PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 14, 1999)
WEINGARTEN REALTY INVESTORS
15,771 COMMON SHARES
_______________________
By this prospectus, we are issuing 15,771 of our common shares of
beneficial interest to holders of our series B preferred shares and series C
preferred shares to redeem those preferred shares. We will not receive any
proceeds from the issuance of the common shares in connection with the
redemption of the preferred shares. Our common shares are listed on the New
York Stock Exchange under the symbol "WRI." On December 14, 2000, the
closing sales price of our common shares was $42.4375 per share.
_______________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES DISCUSSED IN THE
PROSPECTUS, NOR HAVE THEY DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus supplement is December 15, 2000
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FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus include and
incorporate by reference forward-looking statements within the meaning of
federal securities laws. Forward-looking statements are those that predict or
describe future events or trends that do not relate solely to historical
matters. You can generally identify forward-looking statements as statements
containing the words "believe," "expect," "anticipate," "intend,"
"estimate,""assume" or other similar expressions. We have based these
forward-looking statements on our current expectations and projections about
future events.
These forward-looking statements are subject to risks, uncertainties and
assumptions about us, including among other things:
- our anticipated future acquisition and development strategies;
- tax risks, including our continued qualification as a real estate
investment trust;
- general real estate investment risks, including local market
conditions and rental rates, competition for tenants, tenant
defaults, possible environmental liabilities and financing
risks; and
- those other risk factors set forth in the accompanying prospectus.
Our actual results, performance or achievements may differ materially from
the anticipated results, performance or achievements that are expressed or
implied by our forward-looking statements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
THE COMPANY
We are a real estate investment trust based in Houston Texas. We develop,
acquire and own anchored neighborhood community shopping centers. To a lesser
degree, we develop, acquire and own industrial real estate. We have engaged in
these activities since 1948.
As of September 30, 2000, we owned or had an equity interest in 251
operating properties consisting of 28.8 million square feet of building area.
These properties consist of 196 shopping centers, generally in the 100,000 to
400,000 square foot range, 53 industrial projects, one multi-family apartment
complex and one office building. Our shopping centers are primarily located in
Texas (134 properties) and in Louisiana, Arizona, Nevada, Arkansas, New Mexico,
Oklahoma, Tennessee, Kansas, Colorado, Missouri, Illinois, Florida and Maine.
Our 53 industrial projects are located in Tennessee, Nevada and Texas.
Our shopping centers are anchored primarily by supermarkets, drug stores
and other retailers that sell basic necessity-type items. We currently lease to
3,300 different tenants under 4,200 separate leases. At September 30, 2000, our
properties were 92.8% occupied
Our executive offices are located at 2600 Citadel Plaza Drive, Suite 300,
Houston, Texas 77008 and our telephone number is (713) 866-6000.
USE OF PROCEEDS
We will receive no proceeds from the issuance of our common shares pursuant
to this prospectus supplement.
PLAN OF DISTRIBUTION
We have issued series B preferred shares and series C preferred shares
which are redeemable, at our option, upon the death of the holder of those
shares into cash or common shares of beneficial interest. The redemption price
for the series B preferred shares is $25.25 per share, and the redemption price
for the series C preferred shares is $50.50 per share. We are issuing the
common shares of beneficial interest under this prospectus supplement to redeem
14,460 series B preferred shares and 6,060 series C preferred shares.
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RECENT TAX LEGISLATION
On December 17, 1999, President Clinton signed into law the Ticket to Work
and Work Incentives Improvement Act of 1999, which contains changes in federal
income tax laws that, beginning after December 31, 2000, will affect REITs.
Under the new legislation, REITs may own stock in "taxable REIT subsidiaries,"
corporations that may provide services to tenants of the REIT and others without
disqualifying the rents that the REIT receives from its tenants. A taxable REIT
subsidiary is a corporation in which a REIT owns stock, directly or indirectly,
and with respect to which the corporation and the REIT have made a joint
election to treat the corporation as a taxable REIT subsidiary. Although a REIT
may own up to 100% of the stock of a taxable REIT subsidiary, (i) the value of
all securities in taxable REIT subsidiaries held by the REIT may not exceed 20%
of the value of the total assets of the REIT; and (ii) any dividends received by
the REIT from its taxable REIT subsidiaries will not constitute qualifying
income under the 75% income test. In addition, the new legislation limits the
deduction of interest paid by a taxable REIT subsidiary to the REIT and limits
the amount of rental payments that may be made by a taxable REIT subsidiary to
the REIT.
The new legislation imposes a tax on a REIT equal to 100% of redetermined
rents, redetermined deductions and excess interest. Redetermined rents are
generally rents from real property that would otherwise be reduced on
distribution, apportionment or allocation to clearly reflect income as a result
of services furnished or rendered by a taxable REIT subsidiary to tenants of the
REIT. There are a number of exceptions with regard to redetermined rents, which
are summarized below.
- Redetermined rents do not include amounts received directly or
indirectly by a REIT for customary services.
- Redetermined rents do not include de minimus payments received by
the REIT with respect to non-customary services rendered to the
tenants of a property owned by the REIT that do not exceed 1% of all
amounts received by the REIT with respect to the property.
- The redetermined rent provisions do not apply with respect to any
services rendered by a taxable REIT subsidiary to the tenants of
the REIT, as long as the taxable REIT subsidiary renders a
significant amount of similar services to persons other than the
REIT and to tenants who are unrelated to the REIT or the taxable
REIT subsidiary or the REIT tenants, and the charge for these
services is substantially comparable to the charge for similar
services rendered to such unrelated persons.
- The redetermined rent provisions do not apply to any services
rendered by a taxable REIT subsidiary to a tenant of a REIT if
the rents paid by tenants leasing at least 25% of the net leasable
space in the REIT's property who are not receiving such services
are substantially comparable to the rents paid by tenants leasing
comparable space who are receiving the services and the charge
for the services is separately stated.
- The redetermined rent provisions do not apply to any services
rendered by a taxable REIT subsidiary to tenants of a REIT if the
gross income of the taxable REIT subsidiary from these services is
at least 150% of the taxable REIT subsidiary's direct cost of
rendering the services.
- The Secretary has the power to waive the tax that would otherwise
be imposed on redetermined rents if the REIT establishes to the
satisfaction of the Secretary that rents charged to tenants
were established on an arms' length basis even though a taxable
REIT subsidiary provided services to the tenants.
Redetermined deductions are deductions, other than redetermined rents, of a
taxable REIT subsidiary if the amount of these deductions would be decreased on
distribution, apportionment or allocation to clearly reflect income between the
taxable REIT subsidiary and the REIT. Excess interest means any deductions for
interest payments made by a taxable REIT subsidiary to the REIT to the extent
that the interest payments exceed a commercially reasonable rate of interest.
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Under the new legislation, a REIT will be prohibited from owning more than
10%, by vote or by value, of the securities, other than specified debt
securities, of a non-REIT C corporation. This does not, however, apply to
taxable REIT subsidiaries, qualified REIT subsidiaries and non-qualified
corporate subsidiaries in which the REIT does not own more than 10% of the
voting securities, provided the non-qualified subsidiary was established on or
before July 12, 1999, does not engage in a new line of business or acquire any
substantial asset (other than pursuant to a binding contract in effect as of
July 12, 1999, a tax-free exchange, an involuntary conversion or a
reorganization with another non-qualified corporate subsidiary) and the REIT
does not acquire any new securities in such subsidiary (other than pursuant to a
binding contract in effect as of July 12, 1999 or a reorganization with another
non-qualified corporate subsidiary). Under the new legislation, a REIT may
convert existing non-qualified corporate subsidiaries into taxable REIT
subsidiaries in a tax-free reorganization at any time prior to January 1, 2004.
Under the new legislation, the 95% distribution requirement discussed in
the accompanying prospectus under the caption "Federal Income Tax Consequences"
is reduced to 90% of REIT taxable income. Also under the new legislation, the
basis for determining whether more than 15% of the rents is received by a REIT
from a property are attributable to personal property is based upon a comparison
of the fair market value of the personal property leased by the tenant as
compared to the fair market value of all of the property leased by the tenant,
rather than the adjusted basis of such personal property compared to the
adjusted basis of all such property.
Additionally, the Tax Relief Extension Act of 1999 was recently enacted and
contains several tax provisions regarding REITs, including a reduction of the
annual distribution requirements for REIT taxable income from 95% to 90%. The
act also changes the 10% voting securities test under current law to a 10% vote
or value test. Thus, subject to specific exceptions, a REIT will no longer be
allowed to own more than 10% of the vote or value of any issuer, other than a
qualified REIT subsidiary or another REIT. One exception to this new test,
which is also an exception to the 5% asset test under current law, allows a REIT
to own any or all of the securities of a "taxable REIT subsidiary." A taxable
REIT subsidiary can perform non-customary services for tenants for a REIT
without disqualifying rents received from those tenants for purposes of the
REIT's gross income tests and can also undertake third-party management and
development activities as well as non-real estate related activities. A taxable
REIT subsidiary will be taxed as a regular C corporation but will be subject to
earnings stripping limitations on the deductibility of interest paid to its
REIT. In addition, a REIT will be subject to a 100% excise tax on specific
excess amounts to ensure that (1) tenants who pay a taxable REIT subsidiary for
services are charged an arm's-length amount by the taxable REIT subsidiary for
the service, rather than paying an excessive amount to the REIT as rent, (2)
shared expenses of a REIT and its taxable REIT subsidiary are allocated fairly
between the two, and (3) interest paid by a taxable REIT subsidiary to its REIT
is commercially reasonable. Securities of a taxable REIT subsidiary will
constitute non-real estate assets for purposes of determining whether at least
75% of a REIT's assets consist of real estate. In addition, no more than 20% of
a REIT's total assets can consist of securities of taxable REIT subsidiaries.
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PROSPECTUS
WEINGARTEN REALTY INVESTORS
$400,000,000
COMMON SHARES, PREFERRED SHARES, DEPOSITARY SHARES,
DEBT SECURITIES AND SECURITIES WARRANTS
_______________________
By this prospectus, we will offer from time to time up to $400,000,000
of our:
Common Shares
Preferred Shares
Depositary Shares
Debt Securities
Securities Warrants
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and the supplements carefully
before you invest in any of these securities.
We may offer the securities directly or through underwriters, agents or
dealers. Each supplement will describe the terms of each plan of distribution.
For more information on this topic, please see "PLAN OF DISTRIBUTION" on page
21.
_______________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES DISCUSSED IN THE
PROSPECTUS, NOR HAVE THEY DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is September 14, 1999
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a "shelf" registration statement that we filed
with the SEC. By using a shelf-registration statement, we may sell, from time to
time, in one or more offerings, any combination of the securities described in
this prospectus. The total dollar amount of the securities we sell through these
offerings will not exceed $400,000,000. This prospectus only provides you with a
general description of the securities we may offer. Each time we sell
securities, we will provide you with a prospectus supplement that contains
specific information about the terms of the securities being offered. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with the additional information described under the heading
"WHERE YOU CAN FIND MORE INFORMATION" on page 22.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus and may make statements in a
prospectus supplement that are "forward-looking" in that they do not discuss
historical fact, but instead note future expectations, projections, intentions
or other items relating to the future. These forward-looking statements include
those made in the documents incorporated by reference in this prospectus.
Forward-looking statements are subject to known and unknown risks,
uncertainties and other facts that may cause our actual results or performance
to differ materially from those contemplated by the forward-looking statements.
Many of those factors are noted in conjunction with the forward-looking
statements in the text. Other important factors that could cause actual results
to differ include:
- Our inability to identify properties to acquire, effect acquisitions
or successfully integrate acquired properties and operations. This
inability could result in decreased market penetration, adverse effects
on results of operations and other adverse results. This same result
could occur if the results of our efforts to implement our property
development strategy fail or we experience public opposition to our
development plans, construction delays or cost overruns or if we are
unable to obtain necessary permits.
- The effect of economic conditions. If an economic downturn occurs, the
demand and rents for neighborhood and community shopping centers could
fall and adversely affect our financial condition and results of
operations. Our financial condition and results of operations could
also be adversely affected if our tenants are unable to make lease
payments or fail to renew their leases.
- Failure to qualify as a REIT. We elected to be taxed as a REIT for
federal income tax purposes for our taxable year ended December 31,
1998, and expect to continue to elect REIT status. Although we
believe that we were organized and have been operating in conformity
with the requirements for qualification as a REIT under the Internal
Revenue Code, we cannot assure you that we will continue to qualify
as a REIT.
Qualification as a REIT involves the application of highly technical and
complex Internal Revenue Code provisions for which there are only limited
judicial or administrative interpretations. If in any taxable year we fail to
qualify as a REIT, we would not be allowed a deduction for distributions to
shareholders for computing taxable income and would be subject to federal
taxation at regular corporate rates. Unless entitled to statutory relief, we
would also be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost. As a result, our ability
to make distributions to our shareholders would be adversely affected. See
"Federal Income Tax Consequences - REIT Qualification" on page 12.
- The cost of capital. Our cost depends on many factors, some of which
are beyond our control, including interest rates, ratings, prospects
and outlook.
- Actions of our competitors. We seek to remain competitive in the
neighborhood and community shopping center real estate markets that we
currently serve. We do, however, compete with a number of other
real estate oriented companies, some of which have greater resources
than we do.
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- Changes in government regulations, tax rates and similar matters. For
example, changes in real estate and zoning laws, environmental
uncertainties and natural disasters could adversely affect our
financial condition and results of operations.
- Unexpected Year 2000 problems. We have completed an evaluation of
our software and hardware information technology systems and determined
that all of our critical systems are Year 2000 compliant. As part
of the on-going maintenance of our information technology systems,
we have identified certain noncritical software and hardware which we
must either upgrade or replace. In addition, we have completed the
Year 2000 review of our systems not related to information technology
and believe we are Year 2000 compliant.
- Other risks are detailed in our SEC reports or filings.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
THE COMPANY
We are a real estate investment trust based in Houston, Texas. We develop,
acquire and own anchored neighborhood community shopping centers. To a lesser
degree, we develop, acquire and own industrial real estate. We have engaged in
these activities since 1948.
As of July 31, 1999, we owned or had an equity interest in 235 operating
properties consisting of 28.7 million square feet of building area. These
properties consist of 184 shopping centers generally in the 100,000 to 4000,000
square foot range, 49 industrial projects, one multi-family apartment complex
and one office building. Our properties are located in Texas (178 properties)
and the following states: Louisiana (11), Arizona (11), Nevada (8), Arkansas
(6), New Mexico (5), Oklahoma (4), Tennessee (4), Kansas (3), Colorado (2),
Maine (1), Missouri (1) and Illinois (1). Our shopping centers are anchored
primarily by supermarkets, drugstores and other retailers that sell basic
necessity-type items. We currently lease to approximately 3,000 different
tenants under 4,000 separate leases. At July 31, 1999, our properties were
92.7% occupied.
Our executive offices are located at 2600 Citadel Plaza Drive, Suite 300,
Houston, Texas 77008, and our telephone number (713) 866-6000.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities for
general corporate purposes, including working capital, acquisitions and
development, repayment or refinancing of debt, capital expenditures and
other general corporate purposes. We will describe in each prospectus
supplement any proposed use of proceeds.
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RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred share dividends and of funds from operations before
interest expense to combined fixed charges and preferred share dividends for the
periods shown:
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
--------------------------------- --------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed
Charges and Preferred Share Dividends. . . . 4.16x 3.05x 3.17x 2.70x 2.26x 2.29x 1.97x
Ratio of Funds from Operations to
Combined Fixed Charges and Preferred Share
Dividends. . . . . . . . . . . . . . . . . . 6.18x 4.51x 4.32x 3.77x 3.26x 3.38x 2.82x
</TABLE>
The ratios of earnings to combined fixed charges and preferred share
dividends were computed by dividing earnings by the sum of fixed charges and
preferred share dividends. The ratios of funds from operations before interest
expense to combined fixed charges and preferred share dividends were computed by
dividing funds from operations before interest expense by the sum of fixed
charges and preferred share dividends.
For these purposes, earnings consist of income before extraordinary items
plus fixed charges (excluding interest costs capitalized) and preferred share
dividends. Funds from operations before interest expense consists of net income
plus depreciation and amortization of real estate assets, interest on
indebtedness and extraordinary charges, less gains and losses on sales of
properties and securities.
DESCRIPTION OF CAPITAL SHARES
Our declaration of trust provides that we may issue up to 160,000,000
shares of beneficial interest, consisting of 150,000,000 common shares, par
value $0.03 per share and 10,000,000 preferred shares, par value $.03 per share.
At July 31, 1999, 26,692,018 common shares, 3,000,000 7.44% Series A Cumulative
Redeemable Preferred Shares, 3,600,000 7.125% Series B Cumulative Redeemable
Preferred Shares and 2,300,000 7.0% Series C Cumulative Redeemable preferred
shares were issued and outstanding.
COMMON SHARES
Holders of our common shares are entitled to one vote per share. There is
no cumulative voting in the election of trust managers. The board may declare
dividends on common shares in its discretion if funds are legally available for
those purposes. On liquidation, common shareholders are entitled to receive pro
rata any of our remaining assets, after we satisfy or provide for the
satisfaction of all liabilities and obligations on our preferred shares, if any.
Common shareholders do not have conversion, redemption or preemptive rights to
subscribe for or purchase any of our capital shares or any of our other
securities.
PREFERRED SHARES
Under our declaration of trust, the board is authorized, without
shareholder approval, to issue preferred shares in one or more series, with the
designations, powers, preferences, rights, qualifications, limitations and
restrictions as the board determines. Thus, the board, without shareholder
approval, could authorize the issuance of preferred shares with voting,
conversion and other rights that could adversely affect the voting power and
other rights of our common shareholders or that could make it more difficult for
another entity to enter into a business combination with us.
DEPOSITARY SHARES
We may issue receipts for depositary shares, each of which will represent a
fractional interest of a share of a particular series of preferred shares, as
specified in the applicable prospectus supplement. The preferred shares of each
series represented by depositary shares will be deposited under a separate
deposit agreement among us, the depositary named in the deposit agreement and
the holders of the depositary receipts. Subject to the terms of the applicable
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deposit agreement, each owner of a depositary receipt will be entitled, in
proportion to the fractional interest of a share of a particular series of
preferred shares represented by the depositary shares evidenced by the
depositary receipt, to all the rights and preferences of the preferred shares
represented by the depositary shares (including dividend, voting, conversion,
redemption and liquidation rights) as designated by our board.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the applicable deposit agreement. Immediately following our issuance
and delivery of the preferred shares to the depositary, we will cause the
depositary to issue, on our behalf, the depositary receipts. This summary of
our depositary shares is not complete. You should refer to the applicable
prospectus supplement, provisions of the deposit agreement and the depositary
receipts that will be filed with the SEC as part of the offering of any
depositary shares. To obtain copies of these documents, see "WHERE YOU CAN FIND
MORE INFORMATION" on page 22.
RESTRICTIONS ON OWNERSHIP
In order for us to qualify as a REIT under the Internal Revenue Code, not
more than 50% in value of our outstanding capital shares may be owned,
directly or indirectly, by five or fewer individuals during the last half of a
taxable year. In addition, our capital shares must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a shorter taxable year.
Because the board believes it is essential for us to continue to qualify as
a REIT, our declaration of trust generally provides that no holder may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
9.8% of our total outstanding capital shares. Any transfer of shares will not be
valid if it would:
- create a direct or indirect ownership of shares in excess of 9.8% of
our total outstanding capital shares;
- result in shares being owned by fewer than 100 persons;
- result in our being "closely held" within the meaning of Section 856(h)
of the Code; or
- result in our disqualification as a REIT.
Shares in excess of 9.8% of our total outstanding capital shares will
automatically be deemed to be transferred to us as trustee of a trust for the
exclusive benefit of the transferees to whom those shares may ultimately be
transferred without violating the 9.8% ownership limit. While in trust, these
shares will not be entitled to vote (except as required by law), and will not be
entitled to participate in dividends or other distributions. These shares would
be treated as if offered to us for sale at a price equal to the lesser of the
price paid for the shares and the market price of the shares on the date we
accept the offer to purchase the shares. We have the right to purchase the
shares for 90 days after the transfer of shares which resulted in a shareholder
owning in excess of 9.8% of our total outstanding shares or our trust managers
determine that a transfer resulting in a shareholder owning in excess of 9.8% of
our outstanding shares has occurred. All certificates representing capital
shares will bear a legend referring to the restrictions described above.
These restrictions on ownership may have the effect of precluding the
acquisition of control unless the board and shareholders determine that
maintenance of REIT status is no longer in our best interests.
DESCRIPTION OF SECURITIES WARRANTS
We may issue securities warrants for the purchase of debt securities,
preferred shares or common shares. We may issue securities warrants
independently or together with debt securities, preferred shares or common
shares or attached to or separate from the offered securities. We will issue
each series of securities warrants under a separate warrant agreement between us
and a bank or trust company as warrant agent.
The warrant agent will act solely as our agent in connection with the
securities warrants and will not act for or on behalf of securities warrant
holders. This summary of the securities warrants is not complete. You should
refer to the applicable prospectus supplement, and provisions of the warrant
agreement that will be filed with the SEC as part of the offering of any
securities warrants. To obtain copies of these documents, see "WHERE YOU CAN
FIND MORE INFORMATION" on page 22.
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DESCRIPTION OF DEBT SECURITIES
The senior debt securities will be issued under a senior indenture dated as
of May 1, 1995 between us and Chase Bank of Texas, National Association, as
trustee, and the subordinated debt securities will be issued under a
subordinated indenture dated as of May 1, 1995 between us and Chase Bank of
Texas, National Association, as trustee. The term "trustee" as used in this
prospectus refers to any bank that we may appoint as trustee under the terms of
the applicable indenture, in its capacity as trustee for the senior securities
or the subordinated securities.
We have summarized specific terms and provisions of the indentures.
The summary is not complete. If we refer to particular provisions of the
indentures, the provisions, including definitions of terms, are incorporated by
reference as a part of the summary. We have included references to articles or
section numbers of the applicable indenture so that you can easily locate these
provisions in the indentures. The indentures are filed as exhibits to the
registration statement of which this prospectus is a part, and are incorporated
by reference. You should refer to the indentures for provisions which may be
important to you. The indentures are subject to the Trust Indenture Act of 1939,
as amended. To obtain copies of the indentures, see "WHERE YOU CAN FIND MORE
INFORMATION" on page 22.
GENERAL
The debt securities will be direct, unsecured general obligations. The
senior debt securities will rank equally with all of our other unsecured and
unsubordinated indebtedness. The subordinated debt securities will be
subordinated in right of payment to the prior payment in full of our senior debt
securities. See "Subordinated Debt Securities" on page 7.
The indentures do not limit the amount of debt securities that we can
offer. Each indenture allows us to issue debt securities up to the principal
amount that may be authorized by us. We may issue additional debt securities
without your consent. We may issue debt securities in one or more series. 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)
A prospectus supplement and any supplemental indentures relating to any
series of debt securities being offered will include specific terms relating to
the offering. These terms will include some or all of the following:
- the title, type and amount of the debt securities;
- the total principal amount and priority of the debt securities;
- the percentage of the principal amount at which the debt securities will
be issued and any payments due if the maturity of the debt securities
is accelerated;
- the dates on which the principal of the debt securities will be payable;
- the interest rates (which may be fixed or variable) which the debt
securities will bear, or the method for determining rates;
- the dates from which the interest on the debt securities will accrue and
be payable, or the method of determining those dates, and any record dates
for the payments due;
- any provisions for redemption, conversion or exchange of the debt
securities, at our option or otherwise, including the periods, prices and
terms of redemption or conversion;
- any sinking fund or similar provisions, which would obligate us to
repurchase or otherwise redeem the debt securities, along with the
periods, prices and terms of redemption, purchase or repayment;
- the amount or percentage payable if we accelerate the maturity of the debt
securities, if other than the principal amount;
- any changes to or additional events of default or covenants set forth in
the indentures;
- the terms of subordination, if any;
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- any special tax implications of the debt securities, including provisions
for original issue discount securities; and
- any other terms consistent with the indenture.
The debt securities may be issued in registered, bearer, coupon or global
form. We may authorize and determine the terms of a series of debt securities by
resolution of our board of trust managers or the pricing committee of our board
of trust managers or through a supplemental indenture. Unless otherwise
described in the applicable prospectus supplement, we will issue debt securities
only in denominations of $1,000 and integral multiples of that amount. (Section
301)
SENIOR DEBT SECURITIES
Any additional senior debt securities we issue will rank equally in right
of payment with the senior debt securities offered by this prospectus and the
applicable prospectus supplement. Further, the senior indenture does not
prohibit us from issuing additional debt securities that may rank equally in
right of payment to the senior debt securities.
Any senior debt securities offered pursuant to the senior indenture will be
senior in right of payment to all subordinated debt securities issued under the
subordinated indenture.
SUBORDINATED DEBT SECURITIES
The subordinated debt securities will have a junior position to all of our
senior debt. Under the subordinated indenture, payment of the principal,
interest and any premium on the subordinated debt securities will generally be
subordinated and junior in right of payment to the prior payment in full of all
senior debt. The subordinated indenture provides that no payment of principal,
interest and any premium on the subordinated debt securities may be made in the
event:
- of any insolvency, bankruptcy or similar proceeding involving us or our
properties; or
- we fail to pay the principal, interest, any premium or any other amounts
on any senior debt when due.
The subordinated indenture will not limit the amount of senior debt that we
may incur. All series of subordinated debt securities as well as other
subordinated debt issued under the subordinated indenture will rank equally with
each other in right of payment.
The subordinated indenture prohibits us from making a payment of principal,
premium, interest, or sinking fund payments for the subordinated debt securities
during the continuance of any default on senior debt or any default under any
agreement pursuant to which the senior debt was issued beyond the grace period,
unless and until the default on the senior debt is cured or waived.
(Subordinated Indenture Article Sixteen)
Upon any distribution of our assets in connection with any dissolution,
winding up, liquidation, reorganization, bankruptcy or other similar proceeding,
the holders of all senior debt securities will first be entitled to receive
payment in full of the principal, any premium and interest due on the senior
debt before the holders of the subordinated debt securities are entitled to
receive any payment. (Subordinated Indenture Article Sixteen) Because of this
subordination, if we become insolvent, our creditors who are not holders of
senior debt or of the subordinated debt securities may recover less, ratably,
than holders of senior debt but may recover more, ratably, than holders of the
subordinated debt securities.
GLOBAL CERTIFICATES
Unless the prospectus supplement otherwise provides, we will issue debt
securities as one or more global certificates that will be deposited with The
Depositary Trust Company. Unless otherwise specified in the applicable
prospectus supplement, debt securities issued in the form of a global
certificate to be deposited with DTC will be represented by a global certificate
registered in the name of DTC or its nominee. This means that we will not issue
certificates to each holder. Generally, we will issue global securities in the
total principal amount of the debt securities in a series. Debt securities in
the form of a global certificate may not be transferred except as a whole among
DTC, its nominee or a successor to DTC and any nominee of that successor.
We may determine not to use global certificates for any series. In that
event, we will issue debt securities in certificate form.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in certificate form. Those laws
and some conditions on transfer of global securities may impair the ability to
transfer interests in global securities.
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OWNERSHIP OF GLOBAL SECURITIES
So long as DTC or its nominee is the registered owner of a global security,
that entity will be the sole holder of the debt securities represented by that
instrument. Both we and the trustee are only required to treat DTC or its
nominee as the legal owner of those securities for all purposes under the
indenture.
Unless otherwise specified in this prospectus or the prospectus supplement,
no actual purchaser of debt securities represented by a global security will be
entitled to receive physical delivery of certificated securities or will be
considered the holder of those securities for any purpose under the indenture.
In addition, no actual purchaser will be able to transfer or exchange global
securities unless otherwise specified in this prospectus or the prospectus
supplement. As a result, each actual purchaser must rely on the procedures of
DTC to exercise any rights of a holder under the indenture. Also, if an actual
purchaser is not a DTC participant, the actual purchaser must rely on the
procedures of the participant through which it owns its interest in a global
security.
THE DEPOSITARY TRUST COMPANY
The following is based on information furnished by DTC and applies to the
extent that it is the depositary, unless otherwise provided in the prospectus
supplement.
Registered Owner. The debt securities will be issued as fully registered
securities in the name of Cede & Co. (which is DTC's partnership nominee). The
trustee will deposit the global security with the depositary. The deposit with
the depositary and its registration in the name of Cede & Co. will not change
the nature of the actual purchaser's ownership interest in the debt securities.
DTC's Organization. DTC is a limited purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of that
law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act of
1934, as amended.
DTC is owned by a number of its direct participants, the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations who directly participate in DTC. Other entities may access DTC's
system by clearing transactions through or maintaining a custodial relationship
with direct participants. The rules applicable to DTC and its participants are
on file with the SEC.
DTC's Activities. DTC holds securities that its participants deposit with
it. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts. Doing so
eliminates the need for physical movement of securities certificates.
Participants' Records. Except as otherwise provided in this prospectus or a
prospectus supplement, purchases of debt securities must be made by or through a
direct participant, which will receive a credit for the securities on DTC's
records. The purchaser's interest is in turn to be recorded on the participants'
records. Actual purchasers will not receive written confirmations from DTC of
their purchase, but they generally receive confirmations along with periodic
statements of their holdings from the participants through which they entered
into the transaction.
Transfers of interests in the global securities will be made on the books
of the participants on behalf of the actual purchasers. Certificates
representing the interest of the actual purchasers in the securities will not be
issued unless the use of global securities is suspended. DTC has no knowledge of
the actual purchasers of global securities. DTC's records only reflect the
identity of the direct participants who are responsible for keeping account of
their holdings on behalf of their customers.
Notices Among the Depositary, Participants and Actual Owners. Notices and
other communications by DTC, its participants and the actual purchasers will be
governed by arrangements among them, subject to any legal requirements in
effect.
Voting Procedures. Neither DTC nor Cede & Co. will give consents for or
vote the global securities. DTC generally mails an omnibus proxy to us just
after the applicable record date. That proxy assigns Cede & Co.'s voting rights
to the direct participants to whose accounts the securities are credited at that
time.
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Payments. Principal and interest payments made by us will be delivered to
DTC. DTC's practice is to credit direct participants' accounts on the applicable
payment date unless it has reason to believe that it will not receive payment on
that date. Payments by participants to actual purchasers will be governed by
standing instructions and customary practices, as is the case with securities
held for customers in bearer form or registered in "street name." Those
payments will be the responsibility of that participant, not DTC, the trustee or
us, subject to any legal requirements in effect at that time.
We are responsible for payment of principal, interest and premium, if any,
to the trustee, who is responsible to pay it to DTC. DTC is responsible for
disbursing those payments to direct participants. The participants are
responsible for disbursing payment to the actual purchasers.
TRANSFER OR EXCHANGE OF DEBT SECURITIES
You may transfer or exchange debt securities (other than global securities)
without a service charge at the corporate trust office of the trustee. You may
also surrender debt securities (other than global securities) for conversion or
registration of transfer without a service charge at the corporate trust office
of the trustee. You must execute a proper form of transfer and pay any taxes or
other governmental charges resulting from that action.
TRANSFER AGENT
If we designate a transfer agent (in addition to the trustee) in a
prospectus supplement, we may at any time rescind this designation or approve a
change in the location through which any such transfer agent acts. We will,
however, be required to maintain a transfer agent in each place of payment for a
series of debt securities. We may at any time designate additional transfer
agents for a series of debt securities.
COVENANTS
Under the indentures, we are required to:
- pay the principal, interest and any premium on the debt securities when
due;
- maintain a place of payment;
- deliver a report to the trustee at the end of each fiscal year reviewing
our obligations under the indentures; and
- deposit sufficient funds with any paying agent on or before the due date
for any principal, interest or any premium.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of default under the indentures for any series of debt securities
include:
- failure for 30 days to pay interest on any debt securities of that series;
- failure to pay principal or premium, if any, of any debt securities of
that series;
- failure to pay any sinking fund payment when due;
- failure to perform any other covenants contained in the indentures (other
than a covenant added to the indentures solely for the benefit of a
particular series of debt securities), which continues for 60 days
after written notice as provided in the indenture;
- default under any of our other debt instruments with an aggregate
principal amount outstanding of at least $10,000,000; or
- events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under an indenture. The trustee may withhold notice to the
holders of debt securities of any default (except in the payment of principal or
interest) if it considers such withholding of notice to be in the best interests
of the holders.
If an event of default for any series of debt securities occurs and
continues, the trustee or the holders of at least 25% of the total principal
amount of the debt securities of the series may declare the entire principal of
that series due and payable immediately. (Section 502) The trustee will not be
charged with knowledge of any event of default other than our failure to make
principal, interest or sinking fund payments unless written notice is received
by the trustee or the trustee has actual notice of the event of default.
(Section 602) If this happens, the holders of a majority of the aggregate
principal amount of the debt securities of that series can generally void the
declaration. (Section 502)
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The indentures limit the right to institute legal proceedings. No holder of
any debt securities will have the right to bring a claim under an indenture
unless:
- the holder has given written notice of default to the trustee;
- the holders of not less than 25% of the aggregate principal amount of debt
securities of that series shall have made a written request to the trustee
to bring the claim and furnished the trustee reasonable indemnification
as it may require;
- the trustee has not commenced an action within 60 days of receipt of the
notice; and
- no direction inconsistent with a request has been given to the trustee by
the holders of not less than a majority of the aggregate principal amount
of the debt securities. The holders of debt securities may enforce
payment of the principal of or premium, if any, or interest on their debt
securities. No holder of debt securities of a particular series has the
right to prejudice the rights or obtain priority or preference over
the rights of any other holder of debt securities of that series.
(Section 507)
The holders of a majority in aggregate principal amount of any series of
debt securities may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any power
conferred on the trustee with respect to the securities of any series; provided,
however, that
- the direction does not conflict with any rule of law or an indenture,
- the trustee may take any action it deems proper and which is consistent
with the direction of the holders, and
- the trustee is not required to take any action that would unduly prejudice
the holders of the debt securities not taking part in the action or would
impose personal liability on the trustee. (Section 512)
Each indenture provides that, if an event of default has occurred, the
trustee is to use the degree of care a prudent person would use in the conduct
of his own affairs. (Section 602) Subject to those provisions, the trustee is
under no obligation to exercise any of its rights or powers under an indenture
at the request of any of the holders of the debt securities of a series unless
they have furnished to the trustee reasonable security or indemnity. (Section
602)
We will be required to furnish to the trustee in an annual statement a
notice as to our fulfillment of all of our obligations under the relevant
indenture. (Section 1007)
MODIFICATION OF THE INDENTURES
In order to change or modify an indenture, we must obtain the consent of
holders of at least a majority in principal amount of all outstanding debt
securities affected by that change. The consent of holders of at least a
majority in principal amount of each series of outstanding debt securities is
required to waive compliance by us with specific covenants in an indenture. We
must obtain the consent of each holder affected by a change:
- to extend the maturity; reduce the principal, redemption premium or
interest rate;
- change the place of payment, or the coin or currency, for payment; limit
the right to sue for payment;
- reduce the level of consents needed to approve a change to an indenture;
or 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 level of consents needed to approve a
change to an indenture. (Article Nine)
DEFEASANCE
We may defease the debt securities of a series, which means that we would
satisfy our duties under that series before maturity. We may do so by depositing
with the trustee, in trust for the benefit of the holders, sufficient funds to
pay the entire indebtedness on that series, including principal, premium, if
any, and interest. We must also comply with other conditions before we defease
the debt securities. We must deliver an opinion of counsel to the effect that
the holders of that series will have no federal income tax consequences as a
result of that deposit. (Article Fourteen)
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CONVERSION
Debt securities may be convertible into or exchangeable for common shares
or preferred shares. The prospectus supplement will describe the terms of any
conversion rights. To protect our status as a REIT, debt securities are not
convertible if, as a result of that conversion, any person would then be deemed
to own, directly or indirectly, more than 9.8% of our capital shares.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Each indenture generally permits us to consolidate or merge with another
corporation. The indentures also permit us to sell all or substantially all of
our property and assets. If this happens, the remaining or acquiring corporation
shall assume all of our responsibilities and liabilities under the indentures
including the payment of all amounts due on the debt securities and performance
of the covenants in the indentures.
However, we will only consolidate or merge with or into any other
corporation or sell all or substantially all of our assets according to the
terms and conditions of the indentures. The remaining or acquiring corporation
will be substituted for us in the indentures with the same effect as if it had
been an original party to the indentures. Thereafter, the successor corporation
may exercise our rights and powers under any indenture, in our name or in its
own name. Any act or proceeding required or permitted to be done by our board of
trust managers or any of our officers may be done by the board or officers of
the successor corporation. (Article Eight)
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of material federal income tax consequences that may
be relevant to a holder of common shares is based on current law, is for general
information only and is not intended as tax advice. The following discussion,
which is not exhaustive of all possible tax consequences, does not include a
detailed discussion of any state, local or foreign tax consequences. 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 and shareholders
holding securities as part of a conversion transaction, a hedging transaction or
as a position in a straddle for tax purposes) who are subject to special
treatment under the federal income tax laws.
The statements in this discussion are based on current provisions of the
Internal Revenue Code existing, temporary and currently proposed Treasury
Regulations under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, existing administrative rulings and practices of the IRS
and judicial decisions. No assurance can be given that legislative, judicial or
administrative changes will not affect the accuracy of any statements in this
discussion with respect to transactions entered into or contemplated prior to
the effective date of such changes. Any such change could apply retroactively to
transactions preceding the date of the change. We do not plan to request any
rulings from the IRS concerning our tax treatment and the statements in this
discussion are not binding on the IRS or any court. Thus, we can provide no
assurance that these statements will not be challenged by the IRS or that such
challenge will not be sustained by a court.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK 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 DISPOSITION OF COMMON STOCK IN AN ENTITY ELECTING TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, DISPOSITION AND ELECTION, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
We have elected to be treated as a REIT under Sections 856 through 860 of
the Internal Revenue Code for federal income tax purposes commencing with our
taxable year ended December 31, 1989. We believe that we have been organized and
have operated in a manner that qualifies for taxation as a REIT under the
Internal Revenue Code. We also believe that we will continue to operate in a
manner that will preserve our status as a REIT. We cannot however, assure you
that such requirements will be met in the future.
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We have received an opinion from Locke Liddell & Sapp LLP, our legal
counsel, to the effect that we qualified as a REIT under the Internal Revenue
Code for our taxable year ended December 31, 1998, we have been organized and
our manner of operation has been in conformity with the requirements for
qualification and taxation as a REIT as of the date of this prospectus and that
our proposed manner of operation and diversity of equity ownership will enable
us to continue to satisfy the requirements for qualification as a REIT in the
future if we operate in accordance with the methods of operations described
herein including our representations concerning our intended method of
operation. However, you should be aware that opinions of counsel are not binding
on the IRS or on the courts, and, if the IRS were to challenge these
conclusions, no assurance can be given that these conclusions would be sustained
in court. The opinion of Locke Liddell & Sapp LLP is based on various
assumptions as well as on certain representations made by us as to factual
matters, including a factual representation letter provided by us. The rules
governing REITs are highly technical and require ongoing compliance with a
variety of tests that depend, among other things, on future operating results,
asset diversification, distribution levels and diversity of stock ownership.
Locke Liddell & Sapp LLP will not monitor our compliance with these
requirements. While we expect to satisfy these tests, and will use our best
efforts to do so, no assurance can be given that we will qualify as a REIT for
any particular year, or that the applicable law will not change and adversely
affect us and our shareholders. See "Failure to Qualify as a REIT." The
following is a summary of the material federal income tax considerations
affecting us as a REIT and our shareholders. This summary is qualified in its
entirety by the applicable Internal Revenue Code provisions, relevant rules and
regulations promulgated under the Internal Revenue Code, and administrative and
judicial interpretations of the Internal Revenue Code and these rules and
regulations.
REIT QUALIFICATION
We must be organized as an entity that would, if we do not maintain our
REIT status, be taxable as a regular corporation. We cannot be a financial
institution or an insurance company. We must be managed by one or more trust
managers. Our taxable year must be the calendar year. Our beneficial ownership
must be evidenced by transferable shares. Our capital shares must be held by at
least 100 persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a taxable year of less than 12 months. Not more
than 50% of the value of the shares of our capital shares may be held, directly
or indirectly, applying the applicable constructive ownership rules of the
Internal Revenue Code, by five or fewer individuals at any time during the last
half of each of our taxable years. We must also meet certain other tests,
described below, regarding the nature of our income and assets and the amount of
our distributions.
Our outstanding common shares are owned by a sufficient number of investors
and in appropriate proportions to permit us to satisfy these share ownership
requirements. To protect against violations of these share ownership
requirements, our declaration of trust provides that no person is permitted to
own, applying constructive ownership tests set forth in the Internal Revenue
Code, more than 9.8% of our outstanding common shares, unless the trust managers
(including a majority of the independent trust managers) are provided evidence
satisfactory to them in their sole discretion that our qualification as a REIT
will not be jeopardized. In addition, our declaration of trust contains
restrictions on transfers of capital shares, as well as provisions that
automatically convert common shares into excess securities to the extent that
the ownership otherwise might jeopardize our REIT status. These restrictions,
however may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements. If we fail to satisfy these share ownership
requirements, except as provided in the next sentence, our status as a REIT will
terminate. However, if we comply with the rules contained in applicable Treasury
Regulations that require us to ascertain the actual ownership of our shares and
we do not know, or would not have known through the exercise of reasonable
diligence, that we failed to meet the 50% requirement described above, we will
be treated as having met this requirement. See the section below entitled
"Failure to Qualify as a REIT."
To monitor our compliance with the share ownership requirements, we are
required to and we do maintain records disclosing the actual ownership of our
common shares. To do so, we will demand written statements each year from the
record holders of certain percentages of shares in which the record holders are
to disclose the actual owners of the shares (i.e., the persons required to
include in gross income the REIT dividends). A list of those persons failing or
refusing to comply with this demand will be maintained as part of our records.
Shareholders who fail or refuse to comply with the demand must submit a
statement with their tax returns disclosing the actual ownership of the shares
and certain other information.
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We currently satisfy, and expect to continue to satisfy, each of these
requirements discussed above. We also currently satisfy, and expect to continue
to satisfy, the requirements that are separately described below concerning the
nature and amounts of our income and assets and the levels of required annual
distributions.
Sources of Gross Income. In order to qualify as a REIT for a particular
year, we also must meet two tests governing the sources of our income - a 75%
gross income test and a 95% gross income test. These tests are designed to
ensure that a REIT derives its income principally from passive real estate
investments. The Internal Revenue Code allows a REIT to own and operate a number
of its properties through wholly-owned subsidiaries which are "qualified REIT
subsidiaries." The Internal Revenue Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and items of income of the REIT.
In the case of a REIT which is a partner in a partnership or any other
entity such as a limited liability company that is treated as a partnership for
federal income tax purposes, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership. Also,
the REIT will be deemed to be entitled to its proportionate share of the income
of the partnership. The character of the assets and gross income of the
partnership retains the same character in the hands of the REIT for purposes of
Section 856 of the Internal Revenue Code, including satisfying the gross income
tests and the asset tests. Thus, our proportionate share of the assets and items
of income of any partnership in which we own an interest are treated as our
assets and items of income for purposes of applying the requirements described
in this discussion, including the income and asset tests described below.
75% Gross Income Test. At least 75% of a REIT's gross income for each
taxable year must be derived from specified classes of income that principally
are real estate related. The permitted categories of principal importance to us
are:
- rents from real property;
- interest on loans secured by real property;
- gains from the sale of real property or loans secured by real property
(excluding gain from the sale of property held primarily for sale to
customers in the ordinary course of our business, referred to below
as "dealer property");
- income from the operation and gain from the sale of property acquired in
connection with the foreclosure of a mortgage securing that property
("foreclosure property");
- distributions on, or gain from the sale of, shares of other qualifying
REITs;
- abatements and refunds of real property taxes;
- amounts received as consideration for entering into agreements to make
loans secured by real property or to purchase or lease real property;
and
- "qualified temporary investment income" (described below).
In evaluating our compliance with the 75% gross income test, as well as the
95% gross income test described below, gross income does not include gross
income from "prohibited transactions." In general, a prohibited transaction is
one involving a sale of dealer property, not including foreclosure property and
not including certain dealer property we have held for at least four years.
We expect that substantially all of our operating gross income will be
considered rent from real property and interest income. Rent from real property
is qualifying income for purposes of the gross income tests only if certain
conditions are satisfied. Rent from real property includes charges for services
customarily rendered to tenants, and rent attributable to personal property
leased together with the real property so long as the personal property rent is
not more than 15% of the total rent received or accrued under the lease for the
taxable year. We do not expect to earn material amounts in these categories.
Rent from real property generally does not include rent based on the income
or profits derived from the property. However, rent based on a percentage of
gross receipt or sales is permitted as rent from real property and we will have
leases where rent is based on a percentage of gross receipt or sales. We
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generally do not intend to lease property and receive rentals based on the
tenant's income or profit. Also excluded from "rents from real property" is rent
received from a person or corporation in which we (or any of our 10% or greater
owners) directly or indirectly through the constructive ownership rules
contained in Section 318 and Section 856(d)(5) of the Internal Revenue Code, own
a 10% or greater interest.
A third exclusion from qualifying rent income covers amounts received with
respect to real property if we furnish services to the tenants or manage or
operate the property, other than through an "independent contractor" from whom
we do not derive any income. The obligation to operate through an independent
contractor generally does not apply, however, if the services we provide are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not considered rendered primarily for the convenience of
the tenant (applying standards that govern in evaluating whether rent from real
property would be unrelated business taxable income when received by a
tax-exempt owner of the property). Further, if the value of the non-customary
service income with respect to a property, valued at no less than 150% of our
direct cost of performing such services, is 1% or less of the total income
derived from the property, then the provision of such non-customary services
shall not prohibit the rental income (except the non-customary service income)
from qualifying as "rents from real property."
We believe that the only material services generally to be provided to
tenants will be those usually or customarily rendered in connection with the
rental of space for occupancy only. We do not intend to provide services that
might be considered rendered primarily for the convenience of the tenants, such
as hotel, health care or extensive recreational or social services.
Consequently, we believe that substantially all of our rental income will be
qualifying income under the gross income tests, and that our provision of
services will not cause the rental income to fail to be included under that
test.
Upon the ultimate sale of our properties, any gains realized also are
expected to constitute qualifying income, as gain from the sale of real property
(not involving a prohibited transaction).
95% Gross Income Test. In addition to earning 75% of our gross income from
the sources listed above, 95% of our gross income for each taxable year must
come either from those sources, or from dividends, interest or gains from the
sale or other disposition of stock or other securities that do not constitute
dealer property. This test permits a REIT to earn a significant portion of its
income from traditional "passive" investment sources that are not necessarily
real estate related. The term "interest" (under both the 75% and 95% tests) does
not include amounts that are based on the income or profits of any person,
unless the computation is based only on a fixed percentage of receipts or sales.
Failing the 75% or 95% Tests; Reasonable Cause. As a result of the 75% and
95% tests, REITs generally are not permitted to earn more than 5% of their gross
income from active sources, including brokerage commissions or other fees for
services rendered. We may receive certain types of that income. This type of
income will not qualify for the 75% test or 95% test but is not expected to be
significant and that income, together with other nonqualifying income, is
expected to be at all times less than 5% of our annual gross income. While we do
not anticipate that we will earn substantial amounts of nonqualifying income, if
nonqualifying income exceeds 5% of our gross income, we could lose our status as
a REIT. We may establish subsidiaries of which we will hold less than 10% of the
voting stock to hold assets generating non-qualifying income. The gross income
generated by these subsidiaries would not be included in our gross income.
However, dividends we receive from these subsidiaries would be included in our
gross income and qualify for the 95% income test. The ability to establish such
subsidiaries could be adversely impacted by proposals contained in President
Clinton's 2000 Federal Budget Proposal. See the section below entitled "Proposed
Legislation."
If we fail to meet either the 75% or 95% income tests during a taxable
year, we may still qualify as a REIT for that year if (1) we report the source
and nature of each item of our gross income in our federal income tax return for
that year, (2) the inclusion of any incorrect information in our return is not
due to fraud with intent to evade tax, and (3) the failure to meet the tests is
due to reasonable cause and not to willful neglect. It is not possible, however,
to state whether in all circumstances we would be entitled to the benefit of
this relief provision. For example, if we fail to satisfy the gross income tests
because nonqualifying income that we intentionally accrue or receive causes us
to exceed the limits on nonqualifying income, the IRS could conclude that our
failure to satisfy the tests was not due to reasonable cause. If these relief
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provisions do not apply to a particular set of circumstances, we will not
qualify as a REIT. As discussed below, even if these relief provisions apply,
and we retain our status as a REIT, a tax would be imposed with respect to our
non-qualifying income. We would be subject to a 100% tax based on the greater of
the amount by which we fail either the 75% or 95% income tests for that year.
See "- Taxation as a REIT" on page 16.
Prohibited Transaction Income. Any gain that we realize on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business (including our share of any such
gain realized by any subsidiary partnerships), will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. This prohibited
transaction income may also adversely affect our ability to satisfy the income
tests for qualification as a REIT. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
trade or business depends on all the facts and circumstances surrounding the
particular transaction. We intend to hold our and our subsidiary partnerships
intend to hold their properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing and owning
properties, and to make occasional sales of the properties as are consistent
with their investment objectives. The IRS may contend, however, that one or more
of these sales is subject to the 100% penalty tax.
Character of Assets Owned. At the close of each calendar quarter of our
taxable year, we also must meet two tests concerning the nature of our
investments. First, at least 75% of the value of our total assets generally must
consist of real estate assets, cash, cash items (including receivables) and
government securities. For this purpose, "real estate assets" include interests
in real property, interests in loans secured by mortgages on real property or by
certain interests in real property, shares in other REITs and certain options,
but excluding mineral, oil or gas royalty interests. The temporary investment of
new capital in debt instruments also qualifies under this 75% asset test, but
only for the one-year period beginning on the date we receive the new capital.
Second, although the balance of our assets generally may be invested without
restriction, we will not be permitted to own (1) securities of any one
non-governmental issuer that represent more than 5% of the value of our total
assets or (2) more than 10% of the outstanding voting securities of any single
issuer. A REIT, however, may own 100% of the stock of a qualified REIT
subsidiary, in which case the assets, liabilities and items of income, deduction
and credit of the subsidiary are treated as those of the REIT. In evaluating a
REIT's assets, if the REIT invests in a partnership, it is deemed to own its
proportionate share of the assets of the partnership.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we fail
to satisfy the asset tests because we acquire securities or other property
during a quarter, we can cure this failure by disposing of sufficient
nonqualifying assets within 30 days after the close of that quarter. We intend
to take such action within the 30 days after the close of any quarter as may be
required to cure any noncompliance. If we fail to cure noncompliance with the
asset tests within this time period, we would cease to qualify as a REIT.
Annual Distributions to Shareholders. To maintain our REIT status, we
generally must distribute as a dividend to our shareholders in each taxable year
at least 95% of our net ordinary income. Capital gain is not required to be
distributed. More precisely, we must distribute an amount equal to (1) 95% of
the sum of (a) our "REIT Taxable Income" before deduction of dividends paid and
excluding any net capital gain and (b) any net income from foreclosure property
less the tax on such income, minus (2) certain limited categories of "excess
noncash income," including, income attributable to leveled stepped rents,
cancellation of indebtedness and original issue discount income. REIT Taxable
Income is defined to be the taxable income of the REIT, computed as if it were
an ordinary corporation, with certain modifications. For example, the deduction
for dividends paid is allowed, but neither net income from foreclosure property,
nor net income from prohibited transactions, is included. In addition, the REIT
may carry over, but not carry back, a net operating loss for 20 years following
the year in which it was incurred.
A REIT may satisfy the 95% distribution test with dividends paid during the
taxable year and with certain dividends paid after the end of the taxable year.
Dividends paid in January that were declared during the last calendar quarter of
the prior year and were payable to shareholders of record on a date during the
last calendar quarter of that prior year are treated as paid on December 31 of
the prior year. Other dividends declared before the due date of our tax return
for the taxable year, including extensions, also will be treated as paid in the
prior year if they are paid (1) within 12 months of the end of that taxable year
and (2) no later than our next regular distribution payment. Dividends that are
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paid after the close of a taxable year that do not qualify under the rule
governing payments made in January (described above) will be taxable to the
shareholders in the year paid, even though we may take them into account for a
prior year. A nondeductible excise tax equal to 4% will be imposed for each
calendar year to the extent that dividends declared and distributed or deemed
distributed before December 31 are less than the sum of (a) 85% of our "ordinary
income" plus (b) 95% of our capital gain net income plus (c) any undistributed
income from prior periods.
To be entitled to a dividends paid deduction, the amount distributed by a
REIT must not be preferential. For example, every shareholder of the class of
shares to which a distribution is made must be treated the same as every other
shareholder of that class, and no class of shares may be treated otherwise than
in accordance with its dividend rights as a class.
We will be taxed at regular corporate rates to the extent that we retain
any portion of our taxable income. For example, if we distribute only the
required 95% of our taxable income, we would be taxed on the retained 5%. Under
certain circumstances we may not have sufficient cash or other liquid assets to
meet the distribution requirement. This could arise because of competing demands
for our funds, or due to timing differences between tax reporting and cash
receipts and disbursements (i.e., income may have to be reported before cash is
received, or expenses may have to be paid before a deduction is allowed).
Although we do not anticipate any difficulty in meeting this requirement, no
assurance can be given that necessary funds will be available. In the event
these circumstances do occur, then in order to meet the 95% distribution
requirement, we may cause our operating partnership to arrange for short-term,
or possibly long-term, borrowings to permit the payment of required dividends.
If we fail to meet the 95% distribution requirement because of an
adjustment to our taxable income by the IRS, we may be able to cure the failure
retroactively by paying a "deficiency dividend," as well as applicable interest
and penalties, within a specified period.
TAXATION AS A REIT
As a REIT, we generally will not be subject to corporate income tax to the
extent we currently distribute our REIT taxable income to our shareholders. This
treatment effectively eliminates the "double taxation" imposed on investments in
most corporations. Double taxation refers to taxation that occurs once at the
corporate level when income is earned and once again at the shareholder level
when such income is distributed. We generally will be taxed only on the portion
of our taxable income that we retain, which will include any undistributed net
capital gain, because we will be entitled to a deduction for dividends paid to
shareholders during the taxable year. A dividends paid deduction is not
available for dividends that are considered preferential within any given class
of shares or as between classes except to the extent that class is entitled to a
preference. We do not anticipate that we will pay any of those preferential
dividends. Because excess shares will represent a separate class of outstanding
shares, the fact that those shares will not be entitled to dividends should not
adversely affect our ability to deduct our dividend payments.
Even as a REIT, we will be subject to tax in certain circumstances as
follows:
- we would be subject to tax on any income or gain from foreclosure property
at the highest corporate rate (currently 35%). Foreclosure property is
generally defined as property acquired through foreclosure or after a
default on a loan secured by the property or a lease of the property;
- a confiscatory tax of 100% applies to any net income from prohibited
transactions which are, in general, certain sales or other dispositions
of property held primarily for sale to customers in the ordinary
course of business;
- if we fail to meet either the 75% or 95% source of income tests described
above, but still qualify for REIT status under the reasonable cause
exception to those tests, a 100% tax would be imposed equal to the
amount obtained by multiplying (a) the greater of the amount, if any, by
which it failed either the 75% income test or the 95% income test, times
(b) a fraction intended to reflect our profitability;
- we will be subject to the alternative minimum tax on items of tax
preference, excluding items specifically allocable to our shareholders;
- if we should fail to distribute with respect to each calendar year at
least the sum of (a) 85% of our REIT ordinary income for that year,
(b) 95% of our REIT capital gain net income for that year, and
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(c) any undistributed taxable income from prior years, we would be
subject to a 4% excise tax on the excess of the required distribution
over the amounts actually distributed;
- under regulations that are to be promulgated, we also may be taxed at the
highest regular corporate tax rate on any built-in gain attributable to
assets that we acquire in certain tax-free corporate transactions, to
the extent the gain is recognized during the first ten years after we
acquire those assets. Built-in gain is the excess of (a) the fair market
value of the asset over (b) our adjusted basis in the asset, in each case
determined as of the beginning of the ten-year recognition period. The
results described in this paragraph with respect to the recognition of
built-in gain assume that we will make an election pursuant to IRS Notice
88-19 and that the availability or nature of such election is not
modified as proposed in President Clinton's 2000 Federal Budget Proposal.
See the section below entitled "Proposed Legislation"; and
- we will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
Failure to Qualify as a REIT
For any taxable year in which we fail to qualify as a REIT and certain
relief provisions do not apply, we would be taxed at regular corporate rates,
including alternative minimum tax rates on all of our taxable income.
Distributions to our shareholders would not be deductible in computing that
taxable income, and distributions would no longer be required to be made. Any
corporate level taxes generally would reduce the amount of cash available for
distribution to our shareholders and, because the shareholders would continue to
be taxed on the distributions they receive, the net after tax yield to the
shareholders from their investment likely would be reduced substantially. As a
result, failure to qualify as a REIT during any taxable year could have a
material adverse effect on an investment in our common shares. If we lose our
REIT status, unless certain relief provisions apply, we would not be eligible to
elect REIT status again until the fifth taxable year which begins after the
taxable year during which our election was terminated. It is not possible to
state whether in all circumstances we would be entitled to this statutory
relief. In addition, President Clinton's 2000 Federal Budget Proposal contains a
provision which, if enacted in its present form, would result in the immediate
taxation of all gain inherent in a C corporation's assets upon an election by
the corporation to become a REIT in taxable years beginning after January 1,
2000. If enacted, this provision could effectively preclude us from re-electing
to be taxed as a REIT following a loss of REIT status. See the section below
entitled "Proposed Legislation."
TAXATION OF TAXABLE U.S. SHAREHOLDERS
Except as discussed below, distributions generally will be taxable to
taxable U.S. shareholders as ordinary income to the extent of our current or
accumulated earnings and profits. We may generate cash in excess of our net
earnings. If we distribute cash to shareholders in excess of our current and
accumulated capital earnings and profits (other than as a capital gain
dividend), the excess cash will be deemed to be a return of capital to each
shareholder to the extent of the adjusted tax basis of the shareholder's shares.
Distributions in excess of the adjusted tax basis will be treated as gain from
the sale or exchange of the shares. A shareholder who has received a
distribution in excess of current and our accumulated earnings and profits may,
upon the sale of the shares, realize a higher taxable gain or a smaller loss
because the basis of the shares as reduced will be used for purposes of
computing the amount of the gain or loss. Distributions we make, whether
characterized as ordinary income or as capital gains, are not eligible for the
dividends received deduction for corporations. For purposes of determining
whether distributions to holders of common shares are out of current or
accumulated earnings and profits, our earnings and profits will be allocated
first to the outstanding preferred shares, if any, and then to the common
shares.
Dividends we declare in October, November, or December of any year and
payable to a shareholder of record on a specified date in any of these months
shall be treated as both paid by us and received by the shareholder on December
31 of that year, provided we actually pay the dividend on or before January 31
of the following calendar year. Shareholders may not include in their own income
tax returns any of our net operating losses or capital losses.
Distributions that we properly designate as capital gain dividends will be
taxable to taxable U.S. shareholders as gains from the sale or disposition of a
capital asset to the extent that they do not exceed our actual net capital gain
for the taxable year. Depending on the period of time the tax characteristics of
the assets which produced these gains, and on certain designations, if any,
which we may make, these gains may be taxable to non-corporate U.S. shareholders
at a 20% or 25% rate. U.S. shareholders that are corporations may, however, be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
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We may elect to retain, rather than distribute as a capital gain dividend,
our net long-term capital gains. If we make this election, we would pay tax on
our retained net long-term capital gains. In addition, to the extent we
designate, a U.S. shareholder generally would:
- include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
- be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. shareholder's long-term capital
gains;
- receive a credit or refund for the amount of tax deemed paid by it;
- increase the adjusted basis of its common stock by the difference between
the amount of includable gains and the tax deemed to have been paid by
it; and
- in the case of a U.S. shareholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be prescribed by the IRS.
Distributions we make and gain arising from the sale or exchange by a U.S.
shareholder of our shares will not be treated as income from a passive activity,
within the meaning of Section 469 of the Internal Revenue Code, since income
from a passive activity generally does not include dividends and gain
attributable to the disposition of property that produces dividends. As a
result, U.S. shareholders subject to the passive activity rules will generally
be unable to apply any "passive losses" against this income or gain.
Distributions we make, to the extent they do not constitute a return of capital,
generally will be treated as investment income for purposes of computing the
investment interest limitation. Gain arising from the sale or other disposition
of our shares, however, will be treated as investment income if a shareholder so
elects, in which case the capital gain is taxed at ordinary income rates.
Generally, gain or loss realized by a shareholder upon the sale of shares
will be reportable as capital gain or loss. If a shareholder receives a
long-term capital gain dividend from us and has held the shares for six months
or less, any loss incurred on the sale or exchange of the shares is treated as a
long-term capital loss to the extent of the corresponding long-term capital gain
dividend received.
In any year in which we fail to qualify as a REIT, the shareholders
generally will continue to be treated in the same fashion described above,
except that none of our dividends will be eligible for treatment as capital
gains dividends, corporate shareholders will qualify for the dividends received
deduction and the shareholders will not be required to report any share of our
tax preference items.
PROPOSED LEGISLATION
The rules dealing with Federal income taxation are constantly under review
by Congress, the IRS and the Treasury Department. For example, on February 1,
1999, President Clinton released a proposed budget for fiscal year 2000. The
budget proposal contained a variety of proposed income tax changes, three of
which pertain to REITs. First, under current law, REITs may not own more than
10% of the voting stock of a regular corporation. Under the proposal, they also
would not be permitted to own more than 10% of the value of all classes of stock
of a corporation unless the corporation qualified as a "qualified business
subsidiary" or a "qualified independent contractor subsidiary." Even if it did
so qualify, the proposal would disallow a deduction for all interest payments on
debt to, or guaranteed by, a REIT that owns stock of such entities. Second, a
new restriction would be imposed on REITs, prohibiting any one person other than
a REIT from owning more than 50% of the total combined voting power of all
voting stock or more than 50% of the total value of shares of all classes of
stock of the REIT. Current law already contains ownership restrictions
applicable to individuals; this new limitation would affect owners other than
individuals. This proposal would be effective for entities electing REIT status
for taxable years beginning on or after the date of first committee action.
Third, a regular C corporation with a fair market value of more than $5,000,000
which elects REIT status or merges into a REIT would be treated as if it had
liquidated and distributed all its assets to its shareholders, and its
shareholders had then contributed the assets to the electing or existing REIT.
This deemed liquidation would cause the regular corporation to be taxed as if it
had sold its assets for fair market value and would cause its shareholders to be
taxed as if they had sold their stock for fair market value. The proposal would
be effective for elections that are first effective for a taxable year beginning
after January 1, 2000, and for mergers into REITs after December 31, 1999.
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Partially in response to the first proposal described above, legislation
has been passed by the House of Representatives and the Senate proposing the
adoption of the Real Estate Investment Modernization Act of 1999. This proposed
legislation if enacted, among other things, also would prohibit a REIT from
owning more than 10% of the total voting power and more than 10% of the total
value of the outstanding securities of any one issue unless that issuer
constitutes a "taxable REIT subsidiary." However, the definition of a taxable
REIT subsidiary contained in this proposed legislation is broader than the
budget proposal definition of a qualified business subsidiary or a qualified
independent contractor subsidiary.
Changes to the Federal laws and interpretations thereof could adversely
affect the tax consequences of an investment in our common shares. We cannot
predict whether, when, in what forms, or with what effective dates, these or any
other provisions could become effective.
BACKUP WITHHOLDING
We will report to our shareholders and the IRS the amount of dividends paid
during each calendar year and the amount of tax withheld, if any. If a
shareholder is subject to backup withholding, we will be required to deduct and
withhold from any dividends payable to that shareholder a tax of 31%. These
rules may apply (1) when a shareholder fails to supply a correct taxpayer
identification number, (2) when the IRS notifies us that the shareholder is
subject to the rules or has furnished an incorrect taxpayer identification
number, or (3) in the case of corporations or others within certain exempt
categories, when they fail to demonstrate that fact when required. A shareholder
that does not provide a correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount withheld as backup
withholding may be credited against the shareholder's federal income tax
liability. We also may be required to withhold a portion of capital gain
distributions made to shareholders who fail to certify their non-foreign status.
The United States Treasury has recently issued final regulations regarding
the withholding and information reporting rules discussed above. In general, the
final regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and clarify
reliance standards. The final regulations are generally effective for payments
made on or after January 1, 2000, subject to certain transition rules.
Prospective investors should consult their own tax advisors concerning the
adoption of the final regulations and the potential effect on their ownership of
common shares.
TAXATION OF TAX-EXEMPT ENTITIES
In general, a tax-exempt entity that is a shareholder will not be subject
to tax on distributions or gain realized on the sale of shares. A tax-exempt
entity may be subject to unrelated business taxable income, however, to the
extent that it has financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Internal Revenue Code. In determining
the number of shareholders a REIT has for purposes of the "50% test" described
above under "-REIT Qualification," generally, any shares held by tax-exempt
employees' pension and profit sharing trusts which qualify under Section 401(a)
of the Internal Revenue Code and are exempt from tax under Section 501(a) of the
Internal Revenue Code ("qualified trusts") will be treated as held directly by
its beneficiaries in proportion to their interests in the trust and will not be
treated as held by the trust.
A qualified trust owning more than 10% of a REIT may be required to treat a
percentage of dividends from the REIT as UBTI. The percentage is determined by
dividing the REIT's gross income (less direct expenses related thereto) derived
from an unrelated trade or business for the year (determined as if the REIT were
a qualified trust) by the gross income of the REIT for the year in which the
dividends are paid. However, if this percentage is less than 5%, dividends are
not treated as UBTI. These UBTI rules apply only if the REIT qualifies as a REIT
because of the "look-thru" rule with respect to the 50% test discussed above and
if the trust is "predominantly held" by qualified trusts. A REIT is
predominantly held by qualified trusts if at least one pension trust owns more
than 25% of the value of the REIT or a group of pension trusts each owning more
than 10% of the value of the REIT collectively own more than 50% of the value of
the REIT. We do not currently meet either of these requirements.
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For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Internal Revenue Code, respectively, income from an investment in our
capital stock will constitute UBTI unless the organization is able to deduct an
amount properly set aside or placed in reserve for certain purposes so as to
offset the UBTI generated by the investment in our capital stock. These
prospective investors should consult their own tax advisors concerning the "set
aside" and reserve requirements.
TAXATION OF FOREIGN INVESTORS
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders are complex and no attempt will be made herein to provide more than
a summary of such rules. Prospective non-U.S. shareholders should consult with
their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in common shares, including any
reporting requirements, as well as the tax treatment of such an investment under
the laws of their home country.
Dividends that are not attributable to gain from any sales or exchanges we
make of United States real property interests and which we do not designate as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of our current or accumulated earnings and
profits. Those dividends ordinarily will be subject to a withholding tax equal
to 30% of the gross amount of the dividend unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in the
common shares is treated as effectively connected with the non-U.S.
shareholder's conduct of a United States trade or business, the non-U.S.
shareholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to those dividends, and may
also be subject to the 30% branch profits tax in the case of a shareholder that
is a foreign corporation. For withholding tax purposes, we are currently
required to treat all distributions as if made out of our current and
accumulated earnings and profits and thus we intend to withhold at the rate of
30%, or a reduced treaty rate if applicable, on the amount of any distribution
(other than distributions designated as capital gain dividends) made to a
non-U.S. shareholder unless (1) the non-U.S. shareholder files on IRS Form 1001
claiming that a lower treaty rate applies or (2) the non-U.S. shareholder files
an IRS Form 4224 claiming that the dividend is effectively connected income.
Under the final regulations, generally effective for distributions on or
after January 1, 2000, we would not be required to withhold at the 30% rate on
distributions we reasonably estimate to be in excess of our current and
accumulated earnings and profits. Dividends in excess of our current and
accumulated earnings and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's shares,
but rather will reduce the adjusted basis of those shares. To the extent that
those dividends exceed the adjusted basis of a non-U.S. shareholder's shares,
they will give rise to tax liability if the non-U.S. shareholder would otherwise
be subject to tax on any gain from the sale or disposition of his shares, as
described below. If it cannot be determined at the time a dividend is paid
whether or not a dividend will be in excess of current and accumulated earnings
and profits, the dividend will be subject to such withholding. We do not intend
to make quarterly estimates of that portion of dividends that are in excess of
earnings and profits, and, as a result, all dividends will be subject to such
withholding. However, the non-U.S. shareholder may seek a refund of those
amounts from the IRS.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from our sales or exchanges of United States real property
interests will be taxed to a non-U.S. shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980, commonly known as "FIRPTA."
Under FIRPTA, those dividends are taxed to a non-U.S. shareholder as if the gain
were effectively connected with a United States business. Non-U.S. shareholders
would thus be taxed at the normal capital gain rates applicable to U.S.
shareholders subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals. Also,
dividends subject to FIRPTA may be subject to a 30% branch profits tax in the
hands of a corporate non-U.S. shareholder not entitled to treaty exemption. We
are required by the Code and applicable Treasury Regulations to withhold 35% of
any dividend that could be designated as a capital gain dividend. This amount is
creditable against the non-U.S. shareholder's FIRPTA tax liability.
Gain recognized by a non-U.S. shareholder upon a sale of shares generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period
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less than 50% in value of the shares was held directly or indirectly by
foreign persons. It is currently anticipated that we will be a "domestically
controlled REIT," and therefore the sale of shares will not be subject to
taxation under FIRPTA. Because the common shares will be publicly traded,
however, no assurance can be given that we will remain a "domestically
controlled REIT." However, gain not subject to FIRPTA will be taxable to a
non-U.S. shareholder if (1) investment in the common shares is effectively
connected with the non-U.S. shareholder's United States trade or business, in
which case the non-U.S. shareholder will be subject to the same treatment as
U.S. shareholders with respect to that gain, and may also be subject to the 30%
branch profits tax in the case of a corporate non-U.S. shareholder, or (2) the
non-U.S. shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% withholding tax on the individual's capital gains. If we were
not a domestically controlled REIT, whether or not a non-U.S. shareholder's sale
of shares would be subject to tax under FIRPTA would depend on whether or not
the common shares were regularly traded on an established securities market
(such as the NYSE) and on the size of selling non-U.S. shareholder's interest in
our capital shares. If the gain on the sale of shares were to be subject to
taxation under FIRPTA, the non-U.S. shareholder will be subject to the same
treatment as U.S. shareholders with respect to that gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals and the possible application of the 30% branch
profits tax in the case of foreign corporations) and the purchaser of our common
shares may be required to withhold 10% of the gross purchase price.
STATE AND LOCAL TAXES
We, and our shareholders, may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in our capital shares.
PLAN OF DISTRIBUTION
We may offer securities directly or through underwriters, dealers or
agents. The prospectus supplement will identify those underwriters, dealers or
agents and will describe the plan of distribution, including commissions to be
paid. If we do not name a firm in the prospectus supplement, the firm may not
directly or indirectly participate in any underwriting of those securities,
although it may participate in the distribution of securities under
circumstances entitling it to a dealer's allowance or agent's commission. Any
underwriting agreement will entitle the underwriters to indemnification against
designated civil liabilities under the federal securities laws and other laws.
The underwriters' obligations to purchase securities will be subject to
compliance with specific conditions and generally will require them to purchase
all of the securities if any are purchased.
Unless otherwise noted in the prospectus supplement, the securities will be
offered by the underwriters, if any, when, as and if issued by us, delivered to
and accepted by the underwriters and subject to their right to reject orders in
whole or in part.
We may sell securities to dealers, as principals. Those dealers then may
resell the securities to the public at varying prices set by those dealers from
time to time. We may also offer securities through agents. Agents generally act
on a "best efforts" basis during their appointment, meaning that they are not
obligated to purchase securities. Dealers and agents may be entitled to
indemnification as underwriters by us against designated liabilities under the
federal securities laws and other laws.
We or the underwriters or the agents may solicit offers from institutions
approved by us to purchase securities under contracts providing for future
payment. Permitted institutions include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others. Additional conditions will apply to those purchases.
An underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with securities laws.
Over-allotment involves sales in excess of the offering size, which creates a
short position. Stabilizing transactions permit bidders to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Short covering transactions involve purchases of the securities in the
open market after the distribution is completed to cover short positions.
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Penalty bids permit the underwriters to reclaim a selling concession from a
dealer when the securities originally sold by the dealer are purchased in a
covering transaction to cover short positions. Those activities may cause the
price of the securities to be higher than it would otherwise be. The
underwriters may engage in these activities on any exchange or other market in
which the securities may be traded. If commenced, the underwriters may
discontinue these activities at any time.
The prospectus supplement or pricing supplement, as applicable, will set
forth the anticipated delivery date of the securities being sold at that time.
LEGAL MATTERS
Unless otherwise noted in a prospectus supplement, Locke Liddell & Sapp
LLP, Dallas, Texas, will pass on the legality of the securities offered through
this prospectus.
Counsel for any underwriters or agents will be noted in the applicable
prospectus supplement.
EXPERTS
Deloitte & Touche LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K
for the year ended December 31, 1998 as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. These financial statements and schedules are incorporated by
reference in reliance on Deloitte & Touche's reports, given on their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents by writing to
the SEC and paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330 for more information about the operation of the public reference
room. Our SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov. In addition, you may read and copy our SEC filings at the
-------------------
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. Our website address is http://www.weingarten.com.
--------------------------
This prospectus is only part of a registration statement we filed with the
SEC under the Securities Act of 1933, as amended, and therefore omits certain
information contained in the registration statement. We have also filed exhibits
and schedules to the registration statement that we have excluded from this
prospectus, and you should refer to the applicable exhibit or schedule for a
complete description of any statement referring to any contract or document. You
may inspect or obtain a copy of the registration statement, including exhibits
and schedules, as described in the previous paragraph.
22
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it. This means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and the information we file later with
the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until this offering is completed:
- Annual Report on Form 10-K for the year ended December 31, 1998 (File No.
001-09876).
- Quarterly Report on Form 10-Q for the periods ended March 31, 1999 and
June 30, 1999 (File No. 001-09876).
- The description of our common shares of beneficial interest contained in
our registration statement on Form 8-B filed March 17, 1988 (File
No. 001-09876).
- The description of our 7.44% Series A Cumulative Redeemable Preferred
Shares contained in our registration statement on Form 8-A filed February
23, 1998 (File No. 001-09876).
- The description of our 7.00% Series C Cumulative Redeemable Preferred
Shares contained in our registration statement on Form 8-A filed
January 19, 1999 (File No. 001-09876).
- Current Reports on Form 8-K filed January 21, 1999 and August 18, 1999
(File No. 001-09876).
You may request copies of these filings at no cost by writing or
telephoning our Investor Relations Department at the following address and
telephone number:
Weingarten Realty Investors
2600 Citadel Plaza Drive
Suite 300
Houston, Texas 77008
(713) 866-6000.
23
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the Notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information in this
prospectus is current only as of its date.
_______________
TABLE OF CONTENTS
Prospectus Supplement Page
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Forward Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . S-2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Recent Tax Legislation. . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Prospectus
About this Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . 2
Cautionary Statement Concerning
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Ratios of Earnings to Combined Fixed Charges
and Preferred Share Dividends. . . . . . . . . . . . . . . . . . . . 4
Description of Capital Shares . . . . . . . . . . . . . . . . . . . . . . 4
Description of Securities Warrants. . . . . . . . . . . . . . . . . . . . 5
Description of Debt Securities . . . . . . . . . . . . . . . . . . . . 6
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 11
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Where You Can Find More Information. . . . . . . . . . . . . . . . . 22
Incorporation of Documents by Reference . . . . . . . . . . . . . . . 23
_____________________________________________________________________________
_____________________________________________________________________________
15,771 Shares
WEINGARTEN REALTY
INVESTORS
Common Shares of
Beneficial Interest
_______________
PROSPECTUS SUPPLEMENT
_______________
GOLDMAN, SACHS & CO.
BANC OF AMERICA SECURITIES LLC
CHASE SECURITIES INC.
DEUTSCHE BANC ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
FIRST UNION SECURITIES, INC.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
_____________________________________________________________________________
_____________________________________________________________________________
