<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RAMCO-GERSHENSON PROPERTIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER ORGANIZATIONAL DOCUMENTS)
------------------------
<TABLE>
<S> <C> <C>
MARYLAND 6798 13-6908486
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
27600 Northwestern Highway, Suite 200
Southfield, Michigan 48034
(248) 350-9900
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
------------------------
DENNIS E. GERSHENSON, CHIEF EXECUTIVE OFFICER
Ramco-Gershenson Properties Trust
27600 Northwestern Highway, Suite 200
Southfield, Michigan 48034
(248) 350-9900
(Name, address, including zip code and telephone number,
including area code, of agent of service)
------------------------
Copies to:
DONALD J. KUNZ, ESQ.
HONIGMAN MILLER SCHWARTZ AND COHN
2290 FIRST NATIONAL BUILDING
DETROIT, MICHIGAN 48226
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER SECURITY OFFERING PRICE(2)(3) FEE(4)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred Shares of Beneficial
Interest, $0.01 par value(5)..... $200,000,000 (7) $200,000,000 $59,000
Common Shares of Beneficial
Interest, $0.01 par value(6).....
Securities Warrants................
=====================================================================================================================
</TABLE>
(Footnotes appear on next page)
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE> 2
- -------------------------
footnotes from cover
(1) This Registration Statement also covers delayed delivery contracts which may
be issued by the Registrant under which the counterparty may be required to
purchase Preferred Shares or Common Shares. Such contracts may be issued
together with the specific Securities (as defined) to which they relate. In
addition, Securities registered hereunder may be sold separately, together
or as units with other Securities registered hereunder.
(2) In U.S. Dollars or the equivalent thereof denominated in one or more foreign
currencies or units of two or more foreign currencies or composite
currencies (such as European Currency Units).
(3) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for Common Shares that are issued
upon conversion of Preferred Shares registered hereunder. The aggregate
maximum offering price of all Securities issued pursuant to this
Registration Statement will not exceed $200,000,000.
(4) The registration fee has been calculated in accordance with Rule 457(o)
under the Securities Act of 1933, as amended.
(5) Such indeterminate number of Preferred Shares as may from time to time be
issued at indeterminate prices.
(6) Such indeterminate number of Common Shares as may from time to time be
issued at indeterminate prices or issuable upon conversion of Preferred
Shares registered hereunder.
(7) Omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act of 1933, as amended.
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JUNE 26, 1998
PRELIMINARY PROSPECTUS
$200,000,000
RAMCO-GERSHENSON PROPERTIES TRUST
PREFERRED SHARES OF BENEFICIAL INTEREST, COMMON SHARES OF BENEFICIAL INTEREST
AND SECURITIES WARRANTS
------------------------------
Ramco-Gershenson Properties Trust (the "Trust") may from time to time
offer, with an aggregate public offering price of up to $200,000,000, in one or
more series: (i) preferred shares of beneficial interest, par value $0.01 per
share ("Preferred Shares"); (ii) common shares of beneficial interest, par value
$0.01 per share (the "Common Shares"); and (iii) warrants exercisable for
Preferred Shares or Common Shares ("Securities Warrants"), in each case in
amounts, at prices and on terms to be determined at the time of offering. The
Preferred Shares, Common Shares and Securities Warrants (collectively, the
"Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be described in one or more supplements to
this Prospectus (a "Prospectus Supplement").
With respect to the Preferred Shares, the terms of the Preferred Shares,
including the specific designation and stated value per share, any dividend,
liquidation, redemption, conversion, voting and other rights, and all other
specific terms of the Preferred Shares will be set forth in the applicable
Prospectus Supplement. In the case of the Common Shares, the specific number of
Common Shares and issuance price per Common Share will be set forth in the
applicable Prospectus Supplement. In the case of the Securities Warrants, the
duration, offering price, exercise price and detachability, if applicable, will
be set forth in the applicable Prospectus Supplement. In addition, such specific
terms may include limitations on direct or beneficial ownership and restrictions
on transfer of the Securities, in each case as may be appropriate to assist in
preserving the status of the Trust as a real estate investment trust ("REIT")
for United States federal income tax purposes. The applicable Prospectus
Supplement will also contain information, where applicable, about all material
United States federal income tax considerations relating to, and any listing on
a securities exchange of, the Securities covered by such Prospectus Supplement.
The Securities may be offered directly by the Trust, through agents
designated from time to time by the Trust, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement with, between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN THE SECURITIES.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
The date of this Prospectus is , 1998
<PAGE> 4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference herein contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including,
without limitation, statements containing the words "believes," "anticipates,"
"expects," "will be," "should be" and words of similar import. Such
forward-looking statements relate to future events, the future financial
performance of the Trust, and involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Trust or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Prospective investors should specifically consider
the various factors identified in the Prospectus and in any applicable
Prospectus Supplement which could cause actual results to differ, including
those discussed in the section herein entitled "Risk Factors."
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, the Trust files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed can be inspected at the Public Reference Section maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
the following regional offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such materials can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at the Commission's prescribed rates. Electronic registration statements
and other reports filed electronically through the Electronic Data Gathering
Analysis and Retrieval system are publicly available through the Commission's
web site at http://www.sec.gov. In addition, the Trust's Common Shares are
listed on the New York Stock Exchange and such reports, proxy statements and
other information concerning the Trust can be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Trust has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain portions of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference is
made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Trust and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Trust (Commission File
No. 1-10093) under the Exchange Act with the Commission and are incorporated
herein by reference.
1. The Trust's Annual Report on Form 10-K for the year ended December
31, 1997, filed with the Commission on March 31, 1998.
2. The Trust's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, filed with the Commission on May 14, 1998.
3. The Trust's Definitive Proxy Statement on Schedule 14A for the
Annual Meeting of Shareholders held on June 10, 1998, filed with the
Commission on April 30, 1998.
2
<PAGE> 5
4. The Trust's Current Report on Form 8-K dated October 30, 1997,
filed with the Commission on November 14, 1997, as amended by Form 8-K/A
filed January 13, 1998.
All documents filed by the Trust subsequent to the date of this Prospectus
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
termination of the offering of all Securities to which this Prospectus relates
shall be deemed to be incorporated by reference in this Prospectus and shall be
part hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Trust will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to Chief Financial Officer, Ramco-Gershenson
Properties Trust, 27600 Northwestern Highway, Suite 200, Southfield, Michigan
48034, telephone number (248) 350-9900.
THE TRUST
As used herein, the term the "Trust" includes Ramco-Gershenson Properties
Trust, a Maryland real estate investment trust, and its subsidiaries including
Ramco-Gershenson Properties, L.P., a Delaware limited partnership (the
"Operating Partnership"), and Ramco-Gershenson, Inc., a Michigan corporation
("Ramco").
The Trust is a self-administered, self-managed real estate investment trust
("REIT") which, through the Operating Partnership, Ramco and its other
subsidiaries, is engaged in the business of owning, developing, acquiring,
managing and leasing neighborhood and community shopping centers, regional
enclosed malls and single tenant retail properties, nationally. At March 31,
1998, the Trust's portfolio was comprised of more than 9.8 million square feet
of gross leasable area ("GLA") in 45 neighborhood and community shopping
centers, 2 regional enclosed malls and 3 single tenant retail properties (the
"Properties"). The Properties are located in Michigan, Ohio, Florida, New York,
New Jersey, Maryland, North Carolina, South Carolina, Tennessee, Alabama,
Wisconsin and Georgia.
The Trust conducts substantially all of its business through the Operating
Partnership and through Ramco. The Trust is the sole general partner of, and has
exclusive power to manage and conduct the business of, the Operating
Partnership. The Operating Partnership holds substantially all of the Trust's
interest in the Properties, either directly or indirectly through subsidiaries
(including subsidiary property partnerships). The Operating Partnership owns
100% of the non-voting common stock and 5% of the voting common stock of Ramco.
Such stock ownership enables the Operating Partnership to receive in excess of
95% of the dividend and liquidating distributions of Ramco. The Trust's property
management operations are conducted through Ramco.
The Trust is a Maryland real estate investment trust organized under Title
8 of the Corporations and Associations Article of the Annotated Code of Maryland
("Title 8") pursuant to a Declaration of Trust filed with the State of Maryland
Department of Assessments and Taxation on October 2, 1997, as amended and
restated by Articles of Amendment and Restatement dated October 2, 1997, as
supplemented by Articles Supplementary filed on October 2, 1997 (as amended,
restated and supplemented, the "Declaration of
3
<PAGE> 6
Trust"). The Trust is the successor entity of Ramco-Gershenson Properties Trust,
a Massachusetts business trust (the "Massachusetts Trust"). In December 1997,
with the approval of its shareholders, the Trust changed its state of
organization from Massachusetts to Maryland through the termination of the
Massachusetts Trust's Amended and Restated Declaration of Trust by amending such
Amended and Restated Declaration of Trust to provide for the termination of the
Massachusetts Trust, the merger (the "Change of Venue Merger") of the
Massachusetts Trust into the Trust and the conversion of each share of
beneficial interest in the Massachusetts Trust into a Common Share of the Trust.
The principal office of the Trust is located at 27600 Northwestern Highway,
Suite 200, Southfield, Michigan 48034, and the telephone number for the Trust is
(248) 350-9900.
4
<PAGE> 7
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as other information included elsewhere herein or incorporated by
reference, prior to purchasing the Securities offered by a Prospectus
Supplement.
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of revenues generated and expenses incurred. If the
Properties do not generate revenues sufficient to meet operating expenses,
including debt service, tenant improvements, leasing commissions and other
capital expenditures, the Trust may have to borrow additional amounts to cover
such costs and the Trust's cash flow and ability to make distributions to its
shareholders will be adversely affected.
The Trust's revenues and the value of its Properties may be adversely
affected by a number of factors, including the national economic climate, the
local economic climate, local real estate conditions, the perceptions of
prospective tenants of the attractiveness of the property, the ability of the
Trust to provide adequate management, maintenance and insurance, and increased
operating costs (including real estate taxes and utilities). In addition, real
estate values and income from properties are also affected by such factors as
applicable laws, including tax laws, interest rate levels, and the availability
of financing.
Bankruptcy and Financial Condition of Tenants. At any time, a tenant of the
Properties may seek the protection of the bankruptcy laws, which could result in
the rejection and termination of such tenant's lease and thereby cause a
reduction in the cash flow available for distribution by the Trust. As of March
31, 1998, tenants under seven leases, occupying an aggregate of approximately
330,000 square feet of GLA and representing 2.45% of annual base rent, have
filed for protection under the United States Bankruptcy Code and have not yet
affirmed or rejected their leases. No assurance can be given that such leases
will be affirmed, and will not be rejected. No assurance can be given that any
tenants at the Properties will not file for bankruptcy protection in the future
or, if any tenants file for such protection, that they will affirm their leases
and continue to make rental payments in a timely manner. In addition, a tenant
from time to time may experience a downturn in its business which may weaken its
financial condition and result in the failure to make rental payments when due.
If tenant leases are not affirmed following bankruptcy or if a tenant's
financial condition weakens, the Trust's income and cash flow may be adversely
affected.
Competition. Numerous shopping center properties compete with the
Properties in attracting tenants to lease space. Some of these competing
properties may be newer, better located, better capitalized or better tenanted
than some of the Properties. Furthermore, the Trust believes that it is likely
that major national or regional commercial property developers will continue to
seek development opportunities in the markets in which the Properties are
located. These developers may have greater financial resources than the Trust.
The number of competitive commercial properties in a particular area could have
a material adverse effect on the Trust's ability to lease space in the
Properties or at newly developed or acquired properties and on the rents
charged. In addition, the Trust may face competition from alternate forms of
retailing, including home shopping networks, mail order catalogues and on-line
based shopping services which may limit the number of retail tenants that desire
to seek space in shopping center properties generally, all of which may affect
the Trust's ability to make expected distributions.
Inability to Renew Leases and Relet of Space. The Trust is subject to the
risks that upon expiration of leases for space located in the Properties, the
leases may not be renewed, the space may not be relet or the terms of renewal or
reletting (including the cost of required renovations) may be less favorable
than current lease terms. Leases on a total of approximately 2.78% and 6.15% of
Trust-owned GLA in the Properties will expire in 1998 (for periods subsequent to
March 31, 1998) and 1999, respectively. The Trust has estimated the renovation
and reletting expenses associated with these expirations, but no assurance can
be given that the Trust has accurately estimated such expenses. If the Trust
were unable to promptly relet or renew the leases for all or a substantial
portion of this space and/or, if the rental rates upon such renewal or reletting
were significantly lower than expected rates or if its estimates proved
inadequate, then the Trust's cash flow and
5
<PAGE> 8
ability to make expected distributions to shareholders may be adversely
affected. At March 31, 1998, the occupancy rate at the Properties was
approximately 93.2%. If the Trust were unable to maintain its current occupancy
levels at the Properties, then the Trust's cash flow and ability to make
expected distributions to shareholders may be adversely affected.
Acquisition, Development and Redevelopment Risks. The Trust intends to
consider possible acquisitions of existing properties and to continue the
development of new properties and redevelopment of existing properties owned by
the Operating Partnership. Acquisitions entail risks that investments will fail
to perform in accordance with expectations, as well as general investment risks
associated with any new real estate investment. New project development or
redevelopment is subject to a number of risks, including risks of construction
delays or cost overruns that may increase project costs, risks that the
properties will not achieve anticipated occupancy levels or sustain anticipated
rent levels, and new project commencement risks such as receipt of occupancy and
other required governmental permits and authorizations and the incurrence of
development costs in connection with projects that are not pursued to
completion. In addition, the Trust anticipates that its development and
redevelopment activities will be financed under lines of credit or other forms
of construction financing that will result in a risk that permanent financing on
newly developed or redeveloped projects might not be available or would be
available only on disadvantageous terms. In addition, the fact that the Trust
must distribute 95% of its taxable income to maintain its qualification as a
REIT will limit the ability of the Trust to rely upon income from operations or
cash flow from operations to finance new development, redevelopment or
acquisitions. As a result, if permanent debt or equity financing was not
available on acceptable terms to refinance new development, redevelopment or
acquisitions undertaken without permanent financing, further development or
redevelopment activities or acquisitions might be curtailed or cash available
for distribution might be adversely affected.
Adverse Changes in Laws. Because increases in income, service or transfer
taxes are generally not passed through to tenants under leases, such increases
may adversely affect the Trust's cash flow and its ability to make distributions
to shareholders. The Properties are also subject to various federal, state and
local regulatory requirements, such as requirements of the Americans with
Disabilities Act and state and local fire and life safety requirements. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Trust
believes that the Properties are currently substantially in compliance with all
such regulatory requirements. However, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
which would require significant unanticipated expenditures by the Trust and
could have an adverse effect on the Trust's cash flow and expected
distributions.
Uninsured Loss. The Trust carries comprehensive liability, fire, flood
(where appropriate), extended coverage and rental loss insurance with respect to
the Properties with policy specifications and insured limits customarily carried
for similar properties. There are, however, certain types of losses (such as
from wars or earthquakes) that may be either uninsurable or not economically
insurable. Should an uninsured loss occur, the Trust could lose both its capital
invested in and anticipated profits from one or more Properties.
Americans with Disabilities Act Compliance. Under the Americans with
Disabilities Act (the "ADA"), all public accommodations and commercial
facilities are required to meet certain federal requirements related to access
and use by disabled persons. These requirements became effective in 1992.
Compliance with the ADA requirements could require removal of access barriers
and non-compliance could result in imposition of fines by the U.S. government or
an award of damages to private litigants. Although the Trust believes the
Properties are substantially in compliance with these requirements, the Trust
may incur additional costs to comply with the ADA. Although the Trust believes
that such costs will not have a material adverse effect on the Trust, if
required changes involve a greater expenditure than the Trust currently
anticipates, the Trust's ability to make expected distributions could be
adversely affected.
Dependence on Anchors. A portion of the GLA at several of the Properties is
owned by anchor tenants and not by the Trust. The success of the Trust owned GLA
at such sites is in part dependent on the continued presence of the anchors at
such sites; however, the anchors are not contractually obligated to remain at
such sites and leases of stores in the Trust owned portion of such Properties
may contain provisions which permit
6
<PAGE> 9
the tenants thereunder to terminate such leases in the event that an anchor no
longer occupies its space. Accordingly, in the event that an anchor vacates its
space at such a site, the performance of the stores located in the Trust owned
portion of such property may be adversely affected, as may the results of
operations of the Trust relating to such site.
Illiquidity of Real Estate. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Trust to vary
its portfolio promptly in response to changes in economic or other conditions.
In addition, the Internal Revenue Code of 1986, as amended (the "Code"), limits
the Trust's ability to sell properties held for fewer than four years, which may
affect the Trust's ability to sell Properties without distribution to
shareholders.
REAL ESTATE FINANCING RISKS
Debt Financing and Existing Debt Maturities. The Trust is subject to risks
normally associated with debt financing, including the risk that the Trust's
cash flow may be insufficient to pay distributions at expected levels and to
meet required payments of principal and interest, the risk that existing
indebtedness on the Properties (which in all cases will not have been fully
amortized at maturity) will not be able to be refinanced at maturity or that the
terms of such refinancing will not be as favorable as the terms of existing
indebtedness. At March 31, 1998, the Trust had an aggregate of approximately
$161.3 million in fixed rate mortgages with various maturity dates through 2007,
$84.1 million outstanding under its revolving credit facility which matures May
1999, a $45.0 million unsecured term loan which matures on May 1, 1999, and $7.0
million in floating rate mortgages which mature on January 1, 2010. The maturity
dates for the revolving credit facility and the unsecured term loan may, under
certain circumstances, be extended to October 2000 at the election of the
Operating Partnership. If principal payments due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions, such
as new equity capital, the Trust expects that its cash flow may not be
sufficient in all years to pay distributions at expected levels and to repay all
such maturing debt. Furthermore, if prevailing interest rates or other factors
at the time of refinancing (such as the reluctance of lenders to make commercial
real estate loans) result in higher interest rates upon refinancing, the
interest expense relating to such refinanced indebtedness would increase, which
would adversely affect the Trust's cash flow and the amount of distributions it
can make to its shareholders. If one or more Properties are mortgaged to secure
payment of indebtedness and the Trust is unable to meet mortgage payments, the
Property could be foreclosed upon by or otherwise transferred to the mortgagee
with a consequent loss of income and asset value to the Trust.
At March 31, 1998, approximately $136.1 million of the Trust's debt was
subject to interest at floating rates with a weighed average interest rate of
7.69%. Variable rate debt accounted for approximately 45.8% of the Trust's total
debt and 26.8% of its total capitalization at March 31, 1998. Thus, an increase
in market interest rates could cause the interest rates on the Trust's floating
rate debt to increase. The Trust is therefore subject to the risk of interest
rate fluctuations. To reduce the Trust's risk of interest rate fluctuations, the
Trust is party to two interest rate protection agreements which provide caps and
floors on the interest rates charged on $75 million of the Trust's variable rate
debt during the period through May 1999, and $50 million of the Trust's variable
rate debt from May 1999 to October 2000.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Qualification as a REIT. The Massachusetts Trust, which is the predecessor
of the Trust, first elected to qualify as a REIT for the year ended December 31,
1988. The policy of the Massachusetts Trust had been, and the policy of the
Trust is, to annually qualify as a REIT for federal income tax purposes. If the
Trust so qualifies, amounts paid by the Trust as distributions to its
shareholders will not be subject to corporate income taxes. For any year in
which the Trust happens not to meet the requirements for electing to be taxed as
a REIT, it would be taxed as a corporation.
The requirements for qualification as a REIT are contained in sections
856-860 of the Code and the regulations issued thereunder. The following
discussion is a brief summary of some of those requirements. Such requirements
include certain provisions relating to the nature of a REIT's assets, the
sources of its
7
<PAGE> 10
income, the ownership of its stock, and the distribution of its income. Among
other things, at the end of each fiscal quarter, at least 75% of the value of
the total assets of the Trust must consist of real estate assets (including
interests in mortgage loans secured by real property and interests in other
REITs) as well as cash, cash equivalents and government securities (the "75%
Asset Test"). There are also certain limitations on the amount of other types of
securities which can be held by a REIT. Additionally, at least 75% of the gross
income of the Trust for the taxable year must be derived from certain sources,
which include "rents from real property," and interest secured by mortgages on
real property. An additional 20% of the gross income of the Trust must be
derived from these same sources or from dividends, interest from any source, or
gains from the sale or other disposition of stock or securities or any
combination of the foregoing. A REIT is also required to distribute annually at
least 95% of its "REIT taxable income" (as defined in the Code) to its
shareholders.
During the third quarter of 1994, the Massachusetts Trust held more than
25% of the value of its gross assets in overnight Treasury Bill reverse
repurchase transactions which the United States Internal Revenue Service (the
"IRS") may view as non-qualifying assets for the purposes of satisfying the 75%
Asset Test, based on a Revenue Ruling published in 1977 (the "Asset Issue"). The
Trust has requested that the IRS enter into a closing agreement with the Trust
that the Asset Issue will not impact the Trust's status as a REIT. The IRS has
deferred any action relating to the Asset Issue pending the further examination
of the Trust's 1991-1995 tax returns (the "Tax Audit"). Based on developments in
the law which have occurred since 1977, the Trust's Special Counsel, Battle
Fowler LLP, has rendered an opinion that the Massachusetts Trust's investment in
Treasury Bill repurchase obligations would not adversely affect its REIT status.
However, such opinion is not binding upon the IRS.
In May 1996, in connection with the acquisition by the Trust of
substantially all of the shopping center and retail properties, as well as the
management organization and business operations, of Ramco and certain of its
affiliates (the "Ramco Transaction"), the Trust spun-off eight mortgage loans
and two real properties to Atlantic Realty Trust, a newly formed real estate
investment trust ("Atlantic"). In connection with such spin-off, Atlantic
assumed all liability arising out of the Tax Audit and the Asset Issue,
including liabilities for interest and penalties and attorneys fees relating
thereto. In connection with the assumption of such potential liabilities,
Atlantic and the Trust entered into a tax agreement which provides that the
Trust (under the direction of certain of its Trustees who were also Trustees of
the Massachusetts Trust prior to the consummation of the Ramco Transaction
(collectively, the "Continuing Trustees")), and not Atlantic, will control,
conduct and effect the settlement of any tax claims against the Trust relating
to the Tax Audit and the Asset Issue. Accordingly, Atlantic will not have any
control as to the timing of the resolution or disposition of any such claims.
The Trust and Atlantic also received an opinion from Special Tax Counsel, Wolf,
Block, Schorr and Solis-Cohen LLP, that, to the extent there is a deficiency in
the Trust's taxable income arising out of the IRS examination and provided the
Trust timely makes a deficiency dividend (i.e., declares and pays a distribution
which is permitted to relate back to the year for which each deficiency was
determined to satisfy the requirement that a REIT distribute annually 95% of its
taxable income), the classification of the Trust as a REIT for the taxable years
under examination would not be affected. Under the tax agreement referred to
above, Atlantic has agreed to reimburse the Trust for the amount of any
deficiency dividend so made. If notwithstanding the above-described opinions of
legal counsel, the IRS successfully challenged the status of the Trust as a
REIT, its status could be adversely affected. If the Trust lost its status as a
REIT, the Trust believes that it will be able to re-elect REIT status for the
taxable year beginning January 1, 1999.
Although the IRS agent conducting the examination has not issued his final
examination report with respect to the tax issues raised in the Tax Audit,
including the Asset Issue (collectively, the "Tax Issues"), the Trust has
received a preliminary draft of the examining agent's report. The draft report
sets forth a number of positions which the examining agent has taken with
respect to the Trust's taxes for the years that are subject to the Tax Audit,
which the Trust believes are not consistent with applicable law and regulations
of the IRS. If the final report were issued in its current form, the liability
of Atlantic to indemnify the Trust may be substantial. The Continuing Trustees
of the Trust are engaged in ongoing discussions with the examining agent and his
supervisors with regard to the positions set forth in the draft report. There
can be no assurance that, after conclusion of discussions with such agent and
his supervisors regarding the draft report, the examining agent will not issue
the proposed report in the form previously delivered to the Trust (or another
8
<PAGE> 11
form). Issuance of the revenue agent's report constitutes only the first step in
the IRS administrative process for determining whether there is any deficiency
in the Trust's tax liability for the years at issue and any adverse
determination by the examining agent is subject to administrative appeal within
the IRS and, thereafter, to judicial review. As noted above, pursuant to the tax
agreement between Atlantic and the Trust, Atlantic has assumed all liability
arising out of the Tax Audit and the Tax Issues. As described in more detail
below under "Description of Preferred Shares -- Terms of Series A Preferred
Shares -- Redemption on Acceleration of Maturity Date," in the event that the
Trust loses its REIT status as a result of the Tax Issues and either (i) the
Trust does not receive the full indemnity payment for such loss of tax benefits
that the Trust is entitled to receive from Atlantic pursuant to the Tax
Agreement or (ii) the Trust is unable to provide the holders of Series A
Preferred Shares issued by the Trust an opinion of counsel that the Trust will
be able to elect to be qualified as a REIT under the Code commencing not later
than the taxable year ending December 31, 1999, then the maturity date of the
Series A Preferred Shares (which is currently October 3, 2002) will be
accelerated and the Trust would be required to redeem such Series A Preferred
Shares at a time when it may not have sufficient funds available to do so. Based
on the amount of Atlantic's assets, as disclosed in its Annual Report on Form
10-K for the year ended December 31, 1997, the Trust does not believe that the
ultimate resolution of the Tax Issues will have a material adverse effect on the
financial position, results of operations or cash flows of the Trust.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON THE INCURRENCE OF DEBT
The organizational documents of the Trust contain no limitation on the
amount or percentage of indebtedness which the Trust may incur. Therefore, the
Board of Trustees of the Trust, without a vote of the shareholders, could alter
the general policy on borrowings at any time. If the Trust's debt capitalization
policy were changed, the Trust could become more highly leveraged, resulting in
an increase in debt service that could adversely affect the Trust's operating
cash flow and its ability to make expected distributions to shareholders, and
could result in an increased risk of default on its obligations.
Although the Trust will consider factors other than total market
capitalization in making decisions regarding the incurrence of debt (such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of properties upon refinancing, and the ability of particular
properties and the Trust, as a whole, to generate cash flow to cover expected
debt service), there can be no assurance that the ratio of total indebtedness to
total market capitalization will be consistent with the maintenance of the
expected level of distributions to shareholders.
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT SHAREHOLDER APPROVAL
The investment and financing policies of the Trust, and its policies with
respect to certain other activities, including its growth, debt, capitalization,
distributions, REIT status, and operating policies, are determined by the Board
of Trustees. Although the Board of Trustees has no present intention to do so,
these policies may be amended or revised from time to time at the discretion of
the Board of Trustees without notice to or a vote of the shareholders of the
Trust. Accordingly, shareholders may not have control over changes in policies
of the Trust.
DEPENDENCE ON KEY PERSONNEL
The Trust is dependent on the efforts of its executive officers. While the
Trust believes that it could find replacements for these key personnel, the loss
of their services could have a temporary adverse effect on the operations of the
Trust. The Trust does not currently maintain or contemplate obtaining any
"keyman" life insurance on any of its executive officers.
LIMITED GEOGRAPHIC DIVERSIFICATION OF THE PORTFOLIO
The Trust's Properties are located in Michigan, Ohio, Florida, New York,
New Jersey, Maryland, North Carolina, South Carolina, Tennessee, Wisconsin and
Georgia. The concentration of the Trust's Properties in a
9
<PAGE> 12
limited number of geographic regions creates the risk that, should these regions
experience an economic downturn, the Trust's operations may be adversely
affected.
OWNERSHIP LIMIT AND LIMITS ON CHANGES IN CONTROL
9.8% Ownership Limit. In order to qualify and maintain its qualification as
a REIT, not more than 50% in value of the Trust's outstanding shares of
beneficial interest may be owned, actually or constructively, by five or fewer
individuals (as defined in the Code), during the last half of a taxable year or
during a proportionate part of a shorter taxable year. Thus, ownership of more
than 9.8% of the outstanding Common Shares or any class or series of Preferred
Shares of the Trust by any single shareholder has been restricted, with certain
exceptions, for the purpose of maintaining the Trust's qualification as a REIT
under the Code. See "Restrictions on Ownership and Transfer of Shares" below.
The 9.8% ownership limit, as well as the ability of the Trust to issue
additional Common Shares or Preferred Shares (which may have rights and
preferences over the Common Shares), may discourage a change of control of the
Trust and may also: (i) deter tender offers for the Common Shares, which offers
may be advantageous to shareholders; and (ii) limit the opportunity for
shareholders to receive a premium for their Common Shares that might otherwise
exist if an investor were attempting to assemble a block of Common Shares in
excess of 9.8% of the outstanding Common Shares of the Trust or otherwise effect
a change of control of the Trust.
Preferred Shares. The Trust's Declaration of Trust authorizes the Board of
Trustees to issue up to 10,000,000 Preferred Shares and to establish the
preferences and rights (including the right to vote and the right to convert
into Common Shares) of any Preferred Shares issued. See "Description of
Preferred Shares" below. The power to issue Preferred Shares could have the
effect of delaying or preventing a change in control of the Trust even if a
change in control were in the shareholders' interest.
CONFLICTS OF INTEREST WITH JOINT VENTURE PARTNERS IN JOINTLY OWNED CENTERS
Two of the Trust's shopping centers are owned by partnerships
(collectively, the "Joint Ventures") of which the Operating Partnership owns 50%
of the partnership interests and one or more other persons or entities
(collectively, the "Joint Venture Partners") owns the other 50% of the
partnership interests in such partnerships. Sales or transfers of interests in
the Joint Ventures are subject to various restrictive provisions and rights.
These may work to the advantage or disadvantage of the Operating Partnership
because, among other things, the Operating Partnership may have an opportunity
to acquire the interests of the Joint Venture Partners on advantageous terms, or
may be required to make decisions as to the purchase or sale of interests in a
Joint Venture at a time that is disadvantageous to the Operating Partnership.
In addition, the consent of each Joint Venture Partner could be required
with respect to certain major transactions, such as refinancing, encumbering, or
the expansion or sale of, the relevant shopping center. The interests of the
Joint Venture Partners and those of the Operating Partnership are not
necessarily aligned in connection with the resolution of such issues.
Accordingly, the Operating Partnership may not be able to favorably resolve any
such issue, or the Operating Partnership may have to provide financial or other
inducement to the Joint Venture Partner to obtain such resolutions.
BANKRUPTCY OF JOINT VENTURE PARTNERS
The bankruptcy of a Joint Venture Partner could adversely affect the
relevant Trust Property, principally because of the problems created by dealing
with a bankruptcy court regarding material partnership decisions. Under the
bankruptcy laws, the Operating Partnership would be precluded by the automatic
stay from taking certain actions which affect the estate of the Joint Venture
Partner without prior approval of the bankruptcy court, which would, in most
cases, entail prior notice to other parties and a hearing in the bankruptcy
court. At a minimum, the requirement of approval may delay the taking of such
actions. If a Joint Venture has incurred recourse obligations, the discharge in
bankruptcy of a Joint Venture Partner might result in the ultimate liability of
the Operating Partnership for a greater portion of such obligations then it
would otherwise bear. In addition, even in situations where the Joint Venture
Partner (or its estate) was not completely relieved of
10
<PAGE> 13
liability for such obligations, the Operating Partnership, as a general partner
of the Joint Venture, might be required to satisfy such obligations and then
rely upon a claim against the Joint Venture Partner's estate for reimbursement.
ADVERSE EFFECT OF DISTRIBUTION REQUIREMENTS
The Trust may be required from time to time, under certain circumstances,
to accrue as income for tax purposes interest and rent earned but not yet
received. In such event, the Trust could have taxable income without sufficient
cash to enable the Trust to meet the distribution requirements of a REIT.
Accordingly, the Trust could be required to borrow funds or liquidate
investments on adverse terms in order to meet such distribution requirements.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A PARTNERSHIP
The Trust believes that the Operating Partnership has been organized as a
partnership and qualifies for treatment as such under the Code. Since January 1,
1997, an unincorporated entity, such as the Operating Partnership, has been free
to elect to be classified as a partnership for Federal income tax purposes. If
the Operating Partnership were deemed to fail to qualify for treatment as a
partnership under the Code for a prior year, however, the Trust would cease to
qualify as a REIT as of such year, and the Operating Partnership would have
liability for Federal income tax (including any alternative minimum tax) on its
income for such year (and any prior years for which it failed to be treated as a
partnership for tax purposes) at corporate rates.
ADVERSE EFFECT ON PRICE OF COMMON SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of Common Shares of the Trust, or the
perception that such sales could occur, could adversely affect prevailing market
prices for Common Shares. As of March 31, 1998, Messrs. Bruce, Dennis, Joel and
Richard Gershenson and Mr. Michael A. Ward (collectively, the "Ramco
Principals") held in the aggregate 1,650,651 Common Shares (including Common
Shares that may be issued in the future to the Ramco Principals, and certain
affiliates of the Ramco Principals as a result of the potential conversion of
their outstanding partnership interests in the Operating Partnership ("OP
Units")). In connection with the consummation of the Ramco Transaction, each of
the Ramco Principals entered into a lock-up agreement (the "Lock-Up Agreements")
pursuant to which the Ramco Principals agreed for a period of 30 months
commencing on May 10, 1996 not, directly or indirectly, to offer to sell, sell,
grant any options for the sale of, or otherwise dispose of, any OP Units or
Common Shares of the Trust issuable upon the exchange of the OP Units. The
Lock-Up Agreements contain a number of exclusions and exceptions to this
prohibition on sale including, without limitation, the exercise by any of the
Ramco Principals of any options to purchase Common Shares issued to such Ramco
Principal under the Trust's 1996 Share Option Plan. In addition, 954,750 Common
Shares have been reserved for issuance pursuant to the Trust's 1996 Share Option
Plan and 1997 Non-Employee Trustee Share Option Plan. No prediction can be made
regarding the effect that future sales of Common Shares will have on the market
price of Common Shares. The Trust has also reserved an aggregate of 2,000,000
Common Shares for issuance upon conversion of up to 1,400,000 Series A Preferred
Shares into Common Shares. At March 31, 1998, there were 466,667 Series A
Preferred Shares of the Trust issued and outstanding, which shares are
convertible into 666,667 Common Shares (subject to adjustment under certain
circumstances). See "Description of Preferred Shares -- Terms of Series A
Preferred Shares" below.
ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES
One of the factors that may influence the price of the Trust's Common
Shares in the public market is the annual distributions to shareholders relative
to the prevailing market price of the Common Shares. An increase in market
interest rates may tend to make the Common Shares less attractive relative to
other investments, which could adversely affect the market price of Common
Shares.
11
<PAGE> 14
CONFLICTS OF INTEREST
Failure to Enforce Terms of Management Contract. Through their ownership of
95% of the voting common stock of Ramco, the Ramco Principals have approximately
a 5% economic interest in Ramco. Ramco has entered into a management contract
with the Operating Partnership with respect to each of the properties owned by
the Operating Partnership, which was not negotiated on an arm's length basis.
The Ramco Principals will have a conflict of interest with respect to their
obligations as officers and/or trustees of the Trust to enforce the terms of the
management contract. The failure to enforce the material terms of this agreement
could have an adverse effect on the Trust.
Tax Consequences Upon Sale or Refinancing of Properties. Certain holders of
OP Units may suffer different and more adverse tax consequences than the Trust
upon the sale or refinancing of any of the Properties and, therefore, such
holders, including the Ramco Principals, may have different objectives regarding
the appropriate pricing and timing of any sale or refinancing of such
Properties. While the Trust, as the sole general partner of the Operating
Partnership, has the exclusive authority as to whether and on what terms to sell
or refinance an individual Property, those members of the Trust's management and
Board of Trustees of the Trust who hold OP Units may influence the Trust not to
sell or refinance the Properties even though such sale might otherwise be
financially advantageous to the Trust, or may influence the Trust to refinance
Properties with a high level of debt.
RAMCO PRINCIPALS' ABILITY TO EXERCISE INFLUENCE
As of March 31, 1998, the Ramco Principals owned, in the aggregate,
approximately 19.6% of the Trust's Common Shares (assuming (i) conversion of all
outstanding OP Units owned by the Ramco Principals into Common Shares and (ii)
the exercise of options to purchase Common Shares held by the Ramco Principals
and exercisable as of March 31, 1998). Accordingly, the Ramco Principals will
have substantial influence on the Trust and on the outcome of any matters
submitted to the Trust's shareholders for approval, which influence might not be
consistent with the interests of other shareholders. In addition, although there
is no current agreement, understanding, or arrangement for the Ramco Principals,
as shareholders, to act together on any matter, the Ramco Principals would be in
a position to exercise significant influence over the affairs of the Trust if
they were to act together in the future.
LACK OF CONTROL OVER RAMCO
The capital stock of Ramco is divided into two classes: voting common stock
(5% of which is owned by the Operating Partnership and 95% of which is owned by
the Ramco Principals), and non-voting common stock (100% of which is owned by
the Operating Partnership). The Operating Partnership's voting common stock and
non-voting common stock collectively represent in excess of 95% of the economic
interests in Ramco. The Ramco Principals, as the holders of 95% of the voting
common stock, retain the ability to elect the board of directors of Ramco.
Although the non-voting common stock and the voting common stock of Ramco held
directly by the Operating Partnership, and indirectly by the Trust, represent a
substantial share of the economic interests in Ramco, the Operating Partnership
is not able to elect directors and its ability to influence the day-to-day
decisions of Ramco is therefore limited. As a result, the board of directors of
Ramco may implement business policies or decisions that would not have been
implemented by persons controlled by the Trust or the Operating Partnership and
that are adverse to the interests of the Trust or the Operating Partnership or
that lead to adverse financial results, which could adversely impact the Trust's
cash available for distribution.
One of the requirements for maintaining REIT status is that a REIT not own
more than 10% of the voting stock of a corporation other than the stock of a
qualified REIT subsidiary (of which the REIT is required to own all of such
stock) and stock in another REIT. The Trust owns only 5% of the voting stock and
all of the non-voting stock of Ramco and therefore complies with this rule.
However, the IRS could contend that the Trust's ownership of all of the
non-voting stock of Ramco should be viewed as voting stock because of its
substantial economic position in Ramco. If the IRS were to be successful in such
a contention, the Trust's status as a REIT would be lost and the Trust would
become subject to federal corporate income tax on its net
12
<PAGE> 15
income, which would have a material adverse effect on the Trust's cash available
for distribution. See "Federal Income Tax Considerations -- Taxation of the
Trust" below.
AUTHORIZATION OF ADDITIONAL SHARES OF BENEFICIAL INTEREST WITHOUT SHAREHOLDER
APPROVAL
Under Title 8, a REIT's declaration of trust may permit the board of
trustees of a REIT to amend such REIT's declaration of trust to increase the
aggregate number of shares of beneficial interest or the number of shares of any
class without shareholder approval. Pursuant to this statute, the Trust's
Declaration of Trust authorizes the Board of Trustees to increase or decrease
the aggregate number of shares of beneficial interest of the Trust or the number
of shares of beneficial interest of any class of beneficial interest of the
Trust. See "Description of Common Shares" below.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The costs
of any required remediation or removal of such substances may be substantial and
the owner's liability therefor as to any property is generally not limited under
such laws, ordinances and regulations and could exceed the value of the
property. The presence of such substances, or the failure to properly remediate
such substances, may adversely affect the owner's ability to sell the property
or to borrow using such real estate as collateral. All of the Properties have
been subject to Phase I environmental audits (which involves inspection without
soil sampling or ground water analysis) by independent environmental
consultants. No assurance, however, can be given that these reports reveal all
environmental liabilities or that no prior owner created any material
environmental condition not known to the Trust. Various of the Trust's
Properties have or may contain asbestos-containing materials or underground
storage tanks ("USTs"); however, except as set forth below, the Trust is not
aware of any potential environmental liability which could reasonably be
expected to have a material impact on the Trust's business or operations. No
assurance can be given that future laws, ordinances or regulations will not
impose any material environmental requirement or liability, or that a material
adverse environmental condition does not otherwise exist.
There was a release of approximately 2,300 gallons of gasoline from a
product line break in August 1986 and a release of approximately 1,200 gallons
of gasoline from a delivery line break in October 1991 at a gasoline station
located at Jackson Crossing. A release of gasoline was also discovered in 1987
at the time of removal of USTs from a gasoline station located adjacent to Lake
Orion Plaza. Subsequent investigations indicated that levels of contamination
exist in the ground water under such properties. The Ramco Principals, jointly
and severally, have agreed to indemnify the Trust, the Operating Partnership and
their respective subsidiaries and affiliates for any and all damages arising
from or in connection with such environmental conditions at the Jackson Crossing
and Lake Orion Plaza properties.
The Trust believes that it is in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances, and the Trust has not been notified by any governmental
authority of any noncompliance, liability or other claim in connection with any
of its present or former properties.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust intends to invest, contribute or otherwise transfer the net proceeds of
any sale of Common Shares, Preferred Shares or Securities Warrants to the
Operating Partnership. Unless otherwise specified in the applicable Prospectus
Supplement, the Operating Partnership intends to use such net proceeds for
general business purposes, including the development and acquisition of
additional properties and other acquisition transactions, the payment of certain
outstanding debt and improvements to certain properties in the Trust's
portfolio.
13
<PAGE> 16
RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of earnings to
combined fixed charges and preferred share dividends of the Trust for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED --------------------------------------
MARCH 31, 1998 1997 1996 1995 1994 1993
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.41........................................................ 1.83 1.39 61.00 32.54 2.13
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges
and preferred share dividends, earnings have been calculated by adding fixed
charges (excluding capitalized interest) to income (loss) before extraordinary
items. Fixed charges consist of interest costs, whether expensed or capitalized,
the interest component of rental expense, if any, and amortization of deferred
financing costs (including amounts capitalized).
DESCRIPTION OF COMMON SHARES
The Trust has the authority to issue up to 30,000,000 Common Shares of
beneficial interest, $0.01 par value per share. As of March 31, 1998, the Trust
had outstanding 7,123,355 Common Shares. The following description of the Common
Shares sets forth certain general terms and provisions of the Common Shares to
which any Prospectus Supplement may relate, including a Prospectus Supplement
providing that Common Shares will be issuable upon conversion of Preferred
Shares of the Trust or upon the exercise of the Securities Warrants issued by
the Trust. The statements below describing the Common Shares are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Trust's Declaration of Trust and Bylaws.
The Common Shares are of one class and have a par value of $0.01 per Common
Share. Subject to the preferential rights of any other shares of beneficial
interest and to the provisions of the Trust's Declaration of Trust regarding
restrictions on transfers of shares of beneficial interest, holders of Common
Shares are entitled to receive distributions if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in the assets of the Trust legally available for distribution
to its shareholders in the event of its liquidation, dissolution or winding-up
after payment of, or adequate provision for, all known debts and liabilities of
the Trust.
Subject to the provisions of the Trust's Declaration of Trust regarding
restrictions on transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder to one vote on all matters submitted to a vote
of shareholders, including the election of trustees, and, except as provided
with respect to any other class or series of shares of beneficial interest
(including the Series A Preferred Shares), the holders of Common Shares will
possess the exclusive voting power. There is no cumulative voting in the
election of trustees, which means that the holders of a majority of the
outstanding Common Shares can elect all of the trustees then standing for
election and the holders of the remaining shares of beneficial interest, if any,
will not be able to elect any trustees.
Holders of Common Shares have no preferences, conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Trust. Subject to the provisions of the Declaration of Trust regarding
restrictions on ownership and transfer, Common Shares have equal distribution,
liquidation and other rights.
Pursuant to Title 8, a Maryland REIT generally cannot amend its declaration
of trust or merge, unless approved by the shareholders of the trust by the
affirmative vote of at least two-thirds of all votes entitled to be cast by
shareholders on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the trust's declaration of trust. The Trust's Declaration of Trust contains
provisions which (i) require any merger, consolidation or sale of substantially
all of the assets of the
14
<PAGE> 17
Trust, the dissolution of the Trust, and any amendments to the Declaration of
Trust to change such provisions, to be approved by the shareholders of the Trust
by the affirmative vote of at least two-thirds of all votes entitled to be cast
by shareholders on the matter; and (ii) permit any other amendments to the
Declaration of Trust and any other extraordinary actions (other than removal of
trustees) requiring shareholder approval to be approved by the shareholders by
the affirmative vote of at least a majority of all votes entitled to be cast by
shareholders on the matter. The Declaration of Trust also contains a provision
which requires the affirmative vote of the holders of not less than two-thirds
of the shares outstanding and entitled to vote generally in the election of
trustees in order to remove a trustee.
Under Title 8, a declaration of trust may permit the trustees by a
two-thirds vote to amend the declaration of trust from time to time to qualify
as a REIT under the Code or Title 8 without the affirmative vote or written
consent of the shareholders. The Trust's Declaration of Trust permits such
action by the Board of Trustees. Also under Title 8, a declaration of trust may
permit the board of trustees to amend the declaration of trust to increase the
aggregate number of shares of beneficial interest or the number of shares of any
class without shareholder approval. Pursuant to this statute, the Declaration of
Trust authorizes the Board of Trustees to increase or decrease the aggregate
number of shares of beneficial interest of the Trust or the number of shares of
beneficial interest of any class of beneficial trust of the Trust.
The Declaration of Trust authorizes the Board of Trustees to reclassify any
unissued Common Shares or Preferred Shares into other classes or series of
beneficial interest and to establish the number of shares in each class or
series and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
or terms or conditions of redemption for each such class or series.
The Common Shares are currently listed for trading on the New York Stock
Exchange. The registrar and transfer agent for the Common Shares is the American
Stock Transfer & Trust Company.
DESCRIPTION OF PREFERRED SHARES
The following description of the terms of the Preferred Shares sets forth
certain general terms and provisions of the Preferred Shares to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Shares offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Shares set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Trust's Declaration of Trust (including the Articles Supplementary relating to
each series of the Preferred Shares) which will be filed with the Commission and
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part at or prior to the time of the issuance of such series
of the Preferred Shares.
GENERAL
The Declaration of Trust authorizes the Board of Trustees to issue up to
10,000,000 Preferred Shares, $0.01 par value per share, to classify any unissued
Preferred Shares and to reclassify any previously classified but unissued
Preferred Shares of any series from time to time in one or more series, as
authorized by the Board of Trustees. Prior to issuance of shares of each series,
the Board of Trustees is required by Title 8 and the Declaration of Trust to
set, subject to the provisions of the Declaration of Trust regarding the
restrictions on transfer of shares of beneficial interest, the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such series. Thus, the Board could authorize
the issuance of a class or series of Preferred Shares with terms and conditions
which could have the effect of delaying, deferring or preventing a transaction
or a change in control of the Trust that might involve a premium price for
holders of Common Shares or otherwise be in their best interest.
The Preferred Shares shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Shares.
15
<PAGE> 18
Reference is made to the Prospectus Supplement relating to the particular series
of the Preferred Shares offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Shares and the number
of shares offered; (ii) the amount of liquidation preference per share; (iii)
the initial public offering price at which such Preferred Shares will be issued;
(iv) the dividend rate (or method of calculation), the dates on which dividends
shall be payable and the dates from which dividends shall commence to
accumulate, if any; (v) any redemption or sinking fund provisions; (vi) any
conversion rights; and (vii) any additional voting, dividend, liquidation,
redemption, sinking fund and other rights, preferences, privileges, limitations
and restrictions. The Preferred Shares will, when issued for lawful
consideration, be fully paid and non assessable and will have no preemptive
rights.
The Board of Trustees of the Trust, with the approval of the Trust's
shareholders, has classified 1,400,000 Preferred Shares as Series A Preferred
Shares. The Trust has filed Articles Supplementary with the State Department of
Assessments and Taxation of Maryland (the "Department") which form a part of the
Trust's Declaration of Trust and set forth the terms and conditions of the
Series A Preferred Shares. The terms of the Series A Preferred Shares are set
forth below under "-- Terms of Series A Preferred Shares."
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Trust, rank (i) senior to all classes or series
of Common Shares and to all equity securities ranking junior to such Preferred
Shares, (ii) on a parity with all equity securities issued by the Trust the
terms of which specifically provide that such equity securities rank on a parity
with the Preferred Shares, and (iii) junior to all equity securities issued by
the Trust the terms of which specifically provide that such equity securities
rank senior to the Preferred Shares. The rights of the holders of each series of
the Preferred Shares will be subordinate to those of the Trust's general
creditors.
DIVIDENDS
Holders of shares of Preferred Shares of each series shall be entitled to
receive, when, as and if declared by the Board of Trustees of the Trust, out of
assets of the Trust legally available for payment, cash dividends at such rates
and on such dates as will be set forth in the applicable Prospectus Supplement.
Such rate may be fixed or variable or both. Each such dividend shall be payable
to holders of record as they appear on the stock transfer books of the Trust on
such record dates as shall be fixed by the Board of Trustees of the Trust, as
specified in the Prospectus Supplement relating to such series of Preferred
Shares.
Dividends on any series of Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Trust fails to
declare a dividend payable on a dividend payment date on any series of Preferred
Shares for which dividends are noncumulative, then the holders of such series of
Preferred Shares will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Trust will have no
obligation to pay the dividend accrued for such period, whether or not dividends
on such series are declared payable on any future dividend payment date.
Dividends on shares of each series of Preferred Shares for which dividends are
cumulative will accrue from the date on which the Trust initially issues shares
of such series.
So long as the shares of any series of Preferred Shares shall be
outstanding, the Trust may not declare or pay any dividends, make a
distribution, or purchase, acquire, redeem, pay monies to the holders of in
respect of, or set aside or make funds available for a sinking or other
analogous fund for the purchase or redemption of, any Common Shares of the Trust
or any other stock of the Trust ranking as to dividends or distributions of
assets junior to such series of Preferred Shares (the Common Shares and any such
other stock being herein referred to as "Junior Stock"), whether in cash or
property or in obligations or stock of the Trust, other than Junior Stock which
is neither convertible into, nor exchangeable or exercisable for, any securities
of the Trust other than Junior Stock, unless (i) full dividends (including, if
such Preferred Shares are cumulative, dividends for prior dividend periods)
shall have been paid or declared and set apart for payment on all
16
<PAGE> 19
outstanding shares of the Preferred Shares of such series and all other classes
and series of Preferred Shares of the Trust (other than Junior Stock); and (ii)
all sinking or other analogous fund payments and amounts for the repurchase or
other mandatory retirement of any shares of Preferred Shares of such series or
any shares of any other Preferred Shares of the Trust of any class or series
(other than Junior Stock) have been paid or duly provided for.
Any dividend payment made on shares of a series of Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
A series of Preferred Shares may be redeemable, in whole or from time to
time in part, at the option of the Trust, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms, at
the times and at the redemption prices set forth in the Prospectus Supplement
relating to such series. Preferred Shares redeemed by the Trust will be restored
to the status of authorized but unissued Preferred Shares.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of shares of such
Preferred Shares that shall be redeemed by the Trust in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Shares do not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of capital stock of the Trust, the terms of such
Preferred Shares may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Shares shall
automatically and mandatorily be converted into shares of the applicable capital
stock of the Trust pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
So long as any dividends on shares of any series of the Preferred Shares or
any other series of preferred stock of the Trust ranking on a parity as to
dividends and distribution of assets with such series of the Preferred Shares
are in arrears, no shares of any such series of the Preferred Shares or such
other series of preferred stock of the Trust will be redeemed (whether by
mandatory or optional redemption) unless all such shares are simultaneously
redeemed, and the Trust will not purchase or otherwise acquire any such shares;
provided, however, that the foregoing will not prevent the purchase or
acquisition of such shares pursuant to a purchase or exchange offer made on the
same terms to holders of all such shares outstanding.
In the event that fewer than all of the outstanding shares of a series of
the Preferred Shares are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or pro
rata (subject to rounding to avoid fractional shares) as may be determined by
the Trust or by any other method as may be determined by the Trust in its sole
discretion to be equitable. From and after the redemption date (unless default
shall be made by the Trust in providing for the payment of the redemption price
plus accumulated and unpaid dividends, if any), dividends shall cease to
accumulate on the shares of the Preferred Shares called for redemption and all
rights of the holders thereof (except the right to receive the redemption price
plus accumulated and unpaid dividends, if any) shall cease.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Trust, then, before any distribution or payment shall be made
to the holders of any Junior Stock, the holders of each series of Preferred
Shares shall be entitled to receive out of assets of the Trust legally available
for distribution to shareholders, liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such Preferred Shares do not have a cumulative
dividend). After payment of the full amount of the liquidating distributions
17
<PAGE> 20
to which they are entitled, the holders of Preferred Shares will have no right
or claim to any of the remaining assets of the Trust. In the event that upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Trust are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Trust ranking on a parity with the Preferred Shares in the
distribution of assets, then the holders of the Preferred Shares and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Trust shall be distributed among
the holders of Junior Stock, according to their respective rights and
preferences and in each case according to their respective number of shares. For
such purposes, the consolidation or merger of the Trust with or into any other
corporation, or the sale, lease or conveyance of all or substantially all of the
property or business of the Trust, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Trust.
VOTING RIGHTS
Except as indicated below or in a Prospectus Supplement relating to a
particular series of the Preferred Shares or as set forth with regard to the
Series A Preferred Shares, or except as required by applicable law, holders of
the Preferred Shares will not be entitled to vote for any purpose.
Unless provided otherwise for any series of Preferred Shares, so long as
any Preferred Shares of a series remain outstanding, the Trust will not, without
the consent or the affirmative vote of the holders of at least a majority of the
shares of each series of the Preferred Shares outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of shares of beneficial interest ranking
senior to such series of Preferred Shares with respect to the payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up of the Trust or reclassify any authorized shares of beneficial interest of
the Trust into any such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such shares;
or (ii) amend, alter or repeal the provisions of the Trust's Declaration of
Trust, whether by merger, consolidation or otherwise, so as to materially and
adversely affect any right, preference, privilege or voting power of such class
or series of Preferred Shares or the holders thereof; provided, however, that
any increase in the amount of the authorized Preferred Shares or the creation or
issuance of any class or series of Preferred Shares, or any increase in the
amount of authorized shares of such class or series, in each case ranking on a
parity with or junior to the Preferred Shares of such class or series with
respect to payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
The foregoing provisions will not apply if, at or prior to the time when
the act with respect to which such a vote would otherwise be required shall be
effected, all outstanding shares of such class or series of Preferred Shares
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been irrevocably deposited in trust to affect such
redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Shares are convertible into Common Shares of the Trust will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include the number of Common Shares into which the Preferred Shares are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of the Preferred Shares or the Trust, the events requiring an
adjustment of the conversion price and provisions affecting conversion.
18
<PAGE> 21
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
TERMS OF SERIES A PREFERRED SHARES
The Series A Preferred Shares have the following rights, preferences and
privileges:
Dividend Rights. Holders of Series A Preferred Shares are entitled to
receive cumulative dividends, payable quarterly in arrears, at an annual rate
equal to the greater of (i) 9.60% of the $25.00 per share purchase price paid
for each such Series A Preferred Share (the "Stated Value") and (ii) the
dividend rate expressed as an annual rate which is implicit in the amount of
dividends actually paid with respect to Common Shares, based on a $17.50 per
share price for the Common Shares, determined as of each quarterly dividend
payment date (such dividends being referred to as the "Payable Component").
Unpaid dividends will be compounded quarterly at the rate then in effect (as so
outstanding from time to time, "Unpaid Dividends").
The Payable Component of dividends, computed in accordance with clauses (i)
and (ii) of the prior paragraph, will be increased by an amount equal to an
annual rate of 3%, or 0.75% quarterly, as described in this paragraph. Upon the
occurrence of a "Rate Event" (as described below), the holders of Series A
Preferred Shares will be entitled to receive an additional quarterly dividend
calculated from the date of issuance at the per annum rate of 3% of the Stated
Value (the "Additional Dividend"). Upon the occurrence of a Rate Event, the
Additional Dividend with respect to periods subsequent to the date of occurrence
of the Rate Event will be currently payable in cash. The Additional Dividend
with respect to periods prior to the date of occurrence of a Rate Event will not
be currently payable, however, the holders of Series A Preferred Shares will be
entitled to receive the Additional Dividend for periods prior to the occurrence
of the Rate Event upon redemption or conversion of the Series A Preferred
Shares, except that, if the conversion is being effected in connection with a
Qualified Underwritten Offering (as defined below), then only to the extent that
the cumulative total return received by all holders of Series A Preferred Shares
on their investment in the Trust and the Operating Partnership does not exceed
15% on an annual basis (or 3.75% on a quarterly basis). If the Series A
Preferred Shares are converted into Common Shares prior to the occurrence of a
Rate Event, the Additional Dividend shall not be added to Stated Value for
purposes of conversion, and shall not otherwise be payable. In general, a "Rate
Event" consists of (i) the Trust's failure to pay when due dividends on the
Series A Preferred Shares, (ii) certain material defaults on the Trust's
indebtedness having an aggregate outstanding principal balance in excess of
$15,000,000, (iii) the failure of the Trust to complete a Qualified Underwritten
Offering by the Maturity Date (as defined below), (iv) the Trust using the
proceeds of the investment for purposes other than those set forth in the
Purchase Agreement, (v) the Trust's taking of any action in violation of the
class voting rights of holders of the Series A Preferred Shares (as described
below), (vi) the occurrence of a "Change of Control" (as defined below)
transaction (except that, to the extent holders of Series A Preferred Shares
vote in favor of the Change of Control transaction, such holders will not be
entitled to the payment of the Additional Dividend on account of this clause
(vi)), or (vii) the failure of Dennis Gershenson or a replacement reasonably
satisfactory to Morgan Stanley Asset Management, Inc. ("MSAM") to hold the
office of President and chief executive officer of the Trust, other than as a
result of his death or disability extending for a continuous period of not less
than 180 days. The term "Qualified Underwritten Offering" means an
underwritten,Widely Distributed (as defined below) offering of Common Shares,
the gross proceeds of which are not less than $40,300,000. The term "Widely
Distributed" means, in the context of an underwritten public offering, an
offering in which (i) a minimum of 30% of the Common Shares included in such
offering is purchased by retail individual brokerage customers brought into the
transaction by the members of the underwriting syndicate and (ii) a minimum of
eight institutions shall have purchased Common Shares.
Rank. The Series A Preferred Shares rank senior to the Common Shares and
all equity securities issued by the Trust with respect to dividends and
distributions and upon liquidation, dissolution or winding up of the Trust.
Unpaid Dividends (including the payable component of any Additional Dividend
after the occurrence of a Rate Event) must be paid prior to the payment of any
dividends or distributions on (or redemption or
19
<PAGE> 22
purchase by the Trust of) any of the Trust's other shares of beneficial interest
or securities representing an interest in the Trust (except for any deficiency
dividend made by the Trust to holders of Common Shares as a result of the Tax
Issues for which the Trust has received all funds required therefor from
Atlantic, under the Tax Agreement between the Trust and Atlantic) or any of its
assets, including OP Units in the Operating Partnership. To the extent the Trust
desires to make a deficiency dividend in connection with the resolution of the
Tax Issues prior to receipt of any indemnity payments from Atlantic, such
deficiency dividend must first be paid to holders of Series A Preferred Shares
for the payment of any Unpaid Dividends then due, then to holders of Series A
Preferred Shares and Common Shares on a pro rata basis.
Maturity Date. The Series A Preferred Shares are subject to mandatory
redemption by the Trust on the fifth anniversary of the date on which Series A
Preferred Shares were first issued to holders of such Series A Preferred Shares
(the "Maturity Date"), subject to acceleration of the Maturity Date as provided
below. The Maturity Date is October 3, 2002.
Mandatory Conversion. All outstanding Series A Preferred Shares will be
subject to mandatory conversion on that date which is the earlier of the
occurrence of a Qualified Underwritten Offering and the Maturity Date, subject
to the obligation of the Trust to redeem the Series A Preferred Shares for cash
on an acceleration of the Maturity Date as provided below, and subject to
earlier conversion at the option of the holders of the Series A Preferred
Shares. Each Series A Preferred Share is convertible into Common Shares at the
Stated Value plus Unpaid Dividends, if any, for each Series A Preferred Share so
converted, for Common Shares issued on conversion priced at $17.50 per Common
Share.
Optional Conversion. At the option of the holders of the Series A Preferred
Shares, exercised by notice to such effect at any time or from time to time
prior to the date of mandatory conversion or the Maturity Date, the Series A
Preferred Shares are convertible in whole or in part into Common Shares. Each of
the Series A Preferred Shares shall be convertible into Common Shares at the
Stated Value plus Unpaid Dividends, if any, for each Series A Preferred Share so
converted, for Common Shares issued on conversion priced at $17.50 per Common
Share, subject to adjustment under certain circumstances to prevent the dilution
of the Series A Preferred Shares, including certain issuances of Common Shares
by the Trust at prices less than $17.50. See "-- Anti-Dilution Rights" below.
Redemption on Acceleration of the Maturity Date. The Maturity Date will be
accelerated and all Series A Preferred Shares will be redeemed in cash at the
Stated Value plus Unpaid Dividends (including the Additional Dividend if then
payable) in the event that it is determined by the IRS that it will, for any
period, deny to the Trust or the Massachusetts Trust the tax benefits associated
with REIT qualification and either or both of the following circumstances arise:
(i) the Trust does not receive (within a period of 60 days of the date
established by the IRS as the date on which the deficiency dividend or other
additional taxes are required to be paid) the full indemnity payment for such
loss of tax benefits that the Trust is entitled to receive from Atlantic
pursuant to the Tax Agreement with Atlantic, or (ii) counsel reasonably
satisfactory to MSAM is unable to provide to the holders of the Series A
Preferred Shares affirmative advice that, commencing not later than with the
taxable year ending December 31, 1999, the Trust will, notwithstanding such
determination by the IRS, be able to elect to be qualified and taxed as a REIT
under the Code, and its proposed method of operation will enable it so to
qualify for following years.
Voting Rights. The holders of Series A Preferred Shares have the right to
vote on all matters which holders of Common Shares are entitled to vote upon on
an "as converted" basis, as though such holders own Common Shares. In addition,
the Trust is not permitted to engage in or effect certain types of transactions
or actions without the approval of holders of at least 51% of the outstanding
Series A Preferred Shares voting separately as a class. Such transaction or
actions include the following:
(i) Increasing the authorized number of Series A Preferred Shares or
creating or issuing any class of Preferred Shares ranking prior to or on
parity with the Series A Preferred Shares.
(ii) Amending, altering or repealing the Trust's Declaration of Trust.
(iii) Permitting to be amended or waiving any provision of the Tax
Agreement with Atlantic.
20
<PAGE> 23
(iv) The voluntary liquidation, dissolution or winding up of the Trust
(except a voluntary liquidation of the Trust at the election of the
Trustees in connection with an unfavorable resolution of the Tax Issues),
or the sale of substantially all of the assets of the Trust or the merger,
consolidation or recapitalization of the Trust.
(v) The sale, transfer or assignment of assets or voting securities of
the Trust in excess of $50 million within any 90-day period or $150 million
in any 360-day period.
(vi) The Trust's termination of the election, or the taking of any
action which would cause the termination other than by election, of the
Trust's status as a REIT (except in connection with the resolution of the
Tax Issues).
(vii) Any alteration in the Trust's business such that the real estate
assets which it owns, directly or indirectly, are less than 90% invested in
retail properties (on a square foot basis) of the nature of the predominant
real estate assets of the Trust on September 30, 1997.
(viii) Any "Change of Control" transaction of the Trust or the
Operating Partnership. A Change of Control transaction will be deemed to
have occurred if any of the following occur (or, in the case of any
proposal, if any of the following could occur as a result thereof): (i) the
Trust takes or fails to take any action such that it ceases to be required
to file reports under Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any successor to that Section; (ii) any
"person" (as defined in Sections 13(d) and 14(d) of the Exchange Act)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of either (a) 25% or more of the outstanding
Common Shares, or (b) 25% (by right to vote or grant or withhold any
approval) of the outstanding securities of any other class or classes which
individually or together have the power to elect a majority of the members
of the Board of Trustees; (iii) the Board of Trustees determines to
recommend, or fails to determine to recommend, the acceptance of any
proposal set forth in a tender offer statement or proxy statement filed by
any person with the Commission which indicates the intention on the part of
that person to acquire, or acceptance of which would otherwise have the
effect of that person acquiring, either (a) 25% or more of the outstanding
Common Shares or (b) 25% (by right to vote or grant or withhold any
approval) of the outstanding securities of any other class or classes which
individually or together have the power to elect a majority of the members
of the Board of Trustees; (iv) other than as a result of the death or
disability of one or more of the Trustees within a three month period, a
majority of the members of the Board of Trustees for any period of three
consecutive months are not persons who (a) had been Trustees of the Trust
(or the Massachusetts Trust) for at least the preceding 24 consecutive
months or (b) when they initially were elected to the Board of Trustees,
(x) were nominated (if they were elected by the shareholders) or elected
(if they were elected by the Trustees) with the affirmative concurrence of
66 2/3% of the Trustees who were Continuing Trustees at the time of the
nomination or election by the Board of Trustees and (y) were not elected as
a result of an actual or threatened solicitation of proxies or consents by
a person other than the Board of Trustees or an agreement intended to avoid
or settle such a proxy solicitation (the Trustees described in clauses (a)
and (b) of this subparagraph (iv) being "Continuing Trustees"); (v) the
Trust ceases to be the sole General Partner of the Operating Partnership or
grants or sells to any person the power to control or direct the actions of
the Operating Partnership as if such person (A) is a general partner of the
Operating Partnership or (B) is a limited partner of the Operating
Partnership with consent or approval rights greater than the consent or
approval rights held by the limited partners of the Operating Partnership
on the date of the initial issuance of any Series A Preferred Shares; or
(vi) the Operating Partnership is a party to any entity conversion or any
merger or consolidation in which the Operating Partnership is not the
surviving entity in such merger or consolidation or in which the effect is
of the nature set forth in the next preceding clause of this subparagraph.
(ix) Prior to the date of a Qualified Underwritten Offering, the
issuance of any additional Common Shares or Preferred Shares, except in
connection with the granting or exercising of stock options pursuant to the
Trust's existing employee and trustee stock option plans, the Trust's
dividend reinvestment plan or the exchange of OP Units in the Operating
Partnership in the ordinary course solely for Common Shares
21
<PAGE> 24
as a result of which the Trust's partnership interest in the Operating
Partnership increases by the amount of such OP Units so exchanged.
Anti-Dilution Rights. In the event that the Trust pays a dividend or makes
a distribution on its Common Shares in Common Shares or subdivides or combines
its Common Shares, the conversion price for the Common Shares of $17.50 (the
"Conversion Price") will be adjusted to reflect the effects of such dividend,
distribution, subdivision or combination. In addition, if the Trust issues
Common Shares, options or warrants to purchase Common Shares or securities
convertible into or exchangeable for Common Shares at a purchase price which is
less than the Conversion Price, or if the Trust distributes to holders of Common
Shares any shares of beneficial interest of the Trust (other than Common Shares)
or evidences of indebtedness or assets (other than cash dividends or
distributions) or rights or warrants to purchase any of its securities, the
Conversion Price for the Common Shares will be reduced to prevent dilution of
the Series A Preferred Shares. Notwithstanding the foregoing, the anti-dilution
rights of holders of Series A Preferred Shares as described in this paragraph do
not apply to the following: (i) issuances of OP Units in the ordinary course
which OP Units are exchangeable solely for Common Shares as a result of which
the Trust's partnership interest in the Operating Partnership increases by the
amount of such OP Units so exchanged; (ii) grants of Common Shares or options or
rights to purchase Common Shares with exercise prices below $17.50 per Common
Share to officers, employees or trustees of the Trust not in excess of 286,000
shares in the aggregate; (iii) sales of Common Shares pursuant to any dividend
reinvestment plan maintained by the Trust if such Common Shares were purchased
in the open market in ordinary brokerage transactions; and (iv) the exchange of
OP Units in the Operating Partnership in the ordinary course solely for Common
Shares as a result of which the Trust's partnership interest in the Operating
Partnership increases by the amount of such OP Units so exchanged.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES
For the Trust to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of beneficial interest may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code), during
the last half of a taxable year (other than the first year for which an election
to be treated as a REIT has been made) or during a proportionate part of a
shorter taxable year. In addition, if the Trust, or an owner of 10% or more of
the Trust, actually or constructively owns 10% or more of a tenant of the Trust
(or a tenant of any partnership in which Trust is a partner), the rent received
by the Trust (either directly or through any such partnership) from such tenant
will not be qualifying income for purposes of the REIT gross income tests of the
Code. A REIT's shares also must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of twelve months or during a
proportionate part of a shorter taxable year (other than the first year for
which an election to be treated as a REIT has been made).
Because the Board of Trustees believes it is desirable for the Trust to
qualify as a REIT, the Trust's Declaration of Trust, subject to certain
exceptions, provides that no holder may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than the Ownership Limit (as
defined below). The ownership attribution rules under the Code are complex and
may cause Common Shares owned actually or constructively by a group of related
individuals and/or entities to be owned constructively by one individual or
entity. As a result, the acquisition of less than 9.8% of Common Shares (or the
acquisition of an interest in an entity that owns, actually or constructively,
Common Shares) by an individual or entity, could, nevertheless cause that
individual or entity, or another individual or entity, to own constructively in
excess of 9.8% of the outstanding Common Shares and thus subject such Common
Shares to the Ownership Limit. The Board of Trustees may in its sole discretion
and upon the vote of 75% of the members of the Board of Trustees entitled to
vote thereon, grant an exemption from the Ownership Limit with respect to one or
more persons who would not be treated as "individuals" for purposes of the Code
if such person submits to the Board information satisfactory to the Board, in
its reasonable discretion, demonstrating that (i) such person is not an
individual for purposes of the Code, (ii) such ownership will not cause a person
who is an individual to be treated as owning Common Shares in excess of the
Ownership Limit, applying the applicable constructive ownership rules, and (iii)
such ownership will not otherwise jeopardize the Trust's status as a REIT. As a
condition of such waiver, the Board of Trustees may, in its reasonable
discretion, require undertakings or representations from the applicant to ensure
that the conditions in clauses (i), (ii) and (iii) of the preceding sentence are
22
<PAGE> 25
satisfied and will continue to be satisfied as long as such person owns shares
in excess of the Ownership Limit. Under certain circumstances, the Board of
Trustees may, in its sole discretion and upon the vote of 75% of the members of
the Board of Trustees entitled to vote thereon, grant an exemption for
individuals to acquire Preferred Shares in excess of the Ownership Limit,
provided that certain conditions are met and any representations and
undertakings that may be required by the Board of Trustees are made. The Board
of Trustees has granted such an exemption for the initial purchasers of the
Series A Preferred Shares, as such holders could own more than 9.8% of the
Series A Preferred Shares following completion of the transactions contemplated
by the Purchase Agreement. The term "Ownership Limit" means (i) with respect to
Common Shares, 9.8% (in value or number of shares, whichever is more
restrictive) of the outstanding Common Shares of the Trust, and (ii) with
respect to any class or series or Preferred Shares, 9.8% (in value or number of
shares, whichever is more restrictive) of the outstanding shares of such class
or series of Preferred Shares of the Trust.
The Board of Trustees of the Trust has the authority to increase the
Ownership Limit from time to time, but it does not have the authority to do so
to the extent that after giving effect to such increase, five beneficial owners
of Common Shares could beneficially own in the aggregate more than 49.5% of the
outstanding Common Shares.
The Declaration of Trust further prohibits (a) any person from actually or
constructively owning shares of beneficial interest of the Trust that would
result in the Trust being "closely held" under Section 856(h) of the Code or
otherwise cause the Trust to fail to qualify as a REIT and (b) any person from
transferring shares of beneficial interest of the Trust if such transfer would
result in shares of beneficial interest of the Trust being owned by fewer than
100 persons.
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of beneficial interest of the Trust that will
or may violate any of the foregoing restrictions on transferability and
ownership will be required to give notice immediately to the Trust and provide
the Trust with such information as the Trust may request in order to determine
the effect of such transfer on the Trust's status as a REIT.
If any purported transfer of shares of beneficial interest of the Trust or
any other event would otherwise result in any person violating the Ownership
Limit or the other restrictions in the Declaration of Trust, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
that exceeds the Ownership Limit (referred to as "excess shares") and the
Prohibited Transferee shall acquire no right or interest (or, in the case of any
event other than a purported transfer, the person or entity holding record title
to any such shares in excess of the Ownership Limit (the "Prohibited Owner")
shall cease to own any right or interest) in excess shares. Any such excess
shares described above will be transferred automatically, by operation of law,
to a trust, the beneficiary of which will be a qualified charitable organization
selected by the Trust (the "Beneficiary"). Such automatic transfer shall be
deemed to be effective as of the close of business on the Business Day (as
defined in the Declaration of Trust) prior to the date of such violating
transfer. Within 20 days of receiving notice from the Trust of the transfer of
shares to the trust, the trustee of the trust (who shall be designated by the
Trust and be unaffiliated with the Trust and any Prohibited Transferee or
Prohibited Owner) will be required to sell such excess shares to a person or
entity who could own such shares without violating the Ownership Limit, and
distribute to the Prohibited Transferee an amount equal to the lesser of the
price paid by the Prohibited Transferee for such excess shares or the sales
proceeds received by the trust for such excess shares. In the case of any excess
shares resulting from any event other than a transfer, or from a transfer for no
consideration (such as a gift), the trustee will be required to sell such excess
shares to a qualified person or entity and distribute to the Prohibited Owner an
amount equal to the lesser of the fair market value of such excess shares as of
the date of such event or the sales proceeds received by the trust for such
excess shares. In either case, any proceeds in excess of the amount
distributable to the Prohibited Transferee or Prohibited Owner, as applicable,
will be distributed to the Beneficiary. Prior to a sale of any such excess
shares by the trust, the trustee will be entitled to receive, in trust for the
Beneficiary, all dividends and other distributions paid by the Trust with
respect to such excess shares, and also will be entitled to exercise all voting
rights with respect to such excess shares. Subject to Maryland law, effective as
of the date that such shares have been transferred to the trust, the trustee
shall have the authority (at the trustee's sole discretion and subject to
23
<PAGE> 26
applicable law) (i) to rescind as void any vote cast by a Prohibited Transferee
prior to the discovery by the Trust that such shares have been transferred to
the trust and (ii) to recast such vote in accordance with the desires of the
trustee acting for the benefit of the Beneficiary. However, if the Trust has
already taken irreversible corporate action, then the trustee shall not have the
authority to rescind and recast such vote. Any dividend or other distribution
paid to the Prohibited Transferee or Prohibited Owner (prior to the discovery by
the Trust that such shares had been automatically transferred to a trust as
described above) will be required to be repaid to the trustee upon demand for
distribution to the Beneficiary. If the transfer to the trust as described above
is not automatically effective (for any reason) to prevent violation of the
Ownership Limit, then the Declaration of Trust provides that the transfer of the
excess shares will be void.
In addition, shares of beneficial interest of the Trust held in the trust
shall be deemed to have been offered for sale to the Trust, or its designee, at
a price per share equal to lesser of (i) the price per share in the transaction
that resulted in such transfer to the trust (or, in the case of a devise or
gift, the market value at the time of such devise or gift) and (ii) the market
value of such shares on the date of the Trust, or its designee, accepts such
offer. The Trust shall have the right to accept such offer until the trustee has
sold the shares of beneficial interest held in the Trust. Upon such a sale to
the Trust, the interest of the Beneficiary in the shares sold shall terminate
and the trustee shall distribute the net proceeds of the sale to the Prohibited
Owner.
All certificates evidencing shares of beneficial interest shall bear a
legend referring to the restrictions described above or a statement that the
Trust will furnish a full statement about restrictions on transferability to a
shareholder on request and without charge.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5% as
provided in the rules and regulations promulgated under the Code) of the lesser
of the number or value of the outstanding shares of beneficial interest of the
Trust must give a written notice to the Trust by January 30 of each year. In
addition, each shareholder will, upon demand, be required to disclose to the
Trust in writing such information with respect to the direct, indirect and
constructive ownership of shares of beneficial interest as the Board of Trustees
deems reasonably necessary to comply with the provisions of the Code applicable
to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
DESCRIPTION OF SECURITIES WARRANTS
The Trust may issue Securities Warrants for the purchase of Preferred
Shares or Common Shares. Securities Warrants may be issued independently or
together with any other Securities offered by any Prospectus Supplement and may
be attached to or separate from such Securities. Each series of Securities
Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Trust and a warrant agent specified
in the applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent
will act solely as an agent of the Trust in connection with the Securities
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Securities
Warrants. The following summaries of certain provisions of the Warrant Agreement
and the Securities Warrants do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Warrant Agreement and the Securities Warrant certificates relating to each
series of Securities Warrants which will be filed with the Commission and
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part at or prior to the time of the issuance of such series
of Securities Warrants.
The applicable Prospectus Supplement will describe the terms of such
Securities Warrants, including the following where applicable: (i) the offering
price; (ii) the aggregate number of shares purchasable upon exercise of such
Securities Warrants, the exercise price, and in the case of Securities Warrants
for Preferred Shares, the designation, aggregate number and terms of the series
of Preferred Shares purchasable upon exercise of such Securities Warrants; (iii)
the designation and terms of any series of Preferred Shares with which such
Securities Warrants are being offered and the number of such Securities Warrants
being offered with such Preferred Shares, (iv) the date, if any, on and after
which such Securities Warrants and the related series of Preferred Shares or
Common Shares will be transferable separately; (v) the date on which the right
24
<PAGE> 27
to exercise such Securities Warrants shall commence and the date on which such
right shall expire (the "Expiration Date"); (vi) any special United States
federal income tax consequences; and (vii) any other material terms of such
Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrants, holders of such Securities Warrants will not have any rights of
holders of such Preferred Shares or Common Shares, including the right to
receive payments of dividends, if any, on such Preferred Shares or Common
Shares, or to exercise any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
number of shares of Preferred Shares or Common Shares, as the case may be, at
such exercise price as shall in each case be set forth in, or calculable from,
the Prospectus Supplement relating to the offered Securities Warrants. After the
close of business on the Expiration Date (or such later date to which such
Expiration Date may be extended by the Trust), unexercised Securities Warrants
will become void.
Securities Warrants may be exercised by delivering to the Warrant Agent
payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Preferred Shares or Common Shares, as the case may be,
purchasable upon such exercise together with certain information set forth on
the reverse side of the Securities Warrant certificate. Securities Warrants will
be deemed to have been exercised upon receipt of payment of the exercise price,
subject to the receipt within five business days, of the Securities Warrant
certificate evidencing such Securities Warrants. Upon receipt of such payment
and the Securities Warrant certificate properly completed and duly executed at
the corporate trust office of the Securities Warrant agent or any other office
indicated in the applicable Prospectus Supplement, the Trust will, as soon as
practicable, issue and deliver the Preferred Shares or Common Shares, as the
case may be, purchasable upon such exercise. If fewer than all of the Securities
Warrants represented by such Securities Warrant certificate are exercised, a new
Securities Warrant certificate will be issued for the remaining amount of
Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent
of the holders of the Securities Warrants issued thereunder to effect changes
that are not inconsistent with the provisions of the Securities Warrants and
that do not adversely affect the interests of the holders of the Securities
Warrants.
COMMON SHARE WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of Common Shares covered by, a Securities
Warrant to purchase Common Shares (a "Common Share Warrant") are subject to
adjustment in certain events, including (i) payment of a dividend on the Trust's
Common Shares payable in shares of beneficial interest and stock splits,
combinations or reclassification of the Common Shares; (ii) issuance to all
holders of Common Shares of rights or warrants to subscribe for or purchase
Common Shares at less than their current market price (as defined in the Warrant
Agreement for such series of Common Share Warrants); and (iii) certain
distributions of evidences of indebtedness or assets (including securities but
excluding cash dividends or distributions paid out of consolidated earnings or
retained earnings or dividends payable other than in Common Shares) or of
subscription rights and warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of Common Shares
covered by, a Common Share Warrant will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require a
change of at least 1% in the exercise price
25
<PAGE> 28
then in effect. Except as stated above, the exercise price of, and the number of
Common Shares covered by, a Share Warrant will not be adjusted for the issuance
of Common Shares or any securities convertible into or exchangeable for Common
Shares, or carrying the right or option to purchase or otherwise acquire the
foregoing, in exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the Trust with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding Common
Shares of the Trust); (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the Trust; or (iii) reclassification, capital
reorganization or change of the Common Shares (other than solely a change in par
value or from par value to no par value), then any holder of a Common Share
Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Common Share Warrant the kind and amount of shares
of stock or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's Common Share Warrant immediately prior to the occurrence of such event.
If the consideration to be received upon exercise of the Common Share Warrant
following any such event consists of common stock of the surviving entity, then
from and after the occurrence of such event, the exercise price of such Common
Share Warrant will be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if such common stock
were Common Shares.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
considerations that may be relevant to an investment in the Trust based on
current law. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific securities acquired by such holder, as
well as his particular situation, and this discussion does not attempt to
address any aspects of federal income taxation that may be relevant to
particular shareholders in light of their personal investment or tax
circumstances or to certain types of shareholders (including insurance
companies, financial institutions and broker-dealers) subject to special
treatment under the Federal income tax laws.
The following discussion is based on the rules and regulations promulgated
under, as well as the applicable provisions of, the Code, and administrative and
judicial interpretations thereof. The applicable provisions of the Code are
highly technical and complex. Accordingly, this summary is neither complete nor
exact. Moreover, no assurance can be given that legislative, judicial or
administrative changes will not affect the accuracy of any statements in this
Prospectus with respect to transactions entered into or contemplated prior to
the effective date of such changes.
EACH INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING
THE TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
GENERAL
The Trust is the successor of the Massachusetts Trust (unless otherwise
indicated, the term the "Trust" includes the Trust and its predecessor, the
Massachusetts Trust), which first elected to qualify as a REIT for the year
ended December 31, 1988 under Sections 856 through 860 of the Code and
applicable regulations of the U.S. Department of Treasury ("Treasury
Regulations"), which set forth the requirements for qualifying as a REIT (the
"REIT Requirements"). The Massachusetts Trust's policy had been, and the Trust's
policy is, to qualify as a REIT for federal income tax purposes. If the Trust so
qualifies, then the Trust will generally not be subject to corporate income tax
on amounts paid by the Trust as distributions to its shareholders. For any year
in which the Trust does not meet the requirements for qualifying as a REIT, it
will be taxed as a corporation. See " -- Qualification of the Trust as a
REIT -- Failure to Qualify" below.
26
<PAGE> 29
Based upon and subject to the following discussion, including, without
limitation, the assumption that the Asset Issue in the Tax Audit is resolved
favorably to the Trust, Deloitte & Touche LLP is of the opinion that the Trust
has been organized and has operated in conformity with the requirements for
qualification and taxation as a REIT under the Code. In addition, in the opinion
of Deloitte & Touche LLP, the Trust's proposed method of operation will enable
it to continue to meet the requirements for qualification and taxation as a REIT
under the Code. Deloitte & Touche LLP is also of the opinion that the following
discussion under this caption "Federal Income Tax Considerations" accurately
sets forth a summary of the material Federal income tax considerations under the
current law that may be relevant to an investment in the Trust. Such opinions
assume, among other things, the accuracy of the Trust's representations that it
conducts, and has conducted, its operations in a manner consistent with the REIT
Requirements described below. The REIT Requirements relating to the Federal
income tax treatment of REITs and their shareholders are highly technical and
complex. The following discussion sets forth only a summary of the material
aspects of the REIT Requirements and the Federal income taxation of REITs and
their shareholders.
TAXATION OF THE TRUST
As a REIT, the Trust generally will not be subject to Federal corporate
income taxes on that portion of its ordinary income or capital gain that is
currently distributed to shareholders.
The REIT provisions of the Code generally allow a REIT to deduct dividends
paid to its shareholders. This deduction for dividends paid to shareholders
substantially eliminates the Federal "double taxation" on earnings (once at the
corporate level and once again at the shareholder level) that results from
investment in a corporation. Even if the Trust qualifies for taxation as a REIT,
however, the Trust may be subject to Federal income and excise taxes as follows:
First, the Trust will be taxed at corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Trust may be subject to the
corporate "alternative minimum tax" on its items of tax preference, if any.
Third, if the Trust has (i) net income from the sale or other
disposition of "foreclosure property" (generally, property acquired by
reason of a default on a lease or an indebtedness held by a REIT) that is
held primarily for sale to customers in the ordinary course of business or
(ii) other nonqualifying net income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income.
Fourth, if the Trust has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property
held primarily for sale to customers in the ordinary course of business,
other than foreclosure property), such income will be subject to a 100%
tax.
Fifth, if the Trust should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below) and has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the gross income
attributable to the greater of the amount by which the Trust fails the 75%
or 95% test, multiplied by a fraction intended to reflect the Trust's
profitability.
Sixth, if the Trust should fail to distribute with respect to each
calendar year at least the sum of: (i) 85% of its REIT ordinary income for
such year; (ii) 95% of its REIT capital gain net income for such year; and
(iii) any undistributed taxable income from prior years, the Trust would be
subject to a 4% excise tax on the excess of such sum over the amounts
actually distributed.
Seventh, if a REIT acquires any asset from a C corporation (i.e., a
corporation subject to full corporate-level tax) in a carryover basis
transaction, or if the REIT holds assets beginning on the first day of the
first taxable year for which it qualifies as a REIT, and the REIT
subsequently recognizes gain on the disposition of such asset during the
10-year period (the "Recognition Period") beginning on the date on which
the asset was acquired by the REIT or the REIT first qualified as a REIT,
then the excess of (a) the fair market value of the asset as of the
beginning of the applicable Recognition Period, over
27
<PAGE> 30
(b) the REIT's adjusted basis in such asset as of the beginning of such
Recognition Period will be subject to tax at the highest regular corporate
rate, pursuant to guidelines issued by the IRS (the "Built-in Gain Rules").
QUALIFICATION OF THE TRUST AS A REIT
Organizational Requirements. The Code defines a REIT as a corporation,
trust or association:
(i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(iii) that would be taxable as a domestic corporation but for meeting
the REIT Requirements;
(iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons;
and
(vi) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or
indirectly through the application of certain attribution rules,
by five or fewer individuals (as defined in the Code to include
certain entities).
In addition, certain other tests, described below, regarding the nature of its
income and assets must also be satisfied.
The Code provides that conditions (i) through (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months.
The Trust satisfies the requirements set forth in (i) through (v) above and
believes that it satisfies the requirements set forth in (vi) above. In
addition, the Trust's Declaration of Trust currently includes certain
restrictions regarding transfer of the Trust's shares which are intended (among
other things) to assist the Trust in continuing to satisfy the share ownership
requirements described in (v) and (vi) above.
To demonstrate compliance with these requirements, the Trust must maintain
records of the actual ownership of its outstanding shares. In fulfilling its
obligations to maintain records, the Trust must and will demand written
statements each year from the record holders of designated percentages of its
shares disclosing the actual owners of such shares. A list of those persons
failing or refusing to comply with such demand must be maintained as a part of
the Trust's records. A shareholder failing or refusing to comply with the
Trust's written demand must submit with his tax returns a similar statement
disclosing the actual ownership of shares and certain other information.
Prior to amendment of the Code in 1997, failure to comply with the
requirement to demand information from shareholders resulted in disqualification
as a REIT. For tax years beginning after August 5, 1997, failure to comply with
the requirement for determining ownership of shares results in the imposition of
a monetary penalty.
Gross Income Tests. Under current law, to maintain qualification as a REIT,
there are two gross income requirements that must be satisfied annually.
First, at least 75% of the Trust's gross income, excluding gross
income from certain dispositions of property held primarily for sale to
customers in the ordinary course of a trade or business ("prohibited
transactions"), for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages
(including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments.
Second, at least 95% of the Trust's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from such real property investments described above
28
<PAGE> 31
and from dividends, interest, and gain from the sale or disposition of
stock or securities or from any combination of the foregoing.
Formerly, the tax law imposed a third requirement regarding the gross
income of a REIT. Specifically, short-term gain from the sale or other
disposition of stock or securities held for less than one year, gain from
prohibited transactions, and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions
and sales of foreclosure property) could not represent 30% or more of the
Trust's gross income (including gross income from prohibited transactions)
for each taxable year. The Taxpayer Relief Act of 1997 (the "1997 Act")
repealed the 30% income test for taxable years commencing after August 5,
1997. See "-- Recent Legislation."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the assets of the partnership and is deemed to be entitled to the income of the
partnership attributable to such share. In addition, the character of the assets
and gross income of the partnership retain the same character in the hands of
the REIT for purposes of the REIT Requirements, including satisfying the gross
income tests and the asset tests. Accordingly, the Trust's proportionate share
of the assets, liabilities, and items of income of the Operating Partnership
will be treated as assets, liabilities, and items of income of the Trust for
purposes of applying the requirements described in this Prospectus. See the
discussion below under " -- Tax Aspects of the Trust's Investment in the
Operating Partnership -- Entity Classification."
Rents received or deemed to be received by the Trust will qualify as "rents
from real property" in satisfying the gross income requirements for a REIT
described above only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the
income or profits of any person. An amount received or accrued generally will
not be excluded from the term "rents from real property" solely by reason of
being based on a fixed percentage or percentages of receipts or sales. Rents
based on income or profits do not include rents received from a tenant based on
the tenant's income from the property if the tenant derives substantially all of
its income with respect to such property from the leasing or subleasing of
substantially all of such property, provided that the tenant receives from
subtenants only amounts that would be treated as rents from real property if
received directly by a REIT.
Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests if
the REIT, directly, indirectly, or constructively, owns 10% or more of such
tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with
a lease of real property is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property will
not qualify as "rents from real property."
Finally, "rents from real property" do not include any amount received or
accrued by a REIT for services furnished or rendered to tenants of a property,
unless the services are of a type that a tax-exempt organization can provide to
its tenants without causing its rental income to be unrelated business taxable
income under the Code (that is, unless such services are "usually or customarily
rendered in connection with the rental of space for occupancy only" and are not
otherwise considered "primarily for the tenant's convenience"). Services which,
if provided by a tax-exempt organization, would give rise to unrelated business
taxable income ("Impermissible Tenant Services") will, if provided by an
"independent contractor" (as defined in the Code) who is adequately compensated
and from whom the REIT does not derive any income, not be treated as provided by
the REIT. If an amount received or accrued by a REIT for furnishing
Impermissible Tenant Services to tenants of a property exceeds 1% of all amounts
received or accrued by the REIT with respect to such property in any year, none
of such income shall constitute "rents from real property." See "-- Recent
Legislation."
Substantially all of the Trust's income derives from the Operating
Partnership. The Operating Partnership's income derives largely from rents from
the Properties. The Operating Partnership also derives income from Ramco to the
extent that Ramco pays dividends on shares owned by the Operating Partnership.
29
<PAGE> 32
The Operating Partnership, through Ramco (which is not an independent
contractor), provides certain services with respect to the Properties (and will
provide such services with respect to any newly acquired properties). The Trust
believes that the services provided by Ramco are usually or customarily rendered
in connection with the rental of space for occupancy only, and therefore that
the provision of such services will not cause the rents received with respect to
the Properties to fail to qualify as rents from real property for purposes of
the 75% and 95% gross income tests. The Operating Partnership does not charge,
and is not expected to charge, rent that is based in whole or in part on the
income or profits of any person. The Operating Partnership is not anticipated to
derive rent attributable to personal property leased in connection with real
property that exceeds 15% of the total rent.
The Trust does not believe that it derives (through the Operating
Partnership) rent from a Related Party Tenant; however, the determination of
whether the Trust owns 10% or more of any tenant is made after the application
of complex attribution rules under which the Trust will be treated as owning
interests in tenants that are owned by its "Ten Percent Stockholders." In
identifying the Trust's Ten Percent Stockholders, each individual or entity will
be treated as owning Common Stock and Preferred Stock held by related
individuals and entities. Accordingly, the Trust cannot be absolutely certain
whether all Related Party Tenants have been or will be identified. Although rent
derived from a Related Party Tenant will not qualify as rents from real property
and, therefore, will not be qualifying income under the 75% or 95% gross income
tests, the Trust believes that the aggregate amount of such rental income
(together with any other nonqualifying income) in any taxable year will not
cause the Trust to exceed the limits on nonqualifying income under such gross
income tests. See "-- Failure to Qualify."
In sum, the Trust's investment in real properties through the Operating
Partnership gives and will give rise mostly to rental income qualifying under
the 75% and 95% gross income tests. Gains on sales of such properties, or of the
Trust's interest in the Operating Partnership, will generally qualify under the
75% and 95% gross income tests. The Trust anticipates that income on its other
investments will not result in the Trust failing the 75% or 95% gross income
test for any year.
The term "interest," for purposes of satisfying the income tests, generally
does not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the income or
profits of any person. An amount received or accrued generally will not be
excluded from the term "interest," however, solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
Any gross income derived from a prohibited transaction that was taken into
account in applying the 30% test (repealed for taxable years beginning after
August 5, 1997) and the net income from any such transaction continues to be
subject to a 100% excise tax. The term "prohibited transaction" generally means
a sale or other disposition of property (other than foreclosure property) that
is held primarily for sale to customers in the ordinary course of a trade or
business. The Operating Partnership owns interests in real property that is
situated on the periphery of certain of the Properties. The Trust and the
Operating Partnership believe that this peripheral property is not held for sale
to customers and that the sale of such peripheral property is not in the
ordinary course of the Operating Partnership's business. Whether property is
held "primarily for sale to customers in the ordinary course of its trade or
business" depends, however, on the facts and circumstances in effect from time
to time, including those relating to a particular property. As a result, no
assurance can be given that the Trust can avoid being deemed to own property
that the IRS later characterizes as property held "primarily for sale to
customers in the ordinary course of its trade or business."
If the Trust fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Trust's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the Trust
attaches a schedule of the sources of its income to its return, and (iii) any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Trust would be entitled to the benefit of these relief provisions. As discussed
above in "Federal Income Tax Considerations -- Taxation of the Trust," even if
these relief provisions apply, a tax would be imposed with respect to the excess
gross income. No
30
<PAGE> 33
similar mitigation provision applies to provide relief if the 30% income test
were failed, and in such case, the Trust would cease to qualify as a REIT. See
"-- Failure to Qualify." For taxable years beginning after August 5, 1997, the
1997 Act repealed the 30% income test. See "-- Recent Legislation."
Asset Tests. The Trust, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of the Trust's total assets, including its
allocable share of assets held by the Operating Partnership, must be represented
by real estate assets (which for this purpose include stock or debt instruments
purchased by the Trust with the proceeds of a stock offering or a long-term (at
least five years) public debt offering, but only for the one year period
beginning on the date the Trust received such proceeds), cash, cash items, and
government securities.
Second, not more than 25% of the value of the Trust's total assets may be
represented by securities other than those in the 75% asset class.
Third, of the investments included in the 25% asset class, the value of any
one issuer's securities owned by the Trust may not exceed 5% of the value of the
Trust's total assets, and the Trust may not own more than 10% of any one
issuer's outstanding voting securities.
The Trust is deemed to own its proportionate share of all of the assets
owned by the Operating Partnership and any subsidiaries of the Operating
Partnership. The Trust believes that more than 75% of the value of the Operating
Partnership's assets qualify as "real estate assets." The Operating
Partnership's ownership of securities should not result in the Trust's being
deemed to own more than 10% of the voting securities of any one issuer. The
Trust believes that the value of the Trust's proportionate share of securities
owned by the Operating Partnership does not exceed 5% of the total value of the
Trust's assets, and the Trust does not expect that it will exceed 5% in the
future.
After initially meeting the asset tests at the close of any quarter, the
Trust will not lose its status as a REIT for failure to satisfy the asset tests
at the end of a later quarter solely by reason of changes in asset values. If
the failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by a disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
The Trust believes that it maintains adequate records of the value of its assets
to ensure compliance with the asset tests and to enable the Trust to take such
other action within 30 days after the close of any quarter as may be required to
cure any noncompliance. There can be no assurance, however, that such other
action will always be successful.
Annual Distribution Requirements. In order to qualify as a REIT, the Trust
is required to distribute dividends (other than capital gain dividends) to its
shareholders each year in an amount at least equal to: (i) the sum of: (a) 95%
of the Trust's "REIT taxable income" (computed without regard to the dividends
paid deduction, the Trust's net capital gain and net income from foreclosure
property, and with certain other adjustments) and (b) 95% of the net income
(after tax), if any, from foreclosure property; minus (ii) the sum of certain
items of non-cash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the Trust
timely files its tax return for such year and if paid on or before the first
regular dividend payment after such declaration.
To the extent that the Trust does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income", as adjusted, it will be subject to tax on the undistributed amount at
regular capital gains or ordinary corporate tax rates, as the case may be.
Moreover, if the Trust should fail to distribute during each calendar year at
least the sum of: (i) 85% of its ordinary income for that year; (ii) 95% of its
capital gain net income for that year; and (iii) any undistributed taxable
income from prior periods, the Trust would be subject to a 4% excise tax on the
excess of such sum over the amounts actually distributed.
In addition, during its Recognition Period (defined below), if the Trust
disposes of any asset subject to the Built-In Gain Rules, the Trust will be
required, pursuant to IRS regulations which have not yet been promulgated, to
distribute at least 95% of the Built-In Gain (after tax), if any, recognized on
the disposition of
31
<PAGE> 34
the asset. Any such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Trust timely
files its tax return for such year and if paid on or before the date of the
first regular dividend payment after such declaration.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the partnership agreement of
the Operating Partnership authorizes the Trust, as general partner, to take such
steps as may be necessary to cause the Operating Partnership to distribute to
its partners an amount sufficient to permit the Trust to meet these distribution
requirements. It is possible that the Trust may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement, due to timing
differences between the actual receipt of income and actual payment of expenses
on the one hand, and the inclusion of such income and deduction of such expenses
in computing the Trust's "REIT taxable income" on the other hand. To avoid any
problem with the 95% distribution requirement, the Trust will closely monitor
the relationship between its "REIT taxable income" and cash flow, and if
necessary, will borrow funds (or cause the Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Trust's deduction
for dividends paid for the earlier year. Thus, the Trust may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Trust
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
Failure to Qualify. If the Trust fails to qualify for taxation as a REIT in
any taxable year and the relief provisions do not apply, the Trust will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Trust fails to qualify will not be deductible by the Trust, nor will
they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Trust also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Trust would be entitled to such statutory
relief.
CURRENT TAX AUDIT
During the third quarter of 1994, the Massachusetts Trust held more than
25% of the value of its gross assets in overnight Treasury Bill reverse
repurchase transactions which the IRS may view as non-qualifying assets for the
purposes of satisfying the 75% Asset Test, based on a Revenue Ruling published
in 1977. The Trust has requested that the IRS enter into a closing agreement
with the Trust that the Asset Issue will not impact the Trust's status as a
REIT. The IRS has deferred any action relating to the Asset Issue pending the
further examination of the Trust's 1991-1995 tax returns. Based on developments
in the law which have occurred since 1977, the Trust's Tax Counsel, Battle
Fowler LLP, has rendered an opinion that the Massachusetts Trust's investment in
Treasury Bill repurchase obligations would not adversely affect its REIT status.
However, such opinion is not binding upon the IRS.
In connection with the spin-off of Atlantic, Atlantic has assumed all
liability arising out of the Tax Audit and the Asset Issue, including
liabilities for interest and penalties and attorneys fees relating thereto. In
connection with the assumption of such potential liabilities, Atlantic and the
Trust have entered into a tax agreement which provides that the Trust (under the
direction of its Continuing Trustees), and not Atlantic, will control, conduct
and effect the settlement of any tax claims against the Trust relating to the
Tax Audit and the Asset Issue. Accordingly, Atlantic will not have any control
as to the timing of the resolution or disposition of any such claims. The Trust
and Atlantic also received an opinion from Special Tax Counsel, Wolf, Block,
Schorr and Solis-Cohen LLP, that, to the extent there is a deficiency in the
Trust's taxable income arising out of the IRS examination and provided the Trust
timely makes a deficiency dividend (i.e., declares and pays a distribution which
is permitted to relate back to the year for which each deficiency was
32
<PAGE> 35
determined to satisfy the requirement that a REIT annually distribute 95% of its
taxable income), the classification of the Trust as a REIT for the taxable years
under examination would not be affected. Under the tax agreement referred to
above, Atlantic has agreed to reimburse the Trust for the amount of any
deficiency dividend so made. If notwithstanding the above-described opinions of
legal counsel, the IRS successfully challenged the status of the Trust as a
REIT, its status could be adversely affected. If the Trust lost its status as a
REIT, the Trust believes that it will be able to re-elect REIT status for the
taxable year beginning January 1, 1999.
Although the IRS agent conducting the examination has not issued his final
examination report with respect to the Tax Issues, the Trust has received a
preliminary draft of the examining agent's report. The draft report sets forth a
number of positions which the examining agent has taken with respect to the
Trust's taxes for the years that are subject to the Tax Audit, which the Trust
believes are not consistent with applicable law and regulations of the IRS. If
the final report were issued in its current form, the liability of Atlantic to
indemnify the Trust may be substantial. The Continuing Trustees of the Trust are
engaged in ongoing discussions with the examining agent and his supervisors with
regard to the positions set forth in the draft report. There can be no assurance
that, after conclusion of discussions with such agent and his supervisors
regarding the draft report, the examining agent will not issue the proposed
report in the form previously delivered to the Trust (or another form). Issuance
of the revenue agent's report constitutes only the first step in the IRS
administrative process for determining whether there is any deficiency in the
Trust's tax liability for the years at issue and any adverse determination by
the examining agent is subject to administrative appeal within the IRS and,
thereafter, to judicial review. As noted above, pursuant to the tax agreement
between Atlantic and the Trust, Atlantic has assumed all liability arising out
of the Tax Audit and the Tax Issues. As described in more detail under
"Description of Preferred Shares -- Terms of Series A Preferred Shares --
Redemption on Acceleration of Maturity Date," in the event that the Trust loses
its REIT status as a result of the Tax Issues and either (i) the Trust does not
receive the full indemnity payment for the loss of tax benefits associated
therewith that the Trust is entitled to receive from Atlantic pursuant to the
Tax Agreement or (ii) the Trust is unable to provide the holders of Series A
Preferred Shares issued by the Trust an opinion of counsel that the Trust will
be able to elect to be qualified as a REIT under the Code commencing not later
than the taxable year ending December 31, 1999, then the Maturity Date of the
Series A Preferred Shares will be accelerated and the Trust would be required to
redeem such Series A Preferred Shares at a time when it may not have sufficient
funds available to do so. Based on the amount of Atlantic's assets, as disclosed
in its Annual Report on Form 10-K for the year ended December 31, 1997, the
Trust does not believe that the ultimate resolution of the Tax Issues will have
a material adverse effect on the financial position, results of operations or
cash flows of the Trust.
TAX ASPECTS OF THE TRUST'S INVESTMENT IN THE OPERATING PARTNERSHIP
General. The Trust holds a direct interest in the Operating Partnership
and, through the Operating Partnership, holds an indirect interest in certain
other partnerships (collectively, the "Partnerships"). In general, partnerships
are "pass-through" entities which are not subject to Federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction, and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Trust will include its proportionate share of the foregoing
partnership items for purposes of the various REIT income tests and in the
computation of its "REIT taxable income". See "Federal Income Tax
Considerations -- Taxation of the Trust -- General" and "-- Gross Income Tests."
Any resultant increase in the Trust's "REIT taxable income" will increase its
distribution requirements (see "Federal Income Tax Considerations -- Taxation of
the Trust -- Annual Distribution Requirements"), but will not be subject to
Federal income tax in the hands of the Trust provided that such income is
distributed by the Trust to its shareholders. Moreover, for purposes of the REIT
asset tests (see "Federal Income Tax Considerations -- Taxation of the Trust --
Asset Tests"), the Trust includes its proportionate share of assets held by the
Partnerships.
Entity Classification. The Trust's interests in the Operating Partnership
and the Partnerships involve special tax considerations, including the
possibility of a challenge by the IRS of the status of the Operating
33
<PAGE> 36
Partnership or any Partnership as a partnership (as opposed to an association
taxable as a corporation) for Federal income tax purposes. If the Operating
Partnership or any of the other Partnerships were to be treated as an
association, it would be taxable as a corporation and therefore subject to an
entity-level tax on its income. In such a situation, the character of the
Trust's assets and items of gross income would change, which would preclude the
Trust from satisfying the asset tests and possibly the income tests (see
"Federal Income Tax Considerations -- Taxation of the Trust -- Asset Tests" and
"-- Gross Income Tests"), and in turn would prevent the Trust from qualifying as
a REIT. See "Taxation of the Trust -- Failure to Qualify" above for a discussion
of the effect of the Trust's failure to meet such tests for a taxable year.
In general, under Treasury Regulations which became effective January 1,
1997 ("Check-the-Box Regulations"), an unincorporated entity with at least two
members may elect to be classified either as a corporation or as a partnership
for federal income tax purposes. If such an entity fails to make an election, it
generally will be treated as a partnership for Federal income tax purposes. The
Federal income tax classification of an entity that was in existence prior to
January 1, 1997, such as the Operating Partnership and most of the other
Partnerships, will be respected for all periods prior to January 1, 1997 if (i)
the entity had a reasonable basis for its claimed classification, (ii) the
entity and all members of the entity recognized the Federal income tax
consequences of any changes in the entity's classification within the 60 months
prior to January 1, 1997, and (iii) neither the entity nor any member of the
entity was notified in writing by a taxing authority on or before May 8, 1996
that the classification of the entity was under examination. The Trust believes
that the Operating Partnership and each of the other Partnerships which existed
prior to January 1, 1997 reasonably claimed partnership classification under the
Treasury Regulations relating to entity classification in effect prior to
January 1, 1997, and such classification should be respected for Federal income
tax purposes. Each of them intends to continue to be classified as partnerships
for Federal income tax purposes, and none of them will elect to be treated as an
association taxable as a corporation under the Check-the-Box Regulations.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss, and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as the Properties contributed to the Operating
Partnership by the limited partners of the Operating Partnership) must be
allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution, and the
adjusted tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership was formed with contributions of
appreciated property (including the Properties contributed by the limited
partners of the Operating Partnership). Consequently, the partnership agreement
requires such allocations to be made in a manner consistent with Section 704(c)
of the Code.
In general, the limited partners that contributed Properties to the
Partnerships will be allocated less depreciation, and increased taxable gain on
sale of certain Properties. This will tend to eliminate the Book-Tax Difference.
However, the special allocation rules of Section 704(c) do not always rectify
the Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Under the applicable Treasury Regulations, such
special allocations of income and gain and depreciation deductions must be made
on a property-by-property basis. Depreciation deductions resulting from the
carryover basis of a contributed property are used to eliminate the Book-Tax
Difference by allocating such deductions to the non-contributing partners (i.e.,
the REIT) up to the amount of their share of book depreciation. Any remaining
tax depreciation for the contributed property would be allocated to the partners
who contributed the property. Each Partnership has elected the traditional
method of rectifying the Book-Tax Difference under the applicable Treasury
Regulations, pursuant to which if depreciation deductions are less than the non-
contributing partners' share of book depreciation, then the noncontributing
partners lose the benefit of the tax deductions in the amount of the difference
("ceiling rule"). When the property is sold, the resulting tax gain is used to
the extent possible to eliminate the Book-Tax Difference (reduced by any
previous book deprecia-
34
<PAGE> 37
tion). Even under the traditional method, it is possible that the carryover
basis of the contributed assets in the hands of a Partnership may cause the
Trust to be allocated lower depreciation and other deductions. This may cause
the Trust to recognize taxable income in excess of cash proceeds, which might
adversely affect the Trust's ability to comply with the REIT distribution
requirements. See "Federal Income Tax Considerations -- Taxation of the Trust --
Annual Distribution Requirements."
With respect to any property purchased by the Operating Partnership
subsequent to the consummation of the Ramco Transaction, such property will
initially have a tax basis equal to its fair market value and Section 704(c) of
the Code will not apply.
Sale of the Properties. The Trust's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Federal Income Tax Considerations -- Taxation of the Trust --
General" and "-- Gross Income Tests -- The 95% Test." Under existing law,
whether property is dealer property is a question of fact that depends on all
the facts and circumstances with respect to the particular transaction. The
Partnerships intend to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating the Properties and other shopping centers and to make such
occasional sales of the Properties as are consistent with the Trust's investment
objectives. Based upon such investment objectives, the Trust believes that in
general the Properties should not be considered dealer property and that the
amount of income from prohibited transactions, if any, will not be material.
TAX CONSEQUENCES OF CONVERSION TO REIT STATUS
The Trust's predecessor (the Massachusetts Trust) elected to be taxed as a
REIT by filing such an election with its United States Federal income tax return
for the taxable year ending December 31, 1988. If during the 10-year period (the
"Recognition Period") beginning on the first day of the first taxable year for
which a corporation or trust qualifies as a REIT, it recognizes gain on the
disposition of any asset held as of the beginning of such Recognition Period,
then, to the extent of the excess of: (i) the fair market value of such asset as
of the beginning of such Recognition Period; over (ii) the adjusted basis of
such asset as of the beginning of such Recognition period (the "Built-in Gain"),
such gain will be subject to tax at the highest regular corporate rate to the
extent of the corporation's or trust's net Built-in Gain as of the beginning of
such Recognition Period. Furthermore, if such corporation or trust acquires any
asset from a corporation in a transaction in which the basis of the asset in the
transferee's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the transferor, and the transferee recognizes
gain on the disposition of such asset during the Recognition Period beginning on
the date on which such asset was transferred, then, to the extent of the
Built-in Gain, such gain will be subject to tax at the highest regular corporate
rate.
Assuming the Trust's status as a REIT is not lost as a result of an
unfavorable determination on the Asset Issue, these provisions regarding the
potential taxation of Built-in Gains would not be applicable to the Properties
and would only be applicable to the assets owned by the Massachusetts Trust
prior to January 1, 1988, the first day of the first year that the Massachusetts
Trust elected to be taxed as a REIT. Accordingly, assuming a favorable
determination on the Asset Issue, this provision is not expected to have any
significant effect on the Trust. If the Trust's REIT status is terminated
effective as of 1994 as a result of an unfavorable determination of the Asset
Issue, and assuming the Trust were to elect REIT status beginning January 1,
1999 (i.e., the first taxable year for which the Trust would be eligible to
elect REIT status), the Built-in Gains provision of the Code would be applicable
to all of the Trust's assets held on January 1, 1999, including the Properties.
The Trust would then have a new Recognition Period which would end on December
31, 2008. See "Federal Income Tax Considerations -- Current Tax Audit" discussed
above.
TAXATION OF U.S. SHAREHOLDERS
As used in the following discussion, the term U.S. Shareholder means a
holder of Preferred Shares or Common Shares ("Shares") that (for United States
Federal income tax purposes) (i) is a citizen or resident of the United States,
(ii) is a corporation, partnership, or other entity created or organized in or
under the laws
35
<PAGE> 38
of the United States or of any political subdivision thereof, or (iii) is an
estate or trust the income of which is subject to United States Federal income
taxation regardless of its source. For any taxable year for which the Trust
qualifies for taxation as a REIT, amounts distributed to taxable U.S.
Shareholders will be taxed as follows.
Distributions Generally. Distributions to U.S. Shareholders, other than
capital gain dividends discussed below, constitute dividends to such
shareholders up to the amount of the Trust's current or accumulated earnings and
profits and are taxable to such shareholders as ordinary income. Such
distributions are not eligible for the dividends-received deduction for
corporations. Under current law, the maximum Federal income tax rate applicable
to ordinary income of individuals is 39.6% and applicable to corporations is
35%. To the extent that the Trust makes distributions in excess of its current
or accumulated earnings and profits, such distributions will first be treated as
a tax-free return of capital, reducing the tax basis in the U.S. Shareholders'
Shares, and distributions in excess of the U.S. Shareholders' tax basis in their
respective Shares will be taxable as gain realized from the sale of such shares.
A dividend declared by the Trust in October, November, or December of any year
payable to a shareholder of record on a specified date in any such month is
treated as both paid by the Trust and received by the shareholder on December 31
of such year, provided that the dividend is actually paid by the Trust during
January of the following calendar year. Shareholders may not include on their
own income tax returns any tax losses of the Trust. Pursuant to Regulations to
be promulgated by the Treasury, a portion of the Trust's distributions may be
subject to the alternative minimum tax to the extent of the Trust's items of tax
preference, if any, allocated to the shareholders.
The Trust will be treated as having sufficient earnings and profits for a
year to treat as a dividend any distribution by the Trust for such year up to
the amount required to be distributed in order to avoid imposition of the 4%
excise tax discussed in "Federal Income Tax Considerations -- Taxation of the
Trust" above. As a result, U.S. Shareholders may be required to treat certain
distributions as taxable dividends even though the Trust may have no overall,
accumulated earnings and profits. Moreover, any "deficiency dividend" will be
treated as a "dividend" (an ordinary dividend or a capital gain dividend, as the
case may be), regardless of the Trust's earnings and profits.
Capital Gain Dividends. A dividend paid to a U.S. Shareholder that is
properly designated by the Trust as a capital gain dividend will be treated as
long-term capital gain (to the extent it does not exceed the Trust's actual net
capital gain) for the taxable year without regard to the period for which the
shareholder has held his Shares; however, corporate shareholders may be required
to treat up to 20% of certain capital gains dividends as ordinary income.
Capital gain dividends are not eligible for the dividends-received deduction for
corporations.
Pursuant to a change in the Code enacted in 1997, the Trust may elect to
retain and pay income tax on net long-term capital gains. If the REIT makes such
an election for a tax year, shareholders will include their proportionate shares
of the undistributed long-term capital gain in income. Shareholders will also be
deemed to have paid their respective shares of the tax actually paid by the REIT
on such net long-term capital gains. The basis of a shareholder's shares of
beneficial interest would be increased by his share of the undistributed net
long-term capital gains and reduced by his share of the tax paid by the REIT
thereon. See "-- Recent Legislation" below.
Passive Activity Loss and Investment Interest Limitations. Taxable
dividends from the Trust and gain from the disposition of Shares will not be
treated as passive activity income, and therefore, U.S. Shareholders generally
will not be able to apply any "passive losses" against such income. Taxable
dividends from the Trust and gain from the disposition of shares generally may
be treated as investment income for purposes of applying the limitation on the
deductibility of investment interest.
Certain Dispositions of Shares. A U.S. Shareholder will recognize gain or
loss on the sale or exchange of Shares to the extent of the difference between
the amount realized on such sale or exchange and the shareholder's tax basis in
such Shares. Such gain or loss generally will constitute long-term capital gain
or loss if the shareholder has held such shares for more than one year. Losses
incurred on the sale or exchange of Shares held for six months or less (after
applying certain holding period rules), however, will generally be
36
<PAGE> 39
deemed long-term capital loss to the extent of any long-term capital gain
dividends received by the U.S. Shareholder with respect to such Shares.
The maximum rate of tax on the "adjusted net capital gain" of an individual
is 20%. In addition, any "adjusted net capital gain" which would otherwise be
taxed to an individual at a 15% rate is taxed at a 10% rate. The "adjusted net
capital gain" of an individual is the individual's net long-term capital gain
reduced by 28-percent rate capital gain. The term "28-percent rate gain"
includes net long-term capital gain from property held for more than one year
but not for more than 18 months.
Treatment of Tax-Exempt Shareholders. Distributions from the Trust to a
tax-exempt pension trust ("qualified trust") or other domestic tax-exempt
shareholder will not constitute "unrelated business taxable income" ("UBTI")
unless such shareholder has borrowed to acquire or carry the Shares or the Trust
is a "pension-held REIT," as discussed below.
Qualified trusts that hold more than 10% (by value) of the shares of
certain REITs ("pension-held REITS") may be required to treat a certain
percentage of such a REIT's distribution as UBTI. A REIT is a pension-held REIT
if (i) the REIT would not qualify as such for Federal income tax purposes but
for the application of the "look-through" exception to the five-or-fewer
requirement applicable to shares held by qualified trusts (see "Federal Income
Tax Considerations -- Qualification of the Trust as a REIT -- Share Ownership
Test" above) and (ii) the REIT is "predominantly held" by qualified trusts. A
REIT is predominantly held if either (i) a single qualified trust holds more
than 25% by value of the interests in the REIT or (ii) one or more qualified
trusts, each owning more than 10% by value of the interests in the REIT, hold in
the aggregate more than 50% of the interests in the REIT. The percentage of any
REIT dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by
the REIT (treating the REIT as if it were a qualified trust and therefore
subject to tax on UBTI) to (b) the total gross income (less certain associated
expenses) of the REIT. A de minimis exception applies where the ratio set forth
in the preceding sentence is less than 5% for any year. For these purposes, a
qualified trust is any trust described in section 401(a) of the Code and exempt
from tax under section 501(a) of the Code. The Trust believes that it is not a
"pension-held REIT." No assurance can be given, however, that the Trust will not
become a pension-held REIT in the future.
Additional Tax Consequences for Holders of Warrants. See the applicable
Prospectus Supplement for a discussion of any additional tax consequences for
holders of Warrants offered by such Prospectus Supplement.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN SHAREHOLDERS
The rules governing United States income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Non-U.S. Shareholders") are complex, and the following
discussion is intended only as 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 on an investment in the Trust,
including any reporting requirements.
In general, a Non-U.S. Shareholder will be subject to regular United States
income tax with respect to its investment in the Trust if such investment is
"effectively connected" with the Non-U.S. Shareholder's conduct of a trade or
business in the United States. A corporate Non-U.S. Shareholder that receives
income that is (or is treated as) effectively connected with a U.S. trade or
business may also be subject to the branch profits tax under Section 884 of the
Code, which is payable in addition to regular United States corporate income
tax. The following discussion will apply to Non-U.S. Shareholders whose
investment in the Trust is not effectively connected.
A distribution by the Trust that is not attributable to gain from the sale
or exchange by the Trust of a United States real property interest and that is
not designated by the Trust as a capital gain dividend will be treated as an
ordinary income dividend to the extent made out of current or accumulated
earnings and profits. Generally, any ordinary income dividend will be subject to
a United States withholding tax equal to 30% of the gross amount of the dividend
unless such tax is reduced by an applicable tax treaty. A distribution of cash
in excess of the Trust's earnings and profits will be treated first as a return
of capital that will reduce a Non-
37
<PAGE> 40
U.S. Shareholder's basis in its Shares (but not below zero) and then as gain
from the disposition of such shares, the tax treatment of which is described
under the rules discussed below with respect to dispositions of Shares.
Distributions by the Trust that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Shareholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Shareholder
as if such distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Shareholder will be taxed at the
normal capital gain rates applicable to a U.S. Shareholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder that is not entitled to treaty exemption.
The Trust will be required to withhold from distributions to Non-U.S.
Shareholders, and remit to the IRS, (i) 35% of the designated capital gain
dividends (or, if greater, 35% of the amount of any distributions that could be
designated as capital gain dividends) and (ii) 30% of ordinary dividends paid
out of earnings and profits. In addition, if the Trust designates prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions, will be treated as capital gain dividends
for purposes of withholding. A distribution in excess of the Trust's earnings
and profits may be subject to 30% dividend withholding if at the time of the
distribution it cannot be determined whether the distribution will be in an
amount in excess of the Trust's current and accumulated earnings and profits.
Tax treaties may reduce the Trust's withholding obligations. If the amount
withheld by the Trust with respect to a distribution to a Non-U.S. Shareholder
exceeds such shareholder's United States tax liability with respect to such
distribution (as determined under the rules described in the two preceding
paragraphs), the Non-U.S. Shareholder may file for a refund of such excess from
the IRS. It should be noted that the 35% withholding tax rate on capital gain
dividends currently corresponds to the maximum income tax rate applicable to
corporations, but is higher than the maximum rate on long-term capital gains of
individuals.
Unless the Shares constitute a "United States real property interest"
within the meaning of FIRPTA, the sale of Shares by a Non-U.S. Shareholder
generally will not be subject to United States taxation. The Shares will not
constitute a United States real property interest if the Trust is a
"domestically controlled REIT." A domestically controlled REIT is a REIT less
than 50% in value of the shares of which, at all times during a specified
testing period, are held directly or indirectly by Non-U.S. Shareholders.
Currently, the Trust believes that it is a domestically controlled REIT, and
therefore the sale of Shares by Non-U.S. Shareholders is not subject to taxation
under FIRPTA. However, because the Shares are publicly traded, no assurance can
be given that the Trust will continue to be a domestically controlled REIT. If
the Trust does not constitute a domestically controlled REIT, whether a Non-U.S.
Shareholder's sale of Shares would be subject to tax under FIRPTA as a sale of a
United States real property interest would depend on whether the shares were
"regularly traded" (as defined by applicable Treasury Regulations) on an
established securities market (e.g., the New York Stock Exchange, on which the
Shares are listed) and on the size of the selling shareholder's interest in the
Trust.
If the gain on the sale of the Shares were subject to taxation under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as a
U.S. Shareholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). In any event, a purchaser of Shares from a Non-U.S.
Shareholder will not be required under FIRPTA to withhold tax from the purchase
price if the purchased Shares are "regularly traded" on an established
securities market or if the Trust is a domestically controlled REIT. Otherwise,
under FIRPTA, the purchaser of Shares may be required to withhold 10% of the
purchase price and remit such amount to the IRS, and the Trust may be required
to withhold 10% of certain distributions to Non-U.S. Shareholders.
Notwithstanding the foregoing, capital gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable year and certain other conditions apply, in which case the
nonresident alien individual will be subject to a 30% tax on such individual's
capital gains.
38
<PAGE> 41
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Shareholders of Shares may be subject to
backup withholding at a rate of 31% on payments made with respect to, or cash
proceeds of a sale or exchange of, Shares. Backup withholding will apply only if
the holder (i) fails to furnish its taxpayer identification number ("TIN")
(which, for an individual, would be his social security number), (ii) furnishes
an incorrect TIN, (iii) is notified by the IRS that it has failed properly to
report payments of interest and dividends, or (iv) under certain circumstances,
fails to certify, under penalty of perjury, that it has furnished a correct TIN
and has not been notified by the IRS that it is subject to backup withholding
for failure to report interest and dividend payments. Backup withholding will
not apply with respect to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. U.S. Shareholders should consult
their own tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption. Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a U.S. Shareholder will be allowed as a
credit against such U.S. Shareholder's United States Federal income tax
liability and may entitle such U.S. Shareholder to a refund, provided that the
required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Shareholders, and Non-U.S. Shareholders
should consult their tax advisors with respect to any such information reporting
and backup withholding requirements. Backup withholding with respect to Non-U.S.
Shareholders is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a Non-U.S. Shareholder will be allowed
as a credit against any United States Federal income tax liability of such
Non-U.S. Shareholder. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the IRS.
RECENT LEGISLATION
On August 5, 1997, President Clinton signed into law the 1997 Act, which
modified certain REIT-related Code provisions for tax years of the Trust
beginning on or after January 1, 1998. The following list sets forth the
significant changes contained in this legislation: (i) the rule disqualifying a
REIT for any year in which it fails to comply with certain regulations requiring
the REIT to monitor its stock ownership is replaced with an intermediate
financial penalty; (ii) the rule disqualifying a REIT that is "closely held"
(i.e., during the last half of each taxable year, 50% or more in value of a
REIT's outstanding stock is owned by five or fewer individuals) does not apply
if during such year the REIT complied with certain regulations which require the
REIT to monitor its stock ownership, and the REIT did not know or have reason to
know that it was closely held; (iii) a REIT is permitted to render a de minimis
amount of impermissible services to tenants in connection with the management of
property and still treat amounts received with respect to such property (other
than certain amounts relating to such services) as qualified rent; (iv) the
rules regarding attribution to partnerships for purposes of defining qualified
rent and independent contractors are modified so that attribution occurs only
when a partner owns a 25% or greater interest in the partnership; (v) the 30%
gross income test is repealed; (vi) any corporation wholly-owned by a REIT is
permitted to be treated as a qualified REIT subsidiary regardless of whether
such subsidiary has always been owned by the REIT; (vii) the class of excess
noncash items for purposes of the REIT distribution requirements is expanded;
(viii) property that is involuntarily converted is excluded from the prohibited
transaction rules; (ix) the rules relating to shared appreciation mortgages are
modified; (x) income from all hedges that reduce the interest rate risk of REIT
liabilities, including rate swap or cap agreements, options, futures and forward
rate contracts, is included in qualifying income for purposes of the 95% income
test; (xi) a REIT is able to elect to retain and pay income tax on its net
long-term capital gains, and if such election is made, the REIT's shareholders
include in income their proportionate share of the undistributed long-term
capital gain and are deemed to have paid their proportionate share of tax paid
by the REIT; (xii) the rules relating to the grace period for foreclosure
property are modified and (xiii) certain other Code provisions relating to REITs
are amended.
39
<PAGE> 42
STATE AND LOCAL TAXES
The Trust is, and its shareholders may be, subject to state, local, or
other taxation in various state, local, or other jurisdictions, including those
in which they transact business or reside. The tax treatment in such
jurisdictions may differ from the Federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on their investment in
the Trust.
PLAN OF DISTRIBUTION
The Trust may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents, which agents may be affiliated with the Trust. Direct sales to
investors may be accomplished through subscription rights distributed to the
Trust's shareholders. In connection with the distribution of subscription rights
to shareholders, if all of the underlying Securities are not subscribed for, the
Trust may sell such unsubscribed Securities directly to third parties or may
engage the services of an underwriter to sell such unsubscribed Securities to
third parties. Any underwriter or agent involved in the offer and sale of the
Securities will be named in the applicable Prospectus Supplement.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, or at prices related to the
prevailing market prices at the time of sale or at negotiated prices (any of
which may represent a discount from the prevailing market prices). The Trust
also may, from time to time, authorize underwriters acting as the Trust's agents
to offer and sell the Securities upon the terms and conditions as are set forth
in the applicable Prospectus Supplement. In connection with the sale of
Securities, underwriters may be deemed to have received compensation from the
Trust in the form of underwriting discounts or commissions and may also receive
commissions from purchasers of Securities for whom they may act as agent.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Trust to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with the Trust, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act. Any such indemnification
agreements will be described in the applicable Prospectus Supplement.
If so indicated in the applicable Prospectus Supplement, the Trust will
authorize dealers acting as the Trust's agents to solicit offers by certain
institutions to purchase Securities from the Trust at the public offering price
set forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date or dates stated in
such Prospectus Supplement. Each Contract will be for an amount not less than,
and the aggregate principal amount of Securities sold pursuant to Contracts
shall be not less nor more than, the respective amounts stated in the applicable
Prospectus Supplement. Institutions with whom Contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions but will in all cases be subject to the approval of the Trust.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject; and (ii) if the Securities are being sold
to underwriters, the Trust shall have sold to such underwriters the total
principal amount of the Securities less the principal amount thereof covered by
the Contracts.
40
<PAGE> 43
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Trust in the ordinary
course of business.
LEGAL MATTERS
The legality of the Common Shares, Preferred Shares and Securities Warrants
will be passed upon for the Trust by Ballard Spahr Andrews & Ingersoll.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Trust's Annual Report on Form 10-K for the year ended
December 31, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
41
<PAGE> 44
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR IN THE PROSPECTUS SUPPLEMENT IN
CONNECTION WITH THE OFFER CONTAINED IN THE PROSPECTUS OR IN THE PROSPECTUS
SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR BY ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE PROSPECTUS SUPPLEMENT OR IN THE AFFAIRS OF THE TRUST SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Note Regarding Forward-Looking
Statements.......................... 2
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Trust............................. 3
Risk Factors.......................... 5
Use of Proceeds....................... 13
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends........................... 14
Description of Common Shares.......... 14
Description of Preferred Shares....... 15
Restrictions on Ownership and Transfer
of Shares........................... 22
Description of Securities Warrants.... 24
Federal Income Tax Considerations..... 26
Plan of Distribution.................. 40
Legal Matters......................... 41
Experts............................... 41
</TABLE>
======================================================
======================================================
$200,000,000
RAMCO-GERSHENSON
PROPERTIES TRUST
SECURITIES
------------------
PROSPECTUS
------------------
JUNE , 1998
======================================================
<PAGE> 45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the Registrant
in connection with the issuance and distribution of the securities being
registered hereby other than underwriting discounts and commissions. All
expenses other than the SEC registration fee and the NASD filing fee are
estimated.
<TABLE>
<S> <C>
SEC registration fee........................................ $59,000
New York Stock Exchange listing fee......................... *
"Blue Sky" fees and expenses (including legal fees)......... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Costs of printing and engraving............................. *
Miscellaneous............................................... *
-------
Total.................................................. $ *
=======
</TABLE>
- -------------------------
*To be filed by amendment.
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
Under Maryland law, a real estate investment trust formed in Maryland is
permitted to eliminate, by provision in its declaration of trust, the liability
of its trustees and officers to the trust and shareholders for money damages
except for (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) acts or omissions involving active and deliberate
dishonestly established by a final judgment as being material to the cause of
action. The Trust's Declaration of Trust contain such a provision which
eliminates such liability to the maximum extent permitted by Maryland law.
Under the Declaration of Trust and Bylaws of the Trust, the Trust is
required to indemnify any trustee or officer (a) against reasonable expenses
incurred by him in the successful defense (on the merits or otherwise) of any
proceeding to which he is made a party by reason of such status or (b) against
any claim or liability to which he may become subject to reason of such status
unless it is established that (i) the act or omission giving rise to the claim
was committed in bad faith or was the result of the active and deliberate
dishonesty, (ii) he actually received an improper personal benefit in money,
property or services, or (iii) in the case of a criminal proceeding, he had
reasonable cause to believe that his act or omission was unlawful. The Trust is
also required by its Bylaws to pay or reimburse, in advance of a final
disposition, reasonable expenses of a trustee or officer made a party to a
proceeding by reason of his status as such upon receipt of a written affirmation
by the trustee or officer of his good faith belief that he has met the
applicable standard for indemnification under such Bylaws and a written
undertaking to repay such expenses if it shall ultimately be determined that the
applicable standard was not met.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1 Underwriting Agreement*
4.1 Amended and Restated Declaration of Trust, dated October 2,
1997 (incorporated by reference to Exhibit 3.1 to the
Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
4.2 Articles Supplementary to Amended and Restated Declaration
of Trust, dated October 2, 1997 (incorporated by reference
to Exhibit 3.2 to the Trust's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).
</TABLE>
II-1
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
4.3 By-Laws of the Trust adopted October 2, 1997 (incorporated
by reference to Exhibit 3.3 to the Trust's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997).
4.4 Rights Agreement dated as of December 6, 1989 between the
Trust and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 1 to the Trust's
Registration Statement on Form 8-A, File No. 1-10093, for
the registration of Share Purchase Rights).
4.5 Form of Common Share Warrant Agreement.*
4.6 Form of Articles Supplementary to Declaration of Trust
establishing the terms of the Preferred Shares.*
4.7 Form of Preferred Shares Warrant Agreement.*
5 Opinion of Ballard Spahr Andrews & Ingersoll as to the
validity of the Securities.
8 Opinion of Deloitte & Touche LLP as to certain tax matters.
12 Statement Regarding Computation of Ratios of Earnings to
Combined Fixed Charges and Preferred Share Dividends.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5)
23.3 Consent of Deloitte & Touche LLP (included in Exhibit 8).
24 Powers of Attorney (See page II-4).
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
A.Undertaking for Rule 415 Offering
The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Issuer pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), that are incorporated by reference in the Registration
Statement;
(b) that, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered thereto, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof; and
(c) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 47
B.Undertaking Regarding Filings Incorporating Subsequent Exchange Act Documents
by Reference
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C.Undertaking in Respect of Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether or not such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
D. Undertaking Pursuant to Rule 430A
The undersigned Registrant hereby undertakes that:
(a) for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(b) for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 48
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Southfield, Michigan on June 26,
1998.
RAMCO-GERSHENSON PROPERTIES TRUST
By: /s/ DENNIS E. GERSHENSON
------------------------------------
Dennis E. Gershenson,
President, Chief Executive Officer
and Trustee
POWER OF ATTORNEY
We, the undersigned trustees and officers of Ramco-Gershenson Properties
Trust, do hereby constitute and appoint each of Messrs. Dennis E. Gershenson and
Richard D. Gershenson, each with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and on
our behalf in our capacities stated below, which acts and things any of them may
deem necessary or advisable to enable Ramco-Gershenson Properties Trust to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for any or all of us in our names, in the capacities
stated below, any and all amendments (including post-effective amendments)
hereto; and we do hereby ratify and confirm all that they shall do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOEL D. GERSHENSON Chairman of the Board June 26, 1998
- ------------------------------------------
Joel D. Gershenson
/s/ DENNIS E. GERSHENSON President, Chief Executive Officer and June 26, 1998
- ------------------------------------------ Trustee (Principal Executive Officer)
Dennis E. Gershenson
/s/ RICHARD J. SMITH Chief Financial Officer (Principal June 26, 1998
- ------------------------------------------ Financial and Accounting Officer)
Richard J. Smith
/s/ STEPHEN R. BLANK Trustee June 26, 1998
- ------------------------------------------
Stephen R. Blank
/s/ ARTHUR H. GOLDBERG Trustee June 26, 1998
- ------------------------------------------
Arthur H. Goldberg
/s/ SELWYN ISAKOW Trustee June 26, 1998
- ------------------------------------------
Selwyn Isakow
/s/ HERBERT LIECHTUNG Trustee June 26, 1998
- ------------------------------------------
Herbert Liechtung
/s/ ROBERT A. MEISTER Trustee June 26, 1998
- ------------------------------------------
Robert A. Meister
/s/ JOEL M. PASCHOW Trustee June 26, 1998
- ------------------------------------------
Joel M. Paschow
/s/ MARK K. ROSENFELD Trustee June 26, 1998
- ------------------------------------------
Mark K. Rosenfeld
</TABLE>
II-4
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1 Underwriting Agreement*.....................................
4.1 Amended and Restated Declaration of Trust, dated October 2,
1997 (incorporated by reference to Exhibit 3.1 to the
Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997)..........................................
4.2 Articles Supplementary to Amended and Restated Declaration
of Trust, dated October 2, 1997 (incorporated by reference
to Exhibit 3.2 to the Trust's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997)....................
4.3 By-Laws of the Trust adopted October 2, 1997 (incorporated
by reference to Exhibit 3.3 to the Trust's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997)......
4.4 Rights Agreement dated as of December 6, 1989 between the
Trust and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 1 to the Trust's
Registration Statement on Form 8-A, File No. 1-10093, for
the registration of Share Purchase Rights)..................
4.5 Form of Common Share Warrant Agreement.*....................
4.6 Form of Articles Supplementary to Declaration of Trust
establishing the terms of the Preferred Shares.*............
4.7 Form of Preferred Shares Warrant Agreement.*................
5 Opinion of Ballard Spahr Andrews & Ingersoll as to the
validity of the Securities..................................
8 Opinion of Deloitte & Touche LLP as to certain tax
matters.....................................................
12 Statement Regarding Computation of Ratios of Earnings to
Combined Fixed Charges and Preferred Stock Dividends........
23.1 Consent of Deloitte & Touche LLP............................
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5)..................................................
23.3 Consent of Deloitte & Touche LLP (included in Exhibit 8)....
24 Powers of Attorney (See page II-4)..........................
</TABLE>
- -------------------------
* To be filed by amendment.
II-5
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL LLP]
June 26, 1998
Ramco-Gershenson Properties Trust
27600 Northwestern Highway, Suite 200
Southfield, Michigan 48034
Re: Ramco-Gershenson Properties Trust, a Maryland real
estate investment trust (the "Company") -
Registration Statement on Form S-3 pertaining to
$200,000,000 maximum aggregate initial offering
price of the Company's: (i) preferred shares of
beneficial interest, par value $.01 per share (the
"Preferred Shares"), (ii) common shares of
beneficial interest, par value $.01 per share (the
"Common Shares"), and (iii) warrants exercisable
for Preferred Shares or Common Shares (the
"Securities Warrants")
-----------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of Preferred Shares,
Common Shares and Securities Warrants, in each case in amounts, at prices and on
terms determined at the time of offering (collectively the "Securities") under
the Securities Act of 1933, as amended (the "Act") by the Company on Form S-3,
filed with the Securities and Exchange Commission (the "Commission") on or about
June 26, 1998, as amended, (the "Registration Statement"), you have requested
our opinion with respect to the matters set forth below.
We have acted as special Maryland counsel for the Company in
connection with the matters described herein. In our capacity as special
Maryland counsel to the Company, we have reviewed and are familiar with the
Declaration of Trust of the Company, as amended, (the "Declaration of Trust")
filed with the State
<PAGE> 2
Ramco-Gershenson Properties Trust
June 26, 1998
Page 2
Department of Assessments and Taxation of Maryland (the "Department"), the
Bylaws of the Company, as amended,(the "Bylaws") and certain resolutions adopted
and actions taken by the Board of Trustees of the Company (the "Board of
Trustees") on or before the date hereof and in full force and effect on the date
hereof (the "Resolutions") including, but not limited to, those certain
resolutions adopted by the Board of Trustees at a duly called meeting held on
June 10, 1998. We have also examined other documents and other records of the
Company and certificates of public officials and officers of the Company
including, without limitation, a status certificate of recent date issued by the
Department as to the good standing of the Company, a Certificate of Officer of
the Company of recent date to the effect that, among other things, the
Declaration of Trust and Bylaws of the Company and the Resolutions and actions
by the Board of Trustees which we have examined are true, correct and complete,
have not been rescinded or modified and are in full force and effect on the date
of such certificate. We have also made such further legal and factual
examinations as we have deemed necessary or appropriate to provide a basis for
the opinion set forth below.
In reaching the opinions set forth below, we have assumed the
following: (a) each person executing any instrument, document or agreement on
behalf of any party (other than the Company) is duly authorized to do so; (b)
each natural person executing any instrument, document or agreement is legally
competent to do so; (c) all documents submitted to us as originals are
authentic; all documents submitted to us as certified, facsimile or photostatic
copies conform to the original document; all signatures on all documents
submitted to us for examination are genuine; and all public records reviewed are
accurate and complete; (d) the resolutions adopted and to be adopted, and the
actions taken and to be taken by the Board of Trustees including, but not
limited to, the adoption of all resolutions and the taking of all actions
necessary to authorize the issuance and sale of the Securities in accordance
with the procedures set forth in paragraphs 1, 2 and 3 below, have occurred or
will occur at duly called meetings at which a quorum of the incumbent trustees
of the Company were or are present and acting throughout, or by unanimous
written consent of all incumbent trustees, all in accordance with the
Declaration of Trust and Bylaws of the Company and applicable law; (e) the
number of Preferred Shares and the number of Common Shares to be offered and
sold under the Registration Statement, together with the number of Preferred
Shares and the number of Common Shares issuable upon conversion of any
Securities, will not, in the aggregate, exceed the number of Preferred Shares,
and the number of Common Shares, respectively, authorized in the Declaration of
Trust of the Company, less the number of Preferred Shares and the number of
<PAGE> 3
Ramco-Gershenson Properties Trust
June 26, 1998
Page 3
Common Shares, respectively, authorized and reserved for issuance and issued and
outstanding on the date on which the Securities are authorized, the date on
which the Securities are issued and delivered, the date on which any Securities
are converted into Common Shares or Preferred Shares, respectively and the date
on which Preferred Shares and Common Shares, respectively, are issued pursuant
to conversion of such Securities; (f) none of the terms of any Security to be
established subsequent to the date hereof, nor the issuance and delivery of such
Security, nor the compliance by the Company with the terms of such Security nor
the form of certificate evidencing such Security will violate any applicable law
or will conflict with, or result in a breach or violation of, the Declaration of
Trust or Bylaws of the Company, or any instrument or agreement to which the
Company is a party or by which the Company is bound or any order or decree of
any court, administrative or governmental body having jurisdiction over the
Company; (g) none of the Securities, and none of the shares of Preferred Shares
or shares of Common Shares issuable upon conversion of any Securities, will be
issued in violation of the provisions of the Declaration of Trust of the Company
imposing restrictions on ownership and transfer of shares of the Company.
Based on the foregoing, and subject to the assumptions and
qualifications set forth herein, it is our opinion that:
1. Upon: (a) establishment by the Board of Trustees of the
terms, conditions and provisions of any Securities Warrants; (b) due
authorization by the Board of Trustees of such Securities Warrants for issuance
at a minimum price or value of consideration to be set by the Board of Trustees;
and (c) reservation and due authorization by the Board of Trustees of any
Preferred Shares and/or any Common Shares issuable upon conversion of the
Securities Warrants in accordance with the procedures set forth in Paragraphs 2
and 3 below at a minimum price or value of consideration to be set by the Board
of Trustees, all necessary action on the part of the Company will have been
taken to authorize such Securities Warrants.
2. Upon: (a) designation by the Board of Trustees of one or
more series of Preferred Shares to distinguish each such series from any other
outstanding series of Preferred Shares; (b) setting by the Board of Trustees of
the number of Preferred Shares to be included in such series; (c) establishment
by the Board of Trustees of the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such series of Preferred Shares; (d) filing by the
Company with the Department of Articles Supplementary setting forth a
description of such series of
<PAGE> 4
Ramco-Gershenson Properties Trust
June 26, 1998
Page 4
Preferred Shares, including the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as set by the Board of Trustees and a statement that
such series of Preferred Shares has been classified by the Board of Trustees
under the authority contained in the Declaration of Trust, and the acceptance
for record by the Department of such Articles Supplementary; (e) due
authorization by the Board of Trustees of a designated number of shares of such
series of Preferred Shares for issuance at a minimum price or value of
consideration to be set by the Board of Trustees, and (f) reservation and due
authorization by the Board of Trustees of any other series of Preferred Shares
and/or any Common Shares issuable upon conversion of such series of Preferred
Shares in accordance with the procedures set forth in this Paragraph 2 and 3
below, all necessary action on the part of the Company will have been taken to
authorize the issuance and sale of shares of such series of Preferred Shares and
when such shares of such series of Preferred Shares are issued and delivered
against payment, in money or property, of the consideration therefor as set by
the Board of Trustees, such shares of such series of Preferred Shares will be
validly issued, fully paid and non-assessable.
3. Upon due authorization by the Board of Trustees of a
designated number of shares of Common Shares at a minimum price or value of
consideration to be set by the Board of Trustees, all necessary action on the
part of the Company will have been taken to authorize the issuance and sale of
such shares of Common Shares, and when such shares of Common Shares are issued
and delivered against payment, in money or property, of the consideration
therefor as set by the Board of Trustees, such shares of Common Shares will be
validly issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the filing of this opinion as an
exhibit to applications to the securities commissioners of the various states of
the United States for registration of the Securities. We also consent to the
identification of our firm as Maryland counsel to the Company in the section of
the Prospectus (which is a part of the Registration Statement) entitled "Legal
Matters."
This opinion is limited to the present laws of the State of
Maryland and we express no opinion with respect to the laws of any other
jurisdiction. Furthermore, the opinions presented in this letter are limited to
the matters specifically set forth herein and no other opinion shall be inferred
beyond the matters expressly set forth herein.
<PAGE> 5
Ramco-Gershenson Properties Trust
June 26, 1998
Page 5
The opinions set forth in this letter are rendered as of the
date hereof and are necessarily limited to laws now in effect and facts and
circumstances presently existing and brought to our attention. We assume no
obligation to supplement this opinion if any applicable law is changed after the
date hereof or if we become aware of any facts or circumstances which now exist
or which occur or arise in the future and may change the opinions expressed
herein after the date hereof.
The opinions expressed in this letter are for your use in
connection with the filing of the Registration Statement and the rendering of
opinions by Honigman Miller Schwartz and Cohn in connection therewith, and may
not be relied upon by you or Honigman, Miller, Schwartz and Cohn for any other
purpose, without our prior written consent.
Very truly yours,
/s/ Ballard Spahn Andrew & Ingersoll LLP
<PAGE> 1
EXHIBIT 8
[DELOITTE & TOUCHE LLP LETTERHEAD]
June 26, 1998
Ramco-Gershenson Properties Trust
27600 Northwestern Highway
Suite 200
Southfield, MI 48034
Re: Federal Income Tax Status of Ramco-Gershenson Properties Trust
Ladies and Gentlemen:
In connection with the filing of a shelf registration statement with the
Securities and Exchange Commission ("Form S-3") you have requested our opinion
regarding the status, for federal income tax purposes, of Ramco-Gershenson
Properties Trust (the "Trust"), which intends to continue to be taxed as a REIT.
Except as otherwise provided herein, capitalized terms shall have the same
meaning ascribed to them in the Partnership Agreement of the Operating
Partnership, as amended ("Partnership Agreement") or the Form S-3, as
applicable. In rendering our opinion, we have examined and, with your consent,
have relied upon the following documents ("Documents"):
1. The Partnership Agreement of the Operating Partnership, amended and
restated as of May 10, 1996, as amended through the Ninth Amendment;
2. Form S-3 as proposed to be filed with the SEC on June 19,1998; and
3. The Trust's existing Amended and Restated Declaration of Trust,
organized as a real estate investment trust under the laws of the
State of Maryland.
We did not review any other documents in connection with the proposed filing of
Form S-3. Specifically, our opinion does not address the impact, if any, that
any other proposed transaction or contemplated changes to the Trust's or the
Operating Partnership's organizational documents would have on the tax status of
the Trust or the Operating Partnership and we do not express any opinion
thereon.
<PAGE> 2
Ramco-Gershenson Properties Trust
June 26, 1998
Page 2
In addition, our opinion is based solely upon the following facts,
representations and significant assumptions as provided by Trust.
I. ESSENTIAL FACTS
A. BACKGROUND.
The Trust is a Maryland real estate investment trust and is the successor to a
Massachusetts business trust which was formerly known as RPS Realty Trust. On
May 10, 1996, the Trust entered into a transaction referred to as the "Ramco
Acquisition".
As a result of the Ramco Acquisition, the Trust went from being a real estate
investment trust ("REIT") which primarily engaged in making mortgage loans on
real property to being a REIT which primarily engages in operating and
developing commercial (shopping center) properties. It engages in such activity
by means of its one percent general partner interest in the Operating
Partnership, a Delaware limited partnership. The Trust also owns a limited
partnership interest of approximately 72 percent in the Operating Partnership,
giving it a total interest in the Operating Partnership of approximately 73
percent. The remaining 27 percent is owned by the "Ramco Group".
In connection with the Ramco Acquisition, Battle Fowler LLP rendered an opinion
dated March 25, 1996 ("Battle Fowler Tax Opinion") in which they concluded that,
under the then current federal income tax laws and regulations, and based on
certain facts and representations set forth in such opinion, statements in the
Proxy Statement and in certain representation letters, the Wolf Block Income
Opinion, the Closing Agreement, the Battle Fowler Repo Opinion, the Wolf Block
Audit Opinion and assuming the Trust is operated in accordance with its
Declaration of Trust, as amended by the Acquisition Amendment (such documents
being described more fully below), the Trust would continue to qualify to be
taxed as a REIT for federal income tax purposes and that the Operating
Partnership would be treated as a partnership and not as an association taxable
as a corporation or as a publicly traded partnership within the meaning of IRC
Section 7704.
In connection with the Ramco Acquisition, Wolf, Block, Schorr and Solis-Cohen
("Wolf Block Income Opinion") rendered an opinion dated March 21, 1996
concluding that the amounts expected to be received by the Operating
Partnership, and in turn, by the Trust pursuant to the then current terms of the
leases with respect to the Ramco Properties qualify as "rents from real
property" for purposes of qualification of the Trust as a REIT.
In connection with the Internal Revenue Service ("IRS") audit of the Trust, a
closing agreement ("Closing Agreement") dated October 6, 1995 was entered into
by the Trust with the IRS which provides that it will not lose its status as a
REIT solely as a result of its failure to comply fully with the shareholder
demand letter procedures set forth in Treas. Reg. Section 1.857-8 for the
Trust's taxable years 1988 through 1994.
In connection with the IRS audit of the Trust, Battle Fowler LLP ("Battle Fowler
Repo Opinion") rendered an opinion dated March 6, 1996 concluding that the Trust
will not lose its status as a REIT for its taxable year ended December 31, 1994
as a result of its ownership of
<PAGE> 3
Ramco-Gershenson Properties Trust
June 26, 1998
Page 3
Treasury repurchase obligations ("Repos") as of September 30, 1994 with a value
in excess of 25 percent of the gross assets of the Trust as of such date.
In connection with the IRS audit of the Trust, Wolf, Block, Schorr and
Solis-Cohen ("Wolf Block Audit Opinion") rendered an opinion dated March 25,
1996 concluding that the Trust will not lose its status as a REIT as a result of
IRS audit adjustments to its taxable income for tax years 1991 through 1994
provided that the Trust timely declares and pays a deficiency dividend with
respect to any deficiency in income tax resulting from an increase in the
Trust's taxable income.
In connection with the Ramco Acquisition, on May 10, 1996, the Trust made
certain amendments to the Amended and Restated Declaration of Trust of RPS
Realty Trust dated October 14, 1988 ("Acquisition Amendment"). The Acquisition
Amendment caused the Trust to (1) increase certain quorum percentage
requirements in connection with meetings of the Board of Trustees; (2) establish
a Nominating Committee and an Advisory Committee of the Board of Trustees; (3)
change the name of the Trust; and (4) authorize the Board of Trustees, on a
one-time basis in connection with the acquisition by the Trust of substantially
all of the shopping center and retail properties of Ramco-Gershenson, Inc. and
its affiliates, to combine outstanding shares by way of a 1 for 4 reverse split,
provide for payment of cash in lieu of any fractional interest in a combined
share and establish mechanics to implement such combination (capitalized terms
herein shall have the same meaning ascribed to them in the Acquisition
Amendment).
B. MORGAN STANLEY TRANSACTION.
On September 30, 1997, the Trust entered into a Preferred Units and Stock
Purchase Agreement with Special Situations RG REIT, Inc. ("SSRG REIT") and an
Investor. Under this agreement, the Investor and SSRG REIT acquired Operating
Partnership Preferred Units ("Preferred Units").
Pursuant to the Third Amendment to the Partnership Agreement of Ramco-Gershenson
Properties, L.P., the Partnership Agreement was amended to admit the Investor
and SSRG REIT as Preferred Limited Partners and the SSRG REIT received the
Preferred Units in exchange for cash.
On December 18, 1997, the Trust completed a change-of-venue merger and became a
Maryland real estate investment trust. Subsequently on December 31, 1997, SSRG
REIT was merged into the Trust in a transaction that we have assumed qualified
as a tax-free reorganization under Code section 368(a)(1)(A). Pursuant to the
merger, the shareholders of SSRG REIT received preferred stock in the Trust in
exchange for their stock in SSRG REIT. We have assumed that SSRG REIT qualified
as a real estate investment trust under the applicable provisions of the Code.
The Partnership Agreement contains restrictions on the transferability of the
Preferred Units and the Limited Partner Units. These provisions, in effect, do
not permit the assignee of an interest in the Operating Partnership, other than
a Permitted Transferee, to become a substituted limited partner without the
consent of the Trust. Permitted Transferees include
<PAGE> 4
Ramco-Gershenson Properties Trust
June 26, 1998
Page 4
only other Limited or Preferred Limited Partners and, with respect to any
partner which is a partnership, any partner in such partnership. The Operating
Partnership currently has fewer than 100 partners and does not intend to admit
any new partners such that the total number of partners would exceed 100.
The Operating Partnership is duly organized under the Delaware Revised Limited
Partnership Act, which has adopted the Revised Uniform Limited Partnership Act.
Accordingly, the Operating Partnership contains provisions which permit no less
than a majority in interest of the partners to elect to continue the Operating
Partnership in the event of a dissolution of the Operating Partnership as a
result of an event of dissolution.
C. FACTS AND REPRESENTATIONS.
In addition to the foregoing, our opinion is based on the following facts and
representations which have been represented to us in a letter dated June 26,
1998 from the Trust ("Letter of Confirmation"), the correctness of each and
every one of which we have assumed:
1. Mr. Dennis Gershenson is the duly qualified and elected Chief
Executive Officer of the Trust and as such is familiar with the facts herein
and was duly authorized to certify the same.
2. The operation of the Trust (and its predecessor Massachusetts Trust)
has been carried out in accordance with the law governing real estate investment
trusts formed in the State of Maryland (and with respect to its predecessor,
business trusts formed in Massachusetts) with all other applicable laws of the
State of Maryland (and with respect to its predecessor, Massachusetts), and the
terms and conditions set forth in the Trust's Amended and Restated Declaration
of Trust, as further amended in the manner described in the Form S-3.
3. The Trust believes that, based upon an opinion rendered by Battle
Fowler LLP ("Battle Fowler Tax Opinion") dated March 25, 1996, on May 10, 1996,
it met all of the requirements in the Internal Revenue Code ("IRC") to be
treated as a real estate investment trust ("REIT") for federal income tax
purposes.
4. The Trust believes that, based upon the Battle Fowler Tax Opinion,
on May 10, 1996, the Operating Partnership was taxable as a partnership and not
as an association taxable as a corporation or as a publicly traded partnership
within the meaning of IRC Section 7704 and none of the amendments to the
Partnership Agreement after such date has caused the Operating Partnership to
be treated as a publicly traded partnership within the meaning of IRC Section
7704.
Organizational Matters
5. The Operating Partnership has operated and intends to operate in
accordance with the Delaware Revised Uniform Limited Partnership Act and all
other applicable laws of the State of Delaware and the Amended and Restated
Agreement of Limited Partnership of Ramco- Gershenson Properties, L.P., as
amended ("Partnership Agreement"), and in the manner described in the Form S-3.
Each of the Property Partnerships intends to operate in accordance with the
applicable laws of the state in which it was formed and its respective
<PAGE> 5
Ramco-Gershenson Properties Trust
June 26, 1998
Page 5
partnership agreement, and in the manner described in the Form S-3. The
Partnership Agreement and all amendments thereto have been duly executed and the
Certificates of Limited Partnership of the Operating Partnership and all
amendments thereto, which are effective on the date hereof, have been duly
executed and filed.
6. None of the amendments to the Partnership Agreement has affected the
rights of the partners under such agreement in a manner so as to alter the
number of corporate characteristics applicable to the Operating Partnership. The
Trust intends to take all necessary measures to ensure that the Operating
Partnership fails to have more than two corporate characteristics during each of
its future taxable years and it does not intend to elect to be treated as other
than a partnership for tax purposes.
7. The Trust has been and will be managed by its trustees, and the
beneficial ownership of the Trust has at all times in the past and will continue
to be evidenced by transferable shares.
8. Since its election of REIT status, beneficial ownership of the Trust
has been held by 100 or more persons and the Trust expects, and the Trust
intends to take all necessary measures within its control to ensure, that the
beneficial ownership of the Trust will continue to be held by 100 or more
persons.
9. At no time during the last half of any taxable year, has more than
50 percent in value of the Trust's outstanding capital stock been owned directly
or indirectly by five or fewer individuals within the meaning of IRC Section
856(h).
10. The Trust expects, and the Trust intends to take all necessary and
reasonable due diligence measures within its control to ensure, that at no time,
during the last half of any taxable year, will more than 50 percent in value of
the Trust's outstanding capital stock be owned directly or indirectly by five or
fewer individuals within the meaning of IRC Section 856(h). The Trust does not
intend to allow the restrictions on ownership and transfer of the
Trust's outstanding capital stock set forth in the Trust's Declaration of Trust
to be violated and will use its best efforts to prevent such restrictions from
being violated.
Gross Income of the Trust
11. The Trust has derived at least 75 percent of its gross income for
any taxable year from sources specified in IRC Section 856(c)(3), subject to the
limitations specified in Paragraph 17 below. For the current and all future
taxable years, the Trust expects, and the Trust intends to take all necessary
measures within its control to ensure that, at least 75 percent of the gross
income of the Trust and of the Operating Partnership for any taxable year will
be derived from sources specified in IRC Section 856(c)(3), subject to the
limitations specified in Paragraph 17 below. These sources include but are not
limited to (a) rents from the Properties or other real properties acquired
subsequent to the acquisition of the Properties, (b) gain from the sale or other
disposition of all or a portion of the Properties or other real properties
acquired subsequent to the acquisition of the Properties (including interests in
real property and interests in mortgages on real property), other than stock in
trade of the Trust or other property which would properly be included in the
inventory of the Trust if on hand at the
<PAGE> 6
Ramco-Gershenson Properties Trust
June 26, 1998
Page 6
close of its taxable year, or property held by the Trust primarily for sale to
customers in the ordinary course of its trade or business (as further described
in Paragraph 14 below) and (c) income attributable to stock or debt instruments
acquired in connection with the temporary investment of new capital received by
the Trust in exchange for its capital stock or in a public offering of its debt
obligations having maturities of at least five years, provided that such income
is received or accrued during the one-year period beginning on the date on which
the Trust receives such new capital (such source of income is hereafter referred
to as the "Temporary Investment of New Capital"). For purposes of all
representations with respect to income contained herein, the Trust shall be
treated as receiving (i) a proportionate share of all income received by the
Operating Partnership in accordance with the Trust's capital interest ("Capital
Interest") in the Operating Partnership, (ii) a proportionate share of all
income received by any Property Partnership in which the Trust directly owns a
partnership interest in accordance with its Capital Interest in such Property
Partnership, and (iii) all income received by any subsidiary of the Trust in
which (x) with respect to all taxable years beginning before August 5, 1997, the
Trust has owned 100 percent of the stock at all times during the period of such
subsidiary's existence and (y) with respect to all taxable years beginning after
August 5, 1997, the Trust owns 100 percent of such subsidiary, and the Operating
Partnership shall be treated as receiving a proportionate share of all income
received by each of the Property Partnerships in accordance with its Capital
Interest in each such Property Partnership.
12. The Trust has derived at least 95 percent of its gross income for
any taxable year from sources specified in IRC Section 856(c)(2), subject to the
limitations specified in Paragraph 17 below. For the current and all future
taxable years, the Trust expects, and the Trust intends to take all necessary
measures within its control to ensure, that at least 95 percent of the gross
income of the Trust and of the Operating Partnership for any taxable year will
be derived from sources specified in IRC Section 856(c)(2), subject to the
limitations specified in Paragraph 17 below. These sources include those
specified in IRC Section 856(c)(3) as described in Paragraph 11 above, plus
interest and dividends from any source.
13. The Trust has derived less than 30 percent of its gross income for
any taxable year from the sale or other disposition of (a) stock or securities
held for less than one year, (b) property in a transaction that is a prohibited
transaction (as defined in IRC Section 857(b)(6)(B)(iii)), and (c) real property
(including interests in real property and interests in mortgages on real
property) held for less than four years, other than (x) property compulsorily or
involuntarily converted within the meaning of IRC Section 1033, and (y) property
acquired by the Trust through foreclosure and which satisfies the requirements
set forth in IRC Section 856(e).
<PAGE> 7
Ramco-Gershenson Properties Trust
June 26, 1998
Page 7
14. The Trust, the Operating Partnership and each of the Property
Partnerships has held substantially all of the Properties and other real
properties acquired subsequent to the acquisition of the Properties (and all of
their other respective assets) for investment purposes and not as (a) stock in
trade or other property of a kind which would properly be included in inventory
if on hand at the close of the taxable year, or (b) property held primarily for
sale to customers in the ordinary course of the trade or business of the Trust,
the Operating Partnership or the respective Property Partnership, as the case
may be, and the amount of income from prohibited transactions (within the
meaning of IRC Section 857(b)(6)(B)(iii)), if any, for any taxable year has not
been material. For the current and all future taxable years, subject to
paragraph 16 below, the Trust expects, and the Trust intends to take all
necessary measures within its control to ensure, that the Trust, the Operating
Partnership and each of the Property Partnerships will hold substantially all
of the Properties and other real properties acquired subsequent to the
acquisition of the Properties (and all of their other respective assets) for
investment purposes and not as (a) stock in trade or other property of a kind
which would properly be included in inventory if on hand at the close of the
taxable year, or (b) property held primarily for sale to customers in the
ordinary course of the trade or business of the Trust, the Operating
Partnership or the respective Property Partnership, as the case may be, and the
amount of income from prohibited transactions (within the meaning of IRC
Section 857(b)(6)(B)(iii)), if any, for any taxable year will not be material.
15. In connection with the Ramco Acquisition, Wolf, Block, Schorr and
Solis-Cohen rendered an opinion dated March 21, 1996 ("Wolf Block Income
Opinion") which concluded that the minimum rent, percentage rent and additional
payments due under the applicable leases constituted "rents from real property"
within the meaning of IRC Section 856(d). The Trust has not caused or allowed
the Operating Partnership to materially modify the provisions of the
leases reviewed by Wolf Block in rendering their opinion since the date of such
opinion.
16. If the Trust and the Operating Partnership engage in real estate
activities which would involve the sale or other disposition of property held
primarily for sale to customers in the ordinary course of business and which
would constitute prohibited transactions (as defined in IRC Section 857(b)(6)(B)
(iii)), the Trust intends that such activities will be conducted solely through
a special purpose corporation in which the Operating Partnership would have
a stock interest if necessary for the Trust to retain its status as a REIT.
The Trust intends to take all necessary measures to ensure that the stock
interest owned by the Operating Partnership in any such corporation will not
exceed 10 percent of the voting securities of such corporation and that the
value of the stock interest will not exceed 5 percent of the value of the
Trust's total gross assets.
17. With respect to the gross income tests described in Paragraphs 11
and 12 above:
(a) None of the rents received by the Trust under existing leases are
based on the net income or profits of any person, including
tenants and subtenants, and the Trust intends to take steps to
ensure that it will not subsequent to the acquisition of the
Properties receive any rent based on the income or profits of any
person, including tenants and subtenants, which would cause the
Trust
<PAGE> 8
Ramco-Gershenson Properties Trust
June 26, 1998
Page 8
to fail to satisfy the gross income tests described in Paragraphs
11 and 12 above due to failure of such rents to qualify as rents
from real property for purposes of IRC Section 856(c)(3) and
856(c)(2) and paragraphs 11 and 12, respectively.
(b) The Trust does not now and does not intend to knowingly rent any
property to a tenant in which it owns, or an owner of 10 percent
or more of the Trust owns, directly or indirectly, a 10 percent or
greater interest in (i) the voting stock or in the total number of
shares of all classes of stock of tenant which is a corporation,
or in (ii) the assets or net profits of a tenant which is not a
corporation, if such rental would cause the Trust to fail to
satisfy the gross income tests described in Paragraphs 11 and 12
above due to failure of such rents to qualify as rents from real
property for purposes of IRC Section 856(c)(3) and 856(c)(2) and
paragraphs 11 and 12, respectively. In determining ownership, the
attribution rules of IRC Section 318 (as modified by IRC Section
856(d)(5)) are to be taken into account.
(c) The Trust is not a party to, and does not intend to knowingly
become a party to, a lease of real property where the rent under
such lease attributable to personal property is greater that 15
percent of the total rent received under the lease, if such
rent would cause the Trust to fail to satisfy the gross income
tests described in Paragraphs 11 and 12 above due to failure of
such rents to qualify as rents from real property for purposes of
IRC Section 856(c)(3) and 856(c)(2) and paragraphs 11 and 12,
respectively.
(d) The services provided to tenants by the Operating Partnership and
the Property Partnerships, if any, are, and the Trust intends that
the services to be provided subsequent to the acquisition of the
Properties with respect to both the Properties and properties
acquired subsequent to the acquisition of the Properties will be,
usually or customarily performed in connection with the rental of
space for occupancy only for properties of a similar class in the
geographic market in which each such Property or other real
property acquired subsequent to the acquisition of the Properties
is located. To the extent that any services to be furnished or
performed would, if furnished or performed by the Trust, either
directly or through the Operating Partnership or Property
Partnerships, cause the rents received from the Properties or any
properties acquired subsequent to the acquisition of the
Properties to fail to qualify as rents from real property under
the gross income tests described in Paragraphs 11 and 12 above due
to failure of such rents to qualify as rents from real property
for purposes of IRC Section 856(c)(3) and 856(c)(2) and paragraphs
11 and 12, respectively, the Trust will retain an independent
contractor within the meaning of IRC Section 856(d)(3) (from
whom none of the Trust, the Operating Partnership or any Property
Partnership will derive or receive any income) to furnish or
perform such services or take such other actions so that such
gross income tests are satisfied.
<PAGE> 9
Ramco-Gershenson Properties Trust
June 26, 1998
Page 9
(e) In connection with the construction, development, renovation or
refurbishment of any Property owned or other real property
acquired subsequent to the acquisition of the Properties by the
Trust, the Operating Partnership or any of the Property
Partnerships, the Trust intends that the activities of its
employees, employees of the Operating Partnership and employees of
the Property Partnerships will be limited to the provision of
administrative services and general supervisory and coordination
services and will not involve the performance of physical
construction services if necessary for the Trust to satisfy the
gross income tests described in Paragraphs 11 and 12 above, in
which event such construction services will be performed solely by
unrelated independent contractors.
(f) The Trust has not realized an amount of any income which does not
qualify under the gross income tests described in Paragraph 11 and
12 above which exceeds 5 percent of the Trust's annual gross
income in any taxable year. For the current and all future taxable
years, the Trust expects that the amount of any income realized by
the Trust which does not qualify under the gross income tests
described in Paragraph 11 and 12 above will not exceed 5 percent
of the Trust's annual gross income in any taxable year.
(g) The Trust, the Operating Partnerships and the Property
Partnerships have kept and intend to keep sufficient records to
enable the Trust to make the filings required under Treas. Reg.
Section 1.856-4(b)(4) (relating to the receipt of rents from any
person in which the Trust, directly or indirectly, owns any
proprietary interest) and Treas. Reg. Section 1.856-4(b)(5)(iv)
(relating to the use of unrelated independent contractors), and
the Trust intends to make such required filings.
18. The Trust has exercised and intends to exercise ordinary business
care and prudence in attempting to comply with the gross income tests set forth
in IRC Section 856(c).
Assets of the Trust
19. At least 75 percent of the value of the Trust's total gross assets
have consisted, at the close of each quarter of each taxable year of the Trust,
of (a) cash and cash items (including receivables), (b) Government securities,
(c) the Properties, (d) other real properties acquired subsequent to the
acquisition of the Properties (including interests in real property and
interests in mortgages on real property), (e) shares (or transferable
certificates of beneficial interest) in other qualified real estate investment
trusts, and (f) stock or debt instruments acquired in connection with the
Temporary Investment of New Capital received by the Trust in exchange for its
capital stock or in a public offering and held for not longer than the one-year
period beginning on the date on which the Trust receives such new capital. For
the current and all future taxable years, the Trust expects, and the Trust
intends to take all necessary measures within its control to ensure, that at
least 75 percent of the value of the total gross assets of the Trust will
consist, at the close of each quarter of each taxable year of the Trust, of (a)
cash and cash items (including receivables), (b) Government securities, (c) the
Properties, (d) other real properties acquired subsequent to the acquisition of
the Properties
<PAGE> 10
Ramco-Gershenson Properties Trust
June 26, 1998
Page 10
(including interests in real property and interests in mortgages on real
property), (e) shares (or transferable certificates of beneficial interest) in
other qualified real estate investment trusts, and (f) stock or debt instruments
acquired in connection with the Temporary Investment of New Capital received by
the Trust in exchange for its capital stock or in a public offering and held for
not longer than the one-year period beginning on the date on which the Trust
receives such new capital. For purposes of all representations with respect to
assets contained herein, the Trust shall be treated as owning (i) its
proportionate share of assets owned by the Operating Partnership (as determined
in accordance with the Trust's Capital Interest in the Operating Partnership),
(ii) its proportionate share of assets owned by any Property Partnership in
which the Trust directly owns a partnership interest (as determined in
accordance with the Trust's Capital Interest in the Property Partnership), (iii)
the assets of any subsidiary of the Trust in which (x) with respect to all
taxable years beginning before August 5, 1997, the Trust has owned 100 percent
of the stock at all times during the period of such subsidiary's existence and
(y) with respect to all taxable years beginning after August 5, 1997, the Trust
owns 100 percent of such subsidiary, and the Operating Partnership shall be
treated as owning its proportionate share of assets owned by the Property
Partnerships (as determined in accordance with the Operating Partnership's
Capital Interest in each of the respective Property Partnerships).
20. Not more than 25 percent of the value of the Trust's total assets
have consisted, at the close of each quarter of each taxable year of the Trust,
of securities (other than Government securities and securities described in
items (e) and (f) of paragraph 19 above), limited in respect of any one issuer
to an amount not greater than 5 percent of the value of the total assets of the
Trust and to not more than 10 percent of the outstanding voting securities of
such issuer. For the current and all future taxable years, the Trust expects,
and intends to take all necessary measures within its control to ensure, that
not more than 25 percent of the value of its total assets will consist, at the
close of each quarter of each taxable year of the Trust, of securities (other
than Government securities and securities described in items (e) and (f) of
paragraph 19 above), limited in respect of any one issuer to an amount not
greater than 5 percent of the value of the total assets of the Trust and to not
more than 10 percent of the outstanding voting securities of such issuer.
21. The Trust, the Operating Partnership and the Property Partnerships
have revalued their assets at the end of each quarter of each taxable year in
which securities or other property was acquired and any discrepancy between the
value of the Trust's various investments and the requirements of the 75 percent
and 25 percent asset tests described in Paragraphs 19 and 20 above, was
eliminated within 30 days after the end of each such quarter to the extent such
discrepancy was attributable in whole or in part to acquisitions during such
quarter. For the current and all future taxable years, the Trust expects, and
the Trust intends to take all necessary measures within its control to ensure,
that the Trust, the Operating Partnership and the Property Partnerships will
revalue their assets at the end of each quarter of each taxable year in which
securities or other property is acquired and will eliminate within 30 days after
the end of each such quarter any discrepancy between the value of the Trust's
various investments and the requirements of the 75 percent and 25 percent asset
tests described in Paragraphs 19 and 20 above, to the extent such discrepancy is
attributable in whole or in part to acquisitions during such quarter.
<PAGE> 11
Ramco-Gershenson Properties Trust
June 26, 1998
Page 11
22. The Trust, the Operating Partnership and the Property Partnerships
have kept and intend to keep and retain sufficient records so as to be able to
show that the Trust has complied during each of its taxable years with the gross
asset tests contained in IRC Section 856(c)(5) and described in paragraphs 19
and 20 above.
23. The Trust has exercised and intends to exercise ordinary business
care and prudence in attempting to comply with the asset tests set forth in IRC
Section 856(c)(5).
Distribution to Stockholders
24. The Trust has made quarterly distributions to its stockholders for
each calendar year in an amount at least equal to 95 percent of its real estate
investment trust taxable income (as defined in IRC Section 857(b)(2)) for each
such calendar year (as determined without regard to the deduction for dividends
paid and by excluding any net capital gain) plus 95 percent of the excess of
the Trust's net income from foreclosure property, if any, over the tax imposed
on such income by IRC Section 857(b)(4)(A), less any excess noncash income
(within the meaning of IRC Section 857(e)). For the current and all future
taxable years, the Trust expects, and the Trust intends to take all necessary
measures within its control, to distribute quarterly to its stockholders for
each calendar year at least an amount equal to 95 percent of its real estate
investment trust taxable income (as defined in IRC Section 857(b)(2)) for each
such calendar year (as determined without regard to the deduction for dividends
paid and by excluding any net capital gain) plus 95 percent of the excess of
the Trust's net income from foreclosure property, if any, over the tax imposed
on such income by IRC Section 857(b)(4)(A), less any excess noncash income
(within the meaning of IRC Section 857(e)).
25. The Trust intends to take all necessary measures within its
control, to distribute currently to its stockholders for each calendar year an
amount at least equal to the sum of (i) 85 percent of the Trust's ordinary
income for such calendar year, (ii) 95 percent of the Trust's capital gain net
income for such calendar year, and (iii) any undistributed ordinary income or
capital gain net income from prior years so as to avoid the imposition of the 4
percent excise tax pursuant to IRC Section 4981.
26. The Trust is currently under audit by the IRS with respect to its
tax years 1991 through 1995. In connection therewith, the Trust believes that it
will not lose its status as a REIT as a result of IRS audit adjustments because
the Trust intends to timely declare and pay a deficiency dividend as provided in
IRC Section 860 with respect to any deficiency in income tax resulting from an
increase in the Trust's taxable income.
27. The Trust and (i) with respect to taxable years beginning before
August 5, 1997, each subsidiary which has been owned 100% by the Trust during
the subsidiary's entire existence and (ii) with respect to taxable years
beginning after August 5, 1997, each subsidiary which is 100% owned by the
Trust, have no, or will not have any, accumulated earnings and profits from any
taxable year during the Trust's or the subsidiary's existence in which it did
not qualify as a REIT ("pre-REIT earnings and profits"); and if the Trust
acquires 100% of the stock of a subsidiary which does have pre-REIT earnings and
profits, it will distribute to the Trust's shareholders all of such earnings and
profits before the close of the taxable year of such acquisition.
<PAGE> 12
Ramco-Gershenson Properties Trust
June 26, 1998
Page 12
Information Statements from Stockholders
28. Except as waived in the Closing Agreement entered into with the IRS
in 1995, the Trust has demanded by January 30th of each year written statements
(the "Written Statements") with respect to ownership of shares of the Trust's
stock, from those stockholders (if any) determined as follows: (i) if the Trust
had 200 or less stockholders of record of its shares of stock on any dividend
record date, demand shall have been made of each record holder holding of record
one-half of one percent of more of the shares of any class of its stock; (ii) if
the Trust had between 201 and 1,999 stockholders of record of its shares of
stock on any dividend record date, demand shall have been made of each record
holder holding of record one percent or more of the shares of any class of its
stock; and (iii) if the Trust had 2,000 or more stockholders of record of its
shares of stock on any dividend record date, demand shall have been made of each
record holder holding of record five percent or more of the shares of any class
of its stock. For the current and all future taxable years, the Trust intends to
demand by January 30th of each year Written Statements with respect to ownership
of shares of the Trust's stock, from those stockholders (if any) determined as
follows: (i) if the Trust has 200 or less stockholders of record of its shares
of stock on any dividend record date, demands shall be made of each record
holder holding of record one-half of one percent of more of the shares of any
class of its stock; (ii) if the Trust has between 201 and 1,999 stockholders of
record of its shares of stock on any dividend record date, demand shall be made
of each record holder holding of record one percent or more of the shares of any
class of its stock; and (iii) if the Trust has 2,000 or more stockholders of
record of its shares of stock on any dividend record date, demands shall be made
of each record holder holding of record five percent or more of the shares of
any class of its stock. The Trust has requested and intends to request that the
Written Statements (a) disclose the actual ownership of the shares of stock held
by the Trust's stockholders of record of whom demand was made, and (b) show the
maximum number of shares of the Trust's stock actually or constructively
(through application of the attribution rules of IRC Section 544, as modified
by IRC Section 856(h)(1)(B)) owned by each of the actual owners of the Trust's
shares of stock identified in the Written Statements at any time during the
last half of the Trust's immediately preceding taxable year. The Trust has
maintained, and expects that copies of the Written Statements will be
maintained, for the period of time required under the IRC, as part of the
permanent records of the Trust within the Internal Revenue District in which
the Trust is required to file its tax return, and will be kept at all times
available for inspection by any internal revenue officer or employee.
29. Except as waived in the Closing Agreement entered into with the IRS
in 1995, the Trust's prior demands for the Written Statements have informed, and
the Trust expects that the Trust's demand for the Written Statements will
inform, each stockholder that if it fails or refuses to supply the Trust with
the requested Written Statement, such stockholder will be under a duty to submit
at the time it files its tax return for the taxable year ending with, or
including, the last day of the Trust's immediately preceding taxable year, a
written statement containing the following information: (i) in the case of any
person holding shares of stock in the Trust who is not the actual owner of such
stock, the name and address of each actual owner, the number of shares owned by
each actual owner at any time during such person's taxable year, and the amount
of dividends belonging to each actual owner, or (ii) in the case of an actual
owner of shares of stock in the Trust, (a) the number of shares of stock
actually
<PAGE> 13
Ramco-Gershenson Properties Trust
June 26, 1998
Page 13
owned by such person at any and all times during such person's taxable year,
and the amount of dividends from the Trust received during such person's
taxable year, (b) if shares of the Trust's stock were acquired or disposed of
during such person's taxable year, the number of shares acquired or disposed
of, the dates of acquisition or disposition, and the names and addresses of the
person from whom such shares were acquired or to whom they were transferred,
(c) if any shares of the Trust's stock are also owned by any member of such
person's family or by any of its partners, the names and addresses of such
family member or partner, and the number of shares owned by such family member
or partner at any and all times during such person's taxable year, and (d)
the names and addresses of any corporation, partnership, association, or trust
in which such person had a beneficial interest of 10 percent or more at any
time during its taxable year, and (e) to the extent required by Treas. Reg.
Section 1.857-9(b)(2), the information specified in (a) through (d) above with
respect to any shares of stock owned by such person in any other trust or
entity claiming to be a REIT.
30. Except as waived in the Closing Agreement entered into with the IRS
in 1995, the Trust has maintained and expects to maintain, as part of its
permanent records for the period of time required under the IRC, a list of all
persons failing or refusing to comply in whole or in part with the Trust's
demand for Written Statements from its stockholders of record with respect to
the actual ownership of the Trust's stock.
31. The Trust believes that, based upon the Battle Fowler Repo Opinion,
dated March 6, 1996, and the Wolf Block Audit Opinion, dated March 25, 1996, it
will not lose its REIT status as a result of an unfavorable determination by the
IRS in the pending investigation into the Trust's tax status as a REIT, as
described in the Form S-3 and the Trust's Reports filed with the SEC,
hereinafter referred to as the "Tax Audit".
32. The Trust will take all necessary steps and exercise reasonable due
diligence and care to ascertain that the Trust is not "closely held" within the
meaning of IRC Section 856(h) (as described in paragraph 10 herein).
D. SIGNIFICANT ASSUMPTIONS. Our opinion is expressly based upon the following
assumptions:
1. In the event of any IRS audit adjustments in the Tax Audit which
increase in the Trust's taxable income, the Trust will timely declare
and pay a deficiency dividend as provided in IRC Section 860.
2. The Trust will not lose its status as a REIT as a result of the Tax
Audit.
3. The Trust will be operated in accordance with its Declaration of Trust
and the representations of the Trust with respect thereto.
4. The Operating Partnership will be operated in accordance with its
Partnership Agreement and the representations of the Trust with respect
thereto.
5. The Operating Partnership currently has, and will continue to have,
fewer than 100 partners.
<PAGE> 14
Ramco-Gershenson Properties Trust
June 26, 1998
Page 14
6. The merger of SSRG REIT into the Trust qualified as a tax-free
reorganization under Code section 368(a)(1)(A).
7. SSRG REIT qualified as a real estate investment trust under the
applicable provisions of the Code immediately before the effective date
of the merger into the Trust.
8. The Representations as made by the Trust in the Letter of Confirmation
are true and correct.
II. CONCLUSIONS REACHED.
Based upon and subject to the foregoing, including, without limitation, the
assumption that the Asset Issue in the Current Tax Audit is resolved favorably
to the Trust, we are of the opinion that the Trust has been organized and has
operated in conformity with the requirements for qualification and taxation as a
REIT under the Internal Revenue Code. In addition, the Trust's proposed method
of operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Internal Revenue Code. We are
also of the opinon that the discussion in the Form S-3 under the caption
"Federal Income Tax Considerations" accurately sets forth a summary of the
material federal income tax considerations that may be relevant to an investment
in the Trust under current law, and we incorporate herein by reference the
entire discussion under that caption.
III. LIMITATION ON OPINION
NO ASSURANCES ARE OR CAN BE GIVEN THAT THE IRS WILL AGREE WITH THE FOREGOING
CONCLUSIONS IN WHOLE OR IN PART ALTHOUGH IT IS OUR OPINION THAT THEY SHOULD.
WHILE THE OPINION REPRESENTS OUR CONSIDERED JUDGMENT AS TO THE PROPER TAX
TREATMENT TO THE PARTIES CONCERNED BASED UPON THE LAW AS IT EXISTED AT THE TIME
OUR OPINION WAS RENDERED AND THE FACTS AS THEY WERE PRESENTED TO US, IT IS NOT
BINDING UPON THE IRS OR THE COURTS. IN THE EVENT OF ANY CHANGE TO THE
APPLICABLE LAW OR RELEVANT FACTS, ASSUMPTIONS OR REPRESENTATIONS, WE WOULD OF
NECESSITY NEED TO RECONSIDER OUR VIEWS.
THIS OPINION IS FOR THE SOLE BENEFIT OF TRUST AND OPERATING PARTNERSHIP AND MAY
NOT BE RELIED UPON BY ANY OTHER PERSONS. FURTHERMORE, THIS OPINION MAY NOT BE
REFERENCED BY ANY PERSON OTHER THAN TRUST AND OPERATING PARTNERSHIP WITHOUT OUR
EXPRESS WRITTEN CONSENT. WE HEREBY CONSENT TO THE REFERENCE TO THIS OPINION IN
FORM S-3, PROPOSED TO BE FILED WITH THE SEC ON JUNE 26, 1998.
THIS OPINION IS BASED SOLELY UPON:
A. THE REPRESENTATIONS, ASSUMPTIONS, INFORMATION, DOCUMENTS, AND
FACTS (REPRESENTATIONS) THAT WE HAVE INCLUDED OR REFERENCED IN
THIS OPINION LETTER;
<PAGE> 15
Ramco-Gershenson Properties Trust
June 26, 1998
Page 15
B. OUR ASSUMPTION (WITHOUT INDEPENDENT VERIFICATION) THAT ALL OF THE
REPRESENTATIONS AND ALL OF THE ORIGINALS, COPIES, AND SIGNATURES
OF DOCUMENTS REVIEWED BY US ARE ACCURATE, TRUE, AND AUTHENTIC;
C. OUR ASSUMPTION (WITHOUT INDEPENDENT VERIFICATION) THAT THERE WAS
TIMELY EXECUTION AND DELIVERY OF AND PERFORMANCE AS REQUIRED BY
THE REPRESENTATIONS AND DOCUMENTS;
D. THE UNDERSTANDING THAT ONLY THE SPECIFIC FEDERAL INCOME TAX ISSUES
AND TAX CONSEQUENCES OPINED UPON HEREIN ARE COVERED BY THIS TAX
OPINION, AND NO OTHER FEDERAL, STATE, OR LOCAL TAXES OF ANY KIND;
E. THE LAW, REGULATIONS, CASES, RULINGS, AND OTHER TAX AUTHORITY IN
EFFECT AS OF THE DATE OF THIS LETTER. IF THERE ARE ANY SIGNIFICANT
CHANGES OF THE FOREGOING TAX AUTHORITIES (FOR WHICH WE SHALL HAVE
NO RESPONSIBILITY TO ADVISE YOU), SUCH CHANGES MAY RESULT IN OUR
OPINION BEING RENDERED INVALID OR NECESSITATE (UPON YOUR REQUEST)
A RECONSIDERATION OF THE OPINION;
F. YOUR UNDERSTANDING THAT THIS OPINION IS NOT BINDING ON THE IRS OR
THE COURTS AND SHOULD NOT BE CONSIDERED A REPRESENTATION,
WARRANTY, OR GUARANTEE THAT THE IRS OR THE COURTS WILL CONCUR WITH
OUR OPINION; AND
G. YOUR UNDERSTANDING THAT THIS OPINION LETTER IS SOLELY FOR YOUR
INFORMATION AND BENEFIT, IS LIMITED TO THE DESCRIBED TRANSACTION,
AND MAY NOT BE RELIED UPON, DISTRIBUTED, DISCLOSED, MADE AVAILABLE
TO, OR COPIED BY ANYONE, WITHOUT PRIOR WRITTEN CONSENT OR AS
DESCRIBED HEREIN.
If you have any questions with respect to this opinion, please contact John J.
Grant, Partner, at (313) 396-3322.
Very truly yours,
/s/ DELOITTE & TOUCHE LLP
By: John J. Grant, Partner
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- ---- ---- ---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net Income............................... $2,003 $ 9,198 $ 292 $3,538 $15,642 $3,051
Addback: Minority interest............... 791 3,344 2,159
Addback: Loss from unconsolidated
entities............................... 79 314 216
Addback: Fixed charges................... 6,083 14,896 6,874 59 496 2,704
------ ------- ------ ------ ------- ------
Earnings before combined fixed charges
and preferred share dividends.......... $8,956 $27,752 $9,541 $3,597 $16,138 $5,755
====== ======= ====== ====== ======= ======
Fixed charges:
Interest expense....................... $6,049 $14,753 $6,725 -- $ 426 $2,623
Interest factor in rental expense...... 34 143 149 59 70 81
------ ------- ------ ------ ------- ------
Total fixed charges................. 6,083 14,896 6,874 59 496 2,704
------ ------- ------ ------ ------- ------
Preferred dividends.................... 280 278 -- -- -- --
Total fixed charges and preferred
dividends......................... $6,363 $15,174 $6,874 $ 59 $ 496 $2,704
====== ======= ====== ====== ======= ======
Ratio of earnings to combined fixed
charges and preferred share
dividends.............................. 1.41 1.83 1.39 61.00 32.54 2.13
====== ======= ====== ====== ======= ======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Ramco-Gershenson Properties Trust on Form S-3 of our report dated February
17, 1998, appearing in the Annual Report on Form 10-K of Ramco-Gershenson
Properties Trust for the year ended December 31, 1997 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE
Detroit, Michigan
June 26, 1998
