<PAGE> 1
As filed pursuant to Rule 424(b)(2)
under the Securities Act of 1933
Registration No. 333-16787
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 23, 1996)
1,600,000 SHARES
THE PRICE REIT, INC.
COMMON STOCK
---------------------------
The Price REIT, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust (a "REIT") which is focused on
the acquisition, development, management and redevelopment of destination retail
shopping center properties known as "power centers." The Company currently owns
or has interests in 23 properties, consisting of 20 power centers, one stand
alone retail warehouse and two undeveloped land parcels (the "Properties")
located in eight states containing a total of approximately 5.2 million square
feet of gross leasable space with 313 tenants. The overall occupancy rate of the
Properties was approximately 98.1% at September 30, 1996.
All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being offered by the Company. See
"Underwriting." The Common Stock is currently listed on the New York Stock
Exchange ("NYSE") under the symbol "RET." On January 15, 1997, the last reported
sale price of the Company's Common Stock, as reported by the NYSE, was $37 5/8
per share. The Company has paid regular quarterly distributions to holders of
its Common Stock. See "Price Range of Common Stock and Distributions." To help
ensure that the Company qualifies as a REIT, the transfer of shares of Common
Stock is restricted and ownership by any person is limited to 9.8% of the
outstanding shares of its capital stock, subject to certain exceptions. See
"Description of Stock--Restrictions on Transfer" in the accompanying Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE S-13 FOR A DISCUSSION OF CERTAIN
FACTORS RELATING TO AN INVESTMENT IN THE COMMON STOCK.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------------
Per Share................................ $37.625 $1.975 $35.65
- -----------------------------------------------------------------------------------------------------------------------------
Total(3)................................. $60,200,000 $3,160,000 $57,040,000
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $250,000.
(3) The Company has granted the Underwriters an option to purchase up to an
additional 240,000 shares of Common Stock to cover over-allotments, if any.
If all such shares are purchased, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $69,230,000, $3,634,000 and
$65,596,000, respectively. See "Underwriting."
---------------------------
The Common Stock is offered by the Underwriters, subject to prior sale,
when, as, and if issued by the Company and delivered to and accepted by the
Underwriters, subject to the approval of certain legal matters by counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of the Common Stock offered hereby will be
made in New York, New York on or about January 22, 1997.
---------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
SUTRO & CO. INCORPORATED
The date of this Prospectus Supplement is January 15, 1997.
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................................. S-3
Prospectus Supplement Summary......................................................... S-4
The Company......................................................................... S-4
Recent Developments................................................................. S-5
The Properties...................................................................... S-7
The Offering........................................................................ S-11
Distribution Policy................................................................. S-11
Summary Selected Financial Data..................................................... S-12
Risk Factors.......................................................................... S-13
Use of Proceeds....................................................................... S-14
Capitalization........................................................................ S-15
Price Range of Common Stock and Distributions......................................... S-15
Underwriting.......................................................................... S-16
Legal Matters......................................................................... S-17
Experts............................................................................... S-17
PROSPECTUS
Available Information................................................................. 2
Incorporation of Certain Documents by Reference....................................... 2
The Company........................................................................... 4
Tax Status of the Company............................................................. 4
Use of Proceeds....................................................................... 4
Earnings to Fixed Charges Ratios...................................................... 4
Description of Debt Securities........................................................ 5
Description of Stock.................................................................. 14
Description of Warrants............................................................... 19
Federal Income Tax Considerations..................................................... 20
Plan of Distribution.................................................................. 26
Experts............................................................................... 27
Legal Matters......................................................................... 28
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and other applicable
legal or NYSE requirements, pursuant to which the Company files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
by the Company under the Exchange Act may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the Public Reference
Section of the Commission at Judiciary Plaza Office Building, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661, and at the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005. Electronic filings
made through the Electronic Data Gathering, Analysis and Retrieval System are
publicly available through the Commission's Web site (http://www.sec.gov).
S-3
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN
OR THEREIN BY REFERENCE. CERTAIN TERMS USED BUT NOT DEFINED HEREIN ARE AS
DEFINED IN THE ACCOMPANYING PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. THE PROPERTY INFORMATION PRESENTED HEREIN
AS OF SEPTEMBER 30, 1996 INCLUDES THE COMPANY'S OKLAHOMA CITY, OKLAHOMA PROPERTY
WHICH IT ACQUIRED IN NOVEMBER 1996.
THE COMPANY
The Price REIT, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust (a "REIT") which is focused on
the acquisition, development, management and redevelopment of destination retail
shopping center properties known as "power centers." The Company currently owns
or has interests in 23 properties, consisting of 20 power centers, one stand
alone retail warehouse and two undeveloped land parcels (the "Properties")
located in eight states containing a total of approximately 5.2 million square
feet of gross leasable space with 313 tenants. The overall occupancy rate of the
Properties was approximately 98.1% at September 30, 1996.
Power centers are typically open-air centers ranging in size from 200,000
to 700,000 square feet of gross leasable area, and are usually comprised of one
or more national retail anchor tenants, often in a warehouse format. Anchor
retail tenants typically occupy between 60% and 90% of the total square footage
in a power center. The tenant mix in a power center is designed to draw
consumers from up to a 15-mile radius, creating a shopping "destination." The
majority of the Company's anchor tenants are retail warehouses, which are
consumer-oriented facilities with at least 25,000 to 100,000 square feet of
gross leasable area offering a variety of products for business use, personal
use or resale. The retail warehouse format of merchandise display, direct
manufacturer purchasing, low mark-ups and rapid inventory turnover is designed
to provide substantial consumer savings compared to other sources of similar
merchandise.
Each of the Company's power centers is anchored by one or more national
retail tenants such as Home Depot, Price Club, HomeBase, The Sports Authority,
Burlington Coat Factory, Target, Builder's Square, Toys 'R' Us or Sears
Homelife. The Company typically seeks to structure tenant leases as "triple net"
leases, under the terms of which the tenant is responsible for its pro rata
share of costs and expenses associated with the ongoing operation of the
property, including but not limited to real property taxes and assessments,
repairs and maintenance, and insurance. The anchor tenants generally have
primary lease terms of ten to twenty years and smaller tenants typically have
primary lease terms of five to ten years. The Company's leases generally provide
for contractual rent increases over the life of the lease based on a fixed
amount or consumer price indices, and, in certain cases, percentage rent,
calculated as a percentage of a tenant's gross sales above a predetermined
threshold.
The Company's strategy is to continue to acquire, develop, own and manage
power centers anchored by national retail tenants who enter into long term
triple net leases. The Company's business objective is to increase its funds
from operations through the acquisition and development of additional
properties, contractual rent increases and percentage rent, reletting of
existing space at higher rents and expansion or remodeling of existing
properties.
The Company intends to pursue opportunities for acquisitions with expansion
potential and to develop additional power centers and stand-alone retail
warehouses. The Company has conducted its development activities, including site
planning, construction management and leasing, through its affiliate, K & F
Development Company (the "Development Company"), a property development company
with, through its predecessors, over 20 years of experience in developing
shopping centers and other properties. Effective January 1, 1997, the Company
acquired the assets and assumed the liabilities of the Development Company.
The Company operates in a manner to qualify as a REIT under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). Under
those sections of the Code, the Company must distribute at
S-4
<PAGE> 5
least 95% of its taxable income and meet certain other asset and income tests.
As a result, pretax income of the Company flows through to its stockholders who
are taxed on the income on their individual income tax returns eliminating the
double taxation (at the corporate and stockholder levels) that generally results
from investment in a corporation.
The Company's principal executive office is located at 7979 Ivanhoe Avenue,
Suite 524, La Jolla, California 92037, and its telephone number is (619)
551-2320. The Company's administrative office is located at 145 South Fairfax
Avenue, Fourth Floor, Los Angeles, California 90036, and its telephone number is
(213) 937-8200.
RECENT DEVELOPMENTS
RECENT ACQUISITION AND PROPERTY DEVELOPMENT
- Commencement of New York Development. On July 15, 1996, the Company
announced the commencement of construction of a 270,000 square foot
retail center in Long Island, New York. The development, estimated to
cost approximately $23 million, is pursuant to a joint venture of the
Company and King Kullen Grocery Company, a Long Island grocery chain.
Based on executed leases, the center will be anchored by King Kullen and
national tenants such as Borders Books & Music, HomePlace, The Sports
Authority and Babies 'R' Us (Toys 'R' Us). In addition, Target plans to
open a 125,000 square foot store on a contiguous parcel of land. Although
the Company currently anticipates completing this power center in summer
1997, there can be no assurance that the development of this power center
will be completed. See "Risk Factors -- General Real Estate Investment
Risks -- Risks of Development Activities."
- Oklahoma Acquisition. On November 20, 1996, the Company announced the
acquisition of Centennial Plaza in Oklahoma City, Oklahoma. Centennial
Plaza contains approximately 234,000 rentable square feet and is anchored
by Home Depot, Best Buy and HomePlace and is approximately 93% leased.
The purchase price was approximately $16.7 million, of which
approximately $11.8 million of unamortized principal balance is evidenced
by two non-recourse loans (subject to customary exceptions) secured by
the property. The Company is assuming the loans, rather than paying the
purchase price in cash, because the terms of the loans prohibit
prepayment. The loans which bear interest at fixed rates of 9.0% and
9.25% per annum, respectively, are fully amortizing and will mature on
June 1, 2013 and December 1, 2014, respectively.
- Pending Kansas Acquisition. The Company has entered into a contract to
purchase Westgate Market in Wichita, Kansas. Westgate Market contains
approximately 134,000 rentable square feet and is anchored by Best Buy,
T.J. Maxx and Michael's and is approximately 96% leased. The purchase
price is approximately $9.8 million. Because the Company's obligation to
consummate the purchase is contingent upon the completion of due
diligence, no assurance can be given that the acquisition will occur.
- Pending Austin Acquisition. The Company has entered into a contract to
purchase Arboretum Crossing (Phase I) in Austin, Texas. Arboretum
Crossing (Phase I) contains approximately 183,000 rentable square feet,
is anchored by Circuit City, Baby Superstore (Toys 'R' Us), Cost Plus,
Designer Shoe Warehouse, Just for Feet and Mikasa and is approximately
98% leased. The purchase price is approximately $24 million. Because the
Company's obligation to consummate the purchase is contingent upon the
completion of due diligence, no assurance can be given that the
acquisition will occur.
OTHER RECENT DEVELOPMENTS
- Common Stock Offering. In September 1996, the Company issued and sold
690,000 shares of Common Stock at a price to the public of $32.125 per
share. The Company used the net proceeds of approximately $21 million for
repayment of indebtedness under the Company's $75 million unsecured line
of credit ("Line of Credit") and for general corporate purposes.
S-5
<PAGE> 6
- Credit Rating Upgrade. On October 18, 1996, Moody's Investors Service,
Inc. upgraded its rating of the Company's senior debt to "Baa3" from
"Ba1." According to Moody's, the rating action primarily reflects the
improvements that the Company has made to its property base and
geographic and tenant concentration.
- Interest Rate Reduction. On October 23, 1996, the Company announced that
the interest rate on its Line of Credit was reduced by 15 basis points to
125 basis points above the LIBOR rate.
- 1996 Senior Notes Issuance. In November 1996, the Company issued $55
million aggregate principal amount of the Company's 7.50% Senior Notes
due 2006. The Senior Notes are currently rated "BBB-" by Standard &
Poor's Corporation, "Baa3" by Moody's Investor Services, Inc., "BBB" by
Fitch Investors Service, L.P. and "2" by the NAIC. The Company used the
net proceeds of approximately $54.3 million for repayment of indebtedness
under the Company's Line of Credit and for general corporate purposes.
- 1996 Shelf Registration Statement. On November 25, 1996, the Company
filed a shelf registration statement on Form S-3 (File No. 333-16787)
(the "1996 Shelf Registration Statement") for up to $175 million of debt
securities, preferred stock, common stock and warrants (collectively, the
"Securities"). The 1996 Shelf Registration Statement was declared
effective by the Commission on December 23, 1996. Following the Offering,
the Company will have the ability to issue up to approximately $115
million of Securities pursuant to the 1996 Shelf Registration Statement
(based on the offering price of $37.625 per share of Common Stock).
- Acquisition of Assets of the Development Company. Effective January 1,
1997, the Company acquired the assets and assumed the liabilities of the
Development Company and elected certain of the officers of the
Development Company to serve as officers of the Company. The Company
acquired the assets pursuant to a distribution to the Company as owner of
100% of the non-voting preferred stock of the Development Company.
S-6
<PAGE> 7
THE PROPERTIES
The Company currently owns or has interests in 23 properties, consisting of
20 power centers, one stand-alone retail warehouse and two vacant land parcels
for future development. The Properties have approximately 5.2 million square
feet of gross leasable area with 313 tenants. Fourteen of the Properties have a
Home Depot or Price Club/Costco warehouse or both located on them. Home Depot
and Price/Costco, Inc. account for 19.5% and 11.0%, respectively, of annualized
minimum base rental income as of September 30, 1996. The power centers are
leased to tenants under noncancelable leases with remaining terms ranging up to
25 years. The leases are typically triple net leases. Most of the leases also
provide for future rent increases by automatic fixed rate increases or increases
based on consumer price indices. Additionally, certain of the leases contain
provisions for percentage participation in retail sales of the tenant in excess
of a minimum amount. At September 30, 1996, Price/Costco, Inc. accounted for
greater than 10% of the total annualized minimum base rental income in seven of
the eight properties in which it is a tenant, and Home Depot accounted for
greater than 10% of the total annualized minimum base rental income in all nine
of the properties in which it is a tenant.
[MAP: The Price REIT Portfolio]
[The Prospectus Supplement contains a map of the United States with the
following states enlarged: California, Arizona, Texas, New York,
Connecticut, Maryland, Oklahoma, Virginia and Illinois. The map indicates
the location of (i) each of the Company's power centers listed in the table
below, (ii) the Company's stand alone warehouse listed in the table below,
(iii) the Company's development in progress in Commack, NY, (iv) the
Company's vacant land for development listed in the table below and (v) the
Company's five offices (two in California, and one in each of Arizona,
Illinois and New York).]
The power centers were approximately 98.1% leased at September 30, 1996.
The Company's shopping centers generally contain major national and regional
tenants which feature quality consumer items with value pricing that generally
perform well in most economic environments. Approximately 47% of the Company's
annualized minimum base rental income as of September 30, 1996 was derived from
rents paid by tenants with investment-grade credit ratings as determined by
Standard & Poor's Corporation or Moody's Investors Services, Inc.
S-7
<PAGE> 8
The following schedule lists the real estate investment portfolio of the
Company as of September 30, 1996:
<TABLE>
<CAPTION>
GROSS
LEASABLE OUTSTANDING
YEAR LAND AREA ANNUALIZED MORTGAGES
COMPLETED AREA (SQ. FT.) NO. OF PERCENT BASE RENT PAYABLE
LOCATION (1) (ACRES) (THOUSANDS) TENANTS LEASED (THOUSANDS)(2) (THOUSANDS) SELECTED MAJOR TENANTS
- --------------------- --------- ------- ----------- ------- ------- -------------- ----------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
POWER CENTERS:
Alhambra, CA......... 1988 18.4 201 10 100.0% $ 2,093 None Price Club
Levitz
Carmichael, CA....... 1994 18.5 215 13 98.0% 2,226 None Home Depot
The Sports Authority
Longs Drugs
Cerritos, CA......... 1987 16.3 172 12 98.3% 1,696 None Home Depot
AMC Theatres
L.A. Fitness
Chula Vista, CA...... 1988 31.3 363 21 99.6% 2,640 None Price Club
HomeBase
Levitz
Copiague, NY......... 1990 24.6 246 9 93.8% 2,749 None Home Depot
Jack LaLanne (Bally's)
Office Max
Corona, CA........... 1989 54.4 487 48 98.2% 5,085 None Price Club
Home Depot
Levitz
Ross Dress for Less
Bally's Holiday Spa
Office Max
Dallas, TX........... 1992 15.0 210 8 100.0% 1,480 None Sears Homelife
Best Buy
General Cinema
PetsMart
Fairfax, VA.......... 1993 37.0 323 6 100.0% 3,713 None Price Club
Home Depot
The Sports Authority
Computer City
Glendale, AZ......... 1989 40.5 340 22 100.0% 3,122 None Costco
HomeBase
Levitz
Glendale, AZ......... 1995 6.0 42 5 100.0% 330 None Sears Homelife
(Talavi)(3) Michael's
Houston, TX.......... 1993 40.0 426 17 100.0% 2,704 None Sears Homelife
Oshman's Super Sport
Best Buy
Bed, Bath & Beyond
Stein Mart
Builder's Square
Sony Theaters
La Mirada, CA........ 1993 31.2 279 45 94.4% 3,154 None Toys 'R' Us
Sav-On Drugs
L.A. Fitness
Krikorian Theatres
U.S. Post Office
North Haven, CT...... 1988 31.7 332 19 100.0% 2,784 None Price Club
Home Depot
Xpect Drug
T.J. Maxx
North Phoenix, 1996 17.0 180 7 100.0% 1,170 $ 2,750 Burlington Coat Factory
AZ(4).............. Computer City
Staples
Petco
Oklahoma City, 1994 19.8 234 10 93.0% 1,739 $11,841 Home Depot
OK(5).............. Best Buy
HomePlace
</TABLE>
S-8
<PAGE> 9
<TABLE>
<CAPTION>
GROSS
LEASABLE OUTSTANDING
YEAR LAND AREA ANNUALIZED MORTGAGES
COMPLETED AREA (SQ. FT.) NO. OF PERCENT BASE RENT PAYABLE
LOCATION (1) (ACRES) (THOUSANDS) TENANTS LEASED (THOUSANDS)(2) (THOUSANDS) SELECTED MAJOR TENANTS
- --------------------- ----- ----- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oxnard, CA........... 1990 14.4 172 4 100.0% 1,072 None Target
Ralphs (Food-4-Less)
Family Fitness
Phoenix, AZ.......... 1989 26.6 335 11 96.9% 2,111 None Costco
HomeBase
PetsMart
Phoenix, AZ.......... 1973 6.7 95 13 91.6% 381 None Home Depot
(Hayden Plaza Stool & Dinette
North)(3) AutoZone
Tempe, AZ(3)......... 1994 21.1 192 25 93.5% 2,030 (6) HomeBase
The Sports Authority
L.A. Fitness
PetsMart
Staples
White Marsh, MD...... 1991 25.3 210 7 99.0% 1,334 None Price Club
The Sports Authority
Pep Boys
PetsMart
STAND ALONE RETAIL WAREHOUSE
Santa Ana, CA........ 1995 12.0 134 1 100.0% 1,765 None Home Depot
VACANT LAND FOR DEVELOPMENT
Goodyear, AZ (3)..... n/a.... 20.0 n/a n/a n/a n/a None n/a
Houston, TX (7)...... n/a 9.7 n/a n/a n/a n/a None n/a
----- ----- ---- ---- -------
Total/Average.... 537.5 5,188 313 98.1% $ 45,378 $14,591(4)(6)
===== ===== ==== ==== =======
</TABLE>
- ---------------
(1) Represents the year in which the Property was completed or the year in which
the most recent significant expansion or renovation was completed, which in
certain instances precedes the date the Property was acquired by the
Company.
(2) Total annualized contract base rents excluding (i) percentage rents, (ii)
additional rent payable by tenants such as common area maintenance, real
estate taxes and other expense reimbursements and (iii) future contractual
rent escalations or cost of living increases.
(3) Reflects the Company's 50% ownership interest in the above properties,
except for the number of tenants (if applicable) which is shown at 100%.
(4) The $2,750,000 mortgage relating to the Company's North Phoenix property was
paid off in full on December 20, 1996.
(5) The Oklahoma City, Oklahoma property was acquired by the Company in November
1996.
(6) The first phase of the Tempe property secures a loan of $10.5 million, of
which the Company has a 50% partnership share ($5.25 million).
(7) This vacant land is adjacent and contiguous to the Company's center located
in Houston, Texas.
Additionally, the Company has a majority interest in a joint venture
developing a 270,000 square foot retail center in Long Island, New York. See
"Recent Developments -- Recent Acquisition and Property Development."
Each of the properties listed above, except Dallas (Texas), Glendale-Talavi
(Arizona), Houston (Texas), La Mirada (California), North Phoenix (Arizona),
Oklahoma City (Oklahoma), Oxnard (California), Phoenix-Hayden Plaza North
(Arizona) and Goodyear (Arizona), was acquired from The Price Company, the
predecessor to Price/Costco, Inc.
S-9
<PAGE> 10
LEASE EXPIRATION SCHEDULE
The following table shows tenant lease expirations for leases in place as
of September 30, 1996 at the Company's power centers and stand alone retail
warehouse, beginning with the remainder of 1996 and assuming that none of the
tenants exercises any renewal options.
<TABLE>
<CAPTION>
GROSS LEASED AREA ANNUALIZED BASE RENTAL INCOME(2)
TOTAL NUMBER OF ------------------------ ---------------------------------
NUMBER OF ANCHOR TENANT APPROXIMATE PERCENT PERCENT AVERAGE
LEASES LEASES GLA OF OF PER
LEASES EXPIRING IN: EXPIRING EXPIRING(1) SQ. FT. TOTAL AMOUNT TOTAL SQ. FT.
- ---------------------- --------- ------------- ----------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1996(3)............... 14 0 31,131 0.61% $ 433,535 0.96% $ 13.93
1997.................. 24 1 66,805 1.31 937,283 2.07 14.03
1998.................. 36 2 164,308 3.23 1,545,093 3.40 9.40
1999.................. 35 1 128,065 2.52 1,579,043 3.48 12.33
2000.................. 30 3 158,807 3.12 1,810,269 3.99 11.40
2001.................. 29 4 178,253 3.50 2,147,487 4.73 12.05
2002.................. 11 0 40,525 0.80 604,232 1.33 14.91
2003.................. 16 6 464,943 9.13 3,817,299 8.41 8.21
2004.................. 9 2 87,896 1.73 1,023,131 2.25 11.64
2005.................. 18 5 177,395 3.48 1,795,690 3.96 10.12
2006.................. 8 5 526,229 10.34 3,112,176 6.86 5.91
Thereafter............ 83 46 3,065,241 60.23 26,572,889 58.56 8.67
--
--- --------- ------ ----------- ------ -----
Total/Average... 313 75 5,089,598(4) 100.00% $45,378,127 100.00% $ 8.92
=== == ========= ====== =========== ====== =====
</TABLE>
- ---------------
(1) Anchor tenant leases represent leases for space with a minimum of 20,000
square feet.
(2) Information is presented as of September 30, 1996.
(3) Information for 1996 relates to leases expiring in the remaining three
calendar months after September 30, 1996.
(4) Excludes vacant space as of September 30, 1996, which totaled approximately
98,000 square feet.
S-10
<PAGE> 11
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.................................... 1,600,000 shares(1)
Common Stock to be outstanding after the Offering....... 10,661,464 shares(1)(2)
Use of Proceeds by the Company.......................... Proceeds of the Offering will be
used primarily to fund future
acquisition and development
activities and to repay all
indebtedness under its Line of
Credit. See "Use of Proceeds."
NYSE Symbol............................................. "RET"
</TABLE>
- ---------------
(1) Assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting."
(2) Excludes (a) an aggregate of approximately 718,000 shares of Common Stock
reserved for issuance pursuant to stock option agreements that the Company
has entered into with certain of its officers, directors and key employees
and (b) shares of Common Stock issuable pursuant to the Company's dividend
reinvestment plan during the fourth quarter of 1996. See "Description of
Stock -- General" in the accompanying Prospectus.
DISTRIBUTION POLICY
The Company currently intends to continue making regular quarterly
distributions on its Common Stock and to distribute amounts sufficient to
maintain its status as a REIT. Distributions are reviewed quarterly by the Board
of Directors and future distributions will depend upon factors deemed relevant
by the Board of Directors including operating performance, cash flow
requirements and other needs. Although the Company intends to continue to make
quarterly distributions to its stockholders, no assurance can be given as to the
amounts to be distributed in the future. See "Price Range of Common Stock and
Distributions."
S-11
<PAGE> 12
- --------------------------------------------------------------------------------
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the
Company for the period from December 3, 1991 (inception) to December 31,
1991, and the four years in the period ended December 31, 1995, derived
from the audited financial statements of the Company. The financial data
for the nine month periods ended September 30, 1995 and 1996 are derived
from the Company's unaudited interim financial statements. The unaudited
interim financial statements include all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary for a
fair presentation of the data. Results of operations for interim periods
are not necessarily indicative of results to be expected for the full
fiscal year. The following information should be read in conjunction with
the financial statements and notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations, included in the
Company's 1995 Annual Report on Form 10-K and its Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996, all of which are incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------------------------------
1996(1) 1995 1995 1994 1993 1992 1991(2)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Total revenues.................... $ 39,676 $ 31,498 $ 43,523 $ 39,925 $ 27,794 $ 18,815 $ 1,140
Interest expense.................. 9,017 4,811 6,939 4,085 4,257 3,203 --
Net income........................ 12,296 12,182 16,386 16,904 9,128 4,118 438
Dividends......................... 18,011 16,394 22,038 20,859 12,128 6,610 549
Per Share:
Net income...................... 1.47 1.48 1.98 2.07 1.84 1.41 0.15
Dividends(3).................... 2.10 1.99 2.67 2.56 2.38 2.26 0.19
Average shares outstanding........ 8,392 8,248 8,259 8,165 4,957 2,928 2,928
OTHER DATA:
Funds From Operations(4).......... 21,611 19,636 26,582 26,271 15,529 8,077 647
Ratio of earnings to fixed
charges(5)...................... 2.30x 3.46x 3.17x 4.73x 3.07x 2.28x --
Total rentable square footage of
Properties at end of
period(6)....................... 5,188 3,708 4,628 3,662 3,317 2,196 1,427
Number of Properties at end of
period(6)....................... 23 14 19 14 12 8 5
Occupancy rate at end of period... 98% 98% 98% 98% 98% 98% 98%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPT. 30, ------------------------------------------------------------
1996 1995 1994 1993 1992 1991(2)
--------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental property, net............................ $ 358,740 $351,585 $287,259 $284,721 $186,479 $113,984
Total assets.................................... 397,818 382,478 312,419 292,195 190,010 115,048
Total debt...................................... 153,949 157,832 86,750 65,000 76,980 --
Minority interest............................... -- -- -- -- 42,628 43,344
Total stockholders' equity...................... 238,413 221,238 224,600 226,261 68,731 71,223
</TABLE>
---------------------
(1) Except as described in footnote (6) below, the information presented
above does not include the operations of the Company's Oklahoma City,
Oklahoma property.
(2) The Company was incorporated in 1991 and consummated an initial public
offering, acquired income-producing properties and commenced
operations on December 3, 1991. Therefore, 1991 results represent the
period from December 3, 1991 through December 31, 1991.
(3) Prior to August 1993, the Company's outstanding stock consisted
entirely of Series A Common Stock. The per share dividends for 1991,
1992 and 1993 therefore represent dividends paid to holders of Series
A Common Stock. In 1993, the Company effected a public offering of
shares of Series B Common Stock (which are now designated simply as
"Common Stock"). The per share dividends for 1994, 1995 and the
nine-month periods ended September 30, 1995 and September 30, 1996
represent dividends paid to holders of Common Stock. Dividends for the
fourth quarter of 1993, the full years of 1994 and 1995, and the first
quarter of 1996 for holders of Series A Common Stock were
approximately 95% of that paid to the holders of Common Stock for the
same periods. The Company's outstanding stock currently consists
entirely of Common Stock.
(4) Most industry analysts and equity REITs, including the Company,
consider Funds From Operations ("FFO") an appropriate supplemental
measure of operating performance of an equity REIT. In general, FFO
adjusts net income for non-cash charges such as depreciation, certain
amortization expenses and most non-recurring gains or losses. However,
FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles ("GAAP") and
should not be considered an alternative to net income as an indication
of the results of the Company's performance or to cash flows as a
measure of liquidity. In May 1995, the National Association of Real
Estate Investment Trusts ("NAREIT") modified the definition of FFO,
among other things, to eliminate amortization of deferred financing
costs and depreciation of non-real estate items added back to net
income when computing FFO. The Company implemented the new method of
calculating FFO under the NAREIT provisions on the NAREIT-suggested
adoption date of January 1, 1996. The Company has recalculated and
presented FFO for the periods in the table above, including periods
prior to 1996, under the new definition.
(5) The ratio of earnings to fixed charges is computed by dividing
earnings by fixed charges. For this purpose, earnings consist of
pre-tax income from continuing operations plus fixed charges. Fixed
charges consist of interest expense and the amortization of debt
discount and issuance costs.
(6) The Oklahoma City, Oklahoma property which was acquired by the Company
in November 1996 is included in the total rentable square footage of
Properties and the number of Properties for the nine months ended
September 30, 1996.
- --------------------------------------------------------------------------------
S-12
<PAGE> 13
RISK FACTORS
This Prospectus Supplement and the accompanying Prospectus, including the
documents incorporated by reference in the accompanying Prospectus, contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"). Also, documents subsequently
filed by the Company with the Securities and Exchange Commission and
incorporated herein by reference will contain forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below and the matters set
forth or incorporated in this Prospectus Supplement and the accompanying
Prospectus generally. The Company cautions the reader, however, that this list
of factors may not be exhaustive, particularly with respect to future filings.
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing shares of Common Stock in this
offering (the "Offering").
GENERAL REAL ESTATE INVESTMENT RISKS
Economic Performance and Value of Centers Depending on Many Factors. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climate, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs.
Dependence on Rental Income from Real Property. Since substantially all of
the Company's income is derived from rental income from real property, the
Company's income and funds for distribution would be adversely affected if a
significant number of the Company's tenants were unable to meet their
obligations to the Company or if the Company were unable to lease a significant
amount of space in its properties on economically favorable lease terms. There
can be no assurance that any tenant whose lease expires in the future will renew
such lease or that the Company will be able to re-lease space on economically
advantageous terms.
Environmental Risks. Under various federal, state and local laws,
ordinances and regulations, the Company may be considered an owner or operator
of real property or may have arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, may become liable for the costs of removal
or remediation of certain hazardous substances released on or in its property or
disposed of by it, as well as certain other potential costs which could relate
to hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the Company
knew of, or was responsible for, the presence of such hazardous or toxic
substances.
Risks of Development Activities. The Company intends to continue to
actively pursue shopping center development projects, including the expansion of
existing centers. Such projects generally require the expenditure of capital as
well as various forms of government and other approvals, the receipt of which
cannot be assured. Consequently, there can be no assurance that any such
projects will be completed or that such projects will prove to be profitable.
Competition for Acquisition of Real Estate. There is competition in the
acquisition of properties and some of the Company's competitors are larger and
have greater financial resources than the Company. This competition may result
in a higher cost for properties the Company wishes to acquire.
Insurance. The Company carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company believes are adequate and
appropriate under the circumstances. Additionally, the Company carries
earthquake insurance for its Properties in California which it believes is
adequate and appropriate for such Properties. Such insurance does not insure the
entire value of the Properties in California. Should a loss in excess of insured
limits occur, the Company could lose its capital invested in the property, as
well as the anticipated future revenues from the property and the Company would
remain obligated for any mortgage debt or other financial obligations related to
the property. Any such loss would adversely affect the Company.
S-13
<PAGE> 14
RELIANCE ON MAJOR TENANTS
As of September 30, 1996, the Company's real estate portfolio generated
total annualized minimum base rental income of approximately $45.4 million. The
Company's three largest tenants, Home Depot, Price/Costco, Inc. and HomeBase,
accounted for approximately 19.5%, 11.0% and 6.3%, respectively, of annualized
minimum base rental income as of September 30, 1996, and the Company's seven
largest tenants accounted for approximately 48.7% of annualized minimum base
rental income. The loss of any one of the Company's principal tenants would have
a material adverse impact on the Company's results of operations. The
performance of the Company's tenants is affected by economic conditions in the
regions and markets in which they compete.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
Following the consummation of the Offering, directors and executive
officers of the Company will beneficially own approximately 7% of the Company's
Common Stock (assuming no exercise of the Underwriters' over-allotment option).
Accordingly, such persons should continue to have substantial influence over the
Company and on the outcome of matters submitted to the Company's shareholders
for approval.
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
With certain limited exceptions, the Company's amended and restated
Articles of Incorporation prohibit ownership of more than 9.8% of the
outstanding Common Stock by any person. Such restriction is likely to have the
effect of precluding acquisition of control of the Company by a third party
without consent of the Board of Directors of the Company even if a change in
control were in the interest of shareholders.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The Company intends to continue to maintain a conservative debt
capitalization with a ratio of debt to Total Market Capitalization (the sum of
the aggregate market value of the Company's Common Stock, the liquidation
preference on any preferred shares outstanding, and the Company's total
indebtedness, including the Company's proportionate share of indebtedness from
its unconsolidated joint venture properties) of less than 40%, but the
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness the Company may incur. Each of the
indenture and the Company's Line of Credit under which the Company has
outstanding certain indebtedness contains limits on the Company's ability to
incur indebtedness. Nevertheless, the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the Company's ability to make expected distributions to shareholders and in an
increased risk of default on its obligations.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
Since the Company's commencement of operations in 1991, the Company has
operated in a manner to qualify as a REIT under the Code, and the Company
intends to continue to operate in such a manner so as to permit the Company to
qualify as a REIT under the Code. Although the Company believes that it will
continue to operate in such a manner, no assurance can be given that the Company
will remain qualified as a REIT. If in any taxable year the Company were to fail
to qualify as a REIT, the Company would not be allowed a deduction for
distributions to shareholders in computing taxable income and would be subject
to Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby are estimated to be approximately $56.8 million ($65.3 million if the
Underwriters' over-allotment option is exercised). The Company will use the net
proceeds of this Offering primarily to fund its future acquisition and
development activities and to repay all outstanding indebtedness under its Line
of Credit. Pending such uses, which the Company anticipates will occur
concurrently with or shortly following the consummation of the Offering, the
Company may invest such net proceeds in short-term income-producing investments
such as investment grade commercial paper, government securities or money market
funds that invest in government securities.
The weighted average interest rate on the indebtedness expected to be
repaid with the net proceeds of this Offering was a variable rate equal to LIBOR
plus 1.25% and the maturity date of such indebtedness was October 1997.
S-14
<PAGE> 15
CAPITALIZATION
The following table sets forth, as of September 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
giving effect to (a) the issuance and sale of $55 million aggregate principal
amount of 7.50% Senior Notes due 2006 in November 1996 and (b) the application
of the net proceeds therefrom and (iii) the pro forma capitalization of the
Company as adjusted to reflect the issuance and sale of the Common Stock offered
hereby.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Unsecured line of credit................................ $ 52,000 $ -- $ --
Senior Notes payable due 2000........................... 99,199 99,199 99,199
Senior Notes payable due 2006........................... -- 55,000 55,000
Secured note payable.................................... 2,750 2,750 2,750
Stockholders' equity:
Preferred Stock, $0.01 par value: 2,000,000 shares
authorized, no shares issued or outstanding.......... -- -- --
Common Stock, $0.01 par value per share: 25,000,000
shares authorized, 9,061,464 and 10,661,464 shares
issued and outstanding(1)............................ 91 91 107
Additional paid-in capital.............................. 259,248 259,248 316,022
Accumulated deficit..................................... (20,926) (20,926) (20,926)
-------- --------- -----------
Total stockholders' equity........................... 238,413 238,413 295,203
-------- --------- -----------
Total capitalization............................ $392,362 $ 395,362 $ 452,152
======== ======== =========
</TABLE>
- ---------------
(1) Does not include approximately 705,500 shares of Common Stock reserved for
issuance as of September 30, 1996 pursuant to stock option agreements that
the Company has entered into with certain of its officers, directors and key
employees. See "Description of Stock -- General" in the accompanying
Prospectus.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The following table sets forth the quarterly high and low composite closing
sales prices per share of Common Stock reported on the NYSE for the periods
subsequent to October 31, 1994 and the high and low closing sales prices as
reported on the Nasdaq National Market for the periods prior thereto, as well as
the quarterly distributions declared per share of Common Stock.
<TABLE>
<CAPTION>
CASH
DISTRIBUTION/
QUARTERLY PERIOD ENDING HIGH LOW SHARE
-------------------------------------------------------- ---- ---- -------------
<S> <C> <C> <C>
March 31, 1994.......................................... $ 35 $29 1/4 $ .63
June 30, 1994........................................... 35 1/4 32 .63
September 30, 1994...................................... 34 1/2 29 3/4 .65
December 31, 1994....................................... 31 27 1/4 .65
March 31, 1995.......................................... 30 3/4 28 1/4 .66
June 30, 1995........................................... 30 1/4 27 5/8 .66
September 30, 1995...................................... 32 1/4 29 3/8 .67
December 31, 1995....................................... 31 27 3/4 .68
March 31, 1996.......................................... 31 1/8 28 1/2 .70
June 30, 1996........................................... 32 3/8 28 3/4 .70
September 30, 1996...................................... 32 5/8 31 .70
December 31, 1996....................................... 38 1/2 31 5/8 .70
March 31, 1997 (through January 15, 1997)............... 38 5/8 36 7/8
</TABLE>
Future distributions by the Company will be at the discretion of the Board
of Directors and will depend on the Company's financial condition, its capital
requirements, the annual distribution requirements under the REIT provisions of
the Code and such other factors as the Board of Directors deems relevant. There
can be no assurance that any such distributions will be made by the Company.
On January 15, 1997, the last reported sale price of the Company's Common
Stock on the NYSE was $37 5/8 per share. As of January 15, 1997, the Company's
transfer agent reported 1,146 holders of record of the
S-15
<PAGE> 16
Company's Common Stock. The transfer agent and registrar of the Common Stock is
ChaseMellon Shareholder Services.
UNDERWRITING
Subject to the terms and conditions of a purchase agreement (the
"Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds Inc. and Sutro & Co.
Incorporated are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company, the number of shares of Common
Stock set forth opposite its name below. Pursuant to the Underwriting Agreement,
the Underwriters are committed to purchase all of such shares of Common Stock if
any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................... 381,250
Dean Witter Reynolds Inc. ........................................ 381,250
Sutro & Co. Incorporated.......................................... 381,250
Alex. Brown & Sons Incorporated................................... 50,000
Lehman Brothers Inc. ............................................. 50,000
Montgomery Securities............................................. 50,000
PaineWebber Incorporated.......................................... 50,000
Prudential Securities Incorporated................................ 50,000
Salomon Brothers Inc ............................................. 50,000
Smith Barney Inc. ................................................ 50,000
Crowell, Weedon & Co. ............................................ 21,250
Jefferies & Company, Inc. ........................................ 21,250
The Seidler Companies Incorporated................................ 21,250
Tucker Anthony Incorporated....................................... 21,250
Wedbush Morgan Securities......................................... 21,250
---------
Total............................................... 1,600,000
========
</TABLE>
The Representatives have advised the Company that they propose initially to
offer the Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and to certain dealers at such
price less a concession not in excess of $1.10 per share of Common Stock. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $.10 per share of Common Stock on sales to certain other dealers. After the
Offering, the public offering price, concession and discount may be changed.
The Company has granted the Underwriters an option exercisable for 30 days
after the date hereof to purchase up to 240,000 additional shares of Common
Stock to cover over-allotments, if any, at the public offering price, less the
underwriting discount set forth on the cover page of this Prospectus Supplement.
If the Underwriters exercise this option, each of the Underwriters will have a
firm commitment, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the foregoing table bears to the number of shares of
Common Stock initially offered hereby.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Company and its directors and executive officers have agreed, subject
to certain exceptions (including the issuance of shares of Common Stock pursuant
to the Company's 1993 Stock Option Plan, the Company's 1996 Directors' Stock
Option Plan and the Company's dividend reinvestment plan), not to offer,
S-16
<PAGE> 17
sell, enter into any agreement to sell or otherwise dispose of any shares of
Common Stock for a period of 90 days after the date of this Prospectus
Supplement without the prior written consent of Merrill Lynch & Co.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal
matters related to the Offering will be passed upon for the Company by Gibson,
Dunn & Crutcher LLP, Los Angeles, California and certain legal matters will be
passed upon for the Underwriters by Latham & Watkins, Los Angeles, California.
Gibson, Dunn & Crutcher LLP and Latham & Watkins will rely on Ballard Spahr
Andrews & Ingersoll as to certain matters of Maryland law.
EXPERTS
The consolidated financial statements and related financial statement
schedule of the Company appearing in the Company's Annual Report (Form 10-K) for
the year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated in the accompanying Prospectus by reference. Such consolidated
financial statements and related financial statement schedule are incorporated
in the accompanying Prospectus by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 1996 and March 31, 1995,
the three-month and six-month periods ended June 30, 1996 and June 30, 1995, and
the three-month and nine-month periods ended September 30, 1996 and September
30, 1995, incorporated by reference in the accompanying Prospectus, Ernst &
Young LLP have reported that they have applied limited procedures in accordance
with professional standards for a review of such information. However, their
separate reports, included in the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, and
incorporated in the accompanying Prospectus by reference, state that they did
not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their reports on such
information should be restricted considering the limited nature of the review
procedures applied.
S-17
<PAGE> 18
PROSPECTUS
$175,000,000
THE PRICE REIT, INC.
DEBT SECURITIES, PREFERRED STOCK,
COMMON STOCK AND WARRANTS
------------------------
The Price REIT, Inc. (the "Company") may from time to time offer (i)
unsecured debt securities, which may be either senior debt securities ("Senior
Securities") or subordinated debt securities ("Subordinated Securities," and
together with the Senior Securities, the "Debt Securities"), (ii) shares of its
preferred stock, $.01 par value per share (the "Preferred Stock"), (iii) shares
of its common stock, $.01 par value per share (the "Common Stock"), or (iv)
warrants to purchase Preferred Stock or Common Stock (the "Warrants") with an
aggregate public offering price of up to $175,000,000 on terms to be determined
at the time of the offering. The Debt Securities, Preferred Stock, Common Stock
and Warrants (collectively, the "Offered Securities") may be offered, separately
or together, in separate amounts, at prices and on terms to be set forth in a
supplement to the Prospectus (each a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable (i) in the case of Debt
Securities, the specific title, aggregate principal amount, ranking, purchase
price, maturity, interest rate (which may be fixed or variable) and the time of
payment of interest (if any), authorized denominations, terms (if any) for the
subordination, redemption or conversion thereof, and terms (if any) for a
sinking fund; (ii) in the case of Preferred Stock, the specific title and stated
value, any dividend, liquidation, redemption, conversion, voting and other
rights, and any initial public offering price; (iii) in the case of Common
Stock, the specific title and stated value and any initial public offering price
and, if the Common Stock is issued in series, the specific title and any
dividend, liquidation, redemption, conversion, voting and other rights
applicable to that series; and (iv) in the case of Warrants, the duration,
offering price, exercise price and detachability, as well as the terms of which
and the securities for which such Warrants may be exercised. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income purposes. See "Federal Income Tax
Considerations."
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth or will be
calculable from the information set forth in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such Offered Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 23, 1996.
<PAGE> 19
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, and exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Electronic
filings made through the Electronic Data Gathering, Analysis and Retrieval
System are publicly available through the Commission's Website
(http://www.sec.gov). In addition, the Common Stock is listed on the New York
Stock Exchange and similar information concerning the Company can be inspected
and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C., upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. Annual Report on Form 10-K for the year ended December 31, 1995;
b. Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996;
c. Current Reports on Form 8-K, dated October 27, 1995, January 10,
1996, September 9, 1996 and October 30, 1996, and Current Report on Form
8-K/A, dated January 10, 1996;
d. The Company's Proxy Statement relating to its Annual Meeting of
Stockholders held on May 23, 1996; and
e. The description of the Registrant's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-13432) dated
October 25, 1994 and any amendments or reports filed for the purpose of
updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
2
<PAGE> 20
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to the Secretary, The Price REIT, Inc., 7979 Ivanhoe Avenue, Suite 524,
La Jolla, California 92037, (619) 551-2320.
IN CONNECTION WITH AN OFFERING, THE UNDERWRITERS FOR SUCH OFFERING MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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THE COMPANY
The Price REIT, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust ("REIT") which is focused on
the acquisition, development, management and redevelopment of destination retail
shopping center properties known as "power centers." As of September 30, 1996,
the Company owned or had interests in 22 properties, consisting of 19 power
centers, one stand alone retail warehouse and two undeveloped land parcels (the
"Properties") located in seven states containing a total of approximately 5.0
million square feet of gross leasable space with approximately 303 tenants. The
overall occupancy rate of the Properties was approximately 98.3% at September
30, 1996.
Power centers are typically open-air centers ranging in size from 200,000
to 700,000 square feet of gross leasable area, and are usually comprised of one
or more national retail anchors, often in a warehouse format. Anchor retail
tenants typically occupy between 60% and 90% of the total square footage in a
power center. The tenant mix in a power center is designed to draw consumers
from up to a 15-mile radius, creating a shopping "destination." The majority of
the Company's anchor tenants are retail warehouses, which are consumer-oriented
facilities with at least 25,000 to 100,000 square feet of gross leasable area
offering a variety of products for business use, personal use or resale. The
retail warehouse format of merchandise display, direct manufacturer purchasing,
low mark-ups and rapid inventory turnover is designed to provide substantial
consumer savings compared to other sources of similar merchandise.
Each of the Company's power centers is anchored by one or more national
retail tenants such as Home Depot, Price Club, HomeBase, The Sports Authority,
Burlington Coat Factory, Target, Builder's Square, Toys 'R' Us or Sears
Homelife. The Company typically seeks to structure tenant leases as "triple net"
leases, under the terms of which the tenant is responsible for its pro rata
share of costs and expenses associated with the ongoing operation of the
property, including but not limited to real property taxes and assessments,
repairs and maintenance, and insurance. The anchor tenants generally have
primary lease terms of 10 to 20 years and smaller tenants typically have primary
lease terms of five to 10 years. The Company's leases generally provide for
contractual rent increases over the life of the lease based on a fixed amount or
consumer price indices, and, in certain cases, percentage rent, calculated as a
percentage of a tenant's gross sales above a predetermined threshold. The
Company's principal executive office is located at 7979 Ivanhoe Avenue, Suite
524, La Jolla, California 92037, and its telephone number is (619) 551-2320.
TAX STATUS OF THE COMPANY
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended, commencing with its
taxable year ended December 31, 1991. As a REIT, the Company generally is not
subject to Federal income tax on net income that it distributes to its
stockholders. Even though the Company qualifies for taxation as a REIT, the
Company may be subject to certain Federal, state and local taxes on its income
and property. See "Federal Income Tax Considerations."
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
Company intends to use the proceeds for general corporate purposes including,
without limitation, the acquisition and development of additional properties and
the repayment of debt. The proceeds from the sale of the Offered Securities
initially may be temporarily invested in short-term securities.
EARNINGS TO FIXED CHARGES RATIOS
The Company's ratios of earnings to fixed charges for the period from July
31, 1991 (inception) through December 31, 1991 and the years ended December 31,
1992, 1993, 1994 and 1995 and the nine-month period ended September 30, 1996
were 0x, 2.28x, 3.07x, 4.73x, 3.17x and 2.30x, respectively. The ratio of
earnings to fixed charges is computed by dividing earnings by fixed charges. For
this purpose, earnings consist of pre-tax income from continuing operations plus
fixed charges. Fixed charges consist of interest expense and the
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amortization of debt discount and issuance costs. To date, the Company has not
issued any Preferred Stock; therefore, the ratios of earnings to combined fixed
charges and preferred stock dividend requirements are the same as the ratios of
earnings to fixed charges presented above.
DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general terms and provisions of the
Indenture under which the Debt Securities are to be issued. The particular terms
of the Debt Securities will be set forth in a Prospectus Supplement relating to
such Debt Securities.
The Debt Securities are to be issued under an Indenture, as amended or
supplemented from time to time (the "Indenture"), between the Company and a
Trustee chosen by the Company and qualified to act as such under the Trust
Indenture Act of 1939 as amended (the "TIA") (together with any other trustee(s)
appointed in a supplemental indenture with respect to a particular series, the
"Trustee"). The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and will be available for
inspection at the corporate trust office of the Trustee, or as described above
under "Available Information." The Indenture is subject to, and governed by, the
TIA. The Company will execute the Indenture if and when the Company issues the
Debt Securities. The statements made hereunder relating to the Indenture and the
Debt Securities to be issued hereunder are summaries of certain provisions
thereof and do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company.
Except for any series of Debt Securities which is specifically subordinated to
other indebtedness of the Company, the Debt Securities will rank equally with
all other unsecured and unsubordinated indebtedness of the Company. Under the
Indenture, the Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Directors of the Company or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a trustee of a trust under the Indenture separate and apart from the
trust administered by any other Trustee (Section 609), and, except as otherwise
indicated herein, any action described herein to be taken by the Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indenture.
TERMS
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
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<PAGE> 23
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities which is convertible into Common
Stock or Preferred Stock, or the method by which any such portion shall be
determined;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the Interest Payment Dates
on which any such interest will be payable, the Regular Record Dates for
such Interest Payment Dates, or the method by which such Dates shall be
determined, the Person to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(7) the place or places where (i) the principal of (and premium, if
any) and interest, if any, on such Debt Securities will be payable, (ii)
such Debt Securities may be surrendered for conversion or registration of
transfer, exchange or conversion and (iii) notices or demands to or upon
the Company in respect of such Debt Securities and the Indenture may be
served;
(8) the period or periods within which, or the date or dates on which,
the price or prices at which and the terms and conditions upon which such
Debt Securities may be redeemed, as a whole or in part, at the option of
the Company, if the Company is to have such an option;
(9) the obligation, if any, of the Company to redeem, repay or
repurchase such Debt Securities pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof, and the period or periods
within which, or the date or dates on which, the price or prices at which
and the terms and conditions upon which such Debt Securities are required
to be redeemed, repaid or purchased, as a whole or in part, pursuant to
such obligation;
(10) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and/or payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(12) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants or
other provisions set forth in the Indenture;
(13) whether such Debt Securities will be issued in certificated or
book-entry from;
(14) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant
defeasance provisions of Article XIV of the Indenture;
(16) if such Debt Securities are to be issued upon the exercise of
debt warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(17) the terms, if any, upon which such Debt Securities may be
convertible into Common Stock or Preferred Stock of the Company and the
terms and conditions upon which such conversion will be effected,
including, without limitation, the initial conversion price or rate, the
conversion period and, in
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<PAGE> 24
connection with the preservation of the Company's status as a REIT,
limitations on the ownership of the Common Stock or Preferred Stock into
which such Debt Securities are convertible;
(18) the terms and conditions, if any, upon which such Debt Securities
may be subordinated to other indebtedness of the Company;
(19) whether and under what circumstances the Company will pay
Additional Amounts as contemplated in the Indenture on such Debt Securities
in respect of any tax, assessment or governmental charge and, if so,
whether the Company will have the option to redeem such Debt Securities in
lieu of making such payment; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to the Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
The Indenture does not contain any provisions that would limit the ability
of the Company to incur indebtedness or that would afford Holders of Debt
Securities protection in the event of a highly leveraged or similar transaction
involving the Company. However, restrictions on ownership and transfers of the
Common Stock and Preferred Stock, designed to preserve the Company's status as a
REIT, may prevent or hinder a change of control. Reference is made to the
applicable Prospectus Supplement for information with respect to any deletions
from, modifications of or additions to the Events of Default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register or by wire transfer of funds to such Person at an account maintained
within the United States (Sections 301, 305, 307 and 1002).
All amounts paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security
which remain unclaimed at the end of two years after the principal, premium or
interest has become due and payable will be repaid to the Company, and the
holder of the Debt Security thereafter may look only to the Company for payment
thereof.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Sections 101 and 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series, of a like aggregate principal amount
and tenor, of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, the
Debt Securities of any series may be surrendered for conversion or registration
of transfer thereof at the corporate trust office of the Trustee referred to
above. Every Debt
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<PAGE> 25
Security surrendered for conversion, registration of transfer or exchange shall
be duly endorsed or accompanied by a written instrument of transfer. No service
charge will be made for any registration of transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith (Section 305).
If the applicable Prospectus Supplement refers to any transfer agent (in
addition to the Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each Place of Payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Company nor the Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business of
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except
that portion, if any, of such Debt Security which is not to be so repaid
(Section 305).
MERGER, CONSOLIDATION OR SALE
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other trust or
corporation, provided (a) either the Company shall be the continuing entity, or
the successor (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
and is a corporation organized under the laws of any domestic jurisdiction and
shall expressly assume payment of the principal of (and premium, if any) and
interest on all of the Debt Securities and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(b) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as a
result thereof as having been incurred by the Company or such Subsidiary at the
time of such transaction, no Event of Default under the Indenture, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Indenture will require the Company to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(declaration and statutory) and franchises; provided, however, that the Company
shall not be required to preserve any right or franchise if it determines that
the preservation thereof is no longer desirable in the conduct of its business
and that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities (Section 1004).
Maintenance of Properties. The Indenture will require the Company to cause
all of its material properties used or useful in the conduct of its business or
the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Company and
its subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business. (Section 1007).
Insurance. The Indenture will require the Company to cause each of its and
its subsidiaries' insurable properties to be insured against loss of damage with
insurers of recognized responsibility and, if described in
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<PAGE> 26
the applicable Prospectus Supplement, in specified amounts and with insurers
having a specified rating from a recognized insurance rating service. (Section
1008).
Payment of Taxes and Other Claims. The Indenture will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any tax,
assessment, charge or claim whose amount, applicability is being contested in
good faith. (Section 1009).
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 or 15(d) (the "Financial
Statements") if the Company were so subject, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (x) file with the
Trustee copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections and (y) if filing such documents by the Company with the Commission is
not permitted under the Exchange Act, promptly upon written request and payment
of the reasonable cost of duplication and delivery, supply copies of such
documents to any prospective Holder (Section 1005).
Additional Covenants. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the Prospectus Supplement, the Indenture
provides that the following events are "Events of Default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any interest on any Debt Security of such series; (b) default in the
payment of any principal of (or premium, if any on) any Debt Security of such
series when due; (c) default in making any sinking fund payment as required for
any Debt Security of such series; (d) default in the performance of any other
covenant or warranty of the Company contained in the Indenture with respect to
any Debt Security of such series, continued for 60 days after written notice as
provided in the Indenture; (e) default in the payment of indebtedness of the
Company outstanding in an aggregate principal amount in excess of $5,000,000 or
any mortgage, indenture, note, bond, capitalized lease or other instrument under
which such indebtedness is issued or by which such indebtedness is secured, such
default having continued after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness; (f)
certain events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee of the Company or any Significant
Subsidiary or the property of either; (g) the acquisition by any Person
(including any affiliates of such Person) of 20% or more of the Company's Common
Stock, unless the Company's Board of Directors shall have first approved of such
acquisition; and (h) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 501). The term "Significant
Subsidiary" means each significant subsidiary (as defined in Regulation S-X
promulgated under the Securities Act) of the Company. (Section 101).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs, and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Company (and to
the Trustee if given by the Holders). However, any time after such a declaration
of acceleration with respect to Debt Securities of such
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<PAGE> 27
series has been made, but before a judgment or decree for payment of the money
due has been obtained by the Trustee, the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of such series may rescind and
annul such declaration and its consequences if (a) the Company shall have paid
or deposited with the Trustee all required payments of the principal of (and
premium, if any) and interest on the Debt Securities of such series plus certain
fees, expenses, disbursements and advances of the Trustee and (b) all Events of
Default, other than the nonpayment of accelerated principal or interest with
respect to Debt Securities of such series have been cured or waived as provided
in the Indenture (Section 502). The Indenture also provides that the Holders of
not less than a majority in principal amount of the Outstanding Debt Securities
of any series may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if the Responsible Officers of the Trustee consider
such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of that series, as well as
an offer of reasonable indemnity (Section 507). This provision will not prevent,
however, any Holder of Debt Securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due date thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of Debt
Securities of any series then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Company must
deliver to the Trustee a certificate, signed by one of several specified
officers, stating whether or not such officer has knowledge of any default under
the Indenture and, if so, specifying each such default and the nature and status
thereof (Section 1006).
MODIFICATION OF THE INDENTURE
Modifications and amendments of provisions of the Indenture applicable to
any series may be made only with consent of the Holders of not less than a
majority in principal amount of all Outstanding Debt Securities which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change the Stated Maturity of the principal
of, or any installment of interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security;
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<PAGE> 28
(c) change the Place of Payment, or the coin or currency, for payment of
principal of, premium, if any, or interest on any such Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security on or after the Stated Maturity thereof; (e)
reduce the above-stated percentage of Outstanding Debt Securities of any series
necessary to modify or amend the Indenture, to waive compliance certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the Indenture; or (f) modify any
of the foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions may
not be modified or waived without the consent of the Holder of such Debt
Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of a particular series of any series have the right to waive
compliance by the Company with certain covenants in the Indenture relating to
such series (Section 1011).
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of any Holder of Debt Securities for any of
the following purposes: (i) to evidence the succession of another Person to the
Company as obligor under the Indenture; (ii) to add to the covenants of the
Company for the benefit of the Holders of all or any series of Debt Securities
or to surrender any right or power conferred upon the Company in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities; (iv) to add or change any provisions of the Indenture
to facilitate the issuance of Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of the Indenture, provided that any such change or elimination shall
become effective only when there are not Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provision and procedures,
if applicable, or the conversion of such Debt Securities into Common Stock or
Preferred Stock; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trust under the
Indenture by more than one trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; and (x) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of any series
of such Debt Securities, provided that such action shall not adversely affect
the interests of the Holders of the Debt Securities of any series in any
material respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
Section 301 of the Indenture and (iv) Debt Securities owned by the Company or
any other obligor upon the Debt Securities or any Affiliate of the Company or of
such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by the Company or the Holders of at
least 10% in principal amount of the Outstanding Debt Securities of such series,
in any such case upon notice given as provided in the Indenture (Section 1502).
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the
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Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the Holders of such Debt Securities of that series. Any
resolution passed or decision taken at any meeting of Holders of Debt Securities
of any series duly held in accordance with the Indenture will be binding on all
Holders of Debt Securities of that series. The quorum at any meeting called to
adopt a resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Company may
discharge certain obligations to Holders of any series of Debt Securities that
have not already been delivered to the Trustee for cancellation and that either
have become due and payable or will become due and payable within one year (or
are scheduled for redemption within one year) by irrevocably depositing with the
Trustee, in trust, funds in such currency or currencies, currency unit or units
or composite currency or currencies in which such Debt Securities are payable in
an amount sufficient to pay the entire indebtedness on such Debt Securities in
respect of principal (and premium, if any) and interest to the date of such
deposit (if such Debt Securities have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be (Section 401).
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, if the provisions of Article Fourteen are made applicable to the
Debt Securities of any series pursuant to Section 301 of the Indenture, the
Company may elect either (a) to defease and be discharged from any and all
obligations with respect to such Debt Securities (except for the obligation to
pay Additional Amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") (Section 1402) or (b) to
be released from its obligations with respect to such Debt Securities under
Sections 1004 and 1005, inclusive, of the Indenture (being the restrictions
described under "Certain Covenants") or, if provided pursuant to Section 301 of
the Indenture, its obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(Section 1403), in either case upon the irrevocable deposit by the Company with
the Trustee, in trust, of any amount, in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable at Stated Maturity, or Government Obligations (as defined below), or
both applicable to such Debt Securities which through the scheduled
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payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Company
has delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate (Section 1405).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institutions or within the international banking community, (ii) the ECU
both within the European Monetary System and for the settlement of transactions
by public institutions of or within the European Communities or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established. (Section 101.) Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a Foreign Currency
that cease to be used by its government of issuance shall be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (d) under "Events of Default, Notice and Waiver" with respect to
Sections 1004 and 1005, inclusive, of the Indenture (which Sections would no
longer be applicable to such Debt Securities) or described in clause (h) under
"Events of Default, Notice and Waiver" with respect to any other covenant as to
which there has been covenant defeasance, the amount in such currency, currency
unit or
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composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the Trustee, will be sufficient to pay amounts due
on such Debt Securities at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Debt securities at the time of the
acceleration resulting from such Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
of the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restriction on conversion, including restrictions directed at
maintaining the Company's REIT status.
SUBORDINATION
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include a
description of the indebtedness ranking senior to the Debt Securities, the
restrictions on payments to the Holders of such Debt Securities while a default
with respect to such senior indebtedness in continuing, the restrictions, if
any, on payments to the Holders of such Debt Securities following an Event of
Default, and provisions requiring Holders of such Debt Securities to remit
certain payments to holders of senior indebtedness.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF STOCK
The summary of the terms of the stock of the Company set forth below does
not purport to be complete and is subject to and qualified in its entirety by
reference to the charter and bylaws of the Company. See "Available Information."
GENERAL
The total number of shares of stock which the Company is authorized to
issue is twenty-seven million (27,000,000) shares, of which two million
(2,000,000) is Preferred Stock, $.01 par value per share, and twenty-five
million (25,000,000) is Common Stock, $.01 par value per share.
The Common Stock may be issued from time to time in one or more series. The
Board of Directors is authorized to fix the number of any series of Common Stock
and to determine the designation of any such series. The Board of Directors is
also authorized to determine or alter the rights granted to or imposed upon any
wholly unissued series of Common Stock, including the dividend rights, dividend
rate, conversion rights, voting rights, and the liquidation preference, and,
within the limits and restrictions stated in any resolution or
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resolutions of the Board of Directors originally fixing the number of shares
constituting any series, to increase or decrease (but not below the number of
shares then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series. Notwithstanding the foregoing, however, in
no event shall the Common Stock be redeemable, except in connection with the
redemption provisions of Article IX of the Company's Articles of Incorporation,
as amended to date (the "Charter").
As of September 30, 1996, there were approximately 9,061,464 shares of
Common Stock issued and outstanding. Approximately 705,500 shares of Common
Stock have been reserved for issuance pursuant to stock option agreements that
the Company has entered into with certain of its officers and directors.
COMMON STOCK
The holders of the Common Stock are entitled to participate in
distributions when and as authorized and declared by the Board of Directors. The
Company currently pays regular quarterly dividends to holders of Common Stock.
Holders of the Common Stock are entitled to one vote per share of Common Stock
on all matters submitted to a vote of the stockholders of the Company. In voting
for directors, a stockholder of the Company is entitled to cumulate votes if
such stockholder gives notice, prior to commencement of the voting, of an
intention to do so. If any one stockholder has given such notice, then all
stockholders entitled to vote may cumulate votes. As noted above, however, in
the event that the Board of Directors determines to issue Common Stock in one or
more series, prior to issuance, the Board of Directors is authorized to fix the
number, designate and determine and establish various rights applicable to that
series.
All issued and outstanding shares of Common Stock being offered hereby will
be, validly issued, fully paid and nonassessable. Holders of the Common Stock
currently issued and outstanding and holders of the shares of Common Stock
offered hereby do not have any preference, conversion, exchange or preemptive
rights.
Any shares of Common Stock sold in an offering will be freely tradeable
without restriction or registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless acquired by an affiliate of the Company, subject
to the restrictions on transfer set forth below. Shares of Common Stock held by
affiliates or acquired in transactions not registered in reliance on the private
offering exemption under the Securities Act cannot be resold unless registered
under the Securities Act or sold pursuant to an exemption from registration,
such as Rule 144 promulgated under the Securities Act.
The transfer agent and registrar for the Company's Common Stock is Chase
Mellon Shareholder Services, Los Angeles, California.
The Company's Common Stock is currently traded on the New York Stock
Exchange under the symbol "RET."
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of shares of any series
of Preferred Stock and to determine the designation of any such series. The
Board of Directors is also authorized to determine or alter the rights granted
to or imposed upon any wholly unissued series of Preferred Stock including the
dividend rights, dividend rate, conversion rights, voting rights, and the
liquidation preference, and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series. Notwithstanding the
foregoing, however, in no event shall the Preferred Stock be redeemable, except
in connection with the redemption
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provisions of Article IX of the Charter. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company.
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular series of Preferred Stock will be described in the Prospectus
Supplement relating to that series, including a Prospectus Supplement providing
that Preferred Stock may be issuable upon the exercise of Warrants issued by the
Company. The description of Preferred Stock set forth below and the description
of the terms of a particular series of Preferred Stock set forth in a Prospectus
Supplement do not purport to be complete and are qualified in their entirety by
reference to the articles supplementary relating to that series.
The rights, preferences, privileges and restrictions of the Preferred Stock
of each series will be fixed by the articles supplementary relating to such
series. A Prospectus Supplement, relating to each series, will specify the terms
of the Preferred Stock as follows:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) the dividend rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) whether such Preferred Stock is cumulative or not and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate;
(5) the procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) the provision for a sinking fund, if any, for such Preferred
Stock;
(7) the provision for redemption, if applicable, of such Preferred
Stock;
(8) any listing of such Preferred Stock on any securities exchange;
(9) the terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10) a discussion of any material federal income tax considerations
applicable to such Preferred Stock;
(11) any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT;
(12) the relative ranking and preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with such series of Preferred Stock
as to dividend rights and rights upon liquidation. dissolution or winding
up of the affairs of the Company;
(14) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
(15) any voting rights of such Preferred Stock.
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to the Common Stock of
the Company, and to all equity securities ranking junior to such Preferred Stock
with respect to dividend rights or rights upon liquidation, dissolution or
winding up of the Company; (ii) on a parity with all equity securities issued by
the Company the terms of which specifically provide that such equity securities
rank on a parity with the Preferred Stock with respect to dividends rights or
rights upon liquidation, dissolution or winding up of the Company; and (iii)
junior to all equity securities issued by the Company the
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terms of which specifically provide that such equity securities rank senior to
the Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company.
The terms and conditions, if any, upon which shares of a series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code in any taxable year,
not more than 50% of its outstanding equity securities may be owned directly or
indirectly by five or fewer individuals, and its equity securities must be owned
by 100 or more persons during at least 335 days of a taxable year of 12 months
or during a proportionate part of a shorter taxable year (except the first
year). In order to ensure that the Company will meet these requirements, the
Charter provides that the Board of Directors has the power to redeem or prohibit
the transfer of a sufficient number of shares of stock, selected in a manner
deemed appropriate, to maintain or bring the ownership of shares into conformity
with such requirements. In connection with the foregoing, if the Board of
Directors shall, at any time and in good faith, be of the opinion that (i)
direct or indirect ownership of more than 9.8% in value of the outstanding
shares of stock of the Company has or may become concentrated in the hands of
one beneficial owner (including any "group," as that term is used in Section
13(d) of the Exchange Act) or (ii) direct or indirect ownership of the
outstanding shares of stock has or may result in the Company's shares being held
by less than 100 persons (either occurrence, a "Disqualifying Event"), the
Charter states that the Board of Directors has the power (a) to redeem from any
stockholders of the Company a number of shares of stock sufficient, in the
opinion of the Board, to maintain or bring the direct or indirect ownership of
shares of such owner to a level of not more than 9.8% in value of the
outstanding shares of stock of the Company and (b) to refuse to transfer or
issue shares of stock of the Company to any person whose acquisition of such
shares, in the opinion of the Board of Directors, would cause a Disqualifying
Event. The Charter further states that notice of such action by the Board of
Directors shall be sent to each person whose shares of stock of the Company
shall be redeemed or whose transfer or receipt of shares of stock of the Company
shall be refused specifying the date of each redemption (if applicable) and the
number of shares as affected. The purchase price for any shares of stock of the
Company so redeemed, as provided in the Charter, is equal to the fair market
value of such shares reflected in the closing sales price for the shares, if
then listed on a national securities exchange or the Nasdaq National Market
System, or, if the shares are not then listed on a national securities exchange
or the Nasdaq National Market System, the closing bid quotation for the shares
on the Nasdaq Automated Quotations System or any similar system then in use, or,
if such quotation is not available, the fair market value as determined by the
Board of Directors in good faith, on the last business day immediately preceding
the day on which a notice of such redemption is sent by the Board of Directors.
The Common Stock is presently listed on the New York Stock Exchange. From and
after the date fixed for purchase by the Board, the holder of any shares of
stock so called for purchase shall cease to be entitled to distributions, voting
rights and other benefits with respect to such shares except the right to
payment of the purchase price for the shares.
Further, the Charter states that any transfer of shares of stock that would
cause a Disqualifying Event shall be deemed void. If such provision is deemed
invalid, the Charter provides that any shares of stock whose transfer would
cause a Disqualifying Event shall be deemed transferred by operation of law to
the Company as trustee of a trust for the benefit of those persons to whom the
shares can ultimately be transferred without causing a Disqualifying Event.
According to the Charter, shares held in trust shall cease to be entitled to
distribution, voting rights and other benefits with respect to such shares
(except for the right to payment for transfer as described below) during the
time that they are held in trust. An interest in the trust may be transferred by
the person whose attempted purchase would have caused a Disqualifying Event, at
a price not in excess of the price paid by that person for the shares. Upon such
a transfer, the trustees shall distribute the shares held in trust to the
transferee, provided that such shares in the hands of such transferee would not
cause
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a Disqualifying Event. The foregoing provisions of the Charter may have certain
anti-takeover effects. Although the provisions do not apply to a cash tender for
all of the outstanding shares of the Company, the provisions do impair the
ability of any person to accumulate a controlling portion of the Company's
shares or conduct a proxy contest.
CERTAIN PROVISIONS OF MARYLAND LAW
Certain sections of the Maryland General Corporation Law ("MGCL") contain
provisions which may tend to impede or delay a takeover of the Company. Section
3-602 of the MGCL provides that a Maryland corporation may not engage in any
"Business Combination" (defined to include a variety of transactions, including
mergers, as set forth below) with an "Interested Stockholder" (generally defined
as a beneficial owner of 10% or more of a corporation's voting power) for five
years following the date such person became an Interested Stockholder unless,
among other exceptions, (i) before such person becomes an Interested
Stockholder, the board of directors of the corporation exempted or approved the
business combinations; or (ii) the Interested Stockholder became an Interested
Stockholder at any time in the prior five years solely through inadvertence, and
the Interested Stockholder divests itself of a sufficient amount of the
corporation's voting stock so that it no longer is the beneficial owner of 10%
or more of the corporation's voting stock.
Unless exempted by the statute, in addition to any vote otherwise required,
the MGCL provides that a Business Combination with an Interested Stockholder
that is not prohibited by the provisions of Section 3-602 must be recommended by
the board of directors and approved by the affirmative vote of at least 80% of
the voting stock of the corporation, and must also be approved by two-thirds of
the voting stock, excluding voting stock held by the Interested Stockholder who
will be a party to the Business Combination or by an affiliate or associate
thereof.
A corporation may elect not to be governed by Section 3-602 if the
stockholders adopt an amendment to the corporation's charter by a vote of at
least 80% of the voting stock of the corporation, and two-thirds of the votes
entitled to be cast by persons who are not Interested Stockholders of the
corporation or affiliates or associates thereof. Such an amendment, however,
shall not be effective until 18 months after the vote of stockholders and may
not apply to any Business Combination of the corporation with an Interested
Stockholder who became an Interested Stockholder on or before the date of the
vote.
The MGCL provides that during such five-year period the corporation and
certain of its subsidiaries may not merge, consolidate, or undertake a share
exchange with an Interested Stockholder or any affiliate of the Interested
Stockholder, unless the merger, consolidation or share exchange does not alter
the contract rights of the stock or change or convert outstanding shares of
stock of the corporation or its subsidiaries. In addition, the corporation and
certain of its subsidiaries may not engage in certain other transactions with an
interested Stockholder or any affiliate thereof.
In addition to the provisions of Section 3-602 and related Sections, the
MGCL also contains provisions which may have certain anti- takeover effects
through the restriction of voting rights of Control Shares. Section 3-702
provides that Control Shares of a Maryland corporation (defined as shares of
stock in respect of which an Acquiring Person (as defined in Section 3-701 of
the MGCL) is entitled to direct the exercise of voting power in electing
directors within one of the following ranges, (i) one-fifth or more but less
than one-third, (ii) one- third or more but less than a majority or (iii) a
majority or more of all voting power, and for which such voting power approval
has not been previously obtained) acquired in a Control Share Acquisition have
no voting rights except to the extent approved by two-thirds of all the votes
entitled to be cast on the matter, excluding all shares in respect of which an
Acquiring Person, an officer of the corporation, or an employee of the
corporation who is also a director of the corporation is entitled to exercise or
direct the exercise of voting power in the election of directors. An Acquiring
Person is defined as a person who makes or proposes to make a Control Share
Acquisition.
The MGCL defines a Control Share Acquisition as the acquisition of
ownership of, or the power to direct the exercise of voting power with respect
to, issued and outstanding Control Shares. A Control Share Acquisition does not
include the acquisition of shares, among other instances, (i) under the laws of
descent and distribution, (ii) under the satisfaction of a pledge or other
security interest created in good faith and not
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for the purpose of circumventing the Control Share provisions of the MGCL, (iii)
under a merger, consolidation or share exchange with the corporation which meets
certain requirements or (iv) under an acquisition of voting power within a range
previously authorized by the stockholders and made in good faith and not for the
purpose of circumventing the Control Share provisions of the MGCL.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Charter provides that the personal liability of a director for monetary
damages for breach of fiduciary duty as a director shall be eliminated to the
fullest extent permissible under law. The MGCL permits a Maryland corporation to
include in its charter a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages except for
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action. The Charter
contains such a provision which provides for the elimination of such liability
to the maximum extent permitted by the MGCL.
The Charter and Bylaws contain provisions which permit the Company to
indemnify its officers and directors to the extent permitted by Maryland law and
the Company has entered into indemnification agreements with its officers and
directors. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. Such indemnification also may be subject
to certain limitations where claims under securities laws violations are
involved. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to the Company's directors and officers pursuant
to the foregoing provisions or otherwise, the Company has been advised that, in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In addition,
indemnification may be limited by state securities laws.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Common Stock or
Preferred Stock. The Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Warrants
will be issued under a separate warrant agreement (each, a "Warrant Agreement")
to be entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Warrants. The following sets forth
certain general terms and provisions of the Warrants offered hereby. Further
terms of the Warrants and the applicable Warrant Agreement will be set forth in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following:
(1) the title of such Warrants;
(2) the aggregate number of such Warrants;
(3) the price or prices at which such Warrants will be issued;
(4) the designation, number and terms of shares of Common Stock or
shares of Preferred Stock purchasable upon exercise of such Warrants;
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(5) the designation and terms of the other Offered Securities with
which such Warrants are issued and the number of such Warrants issued with
each such Offered Security;
(6) the date, if any, on and after which such Warrants and the related
Common Stock or Preferred Stock will be separately transferable;
(7) the price at which each share of Common Stock or share of
Preferred Stock purchasable upon exercise of such Warrants may be
purchased;
(8) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire;
(9) the minimum or maximum amount of such Warrants which may be
exercised at any one time;
(10) information with respect to book-entry procedures, if any;
(11) a discussion of certain Federal income tax considerations; and
(12) any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material Federal income tax considerations
regarding this Offering is based on current law, is for general information only
and is not tax advice. This discussion does not purport to deal with all aspects
of taxation that may be relevant to particular stockholders in light of their
personal investment or tax circumstances, or to certain types of stockholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the Federal
income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS/HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM/HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE OFFERED SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS
A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company has elected to be taxed as a REIT, under Sections 856
through 860 of the Code, from the Company's commencement of operations in 1991.
The Company believes that it is organized and operated in such a manner as to
qualify for taxation as a REIT under the Code and the Company intends to
continue to operate in such a manner, but no assurance can be given that it will
operate in a manner so as to remain qualified.
The REIT provisions of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
Federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. Gibson, Dunn & Crutcher LLP has acted as tax counsel to
the Company in connection with this Prospectus, but did not represent the
Company in connection with its initial qualification and election to be taxed as
a REIT.
In the opinion of Gibson, Dunn & Crutcher LLP, the Company is organized in
conformity with the requirements for qualification as a REIT and its method of
operation will enable it to meet the requirements for continued qualification
and taxation as a REIT under the Code. It must be emphasized that this opinion
is based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to
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meet, through actual annual operating results, distribution levels and diversity
of stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Gibson, Dunn &
Crutcher LLP. Accordingly, no assurance can be given that the actual results of
the Company's operations for any particular taxable year will satisfy such
requirements.
So long as the Company qualifies for taxation as a REIT, it generally will
not be subject to Federal corporate income taxes on its net income that is
currently distributed to stockholders. This treatment substantially eliminates
the "double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, the Company will be subject
to Federal income tax as follows. First, the Company will be taxed at regular
corporate rates on any undistributed real estate investment trust taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if the Company has (i) net income from the
sale or other disposition of "foreclosure property" which is held primarily for
sale to customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be subject
to a 100% tax. Fifth, if the Company should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which the Company fails the
75% or 95% test multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its real estate investment trust
ordinary income for such year, (ii) 95% of its real estate investment trust
capital gain net income for such year and (iii) any undistributed taxable income
from prior periods, the Company would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, with respect to an asset (a "Built-In Gain Asset") acquired by the
Company from a corporation which is or has been a C corporation (i.e., generally
a corporation subject to full corporate-level tax) in a transaction in which the
basis of the Built-In Gain Asset in the hands of the Company is determined by
reference to the basis of the asset in the hands of the C corporation, if the
Company recognizes gain on the disposition of such asset during the ten year
period (the "Recognition Period") beginning on the date on which such asset was
acquired by the Company, then, to the extent of the Built-In Gain (i.e., the
excess of (a) the fair market value of such asset over (b) the Company's
adjusted basis in such asset, determined as of the beginning of the Recognition
Period), such gain will be subject to tax at the highest regular corporate tax
pursuant to Internal Revenue Service ("IRS") regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that the Company will make an election pursuant to IRS
Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities);
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (5) and
(6) do not apply until after the first taxable year for which an election is
made to be taxed as a REIT.
The Company has previously issued sufficient shares to allow it to satisfy
conditions (5) and (6). In addition, the Company's Articles of Incorporation
provide for restrictions regarding transfer of shares, which
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restrictions are intended to assist the Company in continuing to satisfy the
share ownership requirements described in (5) and (6) above.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. (If a REIT receives or accrues rent from a tenant that
derives substantially all of its income with respect to the property from the
subleasing of substantially all such property, and a portion of the tenant's
sublease income would be treated as qualified rents if it were received by the
REIT, then the amounts received or accrued by the REIT from the tenant will be
treated as qualified rents to the same extent that the amounts so received or
accrued are attributable to qualified rents received by the tenant.) 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, or an owner of
10% or more of the REIT, directly or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). For purposes of this test, the holdings of
certain family members are aggregated. Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue. The REIT may, however,
directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Company does not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant, (iii) derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease) or (iv) perform services considered to be rendered to the
occupant of the property, other than through an independent contractor from whom
the Company derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
Management, leasing and similar fees and other income from services do not
count toward satisfaction of either the 95% or the 75% gross income tests. The
Company receives management fee income from its property management business. In
the past, such management fee and other nonqualifying income constituted less
than 5% of the Company's gross income in any year, and the Company anticipates
that such nonqualifying income will continue to be less than 5% of the Company's
gross revenue in any year. The Company will continue to monitor and manage the
amount of such nonqualifying income in order to comply with the 95% and 75%
gross income tests.
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If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
test was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in "Federal Income Tax Considerations-Taxation of the Company-
General," even if these relief provisions apply, a tax would be imposed with
respect to the excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable shares of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company'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 Company may not exceed 5% of
the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities. The Company's investment
in K&F Development Company is not a qualifying asset for purposes of the 75%
test. The Company expects, however, that such investment will continue to
represent less than 5% of the Company's total assets and, together with any
other non- qualifying assets, will continue to represent less than 25% of the
Company's total assets.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "real estate investment trust taxable income" (computed without regard
to the dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of noncash income. In addition, if the Company disposes of
any Built-In Gain Asset during its Recognition Period, the Company 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 such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Company timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "real estate investment trust taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary and
capital gain corporate tax rates. Furthermore, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its ordinary
income for such year, (ii) 95% of its real estate investment trust capital gain
income for such year and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company intends
to make timely distributions sufficient to satisfy this annual distribution
requirement.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
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Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief. Failure to qualify for even one year could result in the
Company's incurring substantial indebtedness (to the extent that borrowings are
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
TAXATION OF STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic stockholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held its stock. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a stockholder's shares they will be included in income as long-term
capital gain (or short-term capital gain if the Shares have been held for one
year or less) assuring the shares are a capital asset in the hands of the
stockholder. In addition, any dividend declared by the Company in October,
November or December of any year payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
Taxation of Tax-Exempt Stockholders. In Revenue Ruling 66-106, 1966-1 C.B.
151, the IRS ruled that amounts distributed by a REIT to a tax-exempt employees'
pension trust did not constitute "unrelated business taxable income" ("UBTI").
Revenue rulings are interpretive in nature and subject to revocation or
modification by the IRS. However, based upon Revenue ruling 66-106 and the
analysis therein, distributions by the Company to a stockholder that is a
tax-exempt entity should also not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code and the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity.
Taxation of Foreign Stockholders. The rules governing United States Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should consult
with their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares, including any reporting
requirements.
Distributions by the Company that are not attributable to gain from sales
or exchanges by the Company of United States real property interests and not
designated by the Company as capital gain dividends will be
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treated as dividends of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of the Company. Such distributions,
ordinarily, will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or eliminates
that tax. However, if income from the investment in the shares is treated as
effectively connected with the conduct by the Non-U.S. Stockholder of a United
States trade or business, the Non-U.S. Stockholder generally will be subject to
a tax at graduated rates in the same manner as U.S. Stockholders are taxed with
respect to such dividends (and may also be subject to the 30% branch profits tax
in the case of a stockholder that is a foreign corporation). The Company
withholds United States income tax at the rate of 30% on the gross amount of any
such dividends made to a Non-U.S. Stockholder unless (i) a lower treaty rate
applies or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with the Company
certifying that the investment to which the distribution relates is effectively
connected to a United States trade or business of such Non-U.S. Stockholder.
Lower treaty rates applicable to dividend income may not necessarily apply to
dividends from a REIT such as the Company, however. Distributions in excess of
current and accumulated earnings and profits of the Company will not be taxable
to a stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares, they will give rise to tax liability if the Non-U.S.
Stockholder otherwise is subject to tax on any gain from the sale or disposition
of his shares in the Company (as described below). If it cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the distributions will
be subject to withholding at the some rate applicable to dividends. However,
amounts thus withheld are refundable if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.
Distributions that are designated by the Company at the time of
distribution as capital gain dividends (other than those arising from the
disposition of a United States real property interest) generally will not be
subject to taxation, unless (i) investment in the shares is effectively
connected with the Non-U.S. Stockholder's United States trade or business, in
which case the Non-U.S. Stockholder will be subject to the same treatment as
U.S. Stockholders with respect to such gain (except that a stockholder that is a
foreign corporation may also be subject to the 30% branch profits tax), or (ii)
the Non-U.S. Stockholder is a nonresident alien individual who was present in
the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual will
be subject to a 30% tax on the individual's capital gains.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a United States
trade or business. Non-U.S. Stockholders would thus be taxed at the same capital
gain rates applicable to U.S. Stockholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a foreign corporate stockholder not
entitled to treaty exemption. The Company is required by applicable IRS
regulations to withhold 34% of any distribution that could be designated by the
Company as a capital gain dividend. This amount is creditable against the Non-
U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically-controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. The Company currently is a
"domestically-controlled REIT" and anticipates continuing to be so classified,
and therefore the sale of shares should not be subject to taxation under FIRPTA.
In addition, FIRPTA does not apply to gain recognized upon a sale of shares of a
class of the Company's stock regularly traded on an established market by a
Non-U.S. Stockholder holding (during specified periods) 5% or less of such class
of stock. However, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) investment in the shares is effectively connected with the
Non-U.S. Stockholder's United States trade or
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business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. Stockholders with respect to such gain (a stockholder that is
a foreign corporation may also be subject to the 30% branch profits tax) or (ii)
the Non-U.S. Stockholder is a nonresident alien individual who was present in
the United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual will
be subject to a 30% tax on the individual's capital gains. If the gain on the
sale of shares were to be subject to taxation under FIRPTA, the Non-U.S.
Stockholder will be subject to the same treatment as U.S. Stockholders with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals
and, in the case of foreign corporations, subject to the possible application of
the 30% branch profits tax).
Backup Withholding. The Company will report to its domestic stockholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder that does not
provide the Company with his correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
to any stockholders who fail to certify their non-foreign status to the Company.
See "Taxation of Foreign Stockholders."
Offered Securities. Special federal income tax considerations with respect
to the Warrants, the Preferred Stock and the Debt Securities will be described
in the applicable Prospectus Supplement accompanying the issuance of such
Offered Securities.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
PLAN OF DISTRIBUTION
The Company may sell the shares of Offered Securities to one or more
underwriters for public offering and sale by them or may sell the Offered
Securities to investors directly or through agents, which agents may be
affiliated with the Company. Direct sales to investors may be accomplished
through subscription offerings or concurrent rights offerings to the Company's
stockholders and direct placements to third parties. Any such underwriter or
agent involved in the offer and sale of the Offered Securities will be named in
the applicable Prospectus Supplement.
Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions on the
New York Stock Exchange or in negotiated transactions or any combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at other negotiated prices.
Underwriters may offer and sell Offered Securities at a fixed price or
prices which may be changed, at prices related to the prevailing market prices
at the time of sale, or at negotiated prices. The Company also may offer and
sell the Offered Securities in exchange for one or more of its then outstanding
issues of debt or convertible debt securities. The Company also may, from time
to time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or
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commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the NYSE. Any shares of Common
Stock sold pursuant to a Prospectus Supplement will be listed on the NYSE,
subject to official notice of issuance. The Company may elect to list any series
of Debt Securities or Preferred Stock on an exchange, but is not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Offered Securities, but will not be obligated to do so and may discontinue
any market making at any time without notice. Therefore, no assurance can be
given as to the liquidity of, or the trading market for, the Offered Securities.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, 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 Company may
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject and
(ii) if the Offered Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by Contracts.
EXPERTS
The consolidated financial statements and related financial statement
schedule of the Company appearing in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
related financial statement schedule are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 1996 and March 31, 1995,
the three-month and six-month periods ended June 30, 1996 and June 30, 1995, and
the three-month and nine-month periods ended September 30, 1996 and September
30, 1995, incorporated by reference in this Prospectus, Ernst & Young LLP have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
reports, included in the Company's Quarterly Reports on Form 10-Q for
27
<PAGE> 45
the quarters ended March 31, 1996, June 30, 1996, and September 30, 1996, and
incorporated herein by reference, state that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted
considering the limited nature of the review procedures applied.
LEGAL MATTERS
The validity of the Debt Securities and Warrants and certain tax matters
described in "Federal Income Tax Considerations" will be passed upon for the
Company by Gibson, Dunn & Crutcher LLP, Los Angeles, California and the validity
of the Common Stock and Preferred Stock offered hereby will be passed upon for
the Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Gibson,
Dunn & Crutcher LLP will rely as to certain matters of Maryland law, including
the legality of the Common Stock and Preferred Stock, on the opinion of Ballard
Spahr Andrews & Ingersoll.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... S-3
Prospectus Supplement Summary........... S-4
The Company........................... S-4
Recent Developments................... S-5
The Properties........................ S-7
The Offering.......................... S-11
Distribution Policy................... S-11
Summary Selected Financial Data....... S-12
Risk Factors............................ S-13
Use of Proceeds......................... S-14
Capitalization.......................... S-15
Price Range of Common Stock and
Distributions......................... S-15
Underwriting............................ S-16
Legal Matters........................... S-17
Experts................................. S-17
PROSPECTUS
Available Information................... 2
Incorporation of Certain Documents by
Reference............................. 2
The Company............................. 4
Tax Status of the Company............... 4
Use of Proceeds......................... 4
Earnings to Fixed Charges Ratios........ 4
Description of Debt Securities.......... 5
Description of Stock.................... 14
Description of Warrants................. 19
Federal Income Tax Considerations....... 20
Plan of Distribution.................... 27
Experts................................. 28
Legal Matters........................... 28
</TABLE>
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1,600,000 SHARES
THE PRICE REIT, INC.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
SUTRO & CO. INCORPORATED
JANUARY 15, 1997
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