<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)
THE PRICE REIT, INC.
$50,000,000
7 1/8% SENIOR NOTES DUE 2004
------------------------
The Price REIT, Inc., a Maryland corporation (the "Company"), will issue
7 1/8% Senior Notes Due 2004 (the "Notes") offered hereby (the "Offering"), in
an aggregate principal amount of $50,000,000. Interest on the Notes is payable
semi-annually in arrears on each June 15 and December 15, commencing December
15, 1997. The Notes are not subject to any mandatory sinking fund. See
"Description of the Notes." The Notes will mature on June 15, 2004, and are
redeemable at any time, at the option of the Company, in whole or in part, at a
redemption price equal to the sum of (i) the principal of the Notes being
redeemed plus accrued interest to the redemption date and (ii) the Make-Whole
Amount (as hereinafter defined), if any. See "Description of the
Notes -- Maturity" and "Description of the Notes -- Optional Redemption."
The Notes will be represented by a single fully-registered Note in
book-entry form (the "Global Note") registered in the name of the nominee of The
Depository Trust Company ("DTC"). Currently, there is no market for the Notes.
In addition, the Company does not intend to list the Notes on any securities
exchange. Beneficial interests in the Global Note will be shown on, and
transfers thereof will be effected only through, records maintained by DTC (with
respect to beneficial interests of beneficial owners). Owners of beneficial
interests in the Global Note will be entitled to physical delivery of Notes in
certificated form equal in principal amount to their respective beneficial
interests only under the limited circumstances described under "Description of
the Notes -- Book Entry System." Settlement for the Notes will be made in
immediately available funds. The Notes will trade in DTC's Same-Day Funds
Settlement System until maturity or until the Notes are issued in certificated
form, and secondary market trading activity in the Notes will therefore settle
in immediately available funds. All payments of principal and interest in
respect of the Notes will be made by the Company in immediately available funds.
See "Description of the Notes -- Same-Day Settlement and Payment."
Following the application of the net proceeds of the Offering, the Notes
will be effectively subordinated to certain indebtedness, which is secured by
certain of the Company's properties. See "Business and Properties -- Recent
Developments -- Recent Acquisitions and Property Development" and "Business and
Properties -- Indebtedness."
SEE "RISK FACTORS" BEGINNING ON PAGE S-17 FOR A DISCUSSION OF CERTAIN
FACTORS RELATING TO AN INVESTMENT IN THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
=========================================================================================================
PRICE TO PROCEEDS TO
PUBLIC(1) UNDERWRITING COMPANY(1)(3)
DISCOUNT(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............................ 99.557% .65% 98.907%
- ---------------------------------------------------------------------------------------------------------
Total............................... $49,778,500 $325,000 $49,453,500
=========================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from June 19, 1997.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $175,000 payable by the Company.
------------------------
The Notes are offered by the Underwriter subject to prior sale, when, as
and if delivered to and accepted by it, subject to approval of certain legal
matters by counsel for the Underwriter and certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Global
Note will be made in New York, New York on or about June 19, 1997 against
payment therefor in immediately available funds.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus Supplement is June 13, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF NOTES TO COVER SYNDICATE
SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THOSE
ACTIVITIES, SEE "UNDERWRITING."
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary......................................................... S-3
Business and Properties............................................................... S-7
Use of Proceeds....................................................................... S-13
Capitalization........................................................................ S-14
Selected Financial Data............................................................... S-15
Risk Factors.......................................................................... S-17
Description of the Notes.............................................................. S-19
Underwriting.......................................................................... S-25
Legal Matters......................................................................... S-26
Experts............................................................................... S-26
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>
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following 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.
Capitalized terms used in this Prospectus Supplement Summary have the meanings
set forth elsewhere in the Prospectus Supplement or the accompanying Prospectus.
The property information presented herein as of March 31, 1997 includes the
Arboretum Crossing power center in Austin, Texas, which the Company acquired on
April 1, 1997 but does not include the Smoketown Stations Center in Woodbridge,
Virginia, which the Company acquired in May 1997.
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 32 properties, consisting of 27 power and community centers,
one stand alone retail warehouse, two projects under development and two
undeveloped land parcels (the "Properties") located in ten states containing a
total of 6.3 million square feet of gross leasable space with approximately 408
tenants. The overall occupancy rate of the power and community centers was
approximately 97.5% at March 31, 1997.
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, Costco, HomeBase, The Sports Authority,
Burlington Coat Factory, Target, Staples, T.J. Maxx, Circuit City, 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 and community 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 per share 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 conducts its development activities, including site
planning, construction management and leasing, primarily through its in-house
personnel.
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 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
S-3
<PAGE> 4
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.
S-4
<PAGE> 5
THE OFFERING
All capitalized terms used herein and not defined herein shall have the
meanings provided in "Description of the Notes."
SECURITIES OFFERED......... $50,000,000 aggregate principal amount of 7 1/8%
Senior Notes Due 2004 (the "Notes").
MATURITY................... June 15, 2004.
OPTIONAL REDEMPTION........ The Notes are redeemable at any time, at the option
of the Company, in whole or in part, at a
redemption price equal to the sum of (i) the
principal amount of the Notes being redeemed plus
accrued interest to the redemption date and (ii)
the Make-Whole Amount, if any. See "Description
of Notes -- Optional Redemption."
INTEREST PAYMENT DATES..... Semi-annually, on June 15 and December 15,
commencing December 15, 1997.
RANKING.................... The Notes will be senior unsecured obligations of
the Company and will rank equally with the
Company's other unsecured and unsubordinated
indebtedness, including, without limitation,
$100,000,000 aggregate principal amount of the
Company's 7 1/4% Senior Notes Due 2000 issued in
November 1995 (the "1995 Notes") and $55,000,000
aggregate principal amount of the Company's
7 1/2% Senior Notes Due 2006 issued in November
1996 (the "1996 Notes"), but will be effectively
subordinated to $11.7 million of indebtedness
that is secured by a mortgage on one of the
Company's Properties, after giving effect to the
application of the net proceeds of this Offering.
See "Business and Properties -- Indebtedness."
The Notes will be recourse to all of the assets
of the Company.
USE OF PROCEEDS............ The net proceeds to the Company from this Offering
will be used to repay indebtedness outstanding
under the Company's $75 million unsecured line of
credit (the "Line of Credit").
LIMITATIONS ON DEBT........ The Company will not incur any Debt if, after
giving effect thereto, the aggregate principal
amount of all outstanding Debt of the Company is
greater than 50% of the sum of (i) the Company's
Total Assets at the end of the Company's fiscal
quarter ended immediately prior to the incurrence
of such Debt and (ii) the aggregate purchase
price of real estate assets acquired after such
immediately preceding fiscal quarter, including
any such assets acquired in connection with the
incurrence of additional Debt. As of March 31,
1997, the Company's Total Assets (which, as
defined, includes accumulated depreciation) were
approximately $513 million.
LIMITATIONS ON SECURED
DEBT....................... The Company will not incur any Debt secured by any
mortgage or other lien upon any of its
properties, or otherwise grant any such mortgage
or other lien, if, after giving effect thereto,
the aggregate principal amount of all outstanding
Debt of the Company which is secured by any
mortgage or other lien on property is greater
than 30% of the sum of (i) the Company's Total
Assets at the end of the Company's fiscal quarter
ended immediately prior to the incurrence of such
Debt and (ii) the aggregate purchase price of
real estate assets acquired after such
immediately preceding fiscal quarter, including
any such assets acquired in connection with the
incurrence of additional Debt.
S-5
<PAGE> 6
INTEREST EXPENSE
COVERAGE................... The Company will not incur any Debt if, after
giving effect to the incurrence of such Debt, the
Company's ratio of Total Cash Flow to Total
Interest Expense, at the end of each fiscal year
of the Company, will have been less than 2:1 as
calculated on a pro forma basis after giving
effect to certain assumptions.
MAINTENANCE OF TOTAL
UNENCUMBERED ASSETS.... The Company will maintain Total Unencumbered Assets
of not less than 200% of the aggregate
outstanding principal amount of all unsecured
Debt of the Company, including the Notes offered
hereby. As of March 31, 1997, this percentage was
approximately 328%.
RESTRICTIONS ON
DISTRIBUTIONS.............. The Company will not make any payment of dividends
if the aggregate amount of dividends paid in the
twelve months preceding the dividend payment date
(including the dividends paid on such date) will
exceed 95% of its Funds From Operations in the
period of twelve consecutive months ended on the
last day of the last month ended prior to such
payment date; provided, however, that the
foregoing restriction shall not apply to any
payment of dividends or other action which is
necessary to maintain the Company's status as a
REIT for Federal income tax purposes.
For a more complete description of the terms and definitions used in the
foregoing limitations, see "Description of the Notes -- Additional Covenants of
the Company."
S-6
<PAGE> 7
BUSINESS AND PROPERTIES
The Company currently owns or has interests in 32 properties, consisting of
27 power and community centers, one stand-alone retail warehouse, two projects
under development and two vacant land parcels for future development. The
Properties have approximately 6.3 million square feet of gross leasable area
with approximately 408 tenants. Fourteen of the Properties have a Home Depot or
Costco warehouse or both located on them. Home Depot and Costco Companies, Inc.
(formerly Price/Costco, Inc.) accounted for 17.2% and 9.6%, respectively, of
annualized minimum base rental income as of March 31, 1997. 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 March 31, 1997, Costco 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.
[PRICE REIT PORTFOLIO MAP SHOWING LOCATIONS OF PRICE
REIT PROPERTIES IN THE FOLLOWING STATE: ARIZONA, CALIFORNIA, CONNECTICUT,
ILLINOIS, KANSAS, MARYLAND, NEW YORK, NORTH CAROLINA, OKLAHOMA AND VIRGINIA]
The power centers and community centers were approximately 97.5% occupied
at March 31, 1997. 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
42% of the Company's annualized minimum base rental income as of March 31, 1997
was derived from rents paid by tenants with investment-grade credit ratings as
determined by Standard & Poor's Corporation or Moody's Investors Service, Inc.
S-7
<PAGE> 8
The following schedule lists the real estate investment portfolio of the
Company as of March 31, 1997:
<TABLE>
<CAPTION>
GROSS
LEASABLE OUTSTANDING
LAND AREA ANNUALIZED MORTGAGES
YEAR AREA (SQ. FT.) NO. OF PERCENT BASE RENT(3) PAYABLE SELECTED MAJOR
LOCATION(1) COMPLETED(2) (ACRES) (THOUSANDS) TENANTS LEASED (THOUSANDS) (THOUSANDS) TENANTS
- -------------------- ------------ ------- ----------- ------- ------- ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY:
Alhambra, CA 1988 18.4 201 10 100.0% $ 2,103 None Costco, Levitz
Austin, TX(4) 1997 18.2 182 10 98.1% $ 2,581 None Babies 'R' Us,
Circuit City, Cost
Plus, Designer
Shoe Warehouse,
Just For Feet,
Mikasa
Carmichael, CA 1994 18.5 215 13 98.0% 2,227 None Home Depot, The
Sports Authority,
Longs Drugs
Cerritos, CA(5) 1987 16.3 172 12 98.3% 1,845 None Home Depot, AMC
Theaters, L.A.
Fitness
Chula Vista, CA 1988 31.3 363 20 99.6% 2,635 None Costco, HomeBase,
Levitz
Copiague, NY(6) 1990 24.6 246 5 77.2% 2,057 None Home Depot, Jack
LaLanne (Bally's
Total Fitness)
Corona, CA 1989 54.4 487 47 98.0% 5,120 None Costco, Home
Depot, Levitz,
Ross Dress for
Less, Bally's
Total Fitness,
Office Max
Dallas, TX 1995 6.8 84 6 100.0% 914 None Office Max, Ross
Dress for Less
Fairfax, VA 1993 37.0 323 6 100.0% 3,713 None Costco, Home
Depot, The Sports
Authority
Garland, TX 1991 6.3 62 3 100.0% 524 None Office Depot, Drug
(Dallas) Emporium
Glendale, AZ 1989 40.5 340 22 100.0% 3,134 None Costco, HomeBase,
Levitz
Glendale, AZ 1995 7.1 55 17 99.2% 506 (8) Sears Homelife,
(Talavi)(7) Michaels
Greensboro, NC 1996 4.4 41 6 100.0% 560 None Staples, David's
Bridal
Houston, TX 1993 40.0 426 17 100.0% 2,714 None Sears Homelife,
Oshmans Super
Sport, Best Buy,
Bed, Bath &
Beyond, Stein
Mart, Builder's
Square, Sony
Theaters
La Mirada, CA 1993 31.2 279 47 95.0% 3,345 None Toys 'R' Us, Kids
'R' Us, Sav-On
Drugs, L.A.
Fitness, Krikorian
Theatres, U.S.
Post Office
Mesquite, TX 1992 15.0 210 8 100.0% 1,480 None Sears Homelife,
(Dallas) Best Buy, General
Cinema, PetsMart
North Haven, CT 1988 31.7 332 18 97.4% 2,672 None BJ's Wholesale
Club(9), Home
Depot, Xpect Drug,
T.J. Maxx
North Phoenix, AZ 1997 17.0 216 9 100.0% 1,520 None Burlington Coat
Factory, Computer
City, Staples,
Petco, Michael's
Oklahoma City, OK 1994 19.8 234 10 93.0% 1,744 $11,722 Home Depot, Best
Buy, HomePlace
</TABLE>
S-8
<PAGE> 9
<TABLE>
<CAPTION>
GROSS
LEASABLE OUTSTANDING
LAND AREA ANNUALIZED MORTGAGES
YEAR AREA (SQ. FT.) NO. OF PERCENT BASE RENT(3) PAYABLE SELECTED MAJOR
LOCATION(1) COMPLETED(2) (ACRES) (THOUSANDS) TENANTS LEASED (THOUSANDS) (THOUSANDS) TENANTS
- -------------------- ------------ ------- ----------- ------- ------- ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oxnard, CA 1990 14.4 172 4 100.0% 1,073 None Target, Ralphs
(Food-4-Less), 24
Hour Fitness
Phoenix, AZ 1989 26.6 335 11 96.9% 2,118 None Costco, HomeBase,
PetsMart
Phoenix, AZ 1973 6.7 95 12 88.3% 354 None Home Depot, Stool
(Hayden Plaza & Dinette,
North)(7) AutoZone
Richardson, TX 1994 11.7 116 7 100.0% 924 None Office Max,
(Dallas) Bally's Total
Fitness
Tempe, AZ(7) 1994 21.1 192 26 96.8% 2,092 (8) HomeBase, The
Sports Authority,
L.A. Fitness,
PetsMart, Staples
White Marsh, MD 1991 25.3 210 7 99.0% 1,343 None Costco, The Sports
Authority, Pep
Boys,
PetsMart
Wichita, KS 1995 13.5 134 9 100.0% 1,136 None Best Buy, T.J.
Maxx, Michael's
STAND ALONE RETAIL WAREHOUSE:
Santa Ana, CA 1995 12.0 134 1 100.0% 1,765 None Home Depot
UNDER DEVELOPMENT:
Long Island, NY n/a 28.6 n/a n/a n/a n/a None
Houston (I10/Fry), n/a 23.3 n/a n/a n/a n/a None
TX(7)
VACANT LAND FOR DEVELOPMENT:
Goodyear, AZ(7) n/a 20.0 n/a n/a n/a n/a None
Houston, TX(10) n/a 9.7 n/a n/a n/a n/a None
----- ----- --- ----- ------- ------
TOTAL/AVERAGE 651.4 5,856 363 97.5% $ 52,199 $11,722
===== ===== === ===== ======= ======
</TABLE>
- ---------------
(1) The above table does not reflect the acquisition of the Woodbridge,
Virginia property in May 1997. See "Business and Properties -- Recent
Developments -- Recent Acquisitions and Property Development."
(2) 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.
(3) 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.
(4) The Austin, Texas property was acquired by the Company on April 1, 1997.
(5) The Cerritos, California property is subject to a sale agreement. See
"Business and Properties -- Recent Developments -- Pending Disposition."
(6) The Company currently intends to demolish certain buildings on a portion of
this property and to thereafter sell such portion to Target which has
indicated it intends to construct a new store. Following the consummation
of the proposed transaction the Company's occupancy rate on its property is
expected to be 100%.
(7) Reflects the Company's 50% ownership interest in the above properties,
except for the number of tenants (if applicable) which is shown at 100%.
(8) The first phase of the Tempe property and the third phase of the
Glendale-Talavi property secures a loan of $13.5 million, of which the
Company has a 50% partnership share ($6.75 million).
(9) Sublessee of Costco.
(10) This vacant land is adjacent and contiguous to the Company's center located
in Houston, Texas.
S-9
<PAGE> 10
LEASE EXPIRATION SCHEDULE
The following table shows tenant lease expirations for leases in place as
of March 31, 1997 at the Company's power centers and stand-alone retail
warehouse, beginning with the remainder of 1997 and assuming that none of the
tenants exercises any renewal options. The following table includes the Austin,
Texas property which was acquired on April 1, 1997.
<TABLE>
<CAPTION>
GROSS LEASED AREA ANNUALIZED BASE RENTAL INCOME(2)
TOTAL NUMBER OF ------------------------ -----------------------------------
NUMBER OF ANCHOR APPROXIMATE PERCENT PERCENT AVERAGE
LEASES TENANT 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>
1997(3)................... 23 1 59,324 1.04% 736,441 1.41% $12.41
1998...................... 37 2 159,877 2.80% 1,499,196 2.87% 9.38
1999...................... 42 1 139,028 2.44% 1,770,638 3.39% 12.74
2000...................... 43 3 183,246 3.21% 2,120,775 4.06% 11.57
2001...................... 35 4 211,773 3.71% 2,383,407 4.57% 11.25
2002...................... 14 0 50,103 0.88% 787,320 1.51% 15.71
2003...................... 20 6 473,903 8.31% 3,970,907 7.61% 8.38
2004...................... 11 4 141,596 2.48% 1,389,250 2.66% 9.81
2005...................... 22 5 209,685 3.67% 2,133,236 4.09% 10.17
2006...................... 17 6 629,542 11.03% 4,442,392 8.51% 7.06
2007...................... 15 8 434,208 7.61% 3,630,185 6.95% 8.36
Thereafter................ 84 48 3,014,079 52.82% 27,335,667 52.37% 9.07
--
--- --------- ------ ----------- ------ -----
Total/Average............. 363 88 5,706,364(4) 100.00% $52,199,414 100.00% $ 9.15
=== == ========= ====== =========== ====== =====
</TABLE>
- ---------------
(1) Anchor tenant leases represent leases for space with a minimum of 20,000
square feet.
(2) Information is presented as of March 31, 1997.
(3) Information for 1997 relates to leases expiring in the remaining nine
calendar months after March 31, 1997.
(4) Excludes vacant space as of March 31, 1997, which totaled approximately
150,000 square feet.
BUSINESS AND OPERATING STRATEGY
The Company's strategy is to acquire, develop, own and manage power centers
anchored by one or more national retail tenants such as Home Depot, Costco,
HomeBase, The Sports Authority, Burlington Coat Factory, Target, Staples, T. J.
Maxx, Circuit City, Toys 'R' Us or Sears Homelife. These tenants typically enter
into long-term (10 to 20 years) triple net leases which provide for contractual
rent increases and/or percentage rents. In addition, the Company seeks, through
intensive management of its Properties, to continually improve the mix and
quality of smaller tenants which generally enter into shorter term (5 to 10
years) triple net leases that also provide for contractual rent increases and,
in certain cases, percentage rents. The Company's business objective is to
continue to increase its funds from operations per share through the acquisition
and development of additional properties, contractual rent increases and
percentage rents, reletting of existing space at higher rents and expansion or
remodeling of existing Properties. The Company generally intends to hold its
Properties for long-term investment. However, the Company may dispose of a
property if it deems such disposition to be advantageous.
The Company intends to pursue opportunities for acquisitions with expansion
potential and to develop additional power centers and stand-alone retail
warehouses. The Company conducts its development activities, including site
planning, construction management and leasing, primarily through in-house
personnel. The Company believes that under current economic and financial
conditions, excellent opportunities continue to exist for buyers and developers
of shopping centers who have access to capital. This belief is based upon
several factors, including the shortage of financing for shopping center
development from traditional sources and economic factors that continue to force
many developers and lending institutions to liquidate their real estate
holdings. There can be no assurance, however, that acquisition or development
opportunities consistent with the Company's strategy will be available to the
Company, or, if available, will be available on terms favorable to the Company.
S-10
<PAGE> 11
The Company's geographic focus has been on metropolitan areas in the
southwestern and eastern United States. As the Company seeks acquisition and
development opportunities, it will focus on metropolitan areas throughout the
country.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS AND PROPERTY DEVELOPMENT
- VIRGINIA ACQUISITION. On May 14, 1997, the Company acquired Smoketown
Stations Center located in Woodbridge, Virginia. Smoketown Stations Center
contains 483,000 rentable square feet and is anchored by Lowe's Home
Center, Shoppers Food Warehouse, Kids 'R' Us, Zany Brainy, Super Trak
Auto, Best Buy, PetsMart and Super Crown Books and is 94% leased. The
purchase price of this property was $46.5 million.
- AUSTIN ACQUISITION. On April 1, 1997, the Company acquired Arboretum
Crossing located in Austin, Texas. Arboretum Crossing contains 182,000
rentable square feet and is anchored by Circuit City, Babies 'R' Us, Cost
Plus, Designer Shoe Warehouse, Just for Feet and Mikasa and is 98% leased.
The purchase price of this property was $23.4 million.
- GREENSBORO ACQUISITION. On March 31, 1997, the Company acquired Wendover
Ridge Retail Center located in Greensboro, North Carolina. Wendover Ridge
contains 41,000 rentable square feet and is anchored by Staples and
David's Bridal and is 100% leased. The purchase price of this property was
$4.98 million.
- DALLAS ACQUISITION. On March 28, 1997, the Company acquired City Place
Market located in Dallas, Texas. City Place Market contains 84,000
rentable square feet and is anchored by Office Max and Ross Dress for Less
and is 100% leased. The purchase price of the property was $8.75 million.
- RICHARDSON ACQUISITION. On March 20, 1997, the Company acquired
Richardson Plaza Shopping Center located in Richardson, Texas. Richardson
Plaza contains 116,000 rentable square feet and is anchored by Office Max
and Bally's Total Fitness and is 100% leased. The purchase price of the
property was $8.5 million.
- GARLAND ACQUISITION. On March 19, 1997 the Company acquired the
Broadmoor Village Shopping Center located in Garland, Texas. Broadmoor
Village contains 62,000 rentable square feet and is anchored by Drug
Emporium, Office Depot and Blockbuster Music and is 100% leased. The
purchase price of this property was $4.75 million.
- KANSAS ACQUISITION. On January 16, 1997, the Company acquired Westgate
Market located in Wichita, Kansas. Westgate Market contains 134,000
rentable square feet and is anchored by Best Buy, T.J. Maxx and Michael's
and is 100% leased. The purchase price of this property was $9.8 million.
- 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, will be 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. The
center is in its final construction phase and the Company expects that it
will be completed by the end of the third quarter of 1997, although no
assurance can be given that it will be completed on schedule. See "Risk
Factors -- General Real Estate Investment Risks -- Risks of Development
Activities."
PENDING DISPOSITION
The Company has entered into an agreement to sell its Cerritos, California
property for $17.4 million in cash, subject to certain adjustments. The
transaction is tentatively scheduled to close in late June, 1997. Because the
sale remains subject to a number of conditions to closing, no assurance may be
given that the sale will be consummated.
S-11
<PAGE> 12
OTHER RECENT DEVELOPMENTS
- 1997 COMMON STOCK OFFERING. In January 1997, the Company issued and sold
1,600,000 shares of Common Stock at a price to the public of $37.625 per
share. The Company used the net proceeds of approximately $56.8 million to
fund acquisition and development activities and to repay indebtedness
under the Company's Line of Credit.
- 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.
- 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 $65 million
of Securities pursuant to the 1996 Shelf Registration Statement.
- 1996 SENIOR NOTES ISSUANCE. In November 1996, the Company issued $55
million aggregate principal amount of the Company's 1996 Notes. 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.
- INTEREST RATE REDUCTION. On October 23, 1996, the Company announced that
the interest rate on its Line of Credit had been reduced by 15 basis
points to 125 basis points above the LIBOR rate.
- 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. The Company's senior debt is also
rated "BBB-" by Standard & Poor's Corporation and "BBB" by Fitch Investors
Service, L.P.
- 1996 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 Line of Credit and for general
corporate purposes.
INDEBTEDNESS
As of March 31, 1997, the Company's total aggregate indebtedness was $165.9
million, consisting of $154.2 million of outstanding indebtedness with respect
to its outstanding 1995 Notes and 1996 Notes and $11.7 million of outstanding
notes payable that are secured by a mortgage on one of its Properties. The two
notes payable with an aggregate of $11.7 million outstanding principal balance
are due in June 2013 and December 2014, respectively. As of March 31, 1997, on a
pro forma basis, after giving effect to the application of the net proceeds from
this offering (the "Offering") as described in "Use of Proceeds" total aggregate
indebtedness would have been approximately $226.6 million. See "Capitalization"
and "Business and Properties -- Recent Developments -- Recent Acquisitions and
Property Development."
S-12
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby,
after payment of expenses related to the Offering and underwriting discounts and
commissions, are estimated to be approximately $49.3 million. The Company will
use such net proceeds to repay indebtedness outstanding under the Company's Line
of Credit. Pending such use, 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.
After the repayment of indebtedness under the Company's Line of Credit with
the net proceeds of the Offering, the Company may borrow under the Line of
Credit to fund its future acquisition and development activities.
As of June 13, 1997, the weighted average interest rate on the indebtedness
expected to be repaid with the net proceeds of the Offering was a variable rate
of approximately 6.9%, and the maturity date of such indebtedness is October 25,
1997.
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<PAGE> 14
CAPITALIZATION
The following table sets forth, as of March 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
giving effect to the incurrence of additional indebtedness under the Company's
Line of Credit in connection with the acquisition of the Austin, Texas property
($14.0 million) in April 1997 and the acquisition of the Woodbridge, Virginia
property ($46.0 million) in May 1997 and (iii) the pro forma capitalization of
the Company as adjusted to reflect the issuance and sale of the Notes.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
Unsecured Line of Credit........................... $ -- $ 60,000 $ 10,721
Senior Notes payable due 2000...................... 99,285 99,285 99,285
Senior Notes payable due 2006...................... 54,874 54,874 54,874
Senior Notes payable due 2004...................... -- -- 50,000
Secured notes payable.............................. 11,722 11,722 11,722
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value; 2,000,000 shares
authorized, no shares issued or outstanding..... -- -- --
Common Stock, $0.01 par value; 25,000,000 shares
authorized, 10,678,936 shares issued and
outstanding(1).................................. 107 107 107
Additional paid-in capital......................... 316,855 316,855 316,855
Accumulated deficit................................ (24,926) (24,926) (24,926)
-------- -------- --------
Total stockholders' equity...................... 292,036 292,036 292,036
-------- -------- --------
Total capitalization....................... $457,917 $517,917 $518,638
======== ======== ========
</TABLE>
- ---------------
(1) Does not include approximately 752,000 shares of Common Stock reserved for
issuance pursuant to stock option agreements that the Company has entered
into with certain of its officers and directors. See "Description of
Stock -- General" in the accompanying Prospectus.
S-14
<PAGE> 15
SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1996, are derived from the audited consolidated financial statements of the
Company. The financial data for the three month periods ended March 31, 1997 and
1996 are derived from the Company's unaudited interim financial statements. The
unaudited interim financial statements include all adjustments, consisting of
normal recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997. The data should be read in conjunction with the
consolidated financial statements, notes thereto and Management's Discussion and
Analysis of Financial Condition and Result of Operations, included in the
Company's 1996 Annual Report on Form 10-K and its Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, all of which are incorporated herein by
reference.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
-------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Total revenues............................................... $ 15,308 $13,430 $54,325 $43,523 $39,925 $27,794 $18,815
Interest expense............................................. 3,025 2,980 12,071 6,939 4,085 4,257 3,203
Net income................................................... 5,446 4,058 16,919 16,386 16,904 9,128 4,118
Dividends.................................................... 7,747 5,839 24,336 22,038 20,859 12,128 6,610
Per Share:
Net Income................................................. 0.53 0.49 1.98 1.98 2.07 1.84 1.41
Dividends(2)............................................... 0.725 0.70 2.80 2.67 2.56 2.38 2.26
Average shares outstanding................................... 10,297 8,316 8,560 8,259 8,165 4,957 2,928
OTHER DATA:
Funds From Operations(3)..................................... 8,756 7,065 29,456 26,582 26,271 15,529 8,077
Ratio of earnings to fixed charges(4)........................ 2.49x 2.32x 2.31x 3.17x 4.73x 3.07x 2.28x
Total rentable square footage of
Properties at end of period(5)............................. 5,856 4,644 5,188 4,628 3,662 3,317 2,196
Number of Properties at end of period (5).................... 31 20 24 19 14 12 8
Occupancy rate at end of period.............................. 98% 98% 98% 98% 98% 98% 98%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental property, net.................................... $419,842 $380,482 $351,585 $287,259 $284,721 $186,479
Total assets............................................ 467,974 428,071 382,478 312,419 292,195 190,010
Total debt.............................................. 165,881 184,908 157,832 86,750 65,000 76,980
Minority interest....................................... 2,464 1,707 -- -- -- 42,628
Total stockholders' equity.............................. 292,036 236,982 221,238 224,600 226,261 68,731
</TABLE>
- ---------------
(1) Except as described in footnote (5) below, the information presented above
does not include the operations of the Company's Austin, Texas property.
(2) Prior to August 1993, the Company's outstanding stock consisted entirely of
Series A Common Stock. The per share dividends for 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, 1996 and the three-month periods ended March 31, 1996 and March
31, 1997 represent dividends paid to holders of Common Stock. The per share
dividends paid for the three months ended March 31, 1996 to the holders of
its Series A Common Stock (which was converted into Common Stock in May
1996) was $0.67. Dividends for the fourth quarter of 1993, the full years of
1994 and 1995, and the first
S-15
<PAGE> 16
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.
(3) 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
account 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.
(4) 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.
(5) The Austin, Texas property which was acquired by the Company in April 1997
is included in the total rentable square footage of Properties and number of
Properties for the three months ended March 31, 1997.
S-16
<PAGE> 17
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. 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 Notes in this
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-17
<PAGE> 18
RELIANCE ON MAJOR TENANTS
As of March 31, 1997, the Company's real estate portfolio generated total
annualized minimum base rental income of approximately $52.2 million. The
Company's three largest tenants, Home Depot, Costco and HomeBase, accounted for
approximately 17.2%, 9.6% and 5.5%, respectively, of annualized minimum base
rental income as of March 31, 1997, and the Company's seven largest tenants
accounted for approximately 43.6% 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.
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 (as defined below) 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.
S-18
<PAGE> 19
DESCRIPTION OF THE NOTES
The following description of the particular terms of the Notes offered
hereby (which are included in the "Debt Securities" described in the
accompanying Prospectus) supplements, and, to the extent inconsistent therewith,
replaces the description of the general terms and provisions of Debt Securities
set forth in the accompanying Prospectus, to which description reference is
hereby made. The following statements relating to the Notes and the Indenture
(as hereinafter defined) are summaries of provisions contained therein and do
not purport to be complete. Such statements are qualified by reference to the
provisions of the Notes and the Indenture including the definitions therein of
certain terms. (Capitalized terms not otherwise defined herein shall have the
meanings given to them in the accompanying Prospectus.)
GENERAL
The Notes are to be issued pursuant to an Indenture, dated as of October
27, 1995 (the "Indenture"), between the Company and First Trust of California,
National Association as trustee (the "Trustee"). The Notes will be limited to
$50,000,000 in aggregate principal amount. The terms of the Notes include those
provisions contained in the Notes and the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"). The Notes are subject to all such terms, and holders of Notes are
referred to the Notes and the Indenture and the TIA for a statement thereof.
Copies of the Indenture and the form of the Notes are available for inspection
at the office of the Trustee located at 550 South Hope Street, Los Angeles,
California 90071 (the "Corporate Trust Office").
The Notes will be direct, unsecured and unsubordinated obligations of the
Company and will rank equally with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding, including the
Company's 1995 Notes and the 1996 Notes. However, the Notes will be effectively
subordinated to mortgages and other secured indebtedness of the Company. Upon
consummation of this Offering, the aggregate secured indebtedness of the Company
will be $11.7 million. See "Business and Properties -- Recent
Developments -- Recent Acquisitions and Property Development." Adjusted on a pro
forma basis for this Offering and the acquisition of the Austin, Texas and
Woodbridge, Virginia properties, the total outstanding indebtedness of the
Company as of March 31, 1997 was $226.6 million. See "Capitalization." Subject
to certain limitations set forth in the Notes and the Indenture described below
under the caption "Description of the Notes -- Additional Covenants of the
Company," the Indenture will permit the Company to incur additional indebtedness
and additional secured indebtedness.
The Notes will be issued only in fully registered, book-entry form, in
denominations of $1,000 and integral multiples thereof, except under the limited
circumstances described below under "Description of the Notes -- Book-Entry
System."
Except as described under "Description of Debt Securities -- Certain
Covenants -- Existence," "Description of Debt Securities -- Merger,
Consolidation or Sale" and "Description of Debt Securities Events of Default,
Notice and Waiver" in the accompanying Prospectus and under "Description of the
Notes -- Additional Covenants of the Company" below, the Notes and the Indenture
do not contain any other provisions that would afford Holders (as defined below)
of the Notes protection in the event of (i) a highly leveraged or similar
transaction involving the Company, the management of the Company, or any
affiliate of either such party, (ii) a change of control or (iii) a
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect the Holders of the Notes. In addition, subject
to the limitations set forth under "Description of Debt Securities -- Merger,
Consolidation or Sale" in the accompanying Prospectus, the Company may, in the
future, enter into certain transactions such as the sale of all or substantially
all of its assets or the merger or consolidation of the Company that would
increase the amount of the Company's indebtedness or substantially reduce or
eliminate the Company's assets, and which may have an adverse effect on the
Company's ability to service its indebtedness, including the Notes.
The Company has no present intention of engaging in a highly leveraged or
similar transaction involving the Company. In addition, certain restrictions on
ownership and transfers of the Company's capital stock designed to preserve its
status as a REIT may act to prevent or hinder any such transaction or a change
of control.
S-19
<PAGE> 20
PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES
Interest on the Notes will accrue at the rate set forth on the cover page
of this Prospectus Supplement from June 19, 1997, or the most recent Interest
Payment Date (as defined below) to which interest has been paid or provided for,
and will be payable in U.S. dollars semi-annually in arrears on June 15 and
December 15 of each year (each, an "Interest Payment Date"), commencing December
15, 1997, and on the Maturity Date (as hereinafter defined). The interest so
payable will be paid to the person (the "Holder") in whose name the applicable
Note is registered at the close of business on the date (whether or not a
Business Day, as defined below) fifteen calendar days preceding the applicable
Interest Payment Date or the Maturity Date (each, a "Regular Record Date"). The
principal of each Note payable on the Maturity Date will be paid against
presentation and surrender thereof at the Corporate Trust Office of the Trustee,
in U.S. Dollars. Interest on the Notes will be computed on the basis of a
360-day year consisting of twelve 30-day months.
MATURITY
The Notes will mature on June 15, 2004 (the "Maturity Date"). The Notes may
be redeemed at any time at the option of the Company. See "-- Optional
Redemption." In addition, the Notes will not be entitled to the benefit of any
sinking fund.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time, at the option of the Company, in
whole or from time to time in part, at a redemption price equal to the sum of
(i) the principal amount of the Notes (or portion thereof) being redeemed plus
accrued interest thereon to the redemption date and (ii) the Make-Whole Amount
(as defined below), if any, with respect to such Notes (or portion thereof) (the
"Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice, such
Notes (or any portion thereof) will cease to bear interest on the date fixed for
such redemption specified in such notice and the only right of the Holders of
such Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes (or any portion thereof)
will be given to Holders at their addresses, as shown in the security register
for such Notes, not more than 60 nor less than 30 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal amount of the Notes held by such Holder to be
redeemed.
The Company will notify the Trustee at least 45 days prior to giving notice
of redemption (or such shorter period as is satisfactory to the Trustee) of the
aggregate principal amount of such Notes to be redeemed and their redemption
date. If less than all of the Notes are to be redeemed at the option of the
Company, the Trustee shall select, in such manner as it shall deem fair and
appropriate, such Notes to be redeemed in whole or in part.
As used herein:
Make-Whole Amount means, in connection with any optional redemption of
any Notes, the excess, if any, of (i) the aggregate present value as of the
date of such redemption of each dollar of principal being redeemed and the
amount of interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of each such dollar if
such redemption had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given) from the respective dates on which such principal and
interest would have been payable if such redemption had not been made, over
(ii) the aggregate principal amount of the Notes being redeemed or paid.
Reinvestment Rate means 0.25% plus the arithmetic mean of the yields
under the respective heading "Week Ending" published in the most recent
Statistical Release under the caption "Treasury Constant Maturities" for
the maturity (rounded to the nearest month) corresponding to the remaining
life to
S-20
<PAGE> 21
maturity, as of the payment date of the principal being redeemed or paid.
If no maturity exactly corresponds to such maturity, yields for the two
published maturities most closely corresponding to such maturity shall be
calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding in each of such relevant periods to the
nearest month. For the purpose of calculating the Reinvestment Rate, the
most recent Statistical Release published prior to the date of
determination of the Make-Whole Amount shall be used.
Statistical Release means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded
United States government securities adjusted to constant maturities, or, if
such statistical release is not published at the time of any determination
under the Indenture, then such other reasonably comparable index which
shall be designated by the Company.
ADDITIONAL COVENANTS OF THE COMPANY
Reference is made to the section entitled "Description of Debt Securities"
in the accompanying Prospectus for a description of the covenants applicable to
the Notes. Compliance with such covenants, and those described herein, generally
may not be waived by the Company's Board of Directors or the Trustee unless the
Holders of at least a majority in principal amount of all outstanding Notes
consent to such waiver, provided, however, that the defeasance and covenant
defeasance provisions of the Indenture described under "Description of Debt
Securities -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus will apply to the Notes.
In addition to the foregoing, the Notes contain the following additional
covenants of the Company for the benefit of the Holders of the Notes:
Limitation on Debt. The Company will not, and will not permit any
subsidiary to, incur any Debt if, after giving effect thereto, the aggregate
outstanding principal amount of all Debt of the Company and its subsidiaries is
greater than fifty percent (50%) of the sum of (i) the Company's Total Assets at
the end of the Company's fiscal quarter ended immediately prior to the
incurrence of such Debt and (ii) the aggregate purchase price of real estate
assets acquired after such immediately preceding fiscal quarter, including any
such assets acquired in connection with the incurrence of such additional Debt.
Limitation on Secured Debt. The Company will not, and will not permit any
subsidiary to, incur any Debt secured by any mortgage or other lien upon any of
its properties, and will not otherwise grant or convey any such mortgage or
other lien, if, after giving effect thereto, the aggregate outstanding principal
amount of secured Debt is greater than thirty percent (30%) of the sum of (i)
the Company's Total Assets, at the end of the Company's fiscal quarter ended
immediately prior to the incurrence of such Debt and (ii) the aggregate purchase
price of real estate assets acquired after such immediately preceding fiscal
quarter, including any such assets acquired in connection with the incurrence of
such additional Debt.
Interest Expense Coverage. The Company will not incur any Debt if, after
giving effect to the incurrence of such Debt, the Company's ratio of Total Cash
Flow to Total Interest Expense, at the end of each fiscal year of the Company,
will have been less than 2:1, on a pro forma basis after giving effect thereto
and to the application of the proceeds therefrom, and calculated on the
assumption that (i) such Debt and any other Debt incurred by the Company since
the first day of such fiscal year and the application of the proceeds therefrom,
including to refinance other Debt, had occurred at the beginning of such fiscal
year; (ii) the repayment or retirement of any other Debt by the Company since
the first day of such fiscal year had been repaid or retired at the beginning of
such period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period); (iii) in the case of Acquired Debt or
Debt incurred in connection with any acquisition since the first day of such
fiscal year, the related acquisition had occurred as of the first day of such
period with the appropriate adjustments with respect to such acquisition being
included in such pro forma calculation; and (iv) in the case of any acquisition
or disposition by the Company of any asset or group of assets since the first
day of such fiscal year, whether by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or
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<PAGE> 22
disposition or any related repayment of Debt had occurred as of the first day of
such period with the appropriate adjustments with respect to such acquisition or
disposition being included in such pro forma calculation.
Maintenance of Total Unencumbered Assets. The Company will maintain at all
times Total Unencumbered Assets of not less than 200% of the aggregate
outstanding principal amount of all unsecured Debt of the Company.
Restrictions on Distributions. The Company will not make any payment of
dividends if the aggregate amount of dividends paid in the twelve months
preceding the dividend payment date (including the dividends paid on such date)
will exceed 95% of its Funds From Operations in the period of twelve consecutive
months ended on the last day of the last month ended prior to such payment date;
provided, however, that the foregoing restriction shall not apply to any payment
of dividends or other action which is necessary to maintain the Company's status
as a REIT for Federal income tax purposes.
As used in the Notes, the following terms have the meanings set forth
below:
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
becomes a subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a subsidiary.
"Debt" means any indebtedness of the Company or any subsidiary, in respect
of (i) borrowed money or evidenced by bonds, notes, debentures or similar
instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned by the Company
or any subsidiary, (iii) letters of credit or amounts representing the balance
deferred and unpaid of the purchase price of any property except any such
balance that constitutes an accrued expense or trade payable or (iv) capitalized
leases, in the case of items of indebtedness under (i) through (iii) above to
the extent that any such items (other than letters of credit) would appear as a
liability on the Company's Consolidated Balance Sheet in accordance with GAAP,
and also includes, to the extent not otherwise included, any obligation by the
Company or any subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), indebtedness of another person (other than the Company or any
subsidiary).
"Funds From Operations" means consolidated net income, computed in
accordance with GAAP, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect Funds From
Operations on the same basis. The Company computes Funds From Operations in
accordance with standards established by NAREIT.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Total Assets" means total assets of the Company on a consolidated basis,
computed in accordance with GAAP, plus accumulated depreciation.
"Total Cash Flow" means, for any period, consolidated net income of the
Company, computed in accordance with GAAP, excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, Total
Interest Expense, and provisions for income taxes, all to the extent deducted in
computing consolidated net income and after adjustments for deferred rent and
unconsolidated partnerships and joint ventures.
"Total Interest Expense" means, for any period, the aggregate amount,
computed in accordance with GAAP, of interest expense incurred during such
period by the Company on a consolidated basis in respect of all Debt, including
interest capitalized to construction-in-process; less amortization of
capitalized loan fees, costs and expenses incurred in connection with such Debt
or in connection with interest rate caps, collars,
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<PAGE> 23
swaps, or similar agreements in respect of any such Debt, all to the extent
included in the computation of interest expense.
"Total Unencumbered Assets" means the aggregate book value of all assets of
the Company and its subsidiaries, plus accumulated depreciation, which are not
subject to any mortgage, pledge, lien, security interest or other encumbrance.
BOOK-ENTRY SYSTEM
Each Note will be issued in the form of a single fully-registered Note in
book-entry form (each, a "Global Note") which will be deposited with, or on
behalf of, The Depository Trust Company ("DTC") and registered in the name of
DTC's nominee. Except as set forth below, a Global Note may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole Holder of the
Notes represented by such Global Note for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in a Global Note will
not be entitled to have Notes represented by such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
Notes of such series in certificated form and will not be considered the
registered owners or Holders thereof under the Indenture.
If (i) DTC is at any time unwilling or unable to continue as depository or
if any time DTC ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and a successor
depository is not appointed by the Company within 90 days, (ii) an Event of
Default under the Indenture or the Supplemental Indenture with respect to the
Notes has occurred and is continuing and the beneficial owners representing a
majority in principal amount of the Notes represented by a Global Note advise
DTC to cease acting as depository or (iii) the Company, in its sole discretion,
determines at any time that the Notes shall no longer be represented by a Global
Note, the Company will issue individual Notes of the applicable in certificated
form in exchange for the related Global Note. In any such instance, an owner of
a beneficial interest in such Global Note will be entitled to physical delivery
of individual Notes in certificated form of like series and tenor, equal in
principal amount to such beneficial interest and to have such Notes in
certificated form registered in its name. Notes so issued in certificated form
will be issued in denominations of $1,000 or any integral multiple thereof, and
will be issued in registered form only, without coupons.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Notes. The Notes will be
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully registered Note certificate is
issued in the aggregate principal amount of the Notes.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act, DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on
file with the Securities and Exchange Commission.
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<PAGE> 24
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each actual purchaser of each Note
("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written
confirmation from DTC of its purchase, but such Beneficial Owner is
expected to receive a written confirmation providing details of the
transaction, as well as periodic statements of its holdings, from the
Direct or Indirect Participant through which such Beneficial Owner entered
into the transaction. Transfers of ownership interests in Notes are
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners do not receive certificates
representing their ownership interests in the Notes, except in the event
that use of the book-entry system for the Notes is discontinued.
To facilitate subsequent transfers, the Notes are registered in the
name of DTC's partnership nominee, Cede & Co. The deposit of the Notes with
DTC and their registration in the name of Cede & Co. effects no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners
of the Notes; DTC records reflect only the identity of the Direct
Participants to whose accounts the Notes are credited, which may or may not
be the Beneficial Owners. The Participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Notes. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co's consenting or voting rights to those Direct
Participants to whose accounts the Notes are credited on the record date
(identified on a list attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made by the
Company to the Trustee and from the Trustee to DTC. DTC's practice is to
credit Direct Participant's accounts on the payable date in accordance with
their respective holdings as shown on DTC's records unless DTC has reason
to believe that it will not receive payment on the payable date. Payments
by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held
for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of DTC,
the Trustee or the Company subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal
and interest to DTC is the responsibility of the Company or the Trustee,
disbursement of such payments to Direct Participants is the responsibility
of DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a
successor securities depository is not appointed, Note certificates are
required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that
event, Note certificates will be printed and delivered.
None of the Company, the Underwriter or the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in a Global Note, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
S-24
<PAGE> 25
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriter in immediately
available funds. All payments of principal and interest in respect of the Notes,
will be made by the Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity, or until
the Notes are issued in certificated form, and secondary market trading activity
in the Notes will therefore be required by DTC to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
UNDERWRITING
Subject to the terms and conditions contained in a purchase agreement dated
June 13, 1997 (the "Underwriting Agreement"), the Company has agreed to sell to
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"), and the
Underwriter has agreed to purchase from the Company, the principal amount of
Notes set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................... $50,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent, and that the Underwriter will be
obligated to purchase all of the Notes if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
the Notes to the public at the public offering price set forth on the cover page
of this Prospectus Supplement, and to certain dealers at such price less a
concession not in excess of .4% of principal amount thereof. The Underwriter may
allow, and such dealers may reallow, a discount not in excess of .25% of
principal amount to certain other dealers. After the initial public offering of
the Notes, the public offering price, concession and discount may be changed.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriter may be required to make in respect
thereof.
The Company has not applied for listing of the Notes on any securities
exchange. The Notes are a new issue of securities with no established trading
market. The Company has been advised by the Underwriter that the Underwriter
intends to make a market in the Notes as permitted by applicable laws and
regulations, but the Underwriter is not obligated to do so and may discontinue
market-making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
Rules of the Securities and Exchange Commission permit the Underwriter to
engage in certain transactions that stabilize the price of the Notes. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Notes.
If the Underwriter creates a short position in the Notes in connection with
this Offering (i.e., if it sells more Notes than are set forth on the cover page
of this Prospectus Supplement), the Underwriter may reduce that short position
by purchasing Notes in the open market.
The Underwriter may also impose a penalty bid on selling group members.
This means that if the Underwriter purchases Notes in the open market to reduce
the Underwriter's short position or to stabilize the price of the Notes, it may
reclaim the amount of the selling concession from the selling group members who
sold those Notes as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition
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<PAGE> 26
of a penalty bid might also have an effect on the price of a security to the
extent that it were to discourage resales of the security.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Company nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Gibson, Dunn & Crutcher LLP, Los Angeles, California. Certain legal
matters relating to the Offering will be passed upon for the Underwriter by
Latham & Watkins, Los Angeles, California. Gibson, Dunn & Crutcher LLP and
Latham & Watkins will rely as to all matters of Maryland law, including the
legality of the Notes, on the opinion of Ballard Spahr Andrews & Ingersoll,
Baltimore, Maryland.
EXPERTS
The consolidated financial statements and financial statement schedule
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, incorporated by reference in the accompanying Prospectus, 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 have been 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, 1997 and March 31, 1996,
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
report included in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, and incorporated in the accompanying Prospectus by
reference, states that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted considering the limited nature
of the review procedures applied. The independent auditors are not subject to
the liability provisions of Section 11 of the Securities Act of 1933 (the "Act")
for their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the auditors within the meaning of Sections 7 and 11 of the Act.
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<PAGE> 27
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> 28
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> 29
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.
3
<PAGE> 30
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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(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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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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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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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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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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(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
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<PAGE> 54
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 PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary....... S-3
Business and Properties............. S-7
Use of Proceeds..................... S-13
Capitalization...................... S-14
Selected Financial Data............. S-15
Risk Factors........................ S-17
Description of the Notes............ S-19
Underwriting........................ S-25
Legal Matters....................... S-26
Experts............................. S-26
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>
======================================================
$50,000,000
THE PRICE REIT, INC.
7 1/8% SENIOR NOTES DUE 2004
-------------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------------
MERRILL LYNCH & CO.
JUNE 13, 1997
======================================================
