forma selected
information is intended for informational purposes and is not necessarily
indicative of the future financial position or future results of operations of
PTR or of the financial position or the results of operations of PTR that
would have actually occurred had the noted transactions been completed as of
the date or for the periods presented (amounts in thousands, except per share
data).
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
THREE MONTHS THREE MONTHS PRO FORMA
ENDED ENDED YEAR ENDED HISTORICAL--YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, DECEMBER 31, ------------------------------------------
1997 1997 1996 1996 1995 1994 1993 1992
------------ ------------ ------------ -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental revenues....... $80,730 $79,950 $340,098 $322,046 $262,473 $183,472 $76,129 $30,970
Interest income on
Homestead Notes...... 3,174 3,174 6,786 2,035 -- -- -- --
Total revenues........ 84,274 83,494 349,050 326,246 264,873 186,105 78,418 32,779
Property management
fees paid to
affiliates........... -- 2,690 -- 11,610 8,912 7,148 3,862 1,424
REIT management fee
paid to affiliate.... -- 4,617 -- 22,191 20,354 13,182 7,073 2,711
General and
administrative
expense.............. 2,981 272 10,896 1,077 952 784 660 436
Earnings from
operations........... 20,939 20,276 87,817(1) 94,089 81,696 46,719 23,191 9,037
Gain (loss) on sale of
investments.......... 25,335 25,335 37,492 37,492 2,623 -- 2,302 (51)
Preferred Share cash
dividends paid....... 5,035 5,035 24,167 24,167 21,823 16,100 1,341 --
Net earnings
attributable to
Common Shares........ 41,239 40,576 100,272(1) 106,544 62,496 30,619 24,152 8,986
Common Share cash
distributions paid... $24,712 $24,712 $ 90,728 $ 90,728 $ 76,804 $ 46,121 $29,162 $13,059
PER SHARE DATA:
Net earnings
attributable to
Common Shares per
Common Share......... $ 0.52 0.53 $ 1.32(1) $ 1.46 $ 0.93 $ 0.66 $ 0.66 $ 0.46
Common Share cash
distributions paid... 0.325 0.325 1.24 1.24 1.15 1.00 0.82 0.70
Series A Preferred
Share cash dividends
paid................. 0.4377 0.4377 1.75 1.75 1.75 1.75 0.1458 --
Series B Preferred
Share cash dividends
paid................. $0.5625 $0.5625 $ 2.25 $ 2.25 $ 1.363 $ -- $ -- $ --
Weighted-average
Common Shares
outstanding.......... 78,983 75,872 76,168 73,057 67,052 46,734 36,549 19,435
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL HISTORICAL--YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, --------------------------------------------------
1997 1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real estate owned, at
cost................. $2,335,325 $2,233,866 $2,153,363 $1,855,866 $1,296,288 $872,610 $337,274
Homestead Notes....... 191,829 191,829 176,304 -- -- -- --
Total assets.......... 2,516,761 2,441,977 2,282,432 1,840,999 1,295,778 890,301 342,235
Credit facilities..... 193,865 193,865 110,200 129,000 102,000 51,500 54,802
Long-term debt........ 630,000 630,000 580,000 200,000 200,000 -- --
Mortgages payable..... 287,964 230,578 217,188 158,054 93,624 48,872 30,824
Total liabilities..... 1,193,416 1,135,018 1,014,924 565,331 455,136 135,284 94,186
Shareholders' equity.. $1,323,345 $1,306,959 $1,267,508 $1,275,668 $ 840,642 $755,017 $248,049
Number of Common
Shares outstanding... 79,187 76,076 75,511 72,211 50,456 44,645 27,034
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
THREE MONTHS THREE MONTHS PRO FORMA
ENDED ENDED YEAR ENDED HISTORICAL--YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, DECEMBER 31, --------------------------------------------------
1997 1997 1996 1996 1995 1994 1993 1992
------------ ------------ ------------ -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings
attributable to
Common Shares........ $ 41,239 $ 40,576 $100,272(1) $106,544 $ 62,496 $ 30,619 $ 24,152 $ 8,986
Add (deduct):
Real estate
depreciation....... 12,679 12,049 49,956 44,887 36,685 24,614 10,509 5,311
Provision for
possible loss on
investments........ 1,500 1,500 -- -- 420 1,600 2,270 400
(Gain) or loss on
disposition of
investments........ (25,335) (25,335) (37,492) (37,492) (2,623) -- (2,302) 51
Extraordinary item--
loss on early
extinguishment of
debt, net.......... -- -- 739 739 -- -- -- --
Amortization related
to Homestead
Notes(2)........... (245) (245) (799) (141) -- -- -- --
Other (primarily
provision for loss
on receivables).... -- -- -- -- -- -- 87 174
--------- --------- -------- -------- -------- -------- --------- ---------
Funds from operations
attributable to
Common Shares(3)..... $ 29,838 $ 28,545 $112,676 $114,537 $ 96,978 $ 56,833 $ 34,716 $ 14,922
========= ========= ======== ======== ======== ======== ========= =========
Net cash provided by
operating activities. $ 24,239 $ 22,725 $142,660 $143,939 $121,795 $ 94,625 $ 49,247 $ 20,252
Net cash used by
investing
activities........... (116,096) (114,035) (455,708) (360,935) (294,488) (368,515) (529,065) (229,489)
Net cash provided by
financing activities. $ 93,650 $ 93,650 $282,545 $195,720 $191,520 $276,457 $ 478,345 $ 185,130
</TABLE>
- -------
(1) Excludes the impact of a one-time adjustment of approximately $73 million
relating to the costs incurred in acquiring the REIT Manager and SCG
Realty Services, since the intent of providing this pro forma financial
information is to reflect the expected continuing impact of the Merger on
PTR. Upon consummation of the Merger, this expense will be recorded as an
operating expense on PTR's statement of earnings, but PTR will not deduct
this expense for purposes of calculating funds from operations, due to the
non-recurring and non-cash nature of the expense.
(2) Represents non-cash amortization associated with the Homestead Note
conversion feature and warrant-related deferred revenue which is not
recognized for purposes of funds from operations.
(3) Funds from operations represents net earnings computed in accordance with
GAAP, excluding gains (or losses) from real estate transactions,
provisions for possible losses, extraordinary items, significant non-
recurring items and real estate depreciation. PTR believes that funds from
operations is helpful to a reader as a measure of the performance of an
equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides a reader with
an indication of the ability of PTR to incur and service debt, to make
capital expenditures and to fund other cash needs. Funds from operations
should not be considered as an alternative to net earnings or any other
GAAP measurement of performance as an indicator of PTR's operating
performance or as an alternative to cash flows from operating, investing
or financing activities as a measure of liquidity. In June 1994, PTR
adopted the National Association of Real Estate Investment Trusts'
("NAREIT") revised definition of funds from operations. Under this more
conservative definition, loan cost amortization is not added back to net
earnings in determining funds from operations. For comparability, funds
from operations for the periods prior to July 1994 give effect to the
revised definition. The funds from operations measure presented by PTR,
while consistent with the NAREIT definition, will not be comparable to
similarly titled measures of other REITs which do not compute funds from
operations in a manner consistent with PTR. Funds from operations is not
intended to represent cash made available to shareholders. Cash
distributions paid to shareholders are presented above under "Operations
Summary".
S-25
<PAGE>
RECENT OPERATING RESULTS
The following table sets forth PTR's preliminary unaudited operating results
for the six months ended June 30, 1997 and 1996 (in thousands). These operating
results are not necessarily indicative of the results to be expected for the
entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Total revenues....................................... $ 169,674 $ 156,299
Net earnings attributable to Common Shares........... $ 70,708 $ 41,821
Net earnings attributable to Common Shares per Common
Share............................................... $ 0.92 $ 0.58
Weighted-average Common Shares outstanding........... $ 76,639 $ 72,217
Common Share cash distributions paid................. $ 0.650 $ 0.620
Reconciliation of net earnings attributable to Common
Shares to funds from operations attributable to
Common Shares:
Net earnings attributable to Common Shares........... $ 70,708 $ 41,821
Add (deduct):
Real estate depreciation........................... 24,688 21,242
Provision for possible loss on investments......... 1,500 --
Gain on disposition of investments, net............ (37,207) (8,083)
Extraordinary item--loss on early extinguishment of
debt, net......................................... -- 837
Amortization related to Homestead Notes(1)......... (528) --
--------- ---------
Funds from operations attributable to Common
Shares(2)........................................... $ 59,161 $ 55,817
========= =========
Cash flow summary:
Net cash provided by operating activities; $ 70,118 $ 60,122
Net cash used by investing activities.............. (187,379) (197,117)
Net cash provided by financing activities.......... $ 117,230 $ 114,452
</TABLE>
- --------
(1) See footnote (2) on page S-25.
(2) See footnote (3) on page S-25.
S-26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information should be read in conjunction with PTR's financial
statements and notes thereto incorporated by reference herein.
The statements contained in this discussion and elsewhere in this report
that are not historical facts are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These forward-looking statements are based on current expectations,
estimates and projections about the industry and markets in which PTR
operates, management's beliefs and assumptions made by management. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements. PTR's operating results depend primarily on income
from multifamily communities, which is substantially influenced by (i) the
demand for and supply of multifamily units in PTR's primary target market and
submarkets, (ii) operating expense levels, (iii) the effectiveness of
property-level operations and (iv) the pace and price at which PTR can acquire
and develop additional multifamily communities. Capital and credit market
conditions which affect PTR's cost of capital also influence operating
results.
OVERVIEW
General
PTR's results of operations, financial position and liquidity have been
influenced primarily by the operations of and investments made in PTR's
multifamily communities. The term "multifamily" as used herein refers to
garden-style communities and excludes Homestead Village(R) extended-stay
lodging assets, which were contributed to a new publicly traded company,
Homestead, on October 17, 1996, in exchange for Homestead securities.
S-27
<PAGE>
Multifamily Investments
The following table provides an overview of PTR's multifamily portfolio and
related investment activity for the three months ended March 31, 1997 (dollar
amounts in thousands):
<TABLE>
<S> <C>
OPERATING COMMUNITIES:
Communities............................................... 133
Units..................................................... 40,874
Total expected investment(1).............................. $1,928,702
COMMUNITIES UNDER CONSTRUCTION:
Starts During Period:
Communities............................................... 1
Units..................................................... 192
Total expected investment(1).............................. $ 9,383
Completions During Period:
Communities............................................... 0
Units..................................................... 0
Total expected investment(1).............................. $ 0
Stabilizations During Period:
Communities............................................... 0
Units..................................................... 0
Total expected investment(1).............................. $ 0
Under Construction at End of Period:
Communities............................................... 18
Units..................................................... 5,671
Total expected investment(1).............................. $ 359,366
Investment to date........................................ $ 227,325
Development Expenditures During Period...................... $ 52,883
ACQUISITIONS:
Communities............................................... 5
Units..................................................... 1,652
Total expected investment(1).............................. $ 143,746
DISPOSITIONS(2):
Communities............................................... 13
Units..................................................... 3,480
Gross sales proceeds...................................... $ 142,137
Gains..................................................... $ 25,335
</TABLE>
- --------
(1) For operating communities and acquisitions, represents cost through March
31, 1997 plus budgeted renovations, as of March 31, 1997. For communities
under construction, represents cost through March 31, 1997 plus additional
budgeted development expenditures as of March 31, 1997, which include the
cost of land, fees, permits, payments to contractors, materials,
architectural and engineering fees and interest and property taxes to be
capitalized during the construction period.
(2) Includes the sale of an industrial building representing gross sale
proceeds of approximately $300,000 and a gain of approximately $3,000.
Current Development Activity
PTR believes that development of multifamily communities from the ground up,
which are built for long-term ownership and designed to meet broad resident
preferences and demographic trends, will continue to provide an important
source of long-term cash flow growth. PTR believes its ability to compete is
significantly enhanced relative to other companies because of the REIT
Manager's depth of development and acquisition personnel and presence in local
markets combined with PTR's access to investment capital. The following table
S-28
<PAGE>
summarizes PTR's development communities under construction as of March 31,
1997 (dollar amounts in thousands):
<TABLE>
<CAPTION>
NUMBER TOTAL
OF PTR EXPECTED %
UNITS INVESTMENT INVESTMENT(1) LEASED(2)
------ ---------- ------------- ---------
<S> <C> <C> <C> <C>
Communities under construction and
in
lease-up(3)...................... 2,640 $148,129 $161,370 85.53%
Other communities under
construction(4).................. 3,031 79,196 197,996
----- -------- --------
Total communities under
construction................... 5,671 $227,325 $359,366
===== ======== ========
</TABLE>
- --------
(1) Represents cost through March 31, 1997 plus additional budgeted
development expenditures as of March 31, 1997, which include the cost of
land, fees, permits, payments to contractors, materials, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period.
(2) The percentage leased is based on total units completed.
(3) A development community is considered in "lease-up" once the first units
are delivered.
(4) Lease-up has not yet commenced.
There are risks associated with PTR's development and construction
activities which include: development and acquisition opportunities explored
may be abandoned; construction costs of a community may exceed original
estimates due to increased material, labor or other expenses, which could make
completion of the community uneconomical; occupancy rates and rents at a newly
completed community are dependent on a number of factors, including market and
general economic conditions, and may not be sufficient to make the community
profitable; financing may not be available on favorable terms for the
development of a community; and construction and lease-up may not be completed
on schedule, resulting in increased debt service expense and construction
costs. Development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary land-use, building,
occupancy and other required governmental permits and authorizations. The
occurrence of any of the events described above could adversely affect PTR's
ability to achieve its projected yields on communities under development or
redevelopment.
To mitigate these risks, PTR obtains zoning and municipal approvals prior to
purchasing land. Furthermore, PTR does not take construction risk, but instead
uses qualified third-party general contractors to build its communities, using
guaranteed maximum price contracts. PTR cannot eliminate all development risk,
but believes that the opportunities to better control product and realize
higher returns from development communities compensate for the limited risk.
Recent Acquisitions
In addition to its development activity, during the three-month period ended
March 31, 1997, PTR completed the acquisition of five operating multifamily
communities (1,652 units) at a total expected investment of $143.7 million.
Acquisitions entail risks that investments will fail to perform in
accordance with expectations and that judgments with respect to the cost of
improvements to bring an acquired community up to standards established for
the market position intended for that community will prove inaccurate, as well
as general investment risks associated with any new real estate investment.
Although PTR undertakes an evaluation of the physical condition of each new
community before it is acquired, certain defects or necessary repairs may not
be detected until after the community is acquired, which could significantly
increase PTR's total acquisition costs.
These risks are partially mitigated and managed by the extensive market
research and rigorous due diligence process performed in connection with every
community considered. These factors combined with PTR's extensive market
experience throughout its target market and methodical approval process have
proven PTR's ability to select investments that have a high probability of
meeting or exceeding underwritten expectations.
S-29
<PAGE>
RESULTS OF OPERATIONS
Net earnings for the three months ended March 31, 1997 and 1996 were $45.6
million and $25.8 million, respectively, an increase of $19.8 million (76.5%).
This increase resulted primarily from increased gains on dispositions of $22.4
million and increased earnings from multifamily communities offset by the
elimination of earnings from Homestead Village properties and higher interest
expense. A discussion of the major components of the increase in net earnings
follows.
Property Operations
The following table summarizes the net operating income generated from
property operations for each period (in thousands):
<TABLE>
<CAPTION>
HOMESTEAD OTHER NON-
MULTIFAMILY VILLAGE MULTIFAMILY TOTAL
----------- --------- ----------- -------
<S> <C> <C> <C> <C>
Net operating income--three
months ended March 31, 1997(1).. $48,812 $ -- $ 563 $49,375
Net operating income--three
months ended March 31, 1996(1).. 41,582 3,261 669 45,512
------- ------- ----- -------
Increase (decrease)............ $ 7,230 $(3,261) $(106) $ 3,863
======= ======= ===== =======
</TABLE>
- --------
(1) Net operating income is defined as rental revenues less rental expenses,
real estate taxes and property management fees paid to affiliates.
At March 31, 1997, multifamily investments comprised 99.1% of PTR's total
real estate portfolio, based on total expected investment. The overall $7.2
million increase in net operating income from PTR's multifamily communities
for the three months ended March 31, 1997 as compared to the three months
ended March 31, 1996 was attributable to an $11.1 million increase in rental
revenues partially offset by an $3.9 million increase in rental expenses, real
estate taxes and property management fees paid to affiliates ("Operating
Expenses"). The $11.1 million increase in rental revenues from $68.2 million
for the three months ended March 31, 1996 to $79.3 million for the three
months ended March 31, 1997 was primarily attributable to a net increase in
multifamily units from 38,970 units at March 31, 1996 to 40,874 units at March
31, 1997, combined with increases in rental revenues generated by existing
multifamily communities, increased investments in newer markets such as
California, and dispositions in markets with lower rental rates such as Tucson
and Phoenix. Similarly, the $3.9 million increase in Operating Expenses from
$26.6 million for the three months ended March 31, 1996 to $30.5 million for
the three months ended March 31, 1997 is attributable primarily to additional
units in operation, higher operating costs in new markets and increases in
Operating Expenses associated with existing multifamily communities.
Additional information for these communities is presented below under "--
Multifamily Communities Fully Operational Since January 1, 1996".
PTR categorizes operating multifamily communities (which include all
communities not under development) as either "stabilized" or "pre-stabilized".
The term "stabilized" means that renovation, repositioning, new management and
new marketing programs (or development and marketing in the case of newly
developed communities) have been completed for a sufficient period of time
(but in no event longer than 12 months, except for major rehabilitations) to
achieve 93% occupancy at market rents. Prior to being "stabilized," a
community is considered "pre-stabilized." Approximately 73.3% and 86.1% of
PTR's operating multifamily portfolio was classified as stabilized as of March
31, 1997 and 1996, respectively, based on total expected investment.
The $3.3 million in Homestead Village(R) net operating income shown for the
three months ended March 31, 1996 resulted from rental revenues aggregating
$6.9 million offset by Operating Expenses aggregating $3.6 million generated
from 23 properties operating at March 31, 1996. The decrease in net operating
income related to the Homestead Village(R) properties in the three months
ended March 31, 1997 is entirely due to the contribution of all properties to
Homestead, a newly formed company, on October 17, 1996.
S-30
<PAGE>
The decrease in net operating income on other non-multifamily properties is
due primarily to property dispositions.
Multifamily Communities Fully Operational Since January 1, 1996
The following table illustrates the quarterly performance of PTR's
communities which were fully operational in both periods ("same store
communities") followed by the same store community information by region and
market:
<TABLE>
<CAPTION>
FULLY OPERATIONAL
COMMUNITIES AT
JANUARY 1, 1996
-----------------
<S> <C> <C>
PORTFOLIO:
Communities....................................... 91
Units............................................. 27,607
Total expected investment (in thousands)(1)....... $1,102,588
% of total PTR portfolio(2)....................... 48.19%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 VS. 1996
------------------
<S> <C> <C>
OPERATING PERFORMANCE:
Collections growth(3)............................ 2.19%
Property operating expense growth................ 2.42%
Net operating income growth...................... 2.04%
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------ ------------------
<S> <C> <C>
SUMMARY INFORMATION (IN ACTUAL
DOLLARS):
Average physical occupancy....... 94.22% 94.54%
Property operating expense
ratio(4)........................ 38.91% 38.82%
Average rental rate per unit(5).. $629 $608
Recurring capital expenditures
per unit........................ $ 38 $ 21
</TABLE>
- --------
See notes following next table.
S-31
<PAGE>
<TABLE>
<CAPTION>
AVERAGE PHYSICAL AVERAGE PHYSICAL COLLECTIONS
OCCUPANCY % OCCUPANCY % GROWTH
THREE MONTHS THREE MONTHS MARCH 31, 1/1/96 SAME STORE TOTAL PTR
ENDED ENDED 1997 VS. COMMUNITIES % BY PORTFOLIO %
MARCH 31, 1997 MARCH 31, 1996 1996(3) MARKET(2) BY MARKET(2)
---------------- ---------------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
CENTRAL REGION:
Austin, Texas......... 92.83% 96.82% 1.65% 3.67% 3.13%
Dallas, Texas......... 94.17 95.53 1.45 3.86 3.60
Denver, Colorado...... 96.29 96.59 2.45 7.57 4.59
El Paso, Texas........ 92.39 92.94 (0.75) 7.33 4.07
Houston, Texas........ 95.92 96.60 2.98 8.52 6.74
San Antonio, Texas.... 93.05 93.47 (0.76) 9.40 6.34
----- ----- ----- ------ ------
CENTRAL REGION
SUBTOTAL........... 94.05% 94.94% 1.04% 40.35% 28.47%
----- ----- ----- ------ ------
NORTHWEST REGION:
Portland, Oregon...... 93.82% 94.41% 0.96% 5.73 4.78%
Salt Lake City, Utah.. 94.31 95.44 4.41 3.30 4.89
Seattle, Washington... 96.91 91.04 14.48 5.92 6.27
----- ----- ----- ------ ------
NORTHWEST REGION
SUBTOTAL........... 95.07% 93.39% 6.80% 14.95% 15.94%
----- ----- ----- ------ ------
WEST REGION:
Albuquerque, New
Mexico............... 92.86% 90.32% 1.90% 6.41% 5.76%
Las Vegas, Nevada..... 95.18 94.64 4.25 10.97 5.29
Phoenix, Arizona...... 95.15 95.87 0.02 14.76 12.69
Northern California .. 91.75 93.35 11.52 3.54 13.94
Southern California .. 93.61 94.50 2.42 4.17 13.40
Tucson, Arizona....... 93.86 93.83 (1.27) 2.41 1.87
----- ----- ----- ------ ------
WEST REGION
SUBTOTAL........... 94.42% 94.36% 2.23% 42.26% 52.95%
----- ----- ----- ------ ------
Other Markets........... 90.26% 95.62% (3.62)% 2.44% 2.64%
----- ----- ----- ------ ------
Totals.................. 94.22% 94.54% 2.19% 100.00% 100.00%
===== ===== ===== ====== ======
</TABLE>
- --------
(1) Represents cost plus budgeted renovations.
(2) Based on total expected investment at March 31, 1997.
(3) Represents percentage growth in rental revenues, net of vacancies, bad
debts and concessions.
(4) Represents Operating Expenses as a percentage of rental revenues.
(5) Represents weighted-average monthly "asking rents" during each period.
Homestead Interest and Homestead Notes
Through March 31, 1997, PTR had funded $117.4 million of its $198.8 million
Homestead funding commitment of which $16.3 million was funded during the
three months ended March 31, 1997. This leaves a remaining commitment under
the funding commitment agreement of approximately $81.4 million, which will be
provided to Homestead throughout the remainder of 1997 and early 1998 to fund
developments as needed on development properties contributed by PTR. The
remaining unfunded commitment as of June 30, 1997 was $56.4 million.
During the three months ended March 31, 1997, PTR recorded $3.2 million in
interest income ($2.9 million for purposes of calculating funds from
operations) from the Homestead Notes. PTR deducts from net earnings
the interest income related to the amortization of discounts and warrant-
related deferred revenue in calculating funds from operations. Homestead
interest income is expected to increase in future periods as PTR continues to
fund Homestead's development activity up to its $198.8 million funding
commitment.
S-32
<PAGE>
Upon full funding, PTR will have funded $198.8 million in exchange for
Homestead Notes having a face amount of $221.3 million. The Homestead Notes
are convertible into Homestead common stock after March 31, 1997 on the basis
of one share of Homestead common stock for every $11.50 of principal face
amount outstanding, which would result in the ownership of approximately 19.2
million shares of Homestead common stock at full funding. Under these
assumptions and using the trading price of Homestead common stock at March 31,
1997 of $16.875, PTR's ownership would result in the following incremental
value per PTR Common Share at March 31, 1997 (in thousands, except per share
amounts):
<TABLE>
<S> <C>
Homestead common stock price.................................... $ 16.875
Conversion price................................................ 11.500
--------
Incremental value per share of Homestead common stock......... $ 5.375
Shares of Homestead common stock upon conversion (at full
funding)....................................................... 19,246
--------
Total incremental value from conversion..................... $103,447
PTR Common Shares outstanding................................... 76,076
--------
Assumed incremental value per PTR Common Share.............. $ 1.36
========
</TABLE>
Upon full funding of the Homestead Notes by PTR and ATLANTIC, PTR's
conversion rights would represent a 34.7% ownership interest in Homestead.
This ownership interest assumes no further equity offerings by Homestead,
conversion of all Homestead Notes by PTR and ATLANTIC and exercise of all
outstanding warrants.
Depreciation Expense
The increase in depreciation expense resulted primarily from the increase in
the number of operating communities partially offset by dispositions,
including those related to the contribution of assets to Homestead on October
17, 1996.
Interest Expense
The following table summarizes PTR's interest expense (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Credit facilities........................... $ 3,548 $ 2,100
Long-term unsecured debt.................... 10,718 4,727
Mortgages payable........................... 4,122 3,190
Capitalized interest........................ (4,427) (3,497)
------- -------
Total interest expense.................... $13,961 $ 6,520
======= =======
</TABLE>
Interest expense on PTR's credit facilities increased $1.4 million (69.0%)
resulting primarily from higher average outstanding balances. Average
borrowings on the line of credit were approximately $151.6 million (with an
average effective interest rate of 8.1%) during the three months ended March
31, 1997, as compared to average borrowings of approximately $94.2 million
(with an average effective interest rate of 7.58%) for the same period in
1996.
Interest expense on PTR's long-term unsecured debt ("Long-Term Debt")
increased $6.0 million (126.7%) for the three months ended March 31, 1997 as
compared to the same period in 1996. The increase is primarily attributable to
the issuance of $380 million of Long-Term Debt during 1996.
S-33
<PAGE>
Mortgage interest expense increased approximately $1.0 million (29.2%) for
the three months ended March 31, 1997 as compared with the same period in
1996. This increase is the result of additional weighted-average debt
outstanding due to mortgage assumptions related to community acquisitions
which were partially offset by prepayments during 1996 and 1997.
The increase in interest costs were partially offset by an increase of
approximately $1.0 million (26.6%) in capitalized interest. The increase in
capitalized interest is attributable to higher levels of multifamily
development activity for the three months ended March 31, 1997 as compared to
the same period in 1996.
REIT Management Fee Paid to Affiliate
The REIT Management fee paid by PTR decreased by approximately 16.9% during
the three months ended March 31, 1997 as compared to the same period in 1996.
This decrease is primarily attributable to an overall increase in the assumed
principal amortization and interest on Long-Term Debt for purposes of the fee
calculation, coupled with the fact that interest income on the Homestead Notes
has been excluded from the calculation of the fee in accordance with the terms
of the agreement. In the future, to the extent that PTR completes additional
Long-Term Debt offerings and nonconvertible preferred share offerings and as
additional fundings of the Homestead Notes occur, the REIT Management fee will
continue to decline in proportion to PTR's earnings from operations. See "--
Liquidity and Capital Resources--REIT Management Agreement". See "The Merger
Transaction" for information regarding a proposed merger transaction which
would result in PTR becoming an internally managed REIT with Security Capital
remaining as PTR's largest shareholder.
Gains and Provision for Possible Loss on Investments
As a result of PTR's asset optimization strategy, PTR disposed of 12
multifamily communities and one industrial building during the first quarter
of 1997, representing gross proceeds of $142.1 million. As of March 31, 1997,
PTR held a portion of the 1997 disposition proceeds aggregating $59 million in
an interest bearing escrow account, pending acquisition of other multifamily
communities to complete the tax-deferred exchange. During the first quarter of
1996, PTR disposed of four multifamily communities representing gross proceeds
of $39.5 million. The proceeds from the 1996 and 1997 dispositions have been
or will be redeployed into other multifamily communities that in PTR's view
offer better long-term cash flow growth prospects. For federal income tax
purposes, the majority of the 1997 and 1996 dispositions were structured as
tax-deferred exchanges which deferred gain recognition. For financial
reporting purposes, however, the transactions qualified for profit
recognition, and aggregate gains of $25.3 million and $2.9 million, were
recorded for the three months ended March 31, 1997 and 1996, respectively.
As part of PTR's asset optimization strategy, 18 multifamily communities
were held for disposition at March 31, 1997. The aggregate carrying value of
properties held for disposition was approximately $144.0 million at March 31,
1997, net of a provision for possible loss of $1.5 million on certain
communities. A substantial aggregate gain is expected upon the disposition of
the remaining communities, although generally accepted accounting principles
disallows recognition of anticipated gains. Subject to normal closing risks,
PTR expects to complete the disposition of these communities during 1997 and
redeploy the net proceeds from such dispositions, where appropriate, through
tax-deferred exchanges, into the acquisition of multifamily communities.
ENVIRONMENTAL MATTERS
PTR is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence procedures, PTR has conducted Phase I environmental assessments on
each community prior to acquisition. The cost of complying with environmental
regulations was not material to PTR's results of operations during either
period. PTR is not aware of any environmental condition on any of its
communities that is likely to have a material adverse effect on PTR's
financial position or results of operations.
S-34
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
PTR considers its liquidity and ability to generate cash from operations and
financings to be adequate and expects it to continue to be adequate to meet
PTR's development, acquisition, operating, debt service, Homestead funding
obligation and shareholder distribution requirements.
Operating Activities
Net cash flow provided by operating activities increased by $6.6 million
(40.5%) for the three months ended March 31, 1997 as compared to the same
period in 1996. This increase was due primarily to reduced cash outlays for
operating liabilities resulting from timing differences.
Investing and Financing Activities
During the three months ended March 31, 1997 and 1996, PTR invested cash of
$177.9 and $101.3 million, respectively, in real estate investments relating
primarily to the significant acquisition and development activity summarized
in "--Overview" above. The $177.9 million invested in real estate and $16.3
million in fundings of Homestead Notes during the three months ended March 31,
1997 were financed primarily from $80.1 million in net proceeds from property
dispositions (excluding $59.0 million held in escrow pending tax-deferred
exchanges), and borrowings under PTR's credit facilities which were partially
repaid from proceeds related to PTR's $50 million offering of Long-Term Debt
issued in March 1997. The $101.3 million invested during the three months
ended March 31, 1996 was financed primarily from borrowings under PTR's credit
facilities which were partially repaid from proceeds related to PTR's $150
million offering of Long-Term Debt issued in February 1996. Total mortgage
debt assumed during 1997 in connection with community acquisitions aggregated
$23.5 million.
Other significant financing activity included the payment of $29.7 million
and $28.8 million in Common Share and preferred share distributions for the
three months ended March 31, 1997 and 1996, respectively. The increase is
primarily attributable to a 4.8% increase in the distributions paid per Common
Share. Preferred share dividends decreased approximately $1.4 million during
the respective periods as a result of conversions of Series A Preferred Shares
to Common Shares.
Credit Facilities
PTR has a $350 million unsecured revolving line of credit with TCB, as agent
for a group of financial institutions (collectively, the "Lenders"). The line
matures in August 1998 and may be extended annually for an additional year
with the approval of the Lenders. The line of credit bears interest at the
greater of prime (8.5% at June 30, 1997) or the federal funds rate plus 0.50%,
or at PTR's option, LIBOR (5.6875% at June 30, 1997) plus 1.125% (6.8125% at
June 30, 1997). The spread over LIBOR can vary from LIBOR plus 0.75% to LIBOR
plus 1.50% based upon PTR's Long-Term Debt rating. Additionally, there is a
commitment fee on the average unfunded line of credit balance. The commitment
fee was $114,000 and $218,000 for the six months ended June 30, 1997 and 1996,
respectively. PTR recently renegotiated a number of modifications to the terms
of the line of credit, which have been approved by TCB and all of the other
lenders. Among the changes expected to be made are a reduction in the spread
over LIBOR to 0.75% and an extension of the maturity to August 1999. The new
terms are expected to be effective on August 13, 1997.
S-35
<PAGE>
A summary of PTR's line of credit borrowings is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Total line of credit................ $350,000 $350,000
Borrowings outstanding at end of
period............................. 133,500 99,750
Weighted-average daily borrowings... 151,606 112,248
Maximum borrowings outstanding at
any month end...................... 205,000 188,750
Weighted-average daily nominal
interest rate...................... 6.9% 7.3%
Weighted-average daily effective
interest rate...................... 8.1% 8.8%
Weighted-average nominal interest
rate at end of period.............. 6.7% 6.6%
</TABLE>
At June 30, 1997, there were $90.3 million of borrowings outstanding under
PTR's line of credit.
On September 9, 1996, PTR entered into a short-term, unsecured, borrowing
agreement with TCB. The loan matures March 18, 1998 and bears interest at an
overnight rate which ranged from 5.94% to 7.00% during the six months ended
June 30, 1997. At June 30, 1997, there were $34.8 million of borrowings
outstanding under this agreement.
On March 10, 1997, PTR borrowed $60 million under a short-term unsecured
borrowing agreement with a financial institution. The loan matures on
September 10, 1997, but provides for early repayment at PTR's option on the
10th day of each month during the term. Interest is payable monthly at an
annual rate of LIBOR plus 0.60% (6.2875% at June 30, 1997). On April 4, 1997,
PTR borrowed an additional $40 million under a short-term unsecured borrowing
agreement with the same financial institution, having approximately the same
interest rate and repayment terms. The proceeds from both loans were used to
repay borrowings under PTR's line of credit.
The aggregate amount of borrowings outstanding under all of PTR's credit
facilities at June 30, 1997 was $203.0 million.
Long-Term Debt
At June 30, 1997, PTR had issued a total of $630 million of Long-Term Debt,
which bears interest at fixed rates, payable semi-annually. Funds from such
issuances were used primarily for acquisition, development and renovation of
multifamily communities and to repay balances on credit facilities incurred
for such purposes. The following table summarizes the Long-Term Debt as of
June 30, 1997:
<TABLE>
<CAPTION>
ISSUANCE AVERAGE EFFECTIVE
AND INTEREST RATE, AVERAGE
OUTSTANDING AVERAGE INCLUDING OFFERING ORIGINAL
PRINCIPAL COUPON DISCOUNTS AND LIFE
DATE OF ISSUANCE AMOUNT RATE ISSUANCE COSTS (YEARS)
---------------- ------------ ------- ------------------ --------
<S> <C> <C> <C> <C>
March 31, 1997.......... $ 50 million 7.905% 7.850% 16.00
October 21, 1996........ 130 million 7.350 7.500 6.85
August 6, 1996.......... 100 million 7.840 7.950 15.60
February 23, 1996....... 150 million 7.710 7.840 15.50
February 8, 1994........ 200 million 7.240 7.370 14.25
------------ ----- ----- -----
Total/Average....... $630 million 7.530% 7.640% 13.37
============ ===== ===== =====
</TABLE>
The Long-Term Debt together with PTR's mortgages payable result in a
relatively level amortization schedule which minimizes PTR's refinancing risk.
The Long-Term Debt, other than a $15 million tranche of 6.500% Notes issued
October 21, 1996 and due 2026 (the "6.500% Notes"), is redeemable at any time
at the option of PTR, in whole or in part, at a redemption price equal to the
sum of the principal amount of the Long-Term Debt being redeemed plus accrued
interest thereon to the redemption date plus an adjustment, if any, based
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<PAGE>
on the yield to maturity relating to market yields available at redemption.
The 6.500% Notes may be repaid on October 15, 1999 at the option of the
holders at their full principal amount together with accrued interest. If the
holders do not exercise their right to require PTR to repay the 6.500% Notes
on October 15, 1999, they may be repaid at the option of PTR, in whole or in
part, at a redemption price equal to the sum of the principal amount of the
Long-Term Debt being redeemed plus accrued interest thereon to the redemption
date plus an adjustment, if any, based on the yield to maturity relating to
market yields available at redemption. The Long-Term Debt is governed by the
terms and provisions of an indenture agreement.
Mortgages Payable
The changes in mortgages payable during the three months ended March 31,
1997 consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1997..................................... $217,188
Mortgage notes assumed....................................... 23,527
Principal payments, including prepayments upon community
dispositions................................................ (10,137)
--------
Balance at March 31, 1997...................................... $230,578
========
</TABLE>
Scheduled Debt Maturities
Approximate principal payments due during each of the calendar years in the
20-year period ending December 31, 2016 and thereafter, at March 31, 1997,
were as follows (in thousands):
<TABLE>
<CAPTION>
CREDIT LONG-TERM
FACILITIES DEBT MORTGAGES TOTAL
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
1997............................ $ 60,365 $ -- $14,787 $ 75,152
1998............................ 133,500 -- 40,173 173,673
1999............................ -- 30,000 8,347 38,347
2000............................ -- -- 30,057 30,057
2001............................ -- 12,500 23,794 36,294
2002............................ -- 32,500 17,315 49,815
2003............................ -- 38,750 1,717 40,467
2004............................ -- 38,750 1,865 40,615
2005............................ -- 38,750 12,024 50,774
2006............................ -- 38,750 2,195 40,945
2007............................ -- 38,750 13,478 52,228
2008............................ -- 38,750 18,810 57,560
2009............................ -- 36,250 1,545 37,795
2010............................ -- 38,750 1,669 40,419
2011............................ -- 25,000 1,803 26,803
2012............................ -- 30,000 1,947 31,947
2013............................ -- 35,000 2,104 37,104
2014............................ -- 42,500 2,273 44,773
2015............................ -- 40,000 2,455 42,455
2016............................ -- 45,000 2,653 47,653
Thereafter...................... -- 30,000 29,567 59,567
-------- -------- ------- ----------
Total......................... $193,865 $630,000 230,578 $1,054,443
======== ======== ======= ==========
</TABLE>
Covenants
PTR's debt instruments generally contain certain covenants common to the
type of facility or borrowing, including financial covenants establishing
minimum debt service coverage ratios and maximum leverage ratios. PTR was in
compliance with all covenants pertaining to its debt instruments at March 31,
1997.
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<PAGE>
Commitments and Contingencies
At June 30, 1997, PTR had contingent contracts or letters of intent, subject
to PTR's final due diligence and approval of all entitlements, to acquire land
for new development communities with an estimated 6,602 multifamily units at a
total development cost of approximately $612.7 million. At the same date, PTR
also had contingent contracts or letters of intent, subject to final due
diligence, for the acquisition of 328 additional operating multifamily units
with a total expected investment of $17.5 million, including budgeted
renovations. At June 30, 1997, PTR had unfunded development commitments for
developments under construction of $180.4 million. For a description of
unfunded commitments in connection with the Homestead Notes see "--Results of
Operations--Homestead Interest and Homestead Notes".
PTR expects to finance these activities and other future investment and
operating needs with cash on hand, borrowings under its credit facilities and
disposition proceeds from its asset optimization strategy, prior to arranging
long-term capital. The credit facilities should facilitate an efficient
response to market opportunities while minimizing the amount of cash invested
in short-term investments at lower yields. Other sources of future liquidity
and financial flexibility include $365.5 million (at June 30, 1997) in shelf-
registered securities which can be issued on an as-needed basis, subject to
PTR's ability to effect offerings on satisfactory terms. PTR believes that its
current conservative ratio of long-term debt to total long-term undepreciated
book capitalization (the sum of long-term debt and shareholders' equity after
adding back accumulated depreciation) of 37.95% at March 31, 1997, provides
considerable flexibility with respect to its ability to finance its investment
activities.
From time to time, PTR utilizes derivative financial instruments as hedges
in anticipation of future debt offerings in order to manage well-defined
interest rate risk. In anticipation of the $50 million Long-Term Debt offering
that closed March 31, 1997, PTR entered into interest rate contracts with
notional amounts aggregating $50 million in 1996. Upon completion of the
offering, PTR terminated the interest rate contracts, realizing a gain of
approximately $819,000 which has been deferred and is being amortized as an
offset to interest expense over the term of the Long-Term Debt that was
issued.
Distributions
PTR paid first and second quarter 1997 distributions of $0.325 per Common
Share on February 20 and May 29, 1997. On July 21, 1997, the Board declared a
cash distribution of $0.325 per Common Share which is payable on August 27,
1997 to shareholders of record on August 13, 1997. On March 31 and June 30,
1997, PTR paid quarterly dividends on the Series A Preferred Shares of
$0.4377425 per share and quarterly dividends on its Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest (the "Series B Preferred
Shares") of $0.5625 per share.
Funds From Operations
Funds from operations is defined as net earnings computed in accordance with
GAAP, excluding gains (or losses) from real estate transactions, provisions
for possible losses on extraordinary items significant non-recurring items and
real estate depreciation. PTR believes that funds from operations is helpful
to a reader as a measure of the performance of an equity REIT because, along
with cash flow from operating activities, financing activities and investing
activities, it provides a reader with an indication of the ability of PTR to
incur and service debt, to make capital expenditures and to fund other cash
needs. Funds from operations should not be considered as an alternative to net
earnings or any other GAAP measurement of performance as an indicator of PTR's
operating performance or as an alternative to cash flows from operating,
investing, or financing activities as a measure of liquidity. In June 1994,
PTR adopted NAREIT's revised definition of funds from operations. Under this
more conservative definition, loan cost amortization is not added back to net
earnings in determining funds from operations. The funds from operations
measure presented by PTR, while consistent with the NAREIT definition, will
not be comparable to similarly titled measures of other REITs which do not
compute funds from operations in a manner consistent with PTR. Funds from
operations is not intended to represent cash made available to shareholders.
Cash distribution paid to shareholders are described above under
"Distributions".
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<PAGE>
In 1996, PTR contributed its Homestead Village(R) assets to Homestead.
Management believes that funds from operations for the three months ended
March 31, 1996 should be adjusted to reflect the effects of the Homestead
transaction to provide a more meaningful comparison to the historical 1997
results. Accordingly, pro forma funds from operations for the three months
ended March 31, 1996 has been calculated as if the Homestead transaction had
occurred on January 1, 1996. The funds from operations information is
unaudited and the pro forma funds from operations is not necessarily
indicative of what actual funds from operations would have been if the
Homestead transaction had occurred on January 1, 1996.
Funds from operations for the three months ended March 31, 1997 and pro
forma funds from operations for the three months ended March 31, 1996 were as
follows (amounts in thousands):
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
Net earnings attributable to Common Shares................. $ 40,576 $19,455
Add (deduct):
Real estate depreciation................................. 12,049 10,618
Gain on disposition of investments....................... (25,335) (2,923)
Provision for possible loss on investments............... 1,500 --
Amortization related to Homestead Notes.................. (245) --
-------- -------
Historical funds from operations attributable to Common
Shares.................................................... 28,545 27,150
Add (deduct) pro forma adjustments relating to the
contribution
of Homestead Assets:
Reduction in revenues and operating expenses(1).......... -- (3,261)
Increase in interest income(2)........................... -- 823
Increase in interest expense(3).......................... -- (166)
Reduction in capitalized interest(4)..................... -- (575)
REIT Management fee effect(5)............................ -- 641
Other.................................................... -- 22
-------- -------
Total pro forma adjustments............................ -- (2,516)
-------- -------
Funds from operations attributable to Common Shares
(Pro forma for 1996)...................................... $ 28,545 $24,634
======== =======
Weighted-average Common Shares outstanding................. 75,872 72,211
======== =======
</TABLE>
- --------
(1) Represents the elimination of Homestead's historical revenues and
operating expenses.
(2) Represents the interest income which would have been recognized on the
Homestead Notes, assuming that PTR received Homestead common stock in
exchange for its contribution first, and then Homestead Notes in exchange
for the balance of its contribution over the respective time periods.
(3) Represents the assumed amount of incremental interest expense which would
have been incurred as a result of higher line of credit balances due to
reduced cash flow.
(4) Represents the reclassification of historical interest costs capitalized
on Homestead developments to interest expense.
(5) Represents the decrease in REIT Management fee that would have resulted
from the pro forma adjustments.
REIT MANAGEMENT AGREEMENT
Effective March 1, 1991, PTR entered into a REIT management agreement (the
"REIT Management Agreement") with the REIT Manager pursuant to which the REIT
Manager assumed day-to-day management of PTR. All officers of PTR are
employees of the REIT Manager and PTR currently has no employees. The REIT
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<PAGE>
Manager provides both strategic and day-to-day management of PTR, including
research, investment analysis, acquisition, development, dispositions,
property management, capital markets, legal, accounting and other
administrative services. The REIT Manager is a wholly owned subsidiary of
Security Capital, which owned approximately 34.0% of the Common Shares at July
31, 1997.
The REIT Management Agreement requires PTR to pay a base annual fee of
$855,000 plus 16% of cash flow as defined in the REIT Management Agreement in
excess of $4,837,000, payable monthly. In the REIT Management Agreement, cash
flow is calculated by reference to PTR's cash flow from operations plus (i)
fees paid to the REIT Manager, (ii) extraordinary expenses incurred at the
request of the independent Trustees of PTR and (iii) 33% of any interest paid
by PTR on convertible subordinated debentures (of which there has been none
since inception of the REIT Management Agreement); and after deducting (i)
regularly scheduled principal payments (excluding prepayments or balloon
payments) for debt with commercially reasonable amortization schedules, (ii)
actual or assumed principal and interest payments on Long-Term Debt, (iii)
interest income received in connection with the Homestead Notes and (iv)
distributions actually paid with respect to any nonconvertible preferred
shares of beneficial interest of PTR. The REIT Management Agreement provides
that Long-Term Debt is treated as if it had regularly scheduled principal and
interest payments similar to a 20-year, level monthly payment, fully
amortizing mortgage, and the assumed principal and interest payments are
deducted from cash flow in determining the fee. Cash flow does not include
dividend and interest income from PTR Development Services, realized gains or
losses from dispositions of investments or income from cash equivalent
investments. The REIT Manager also receives a fee of 0.25% per year on the
average daily balance of cash equivalent investments.
As PTR arranges additional Long-Term Debt and nonconvertible preferred share
financing and as additional funding of Homestead Notes occurs, the REIT
Management fee will effectively decline in proportion to PTR's earnings from
operations. This decline will result from the fact that actual or assumed
regularly scheduled principal payments associated with Long-Term Debt and
distributions actually paid with respect to nonconvertible preferred shares
are deducted from the cash flow amount on which the REIT Management fee is
based. Similarly, interest income from the Homestead Notes is not included in
the cash flow amount in determining the REIT Management fee.
PTR is obligated to reimburse the REIT Manager for certain expenses incurred
by the REIT Manager on behalf of PTR relating to PTR's operations, consisting
primarily of external professional fees, offering costs and travel expenses.
The REIT Management Agreement is renewable by PTR annually, subject to a
determination by the independent Trustees (who receive performance benchmark
information verified by an independent third party) that the REIT Manager's
performance has been satisfactory and that the compensation payable to the
REIT Manager is fair. Each of PTR and the REIT Manager may terminate the REIT
Management Agreement on 60 days' notice.
On March 24, 1997, Security Capital and PTR entered into the Merger
Agreement. Pursuant to the Merger Agreement, Security Capital will cause the
REIT Manager and SCG Realty Services to be merged into a newly formed
subsidiary of PTR. The REIT Management Agreement will be terminated upon
closing of the Merger. As a result of the Merger, the employees of the REIT
Manager and SCG Realty Services will become employees of PTR. Assuming that
the market value of the Common Shares issued to Security Capital on the Merger
date is $75.8 million, approximately $3.1 million will be allocated to the net
tangible assets acquired and the $72.7 million difference will be accounted
for as costs incurred in acquiring the management companies from a related
party since the management companies do not qualify as "businesses" for
purposes of applying APB Opinion No. 16 "Business Combinations". This one-time
adjustment will be recorded as an operating expense on PTR's statement of
earnings but PTR will not deduct this expense for purposes of calculating
funds from operations, due to the non-recurring and non-cash nature of this
expense. See "The Merger Transaction" for a more complete description of the
Merger.
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<PAGE>
REIT MANAGEMENT
The REIT Manager and its specialized service affiliates provide PTR with
strategic and day-to-day management, research, investment analysis,
acquisition, development, marketing, disposition of assets, asset management,
due diligence, capital markets, legal and accounting services and a number of
administrative services, all of which are included in the REIT management fee.
Hence, PTR depends upon the quality of the management provided by the REIT
Manager. PTR believes that its relationship with the REIT Manager provides PTR
with access to high quality and depth of management, savings from a dedicated
capital markets group, and access to centralized research, accounting, legal
and administrative support. The REIT Manager has approximately 90
professionals dedicated to implementing PTR's highly focused operating and
investment strategy. The REIT Manager also provides office and other
facilities for PTR's needs. See "The Merger Transaction" for a description of
an agreement that PTR has entered into with Security Capital to merge the REIT
Manager and SCG Realty Services into a newly formed subsidiary of PTR in
exchange for Common Shares.
The REIT Manager has organized itself such that each operating professional
specializes in a particular discipline (such as research, marketing,
development, acquisition, due diligence, dispositions, property management,
capital markets or financial operations) rather than being responsible for all
functions on a project-by-project basis. All investments are approved by the
REIT Manager's investment committee, using uniform criteria, prior to being
submitted to the Board. Additionally, regional operating professionals focus
on specific target markets to ensure high levels of attention to resident
services. PTR believes that the quality of management should be assessed in
light of the factors discussed below.
Management Depth/Succession. PTR believes that management should have
several senior executives with the leadership, operational, investment and
financial skills and experience to oversee the entire operations of the REIT.
PTR believes that several of its senior officers could serve as the principal
executive officer and continue PTR's performance. See "--Trustees and Officers
of PTR and Directors and Officers of the REIT Manager."
Strategic Vision and Research Capability. PTR believes that management
should have the strategic vision to determine an investment focus that
provides both favorable initial yields and strong long-term growth prospects.
To identify favorable investment opportunities, PTR relies heavily on the
strong research capabilities of Security Capital Real Estate Research. The
REIT Manager and its affiliates have several persons, who work closely with
the senior officers of the REIT Manager, devoting substantial time to research
on a submarket-by-submarket basis. This research is dedicated to new
multifamily investment opportunities as well as new products such as the
Homestead Village(R) extended-stay lodging product, which resulted in the
spin-off of Homestead in November 1996.
Investment Committee Process. PTR believes that an investment committee
should provide discipline and guidance to the investment activities of the
REIT in order to achieve its investment goals. The five members of the REIT
Manager's investment committee have a combined 77 years of experience in the
real estate industry. The investment committee receives detailed written
analyses and research, in a standardized format, from the REIT Manager's
personnel and evaluates all prospective investments pursuant to uniform
underwriting criteria prior to submission of investment recommendations to the
Board. The quality of the REIT Manager's investment committee process is
demonstrated by PTR's ability to achieve its investment goals and generally
exceed its projected initial returns and cash flow growth from PTR's
multifamily investments.
Development/Redevelopment and Acquisition Capability. PTR believes that by
internally developing projects and redeveloping well located existing
communities, management can create value for the REIT that normally escapes
through sales premiums paid to successful developers. The REIT Manager's
personnel have substantial development and redevelopment experience, as
described in "--Trustees and Officers of PTR and Directors and Officers of the
REIT Manager." The REIT Manager has 34 full-time professionals committed to
development and acquisition activities. This team has arranged for
approximately $2.1 billion of successful acquisitions and has developed or
commenced development of multifamily communities with a budgeted
S-41
<PAGE>
development cost of approximately $1.1 billion for PTR from March 1991 through
June 30, 1997, based on total expected investment. At June 30, 1997, the REIT
Manager had 9,778 multifamily units under construction or in planning and
owned for PTR, with a total budgeted development cost of $642.7 million. In
addition, as of the same date, PTR had contingent contracts or letters of
intent, subject to PTR's final due diligence and approval of all entitlements,
to acquire land for the development of an estimated 6,602 multifamily units
with a total budgeted development cost of approximately $612.7 million and
owned land for the future development of an expected 1,254 multifamily units
with a total budgeted development cost of $67.2 million.
Disposition Capability. The ability to identify and effectively complete the
cost-effective disposition of targeted communities is essential to the
successful execution of PTR's investment strategy. Since PTR's asset
optimization program began in December 1995 and through June 30, 1997, PTR had
completed the disposition of 12,835 multifamily units, realizing aggregate
gains of $77.2 million on aggregate gross proceeds of $549.4 million, which
were redeployed, typically on a tax-deferred basis, into strategic
acquisitions.
Due Diligence Process. PTR believes that management should have experienced
senior personnel dedicated to performing comprehensive due diligence. The REIT
Manager has nine full-time due diligence professionals and has developed
uniform systems and procedures for due diligence. The REIT Manager's due
diligence personnel have analyzed and screened over $4.0 billion of
investments for PTR.
Operating Capability. PTR believes that management can substantially improve
funds from operations by actively and effectively managing its multifamily
communities. The REIT Manager and its affiliates have devoted substantial
personnel and financial resources to develop value-added operating systems,
which control and effectively administer the management of PTR's multifamily
portfolio.
Capital Markets Capability. PTR believes that management must be able to
effectively raise capital for the REIT in order for the REIT to achieve growth
through investment. Capital Markets Group and the REIT Manager have arranged
for funding of over $1.9 billion from securities offerings of debt and equity
securities and have arranged for credit facilities including an unsecured $350
million line of credit. These credit facilities provide PTR with the financial
flexibility to take advantage of attractive investment opportunities prior to
raising capital through securities offerings.
Communications/Shareholders Relations Capability. PTR believes that a REIT's
success in capital markets and investment activities can be enhanced by
management's ability to effectively communicate the REIT's strategy and
performance to investors, sellers of property and the financial media. The
REIT Manager provides full-time personnel who prepare informational materials
for and conduct periodic meetings with the investment community and analysts.
PTR believes that successfully combining the foregoing attributes
significantly enhances a REIT's ability to increase cash flow and the market
valuation of the REIT's portfolio.
TRUSTEES AND OFFICERS OF PTR AND DIRECTORS AND OFFICERS OF THE REIT MANAGER
Trustees of PTR
C. RONALD BLANKENSHIP--47--Non-Executive Chairman of PTR since June 1997 and
Chairman from June 1991 to June 1997. Managing Director of Security Capital
since March 1991 and Trustee of PTR since June 1991. Mr. Blankenship is a
Director of Strategic Hotel Capital Incorporated and an advisory Director of
ATLANTIC and Homestead. From July 1988 to June 1991, Mr. Blankenship was a
regional partner with Trammel Crow Residential in Chicago, a multifamily real
estate development and property management firm. Prior thereto, Mr.
Blankenship was an Executive Vice President and Chief Financial Officer of the
Mischer Corporation in Houston, a multi-business holding company with
investments primarily in real estate.
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<PAGE>
JAMES A. CARDWELL--65--Trustee of PTR; Chairman and Chief Executive Officer,
Petro Stopping Centers, L.P., El Paso, Texas (operation of full-service truck
stopping centers) since 1974; Director, El Paso Electric Company.
JOHN T. KELLEY, III--56--Trustee of PTR; advisory Trustee of SCI, a REIT
affiliated with Security Capital; Chairman of Pacific Retail Trust (ownership
and development of infill retail properties in the southwestern United
States); from 1987 to 1991, Chairman of the Board, Kelley-Harris Company,
Inc., El Paso, Texas (real estate investment company); from 1968 to 1987,
Managing Director, LaSalle Partners Limited, Chicago, Illinois (corporate real
estate services). Mr. Kelley is also a Director of Security Capital and Tri
State Media.
CALVIN K. KESSLER--65--Trustee of PTR; President and principal shareholder,
Kessler Industries, Inc., El Paso, Texas (manufacturer of furniture and
aluminum castings) since 1960.
WILLIAM G. MYERS--70--Trustee of PTR; Trustee of SCI, a REIT affiliated with
Security Capital; Chief Executive Officer of Ojai Ranch and Investment
Company, Inc., Santa Barbara, California, which he founded in 1963 (agri-
business and other investments); Director, Chalone Wine Group, Napa,
California.
JAMES H. POLK, III--54--Trustee of PTR since 1976; from March 1997 until
June 1997, President of Capital Markets Group and Managing Director of Capital
Markets Group from August 1992 to March 1997. Mr. Polk was affiliated with the
REIT Manager from March 1991 until June 1997; prior thereto, he was President
and Chief Executive Officer of PTR for sixteen years. Mr. Polk is registered
with the National Association of Securities Dealers, Inc. and is past
President and Trustee of NAREIT.
JOHN C. SCHWEITZER--53--Trustee of PTR; Managing Partner, Continental
Properties Company, Austin, Texas (real estate and investments) since 1976;
General Partner, G.P. Campbell Capital Ltd. (real estate and investments)
since 1976; Trustee, Texas Christian University; Director of Homestead and
Austin Smiles.
Directors and Senior Officers of the REIT Manager
Upon consummation of the Merger transaction, each of the persons discussed
below will become officers of PTR and be compensated for such services by PTR
(other than Mr. Klopf who will be compensated by Security Capital).
R. SCOT SELLERS--40--President and Chief Executive Officer of PTR since June
1997; from September 1994 to June 1997, Managing Director of PTR and Director
and Managing Director of the REIT Manager, where he had overall responsibility
for PTR's investment program, and from May 1994 to September 1994, Senior Vice
President of PTR; from April 1993 to May 1994, Senior Vice President of
Security Capital, where he was responsible for national multifamily
acquisitions; from September 1981 to April 1993, an operating partner and Vice
President of Lincoln Property Company (development, acquisition and management
of multifamily communities), where he was responsible, among other things, for
the development of more than 6,500 multifamily units in a number of different
markets.
PATRICK R. WHELAN--40--Managing Director of PTR and the REIT Manager since
December 1995 and Director of the REIT Manager since February 1995, where he
has responsibility for PTR's operations; since October 1994, President of SCG
Realty Services, where he has overall responsibility for property management;
from February 1994 to October 1994, Senior Vice President and Co-Manager of
Multifamily Acquisitions of Security Capital; from July 1986 to January 1994,
Senior Vice President of Trammell Crow Company (development, acquisition and
management of commercial properties).
BRYAN J. FLANAGAN--44--Senior Vice President of PTR and the REIT Manager
since November 1996, where he has responsibility for financial operations;
from June 1995 to November 1996, Senior Vice President of Security Capital,
where he was responsible for financial operations; from September 1987 to June
1995, Vice President-Financial Analysis for Marriott Hotels, Resorts & Suites.
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<PAGE>
JAY S. JACOBSON--44--Senior Vice President of PTR and the REIT Manager since
June 1996, and from July 1993 to June 1996, Vice President of PTR, where he
has overall responsibility for investments and operations in the Central
Region; from 1988 to June 1993, Vice President-Residential Development for
Michael Swerdlow Companies, Inc. and Hollywood Inc., South Florida real estate
development/management companies under common control, where he was
responsible for the planning and development of over 2,200 multifamily units
as well as other development projects.
JEFFREY A. KLOPF--49--Senior Vice President and Secretary of PTR, the REIT
Manager and Security Capital since January 1996, where he provides securities
offerings and corporate acquisition services and oversees the provision of
legal services for affiliates of Security Capital; from January 1988 to
December 1995, partner with Mayer, Brown & Platt where he practiced corporate
and securities law.
MARK N. TENNISON--37--Senior Vice President of PTR and the REIT Manager
since December 1996, and from July 1992 to November 1996, Vice President of
PTR, where he has overall responsibility for investment and operations in the
Northwest Region; from May 1991 to July 1992, Executive Vice President/Chief
Operating Officer of Metro Concap, Inc., an operator of over 7,100 multifamily
units; from January 1991 to May 1991, attorney for the Federal Deposit
Insurance Corporation.
PAMELA D. PORTER--36--Vice President of PTR and the REIT Manager since
September 1996 and Director of the REIT Manager since January 1997, where she
has overall responsibility for the nine-person due diligence group and is
responsible for contract negotiations for acquisitions, due diligence,
approval and oversight of land entitlements and management and implementation
of tax-free exchanges; from November 1994 to September 1996, Vice President of
SCI and Security Capital Industrial Incorporated, where she had overall
responsibility for due diligence and was a member of the due diligence team
since November 1993; from May 1992 to November 1993, Partner with Lantana
Properties, Inc., a commercial real estate brokerage company in San Antonio,
Texas; from July 1991 to April 1992, Broker and Analyst with Wilsonschanzer,
Inc. in San Antonio, Texas, where she sold investment properties, performed
financial analyses and coordinated market reports.
Other Officers
FRANK R. ANDERSON--38--Vice President of PTR and the REIT Manager since June
1995, where he is a Project Manager in the Northwest Region; prior thereto,
Vice President, Acquisitions and Land Development of Shea Homes, a single
family and multifamily developer in San Diego, California.
ASH K. ATWOOD--33--Vice President of PTR and the REIT Manager since December
1996, where he is responsible for PTR's corporate accounting and external
financial reporting; prior thereto, Senior Manager in the assurance practice
of KPMG Peat Marwick LLP, where he had extensive involvement in PTR's annual
audit and securities offerings since joining the firm in June 1986.
MICHAEL P. BISSELL--47--Vice President of PTR and the REIT Manager since
February 1997; Vice President of SCG Realty Services since August 1996, where
he is responsible for community operations in the Northwest Region; from
September 1991 to August 1996, President of Michael P. Bissell & Associates,
where he was involved in a variety of consulting assignments with clients in
the multifamily industry.
MICHAEL A. BRITTI--37--Vice President of PTR and the REIT Manager since
September 1996 and with the REIT Manager since September 1995, where he is
responsible for new product development and revenue enhancement through
portfolio-wide initiatives; from November 1993 to September 1995, Vice
President-Asset Management with the National Corporation for Housing
Partnerships in Washington, D.C., where he led acquisitions and restructuring
of large apartment portfolios; from July 1987 to November 1993, Vice
President-Investment Management with Oxford Realty Services Corporation in
Bethesda, Maryland.
JAMES C. BORMANN--44--Vice President of PTR since December 1995 and the REIT
Manager since June 1995, where he is responsible for production and
construction activities in the Central Region; from August 1992
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to May 1995, Vice President of construction with Roseland Property Company
(formerly Lincoln Property Company Northeast); prior thereto, Construction
Superintendent with Toll Brothers, Inc.
HENRY J. BUNIS--44--Vice President of PTR since May 1997, and from October
1994 to May 1997, a member of the acquisitions group, where he is responsible
for acquisition of existing communities in the Northwest Region and land
acquisitions in Salt Lake City; from May 1994 to October 1994, he was with the
acquisition group for Security Capital Atlantic Incorporated; from September
1993 to May 1994, he was with the portfolio acquisitions group for Security
Capital.
RICHARD W. DICKASON--41--Vice President of PTR and the REIT Manager since
March 1995, where he has overall responsibility for PTR's investment activity
in the Northwest Region; from December 1993 to March 1995, Vice President of
PACIFIC; from July 1992 to September 1993, President of J.M. Peters
Company/Capital Pacific Homes, where he acquired properties for the
development of single family homes and apartments; from May 1980 to January
1992, Partner and Vice President of Lincoln Property Company N.C. Inc., where
he was responsible for the acquisition, development, construction and
management of a 4,000 unit multifamily residential portfolio in the California
marketplace; prior thereto, Mr. Dickason represented private investors in the
development of condominiums, townhouses, shopping centers and single family
homes throughout California.
JOSEPH G. DI CRISTINA--37--Vice President of PTR and the REIT Manager since
March 1995, where he has overall responsibility for PTR's investment activity
in the Central Region; from August 1994 to March 1995, Vice President of
PACIFIC; prior thereto, Vice President of Forward Planning at Robertson Homes,
where he was responsible for the development of eight multifamily projects
totalling 2,845 units throughout California.
KERRY E. ENDSLEY--48--Vice President of PTR and the REIT Manager since
December 1996, where he is Project Manager in the Central Region; from January
1994 to July 1995, President of Construction for MTI Construction, Inc. in
Houston, Texas, where he managed construction of over 1,100 multifamily units
in Texas and Colorado; from October 1988 to December 1993, Vice President of
General Contracting for Bradley Construction Co., Inc., where he was
responsible for over 2,000 multifamily units, schools, dormitories and
warehouses and where he recruited personnel.
SUE P. FREEDMAN--49--Vice President of PTR and the REIT Manager since
February 1997, where she has overall responsibility for the company's
Education and Organizational Development activities; from August 1995 to
October 1996, Creator and Manager of Knowledge Work Associates, where she
worked with clients on organizational improvement; from January 1994 to July
1995, Manager of Organization Effectiveness for Texas Instruments, where she
advised and assisted senior executives in the implementation of change from a
traditional to an entrepreneurial culture; from January 1984 to December 1993,
with Texas Instruments Systems Group, where her most recent position was
manager of organizational effectiveness and where she selected and managed
delivery of management and organizational effectiveness programs.
PETER M. GRIMM--55--Vice President of PTR since 1975 and the REIT Manager
since March 1991, where he is a Project Manager in the Central Region.
DANA K. HAMILTON--28--Vice President of PTR and the REIT Manager since
December 1996, where she is responsible for new product development and
revenue enhancement through portfolio-wide initiatives; from April 1996 to
December 1996, Vice President of Operations for SCG Realty Services, where she
focused on national operations; from August 1994 to April 1995, in the
Management Development Program of Security Capital; from June 1993 to October
1993, Consultant to Rouse and Associates in San Francisco, where she was
responsible for evaluating the quality of property management at five
properties, and Consultant to Construction Specialties International in
Jakarta, Indonesia.
KEVIN M. HAMPTON--34--Vice President of PTR and the REIT Manager since
December 1996, where he is responsible for land acquisition and product
development throughout Southern California; from August 1995
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to December 1996, Vice President of Land Acquisitions for The Akins Companies
in Irvine, California, where he was responsible for coordination of land
acquisition activities and purchase and sale negotiations; from June 1993 to
August 1995, Vice President of New Business Development for J.M. Peters
Company in Newport Beach, California, where he managed land acquisitions
throughout Southern California; from October 1989 to March 1993, Director of
Business Development for Lincoln Property Company in Irvine, California.
CHRISTOPHER C. HARNESS--45--Vice President of PTR and the REIT Manager since
December 1995, where he is responsible for community operations in Houston,
Dallas and El Paso, Texas; from August 1993 to June 1994, Senior Analyst for
Due Diligence at SCG Realty Services; prior thereto, Mr. Harness was
responsible for development of commercial properties in eight Texas markets
for Affiliated Builders.
NELSON L. HENRY--62--Vice President of PTR since December 1994 and the REIT
Manager since January 1995, where he is responsible for production and
construction activities in the Western Region; from January 1983 to September
1993, Construction Vice President for Lincoln Property Company N.C. Inc.,
where he was responsible for the construction of over 8,000 units in Colorado
and California; prior thereto, President of Royal Investment Corporation, a
regional multifamily and single family developer.
RICK D. JACOBSEN--38--Vice President of PTR and the REIT Manager since March
1997, where he has been responsible for corporate budgeting and financial
planning, and reporting and financial analysis since February 1996; from 1983
to 1996, Director of Financial Analysis for Weingarten Realty Investors,
Houston, Texas, where he was responsible for budgeting and forecasting, new
development underwriting activity and other corporate finance and capital
market activities.
RICHARD A. JUAREZ--49--Vice President of PTR and the REIT Manager since
December 1996, where he is Project Manager for the Western Region; from
February 1978 to December 1996, Partner and Vice President with Lincoln
Property Company in Northern California and Las Vegas, Nevada, where he was
responsible for the development of more than 6,000 multifamily units.
JOHN JORDANO III--40--Vice President of PTR and the REIT Manager since March
1995, where he has overall responsibility for PTR's investment activity in the
Western Region; from August 1994 to March 1995, Vice President of PACIFIC;
from January 1992 to July 1994, Senior Vice President of Prospect Partners,
where he was responsible for identifying and advising individual and corporate
clients on financial institution and Resolution Trust Corporation REO
apartment acquisition and investment opportunities in the western United
States; prior thereto, Partner with Trammell Crow Residential Company, where
he established the Sacramento office and was responsible for the development
of multifamily projects.
THOMAS D. KLAESS--36--Vice President of PTR since June 1997, where he is
responsible for property operations in Denver, Colorado. Prior thereto, he was
District Manager for National Housing Partnership, Inc. from January 1992 to
June 1997.
DEIDRE A. KURING--36--Vice President of PTR since June 1997, where she is
responsible for property operations in Portland, Oregon; from June 1996 to
June 1997, she was an Operations Manager for SCG Realty Services. Prior
thereto, from December 1995 to May 1996, she was Vice President of Operations
for Lexford Properties, Inc., a firm she joined in August 1993 as District
Manager; from February 1990 to August 1993, she was District Property Manager
and Marketing Director for Polygon Management, Inc.
GRETCHEN L. LAMBERSON--32--Vice President of PTR since June 1997, where she
is responsible for directing and coordinating human resources activities and
policies. Prior thereto, Director of Human Resources from October 1996 to June
1997; from May 1995 to October 1996, she was a Regional Human Resources
Manager. Prior thereto, from August 1987 to February 1995, she was a Recruiter
for Walt Disney World Co.
LAWRENCE S. LEVITT--40--Vice President of PTR since September 1995 and the
REIT Manager since December 1995, where he is responsible for the acquisition
of existing communities throughout California; from
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May 1992 to August 1995, Vice President-Director of Residential Acquisitions
of Sares-Regis Group, where he managed the residential acquisitions division;
from August 1991 to May 1992, Principal of Integrated Mortgage Resources, a
commercial and residential mortgage banking firm; prior thereto, Vice
President of Con Am Management Corporation, where he directed acquisition
transactions.
TONI L. LOPEZ--40--Vice President of PTR and the REIT Manager since February
1997; Vice President of SCG Realty Services since August 1996, where she has
overall responsibility for community operations in Denver, Austin and San
Antonio; since July 1993, Ms. Lopez was responsible for community operations
in San Antonio and Austin; from December 1985 to January 1993, Vice President
of Beacon Hill Investments, Inc., where she was responsible for new account
generation and property and asset management.
GREGORY J. LOZINAK--31--Vice President of PTR since June 1997, where he is
responsible for property operations in Houston, Texas; from June 1996 to June
1997, he was a Senior Operations Manager for SCG Realty Services, and
Operations Manager from January 1994 to June 1996. Prior thereto, Mr. Lozinak
was a Captain in the United States Army from October 1987 to December 1993.
CHRISTINE M. MEECE--39--Vice President/Regional Controller of PTR and the
REIT Manager since April 1997, where she is responsible for all accounting and
financial activities for the West Region of PTR; from January 1996 to March
1997, Regional Controller--West Region PTR. Prior to joining PTR, Ms. Meece
was Director of Finance and Administration for the Texas operations of Nichols
Institute from 1992 to 1995. In addition, she spent eleven years with General
Electric Company in various accounting and finance positions.
SCOTT V. MONROE--37--Vice President of PTR and the REIT Manager since
February 1997; since August 1996, Vice President of SCG Realty Services, where
he has overall responsibility for community operations in California; from
March 1987 to July 1996, Vice President, Maxim Property Management, where he
had direct management responsibility for a residential portfolio consisting of
over 11,000 units located throughout California and Arizona.
CHARLES E. MUELLER, JR.--34--Vice President of PTR and the REIT Manager
since September 1996, where he is responsible for corporate finance and
capital markets activities; prior thereto, he was with Capital Markets Group,
where he provided financial services to Security Capital and its affiliates;
from April 1994 through April 1995, in the Management Development Program of
Security Capital.
MATTHEW T. MURPHY--33--Vice President of PTR and the REIT Manager since
April 1997, where he is responsible for the accounting and financial reporting
for PTR's Northwest Region; from March 1996 to March 1997, Regional Controller
for the Northwest Region of PTR; from February 1995 to February 1996 he was
with Security Capital Industrial Incorporated where he provided accounting and
financial reporting services; from March 1992 to January 1995 he was with the
REIT Manager where he provided accounting and financial reporting services;
prior thereto, he was a staff accountant with Coopers & Lybrand.
DANIEL W. OGDEN--36--Vice President of PTR and the REIT Manager since
December 1995 and SCG Realty Services since March 1995, where he is
responsible for community operations in Phoenix and Tucson, Arizona,
Albuquerque, New Mexico and Reno and Las Vegas, Nevada; from June 1994 to
February 1995, Executive Vice President of Mutual Real Estate Corporation in
Dallas, where he was responsible for the management of a portfolio located in
seven states; prior thereto, Regional Vice President of Lincoln Property
Company, where he was responsible for the management of over 16,000
multifamily units located in twelve mid-Atlantic/Midwest states.
MONICA J. PAIRETT--33--Vice President/Regional Controller of PTR and the
REIT Manager since April 1, 1997, where she is responsible for all accounting
and financial activities for the Central Region of PTR. Previously, she was
Regional Controller for the Central Region of PTR from January 1, 1996 to
March 1997. From 1991-1993 she was Assistant Controller with Wilson Schanzer;
1989-1991 Assistant Vice President with Alamo Savings Association.
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THOMAS L. POE--40--Vice President of PTR since June 1994 and the REIT
Manager since April 1992, where he is responsible for the accounting and
financial reporting for each of PTR's three geographic regions; from 1988 to
1992, Vice President of Finance and from 1981 to 1992, Real Estate Controller
for the Mischer Corporation, Houston, Texas, prior thereto, staff accountant
with Arthur Andersen & Company.
HAROLD D. RILEY--61--Vice President of PTR since 1974 and the REIT Manager
since March 1991, where he provides accounting and financial reporting
services.
DAVID K. ROBBINS--45--Vice President of PTR and the REIT Manager since March
1995, where he is a Project Manager in the Western Region; from June 1994 to
January 1995, Vice President of ATLANTIC, where he was a member of the
development group; from December 1992 to May 1994, Vice President of PTR,
where he had overall responsibility for the due diligence group; from January
1988 to December 1992, partner in the law firm of Hill, Farrer & Burrill in
Los Angeles, where his practice focused on real estate acquisitions and
development. He also served as general counsel to Hollywood Park Racetrack,
where he was involved in forming Hollywood Park's public REIT.
W. ROBERT SMITH--37--Vice President of PTR and the REIT Manager since
November 1996, where he is a Project Manager in the Central Region; from July
1989 to November 1996, Senior Vice President of IBG Development in Washington,
D.C., where he was responsible for the development of high-rise commercial,
mixed-use, and residential projects in the central business district.
SHYAM R. TAGGARSI--42--Vice President of PTR and the REIT Manager since
September 1996, where he is responsible for development activity in Northern
California; from January 1993 to September 1996, Real Estate Consultant in
Foster City, California; from December 1987 to January 1993, Development
Partner of Trammell Crow Residential in Foster City, California, where he was
responsible for all aspects of multifamily residential project management and
development in the South Bay area.
GARY L. TRUITT--46--Vice President of PTR and the REIT Manager since
December 1995, where he has overall responsibility for production and
construction activities in the Northwest Region; from July 1994 to January
1995, Project Manager with C.F. Jordan Inc.; prior thereto, Superintendent of
Benchmark Contractors, where he had supervision and code and specifications
compliance responsibilities.
TIMOTHY R. WELSH--42--Vice President of PTR and the REIT Manager since
September 1996, where he is a Project Manager of Development in the Central
Region; from February 1993 to September 1996, Regional Vice President and
Project Manager for C.F. Jordan Residential, a multifamily general contracting
company in Dallas and El Paso, Texas; from 1986 to February 1993, Project
Manager and Senior Project Engineer with the Weitz Company, a commercial real
estate development company in Des Moines, Iowa.
DAVID B. WOODWARD--30--Vice President of PTR and the REIT Manager since June
1993 and SCG Realty Services since January 1995, where he is responsible for
community operations in Northern California; prior thereto, asset manager with
USF&G's Real Estate Division.
K. DOUGLAS WRIGHT--50--Vice President of PTR and the REIT Manager since July
1995, where he is a Project Manager in the Western Region; from December 1991
to June 1995, Mr. Wright was a real estate consultant, developer and asset
manager; prior thereto, President of Summit Development Company.
PTR currently has no employees. The REIT Manager, whose sole activity is
advising PTR, manages the day-to-day operations of PTR. The REIT Manager has
assembled a team of approximately 90 professionals, collectively possessing
extensive experience in multifamily real estate. These persons are employed
directly by the REIT Manager and will become employees of PTR after
consummation of the Merger transaction.
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THE OFFERING
RIGHTS
PTR is issuing as a dividend, at no cost, to each holder of Common Shares of
record as of the close of business on the Record Date, one Right for each
Common Share held by such holder on such Record Date. Seven Rights entitle the
holder thereof to purchase one Common Share at the Subscription Price. The
Rights are evidenced by transferable Rights certificates, which shareholders
will receive with the delivery of this Prospectus Supplement. A holder of
Rights may (a) subscribe for Common Shares through the exercise of all of his
or her Rights, thereby preserving approximately the same percentage ownership
in PTR, (b) subscribe for Common Shares through the exercise of part of his or
her Rights and transfer or sell the remainder of his or her Rights, (c)
transfer or sell all of his or her Rights or (d) allow part or all of his or
her Rights to expire unexercised. In any of the latter three cases, the
shareholder would own a smaller relative equity ownership and voting interest
in PTR after the Offering and the Merger.
SUBSCRIPTION PRICE
The Subscription Price for one Common Share, which may be purchased upon the
exercise of seven Rights, is $21 13/16.
EXPIRATION DATE
The Rights will expire and become void at 5:00 p.m., Eastern Daylight Time,
on September 9, 1997 or such later date as PTR may determine in its sole
discretion. The Rights will thereafter have no value. Notice will be given to
shareholders of record on the Record Date, by mail or by publication in a
newspaper of national circulation, of a new Expiration Date in the event PTR
extends the period for the exercise of the Rights.
OVERSUBSCRIPTION PRIVILEGE
A holder of Common Shares on the Record Date who validly exercises all of
the Rights initially issued to such holder to the extent possible will have
the further right to exercise the Oversubscription Privilege for Unsubscribed
Shares at the Subscription Price. Only holders of Common Shares on the Record
Date will be entitled to the Oversubscription Privilege. Holders of Common
Shares so entitled to exercise the Oversubscription Privilege may
oversubscribe for as many additional Common Shares as desired (subject to the
maximum number of Common Shares offered in the Offering and certain other
restrictions). See "--Limitation on Subscriptions". If the demand for Common
Shares pursuant to the Oversubscription Privilege exceeds the number of Common
Shares available, holders of Common Shares on the Record Date shall
participate in the Oversubscription Privilege (up to, but not exceeding, the
number of Common Shares oversubscribed for by each such holder) pro rata based
upon the number of Rights exercised by each such person (without regard to the
number of Common Shares oversubscribed for by each such person pursuant to the
Oversubscription Privilege), with fractional Common Shares adjusted in any
manner PTR deems appropriate. Promptly after the Expiration Date, PTR will
send each subscriber exercising the Oversubscription Privilege a written
confirmation of the number of Common Shares allocated to such subscriber under
the Oversubscription Privilege. Any amounts overpaid by subscribers will be
refunded promptly after the Expiration Date without interest.
UNSUBSCRIBED SHARES AND THIRD PARTY SALES
PTR, with the assistance of Capital Markets Group, will, simultaneously with
the offering of Common Shares to Rights holders, seek third-party investors to
acquire Unsubscribed Shares. Capital Markets Group will offer the Unsubscribed
Shares, at the Subscription Price, on a best-efforts basis in jurisdictions
where it is authorized to do so. PTR will indemnify Capital Markets Group
against certain civil liabilities, including liabilities under the Securities
Act. No person has committed to underwrite the sale of Unsubscribed Shares to
third parties. The REIT Manager or Security Capital will pay a fee of $250,000
to Capital Markets Group. PTR
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has agreed to pay the expenses of Capital Markets Group related to the
Offering, which expenses are not expected to exceed $25,000.
Third-party investors who desire to purchase Unsubscribed Shares should mail
or deliver the subscription form (the "Subscription Form") to the Subscription
Agent (as hereinafter defined) at the appropriate address set forth under "--
Subscription Agent". The Subscription Form must be properly completed and duly
executed. Subscription Forms may be obtained by contacting Capital Markets
Group at (505) 986-6506. Subscriptions for less than 1,000 Common Shares from
third-party investors will not be accepted. If subscriptions exceed available
Unsubscribed Shares, PTR may allocate available Unsubscribed Shares in PTR's
sole discretion. Subscription Forms must be received by the Subscription Agent
prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date.
Subscription Forms received after such time will not be honored. On or
promptly after September 10, 1997, the business day after the Expiration Date,
Capital Markets Group will send each third-party investor a written
confirmation of the number of Common Shares allocated to such investor. On or
prior to September 15, 1997, the fourth business day after the Expiration
Date, third-party investors must deliver payment for the Common Shares
subscribed for to the Subscription Agent by wire transfer of immediately
available funds, based upon such investor's prorated allocation of Common
Shares as notified by PTR or Capital Markets Group.
Capital Markets Group is affiliated with PTR and, acting as placement agent,
may be deemed to be an "underwriter" under the Securities Act in connection
with this Offering.
LIMITATION ON SUBSCRIPTIONS
In its sole discretion, PTR may reduce subscriptions to ensure that no
shareholder (other than Security Capital) will beneficially own more than 9.8%
of the Common Shares following the Offering and the Merger. PTR's Declaration
of Trust limits each shareholder's beneficial ownership to 9.8% of the
outstanding shares of PTR's stock without approval of the Board. The Board has
the authority pursuant to PTR's Declaration of Trust to redeem any shares in
excess of such 9.8% limit. See "Description of Common Shares--Restriction on
Size of Holdings" in the accompanying Prospectus.
WITHDRAWAL
PTR reserves the right to withdraw the Offering (and the offering of
Unsubscribed Shares to third parties) at any time prior to or on the
Expiration Date and for any reason (including, without limitation, the market
price of the Common Shares), in which event all funds received from
subscribers will be refunded promptly without interest.
PRINCIPAL SHAREHOLDER
Security Capital, which owns approximately 34% of the outstanding Common
Shares prior to the Offering and the Merger, has agreed that it will not
exercise its Rights to purchase additional Common Shares and that it will not
sell its Rights. Also, Common Shares underlying the Rights issued to Security
Capital will not be available for oversubscriptions or for sales to third
parties. Security Capital's ownership could increase from approximately 34% to
approximately 37%, if no Common Shares are purchased in the Offering. If the
Offering is fully subscribed, Security Capital's ownership would remain at
approximately 34% of the outstanding Common Shares after the Offering and the
Merger.
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SUBSCRIPTION AGENT
The Subscription Agent and escrow agent for the Offering is Chase Mellon
Shareholder Services, L.L.C. (the "Subscription Agent"). The address to which
Rights Certificates, Subscription Forms, Notices of Guaranteed Delivery and
payments should be mailed or delivered is:
By Regular Mail: By Hand:
Chase Mellon Shareholder Services, Chase Mellon Shareholder Services,
L.L.C. L.L.C.
Reorganization Department Reorganization Department
P.O. Box 3305 120 Broadway, 13th Floor
South Hackensack, New Jersey 07606 New York, New York 10271
By Facsimile Transmission: By Overnight Courier:
(201) 329-8936 Chase Mellon Shareholder Services,
(for Eligible Institutions only) L.L.C.
Confirm by Telephone Reorganization Department
(201) 296-4860 85 Challenger Road
(for Facsimile Confirmation Only) Mail Drop-Reorg
Ridgefield Park, New Jersey 07660
Delivery of Rights Certificates, Subscription Forms, Notices of Guaranteed
Delivery and payments (other than wire transfers) other than as set forth
above will not constitute a valid delivery.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE METHOD OF
SUBSCRIBING FOR COMMON SHARES OR FOR ADDITIONAL COPIES OF THIS PROSPECTUS
SUPPLEMENT SHOULD BE DIRECTED TO PTR'S INFORMATION AGENT, GEORGESON & COMPANY,
INC., AT 1-800-223-2064.
FRACTIONAL SHARES
No fractional Common Shares will be issued, and PTR may adjust for
fractional Common Shares resulting from the exercise of the Oversubscription
Privilege in any manner it deems appropriate. Rights Certificates may not be
divided in such a manner as to create fractional Rights or permit holders to
subscribe for a greater number of Common Shares. Banks, trust companies,
securities dealers and brokers that hold Common Shares as nominees for more
than one beneficial owner may have a Rights Certificate divided by the
Subscription Agent (see "--Method of Transferring Rights"), or may, upon
proper showing to the Subscription Agent, exercise their Rights Certificates
on the same basis as if the beneficial owners were record holders on the
Record Date. PTR reserves the right to deny any division of Rights
Certificates if in its opinion the result would be inconsistent with the
intent of this privilege.
METHOD OF EXERCISING RIGHTS AND OVERSUBSCRIPTION PRIVILEGE
Common Shares may be subscribed for pursuant to the exercise of the Rights
and the Oversubscription Privilege by properly completing and duly executing
the Rights Certificate accompanying this Prospectus Supplement and mailing or
delivering the Rights Certificate, together with payment of the full
Subscription Price for each Common Share subscribed for pursuant to the
exercise of Rights and the Oversubscription Privilege, to the Subscription
Agent at the appropriate address set forth above. Banks, trust companies,
securities dealers and brokers that hold Common Shares as nominee for more
than one beneficial owner may, upon proper showing to the Subscription Agent,
exercise their Rights and the Oversubscription Privilege on the same basis as
if the beneficial owners were record holders on the Record Date. Payments must
be made in United States currency by personal check, cashier's check, bank
draft or money order payable to the order of "PTR Rights Offering". In the
case of holders of Rights that are held of record through The Depository Trust
Company ("DTC"), such Rights may be exercised by instructing DTC to transfer
Rights from such holder's DTC account to the Subscription Agent's DTC account,
together with payment of the full Subscription Price. Except as described
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under "--Late Delivery of Payment and Rights Certificates", to be accepted,
the properly completed and duly executed Rights Certificate and the payment
must be received by the Subscription Agent prior to 5:00 p.m., Eastern
Daylight Time, on the Expiration Date. Rights Certificates received after such
time will not be honored.
A holder of Rights who exercises fewer than all of the Rights represented by
his or her Rights Certificate will receive from the Subscription Agent a new
Rights Certificate representing such unexercised Rights. No new Rights
Certificates will be issued after September 2, 1997. Neither PTR nor the
Subscription Agent shall incur any liability if a Rights Certificate,
furnished by the Subscription Agent or otherwise, is not received in time to
be exercised, transferred or sold.
The instruction letter accompanying the Rights Certificate should be read
carefully and strictly followed. DO NOT SEND RIGHTS CERTIFICATES OR PAYMENTS
TO PTR. Except as described under the captions "--Unsubscribed Shares and
Third Party Sales" and "--Late Delivery of Payments and Rights Certificates",
no subscription will be deemed to have been received until the Subscription
Agent has received delivery of a properly completed and duly executed Rights
Certificate and payment of the full Subscription Price. The risk of delivery
of all documents and payments is on subscribers, not PTR or the Subscription
Agent. If the mail is used, it is recommended that insured, registered mail,
return receipt requested, be used and that a sufficient number of days be
allowed to ensure delivery to the Subscription Agent before the Expiration
Date.
LATE DELIVERY OF PAYMENTS AND RIGHTS CERTIFICATES
If, prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date, the
Subscription Agent has received a properly completed and duly executed Notice
of Guaranteed Delivery substantially in the form accompanying this Prospectus
Supplement (either by hand, mail, telegram or facsimile transmission)
specifying the name of the holder of Rights and the number of Common Shares
subscribed for (stating separately the number of Common Shares subscribed for
pursuant to the exercise of Rights and the Oversubscription Privilege) and
guaranteeing that the properly completed and duly executed Rights Certificate
and payment of the full Subscription Price for all Common Shares subscribed
and oversubscribed for will be delivered to the Subscription Agent within
three business days after the Expiration Date, such subscription may be
accepted, subject to the Subscription Agent's withholding the certificates for
the Common Shares until receipt of the properly completed and duly executed
Rights Certificate and payment of such amount within such time period. In the
case of holders of Rights that are held of record through DTC, such Rights may
be exercised by instructing DTC to transfer Rights from such holder's DTC
account to the Subscription Agent's DTC account, together with payment of the
full Subscription Price. The Notice of Guaranteed Delivery must be guaranteed
by a commercial bank, trust company or credit union having an office, branch
or agency in the United States or by a member of a Stock Transfer Association
approved medallion program such as STAMP, SEMP or MSP. Notices of Guaranteed
Delivery and Payments should be mailed or delivered to the appropriate
addresses set forth under "--Subscription Agent".
METHOD OF TRANSFERRING RIGHTS
Rights may be transferred, in whole or in part, to persons who are residents
of the United States. Rights may be transferred in whole by endorsing the
Rights Certificate for transfer. Rights may be transferred in part by
delivering to the Subscription Agent, at the appropriate address set forth
under "--Subscription Agent", a Rights Certificate that has been properly
endorsed for transfer, with instructions to reissue the Rights in part in the
name of the transferee and reissue the balance to the Rights holder. The
Rights Certificate must be received by the Subscription Agent by 5:00 p.m.,
Eastern Daylight Time, on September 2, 1997 for new Rights Certificates to be
issued. Unless arrangements are made for return overnight delivery, new Rights
Certificates to be issued on or about September 2, 1997 may not be received
prior to the Expiration Date. Any arrangements for, and the related expenses
of, overnight delivery of new Rights Certificates must be made by the
individual holder. Any questions regarding the transfer of Rights should be
directed to PTR's information agent, Georgeson & Company, Inc., at 1-800-223-
2064.
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All commissions, fees and other expenses (including brokerage commissions
and any transfer taxes) incurred in connection with the purchase, sale or
exercise of Rights are for the account of the transferor or the transferee of
the Rights, and none of such commissions, fees or expenses will be paid by
PTR.
Pursuant to a listing application for the underlying Common Shares, the
Rights will be traded on the NYSE under the symbol "PTR-RT". Pursuant to the
rules of the NYSE, the Rights will be traded only up to the close of the NYSE
on September 8, 1997, the business day preceding the Expiration Date. No
assurance can be given that a public market will develop or be sustained for
the Rights.
VALIDITY OF SUBSCRIPTIONS
All questions with respect to the validity and form of the exercise of any
Rights or the Oversubscription Privilege or third-party subscriptions for
Unsubscribed Shares (including time of receipt and eligibility to participate
in the Offering) will be determined solely by PTR, which determination shall
be final and binding. Once made, subscriptions and directions are irrevocable,
and no alternative, conditional or contingent subscriptions or directions will
be accepted. PTR reserves the absolute right to reject any subscriptions or
directions not properly submitted or the acceptance of which, in the opinion
of PTR's counsel, would be unlawful. Any irregularities in connection with
subscriptions must be cured prior to the Expiration Date unless waived by PTR
in its sole discretion. Neither PTR nor the Subscription Agent shall be under
any duty to give notification of defects in such subscriptions or incur any
liability for failure to give such notification. A subscription will be deemed
to have been accepted (subject to PTR's right to withdraw or terminate the
Offering) only when a properly completed and duly executed Subscription Form
or Rights Certificate, any other required documents and payment of the full
Subscription Price with respect to such subscription have been received by the
Subscription Agent. PTR's interpretations of the terms and conditions of the
Offering shall be final and binding.
RIGHTS OF SUBSCRIBERS
Subscribers will have no rights as shareholders of PTR with respect to
Common Shares subscribed for until certificates representing such Common
Shares are issued to them. Subscribers will have no right to revoke their
subscriptions after delivery to the Subscription Agent of a completed Rights
Certificate or Subscription Form and any other required documents.
FOREIGN SHAREHOLDERS
Rights Certificates will not be mailed to shareholders whose mailing address
is outside the United States or the Province of Ontario, Canada, but will
instead be held by the Subscription Agent for such shareholders' accounts
until transfer instructions are received. If no instructions are received
prior to 10:00 a.m., Eastern Daylight Time, on the fifth business day
preceding the Expiration Date, the Subscription Agent will endeavor to sell
the Rights of such shareholders for their respective accounts. The net
proceeds, if any, from such sales (based on the average price received during
such day) will be distributed to such foreign holders. No assurance can be
given that the Subscription Agent will be able to sell such Rights.
The Rights issued pursuant to the Offering to residents of Ontario are not
transferable in Ontario and the Common Shares issued to residents of Ontario
upon exercise of Rights may not be sold or otherwise disposed of for value in
Ontario, except pursuant to either a prospectus or a statutory exemption
available only in specific and limited circumstances.
DELIVERY OF COMMON SHARES
Certificates for Common Shares purchased pursuant to the exercise of Rights
will be mailed as soon as practicable after the receipt of all required
documents and payment in full of the Subscription Price due for such Common
Shares. Certificates for Common Shares purchased pursuant to the exercise of
the Oversubscription
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Privilege or third-party subscriptions for Unsubscribed Shares will be mailed
as soon as practicable after the Expiration Date and the receipt of all
required documents and payment in full of the Subscription Price due for such
Common Shares. In the case of shareholders whose Common Shares are held
through DTC and third-party investors who arrange for delivery and payment
through DTC, the appropriate participant account will be credited.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING THE OFFERING
The following discussion summarizes all material U.S. federal income tax
considerations of the Offering to PTR and its shareholders. To the extent such
summary discusses matters of law, such summary represents the opinion of
Mayer, Brown & Platt. The following discussion is based upon the current
provisions of the Code, its legislative history, administrative
pronouncements, judicial decisions and Treasury regulations, all of which are
subject to change, possibly with retroactive effect. The following discussion
does not purport to be a complete discussion of all U.S. federal income tax
considerations. The following discussion does not address the tax consequences
of the Offering under state, local or non-U.S. tax laws. In addition, the
following discussion may not apply, in whole or in part, to particular
categories of PTR shareholders, such as dealers in securities, insurance
companies, foreign persons, tax-exempt organizations and financial
institutions. The discussion of U.S. federal income tax considerations of the
Offering set forth below assumes that the Common Shares owned by a shareholder
and the Common Shares issued pursuant to the Offering constitute capital
assets in the hands of such shareholder. It should be noted that under current
law, net capital gains of individuals are, under certain circumstances, taxed
at lower rates than items of ordinary income, and the deductibility of capital
losses is subject to limitations. THE FOLLOWING DISCUSSION IS INCLUDED FOR
GENERAL INFORMATION ONLY. ALL PTR SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE OFFERING, INCLUDING
ANY STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES.
Taxation of PTR's Shareholders
Receipt of Right. A shareholder (including a foreign shareholder) will
not recognize any gain or loss upon his or her receipt of a Right.
Tax Basis of Right. If a shareholder exercises or sells a Right, the tax
basis of such Right in the hands of the shareholder will be determined by
allocating the shareholder's existing tax basis of his or her Common Shares
with respect to which the Right was distributed ("Old Shares") between his
or her Old Shares and the Right, in proportion to their relative fair
market values on the date of distribution. If, however, the fair market
value of the Rights distributed to the shareholder (on the date of
distribution) is less than 15% of the fair market value of his or her Old
Shares, the tax basis of each Right will be deemed to be zero unless the
shareholder affirmatively elects, by attaching an election statement to his
or her federal income tax return for the year in which he or she receives
his or her Rights, to compute the tax basis of his or her Rights in
accordance with the preceding sentence. Once made, such an election is
irrevocable. A Right will not be treated as having any tax basis if it
lapses and, therefore, the holder of an expired Right will not recognize a
loss for tax purposes.
Sale of Right. If a shareholder sells a Right, the shareholder will
generally recognize capital gain or loss in an amount equal to the
difference between the proceeds of the sale and the shareholder's tax basis
of such Right. Such gain or loss will be long-term capital gain or loss if
the shareholder's holding period for such Right (which will include the
shareholder's holding period for his or her Old Shares) is more than one
year on the date of sale.
Exercise of Right. No gain or loss will generally be recognized by a
shareholder (including a foreign shareholder) upon the purchase of a Common
Share pursuant to the exercise of a Right. The tax basis of the Common
Shares purchased pursuant to the exercise of Rights will be equal to the
sum of (a) the shareholder's tax basis of the Rights exercised and (b) the
Subscription Price paid for such Common Shares. The holding period of the
Common Shares purchased pursuant to the exercise of Rights will commence on
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the date of exercise. Upon the subsequent sale of such Common Shares (other
than to PTR pursuant to a redemption), the shareholder will generally
recognize capital gain or loss in an amount equal to the difference between
the proceeds of the sale and the shareholder's tax basis of such Common
Shares. Such gain or loss will be long-term capital gain or loss if the
shareholder's holding period for such Common Shares is more than one year
on the date of sale.
Foreign Persons. Assuming that PTR currently qualifies and has qualified
as a domestically controlled REIT (which PTR believes is the case) (see
"Federal Income Tax Considerations--Taxation of Shareholders--Taxation of
Foreign Shareholders" in the accompanying Prospectus), gain from the sale
of the Common Shares and Rights by a foreign person should not be subject
to U.S. taxation, unless such gain is effectively connected with such
person's U.S. business or, in the case of an individual foreign person,
such person is present within the U.S. for more than 182 days in such
taxable year.
Taxation of PTR
PTR will generally not recognize any gain or loss upon (a) the issuance of
Rights, (b) the receipt of cash for Common Shares pursuant to the exercise of
Rights or (c) the lapse of Rights.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain federal income tax matters of general
application pertaining to the holding and disposing of Common Shares under the
Code. This discussion is general in nature and is not exhaustive of all
possible tax considerations, nor does the discussion address any state, local
or foreign tax considerations. The discussion is based on current law, is for
general information only, and is not tax advice. This discussion does not
purport to deal with all aspects of federal income taxation that may be
relevant to particular shareholders in light of their personal investment or
tax circumstances, or to certain types of shareholders (including insurance
companies, tax exempt organizations, financial institutions or broker dealers,
foreign corporations and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
PTR has not requested and will not request a ruling from the IRS with respect
to any of the federal income tax issues discussed below.
This Prospectus Supplement does not address the taxation of PTR or the
impact on PTR of its election to be taxed as a REIT. Such matters are
addressed in the accompanying Prospectus under "Federal Income Tax
Considerations--Taxation of PTR". Prospective investors should consult, and
must depend on, their own tax advisors regarding the state, local, foreign and
other tax consequences of holding and disposing of Common Shares.
For a discussion regarding the taxation of dividends and other
distributions, see "Federal Income Tax Considerations--Taxation of PTR's
Shareholders" in the accompanying Prospectus.
For a discussion of backup withholding, see "Federal Income Tax
Considerations--Other Tax Considerations--Backup Withholding" in the
accompanying Prospectus.
Upon the sale or exchange of Common Shares to a party other than PTR, a
holder of Common Shares will realize a capital gain or loss measured by the
difference between the amount realized on the sale or other disposition and
the holder's adjusted tax basis in the Common Shares (provided the Common
Shares are held as a capital asset). Such gain or loss will be a long term
capital gain or loss if the holder's holding period with respect to the Common
Shares is more than one year at the time of the sale or exchange. Further, any
loss on a sale of Common Shares which were held by the holder for six months
or less and with respect to which a capital gain dividend was received will be
treated as a long term capital loss, up to the amount of the capital gain
dividend received with respect to such shares.
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TAX CONSIDERATIONS REGARDING THE MERGER
General
The following discussion summarizes the material U.S. federal income tax
considerations of the Merger and the Warrant Issuance to PTR and its
shareholders. The following discussion is based upon the current provisions of
the Code, its legislative history, administrative pronouncements, judicial
decisions and Treasury regulations, all of which are subject to change,
possibly with retroactive effect. The following discussion does not purport to
be a complete discussion of all U.S. federal income tax considerations. The
following discussion does not address the tax consequences of the Merger and
the Warrant Issuance under state, local or non-U.S. tax laws. In addition, the
following discussion may not apply, in whole or in part, to particular
categories of PTR shareholders, such as dealers in securities, insurance
companies, foreign persons, financial institutions and tax-exempt
organizations (except with regard to "unrelated business taxable income"). THE
FOLLOWING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL PTR
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER OR WARRANT ISSUANCE, INCLUDING ANY STATE, LOCAL
AND NON-U.S. TAX CONSEQUENCES.
The Merger
In the opinion of Mayer, Brown & Platt, based on certain representations of
Security Capital and PTR , the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
Accordingly, PTR will not recognize income, gain or loss upon the consummation
of the Merger (assuming that PTR makes the election described under "--Built-
in Gain Rules" below). In addition, the Merger will not result in a taxable
event to the PTR shareholders. Nonetheless, such opinion is not binding on the
IRS nor will it preclude the IRS from adopting a contrary position. Moreover,
since no ruling from the IRS will be sought with respect to the federal income
tax consequences of the Merger, there can be no complete assurance that the
IRS will agree with the conclusions set forth herein. The discussion below
assumes that the Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Code.
Basis and Holding Period. Immediately following the closing date of the
Merger, the assets of the REIT Manager and SCG Realty Services in the hands of
PTR will have the same adjusted tax basis as they had in the hands of the REIT
Manager and SCG Realty Services immediately prior to the closing date of the
Merger. The holding period for each of the assets of the REIT Manager and SCG
Realty Services in the hands of PTR following the closing date of the Merger
will include the period each asset was held by the REIT Manager and SCG Realty
Services immediately prior to the closing date of the Merger.
Built-in Gain Rules. Under the "Built-in Gain Rules" of IRS Notice 88-19,
1988-1 C.B. 486, PTR will be subject to a corporate level tax if it disposes
of any of the assets acquired from Security Capital in the Merger at any time
during the 10-year period beginning on the closing date of the Merger (the
"Restriction Period"). This tax would be imposed on PTR at the top regular
corporate rate (currently 35%) in effect at the time of the disposition on the
excess of (i) the lesser of (a) the fair market value on the closing date of
the assets disposed of or (b) the selling price of such assets over (ii) PTR
's adjusted basis on the closing date in such assets (such excess being
referred to as the "Built-in Gain"). PTR currently does not intend to dispose
of any of the assets acquired in the Merger during the Restriction Period, but
there can be no assurance that one or more of such dispositions will not
occur. The results described above with respect to the recognition of Built-in
Gain assume that PTR will make the appropriate election pursuant to the Built-
in Gain Rules or applicable future administrative rules or Treasury
regulations. Under the Merger Agreement, PTR has covenanted to make this
election.
Liability for Other Taxes. Pursuant to the Merger Agreement, Security
Capital will be responsible for income tax liabilities attributable to the
operations of the REIT Manager and SCG Realty Services through the
consummation of the Merger. However, PTR, as successor to the REIT Manager and
SCG Realty Services in
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the Merger, will be severally liable (together with Security Capital and the
members of its "affiliated group" within the meaning of Section 1502 of the
Code) for income tax liabilities of Security Capital and the members of its
"affiliated group" for periods prior to and including the year in which the
consummation of the Merger occurs. Security Capital, however, has agreed to
indemnify and hold harmless PTR from and against any income tax liabilities of
the REIT Manager and SCG Realty Services for all periods prior to the closing
date of the Merger and any income tax liabilities of Security Capital and the
members of its "affiliated group".
Consequences of the Merger on PTR's Qualification as a REIT. In light of the
unique federal income tax requirements applicable to REITs, the Merger could
have adverse consequences on PTR's continued qualification as a REIT. In the
opinion of Mayer, Brown & Platt, based upon certain representations of
Security Capital and PTR, the consummation of the Merger will not jeopardize
the status of PTR as a REIT under the Code.
The Warrant Issuance
Receipt of Warrants. Pursuant to the Warrant Issuance, (i) a shareholder
will have ordinary income upon receipt of a warrant in an amount equal to the
fair market value of the warrants received on the issuance date, (ii) a
shareholder's tax basis in the warrants received will equal the fair market
value of the warrants received on the issuance date and (iii) a shareholder's
holding period for the warrants received will begin on the issuance date.
Fractional Warrants. If a shareholder receives cash in lieu of a fractional
warrant, such shareholder will recognize gain or loss measured by the
difference between the tax basis of such fractional warrant (i.e. the fair
market value of such fractional warrant on the issuance date) and the amount
of cash received. Such gain or loss will constitute capital gain or loss if
the shareholder holds the warrants as a capital asset on the issuance date,
and will be short-term capital gain or loss since the holding period for such
fractional warrants will be less than one year.
Disposition of Shares Prior to the Warrant Issuance Record Date. While a
shareholder generally would not recognize ordinary income on the disposition
of his or her Common Shares, a shareholder disposing of his or her Common
Shares on or after the closing date of the Merger and prior to the record date
for the Warrant Issuance may recognize ordinary income in an amount equal to
the fair market value of the right of a holder of the Common Shares to receive
the warrants, measured as of the time of disposition of the Common Shares. A
shareholder would not be able to offset any portion of such ordinary income
with his or her tax basis in his or her Common Shares. To the extent a
shareholder recognizes ordinary income, the amount realized for purposes of
calculating capital gain or loss on such disposition will be reduced by the
amount of such ordinary income.
Tax-Exempt Shareholders. Section 511 of the Code imposes on organizations
exempt from federal income tax under Section 501(a) of the Code a tax at
corporate income tax rates on such organizations' "unrelated business taxable
income." In the opinion of Mayer, Brown & Platt, the receipt by tax-exempt
shareholders of PTR of the warrants pursuant to the Warrant Issuance will be
treated as unrelated business taxable income.
Backup Withholding. Under the backup withholding rules of the Code (which
generally impose a 31% withholding tax on certain persons who fail to furnish
the information required under the United States tax reporting requirements),
a PTR shareholder may be subject to backup withholding with respect to the
receipt of the warrants unless such shareholder (i) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact or (ii) provides a correct taxpayer identification number and certifies
under penalties of perjury that the taxpayer identification number is correct
and that the holder is not currently subject to backup withholding because of
a failure to report all dividend and interest income. Any amount withheld
under these rules will be credited against the shareholder's Federal income
tax liability.
Information Reporting. Security Capital is required to report to the PTR
shareholders receiving warrants and the IRS the value of the warrants issued
pursuant to the Warrant Issuance on Form 1099-MISC.
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Sale, Disposition, Exercise or Expiration of Warrants. In general, upon a
sale or other disposition of a warrant, a holder of warrants will recognize
gain or loss measured by the difference between the amount realized on the
sale or other disposition and the warrant holder's tax basis in the warrant.
In general, such gain or loss will be a capital gain or loss if the stock into
which the warrants are exercisable would be a capital asset in the warrant
holder's hands and will be a short-term capital gain or loss because the
warrants will expire in one year from the date of issuance.
Exercise of Warrants. Except as discussed below with respect to cash
received in lieu of fractional Class B Stock, a warrant holder will not
recognize gain or loss upon the exercise of a warrant. A warrant holder's tax
basis in the Class B Stock received upon exercise of a warrant will be equal
to the sum of (1) the warrant holder's tax basis in the warrant exercised and
(2) the exercise price paid. The holding period of the Class B Stock received
upon the exercise of a warrant will begin on the date of exercise. Holders
receiving cash in lieu of fractional Class B Stock upon exercise of a warrant
will recognize gain to the extent that the cash received exceeds the warrant
holder's tax basis in the portion of the warrant exercised for cash in lieu of
fractional Class B Stock.
Expiration of the Warrants. If a warrant holder's warrants expire without
being exercised, the warrant holder will recognize a loss equal to its tax
basis in the expired warrants. In general, such loss will be a capital loss if
the stock into which the warrants were exercisable would be a capital asset in
the warrant holder's hands and will be a short-term loss because the warrants
will expire in one year from the date of issuance.
Adjustment of Conversion Ratio. The terms of the warrants distributed
pursuant to the Merger Agreement provide for adjustment of the price for
exercise if Security Capital makes certain distributions of stock, cash or
other property to its shareholders. While Security Capital does not presently
contemplate making such a distribution, if Security Capital makes a
distribution of cash or property resulting in an adjustment to the exercise
price, the holders of the warrants may be viewed as receiving a "deemed
distribution" under Section 305 of the Code, even if such warrant holder does
not hold any Class B Stock at such time. The deemed distribution would
constitute a taxable dividend, taxable as ordinary income, to the extent that
the earnings and profits of Security Capital were allocable to the deemed
distribution. The amount of the deemed distribution which exceeded the
allocated earnings and profits of Security Capital would be considered a
return of capital, and would reduce the warrant holder's tax basis in the
warrants (but not below zero) by the value of the deemed distribution. To the
extent that the value of the deemed distribution exceeds the warrant holder's
tax basis in its warrants, the deemed distribution would result in gain to
such warrant holder. In any event, the warrant holder's tax basis in its
warrants would then immediately be increased by the value of the property
deemed to have been distributed.
OTHER TAX CONSIDERATIONS
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective shareholders should recognize that the present federal income
tax treatment of an investment in PTR may be modified by legislative, judicial
or administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with federal
income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the Treasury, resulting in revisions of
regulations and revised interpretations of established concepts as well as
statutory changes. Revisions in federal tax laws and interpretations thereof
could adversely affect the tax consequences of an investment in PTR.
State and Local Taxes
PTR and its shareholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of PTR and its shareholders may
not conform to the federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
Common Shares of PTR.
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EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
VALIDITY OF COMMON SHARES
The validity of the issuance of the Common Shares offered pursuant to this
Prospectus Supplement will be passed upon for PTR by Mayer, Brown & Platt,
Chicago, Illinois. Mayer, Brown & Platt has in the past represented, and is
currently representing, PTR, Security Capital and certain of their affiliates.
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PROSPECTUS
$300,000,000
DEBT SECURITIES, PREFERRED SHARES AND COMMON SHARES*
----------------
Security Capital Pacific Trust ("PTR") may from time to time offer in one or
more series its (i) unsecured senior debt securities (the "Debt Securities"),
(ii) Preferred Shares of Beneficial Interest, par value $1.00 per share (the
"Preferred Shares"), and (iii) Common Shares of Beneficial Interest, par value
$1.00 per share (the "Common Shares"). The Debt Securities, Preferred Shares
and Common Shares (together, 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, 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 PTR or repayment at
the option of the Holder, terms for sinking fund payments, and any initial
public offering price; (ii) in the case of Preferred Shares, the specific
title and stated value, any dividend, liquidation, redemption, conversion,
voting and other rights, and any initial public offering price; and (iii) in
the case of Common Shares, any initial public offering price. In addition,
such specific terms may include limitations on direct or beneficial ownership
and restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of PTR 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 by PTR, through agents
designated from time to time by PTR, 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.
*Pursuant to Rule 429 under the Securities Act of 1933, as amended (the
"Securities Act"), this Prospectus also relates to an additional
$120,000,000 of the Debt Securities and Preferred Shares of Beneficial
Interest which were registered under a previous registration statement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Prospectus is August 6, 1997.
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
PTR's objective is to be the preeminent real estate operating company
focusing on the development, acquisition, operation and long-term ownership of
multifamily communities in its western United States target market. Through
its REIT Management Agreement with Security Capital Pacific Incorporated (the
"REIT Manager" or "REIT Management"), PTR has access to the extensive services
provided by the REIT Manager, which provides PTR with access to the same
resources as a fully integrated operating company. The REIT Manager has 90
professionals dedicated to implementing PTR's highly focused operating and
investment strategy.
PTR seeks to achieve long-term sustainable growth in cash flow by maximizing
the operating performance of its core portfolio through value-added operating
systems and concentrating its highly experienced team of professionals on
developing and acquiring industry-leading product in targeted submarkets.
These submarkets are identified by proprietary research as exhibiting strong
job growth and favorable demographic trends.
PTR's investment strategy is focused on three principal components: (1) the
development of state-of-the-art new communities targeted primarily at one of
the largest segments of the renter market, moderate income households; (2) the
acquisition of multifamily communities exhibiting high cash flow growth
potential or attractive redevelopment opportunities; and (3) the execution of
its asset optimization strategy, which involves the disposition of properties
which no longer meet PTR's investment objectives and the redeployment of the
proceeds, typically on a tax-deferred basis, into assets that in PTR's view
offer better long-term cash flow growth prospects.
PTR was organized in 1963 as a real estate investment trust under the laws
of Maryland. Its principal executive offices are located at 7670 South Chester
Street, Suite 100, Englewood, Colorado 80112, and its telephone number is
(303) 708-5959.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for the
development and acquisition of additional multifamily communities, as suitable
opportunities arise, for the repayment of certain outstanding indebtedness at
such time and for working capital purposes.
RATIO INFORMATION
For the purpose of computing these ratios, (a) "earnings" consist of
earnings from operations plus fixed charges other than capitalized interest
and (b) "fixed charges" consist of interest on borrowed funds (including
capitalized interest) and amortization of debt discount and expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ THREE MONTHS ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges. 2.9 4.0 2.6 3.2 2.5 1.9
Ratio of earnings to fixed charges
and Preferred Share dividends..... 2.9 3.4 1.6 1.9 1.7 1.5
</TABLE>
2
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of
February 1, 1994, as supplemented by the First Supplemental Indenture, dated
as of February 2, 1994 (as so supplemented, the "Indenture"), between PTR and
State Street Bank and Trust Company (the "Trustee"). The Indenture has been
incorporated by reference 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 225 Franklin Street, Boston, Massachusetts
02110 or as described below under "Available Information." The Indenture is
subject to, and governed by, the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made hereunder relating to the Indenture and the Debt
Securities to be issued thereunder are summaries of certain provisions
thereof, 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 PTR and will
rank equally with all other unsecured and unsubordinated indebtedness of PTR.
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 PTR's Board of Trustees (the "Board") 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 (Sections 101 and 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 series of Debt Securities;
(2) the aggregate principal amount of such series of Debt Securities and
any limit on such principal amount;
(3) the percentage of the principal amount at which the Debt Securities
of such series will be issued and, if other than the full principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity thereof, or the method by which
any such portion shall be determined;
(4) the date or dates, or the method by which such date or dates will be
determined, on which the principal of such Debt Securities will be payable
and the amount of principal payable thereon;
(5) 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;
(6) the date or dates, or the method by which such date or dates will be
determined, 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, and the manner in which, such interest
shall be payable, and the basis upon which interest shall be calculated if
other than that of a 360-day year comprised of twelve 30-day months;
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(7) the place or places where the principal of (and premium or Make-Whole
Amount (as defined), if any) and interest and Additional Amounts, if any,
on the Debt Securities of such series will be payable, where such Debt
Securities may be surrendered for registration of transfer or exchange and
where notices or demands to or upon PTR in respect of such Debt Securities
and the Indenture may be served;
(8) the period or periods within which, the price or prices (including
the premium or Make-Whole Amount, if any) at which, the currency or
currencies in which, and the other terms and conditions upon which the Debt
Securities of such series may be redeemed, as a whole or in part, at the
option of PTR, if PTR is to have such an option;
(9) the obligation, if any, of PTR to redeem, repay or purchase the Debt
Securities of such series pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which, the date or dates upon which, the price or prices at which,
the currency or currencies, currency unit or units or composite currency or
currencies in which, and the other terms and conditions upon which such
Debt Securities shall be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(10) if other than United States dollars, the currency or currencies in
which the Debt Securities of such series are denominated and payable, which
may be a foreign currency or units of two or more foreign currencies or a
composite currency or currencies, and the terms and conditions relating
thereto;
(11) whether the amount of payments of principal of (and premium or Make-
Whole Amount, if any) or interest, if any, on the Debt Securities of such
series may be determined with reference to an index, formula or other
method (which index, formula or method may be, but need not be, based on a
currency or currencies, currency unit or units or composite currency or
currencies) and the manner in which such amounts shall be determined;
(12) whether the principal of (and premium or Make-Whole Amount, if any)
or interest or Additional Amounts, if any, on the Debt Securities of such
series are to be payable, at the election of PTR or a Holder, in a currency
or currencies, currency unit or units or composite currency or currencies,
other than that in which such Debt Securities are denominated or stated to
be payable, the period or periods within which, and the terms and
conditions upon which, such election may be made, and the time and manner
of, and identity of the exchange rate agent with responsibility for,
determining the exchange rate between the currency or currencies in which
such Debt Securities are denominated or stated to be payable and the
currency or currencies in which such Debt Securities are to be so payable;
(13) any additions to, modifications of or deletions from the terms of
such series of Debt Securities with respect to the Events of Default or
covenants set forth in the Indenture;
(14) whether the Debt Securities of such series will be issued in
certificated or book-entry form;
(15) whether the Debt Securities of such series 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 if other than $5,000 and the terms and conditions
relating thereto;
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the Indenture to such series of Debt
Securities and any provisions in modification thereof, in addition thereto
or in lieu thereof;
(17) if the Debt Securities of such series 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) whether and under what circumstances PTR will pay Additional Amounts
as contemplated in the Indenture on the Debt Securities of such series in
respect of any tax, assessment or governmental charge and, if so, whether
PTR will have the option to redeem such Debt Securities in lieu of making
such payment; and
(19) any other terms of such series of Debt Securities not inconsistent
with the provisions of the Indenture (Section 301).
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The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
or bear no interest or bear interest at a rate which at the time of issuance
is below market rates ("Original Issue Discount Securities"). Special United
States federal income tax, accounting and other considerations applicable to
Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
Under the Indenture, PTR will have the ability, in addition to the ability
to issue Debt Securities with terms different from those of Debt Securities
previously issued, without the consent of the Holders, to reopen a previous
issue of a series of Debt Securities and issue additional Debt Securities of
such series.
Except as set forth below under "Certain Covenants--Limitations on
Incurrence of Debt," the Indenture does not contain any other provisions that
would limit the ability of PTR to incur indebtedness or that would afford
Holders of Debt Securities protection in the event of a highly leveraged or
similar transaction involving PTR or in the event of a change of control of
PTR. However, PTR's Restated Declaration of Trust, as amended and supplemented
(the "Declaration of Trust"), restricts beneficial ownership of PTR's
outstanding Common Shares by a single person, or persons acting as a group, to
9.8% of such Common Shares, with certain exceptions (including an exception
for the ownership of up to 49% of such Common Shares in the case of Security
Capital Group Incorporated ("Security Capital Group")). See "Description of
Common Shares--Restriction on Size of Holdings." Additionally, the Articles
Supplementary relating to PTR's Cumulative Convertible Series A Preferred
Shares of Beneficial Interest, par value $1.00 per share (the "Series A
Preferred Shares") and PTR's Series B Cumulative Redeemable Preferred Shares
of Beneficial Interest, par value $1.00 per share (the "Series B Preferred
Shares") restrict beneficial ownership of the Series A Preferred Shares and
Series B Preferred Shares, respectively, by a person, or persons acting as a
group, to 25% of the Series A Preferred Shares or Series B Preferred Shares,
as the case may be. Similarly, the Articles Supplementary for each series of
Preferred Shares will contain certain provisions restricting the ownership and
transfer of the Preferred Shares. See "Description of Preferred Shares--
Restrictions on Ownership." These restrictions are designed to preserve PTR's
status as a REIT and, therefore, may act to prevent or hinder a change of
control. 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 PTR that are described below,
including any addition of a covenant or other provision providing event risk
or similar protection.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series issued in registered form will be issuable in
denominations of $1,000 and integral multiples thereof. Unless otherwise
described in the applicable Prospectus Supplement, the Debt Securities of any
series issued in bearer form will be issuable in denominations of $5,000
(Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Debt Securities will be payable at the corporate trust office of the
Trustee, initially located at 225 Franklin Street, Boston, Massachusetts
02110; provided that, at the option of PTR, 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 to an
account maintained within the United States (Sections 301, 305, 306, 307 and
1002).
If any Interest Payment Date, Principal Payment Date or the Maturity Date
falls on a day that is not a Business Day, the required payment shall be made
on the next Business Day as if it were made on the date such payment was due
and no interest shall accrue on the amount so payable for the period from and
after such Interest Payment Date, Principal Payment Date or the Maturity Date,
as the case may be. "Business Day" means any day, other than a Saturday or
Sunday, on which banks in Boston, Massachusetts are not required or authorized
by law or executive order to close. 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 either may 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
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Defaulted Interest to be fixed by the Trustee, notice of which 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 (Section 307).
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
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for 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 PTR 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 PTR with respect to any series of Debt Securities, PTR may at any time
rescind the designation of any such transfer agent or approve a change in the
location at which any such transfer agent acts, except that PTR will be
required to maintain a transfer agent in each Place of Payment for such
series. PTR may at any time designate additional transfer agents with respect
to any series of Debt Securities (Section 1002).
Neither PTR nor the Trustee shall be required to (i) issue, register the
transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business
on the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed
in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid (Section
305).
MERGER, CONSOLIDATION OR SALE
PTR may consolidate with, or sell, lease or convey all or substantially all
of its assets to, or merge with or into, any other entity, provided that (a)
either PTR shall be the continuing entity, or the successor entity (if other
than PTR) formed by or resulting from any such consolidation or merger or
which shall have received the transfer of such assets is a Person organized
and existing under the laws of the United States or any State thereof and
shall expressly assume payment of the principal of (and premium or Make-Whole
Amount, if any) and any interest (including Additional Amounts, if any) 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 PTR or any Subsidiary as a result
thereof as having been incurred by PTR 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
Limitations on Incurrence of Debt. PTR 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 and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Debt of
PTR and its Subsidiaries on a consolidated basis determined in accordance with
generally accepted accounting principles is greater than 60% of the sum of
(without duplication) (i) PTR's Total Assets (as defined below) as of the end
of the calendar quarter covered in PTR'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 Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with the Trustee) prior
to the incurrence of such additional Debt and (ii) the purchase price of any
real estate assets or mortgages receivable acquired, and the amount of any
securities
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offering proceeds received (to the extent that such proceeds were not used to
acquire real estate assets or mortgages receivable or used to reduce Debt), by
PTR or any Subsidiary since the end of such calendar quarter, including those
proceeds obtained in connection with the incurrence of such additional Debt
(Section 1004).
In addition to the foregoing limitation on the incurrence of Debt, PTR 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 PTR or any Subsidiary if, immediately after giving
effect to the incurrence of such additional Debt and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Debt of
PTR and its Subsidiaries on a consolidated basis which is secured by any
mortgage, lien, charge, pledge, encumbrance or security interest on property
of PTR or any Subsidiary is greater than 40% of PTR's Total Assets (Section
1004).
In addition to the foregoing limitations on the incurrence of Debt, PTR will
not, and will not permit any Subsidiary to, incur any Debt if the ratio of
Consolidated Income Available for Debt Service (as defined below) to the
Annual Service Charge (as defined below) for the four consecutive fiscal
quarters most recently ended prior to the date on which such additional Debt
is to be incurred shall have been less than 1.5:1, on a pro forma basis after
giving effect thereto and to the application of the proceeds therefrom, and
calculated on the assumption that (i) such Debt and any other Debt incurred by
PTR and its Subsidiaries since the first day of such four-quarter period and
the application of the proceeds therefrom, including to refinance other Debt,
had occurred at the beginning of such period; (ii) the repayment or retirement
of any other Debt by PTR and its Subsidiaries since the first day of such
four-quarter period had been incurred, repaid or retired at the beginning of
such period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period); (iii) in the case of Acquired Debt
(as defined below) or Debt incurred in connection with any acquisition since
the first day of such four-quarter period, the related acquisition had
occurred as of the first day of such period with the appropriate adjustments
with respect to such acquisition being included in such pro forma calculation;
and (iv) in the case of any acquisition or disposition by PTR or its
Subsidiaries of any asset or group of assets since the first day of such four-
quarter period, whether by merger, stock purchase or sale, or asset purchase
or sale, such acquisition or disposition or any related repayment of Debt had
occurred as of the first day of such period with the appropriate adjustments
with respect to such acquisition or disposition being included in such pro
forma calculation (Section 1004).
Existence. Except as permitted under "--Merger, Consolidation or Sale," PTR
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence, rights (charter and statutory) and franchises;
provided, however, that PTR shall not be required to preserve any right or
franchise if it 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 1005).
Maintenance of Properties. PTR 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 PTR may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that PTR and its Subsidiaries shall not be prevented from selling or
otherwise disposing for value its properties in the ordinary course of
business (Section 1006).
Insurance. PTR 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 financially sound and reputable insurance
companies (Section 1007).
Payment of Taxes and Other Claims. PTR 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 PTR or any Subsidiary
and (ii) all lawful claims for
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labor, materials and supplies which, if unpaid, might by law become a lien
upon the property of PTR or any Subsidiary; provided, however, that PTR 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 1008).
Provision of Financial Information. Whether or not PTR is subject to Section
13 or 15(d) of the Exchange Act, PTR will, to the extent permitted under the
Exchange Act, file with the Securities and Exchange Commission (the
"Commission") the annual reports, quarterly reports and other documents which
PTR would have been required to file with the Commission pursuant to such
Section 13 and 15(d) (the "Financial Statements") if PTR were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which PTR would have been required so to file
such documents if PTR were so subject. PTR will also in any event (i) within
15 days of each Required Filing Date (x) 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 PTR would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if PTR were subject to
such Sections and (y) file with the Trustee copies of the annual reports,
quarterly reports and other documents which PTR would have been required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
if PTR were subject to such Sections and (ii) if filing such documents by PTR
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
1009).
As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"Annual Service Charge" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, Debt of
PTR and its Subsidiaries and the amount of dividends which are payable in
respect of any Disqualified Stock.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations (as defined below) of PTR and its Subsidiaries plus
amounts which have been deducted, and minus amounts which have been added, for
the following (without duplication): (i) interest on Debt of PTR and its
Subsidiaries, (ii) provision for taxes of PTR and its Subsidiaries based on
income, (iii) amortization of debt discount, (iv) provisions for gains and
losses on properties and property depreciation and amortization, (v) the
effect of any noncash charge resulting from a change in accounting principles
in determining Earnings from Operations for such period and (vi) amortization
of deferred charges.
"Debt" of PTR or any Subsidiary means any indebtedness of PTR 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 PTR or any Subsidiary; (iii)
the reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property or services, except any such
balance that constitutes an accrued expense or trade payable, or all
conditional sale obligations or obligations under any title retention
agreement; (iv) the
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principal amount of all obligations of PTR or any Subsidiary with respect to
redemption, repayment or other repurchase of any Disqualified Stock; or (v)
any lease of property by PTR or any Subsidiary as lessee which is reflected on
PTR's Consolidated Balance Sheet as a capitalized lease in accordance with
generally accepted accounting principles to the extent, in the case of items
of indebtedness under (i) through (iii) above, that any such items (other than
letters of credit) would appear as a liability on PTR's Consolidated Balance
Sheet in accordance with generally accepted accounting principles, and also
includes, to the extent not otherwise included, any obligation by PTR 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),
Debt of another Person (other than PTR or any Subsidiary) (it being understood
that Debt shall be deemed to be incurred by PTR or any Subsidiary whenever PTR
or such Subsidiary shall create, assume, guarantee or otherwise become liable
in respect thereof).
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
(ii) is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the Stated Maturity of the
series of Debt Securities.
"Earnings from Operations" for any period means net earnings excluding gains
and losses on sales of investments, net as reflected in the financial
statements of PTR and its Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting
principles.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) in the case of a partnership or any other entity other than
a corporation, the outstanding equity interest of which are owned, directly or
indirectly, by such Person. For the purposes of this definition, "voting
equity securities" means equity securities having voting power for the
election of directors, whether at all times or only so long as no senior class
of security has such voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i) PTR's Undepreciated Real
Estate Assets and (ii) all other assets of PTR determined in accordance with
generally accepted accounting principles (but excluding accounts receivable
and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of PTR and its
Subsidiaries on such date, before depreciation and amortization determined on
a consolidated basis in accordance with generally accepted accounting
principles.
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: (i) default
for 30 days in the payment of any installment of interest or Additional
Amounts payable on any Debt Security of such series; (ii) default in the
payment of the principal of (or premium or Make-Whole Amount, if any, on) any
Debt Security of such series at its Maturity; (iii) default in making any
sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance of any other covenant of PTR 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; (v)
default in the payment of an aggregate principal amount exceeding $10,000,000
of any evidence of indebtedness of PTR or any mortgage, indenture or other
instrument under which such indebtedness is issued or by which such
indebtedness is secured, such default having occurred after the expiration of
any applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness, but only if such indebtedness is not discharged
or such acceleration is not rescinded or annulled; (vi) the entry by a court
of competent jurisdiction of one or more judgments, orders or decrees against
PTR or any of its Subsidiaries in an aggregate amount (excluding amounts fully
covered by insurance) in excess of
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$10,000,000 and such judgments, orders or decrees remain undischarged,
unstayed and unsatisfied in an aggregate amount (excluding amounts fully
covered by insurance) in excess of $10,000,000 for a period of 30 consecutive
days; (vii) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of PTR or any
Significant Subsidiary or for all or substantially all of either of its
property; and (viii) 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 by the Commission) of PTR.
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, and the Make-Whole Amount, if any, on,
all of the Debt Securities of that series to be due and payable immediately by
written notice thereof to PTR (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 (i) PTR shall have deposited with the Trustee all required
payments of the principal of (and premium or Make-Whole Amount, if any) and
interest, and any Additional Amounts, 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 (ii) all Events of Default, other than the nonpayment of
accelerated principal (or specified portion thereof and the Make-Whole Amount,
if any) or interest, 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 (i)
in the payment of the principal of (or premium or Make-Whole Amount, if any)
or interest or Additional Amounts payable on any Debt Security of such series
or (ii) 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 or Make-Whole Amount, if any) or interest or
Additional Amounts payable 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 interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of
such series, as well as an offer of reasonable indemnity (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 or Make-Whole Amount, if any), interest on, and Additional Amounts
payable with respect to, such Debt Securities at the respective due dates
thereof (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
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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, PTR 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 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made 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,
(i) change the Stated Maturity of the principal of (or premium or Make-Whole
Amount, if any), or any installment of principal of or interest or Additional
Amounts payable on, any such Debt Security; (ii) reduce the principal amount
of, or the rate or amount of interest on, or any premium or Make-Whole Amount
payable on redemption of, or any Additional Amounts payable with respect to,
any such Debt Security, or reduce the amount of principal of an Original Issue
Discount Security or Make-Whole Amount, if any, 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; (iii) change the Place of Payment, or the coin or
currency, for payment of principal of (and premium or Make-Whole Amount, if
any), or interest on, or any Additional Amounts payable with respect to, any
such Debt Security; (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (v)
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; or
(vi) 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 (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities have the right to waive compliance by PTR with certain
covenants in the Indenture (Section 1012).
Modifications and amendments of the Indenture may be made by PTR 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 PTR as
obligor under the Indenture; (ii) to add to the covenants of PTR for the
benefit of the Holders of all or any series of Debt Securities or to surrender
any right or power conferred upon PTR in the Indenture; (iii) to add Events of
Default for the benefit of the Holders of all or any series of Debt
Securities; (iv) to add or change any provisions of the Indenture to
facilitate the issuance of, or to liberalize certain terms of, Debt Securities
in bearer form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect; (v) to change or eliminate any provisions of the Indenture, provided
that any such change or elimination shall become effective only when there are
no Debt Securities Outstanding of any series created prior thereto which are
entitled to the benefit of such provision; (vi) to secure the Debt Securities;
(vii) to establish the form or terms of Debt Securities of any series and any
related coupons; (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 or to make any other
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changes, provided that in each case, such action shall not adversely affect
the interests of Holders of Debt Securities of any series in any material
respect; (x) to close the Indenture with respect to the authentication and
delivery of additional series of Debt Securities or to qualify, or maintain
qualification of, the Indenture under the TIA; or (xi) 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 United States 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 United States 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 face amount of such Indexed
Security at original issuance, unless otherwise provided with respect to such
Indexed Security pursuant to Section 301 of the Indenture; and (iv) Debt
Securities owned by PTR or any other obligor upon the Debt Securities or any
Affiliate of PTR 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 PTR or the Holders of at least
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 a majority in principal amount of the Outstanding Debt Securities
of such 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 such series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may
be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that the Indenture expressly provides may be made, given or taken by
the Holders of a specified percentage in principal amount of all Outstanding
Debt Securities affected thereby, or of the Holders of such series and one or
more additional series: (i) there shall be no minimum quorum requirement for
such meeting and (ii) the principal amount of the Outstanding Debt Securities
of such series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture (Section 1504).
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Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by the Indenture to be given or taken by a specified
percentage in principal amount of the Holders of any or all series of Debt
Securities may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such specified percentage of Holders in
person or by agent duly appointed in writing; and, except as otherwise
expressly provided in the Indenture, such action shall become effective when
such instrument or instruments are delivered to the Trustee. Proof of
execution of any instrument or of a writing appointing any such agent shall be
sufficient for any purpose of the Indenture and (subject to Article Six of the
Indenture) conclusive in favor of the Trustee and PTR, if made in the manner
specified above (Section 1507).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
PTR 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 or Make-Whole Amount, if any) and interest and Additional Amounts
payable to the date of such deposit (if such Debt Securities have become due
and payable) or to the Stated Maturity or Redemption Date, 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, PTR may elect either (i) to defease and be discharged
from any and all obligations with respect to such Debt Securities (except for
the obligation 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 and the obligations to register the transfer
or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (ii) to be released from its obligations with
respect to such Debt Securities under Sections 1004 to 1009, inclusive, of the
Indenture (being the restrictions described under "--Certain Covenants") and,
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 PTR 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 or Make-Whole Amount, 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, PTR 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 United States federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to United States
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, and such Opinion of Counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable United States federal income tax law occurring after the
date of the Indenture (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
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which issued the Foreign Currency in which the Debt Securities of such series
are payable, the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
PTR has deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to Debt Securities of any series, (i) 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
(ii) 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 or Make-Whole Amount, 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 (other
than the ECU or other currency unit) 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 or Make-Whole Amount, 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 United States dollars (Section 101).
In the event PTR 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 (iv) under "--Events of Default, Notice and Waiver" with
respect to Sections 1004 to 1009, inclusive, of the Indenture (which Sections
would no longer be applicable to such Debt Securities) or described in clause
(vii) 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, PTR 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.
REGISTRATION AND TRANSFER
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
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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 thereof at the corporate trust office of the Trustee referred to
above. Every Debt Security surrendered for 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 PTR may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith (Section 305). PTR may at any time designate a transfer agent (in
addition to the Trustee) with respect to any series of Debt Securities. If PTR
has designated such a transfer agent or transfer agents, PTR may at any time
rescind the designation of any such transfer agent or approve a change in the
location at which any such transfer agent acts, except that PTR will be
required to maintain a transfer agent in each Place of Payment for such series
(Section 1002).
Neither PTR 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).
BOOK-ENTRY PROCEDURES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the applicable Prospectus Supplement relating to such series. Global
Securities, if any, are expected to be deposited with The Depository Trust
Company, as Depository. Global Securities may be issued in fully registered
form and may be issued in either temporary or permanent form. Unless and until
it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security may not be transferred except as a
whole by the Depository for such Global Security to a nominee of such
Depository or by a nominee of such Depository to such Depository or another
nominee of such Depository or by the Depository or any nominee of such
Depository to a successor Depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series. Unless otherwise indicated in the applicable
Prospectus Supplement, PTR anticipates that the following provisions will
apply to depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and
transfer system the respective principal amounts of the individual Debt
Securities represented by such Global Security to the accounts of persons that
have accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by PTR if such Debt Securities are offered and sold directly by
PTR. Ownership of beneficial interests in a Global Security will be limited to
Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Security will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by the applicable Depository or its nominee (with respect to
beneficial interests of Participants) and records of Participants (with
respect to beneficial interests of persons who hold through Participants). The
laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to own, pledge or transfer beneficial interest in a
Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as provided
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below or in the applicable Prospectus Supplement, owners of beneficial
interest in a Global Security will not be entitled to have any of the
individual Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Debt Securities of such series in definitive form and
will not be considered the owners or holders thereof under the Indenture.
Payments of principal of, any premium or Make-Whole Amount and any interest
on, or any Additional Amounts payable with respect to, individual Debt
Securities represented by a Global Security registered in the name of a
Depository or its nominee will be made to the Depository or its nominee, as
the case may be, as the registered owner of the Global Security representing
such Debt Securities. None of PTR, the Trustee, any Paying Agent or the
Security Registrar for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Security for such Debt
Securities or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
PTR expects that the Depository for a series of Debt Securities or its
nominee, upon receipt of any payment of principal, premium, Make-Whole Amount
or interest in respect of a permanent Global Security representing any of such
Debt Securities, immediately will credit Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security for such Debt Securities as shown on
the records of such Depository or its nominee. PTR also expects that payments
by Participants to owners of beneficial interests in such Global Security held
through such Participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
If a Depository for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depository and a successor depository is
not appointed by PTR within 90 days, PTR will issue individual Debt Securities
of such series in exchange for the Global Security representing such series of
Debt Securities. In addition, PTR may, at any time and in its sole discretion,
subject to any limitations described in the applicable Prospectus Supplement
relating to such Debt Securities, determine not to have any Debt Securities of
such series represented by one or more Global Securities and, in such event,
will issue individual Debt Securities of such series in exchange for the
Global Security or Securities representing such series of Debt Securities.
Individual Debt Securities of such series so issued will be issued in
denominations, unless otherwise specified by PTR, of $1,000 and integral
multiples thereof.
NO PERSONAL LIABILITY
No past, present or future trustee, officer, employee or shareholder, as
such, of PTR or any successor thereof shall have any liability for any
obligations of PTR under the Debt Securities or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Debt Securities by accepting such Debt Securities waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of Debt Securities (Section 111).
TRUSTEE
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 (Sections 101 and 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.
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DESCRIPTION OF PREFERRED SHARES
GENERAL
Subject to limitations prescribed by Maryland law and the Declaration of
Trust, the Board is authorized to issue, from the authorized but unissued
shares of beneficial interest of PTR, Preferred Shares in series and to
establish from time to time the number of Preferred Shares to be included in
such series and to fix the designation and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the shares of each
series, and such other subjects or matters as may be fixed by resolution of
the Board or a duly authorized committee thereof. On July 31, 1997, PTR had
5,555,999 of its Series A Preferred Shares issued and outstanding and held of
record by approximately 78 shareholders and 4,200,000 of its Series B
Preferred Shares issued and outstanding and held of record by approximately
289 shareholders.
Reference is made to the Prospectus Supplement relating to the series of
Preferred Shares being offered for the specific terms thereof, including:
(1) The title and stated value of such series of Preferred Shares;
(2) The number of shares of such series of Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to Preferred Shares of such series;
(4) The date from which dividends on Preferred Shares of such series
shall cumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for Preferred
Shares of such series;
(6) The provision for a sinking fund, if any, for Preferred Shares of
such series;
(7) The provision for redemption, if applicable, of Preferred Shares of
such series;
(8) Any listing of such series of Preferred Shares on any securities
exchange;
(9) The terms and conditions, if applicable, upon which Preferred Shares
of such series will be convertible into Common Shares, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in Preferred Shares of such series will be
represented by Global Securities;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such series of Preferred Shares;
(12) A discussion of federal income tax considerations applicable to
Preferred Shares of such series;
(13) The relative ranking and preferences of Preferred Shares of such
series as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of PTR;
(14) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of PTR; and
(15) Any limitations on direct or beneficial ownership and restrictions
on transfer of Preferred Shares of such series, in each case as may be
appropriate to preserve the status of PTR as a REIT.
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares of each Series will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of PTR, rank (i) senior to
all classes or series of Common Shares, and to all equity securities ranking
junior to such series of Preferred Shares; (ii) on a parity with all equity
securities issued by PTR the terms of which specifically provide that such
equity securities rank on a parity with the Preferred Shares of such series;
and (iii) junior to all equity securities issued by PTR the terms of which
specifically provide that such equity securities rank senior to Preferred
Shares of such series.
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DIVIDENDS
Holders of Preferred Shares of each series shall be entitled to receive,
when, as and if declared by the Board, out of assets of PTR 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 share transfer books of PTR
on such record dates as shall be fixed by the Board.
Dividends on any series of the Preferred Shares may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Shares for
which dividends are noncumulative, then the holders of such series of the
Preferred Shares will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and PTR 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 Preferred Shares of any series are outstanding, no full dividends shall
be declared or paid or set apart for payment on the Preferred Shares of PTR of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares 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 set apart for such payment on the Preferred
Shares of such series for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Preferred
Shares of any series and the shares of any other series of Preferred Shares
ranking on a parity as to dividends with the Preferred Shares of such series,
all dividends declared upon Preferred Shares of such series and any other
series of Preferred Shares ranking on a parity as to dividends with such
Preferred Shares shall be declared pro rata so that the amount of dividends
declared per share on the Preferred Shares of such series and such other
series of Preferred Shares shall in all cases bear to each other the same
ratio that accrued dividends per share on the Preferred Shares of such series
(which shall not include any cumulation in respect of unpaid dividends for
prior dividend periods if such series of Preferred Shares does not have a
cumulative dividend) and such other series of Preferred Shares 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 Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient of
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period or (ii) if such series of Preferred Shares
does not have a cumulative dividend, full dividends on the Preferred Shares of
such series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period, no dividends (other than in Common Shares or
other capital shares ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common Shares
or any other capital shares of PTR ranking junior to or on a parity with the
Preferred Shares of such series as to dividends or upon liquidation, nor shall
any Common Shares or any other capital shares of PTR ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation 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 series) by PTR (except by conversion into
or exchange for other capital shares of PTR ranking junior to the Preferred
Shares of such series as to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
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REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of PTR, 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 Shares that is
subject to mandatory redemption will specify the number of Preferred Shares of
such series that shall be redeemed by PTR 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 series of Preferred Shares does not have a cumulative dividend,
include any cumulation 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 Shares of any series is payable only
from the net proceeds of the issuance of capital shares of PTR, the terms of
such series of Preferred Shares may provide that, if no such capital shares
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, Preferred
Shares of such series shall automatically and mandatorily be converted into
shares of the applicable capital shares of PTR pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares
of any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period or (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on all Preferred Shares of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no Preferred
Shares of any series shall be redeemed unless all outstanding Preferred Shares
of such series are simultaneously redeemed; provided, however, that the
foregoing shall not prevent the purchase or acquisition of Preferred Shares of
such series pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Preferred Shares of such series, and, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on all Preferred Shares of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on all Preferred Shares of any series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, PTR shall not purchase or otherwise acquire directly or
indirectly any Preferred Shares of such series (except by conversion into or
exchange for capital shares of PTR ranking junior to the Preferred Shares of
such series as to dividends and upon liquidation).
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by PTR and
such shares may be redeemed pro rata from the holders of record of Preferred
Shares of such series in proportion to the number of Preferred Shares of such
series held by such holders (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by PTR.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the share transfer books
of PTR. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Shares to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Shares
are to be surrendered for payment of the redemption price; (v) that dividends
on the Preferred 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 Preferred Shares shall terminate. If fewer than all the Preferred
Shares of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of Preferred Shares to be redeemed from
each such holder. If notice of redemption of any Preferred Shares has been
given and if the funds necessary for such redemption have been set aside by
PTR in trust for the benefit of
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the holders of any Preferred Shares so called for redemption, then from and
after the redemption date dividends will cease to accrue on such Preferred
Shares, and all rights of the holders of such Preferred Shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of PTR, then, before any distribution or payment shall be made to
the holders of any Common Shares or any other class or series of shares of
beneficial interest of PTR ranking junior to such series of Preferred Shares
in the distribution of assets upon any liquidation, dissolution or winding up
of PTR, the holders of each series of Preferred Shares shall be entitled to
receive out of assets of PTR legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any cumulation in respect of unpaid dividends for prior dividend
periods if such series of Preferred Shares 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 Shares of such series
will have no right or claim to any of the remaining assets of PTR. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of PTR are insufficient to pay the amount of
the liquidating distributions on all outstanding Preferred Shares of such
series and the corresponding amounts payable on all shares of other classes or
series of capital shares of PTR ranking on a parity with Preferred Shares of
such series in the distribution of assets, then the holders of Preferred
Shares of such series and all other such classes or series of capital shares
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
Preferred Shares of such series, the remaining assets of PTR shall be
distributed among the holders of any other classes or series of capital shares
ranking junior to the Preferred Shares of such series upon liquidation,
dissolution or winding up, 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 PTR with or into any other
entity, or the sale, lease or conveyance of all or substantially all of the
property or business of PTR, shall not be deemed to constitute a liquidation,
dissolution or winding up of PTR.
VOTING RIGHTS
Holders of the Preferred Shares of each series will not have any voting
rights, except as set forth below or in the applicable Prospectus Supplement
or as otherwise required by applicable law. The following is a summary of the
voting rights that, unless provided otherwise in the applicable Prospectus
Supplement, will apply to each series of Preferred Shares.
If six quarterly dividends (whether or not consecutive) payable on the
Preferred Shares of such series or any other series of Preferred Shares
ranking on a parity with such series of Preferred Shares with respect in each
case to the payment of dividends, amounts upon liquidation, dissolution and
winding up ("Parity Shares") are in arrears, whether or not earned or
declared, the number of Trustees then constituting the Board will be increased
by two, and the holders of Preferred Shares of such series, voting together as
a class with the holders of any other series of Parity Shares (any such other
series, the "Voting Preferred Shares"), will have the right to elect two
additional trustees to serve on the Board at any annual meeting of
shareholders or a properly called special meeting of the holders of Preferred
Shares of such series and such Voting Preferred Shares and at each subsequent
annual meeting of shareholders until all such dividends and dividends for the
current quarterly period on the Preferred Shares of such series and such other
Voting Preferred Shares have been paid or declared and set aside for payment.
Such voting rights will terminate when all such accrued and unpaid dividends
have been declared and paid or set aside for payment. The term of office of
all trustees so elected will terminate with the termination of such voting
rights. For so long as Security Capital Group and certain of its affiliates
beneficially own in excess of 10% of the outstanding Common Shares, in any
such vote by holders of Preferred Shares of
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such series, Security Capital Group and certain of its affiliates shall vote
their Preferred Shares of such series, if any, in the same respective
percentages as the Preferred Shares of such series and Voting Preferred Shares
that are not held by such persons.
The approval of two-thirds of the outstanding Preferred Shares of such
series and all other series of Voting Preferred Shares similarly affected,
voting as a single class, is required in order to (i) amend PTR's Declaration
of Trust to affect materially and adversely the rights, preferences or voting
power of the holders of the Preferred Shares of such series or the Voting
Preferred Shares; (ii) enter into a share exchange that affects the Preferred
Shares of such series, consolidate with or merge into another entity, or
permit another entity to consolidate with or merge into PTR, unless in each
such case each Preferred Share of such series remains outstanding without a
material and adverse change to its terms and rights or is converted into or
exchanged for preferred shares of the surviving entity having preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption thereof
identical to that of a Preferred Share of such series (except for changes that
do not materially and adversely affect the holders of the Preferred Shares of
such series); or (iii) authorize, reclassify, create, or increase the
authorized amount of any class of shares having rights senior to the Preferred
Shares of such series with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up. However, PTR may create additional
classes of Parity Shares and other series of Preferred Shares ranking junior
to such series of Preferred Shares with respect in each case to the payment of
dividends, amounts upon liquidation, dissolution and winding up ("Junior
Shares"), increase the authorized number of Parity Shares and Junior Shares
and issue additional series of Parity Shares and Junior Shares without the
consent of any holder of Preferred Shares of such series.
Except as provided above and as required by law, the holders of Preferred
Shares of each series will not be entitled to vote on any merger or
consolidation involving PTR or a sale of all or substantially all of the
assets of PTR.
CONVERSION RIGHTS
The terms and conditions, if any, upon which Preferred Shares of any series
are convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Common Shares into which the Preferred Shares of such series are 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 Shares of such series or PTR, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of the Preferred Shares of such series.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Shares--Restriction on Size
of Holdings," for PTR to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
shares of beneficial interest may be owned by five or fewer individuals at any
time during the last half of a taxable year, and the capital stock must be
beneficially owned by 100 or more persons during at least 335 days of PTR's
taxable year of 12 months. Therefore, the Articles Supplementary for each
series of Preferred Shares will contain certain provisions restricting the
ownership and transfer of the Preferred Shares (the "Preferred Shares
Ownership Limit Provision"). Except as otherwise described in the applicable
Prospectus Supplement relating thereto, the provisions of each Articles
Supplementary relating to the Preferred Shares Ownership Limit will provide
(as in the case of the Series A Preferred Shares and the Series B Preferred
Shares) as summarized below.
The Preferred Shares Ownership Limit Provision will provide that, subject to
certain exceptions contained in such Articles Supplementary, no person, or
persons acting as a group, may beneficially own more than 25% of any series of
Preferred Shares outstanding at any time, except as a result of PTR's
redemption of Preferred Shares. Shares acquired in excess of the Preferred
Shares Ownership Limit Provision must be redeemed by PTR
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at a price equal to the average daily per share closing sale price during the
30-day period ending on the business day prior to the redemption date. Such
redemption is not applicable if a person's ownership exceeds the limitations
due solely to PTR's redemption of Preferred Shares; provided that thereafter
any additional Preferred Shares acquired by such person shall be Excess Shares
(as hereinafter defined). See "Description of Common Shares--Restriction on
Size of Holdings." From and after the date of notice of such redemption, the
holder of the Preferred Shares thus redeemed shall cease to be entitled to any
distribution (other than distributions declared prior to the date of notice of
redemption), voting rights and other benefits with respect to such shares
except the right to receive payment of the redemption price determined as
described above. The Preferred Shares Ownership Limit Provision may not be
waived with respect to certain affiliates of PTR.
All certificates representing shares of Preferred Shares will bear a legend
referring to the restrictions described above.
DESCRIPTION OF COMMON SHARES
GENERAL
The Declaration of Trust authorizes PTR to issue up to 150,000,000 Shares of
Beneficial Interest, par value $1.00 per share, consisting of Common Shares,
Preferred Shares and such other types or classes of shares of beneficial
interest as the Board may create and authorize from time to time. At July 31,
1997 approximately 79,399,839 Common Shares were issued and outstanding and
held of record by approximately 3,000 shareholders.
The following description sets forth certain general terms and provisions of
the Common Shares to which any Prospectus Supplement may relate, including a
Prospectus Supplement which provides for Common Shares issuable pursuant to
subscription offerings or rights offerings or upon conversion of Preferred
Shares which are offered pursuant to such Prospectus Supplement and
convertible into Common Shares for no additional consideration. The statements
below describing the Common Shares are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the
Declaration of Trust and PTR's Bylaws.
The outstanding Common Shares are fully paid and, except as set forth below
under "--Shareholder Liability," non-assessable. Each Common Share entitles
the holder to one vote on all matters requiring a vote of shareholders,
including the election of Trustees. Holders of Common Shares do not have the
right to cumulate their votes in the election of Trustees, which means that
the holders of a majority of the outstanding Common Shares can elect all of
the Trustees then standing for election. Holders of Common Shares are entitled
to such distributions as may be declared from time to time by the Board out of
funds legally available therefor. Holders of Common Shares have no conversion,
redemption, preemptive or exchange rights to subscribe to any securities of
PTR. In the event of a liquidation, dissolution or winding up of the affairs
of PTR, the holders of the Common Shares are entitled to share ratably in the
assets of PTR remaining after provision for payment of all liabilities to
creditors and payment of liquidation preferences and accrued dividends, if
any, on the Series A Preferred Shares and Series B Preferred Shares, and
subject to the rights of holders of other series of Preferred Shares, if any.
The right of holders of the Common Shares are subject to the rights and
preferences established by the Board for the Series A Preferred Shares and
Series B Preferred Shares and any other series of Preferred Shares which may
subsequently be issued by PTR. See "Description of Preferred Shares."
PURCHASE RIGHTS
On July 11, 1994, the Board declared a dividend of one preferred share
purchase right (a "Purchase Right") for each Common Share outstanding, payable
to holders of Common Shares of record at the close of business on July 21,
1994. The holders of any additional Common Shares issued after such date and
before the redemption or expiration of the Purchase Rights are also entitled
to receive one Purchase Right for each such additional Common Share. Each
Purchase Right entitles the holder under certain circumstances to purchase
from PTR one
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one-hundredth of a share of a series of participating preferred shares, par
value $1.00 per share (the "Participating Preferred Shares") at a price of
$60.00 per one one-hundredth of a Participating Preferred Share, subject to
adjustment. Purchase Rights are exercisable when a person or group of persons
acquires 20% or more of the outstanding Common Shares (49% in the case of
Security Capital Group and its affiliates) or announces a tender offer or
exchange offer for 25% or more of the outstanding Common Shares. Under certain
circumstances, each Purchase Right entitles the holder to purchase, at the
Purchase Right's then current exercise price, a number of Common Shares having
a market value of twice the Purchase Right's exercise price. The acquisition
of PTR pursuant to certain mergers or other business transactions would
entitle each holder to purchase, at the Purchase Right's then current exercise
price, a number of the acquiring company's common shares having a market value
at the time equal to twice the Purchase Right's exercise price. The Purchase
Rights held by certain 20% shareholders (other than Security Capital Group)
would not be exercisable. The Purchase Rights will expire on July 21, 2004 and
are subject to redemption in whole, but not in part, at a price of $.01 per
Purchase Right payable in cash, shares of PTR or any other form of
consideration determined by the Board.
TRANSFER AGENT
The transfer agent and registrar for the Common Shares is ChaseMellon
Shareholder Services, L.L.C. The Common Shares are listed on the New York
Stock Exchange (the "NYSE") under the symbol "PTR."
RESTRICTION ON SIZE OF HOLDINGS
The Declaration of Trust restricts beneficial ownership of PTR's outstanding
shares of beneficial interest by a single person, or persons acting as a
group, to 9.8% of such shares. The purposes of the restriction are to assist
in protecting and preserving PTR's REIT status and to protect the interest of
shareholders in takeover transactions by preventing the acquisition of a
substantial block of shares unless the acquiror makes a cash tender offer for
all outstanding shares. For PTR to qualify as a REIT under the Code, not more
than 50% in value of its outstanding shares of beneficial interest may be
owned by five or fewer individuals at any time during the last half of any
taxable year. The restriction permits five persons to acquire up to a maximum
of 9.8% each, or an aggregate of 49% of the outstanding shares, and, thus,
assist the Board in protecting and preserving PTR's REIT status for tax
purposes. This restriction does not apply to Security Capital Group, which
counts as numerous holders for purposes of the tax rule, because its shares
are attributed to its shareholders for purposes of this rule.
Shares of beneficial interest owned by a person or group of persons in
excess of 9.8% (49% in the case of Security Capital Group and its affiliates)
of the outstanding shares of beneficial interest ("Excess Shares") are subject
to redemption by PTR, at its option, upon 30 days' notice, at a price equal to
the average daily per share closing sale price during the 30-day period ending
on the business day prior to the redemption date. PTR may make payment of the
redemption price at any time or times up to the earlier of five years after
the redemption date or liquidation of PTR. PTR may refuse to effect the
transfer of any shares of beneficial interest which would make the transferee
a holder of Excess Shares. Shareholders of PTR are required to disclose, upon
demand of the Board, such information with respect to their direct and
indirect ownership of shares of PTR as the Board deems necessary to comply
with the provisions of the Code pertaining to qualification, for tax purposes,
of REITs, or to comply with the requirements of any other appropriate taxing
authority.
The 9.8% restriction does not apply to acquisitions by any underwriter in a
public offering and sale of shares of beneficial interest of PTR or to any
transaction involving the issuance of shares of beneficial interest in which a
majority of the Board determines that the eligibility of PTR to qualify as a
REIT for federal income tax purposes will not be jeopardized or the
disqualification of PTR as a REIT is advantageous to the shareholders.
Security Capital Group's ownership of shares is attributed for tax purposes to
its shareholders. The Board has permitted Security Capital Group to acquire up
to 49% of the outstanding Common Shares.
TRUSTEE LIABILITY
The Declaration of Trust provides that Trustees shall not be individually
liable for any obligation or liability incurred by or on behalf of PTR or by
Trustees for the benefit and on behalf of PTR. Under the Declaration of
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Trust and Maryland law governing REITs, Trustees are not liable to PTR or the
shareholders for any act or omission except for acts or omissions which
constitute bad faith, willful misfeasance or gross negligence in the conduct
of their duties.
SHAREHOLDER LIABILITY
Both Maryland statutory law governing REITs organized under the laws of the
state and the Declaration of Trust provide that shareholders shall not be
personally or individually liable for any debt, act, omission or obligation of
PTR or the Board. The Declaration of Trust further provides that PTR shall
indemnify and hold each shareholder harmless from all claims and liabilities
to which the shareholder may become subject by reason of his or her being or
having been a shareholder and that PTR shall reimburse each shareholder for
all legal and other expenses reasonably incurred by the shareholder in
connection with any such claim or liability, except to the extent that such
claim or liability arises out of the shareholder's bad faith, willful
misconduct or gross negligence and provided that such shareholder gives PTR
prompt notice of any such claim or liability and permits PTR to conduct the
defense thereof. In addition, PTR is required to, and as a matter of practice
does, insert a clause in its management and other contracts providing that
shareholders assume no personal liability for obligations entered into on
behalf of PTR. Nevertheless, with respect to tort claims, contractual claims
where shareholder liability is not so negated, claims for taxes and certain
statutory liability, the shareholders may, in some jurisdictions, be
personally liable to the extent that such claims are not satisfied by PTR.
Inasmuch as PTR carries public liability insurance which it considers
adequate, any risk of personal liability to shareholders is limited to
situations in which PTR's assets plus its insurance coverage would be
insufficient to satisfy the claims against PTR and its shareholders.
FEDERAL INCOME TAX CONSIDERATIONS
PTR intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a description of the federal income tax consequences to PTR
and its shareholders of the treatment of PTR as a REIT. Since these provisions
are highly technical and complex, each prospective purchaser of the Offered
Securities is urged to consult his or her own tax advisor with respect to the
federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of the Offered Securities.
Based upon certain representations of PTR with respect to the facts as set
forth and explained in the discussion below, in the opinion of Mayer, Brown &
Platt, counsel to PTR, PTR has been organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
described in this Prospectus and as represented by management will enable it
to satisfy the requirements for such qualification.
This opinion is conditioned upon certain representations made by PTR as to
certain factual matters relating to PTR's organization and intended or
expected manner of operation. In addition, this opinion is based on the law
existing and in effect on the date hereof. PTR's qualification and taxation as
a REIT will depend on PTR's ability to meet on a continuing basis, through
actual operating results, asset composition, distribution levels and diversity
of stock ownership, the various qualification tests imposed under the Code
discussed below. Mayer, Brown & Platt will not review compliance with these
tests on a continuing basis. No assurance can be given that PTR will satisfy
such tests on a continuing basis.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities such as PTR, that invest primarily in real estate
and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (at both the corporate and
shareholder levels) that generally results from the use of corporations.
If PTR fails to qualify as a REIT in any year, however, it will be subject
to federal income taxation as if it were a domestic corporation, and its
shareholders will be taxed in the same manner as shareholders of ordinary
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corporations. In this event, PTR could be subject to potentially significant
tax liabilities, and therefore the amount of cash available for distribution
to its shareholders would be reduced or eliminated.
The Board believes that PTR has been organized and operated and currently
intends that PTR will continue to operate in a manner that permits it to
qualify as a REIT. There can be no assurance, however, that this expectation
will be fulfilled, since qualification as a REIT depends on PTR continuing to
satisfy numerous asset, income and distribution tests described below, which
in turn will be dependent in part on PTR's operating results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain
types of shareholders (including insurance companies, tax-exempt entities,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States) subject to special
treatment under the federal income tax laws.
TAXATION OF PTR
To qualify as a REIT under the Code for a taxable year, PTR must meet
certain organizational and operational requirements.
Asset Tests
At the close of each quarter of PTR's taxable year, PTR must satisfy certain
tests relating to the nature of its assets (determined in accordance with
generally accepted accounting principles). First, at least 75% of the value of
PTR's total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other REITs, cash, cash
items, and government securities, and qualified temporary investments. Second,
although the remaining 25% of PTR's assets generally may be invested without
restriction, securities in this class may not exceed either (i) in the case of
securities of any non-government issuer, 5% of the value of PTR's total assets
or (ii) 10% of the outstanding voting securities of any one issuer.
Gross Income Tests
For each taxable year at least 75% of PTR's gross income must be derived
from certain real estate sources, including rents from real property and
interest on mortgage obligations. Real estate sources for purposes of those
requirements also include gains from the sale of real property not held
primarily for sale to customers in the ordinary course of business, dividends
on REIT shares, interest on loans secured by mortgages on real property and
income from foreclosure property. For rents to qualify, they may not be based
on the income or profits of any person, except that they may be based on a
percentage or percentages of gross income or receipts, and, subject to certain
limited exceptions, the REIT's management of the property and rendering of
services to tenants must either be with respect to usual or customary services
or furnished through a qualified independent contractor.
In addition to deriving 75% of its gross income from the sources listed
above, at least 95% of PTR's gross income for the taxable year must be derived
from real estate sources described above or from dividends, interest, gains
from the sale or disposition of stock or other securities that are not dealer
property and specified other items. Dividends (including PTR's share of any
dividends paid by PTR Development Services Incorporated ("PTR Development
Services") and interest on any obligations not collateralized by an interest
in real property qualify for purposes of the 95% test, but not for purposes of
that 75% test.
PTR must also derive less than 30% of its gross income for each taxable year
from the sale or other disposition of: (i) real property held for less than
four years (other than foreclosure property and by reason of involuntary
conversion); (ii) stock or securities held for less than one year; and (iii)
property in a prohibited transaction.
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Ownership Restrictions
PTR must satisfy certain ownership restrictions under the Code that limit
(i) concentration of ownership of its shares of capital stock by specified
persons and (ii) ownership by PTR of its tenants. The Declaration of Trust
restricts the transfer of shares when necessary to maintain PTR's
qualification as a REIT under these standards. See "Description of Common
Shares--Restrictions on Size of Holdings." However, because the Code imposes
broad attribution rules in determining constructive ownership, no assurance
can be given that these restrictions would be effective in maintaining PTR's
REIT status.
Annual Distribution Requirements
So long as PTR qualifies for taxation as a REIT and distributes at least 95%
of its real estate investment trust taxable income (computed without respect
to net capital gains or the dividends paid deduction) for each taxable year to
its shareholders annually, PTR itself will not be subject to federal income
tax on that portion of such income distributed to shareholders. PTR will be
taxed at regular corporate rates on all income not distributed to
shareholders. Nevertheless, it is PTR's policy to distribute at least 95% of
its taxable income. REITs may also incur taxes for certain other activities.
Failure to Quality
If PTR fails to qualify for taxation as a REIT in any taxable year and
certain relief provisions do not apply, PTR will be subject to tax (including
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which PTR fails to quality
as a REIT will not be deductible by PTR, nor generally will they be required
to be made under the Code. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory provisions, PTR also will
be disqualified from reelecting taxation as a REIT for the four taxable years
following the year during which qualification was lost.
TAXATION OF PTR'S SHAREHOLDERS
Distributions paid to PTR's shareholders out of current or accumulated
earnings and profits of PTR will generally be taxed to them as ordinary
income. Such distributions are not eligible for the dividends-receivable
deduction for corporations. PTR's earnings and profits will first be allocated
to any outstanding Preferred Shares. A distribution of net capital gains by
PTR will generally be treated as a long-term capital gain to shareholders to
the extent properly designated by PTR as a capital gain distribution and
regardless of the length of time a shareholder has held his shares. Capital
gains distributions are not eligible for the dividends-received deduction for
corporations. Any loss on a sale of shares that were held for six months or
less and with respect to which a capital gain distribution was received will
be treated as a long-term capital loss, up to the amount of the capital gain
distribution received with respect to such shares. A distribution in excess of
current or accumulated earnings and profits will constitute a nontaxable
return of capital, to the extent of the shareholder's basis in his shares. To
the extent such a distribution exceeds such basis, it will be treated as
capital gain to those shareholders holding their shares as capital assets. PTR
will notify each shareholder as to the portions of each distribution that, in
its view, constitute ordinary income, capital gain or return of capital.
Should PTR incur ordinary or capital losses, shareholders will not be entitled
to include such losses in their own income tax returns.
OTHER TAX CONSIDERATIONS
Homestead Mortgages
PTR holds mortgage notes of Homestead Village Incorporated ("Homestead")
which are convertible into shares of Homestead common stock. Pursuant to the
terms of the funding commitment agreement, PTR funds $900,000 for each
$1,000,000 of convertible mortgage loans. Pursuant to Sections 1271 through
1275 of the
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Code and regulations thereunder, PTR will be treated as having acquired the
convertible mortgage loans with original issue discount in an amount equal to
the difference between the issue price (the amount funded by PTR) and the
principal amount at maturity of the convertible mortgage loans. PTR will be
required to accrue such original issue discount in income on a yield to
maturity basis over the terms of the convertible mortgage loans before receipt
of the cash attributable to such income. Because PTR is generally required to
distribute 95% of its income in order to retain its REIT status and 100% of
its income to avoid being taxed, PTR may be required to borrow funds in order
to distribute amounts attributable to any such original issue discount.
Interest paid by Homestead (and the original issue discount) to PTR on the
mortgage notes constitutes qualified income for purposes of determining
whether PTR meets the gross income requirements for REIT qualification.
The terms of the mortgages provide for adjustment of the price for
conversion of the mortgages into the Homestead common stock if Homestead makes
certain distributions of stock, cash or other property to its shareholders. If
Homestead makes a distribution of cash or property resulting in an adjustment
to the conversion price, PTR, as a holder of such convertible mortgages, may
be viewed as receiving a "deemed distribution" under Section 305 of the Code,
even if PTR does not hold any Homestead common stock at such time. The deemed
distribution would constitute a taxable dividend, taxable as ordinary income,
to the extent that the earnings and profits of Homestead were allocable to the
deemed distribution. The amount of the deemed distribution which exceeded the
allocated earnings and profits of Homestead would be considered a return of
capital and would reduce PTR's tax basis in the convertible mortgages (but not
below zero) by the value of the deemed distribution. To the extent that the
value of the deemed distribution exceeds PTR's tax basis in the convertible
mortgages, the deemed distribution would result in gain to PTR. PTR's tax
basis in the convertible mortgages would then immediately be increased by the
value of the property deemed to have been distributed.
Except as discussed below with respect to cash received in lieu of
fractional shares of Homestead common stock, PTR will not recognize gain or
loss upon the exercise of the conversion right. PTR's tax basis in the
Homestead common stock received upon the conversion will be equal to PTR's tax
basis in the mortgages converted. Upon conversion of the mortgages, PTR will
receive cash in lieu of any fractional shares of Homestead common stock and
will recognize gain to the extent that the cash received exceeds PTR's tax
basis in the portion of the mortgages converted for cash in lieu of fractional
shares. In the event that PTR exercises its conversion right, it is expected
that PTR, consistent with its status as a REIT, will shortly thereafter
distribute to its shareholders or sell in the open market the Homestead common
stock received. PTR will recognize gain upon such distribution or sale of the
Homestead common stock received upon conversion in an amount equal to the
excess of the fair market value of the Homestead common stock over PTR's tax
basis therein, and the earnings and profits of PTR will be increased by the
amount of any such gain recognized. In computing its taxable income for the
year in which any Homestead common stock is distributed, PTR will be allowed a
dividends-paid deduction in an amount equal to the fair market value at the
time of distribution of the Homestead common stock distributed, but in no
event in excess of the earnings and profits of PTR.
PTR Development Services
PTR Development Services will pay Federal and state income taxes at the full
applicable corporate rates on its income prior to payment of any dividends.
PTR Development Services will attempt to minimize the amount of such taxes,
but there can be no assurance whether or to the extent to which measures taken
to minimize taxes will be successful. To the extent that PTR Development
Services is required to pay Federal, state or local taxes, the cash available
for distribution by PTR Development Services to its shareholders will be
reduced accordingly.
Backup Withholding
PTR will report to its domestic shareholders and to the Internal Revenue
Service the amount of distributions paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at
applicable rates with respect to distributions paid unless such shareholder
(i) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no
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loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder that
does not provide PTR with its correct taxpayer identification number may also
be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be credited against the shareholder's income tax liability.
In addition, PTR may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to PTR.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP, AND SALES OF COMMON SHARES, PREFERRED SHARES OR DEBT SECURITIES IN
AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
PLAN OF DISTRIBUTION
PTR may sell the Offered Securities to one or more underwriters or dealers
for public offering and sale by them or may sell the Offered Securities to
investors directly or through agents, which agents may be affiliated with PTR.
Direct sales to investors may be accomplished through subscription offerings
or through subscription rights distributed to PTR shareholders and direct
placements to third parties. In connection with subscription offerings or the
distribution of subscription rights to shareholders, if all the underlying
Offered Securities are not subscribed for, PTR may sell such unsubscribed
Offered Securities to third parties directly or through agents and, in
addition, whether or not all of the underlying Offered Securities are
subscribed for, PTR may concurrently offer additional Offered Securities to
third parties directly or through agents, which agents may be affiliated with
PTR. Any underwriter, dealer or agent involved in the offer and sale of the
Offered Securities will be named in the applicable Prospectus Supplement.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions 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 (any of which may represent a discount from the prevailing
market price). PTR also may, from time to time, authorize underwriters acting
as PTR's agents to offer and sell the Offered Securities upon the terms and
conditions set forth in the applicable Prospectus Supplement. In connection
with the sale of Offered Securities, underwriters may be deemed to have
received compensation from PTR in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Offered
Securities 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 PTR to underwriters or agents in
connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities
may be deemed to be underwriters, and any discounts 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 PTR, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act. Any such indemnification agreements will be described in the applicable
Prospectus Supplement.
If so indicated in the applicable Prospectus Supplement, PTR will authorize
dealers acting as PTR's agents to solicit offers by certain institutions to
purchase Offered Securities from PTR 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
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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 PTR. 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, PTR 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 PTR and its subsidiaries in the
ordinary course of business.
EXPERTS
The financial statements of PTR as of December 31, 1996 and 1995, and for
each of the years in the three-year period ended December 31, 1996, and the
related schedule incorporated by reference herein, and the combined statements
of revenues and certain expenses for certain multifamily communities for the
years ended December 31, 1996 and 1995, incorporated by reference herein, have
been incorporated by reference herein and in the Registration Statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein and upon the authority of
said firm as experts in accounting and auditing.
With respect to the unaudited condensed interim financial statements for the
three-months ended March 31, 1997 and 1996, of PTR incorporated by reference
herein, the independent public accountants have reported that they applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report included in PTR's quarterly
report on Form 10-Q for the quarter ended March 31, 1997, incorporated by
reference herein, states that they did not audit, and they do not express an
opinion, on that interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted considering
the limited nature of the review procedures applied. The accountants are not
subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because such
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for PTR by Mayer,
Brown & Platt, Chicago, Illinois. Mayer, Brown & Platt has in the past
represented and is currently representing PTR and certain of its affiliates,
including Security Capital Group.
AVAILABLE INFORMATION
PTR is subject to the informational requirements of the Exchange Act and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Room
1204, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and 7 World Trade Center, 13th Floor, New York, New York 10048,
and are also available on the Commission's worldwide web site at
http://www.sec.gov. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. PTR's outstanding Common Shares, Series A
Preferred Shares and Series B Preferred Shares are listed on the NYSE under
the symbols "PTR," "PTR-PRA" and "PTR-PRB," respectively, and all such
reports, proxy statements and other information filed by PTR with the NYSE may
be inspected at the NYSE's offices at 20 Broad Street, New York, New York
10005.
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This Prospectus constitutes part of a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
by PTR with the Commission under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
INCORPORATION BY REFERENCE
There are incorporated herein by reference the following documents filed by
PTR with the Commission (File No. 1-10272):
(a) PTR's Annual Report on Form 10-K for the fiscal year ended December
31, 1996;
(b) PTR's Quarterly Report on Form 10-Q for the three months ended March
31, 1997;
(c) PTR's Current Reports on Form 8-K filed January 27, 1997, February
20, 1997, March 26, 1997, May 29, 1997 and July 21, 1997;
(d) The description of PTR's Common Shares of Beneficial Interest
contained in PTR's registration statement on Form 8-A, as amended; and
(e) The description of PTR's preferred share purchase rights contained in
PTR's registration statement on Form 8-A, as amended.
All documents subsequently filed by PTR pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act 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 a part hereof from the date of filing of 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 any subsequently filed document which is also 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.
PTR will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the information incorporated
herein by reference, other than exhibits to such information unless such
exhibits are specifically incorporated by reference into such documents.
Requests should be addressed to Secretary, Security Capital Pacific Trust, 7670
South Chester Street, Suite 100, Englewood, Colorado 80112, telephone number:
(303) 708-5959.
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GAPP
The inside front cover page contains a map of the Western United States
which shows the location of the registrant's primary target market cities and
properties.
The inside back cover page contains pictures and descriptions of eight
of the registrant's properties.
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOM-
PANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SO-
LICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH
IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SE-
CURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PTR
SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
PAGE
Security Capital Pacific Trust............................................ S-3
Terms of the Offering..................................................... S-6
Business.................................................................. S-7
Use of Proceeds........................................................... S-14
Price Range of Common Shares and Distributions............................ S-14
Capitalization............................................................ S-16
The Merger Transaction.................................................... S-17
Selected Financial Data................................................... S-24
Recent Operating Results.................................................. S-26
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-27
REIT Management........................................................... S-41
The Offering.............................................................. S-49
Certain Federal Income Tax Considerations................................. S-55
Validity of Common Shares................................................. S-59
PROSPECTUS
Security Capital Pacific Trust............................................ 2
Use of Proceeds........................................................... 2
Ratio Information......................................................... 2
Description of Debt Securities............................................ 3
Description of Preferred Shares........................................... 17
Description of Common Shares.............................................. 22
Federal Income Tax Considerations......................................... 24
Plan of Distribution...................................................... 28
Experts................................................................... 29
Legal Matters............................................................. 29
Available Information..................................................... 29
Incorporation by Reference................................................ 30
</TABLE>
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LOGO
52,034,025 RIGHTS TO PURCHASE
COMMON SHARES
7,433,433 COMMON SHARES
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PROSPECTUS SUPPLEMENT
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