<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-37247
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 29, 1998)
12,000,000 SHARES
GENERAL GROWTH PROPERTIES, INC. LOGO
DEPOSITARY SHARES
EACH REPRESENTING 1/40 OF A SHARE OF
7.25% PREFERRED INCOME EQUITY REDEEMABLE STOCKSM, SERIES A ("PIERSSM")
(LIQUIDATION PREFERENCE EQUIVALENT TO $25.00 PER DEPOSITARY SHARE)
-----------------
Each Depositary Share (a "Depositary Share") offered hereby (the "Offering")
represents ownership of 1/40 of a share of 7.25% Preferred Income Equity
Redeemable StockSM, Series A, a series of preferred stock, par value $100 per
share (the "PIERS"), of General Growth Properties, Inc., a Delaware
corporation (the "Company"), to be deposited with Norwest Bank Minnesota,
N.A., as Depositary, and, through the Depositary, entitles the holder,
proportionately, to all rights, preferences and privileges of the PIERS
represented thereby. The liquidation preference of each PIERS is $1,000.00
(equivalent to $25.00 per Depositary Share). See "Description of Depositary
Shares."
Dividends on the PIERS are cumulative from the date of original issue and
are payable in arrears quarterly on or about the fifteenth day of January,
April, July and October of each year, commencing on October 15, 1998, in an
amount per PIERS equal to the greater of (i) 7.25% of the liquidation
preference per annum (equivalent to $1.8125 per annum per Depositary Share)
and (ii) the cash dividends paid or payable (determined on each of the
Dividend Payment Dates for the PIERS), on that number of shares of common
stock, par value $.10 per share, of the Company ("Common Stock") equal to the
number of shares of Common Stock (or portion thereof) into which a PIERS is
convertible.
The PIERS are convertible at any time, in whole or in part, at the option of
the holder, unless previously redeemed, into shares of Common Stock at an
initial conversion price of $39.70 per share of Common Stock (equivalent to a
conversion rate of 0.6297 shares of Common Stock for each Depositary Share),
subject to adjustment in certain circumstances described herein (the
"Conversion Price").
Except in certain circumstances relating to the preservation of the
Company's status as a real estate investment trust for federal income tax
purposes, the PIERS (and the Depositary Shares representing such PIERS) are
not redeemable prior to July 15, 2003. On and after July 15, 2003, the PIERS
(and the Depositary Shares) will be redeemable by the Company, in whole or in
part, at the option of the Company, for such number of shares of Common Stock
as are issuable at the Conversion Price, provided that the Company may
exercise this option only if for 20 trading days within any 30 consecutive
trading days, including the last trading day of such period, the closing price
of the Common Stock on the New York Stock Exchange ("NYSE") exceeds $45.65 per
share, subject to adjustment in certain circumstances. On and after July 15,
2003, the PIERS (and the Depositary Shares) may also be redeemed at the option
of the Company, in whole or in part, initially at $1,032.22 per PIERS
(equivalent to $25.8055 per Depositary Share) and thereafter at prices
declining to $1,000.00 per PIERS (equivalent to $25.00 per Depositary Share)
on and after July 15, 2007, plus in each case accrued and unpaid dividends, if
any, to the redemption date, provided that the Company may exercise this
option only if the redemption price (other than the portion thereof consisting
of accrued and unpaid dividends) is paid solely out of the sale proceeds of
other shares of capital stock of the Company, which may include other series
of preferred stock, and from no other source. The PIERS are subject to
mandatory redemption on July 15, 2008 at a price of $1,000.00 per PIERS
(equivalent to $25.00 per Depositary Share), plus accrued and unpaid dividends
to the redemption date.
Application has been made to list the Depositary Shares and the Common Stock
issuable upon conversion or redemption of the PIERS on the NYSE. The
Depositary Shares will be listed under the symbol "GGPPrA" and the Common
Stock into which the PIERS are convertible or for which the PIERS may be
redeemable will be listed under the symbol "GGP." Trading of the Depositary
Shares is expected to commence on the NYSE within 30 days of the closing of
the Offering. On June 4, 1998, the last reported sale price of the Common
Stock on the NYSE was $35 9/16 per share. The PIERS represented by the
Depositary Shares will not be so listed, and the Company does not expect that
there will be any public trading market for the PIERS except as represented by
the Depositary Shares.
-----------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE PIERS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public (1) and Commissions (2) Company (1)(3)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Depositary Share...................... $25.00 $1.00 $24.00
- -------------------------------------------------------------------------------------------------------
Total (4)................................. $300,000,000 $12,000,000 $288,000,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued dividends, if any, from June 10, 1998.
(2) The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $750,000.
(4) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an additional 1,800,000
Depositary Shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If the Underwriters exercise
the option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $345,000,000, $13,800,000 and
$331,200,000, respectively. See "Underwriting."
-----------------
Lehman Brothers Inc. is acting as book-running lead manager for the
Offering. Lehman Brothers Inc. and Goldman, Sachs & Co. are acting as joint
lead managers. The Depositary Shares offered by this Prospectus Supplement are
offered by the Underwriters subject to prior sale, to withdrawal, cancellation
or modification of the offer without notice, to delivery to and acceptance by
the Underwriters and to certain further conditions. It is expected that
delivery of the Depositary Shares offered hereby will be made at the offices
of Lehman Brothers Inc., New York, New York, on or about June 10, 1998.
-----------------
Joint Lead Managers
LEHMAN BROTHERS GOLDMAN, SACHS & CO.
-----------------
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SBC WARBURG DILLON READ INC.
June 4, 1998
Preferred Income Equity Redeemable StockSM and "PIERSSM" are service marks
owned by Lehman Brothers Inc.
<PAGE>
[Map]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEPOSITARY
SHARES AND THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF
COMMON STOCK PRIOR TO THE PRICING OF THE OFFERING FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE COMMON STOCK OR THE PURCHASE OF DEPOSITARY SHARES
OR COMMON STOCK FOLLOWING THE PRICING OF THE OFFERING OR TO COVER A SYNDICATE
SHORT POSITION IN THE DEPOSITARY SHARES OR FOR THE PURPOSE OF MAINTAINING THE
PRICE OF THE DEPOSITARY SHARES AND THE COMMON STOCK. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
<PAGE>
TYSONS GALLERIA-MCLEAN, VA
NATICK MALL-NATICK, MA
MORENO VALLEY MALL AT TOWNGATE-MORENO VALLEY, CA FOX RIVER MALL-APPLETON, WI
NORTHBROOK COURT-NORTHBROOK, IL
<PAGE>
THE OAKS MALL-GAINESVILLE, FL
DEERBROOK MALL-HUMBLE, TX
THE PARKS AT ARLINGTON-ARLINGTON, TX
BAY CITY MALL-BAY CITY, MI COLUMBIANA CENTRE-COLUMBIA, SC
<PAGE>
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. Certain
statements contained herein (including, without limitation, the statements
under the captions "Recent Developments," "Selected Consolidated Financial
Data" and "Pro Forma Condensed Consolidated Financial Data" that are not
historical facts) or incorporated by reference herein constitute forward-
looking statements as such term is defined in Section 27A of the Securities Act
of 1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Certain factors,
including, without limitation, those discussed herein or in the Company's
Exchange Act filings made with the Securities and Exchange Commission (the
"Commission") incorporated by reference herein could cause actual results to
differ materially from those in the forward-looking statements. Factors that
might cause such a material difference include, but are not limited to (a)
changes in the general economic climate, (b) local conditions, (c) conditions
of tenants, (d) competition, (e) increased operating costs and interest
expense, (f) changes in taxation or zoning laws, (g) governmental regulations,
(h) failure of the Company to continue to qualify as a real estate investment
trust ("REIT"), (i) availability of financing on acceptable terms and (j)
potential liability under environmental or other laws or regulations. See "Risk
Factors." All references to the "Company" in this Prospectus Supplement and the
accompanying Prospectus include General Growth Properties, Inc. and those
entities owned or controlled by General Growth Properties, Inc. (including the
Operating Partnership), unless the context indicates otherwise. Except as
otherwise specified herein, the information in this Prospectus Supplement and
the accompanying Prospectus assumes no exercise of the Underwriters' over-
allotment option.
THE COMPANY
The Company is a self-administered and self-managed REIT that owns, operates,
acquires, develops, expands, finances and manages enclosed mall shopping
centers in major and middle markets throughout the United States. As of April
30, 1998, the Company owned or had an ownership interest in 64 enclosed mall
shopping centers with approximately 52.1 million square feet of gross leasable
area, including anchor stores (which may or may not be owned by the Company),
freestanding stores and mall tenant stores ("GLA") located in 33 states through
its interest in GGP Limited Partnership (the "Operating Partnership").
The Company was organized in 1986 to continue and expand the business of the
Bucksbaum family, which has been engaged in the shopping center business since
1954. The senior management of the Company has extensive experience both in the
shopping center industry and with the Company. As of April 30, 1998, the
Company and General Growth Management, Inc. ("GGMI") had approximately 2,800
full-time employees who, together with management of the Company and members of
the Bucksbaum family, will beneficially own approximately 31.0% of the Company
after consummation of the Offering, assuming full conversion of all outstanding
common partnership units in the Operating Partnership ("Common OP Units") and
the PIERS offered hereby into shares of Common Stock.
The Company's principal executive offices are located at 110 North Wacker,
Chicago, IL 60606, its telephone number is (312) 960-5000 and its web site
address is http://www.generalgrowth.com.
RECENT DEVELOPMENTS
During the first five months of 1998, the Company, in four separate
transactions, has acquired or entered into definitive agreements to acquire a
total of 16 enclosed mall shopping centers located throughout the United States
for aggregate consideration in excess of $1.6 billion. These four 1998
transactions include the following:
. On April 3, 1998, the Company acquired 100% of Southwest Plaza, an
enclosed mall shopping center containing approximately 1.3 million
square feet of GLA, located in Denver, Colorado.
S-1
<PAGE>
. On May 8, 1998, the Company acquired Northbrook Court, an enclosed mall
shopping center containing approximately 1.0 million square feet of GLA,
located in Northbrook (Chicago), Illinois.
. On June 2, 1998, the Company acquired the U.S. retail property portfolio
of MEPC plc (the "MEPC Portfolio"), a United Kingdom based real estate
company ("MEPC"). Through the purchase of the stock of the three U.S.
subsidiaries of MEPC that directly or indirectly own the MEPC Portfolio
(the "MEPC U.S. Subsidiaries"), the Company acquired for approximately
$871 million in cash (less certain adjustments) 100% of eight enclosed
mall shopping centers comprising approximately 7.7 million square feet
of GLA and located throughout the United States. The stock of the MEPC
U.S. Subsidiaries was acquired by a newly formed corporate subsidiary of
the Company that will elect to be taxed as a REIT. See "Recent
Developments--Property Acquisitions--The MEPC Transaction."
. On May 14, 1998, the Company entered into a definitive merger agreement
to acquire U.S. Prime Property, Inc. ("USPPI"), a private REIT which
owns (or as of closing will own) 100% of six enclosed mall shopping
centers (and office buildings adjacent to one of the malls) (the "USPPI
Portfolio"). The Company has agreed to acquire USPPI through the merger
of a subsidiary owned by the Company with and into USPPI for an
aggregate purchase price of approximately $625 million (less certain
adjustments), which purchase price includes approximately $65 million of
mortgage indebtedness being assumed. The Company expects to complete the
acquisition of the USPPI Portfolio together with an approximately 50%
joint venture partner. This transaction is expected to close during the
second quarter of 1998. See "Recent Developments--Property
Acquisitions--The USPPI Transaction."
S-2
<PAGE>
The following chart sets forth certain information about the MEPC Portfolio
and other acquisitions completed during 1998 and the USPPI Portfolio:
RECENTLY ACQUIRED CENTERS AND PENDING ACQUISITION
<TABLE>
<CAPTION>
TOTAL
GLA/MALL
YEAR AND
OPENED/ FREESTANDING
NAME OF REMODELED GLA (SQUARE ANCHOR
CENTER/LOCATION OR EXPANDED FEET) ANCHORS VACANCIES
--------------- ----------- ------------ ---------------------------------------------------- ---------
<S> <C> <C> <C> <C>
MEPC PORTFOLIO (COMPLETED)
Northridge Fashion Center 1971/1995 1,402,325/ Sears, Macy's, JCPenney, Robinson's-May None
Northridge (Los Angeles), CA 627,897
Regency Square Mall 1967/1982, 1,347,751/ Sears, Dillard's, JCPenney, Gayfers, Montgomery Ward None
Jacksonville, FL 1992, 1998 536,120
The Boulevard Mall 1960/1992 1,210,050/ Sears, Dillard's, JCPenney, Macy's None
Las Vegas, NV 352,653
Cumberland Mall 1973/1989 1,198,440/ JCPenney, Macy's, Rich's, Sears None
Atlanta, GA 323,447
Valley Plaza Mall 1967/1986- 1,094,253/ Sears, Macy's, JCPenney, Robinson's-May, Gottschalks None
Bakersfield, CA 1988 339,202
Apache Mall 1969/1990- 752,603/ Dayton's, JCPenney, Sears, Montgomery Ward None
Rochester, MN 1992 266,903
McCreless Mall 1962/1997 477,846/ Montgomery Ward, Beall's None
San Antonio, TX 268,963
Riverlands Shopping Center 1965/1984 183,808/ Winn-Dixie(1) None(1)
LaPlace, LA 136,874
OTHER COMPLETED ACQUISITIONS
Northbrook Court 1976/1996 995,504/ Lord & Taylor, Marshall Fields, Neiman Marcus, None
Northbrook (Chicago), IL 379,585 General Cinema
Southwest Plaza 1983/1994, 1,292,733/ Joslin's, Foley's, Sears, JCPenney, Montgomery Ward None
Denver, CO 1995 690,101
USPPI PORTFOLIO (PENDING)
Park City Center 1970/1988, 1,382,837/ Boscov's, The Bon Ton, Sears, JCPenney, Kohl's None
Lancaster, PA 1997 481,192
Landmark Mall NA/1989, 965,137/ Hecht's, JCPenney, Sears None
Alexandria, VA 1990 324,496
Oglethorpe Mall 1969/ 950,140/ Belks, Rich's, JCPenney, Sears, Steinmart None
Savannah, GA (5 times) 402,169
Meadows Mall 1978/1995 946,444/ Dillard's, JCPenney, Macy's, Sears None
Las Vegas, NV 309,591
Mayfair Mall 1958/1986 841,610/ Marshall Fields, The Boston Store None
Wauwatosa, WI 342,300
Mayfair Offices 1958-1982/ 420,278/ N/A None
Wauwatosa, WI 1989 N/A
Northgate Mall 1972/1991, 805,408/ JCPenney, Proffitt's, Sears None
Chattanooga, TN 1998 233,474
</TABLE>
The Company has financed or, in the case of the pending acquisition of the
USPPI Portfolio, expects to finance, the foregoing acquisitions through a
combination of the assumption of existing indebtedness, issuance of secured and
unsecured debt, issuance of Common OP Units, the proceeds of this Offering and,
in the case of the USPPI Portfolio, equity capital to be contributed by a
potential joint venture partner.
(1) Winn-Dixie does not occupy its space but is currently paying rent under a
lease which expires in October 2002.
S-3
<PAGE>
THE OFFERING
All capitalized terms used herein and not defined herein shall have the
meanings provided in "Description of Common Stock," "Description of Preferred
Stock" and "Description of Depositary Shares" in the accompanying Prospectus.
For a more complete description of the terms of the PIERS and Depositary Shares
used in the following summary, see "Description of PIERS" and "Description of
Depositary Shares" in this Prospectus Supplement.
Securities Offered.......... 12,000,000 depositary shares (the "Depositary
Shares"), each representing 1/40 of a share of
7.25% Preferred Income Equity Redeemable Stock,
Series A, a series of preferred stock, par value
$100 per share ("PIERS"), of the Company (the
"Offering"). Each Depositary Share entitles the
holder, proportionately, to all rights,
preferences and privileges of the PIERS
represented thereby (including dividend, voting,
conversion, redemption and liquidation).
Use of Proceeds............. Approximately $242.0 million of the net proceeds
of the Offering will be used to repay a portion
of the MEPC Acquisition Loan (as defined below).
The remaining proceeds will be used to fund
pending property acquisitions, to reduce
outstanding borrowings under the Company's $200
million line of credit and for general working
capital purposes. See "Use of Proceeds."
Dividends................... Dividends on the PIERS are cumulative from the
date of original issue and are payable in arrears
quarterly on or about the fifteenth day of
January, April, July and October of each year,
commencing October 15, 1998, in an amount per
PIERS equal to the greater of (i) 7.25% of the
liquidation preference per annum (equivalent to
$1.8125 per annum per Depositary Share) and (ii)
the cash dividends paid or payable (determined on
each of the Dividend Payment Dates for the PIERS)
on that number of shares of common stock, par
value $.10 per share, of the Company ("Common
Stock") equal to the number of shares of Common
Stock (or portion thereof) into which a PIERS is
convertible.
Dividends on the PIERS will accumulate whether or
not the Company has sufficient earnings, whether
or not there are funds legally available for the
payment of such dividends and whether or not such
dividends are declared.
If the Company designates any portion of a
dividend as a "capital gain dividend," a U.S.
Stockholder's share of such capital gain dividend
would be an amount which bears the same ratio to
the total amount of dividends paid to such U.S.
Stockholder for the year as the aggregate amount
designated as a capital gain dividend bears to
the aggregate amount of all dividends paid on all
classes of shares of capital stock for the year.
See "Description of PIERS--Dividends."
Liquidation Preference...... The PIERS will have a liquidation preference of
$1,000.00 per PIERS (equivalent to $25.00 per
Depositary Share), plus a proportionate amount
equal to accrued and unpaid dividends on the
PIERS (whether or not earned or declared).
S-4
<PAGE>
Conversion Rights........... The PIERS are convertible at any time, in whole
or in part at the option of the holder, unless
previously redeemed, into shares of Common Stock
at an initial conversion price of $39.70 per
share of Common Stock (equivalent to a conversion
rate of 0.6297 shares of Common Stock per
Depositary Share), subject to adjustment in
certain circumstances (the "Conversion Price").
See "Description of PIERS--Conversion Rights."
Mandatory Redemption........ The PIERS and the Depositary Shares are subject
to mandatory redemption on July 15, 2008 at a
price of $1,000.00 per PIERS (equivalent to
$25.00 per Depositary Share), plus accrued and
unpaid dividends, if any, to the redemption date.
Redemption at Option of the Except in certain circumstances relating to the
Company..................... preservation of the Company's status as a REIT
for federal income tax purposes, the PIERS and
the Depositary Shares representing such PIERS are
not redeemable prior to July 15, 2003. On and
after July 15, 2003, the PIERS and the Depositary
Shares representing such PIERS will be redeemable
by the Company, in whole or in part, at the
option of the Company, for such number of shares
of Common Stock as are issuable at the Conversion
Price (the "Stock Redemption Right") (equivalent
initially to a conversion rate of 0.6297 shares
of Common Stock per Depositary Share). The
Company may exercise its Stock Redemption Right
only if for 20 trading days within any period of
30 consecutive trading days, including the last
trading day of such period, the closing price of
the Common Stock on the NYSE exceeds $45.65 per
share, subject to adjustment in certain
circumstances. See "Description of PIERS--
Redemption."
On and after July 15, 2003, the PIERS and the
Depositary Shares may also be redeemed at the
option of the Company (the "Cash Redemption
Right"), in whole or in part, initially at
$1,032.22 per PIERS (equivalent to $25.8055 per
Depositary Share), and thereafter at prices
declining to $1,000.00 per PIERS (equivalent to
$25.00 per Depositary Share) on and after July
15, 2007, plus in each case accumulated and
unpaid dividends, if any, to the redemption date.
The Company will not exercise its Cash Redemption
Right unless the redemption price (other than the
portion thereof consisting of accumulated and
unpaid dividends) for the exercise of the Cash
Redemption Right is paid solely out of the sale
proceeds of other shares of capital stock of the
Company, which may include other series of
preferred stock ("Preferred Stock"), and from no
other source.
Voting Rights............... If dividends on the PIERS are in arrears for six
or more quarterly periods, holders of the PIERS
(voting separately as a class with all other
series of Preferred Stock upon which like voting
rights have been conferred and are exercisable)
will be entitled to vote for the election of two
additional directors to serve on the Board of
Directors until all dividend arrearages are
eliminated. Holders of Depositary Shares are
entitled to instruct the Depositary as to the
S-5
<PAGE>
voting of the PIERS represented by such
Depositary Shares. See "Description of PIERS--
Voting Rights" and "Description of Depositary
Shares--Voting the PIERS."
Ranking..................... The PIERS will rank senior to the Common Stock as
to priority for receiving dividends and amounts
upon liquidation, dissolution or winding-up of
the Company. See "Description of PIERS--Ranking."
Ownership Limits............ Ownership of more than 7.5% of the value of the
outstanding shares of capital stock of the
Company (the "Ownership Limit"), including the
PIERS and the Depositary Shares offered hereby,
is restricted in order to preserve the Company's
status as a REIT for federal income tax purposes.
Subject to certain limitations, the Board of
Directors of the Company (the "Board of
Directors") may modify the Ownership Limit,
though the Ownership Limit may not be increased
by the Board of Directors to more than 9.8%. See
"Description of PIERS--Restrictions on Ownership"
and "Description of Depositary Shares--Ownership
Restrictions."
Form........................ The Depositary Shares will be issued and
maintained in book-entry form registered in the
name of the nominee of The Depository Trust
Company, except under limited circumstances
described herein.
Stock Exchange Listing...... Application has been made to list the Depositary
Shares and the Common Stock issuable upon
conversion or redemption of the PIERS on the
NYSE. The Depositary Shares will be listed under
the symbol "GGPPrA" and the Common Stock into
which the PIERS are convertible or for which the
PIERS may be redeemable will be listed under the
symbol "GGP." Trading of the Depositary Shares is
expected to commence on the NYSE within 30 days
after the closing of the Offering. The PIERS
represented by the Depositary Shares will not be
so listed, and the Company does not expect that
there will be any public trading market for the
PIERS except as represented by the Depositary
Shares.
S-6
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT CONSIDERATIONS
General. An enclosed mall shopping center's revenues and value may be
adversely affected by a number of factors, including: the national and
regional economic climates; local real estate conditions (such as an
oversupply of retail space); and perceptions by retailers or shoppers of the
safety, the convenience and attractiveness of the shopping center. In
addition, other factors may adversely affect an enclosed mall shopping
center's value without affecting its current revenues, including: changes in
governmental regulations, zoning or tax laws; potential environmental or other
legal liabilities; availability of financing; and changes in interest rate
levels. There are numerous shopping facilities that compete with the Company's
properties in attracting retailers to lease space. In addition, retailers at
the Company's properties face continued competition from discount shopping
centers, outlet malls, wholesale clubs, direct mail, telemarketing, television
shopping networks and, most recently, shopping via the Internet. Competition
could adversely affect the Company's revenues and cash available for
distribution to stockholders.
Dependence on Tenants. The Company's results of operations will depend on
its ability to continue to lease space in its properties on economically
favorable terms. In addition, as substantially all of the Company's income is
derived from rentals of real property, the Company's income and cash available
for distribution to the Company's stockholders would be adversely affected if
a significant number of the Company's lessees were unable to meet their
obligations to the Company.
Bankruptcy of Retail Tenants. There have been a number of recent
bankruptcies in the retail industry, including certain tenants of the Company.
The bankruptcy or insolvency of a major tenant may have a material adverse
effect on the enclosed mall shopping centers affected and the income produced
by such properties and may make it substantially more difficult to lease the
remainder of the affected enclosed mall shopping center. The Company's leases
generally do not contain restrictions designed to ensure the creditworthiness
of the tenant. As a result, the bankruptcy or insolvency of a major tenant
could result in a lower level of cash available for distribution to the
Company's stockholders.
Expansion and Development Risks. The Company intends to pursue development
and expansion activities as opportunities arise. In connection with any
development or expansion, the Company will incur various risks, including: the
risk that development or expansion opportunities explored by the Company may
be abandoned; the risk that construction costs of a project may exceed
original estimates, possibly making the project unprofitable; the risk that
the Company may not be able to refinance construction loans which generally
have full recourse to the Company; the risk that occupancy rates and rents at
a completed project will not meet projections, and will therefore be
insufficient to make the project profitable; and the need for anchor, mortgage
lender and property partner approvals for certain expansion activities. In the
event of an unsuccessful development project, the Company's loss could exceed
its investment in the project.
Illiquidity of Assets; Restrictions on Dispositions of Mortgaged
Properties. Equity real estate investments are relatively illiquid and
therefore tend to limit the ability of the Company to vary its portfolio
promptly in response to changes in economic or other conditions. In addition,
certain significant expenditures associated with each equity investment (such
as mortgage payments, real estate taxes and maintenance costs) are generally
not reduced when circumstances cause a reduction in income from the
investment. Should such events occur, the Company's income and cash available
for distribution to the Company's shareholders would be adversely affected. A
significant portion of the Company's properties are mortgaged to secure
payment of indebtedness, and if the Company were unable to meet its mortgage
payments, losses could be sustained as a result of foreclosure on the
properties by the various mortgagees. In addition, if it becomes necessary or
desirable for the Company to dispose of one or more of the mortgaged
properties, the Company might not be able to obtain release
S-7
<PAGE>
of the lien on such mortgaged property without payment of the associated debt.
The foreclosure of a mortgage on a property or inability to sell a property
could affect the level of cash available for distribution to the Company's
stockholders.
DEPENDENCE ON DIVIDENDS AND DISTRIBUTIONS OF SUBSIDIARIES
Substantially all of the Company's assets consist of its general partnership
interest in the Operating Partnership. Substantially all of the Operating
Partnership's properties and assets are held through subsidiaries (including
subsidiary partnerships, limited liability companies and corporations that
have elected to be taxed as REITs). Any right of the Company's stockholders to
participate in any distribution of the assets of any of the Company's indirect
subsidiaries upon the liquidation, reorganization or insolvency of such
subsidiary (and any consequent right of the Company's securityholders to
participate in those assets) will be subject to the claims of the creditors
(including trade creditors) and preferred unitholders (other than holders of
the Preferred OP Units (as defined)), if any, of the Operating Partnership and
such subsidiary, except to the extent the Company has a claim against such
subsidiary as a creditor of such subsidiary. In addition, in the event that
claims of the Company as a creditor of a subsidiary are recognized, such
claims would be subordinate to any security interest in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that held by the
Company.
POTENTIAL COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances released at a
property, and may be held liable to a governmental entity or to third parties
for property damage or personal injuries and for investigation and clean-up
costs incurred by the parties in connection with the contamination. Such laws
often impose liability without regard to whether the owner or operator knew
of, or was responsible for, the release of such substances. The presence of
contamination or the failure to remediate contamination may adversely affect
the owner's ability to sell or lease real estate or to borrow using the real
estate as collateral. Other Federal, state and local laws, ordinances and
regulations require abatement or removal of certain asbestos-containing
materials in the event of demolition or certain renovations or remodeling and
also govern emissions of and exposure to asbestos fibers in the air. The
operation and subsequent removal of certain underground storage tanks are also
regulated by Federal and state laws. In connection with the ownership,
operation and management of its properties, the Company could be held liable
for the costs of remedial action with respect to such regulated substances or
tanks or related claims.
Each of the Company's properties has been subjected to varying degrees of
environmental assessment at various times. The environmental assessments did
not reveal any material environmental condition. However, there can be no
assurance that the identification of new areas of contamination, a change in
the extent or known scope of contamination, the discovery of additional sites
or changes in cleanup requirements would not result in significant costs to
the Company.
LACK OF PUBLIC MARKET FOR THE PIERS AND DEPOSITARY SHARES
The PIERS (and the Depositary Shares representing such PIERS) are a new
issue of securities for which there is currently no active trading market. If
the Depositary Shares are traded after their initial issuance, they may trade
at a discount from their initial offering price depending upon prevailing
interest rates, the market for similar securities, the financial condition and
performance of the Company and other factors beyond the control of the
Company, including general economic conditions.
CONSEQUENCES OF THE FAILURE TO QUALIFY OR REMAIN QUALIFIED AS A REIT
Although the Company's management believes that the Company will remain
organized and will continue to operate so as to qualify as a REIT for federal
income tax purposes, no assurance can be given that it will remain so
qualified. Qualification as a REIT for federal income tax purposes involves
the application of highly technical and complex provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), for which there are only
limited judicial or administrative interpretations, and the determination of
various factual matters and circumstances not entirely within the control of
the Company may impact its ability to qualify as a REIT. In
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<PAGE>
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly
change the tax laws with respect to the requirements for qualification as a
REIT or the federal income tax consequences of such qualification.
If, with respect to any taxable year, the Company fails to maintain its
qualification as a REIT, it would not be allowed a deduction for distributions
to shareholders in computing its taxable income and would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. As a result, the amount available
for distribution to shareholders would be reduced for the year or years
involved, and distributions would no longer be required to be made. In
addition, unless entitled to relief under certain statutory provisions, the
Company would also be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost.
Notwithstanding that the Company currently intends to operate in a manner
designed to allow it to qualify as a REIT, future economic, market, legal, tax
or other considerations may cause it to determine that it is in the best
interest of the Company and its stockholders to revoke the REIT election.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and operating data for the
Company on an historical basis. The information was derived from the Company's
financial statements, which are incorporated by reference herein.
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for the Company and the financial statements and
notes thereto included in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, as amended by the Company's Form 10-Q/A, dated
May 21, 1998, and the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, which documents are incorporated by reference in this
Prospectus Supplement.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------- -------------- ----------------- ----------------- -----------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue................. $ 80,447 $ 65,328 $ 291,147 $ 217,405 $ 167,396
---------- ---------- ---------- ---------- ----------
Operating Expenses...... 30,522 23,757 109,677 75,954 63,968
Depreciation and
Amortization........... 13,967 11,162 48,509 39,809 30,855
Interest Expense, Net... 17,883 15,439 70,252 66,439 46,334
Equity in Net Income of
Unconsolidated
Affiliates............. (5,193) 1,878 19,344 17,589 9,274
Net gain on the sale of
a portion of
CenterMark............. -- 58,647 58,647 43,821 33,397
---------- ---------- ---------- ---------- ----------
Income Before Minority
Interest............... 12,882 75,495 140,700 96,613 68,910
Minority Interest....... (4,427) (27,542) (49,997) (34,580) (25,856)
---------- ---------- ---------- ---------- ----------
Income Before
Extraordinary Item..... 8,455 47,953 90,703 62,033 43,054
Extraordinary Item...... -- (377) (1,152) (2,291) --
---------- ---------- ---------- ---------- ----------
Net Income.............. $ 8,455 $ 47,576 $ 89,551 $ 59,742 $ 43,054
========== ========== ========== ========== ==========
PER SHARE DATA
Earnings Before
Extraordinary Item--
Basic.................. $ 0.24 $ 1.56 $ 2.78 $ 2.20 $ 1.69
Earnings Before
Extraordinary Item--
Diluted................ 0.24 1.55 2.76 2.20 1.69
Net Earnings--Basic..... 0.24 1.55 2.75 2.12 1.69
Net Earnings--Diluted... 0.24 1.54 2.73 2.12 1.69
Distributions Declared.. 0.47 0.45 1.80 1.72 1.66
CASH FLOW DATA
Operating Activities.... $ 34,979 $ 25,863 $ 85,716 $ 67,202 $ 60,660
Investing Activities.... (99,967) 31,323 (167,029) (29,285) (469,204)
Financing Activities.... 45,526 (59,488) 91,264 (40,268) 421,225
BALANCE SHEET DATA (at
period end)
Investment in Real
Estate Assets--Cost.... $2,243,557 $1,854,265 $2,157,251 $1,828,184 $1,547,621
Total Assets............ 2,162,360 1,782,374 2,097,719 1,757,717 1,455,982
Total Debt.............. 1,349,009 1,130,173 1,275,785 1,168,522 1,027,932
Stockholders' Equity.... 491,165 364,738 498,505 330,267 229,383
</TABLE>
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PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table sets forth the unaudited Pro Forma Condensed
Consolidated Financial Data of the Company as if (i) the sale of CenterMark
Properties, Inc. and the acquisitions made in 1997 (Market Place Mall, Century
Plaza Shopping Center, Town East Mall, Southlake Mall, Eden Prairie Mall,
GGP/Ivanhoe Portfolio Malls and Valley Hills Mall), (ii) the acquisitions made
or to be made in 1998 (Southwest Plaza, Northbrook Court (collectively, the
"Property Acquisitions"), the MEPC Portfolio and the USPPI Portfolio) and
(iii) the Offering had all occurred on January 1, 1997. Such pro forma
condensed consolidated financial data are based upon the historical
information of the Company and of each of the above-mentioned entities. These
pro forma condensed consolidated financial data should be read in conjunction
with the "Selected Consolidated Financial Data" included elsewhere in this
Prospectus Supplement and are not necessarily indicative of what actual
results of the Company would have been assuming such transactions had been
completed as of January 1, 1997, nor do they purport to represent the results
of operations for future periods. See pages F-18 to F-27 in this Prospectus
Supplement for more information.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTED
FOR POTENTIAL EQUITY
PRO FORMA PARTNER(1)
------------------------- -------------------------
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total revenues............. $134,289 $ 517,467 $113,026 $ 432,338
Expenses:
Property operating....... 50,646 199,341 42,085 164,169
Management fees.......... 1,275 5,114 1,125 4,514
Depreciation and
amortization............ 23,865 90,177 20,349 76,114
-------- --------- -------- ---------
Total Expenses......... 75,786 294,632 63,559 244,797
-------- --------- -------- ---------
Operating Income........... 58,503 222,835 49,467 187,541
Interest expense, net.... (42,264) (176,231) (33,785) (142,315)
Equity in unconsolidated
affiliates:
GGP/Homart, Inc.......... 1,735 16,506 1,735 16,506
Property Joint Ventures.. 1,041 3,423 2,008 6,856
General Growth
Management, Inc......... (7,969) (194) (7,118) 3,211
-------- --------- -------- ---------
Income before minority
interest.................. 11,046 66,339 12,307 71,799
Minority interest in
Operating Partnership..... (1,961) (16,576) (2,402) (18,606)
-------- --------- -------- ---------
Net income................. 9,085 49,763 9,905 53,193
Convertible Preferred Stock
dividends................. (5,438) (21,750) (5,438) (21,750)
-------- --------- -------- ---------
Net income available to
common stockholders....... $ 3,647 $ 28,013 $ 4,467 $ 31,443
======== ========= ======== =========
Earnings per share--basic.. $ 0.10 $ 0.86 $ 0.13 $ 0.96
Earnings per share--
diluted................... $ 0.10 $ 0.85 $ 0.12 $ 0.96
</TABLE>
- --------
(1) Adjusted to reflect the effect of a potential 50% joint venture partner
with respect to the USPPI Portfolio.
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<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The Common Stock is listed on the NYSE under the symbol "GGP." The following
table sets forth, for the periods indicated, the high and low closing sale
prices of the Common Stock as reported by the NYSE, and the distributions per
share declared for such periods.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
---- --- -------------
<S> <C> <C> <C>
1995
1st Quarter................................... $22.63 $20.38 $.41
2nd Quarter................................... 21.75 19.38 .41
3rd Quarter................................... 20.63 19.00 .41
4th Quarter................................... 21.63 18.38 .43
1996
1st Quarter................................... $23.88 $20.75 $.43
2nd Quarter................................... 24.50 22.63 .43
3rd Quarter................................... 26.00 23.63 .43
4th Quarter................................... 32.63 24.25 .43
1997
1st Quarter................................... $32.25 $30.50 $.45
2nd Quarter................................... 33.75 31.25 .45
3rd Quarter................................... 37.00 32.50 .45
4th Quarter................................... 38.00 32.50 .45
1998
1st Quarter................................... $38.00 $34.88 $.47
2nd Quarter (through June 4).................. 37.63 34.44
</TABLE>
On June 4, 1998, the last reported sale price of the Common Stock on the
NYSE was $35.5625.
Future distributions by the Company will be at the discretion of the Board
of Directors and will depend on the actual cash flow of the Company, its
financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board of Directors deems relevant.
The Company has a dividend reinvestment program under which common
stockholders may elect to automatically reinvest their dividends in, as well
as make optional cash contributions for, shares of Common Stock. The dividend
reinvestment program is administered by Norwest Bank Minnesota, N.A. which
arranges for the purchase of shares of Common Stock in the open market based
on the directions of the participants enrolled in the program.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of earnings
to fixed charges for each of the last five fiscal years and the quarter ended
March 31, 1998. There was no preferred stock outstanding for any of the
periods shown below. Accordingly, the ratio of earnings to fixed charges and
preferred stock dividends is identical to the ratio of earnings to fixed
charges.
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges: 2.03 2.61 2.37 2.43 1.67 1.53
</TABLE>
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 on an historical and pro forma basis to give effect to: (i) the
acquisition of properties acquired subsequent to March 31, 1998; (ii) the
acquisition of the MEPC Portfolio; (iii) the acquisition of the USPPI
Portfolio; and (iv) the completion of the Offering and the application of the
estimated net proceeds therefrom. The information set forth in the table
should be read in conjunction with the Company's consolidated financial
statements and the pro forma financial information and notes thereto included
or incorporated herein by reference.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTED FOR
CONSOLIDATED PRO FORMA POTENTIAL
HISTORICAL COMBINED EQUITY PARTNER
------------ ---------- --------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Mortgage debt........................ $1,189,784 $2,586,842 $1,961,842
Credit Facility...................... 159,225 196,927 324,427
Minority interests in Operating
Partnership......................... 256,052 262,559 262,559
Mandatory Redeemable Preferred Stock,
$100 par value; 300,000 shares
issued and outstanding on a pro
forma basis......................... -- 300,000 300,000
Stockholders' equity
Common stock; $.10 par value;
210,000,000 shares authorized;
35,769,454 shares issued;
35,736,572 shares outstanding .... 3,577 3,577 3,577
Additional paid-in capital......... 738,960 738,140 738,140
Retained earnings (deficit)........ (250,218) (250,218) (250,218)
Treasury stock, at cost; 32,882
shares held ...................... (1,154) (1,154) (1,154)
---------- ---------- ----------
Total stockholders' equity....... 491,165 490,345 490,345
---------- ---------- ----------
Total capitalization........... $2,096,226 $3,836,673 $3,339,173
========== ========== ==========
</TABLE>
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Depositary Shares
offered hereby are estimated to be approximately $287.3 million ($330.5
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to contribute or otherwise transfer such net proceeds to the
Operating Partnership, of which the Company is the sole general partner, in
exchange for a corresponding number of Series A Preferred OP Interests
("Preferred OP Interests"). Approximately $242.0 million of the net proceeds
of the Offering will be used to repay a portion of a loan made by an affiliate
of Lehman Brothers Inc. to the Company to fund the Company's acquisition of
the MEPC Portfolio (the "MEPC Acquisition Loan"), which was completed on June
2, 1998. Upon application of such proceeds to repayment of the MEPC
Acquisition Loan, the MEPC Acquisition Loan will have an outstanding principal
balance of approximately $613.0 million, will bear interest at the rate of
6.56% (during the first one-month interest period) and at a floating rate
based on 30-day LIBOR plus 0.90% (for each interest period after the first
interest period), and will mature on June 1, 1999. The MEPC Acquisition Loan
is secured by the MEPC Portfolio. The remaining proceeds of the Offering
(together with a combination of the assumption of existing indebtedness,
issuance of secured and unsecured debt, issuance of Common OP Units and, in
the case of the USPPI Portfolio, equity capital to be contributed by a
potential joint venture partner) will be used to fund pending property
acquisitions, to reduce outstanding borrowings under the Company's $200
million line of credit and for general working capital purposes. As of May 31,
1998, approximately $200 million was outstanding under the line of credit
facility, which bears interest at a floating rate based on LIBOR plus 0.80% to
1.20%, depending on the leverage ratio of the Company, and matures on July 31,
1999 with a one year extension option. Pending such uses, the net proceeds may
be invested in short-term interest-bearing investment grade securities or
guaranteed obligations of the U.S. government.
The sale of the Depositary Shares offered hereby is not subject to the
consummation of any of the acquisitions or investments described in this
Prospectus Supplement nor are any of such acquisitions or investments subject
to the prior sale of Depositary Shares.
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<PAGE>
THE COMPANY
OVERVIEW
The Company owns, operates, acquires, develops, expands, finances and
manages enclosed mall shopping centers in major and middle markets throughout
the United States. As of April 30, 1998, the Company owned or had an ownership
interest in 64 enclosed mall shopping centers with approximately 52.1 million
square feet of GLA located in 33 states.
The Company was organized in 1986 to continue and expand the business of the
Bucksbaum family, which has been engaged in the shopping center business since
1954. The senior management of the Company has extensive experience both in
the shopping center industry and with the Company. As of April 30, 1998, the
Company and GGMI had approximately 2,800 full-time employees who, together
with management of the Company and members of the Bucksbaum family, will
beneficially own approximately 31.0% of the Company after consummation of the
Offering, assuming full conversion of all outstanding Common OP Units and the
PIERS offered hereby into shares of Common Stock.
The Company's principal executive offices are located at 110 North Wacker,
Chicago, IL 60606, its telephone number is (312) 960-5000 and its web site
address is http://www.generalgrowth.com.
STRUCTURE
The Company owned as of April 30, 1998: (i) 100% of 36 enclosed mall
shopping centers (the "Wholly-Owned Centers"); (ii) 51% of the outstanding
common stock of GGP/Ivanhoe, Inc., a Delaware corporation that has qualified
as a REIT for federal income tax purposes ("GGP/Ivanhoe"); (iii) 50% of each
of 2 enclosed mall shopping centers, Quail Springs and Town East; (iv) 38.2%
of the outstanding common stock of GGP/Homart, Inc., a Delaware corporation
that has qualified as a REIT for federal income tax purposes ("GGP/Homart");
and (v) a 100% non-voting preferred stock interest (representing 95% of the
equity interest) in GGMI (the voting common stock of GGMI (representing 5% of
the equity interest in GGMI) is held by certain employees of GGMI (who are
also officers of the Company)). As of April 30, 1998, GGP/Homart owned
interests in 24 enclosed mall shopping centers (the "Homart Centers") and
GGP/Ivanhoe owned 100% of 2 enclosed mall shopping centers, The Oaks Mall and
the Westroads Mall (the "Ivanhoe Centers," and together with Quail Springs and
Town East, the "Property Joint Ventures"). As of April 30, 1998, the Company
owned an approximately 65.2% general partnership interest in the Operating
Partnership. The approximately 34.8% minority interest in the Operating
Partnership is in the form of Common OP Units held by limited partners that
primarily include trusts for the benefit of the families of the original
stockholders and subsequent contributors of properties to the Company.
The Company has qualified as a REIT for federal income tax purposes. In
order to maintain such qualification, the Company is required to distribute at
least 95% of its REIT taxable income (as computed without regard to net
capital gains or the dividends-paid deduction) and its net income (after tax)
from foreclosure property each year. Dividends on any Preferred Stock,
including the PIERS offered hereby, would be included as distributions for
this purpose.
RECENT DEVELOPMENTS
PROPERTY ACQUISITIONS
During the first five months of 1998, the Company, in four separate
transactions, has acquired or entered into definitive agreements to acquire a
total of 16 enclosed mall shopping centers located throughout the United
States for aggregate consideration in excess of $1.6 billion. These four 1998
transactions include the following:
The MEPC Transaction. On June 2, 1998, the Company acquired the MEPC
Portfolio. The Company paid approximately $871 million in cash (less
adjustments for certain tenant allowances and construction costs) for the
stock of the three MEPC U.S. Subsidiaries. Included within the MEPC Portfolio
are: (i) the Apache Mall located in Rochester, Minnesota; (ii) The Boulevard
Mall located in Las Vegas, Nevada; (iii) the Cumberland
S-15
<PAGE>
Mall located in Atlanta, Georgia; (iv) the McCreless Mall located in San
Antonio, Texas; (v) the Northridge Fashion Center located in Northridge (Los
Angeles), California; (vi) the Regency Square Mall located in Jacksonville,
Florida; (vii) the Riverlands Shopping Center located in LaPlace, Louisiana;
and (viii) the Valley Plaza Mall located in Bakersfield, California. The stock
of the MEPC U.S. Subsidiaries was acquired by a newly formed corporate
subsidiary of the Company that will elect to be taxed as a REIT.
The MEPC Portfolio contains approximately 7.7 million square feet of retail
GLA. The mall store and freestanding store portions of the MEPC Portfolio are
currently approximately 87% leased and are expected to produce annual sales of
approximately $328 per square foot (excluding in either case leases with an
initial or original term of less than one year).
Other Recently Completed Acquisitions. On April 3, 1998, the Company
acquired 100% of Southwest Plaza, a two-level enclosed mall shopping center
located in Denver, Colorado, with approximately 1.3 million square feet of
GLA. Southwest Plaza, which opened in 1983 and was renovated in 1994 and 1995,
is anchored by Joslin's, Foley's, Sears, JCPenney and Montgomery Ward. On May
8, 1998, the Company acquired 100% of the partnership interests in Westcoast
Estates, the partnership that owns Northbrook Court, a two-level enclosed mall
shopping center located in Northbrook (Chicago), Illinois, with approximately
1 million square feet of GLA. Northbrook Court, which opened in 1976 and was
renovated in 1996, is anchored by Lord & Taylor, Marshall Fields, Neiman
Marcus and General Cinema.
The USPPI Transaction. On May 14, 1998, the Company entered into a
definitive merger agreement with USPPI, pursuant to which the Company has
agreed to acquire USPPI through the merger of a subsidiary owned by the
Company with and into USPPI. The Company expects to complete the acquisition
of the USPPI Portfolio together with an approximately 50% joint venture
partner. The Company (and, if the Company reaches agreement with the proposed
joint venture partner, such joint venture partner) has (or have) agreed to pay
an aggregate purchase price of approximately $625 million for USPPI (less
certain adjustments), which purchase price includes the assumption of
outstanding indebtedness and accrued interest in respect of the Meadows Mall
mortgage, estimated to be approximately $65 million. USPPI and its
subsidiaries own (or will at closing own): (i) the Landmark Mall (Alexandria,
Virginia); (ii) the Mayfair Mall and adjacent office buildings (Wauwatosa,
Wisconsin); (iii) the Meadows Mall (Las Vegas, Nevada); (iv) the Northgate
Mall (Chattanooga, Tennessee); (v) Oglethorpe Mall (Savannah, Georgia); and
(vi) the Park City Center (Lancaster, Pennsylvania). Subject to the
satisfaction of customary closing conditions, the USPPI merger transaction is
expected to close during the second quarter of 1998.
The enclosed mall shopping centers included in the USPPI Portfolio contain
approximately 5.9 million square feet of retail GLA. The mall store and
freestanding store portions of the USPPI Portfolio are currently approximately
88% leased and are expected to produce annual sales of approximately $310 per
square foot (excluding in either case leases with an initial or original term
of less than one year).
The Company believes that the MEPC Portfolio and the USPPI Portfolio
represent collections of dominant enclosed mall shopping centers that would be
difficult to replicate through either new development or single-asset
transactions. In addition, the Company believes that through its professional
management, aggressive leasing and completion of expansions and
redevelopments, it can improve the operating performance of the properties
included in the MEPC Portfolio and the USPPI Portfolio by renewing expiring
leases at higher rental rates, increasing occupancy, and reducing operating
expenses. The MEPC Portfolio and the USPPI Portfolio will improve the
Company's strategic position as a dominant national owner of enclosed mall
shopping centers by expanding its national presence to the Las Vegas market,
and by solidifying its presence in other markets such as Atlanta and Los
Angeles.
FINANCING
The Company has financed, or in the case of the pending acquisition of the
USPPI Portfolio, expects to finance, the foregoing acquisitions through a
combination of the assumption of existing indebtedness, issuance of secured
and unsecured debt, issuance of Common OP Units, the proceeds of this Offering
and, in the case of the USPPI Portfolio, equity capital to be contributed by a
potential joint venture partner.
S-16
<PAGE>
BUSINESS AND PROPERTIES
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objective is to provide increasing dividends
and long-term capital appreciation for its stockholders through the
management, acquisition, development, expansion, financing and renovation of
enclosed mall shopping centers throughout the United States. The Company
believes it will continue to achieve this objective by implementing its
business strategies and by capitalizing on the growth opportunities described
below. The Company also believes that the business of owning and operating
enclosed mall shopping centers is currently in the midst of a period of
consolidation, and that such consolidation will continue as institutional
investors convert their real estate holdings from direct ownership of real
estate assets to more liquid securities such as common stock and units of
publicly traded REITs.
The Company uses "Cash Value Added" (or "CVA"), a financial measurement that
incorporates both the cash flow produced by the Company's business activities
and the risk-adjusted cost of capital used to generate such cash flow, as part
of its incentive-based employee compensation program. The Company believes
that by integrating CVA with its employee incentive programs, it will align
the interests of the Company's management and investors and maximize long-term
value for shareholders.
The Company's primary growth strategy is to acquire and develop dominant
enclosed mall shopping centers in major and middle markets throughout the
United States with strong internal growth prospects. The following summarizes
the Company's growth strategy:
Acquisitions. The Company plans to continue to pursue growth opportunities
through the acquisition of enclosed mall shopping centers throughout the
country that meet its investment criteria. The Company believes that
opportunities continue to exist to acquire additional enclosed mall shopping
centers that: (i) create long-term shareholder value; (ii) compare favorably
to other successful shopping centers, with characteristics including a
desirable location with economic growth potential, high sales per square foot
relative to competitive centers and a dominant trade-area position; or (iii)
are underperforming or in need of renovation, and therefore provide
opportunities for the Company to increase cash flow through active management
and leasing.
Development. The Company plans to take advantage of its extensive expertise
in developing shopping centers in selected markets where economic fundamentals
support such development and where the potential risk-adjusted financial
returns justify investment in new retail space. The Company believes that its
national presence and extensive relationships with retailers give it a
competitive advantage relative to regional companies in identifying markets
that either have a shortage of retail space or require a repositioning of the
existing retail mix to cater to evolving shopping patterns and changing
demographics. The Company is currently developing two enclosed mall shopping
centers comprising approximately 2.3 million square feet of GLA.
Renovation and Expansion. The Company plans to continue to renovate and
expand its enclosed mall shopping centers to maximize each property's net cash
flow and return on investment. Most of the Company's properties were designed
to allow for the addition of new anchor tenants or mall stores. The renovation
or expansion of each enclosed mall shopping center is designed to reposition
the center in its trade area, increase customer traffic and improve the
competitive position of the property. The Company evaluates each property on
an annual basis and considers opportunities for redevelopments and other
expansions or renovations as part of each property's strategic plan. The
Company's ability to plan and execute expansions and major renovations of
existing properties has historically been a substantial source of increased
cash flow for the Company.
Management. The Company intends to pursue its strategy of maximizing cash
flow from existing space through intensive property management, including: (i)
continual monitoring and improvement of each property's merchandising mix to
maximize foot traffic and sales and take advantage of evolving shopping
patterns and demographic trends; (ii) the aggressive promotion of each
property by the Company's marketing staff of over 200 people, with a focus on
consumer research, advertising and alliances with national brands and
products; and (iii) continued minimization of operating costs through the
economies of scale arising from its national portfolio of properties under
management.
S-17
<PAGE>
Leasing. The Company pursues an active leasing strategy that focuses on
achieving growth in cash flow through: (i) leasing currently unleased spaces
in its centers; (ii) renewing or replacing expiring leases at increasing base
rents as current leases with below-market rents expire; (iii) pre-established
step-ups in the base rents of current tenants; and (iv) increases in
percentage rents resulting from increased sales by current tenants. In
addition to leasing space to traditional mall tenants, the Company intends to
enhance its leasing effort by targeting first-time mall retailers, seeking new
products or formats to introduce to the mall environment and expanding the
uses of mall space to include entertainment and other functions.
As of March 31, 1998, the mall store and the freestanding store portions of
the Company's properties (that are not currently undergoing development or
redevelopment) were approximately 85.3% leased (excluding leases with an
initial or original term of less than one year). The Company believes that the
most effective leasing strategy does not necessarily provide the highest
possible occupancy rate at any one shopping mall at any particular time, but
rather takes a longer view, seeking to establish at each enclosed mall
shopping center the optimal combination of retailers to attract a broad
spectrum of shoppers. The Company seeks to market its available space to
ensure a diversity of retailers both by type of goods as well as by pricing
strategies (e.g., luxury, mass merchandisers and discount).
S-18
<PAGE>
CURRENT PROPERTIES
The following table provides an overview of the properties owned by the
Company as of April 30, 1998 (including Northbrook Court, which was acquired
by the Company on May 8, 1998), including information on the cities and states
in which the properties are located, anchor stores, total square feet of space
within each property, the year the property was opened and/or remodeled or
expanded and the direct or indirect ownership interest of the Company in each
property:
WHOLLY-OWNED CENTERS
<TABLE>
<CAPTION>
TOTAL
GLA/MALL
YEAR AND
OPENED/ FREESTANDING
NAME OF CENTER/ REMODELED GLA ANCHOR
LOCATION(1) OR EXPANDED (SQUARE FEET) ANCHORS VACANCIES
--------------- ----------- ------------- ---------------------------------------------------------- ---------
<S> <C> <C> <C> <C>
Bayshore Mall 1987/1989 615,481/ Gottschalks, JCPenney, Sears, Mervyn's None
Eureka, California 345,466
Bellis Fair Mall 1988/N/A 768,527/ The Bon Marche, JCPenney, Sears, Target, Mervyn's None
Bellingham, Washington 349,606
Birchwood Mall 1990/ 716,449/ Younkers, JCPenney, Sears, Target, Hudson's None
Port Huron, Michigan 1991, 1997 287,306
Capital Mall 1978/ 517,680/ Dillard's, JCPenney, Sears None
Jefferson City, 1985, 1992 307,815
Missouri
Century Mall 1975/ 726,109/ JCPenney, McRae's, Rich's, Sears None
Birmingham, Alabama 1990, 1994 237,764
Chapel Hills Mall 1982/1986 1,159,187/ Joslin's, Sears, Mervyn's, KMart, JCPenney, Dillard's None
Colorado Springs, 420,010
Colorado
Colony Square Mall 1981/1987 547,738/ Lazarus, Elder-Beerman, JCPenney, Sears None
Zanesville, Ohio 289,559
Columbia Mall 1985/1987 733,368/ Dillard's, JCPenney, Sears, Target None
Columbia, Missouri 317,924
Eagle Ridge Mall 1996/N/A 735,909/ Dillard's, JCPenney, Sears None
Winter Haven, Florida 317,648
Eden Prairie Mall 1976/1994 862,399/ Sears, Target, Kohl's, Mervyn's None
Eden Prairie, Minnesota 325,602
Fallbrook Mall 1966/1985 992,856/ JCPenney, Target, Mervyn's, KMart, Burlington Coat Factory None
West Hills (Los 452,251
Angeles), California
Fox River Mall 1984/1991 1,045,806/ Dayton's, Younkers, JCPenney, Sears, Target None
Appleton, Wisconsin 537,813
Gateway Mall 1990/1990 643,864/ The Emporium, Sears, Target None
Springfield (Eugene), 357,964
Oregon
Grand Traverse Mall 1992/N/A 577,733/ Hudson's, JCPenney, Target None
Traverse City, Michigan 312,756
Greenwood Mall 1979/1987 746,617/ Castner Knott, JCPenney, Sears, Dillard's None
Bowling Green, Kentucky 367,682
Knollwood Mall 1955/1981 511,445/ Kohl's One
St. Louis Park 301,309
(Minneapolis),
Minnesota
Lakeview Mall 1983/N/A 621,729/ Hudson's, JCPenney, Sears None
Battle Creek, Michigan 331,464
</TABLE>
S-19
<PAGE>
WHOLLY-OWNED CENTERS (CONTINUED)
<TABLE>
<CAPTION>
TOTAL
GLA/MALL
YEAR AND
OPENED/ FREESTANDING
NAME OF CENTER/ REMODELED GLA ANCHOR
LOCATION(1) OR EXPANDED (SQUARE FEET) ANCHORS VACANCIES
--------------- --------------- ------------- ------------------------ ---------
<C> <C> <C> <S> <C>
Lansing Mall 1969/N/A 833,108/ Hudson's, JCPenney, None
Lansing, Michigan 390,980 Mervyn's, Montgomery
Ward
Lockport Mall 1971/1984 345,932/ Montgomery Ward, Hills, None
Lockport, New York 125,535 Bon Ton
Mall of the Bluffs 1986/1988 587,201/ Dillard's, JCPenney, None
Council Bluffs 353,567 Target
(Omaha, NE), Iowa
Market Place Mall 1975/N/A 821,117/ Sears, Bergner's, None
Champaign, Illinois 357,966 JCPenney
Natick Mall 1966/1994 1,152,039/ Sears, Filene's, Lord & None
Natick, Massachusetts 428,039 Taylor, Macy's
Northbrook Court 1976/1996 995,504/ Lord & Taylor, Marshall None
Northbrook (Chicago), Illinois 379,585 Fields, Neiman Marcus,
General Cinema
Oakwood Mall 1986/1991 786,326/ Dayton's, JCPenney, None
Eau Claire, Wisconsin 321,250 Target, Sears, Scheel's
All Sports
Park Mall 1974/N/A 848,325/ Sears, Dillard's, Macy's None
Tucson, Arizona 339,325
Piedmont Mall 1984/1995 652,195/ Belk, Hills, JCPenney, None
Danville, Virginia 187,045 Sears, Belk Mens
The Pines 1986/1990 607,543/ Dillard's, JCPenney, None
Pine Bluff, Arkansas 268,034 Sears, Wal-Mart
Rio West Mall 1981/1991 379,195/ Beall's, JCPenney, KMart None
Gallup, New Mexico 193,580
River Falls Mall 1990/N/A 744,532/ Bacons, Wal-Mart, Toys None
Clarksville (Louisville, KY), 399,367 'R Us
Indiana
River Hills Mall 1991/1996 637,262/ Herberger's, JCPenney, None
Mankato, Minnesota 285,213 Target, Sears
Sooner Fashion Square 1976/N/A 431,536/ Dillard's, JCPenney, None
Norman, Oklahoma 199,911 Sears
Southlake Mall 1976/N/A 1,023,428/ Sears, Rich's, JCPenney, None
Morrow, Georgia 285,328 Macy's
SouthShore Mall 1981/N/A 339,815/ JCPenney, Sears, KMart None
Aberdeen, Washington 150,497
Southwest Plaza 1983/1994, 1995 1,292,733/ Joslin's, Foley's, None
Denver, Colorado 690,101 Sears, JCPenney,
Montgomery Ward
Valley Hills Mall 1978/1986 618,126/ Belk, JCPenney, Sears None
Hickory, North Carolina 205,830
Westwood Mall 1972/1993 465,154/ Elder-Beerman, JCPenney, None
Jackson, Michigan 147,124 Montgomery Ward
West Valley Mall 1995/N/A 665,483/ Gottschalks, JCPenney, None
Tracy, California 147,467 Target, Sears
MALLS UNDER DEVELOPMENT
Coral Ridge Mall 1998(2)/N/A 1,200,000/ Dillard's, Younkers, None
Iowa City, Iowa 200,000 Sears, JCPenney, Target
Rivertown Crossings 1999(2) 1,100,000(1) (3) (3)
Grandville (Grand Rapids),
Michigan 300,000(2)
</TABLE>
- --------
(1) In cases where an enclosed mall shopping center's location is part of a
larger metropolitan area, the metropolitan area is identified in
parentheses.
(2) Projected.
(3) Upon completion, this enclosed mall shopping center will contain up to
five major department stores, including Sears, Younkers and Hudson's.
S-20
<PAGE>
UNCONSOLIDATED CENTERS(1)
<TABLE>
<CAPTION>
TOTAL
YEAR GLA/MALL
OPENED/ AND FREESTANDING
NAME OF CENTER/ REMODELED OWNERSHIP GLA ANCHOR
LOCATION(2) OR EXPANDED INTEREST % (SQUARE FEET) ANCHORS VACANCIES
--------------- ----------- ---------- ---------------- ------------------------------- ---------
<S> <C> <C> <C> <C> <C>
Arrowhead Towne Center 1993/1996 12.7 1,130,901/ Dillard's, JCPenney, Mervyn's, None
Glendale, Arizona 397,656 Montgomery Ward, Robinson's-May
Bay City Mall 1991/1993 38.2 527,273/ Sears, Target, JCPenney, None
Bay City, Michigan 211,595 Younkers
Brass Mill 1997/N/A 38.2 1,128,255/ Sears, Filene's, JCPenney One
Center/Commons 528,608
Waterbury, Connecticut
Chula Vista Center 1960/1994 38.2 884,227/ Macy's, Sears, JCPenney, None
Chula Vista, California 302,364 Mervyn's
Columbiana Centre 1990/1992 38.2 811,047/ Sears, Parisian's, Dillard's, None
Columbia, South 251,130 J. B. White
Carolina
Deerbrook Mall, 1984/N/A 38.2 1,195,527/ Sears, Mervyn's, Foley's, None
Humble (Houston), Texas 362,936 JCPenney, Dillard's
Lakeland Square 1988/1994 19.1 903,660/ Sears, Belk-Lindsey, Dillard's, None
Lakeland, Florida 291,780 JCPenney, Burdines, Dillard's
(Men's & Home Furnishings)
Moreno Valley Mall 1992/N/A 38.2 1,035,508/ Sears, Robinson's-May, None
Moreno Valley, 429,254 JCPenney, Harris'
California
Neshaminy Mall 1968/1995 19.1 945,779/ Sears, Strawbridge & Clothier, None
Bensalem, Pennsylvania 257,381 Boscov's
Newgate Mall 1981/1994 38.2 625,953/ Sears, Mervyn's, Dillard's None
Ogden, Utah 247,428
New Park Mall 1980/1993 19.1 1,131,329/ Sears, Macy's, Mervyn's, None
Newark, California 388,005 JCPenney
North Point Mall 1993/N/A 38.2 1,366,405/ Sears, JCPenney, Lord & Taylor, None
Alpharetta (Atlanta), 396,287 Rich's, Dillard's, Parisian's
Georgia
Oaks Mall 1978/ N/A 51.0 907,392/ Dillards, Burdines, Sears, None
Gainesville, Florida 349,725 JCPenney, Belk
The Parks at Arlington 1988/N/A N/A(3) 1,191,828/ Sears, Dillard's, Mervyn's, None
Arlington, Texas 359,912 Foley's, JCPenney
The Pavilions at 1990/1994 N/A(3) 963,419/ Sears, Filene's, JCPenney, None
Buckland Hills 327,284 Lord & Taylor, Filene's Home
Manchester, Connecticut Store, Dick's Sporting Goods
Pembroke Lakes Mall 1992/N/A 38.2 1,063,955/ Sears, Burdine's, JCPenney, None
Pembroke Pines, Florida 337,235 Dillard's, Dillard's (Men's &
Home Furnishings)
Prince Kuhio Plaza 1985/N/A 38.2 504,217/ Sears, Liberty House, None
Hilo, Hawaii 166,191 JCPenney
Quail Springs Mall 1980/1992 50.0 1,111,935/ Dillard's, Foley's, JCPenney, None
Oklahoma City, Oklahoma 329,183 Sears
Rolling Oaks Mall 1988/1992 19.1 758,584/ Sears, Dillard's, Foley's None
San Antonio, Texas 297,727
Steeplegate Mall 1990/N/A 38.2 447,180/ Sears, JCPenney One
Concord, New Hampshire 162,655
Superstition Springs 1990/1994 12.7 1,073,726/ Sears, JCPenney, Dillard's, None
Center 368,361 Mervyn's, Robinson's-May
East Mesa, Arizona
Town East Mall 1971/1986 50.0 1,270,363/ Sears, Foley's, JCPenney, None
Mesquite, Texas 434,586 Dillard's
</TABLE>
S-21
<PAGE>
UNCONSOLIDATED CENTERS(1) (CONTINUED)
<TABLE>
<CAPTION>
YEAR TOTAL
OPENED/ GLA/MALL
REMODELED AND FREESTANDING
NAME OF CENTER/ OR OWNERSHIP GLA ANCHOR
LOCATION(2) EXPANDED INTEREST % (SQUARE FEET) ANCHORS VACANCIES
--------------- --------- ---------- ---------------- --------------------------- ---------
<S> <C> <C> <C> <C> <C>
Tysons Galleria 1988/1997 38.2 809,225/ Macy's, Saks Fifth Avenue, None
McLean, Virginia 296,838 Neiman Marcus
Vista Ridge Mall 1989/1991 30.6 1,052,419/ Sears, Dillard's, Foley's, None
Lewisville, Texas 379,555 JCPenney
Washington Park Mall 1984/1986 38.2 351,483/ Sears, Dillard's, JCPenney None
Bartlesville, Oklahoma 157,190
West Oaks Mall 1996/N/A 38.2 1,042,723/ Dillard's, Sears, JCPenney, None
Ocoee (Orlando), 312,626 Gayfers
Florida
Westroads Mall 1968/1995 51.0 1,074,046/ Von Maur, JCPenney, None
Omaha, Nebraska 382,836 Younkers
The Woodlands Mall 1994/ N/A 19.1 1,031,892/ Sears, Dillard's, Mervyn's, None
The Woodlands 350,082 Foley's, JCPenney
(Houston), Texas
</TABLE>
- --------
(1) Includes the Homart Centers and the Property Joint Ventures.
(2) In cases where an enclosed mall shopping center's location is part of a
larger metropolitan area, the metropolitan area is identified in
parentheses.
(3) GGP/Homart's participation is subordinated to certain preferred returns to
the Company's joint venture partners.
NEW DEVELOPMENT
Currently, the Company is developing two enclosed mall shopping centers
comprising approximately 2.3 million square feet of GLA:
Coral Ridge Mall. Construction on the Coral Ridge Mall, an enclosed mall
shopping center located in Coralville (Iowa City), Iowa, is nearing
completion. This 1.2 million square foot enclosed mall shopping center is
scheduled to open in July 1998. The mall will feature five department stores:
Dillard's, Younkers, Sears, JCPenney and Target. In addition, the Coral Ridge
Mall contains a 10 screen movie theater, an ice rink and a children's museum.
Rivertown Crossings. A ground-breaking ceremony was held on December 4, 1997
for Rivertown Crossings, an enclosed mall shopping center located in
Grandville (Grand Rapids), Michigan. Upon completion, this 1.1 million square
foot enclosed mall shopping center located on a 138 acre site will contain up
to five department stores including Sears, Younkers and Hudson's. Rivertown
Crossings is expected to open in August 1999.
EXPANSION
During the first quarter of 1998, construction was completed on three
expansion projects totaling 262,000 square feet of additional space. These new
additions and expansions consisted of the construction of a 63,000 square foot
theater at the Newgate Mall located in Ogden, Utah, the construction of a
174,000 square foot Target store at the New Park Mall located in Newark,
California and the construction of a 25,000 square foot Borders Bookstore at
the West Oaks Mall located in Ocoee (Orlando), Florida.
Five other expansion projects are currently underway including: an 80,240
square foot Sears department store at the Mall of the Bluffs located in
Council Bluffs, Iowa, a 96,000 square foot theater at the Quail Springs Mall
located in Oklahoma City, Oklahoma, a 95,000 square foot theater at the
Neshaminy Mall located in Bensalem (Philadelphia), Pennsylvania, a 150,000
square foot JCPenney store at The Woodlands Mall located in Houston, Texas and
a 77,000 square foot theater at the Gateway Mall located in Springfield
(Eugene), Oregon.
S-22
<PAGE>
THIRD-PARTY MANAGEMENT
At April 30, 1998, the Company managed 36 retail properties for 26 third-
party management clients. These properties are located in 17 U.S. states,
contain approximately 28.7 million square feet of GLA, and are leased to over
3,000 tenants.
The Company's management business serves a broad base of clients, including
major financial institutions and pension funds, real estate advisory firms and
real estate investment groups. Management believes that the Company's third-
party management business provides the Company with extensive infrastructure
in national markets, the ability to attract and retain superior managerial
talent and proprietary knowledge about its managed properties and their
markets that provide it with competitive advantages in leasing and
acquisitions.
DESCRIPTION OF PIERS
The following summary sets forth the material terms and provisions of the
PIERS and is qualified in its entirety by reference to the terms and
provisions of the Certificate of Designations, Preferences and Rights (the
"Certificate of Designations") relating to the PIERS, which was filed by the
Company on a Form 8-K dated June 4, 1998, and the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), both of which
have been filed as exhibits to the Registration Statement, and which are
incorporated by reference herein. The following description of the particular
terms of the PIERS supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Preferred
Stock set forth in the accompanying Prospectus, to which description reference
is hereby made.
GENERAL
The Certificate of Incorporation authorizes the Board of Directors to issue
up to 5,000,000 shares of Preferred Stock, par value $100 per share. No
Preferred Stock is outstanding as of the date of this Prospectus Supplement.
The Board of Directors has adopted a Certificate of Designations determining
the terms of the PIERS as a series of Preferred Stock consisting of up to
345,000 PIERS (representing 13,800,000 Depositary Shares), designated as the
7.25% Preferred Income Equity Redeemable Stock, Series A (referred to herein
as the PIERS). When issued, the PIERS will be validly issued, fully paid and
nonassessable. Unless converted or redeemed by the Company, PIERS are subject
to mandatory redemption on July 15, 2008. The Company will cause to be issued
Depositary Shares each representing 1/40 of a PIERS. Application has been made
to list the Depositary Shares and the Common Stock issuable upon conversion or
redemption of the PIERS on the NYSE. The Depositary Shares will be listed
under the symbol "GGPPrA" and the Common Stock into which the PIERS are
convertible or for which the PIERS may be redeemable will be listed under the
symbol "GGP." Trading of the Depositary Shares is expected to commence on the
NYSE within 30 days of the closing of the Offering. The Company does not
expect that there will be any public trading market for the PIERS except as
represented by the Depositary Shares.
In connection with the Offering, the Company will contribute or otherwise
transfer the net proceeds of the sale of the PIERS to the Operating
Partnership and the Operating Partnership will issue to the Company Preferred
OP Interests that mirror the rights, preferences and other privileges of the
PIERS. The Operating Partnership will be required to make all required
distributions on such Preferred OP Interests prior to any distribution of cash
or assets to the holders of Common OP Units or to the holders of any other
equity interest of the Operating Partnership, except for any other series of
preference interests ranking on a parity with such Preferred OP Interests as
to distributions and liquidation, and except for distributions required to
enable the Company to maintain its qualification as a REIT.
RANKING
The PIERS will rank senior to the Common Stock as to payment of dividends
and amounts upon liquidation, dissolution or winding-up of the Company.
S-23
<PAGE>
DIVIDENDS
Holders of the PIERS will be entitled to receive, when, as and if declared
by the Board of Directors, out of assets legally available for the payment of
dividends, quarterly cumulative cash dividends in an amount per PIERS equal to
the greater of (i) 7.25% of the $1,000.00 liquidation preference thereof per
annum (equivalent to $1.8125 per annum per Depositary Share), payable in equal
amounts of $18.13 per PIERS quarterly (equivalent to $0.4531 per Depositary
Share quarterly), and (ii) the quarterly cash dividends paid or payable
(determined on each of the Dividend Payment Dates for the PIERS referred to
below) on that number of shares of Common Stock equal to the number of shares
of Common Stock (or portion thereof) into which a PIERS is convertible.
Dividends on the PIERS will accumulate and be cumulative from June 10, 1998,
and will be payable in arrears quarterly on the fifteenth day of each January,
April, July and October or, if not a business day, the next succeeding
business day (each, a "Dividend Payment Date"). The first dividends on the
PIERS, which will be paid on October 15, 1998, will be for more than a full
quarter. Such dividends and any dividends payable on the PIERS for any other
partial dividend period will be prorated and computed on the basis of a 360
day year consisting of twelve 30-day months. Dividends will be payable to
holders of record as they appear in the stock records of the Company at the
close of business on the applicable record date, which will be the first day
of the calendar month in which the applicable Dividend Payment Date falls or
such other date designated by the Board of Directors for the payment of
dividends that is not more than 30 nor less than 10 days prior to such
Dividend Payment Date (each, a "Dividend Record Date").
If any PIERS are outstanding, no dividends will be declared or paid or set
apart for payment on any series of Capital Stock of the Company ranking, as to
payment of dividends or amounts upon liquidation, on a parity with or junior
to the PIERS for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the PIERS for all past
dividend periods and the then current dividend period. When dividends are not
paid in full (or a sum sufficient for such full payment is not so set apart)
upon the PIERS and the shares of any other series of Capital Stock ranking on
a parity as to payment of dividends with the PIERS, all dividends declared
upon the PIERS and any other series of capital stock ranking on a parity as to
payment of dividends with the PIERS will be declared pro rata so that the
amount of dividends declared per PIERS and such other series of Capital Stock
shall in all cases bear to each other the same ratio that accumulated
dividends per share on the PIERS and such other series of Capital Stock (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such shares of Capital Stock do not have a cumulative
dividend) bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
the PIERS which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the PIERS have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart
for payment for all past dividend periods and the then current dividend
period, no dividends (other than in Common Stock or other Capital Stock
ranking junior to the PIERS as to payment of dividends and amounts upon
liquidation, dissolution or winding-up of the Company) shall be declared or
paid or set apart for payment upon the Common Stock or any other Capital Stock
of the Company ranking junior to or on a parity with the PIERS as to payment
of dividends or amounts upon liquidation, dissolution or winding-up of the
Company, nor shall any Common Stock or any other Capital Stock ranking junior
to or on a parity with the PIERS as to dividends or amounts upon liquidation,
dissolution or winding-up of the Company be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for
a sinking fund for the redemption of any such Capital Stock) by the Company
(except by conversion into or exchange for other Capital Stock of the Company
ranking junior to the PIERS as to payment of dividends and amounts upon
liquidation, dissolution or winding-up of the Company or by redemptions for
the purpose of maintaining the Company's qualification as a REIT).
No dividend on the PIERS will be declared by the Board of Directors if such
declaration, payment or setting apart for payment would violate any agreement
of the Company or is restricted or prohibited by law.
S-24
<PAGE>
Notwithstanding the foregoing, dividends on the PIERS will accumulate
whether or not any of the foregoing restrictions exist, whether or not there
are funds legally available for the payment thereof and whether or not such
dividends are declared. Accumulated but unpaid dividends on the PIERS will not
bear interest and holders of the PIERS will not be entitled to any dividends
in excess of full cumulative dividends as described above.
Any dividend payment made on the PIERS shall first be credited against the
earliest accumulated but unpaid dividend due with respect to such PIERS which
remains payable.
If the Company designates any portion of a dividend as a "capital gain
dividend," a U.S. Stockholder's share of such capital gain dividend would be
an amount which bears the same ratio to the total amount of dividends paid to
such U.S. Stockholder for the year as the aggregate amount designated as a
capital gain dividend bears to the aggregate amount of all dividends paid on
all classes of shares of Capital Stock for the year. See "Certain Federal
Income Tax Considerations."
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the holders of the PIERS will be entitled to
receive out of the assets of the Company available for distribution to
stockholders remaining after payment or provisions for payment of all debts
and other liabilities of the Company a liquidation preference of $1,000.00 per
PIERS (equivalent to $25.00 per Depositary Share), plus an amount equal to any
accumulated and unpaid dividends to the date of payment, before any payment or
distribution of assets is made to holders of Common Stock or any other Capital
Stock ranking junior to the PIERS as to the distribution of assets upon the
liquidation, dissolution or winding-up of the Company. After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of PIERS will have no right or claim to any of the remaining assets of
the Company. None of (i) a consolidation or merger of the Company with or into
another entity, (ii) a merger of another entity with or into the Company,
(iii) a statutory share exchange by the Company or (iv) a sale, lease or
conveyance of all or substantially all of the Company's assets, property or
business shall be considered a liquidation, dissolution or winding-up of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the assets of the Company are insufficient to make
the full payment due to holders of the PIERS and the corresponding amounts
payable on all other shares of Preferred Stock of the Company ranking on a
parity with the PIERS as to the payment of dividends and distribution of
assets upon the liquidation, dissolution or winding-up of the Company, then
the holders of the PIERS and all other such shares of Preferred Stock shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
REDEMPTION
Except in certain circumstances relating to the preservation of the
Company's status as a REIT for federal income tax purposes, the PIERS will not
be redeemable prior to July 15, 2003. On and after July 15, 2003, the PIERS
will be redeemable by the Company, in whole or from time to time in part, at
the option of the Company, for such number of shares of Common Stock as equals
the liquidation preference of the PIERS to be redeemed divided by the
Conversion Price as of the opening of business on the date set for such
redemption (equivalent initially to a conversion rate of 0.6297 shares of
Common Stock for each Depositary Share) (the "Stock Redemption Right"). The
Company may exercise the Stock Redemption Right only if for 20 trading days
within any period of 30 consecutive trading days, including the last trading
day of such period, the closing price of the Common Stock on the NYSE exceeds
$45.65 per share, subject to adjustment under the circumstances described
below under "--Conversion Price Adjustments." To exercise the Stock Redemption
Right, the Company must issue a press release announcing the redemption prior
to the opening of business on the second trading day after the conditions
described in the preceding sentence have, from time to time, been met, but may
not issue a press release prior to May 15, 2003.
Notice of redemption pursuant to the Stock Redemption Right will be given by
mail or by publication (with subsequent prompt notice by mail) to the holders
of the PIERS not more than four business days after the Company issues the
press release announcing its intention to redeem the PIERS. The redemption
date will be a date selected by the Company not less than 30 nor more than 60
days after the date on which the Company issues such press release.
S-25
<PAGE>
On and after July 15, 2003, the PIERS may also be redeemed at the option of
the Company, in whole or from time to time in part, at the following
redemption prices per PIERS if redeemed during the twelve-month period
beginning July 15 of the year indicated below, plus, in each case, all
dividends accumulated and unpaid on the PIERS to the date of such redemption
(the "Cash Redemption Right"), upon giving notice as provided below:
<TABLE>
<CAPTION>
REDEMPTION PRICE EQUIVALENT PRICE
YEAR PER PIERS PER DEPOSITARY SHARE
---- ---------------- --------------------
<S> <C> <C>
2003............................... $1,032.22 $25.8055
2004............................... $1,024.16 $25.6040
2005............................... $1,016.11 $25.4028
2006............................... $1,008.05 $25.2013
2007 and thereafter................ $1,000.00 $25.0000
</TABLE>
The Company will not exercise its option to redeem the PIERS pursuant to the
Cash Redemption Right unless the redemption price (other than the portion
thereof consisting of accumulated and unpaid dividends) for the exercise of
the Cash Redemption Right is paid solely out of the sale proceeds of other
shares of Capital Stock of the Company (which shares of Capital Stock may, at
the Company's option, include other series of Preferred Stock or other
securities of the Company which, by their terms, are subject to mandatory
conversion into, or exchange for, or which require the purchase of, such
Capital Stock) and from no other source.
Notice of redemption pursuant to the Cash Redemption Right will be mailed,
not less than 20 nor more than 60 days prior to the PIERS Redemption Date, to
each holder of record of PIERS to be redeemed, notifying such holder of the
Company's election to redeem such PIERS.
In addition to any information required by applicable law or regulation,
notice of redemption pursuant to the Stock Redemption Right or the Cash
Redemption Right shall state, as appropriate, (i) the PIERS Redemption Date,
(ii) with respect to the Cash Redemption Right, the redemption price and with
respect to the Stock Redemption Right, the number of shares of Common Stock to
be issued with respect to each PIERS, (iii) the number of PIERS to be redeemed
(and, if fewer than all the PIERS are to be redeemed, the number of PIERS to
be redeemed from such holder), (iv) the place(s) where the PIERS are to be
surrendered for payment or delivery of shares of Common Stock (as applicable),
(v) that dividends on the shares to be redeemed will cease to accumulate on
such redemption date and (vi) the date upon which the holder's conversion
rights, if any, as to such PIERS shall terminate.
The PIERS will be subject to mandatory redemption on July 15, 2008 at a
price of $1,000.00 per PIERS (equivalent to $25.00 per Depositary Share), plus
accumulated and unpaid dividends to the redemption date (the "Mandatory
Redemption Date"). Notice of mandatory redemption will be mailed not less than
20 nor more than 60 days prior to the Mandatory Redemption Date, to each
holder of PIERS to be redeemed, notifying such holder of the mandatory
redemption of such PIERS, stating (i) the Mandatory Redemption Date, (ii) the
redemption price, (iii) the place(s) where the PIERS are to be surrendered for
payment, (iv) that dividends on the PIERS to be redeemed will cease to
accumulate on such redemption date and (v) the date upon which the holder's
conversion rights, if any, as to such PIERS shall terminate.
Any date fixed for redemption pursuant to the foregoing provisions
(including, where applicable, the Mandatory Redemption Date) is referred to as
a "PIERS Redemption Date."
If fewer than all of the outstanding PIERS are to be redeemed pursuant to
the Stock Redemption Right or the Cash Redemption Right, the PIERS to be
redeemed will be determined pro rata or by lot or in such other manner as
prescribed by the Board of Directors. If such redemption is to be by lot and
as a result of such redemption any holder of PIERS would become a holder of a
number of PIERS in excess of the Ownership Limit because such holder's PIERS
were not redeemed, or were only redeemed in part, then, except in certain
instances, the Company will redeem the requisite number of PIERS of such
holder such that such holder will not hold in excess of the Ownership Limit
subsequent to such redemption. In addition, the Company may redeem PIERS in
certain circumstances relating to the maintenance of its ability to qualify as
a REIT for federal income tax purposes.
S-26
<PAGE>
On or after the PIERS Redemption Date, each holder of PIERS to be redeemed
must present and surrender the certificates representing such holder's PIERS
to the Company at the place designated in the applicable notice and thereupon
the redemption price (in cash or shares of Common Stock, as applicable) of
such PIERS will be paid to or on the order of the person whose name appears on
such certificate representing PIERS as the owner thereof and each surrendered
certificate will be canceled. If fewer than all the PIERS represented by any
such certificate representing PIERS are to be redeemed, a new certificate will
be issued representing the unredeemed PIERS. From and after the PIERS
Redemption Date (unless the Company defaults in payment of the redemption
price), all dividends on the PIERS called for redemption will cease to
accumulate and all rights of the holders thereof, except the right to receive
the redemption price thereof (including all accumulated and unpaid dividends
to the PIERS Redemption Date), will cease and terminate and such PIERS will
not thereafter be transferred (except with the consent of the Company) on the
Company's books, and such PIERS shall not be deemed to be outstanding for any
purpose whatsoever. At its election, the Company, prior to a PIERS Redemption
Date relating to its Cash Redemption Right or Stock Redemption Right, may
irrevocably deposit the redemption price (including accumulated and unpaid
dividends) of the PIERS so called for redemption in trust for the holders
thereof with a bank or trust company, in which case the notice to holders of
the PIERS to be redeemed will (i) state the date of such deposit, (ii) specify
the office of such bank or trust company as the place of payment of the
redemption price and (iii) require such holders to surrender the certificates
representing such PIERS at such place on or about the date fixed in such
redemption notice (which may not be later than such PIERS Redemption Date)
against payment of the redemption price (including all accumulated and unpaid
dividends to such PIERS Redemption Date). Any moneys so deposited which remain
unclaimed by the holders of the PIERS at the end of two years after the PIERS
Redemption Date will be returned by such bank or trust company to the Company.
Notwithstanding the foregoing, unless full cumulative dividends on all PIERS
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the current dividend period, no PIERS will be redeemed unless all
outstanding PIERS are simultaneously redeemed; provided, however, that the
foregoing will not prevent the purchase or acquisition of PIERS pursuant to a
purchase or exchange offer made on the same terms to holders of all
outstanding PIERS. In addition, unless full cumulative dividends on all
outstanding PIERS have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, the
Company will not purchase or otherwise acquire directly or indirectly any
PIERS or any Capital Stock ranking junior to or on a parity with the PIERS as
to payment of dividends or amounts upon liquidation, dissolution or winding-up
of the Company (except by conversion into or exchange for shares of Common
Stock or other Capital Stock of the Company ranking junior to or on a parity
with the PIERS as to payment of dividends or amounts upon liquidation,
dissolution or winding-up of the Company or by redemptions for the purposes of
maintaining the Company's qualification as a REIT).
Fractional shares of Common Stock are not to be issued upon redemption of
the PIERS pursuant to the Stock Redemption Right, but, in lieu thereof, the
Company will pay a cash adjustment based on the current market price of the
Common Stock on the trading day prior to the PIERS Redemption Date.
VOTING RIGHTS
Holders of PIERS will not have any voting rights, except as provided by
applicable law and as described below.
Whenever dividends on any PIERS are in arrears for six or more quarterly
periods, the holders of the PIERS (voting separately as a class with all other
series of Preferred Stock upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two
additional directors of the Company to serve on the Board of Directors. Such
election shall be held at the next annual meeting of stockholders (or a
special meeting of the stockholders held in place thereof) and at each
subsequent annual meeting of the stockholders until all arrearages and the
dividends accumulated on the PIERS and such other series of Preferred Stock
upon which like voting rights have been conferred and are exercisable for the
then current dividend period
S-27
<PAGE>
have been fully paid or declared and a sum sufficient for the full payment
thereof has been set apart. In such case, the entire Board of Directors will
be increased by two directors. Vacancies for directors elected by holders of
PIERS and any other such series of Preferred Stock shall be filled by the
remaining director so elected then in office or, if there is no such remaining
director, by vote of holders of a majority of the outstanding PIERS and any
other such series of Preferred Stock voting as a single class. A director
elected by the holders of PIERS and any other such series of Preferred Stock
may be removed only for cause and only by the vote of holders of seventy-five
percent of the outstanding PIERS and any other such series of Preferred Stock
voting as a single class.
So long as any PIERS remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of the PIERS
outstanding at the time, given in person or by proxy, either in writing or at
a meeting (voting separately as a class), (i) authorize or create, or increase
the authorized or issued amount of, any class or series of Capital Stock of
the Company ranking prior to the PIERS with respect to the payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding-up of the Company, or reclassify any authorized Capital Stock of the
Company into such Capital Stock, or create, authorize or issue any obligation
or security convertible or exchangeable into or evidencing the right to
purchase any such Capital Stock; or (ii) amend, alter or repeal the provisions
of the Certificate of Incorporation or the Certificate of Designations
relating to the PIERS, whether by merger or consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of the PIERS or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in (ii)
above, so long as PIERS remain outstanding with the terms thereof materially
unchanged, taking into account that, upon the occurrence of an Event, the
Company may not be the surviving entity, the occurrence of any such Event will
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of PIERS; and provided further that (x)
any increase in the amount of the authorized Preferred Stock or the creation
or issuance of any other series of Preferred Stock or (y) any increase in the
amount of authorized PIERS or any other series of Preferred Stock, in each
case ranking on a parity with or junior to the PIERS with respect to payment
of dividends and the distribution of assets upon liquidation, dissolution or
winding-up of the Company, will not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required will
be effected, all outstanding PIERS have been converted, redeemed or called for
redemption and sufficient funds or shares of Common Stock, as applicable,
shall have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
Subject to the restrictions on transfer and ownership described below in "--
Restrictions on Ownership," the PIERS will be convertible in whole or in part
at any time, at the option of the holders thereof, into Common Stock at an
initial conversion price of $39.70 per share of Common Stock (equivalent to a
conversion rate of 0.6297 shares of Common Stock for each Depositary Share),
subject to adjustment as described below (the "Conversion Price"). The right
to convert PIERS called for redemption will terminate at the close of business
on the second business day prior to a PIERS Redemption Date. For information
as to notices of redemption, see "--Redemption" above.
Conversion of PIERS, or a specified portion thereof, may be effected by
delivering certificates representing PIERS together with written notice of
conversion and a proper assignment of such certificates to Norwest Bank
Minnesota, N.A., the conversion agent for the PIERS. Currently, such office is
the principal corporate trust office of Norwest Bank Minnesota, N.A., 161
North Concord Exchange, South St. Paul, Minnesota 55075.
Each conversion will be deemed to have been effected immediately prior to
the close of business on the date on which the certificates representing PIERS
shall have been surrendered and notice shall have been received by the Company
as aforesaid (and if applicable, payment of any amount equal to the dividend
payable on such PIERS shall have been received by the Company as described
below) and the conversion shall be at the Conversion Price in effect at such
time and on such date.
S-28
<PAGE>
Holders of PIERS at the close of business on a Dividend Record Date will be
entitled to receive the dividend payable on such PIERS on the corresponding
Dividend Payment Date notwithstanding the conversion of such PIERS following
such Dividend Record Date and prior to such Dividend Payment Date. However,
certificates representing PIERS surrendered for conversion during the period
between the close of business on any Dividend Record Date and ending with the
opening of business on the corresponding Dividend Payment Date (except PIERS
converted after the issuance of a notice of redemption with respect to a PIERS
Redemption Date during such period or coinciding with such Dividend Payment
Date, which PIERS will be entitled to such dividend) must be accompanied by
payment of an amount equal to the dividend payable on such PIERS on such
Dividend Payment Date. A holder of PIERS on a Dividend Record Date who (or
whose transferee) tenders any such PIERS for conversion into shares of Common
Stock on such Dividend Payment Date will receive the dividend payable by the
Company on such PIERS on such date, and the converting holder need not include
payment of the amount of such dividend upon surrender of certificates
representing such PIERS for conversion. Except as provided above, the Company
will make no payment or allowance for unpaid dividends, whether or not in
arrears, on converted PIERS or for dividends on the shares of Common Stock
that are issued upon such conversion.
Fractional shares of Common Stock will not be issued upon conversion but, in
lieu thereof, the Company will pay a cash adjustment based on the current
market price of the Common Stock at the close of business on the trading day
prior to the conversion date.
CONVERSION PRICE ADJUSTMENTS
The Conversion Price is subject to adjustment upon certain events, including
(i) the payment of dividends (and other distributions) payable in Common Stock
on any class or series of Capital Stock of the Company, (ii) the issuance to
all holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share less than the fair market
value per share of Common Stock, (iii) subdivisions, combinations and
reclassifications of Common Stock, (iv) distributions to all holders of Common
Stock of any other class of Capital Stock, evidences of indebtedness of the
Company or assets (including securities, but excluding those dividends,
rights, warrants and distributions referred to above and dividends and
distributions paid in cash exclusively out of equity, including revaluation
equity, applicable to Common Stock), (v) distributions consisting exclusively
of cash (excluding any cash portion of distributions referred to in clause
(iv)) to all holders of Common Stock to the extent such distributions,
combined with (A) all such all-cash distributions made within the preceding 12
months in respect of which no adjustment has been made plus (B) any cash and
the fair market value of other consideration payable in respect of any tender
offers by the Company for Common Stock concluded within the preceding 12
months in respect of which no adjustment has been made, but only to the extent
that the consideration payable in respect of such tender offers exceeds the
current market price of the Common Stock acquired in such tender offers,
exceeds 15% of the Company's market capitalization (being the product of the
then current market price of the Common Stock times the number of shares of
Common Stock then outstanding) on the record date for such distribution and
(vi) a tender offer made by the Company or any subsidiary for all or any
portion of the Common Stock shall expire and such tender offer shall require
payment to stockholders of aggregate consideration having a fair market value
that combined with (Y) the aggregate of the cash plus the fair market value,
as of the expiration of such tender offer, of consideration payable in respect
of any other tender offer by the Company or any subsidiary for all or any
portion of the Common Stock expiring within 12 months preceding the expiration
of such tender offer and in respect of which no adjustment to this section
(vi) has been made, but only to the extent that the consideration payable in
respect of such expired tender offer exceeds the current market price of the
Common Stock acquired in such tender offer, and (Z) the aggregate amount of
any distributions to all holders of Common Stock made exclusively in cash
within the 12 months preceding the expiration of such tender offer and in
respect of which no adjustment pursuant to section (v) has been made, exceeds
15% of the product of the current market price per share of the Common Stock
as of the last time tenders could have been made pursuant to such tender offer
times the number of shares of Common Stock outstanding (including tendered
shares). In addition to the foregoing adjustments, the Company will be
permitted to make such reductions in the Conversion Price as it considers to
be advisable in order that any event treated for federal income tax purposes
as a dividend of stock or stock rights will not be taxable to the holders of
the Common Stock.
S-29
<PAGE>
In case the Company shall be a party to any transactions (including, without
limitation, a merger, consolidation, statutory share exchange, tender offer
for all or substantially all of the Common Stock or sale of all or
substantially all of the Company's assets), in each case as a result of which
Common Stock will be converted into the right to receive shares of common
stock or beneficial interest, securities or other property (including cash or
any combination thereof), each PIERS will thereafter be convertible into the
kind and amount of shares of stock or beneficial interest, securities and
other property receivable (including cash or any combination thereof) upon the
consummation of such transaction by a holder of that number of shares of
Common Stock or fraction thereof into which one PIERS was convertible
immediately prior to such transaction, assuming such holder of Common Stock
failed to exercise any rights of election (provided that if the kind and
amount of stock or beneficial interest, securities and other property so
receivable is not the same for each non-electing share, the kind and amount so
receivable by each non-electing share shall be deemed to be the kind and
amount received per share by a plurality of non-electing shares). The Company
may not become a party to any such transaction unless the terms thereof are
consistent with the foregoing.
No adjustment of the Conversion Price is required to be made in any case
until cumulative adjustments amount to 1% or more of the Conversion Price. Any
adjustments not so required to be made will be carried forward and taken into
account in subsequent adjustments.
RESTRICTIONS ON OWNERSHIP
For information regarding restrictions on ownership of the PIERS, see
"Description of Common Stock--Restrictions on Transfer" in the accompanying
Prospectus and "Description of Depositary Shares--Ownership Restrictions" in
this Prospectus Supplement.
TRANSFER AGENT, REGISTRAR, CONVERSION AGENT AND DIVIDEND DISBURSING AGENT
The transfer agent, registrar, conversion agent and dividend disbursing
agent for the PIERS will be Norwest Bank Minnesota, N.A.
DESCRIPTION OF DEPOSITARY SHARES
The following summary of the terms of the Deposit Agreement (as defined
below), Depositary Shares and Depositary Receipts (as defined below) does not
purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the Deposit Agreement, which is incorporated by reference
herein. The following description of the particular terms of the Depositary
Shares supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Depositary Shares set
forth in the accompanying Prospectus, to which description reference is hereby
made.
The Company will cause to be issued receipts ("Depositary Receipts") for
Depositary Shares, each of which will represent 1/40 of a PIERS. The PIERS
represented by Depositary Shares will be deposited under a Deposit Agreement
(the "Deposit Agreement") among the Company, Norwest Bank Minnesota, N.A. (the
"Depositary") and the holders from time to time of the Depositary Receipts
issued thereunder. Subject to the terms of the Deposit Agreement, each owner
of a Depositary Share will be entitled, in proportion to the applicable
fraction of a share of PIERS represented by such Depositary Share, to all the
rights and preferences of the PIERS represented thereby (including dividend,
voting, conversion, redemption and liquidation rights, preferences and
privileges).
GENERAL
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement. Immediately following the issuance of the
PIERS by the Company and the delivery of such PIERS to the Depositary, the
Company will cause the Depositary to issue, on behalf of the Company, the
Depositary Shares to the Underwriters. Copies of the forms of Deposit
Agreement and Depositary Receipt may be obtained upon request from the Company
or the Depositary at the principal office of the Depositary at which at any
particular time its depositary business may be administered (the "Depositary's
Office"), which on the date hereof is 161 North Concord Exchange, South St.
Paul, Minnesota 55075.
S-30
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the PIERS to the record holders of
Depositary Receipts evidencing the related Depositary Shares in such amounts,
as nearly as practicable, of such dividend or distribution as are applicable
to the number of such Depositary Shares owned by such holders, subject to
certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Depositary.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
in such amounts, as nearly as practicable, of such property (including
securities) received by it as are applicable to the number of such Depositary
Shares owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to the Depositary, unless the Depositary determines that it is not
feasible to make such distribution, in which case the Depositary may, with the
approval of the Company, sell such property and distribute the net proceeds
from such sale to such holders.
No cash dividend will be paid, and no non-cash dividend will be made, in
respect of any Depositary Share to the extent it represents any PIERS
converted into Excess Shares.
WITHDRAWAL OF PIERS
Upon surrender of a Depositary Receipt or Depositary Receipts evidencing not
less than 40 Depositary Shares (or integral multiples of 40 Depositary Shares)
at the Depositary's Office (unless the related Depositary Shares have
previously been called for redemption or converted into Excess Shares), a
holder thereof is entitled to delivery at such office, to or upon such
holder's order, of the number of whole PIERS and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Shares will be entitled to receive whole PIERS on the
basis of one PIERS for every 40 Depositary Shares, but holders of such whole
PIERS thus withdrawn will not thereafter be entitled to deposit such
Depositary Shares under the Deposit Agreement or to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of whole PIERS to be withdrawn, the Depositary will deliver to such
holder at the same time a new Depositary Receipt evidencing such excess number
of Depositary Shares. The Company does not expect that there will be a trading
market for withdrawn PIERS.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems for shares of Common Stock or cash the PIERS
held by the Depositary, the Depositary will redeem as of the same redemption
date the number of Depositary Shares representing the PIERS so redeemed,
provided the Company shall have delivered to the Depositary shares of Common
Stock and/or cash sufficient to effect a redemption of the PIERS to be
redeemed. Each Depositary Share will be redeemable for that number of shares
of Common Stock equal to 1/40 of the number of shares of Common Stock or 1/40
of the amount of cash and (in either case) any other amounts per PIERS payable
with respect to the PIERS. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by the Company
by lot or pro rata or other equitable method, in each case as may be
determined by the Company that will not result in the issuance of Excess
Shares.
The Depositary is not required to transfer or exchange any Depositary
Receipts for a period beginning at the close of business on the day the
Company first publicly announces the redemption of PIERS and ending at the
close of business on the day the Depositary mails the notices of redemption of
Depositary Shares or to transfer or exchange any Depositary Receipt evidencing
Depositary Shares called for redemption in whole or in part, except as
otherwise provided in the Deposit Agreement.
From and after the date fixed for redemption, all dividends in respect of
the PIERS (and Depositary Shares representing such PIERS) so called for
redemption will cease to accrue, the Depositary Shares so called for
redemption will no longer be outstanding and all rights of holders of the
Depositary Shares will cease, except
S-31
<PAGE>
the right to receive the money, securities or other property payable upon such
redemption and any money, securities or other property to which the holders of
such Depositary Shares were entitled upon such redemption upon surrender to
the Depositary of the Depositary Receipts evidencing such Depositary Shares.
VOTING THE PIERS
Upon receipt of notice of any meeting at which the holders of the PIERS are
entitled to vote, the Depositary will mail the information contained in such
notice of meeting to the record holders of the Depositary Receipts evidencing
Depositary Shares that represent such PIERS. Each record holder of Depositary
Receipts evidencing Depositary Shares on the record date (which will be the
same date as the record date for the PIERS) will be entitled to instruct the
Depositary as to the exercise of the voting rights pertaining to the amount of
PIERS (or fraction thereof) represented by such holder's Depositary Shares.
The Depositary will vote the amount of PIERS (or fractions thereof)
represented by such Depositary Shares in accordance with such instructions,
and the Company will agree to take all reasonable action that may be deemed
necessary by the Depositary in order to enable the Depositary to do so. The
Depositary will abstain from voting PIERS to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing such
Depositary Shares which represent such PIERS. The Depositary shall not be
responsible for any failure to carry out any instruction to vote, or for the
manner or effect of any such vote made, as long as such action or non-action
is in good faith and does not result from negligence or willful misconduct of
the Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, the holder of each Depositary Receipt will
be entitled to receive 1/40 of the liquidation preference accorded each PIERS
represented by the Depositary Share evidenced by such Depositary Receipt (or
$25.00 per Depositary Share).
CONVERSION OF PIERS
The Depositary Shares, as such, are not convertible into shares of Common
Stock or any other securities or property of the Company, except in connection
with certain conversions in connection with the preservation of the Company's
status as a REIT. Nevertheless, the Depositary Receipts may be surrendered by
holders thereof to the Depositary at the Depositary's Office (or such other
office or to such Depositary's agents as the Depositary may designate for such
purpose) with written instructions to the Depositary to instruct the Company
to cause conversion of the whole or fractional PIERS represented by the
Depositary Shares evidenced by such Depositary Receipts into whole shares of
Common Stock, and the Company has agreed that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
delivery of (i) a certificate or certificates evidencing the number of whole
shares of Common Stock into which the PIERS represented by the Depositary
Shares evidenced by such Depositary Receipt or Depositary Receipts has or have
been converted and (ii) any money or other property to which the holder is
entitled. If the Depositary Shares represented by a Depositary Receipt are to
be converted in part only, a new Depositary Receipt or Depositary Receipts
will be issued for any Depositary Shares not to be converted. No fractional
shares of Common Stock will be issued upon conversion, and if such conversion
will result in a fractional share being issued, an amount will be paid in cash
by the Company equal to the value of the fractional interest based on the
closing price of the Common Stock on the last business day prior to the
conversion. "Description of PIERS--Conversion Rights."
OWNERSHIP RESTRICTIONS
The Depositary Receipts and the Deposit Agreement provide that, where PIERS
deposited under the Deposit Agreement become or have become Excess Shares
under the Certificate of Incorporation, the Depositary Shares related to such
PIERS (which shall be those Depositary Shares the direct, indirect or
constructive ownership of which by a Prohibited Owner caused such PIERS to be
treated as Excess Shares; provided that the number of
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<PAGE>
Depositary Shares so related and owned directly, indirectly or constructively
by such Prohibited Owner shall be rounded up to the nearest 40 Depositary
Shares), shall be entitled to receive dividends and exercise voting rights
only to the extent that a Prohibited Owner with respect to the PIERS
associated with such Depositary Shares would be entitled to receive dividends
and exercise voting rights under the Certificate of Incorporation.
Any Prohibited Owner of Depositary Shares that represent Excess Shares shall
repay to the Trustee (as defined in the Certificate of Incorporation) the
amount of any dividends or distributions received by it that (a) are
attributable to such Excess Shares and (b) have a record date on or after the
date that such PIERS became Excess Shares. In addition, any vote by a
Prohibited Owner as a holder of Depositary Shares prior to the discovery by
the Company that the Depositary Shares represent Excess Shares shall be
rescinded and shall be void ab initio with respect to such Excess Shares.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the PIERS and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Depositary. However, any
amendment that materially and adversely alters the rights of the holders of
Depositary Receipts will not be effective unless such amendment has been
approved by the holders of at least a majority of the Depositary Shares
evidenced by the Depositary Receipts then outstanding. Each holder of an
outstanding Depositary Receipt at the time any such amendment becomes
effective shall be deemed to have consented and agreed to such amendment and
to be bound by the Deposit Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Depositary if (i) such termination is
necessary to assist in maintaining the Company's status as a REIT or (ii)
holders of a majority of the outstanding PIERS consent to such termination,
whereupon the Depositary shall deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional PIERS as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any
other property held by the Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated
to assist in maintaining the Company's status as a REIT, then, if the
Depositary Shares are listed on a national securities exchange, the Company
will use its best efforts to list the PIERS issued upon surrender of the
related Depositary Shares on a national securities exchange. In addition, the
Deposit Agreement will automatically terminate if (i) all outstanding
Depositary Shares have been redeemed, (ii) there shall have been a final
distribution in respect of the related PIERS in connection with any
liquidation, dissolution or winding-up of the Company and such distribution
shall have been distributed to the holders of Depositary Receipts evidencing
the Depositary Shares representing such PIERS or (iii) each of the PIERS shall
have been converted into shares of Common Stock.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Depositary arrangements, the initial
deposit of the PIERS, the redemption of PIERS and the issuance of shares of
Common Stock upon conversion or redemption. In addition, the Company will pay
the fees and expenses of the Depositary in connection with the performance of
its duties under the Deposit Agreement. Holders of Depositary Receipts will
pay any other transfer or other taxes and governmental charges. If, at the
request of a holder of Depositary Receipts, the Depositary incurs charges or
other expenses for which it is not otherwise liable under the Deposit
Agreement, such holder will be liable for such charges and expenses.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary. A successor Depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50 million.
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MISCELLANEOUS
The Depositary will, with the approval of the Company, appoint a Registrar
for registration of the Depositary Receipts or Depositary Shares in accordance
with any requirements of any applicable stock exchange in which the Depositary
Receipts or Depositary Shares are listed. The Registrar will maintain books at
the Depositary's Office for the registration of transfer of Depositary
Receipts or at such other place as is approved by the Company and of which the
holders of Depositary Receipts are given reasonable notice.
The Depositary will forward to holders of Depositary Receipts any reports
and other communications from the Company which are received by the Depositary
and which the Company is required to furnish to the holders of the PIERS.
Neither the Depositary nor the Company will be liable if it is prevented
from or delayed in performing its obligations under the Deposit Agreement.
Neither the Depositary nor any Depositary's agent nor the Company assumes any
obligation or will be subject to any liability under the Deposit Agreement to
any holder of Depositary Receipts other than to use its good faith in the
performance of such duties as are specifically set forth in the Deposit
Agreement. Neither the Company nor the Depositary will be obligated to appear
in, prosecute or defend any legal proceeding in respect of any Depositary
Shares or any PIERS unless satisfactory indemnity is furnished. The Company
and the Depositary may rely on advice of counsel or accountants, or
information provided by persons presenting PIERS for deposit, holders of
Depositary Receipts or other persons believed to be authorized or competent
and on documents believed to be genuine.
In the event the Depositary shall receive conflicting claims, requests or
instructions from any holder of Depositary Receipts, on the one hand, and the
Company, on the other hand, the Depositary shall be entitled to act on such
claims, requests or instructions received from the Company.
The Depositary Receipts provide that each holder of Depositary Receipts
shall, upon demand, be required to disclose to the Company such information
with respect to the direct, indirect and constructive ownership of Depositary
Shares and PIERS as the Board of Directors deems necessary to comply with the
provisions of the Code applicable to a REIT or to comply with the requirements
of any taxing authority or governmental agency. United States Treasury
Regulations currently require that the Company annually request written
statements containing information as to the actual ownership of its Capital
Stock from each record holder of more than 1% of the Company's Capital Stock.
Depending upon the number of holders of Capital Stock, the reporting threshold
required by the United States Treasury Regulations may fall as low as .5%. In
addition, the Certificate of Incorporation requires direct, indirect and
constructive owners of more than 1% (or such lower percentage as required by
United States Treasury Regulations) of the Capital Stock to provide written
notice and certain other information to the Company. It is unclear how these
United States Treasury Regulations would apply in respect of the Depositary
Shares and it is possible that record holders of Depositary Shares that fail
to submit a written statement in response to the request required by the
United States Treasury Regulations will be required to attach to their federal
income tax returns specified information regarding the actual ownership of
shares of Capital Stock of which they are the record holder. The Depositary
has agreed to pass written statements from the Company requesting information
with respect to the direct, indirect and constructive ownership of Depositary
Shares and PIERS through to holders of Depositary Shares, and to provide the
Company with the responses received in connection with such requests. The
Depositary will also agree to provide the Company with a list of the record
holders of Depositary Shares and such other information concerning the direct,
indirect and constructive ownership of Depositary Shares as the Company may
reasonably request.
GLOBAL SECURITIES
The Depository Trust Company ("DTC"), New York, New York, will act as
securities depository for the Depositary Receipts evidencing the Depositary
Shares. The Depositary Receipts representing the Depositary Shares will be
evidenced by one or more global certificates (the "Global Securities"), which
will be deposited with, or on behalf of, DTC, and registered in the name of
Cede & Co., as DTC's nominee.
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Holders who are not Participants may beneficially own interests in a Global
Security held by DTC only through Participants. So long as Cede & Co., as the
nominee of DTC, is the registered owner of any Global Security, Cede & Co. for
all purposes will be considered the sole holder of such Global Security.
Except as required by applicable law or as set forth below, owners of
beneficial interests in a Global Security will not be entitled to have
Depositary Receipts registered in their names, will not receive or be entitled
to receive physical delivery of Depositary Receipts in definitive form, and
will not be considered the holder thereof.
The Company and the Depositary will not have any responsibility for the
performance by DTC or its Direct or Indirect Participants of their respective
obligations under the rules and procedures governing their operations. DTC has
advised the Depositary and the Company that it will take any action permitted
to be taken by a holder of Depositary Receipts only at the direction of one or
more Participants whose accounts are credited with DTC interests in a Global
Security.
DTC has advised the Company and the Depositary as follows: 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 Securities Exchange Act of 1934. 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. 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.
Purchases of Depositary Shares under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Depositary
Shares on DTC's records. The ownership interest of each actual purchaser of
each Depositary Share (a "Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Depositary Shares are to
be accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Depositary Shares, except in the
event that use of the book-entry system for the Depositary Shares is
discontinued.
To facilitate subsequent transfers, all Depositary Receipts evidencing
Depositary Shares deposited by Participants with DTC are registered in the
name of DTC's partnership nominee, Cede & Co. The deposit of Depositary
Receipts representing Depositary Shares with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Depositary Shares; DTC's
records reflect only the identity of the Direct Participants whose accounts
such Depositary Shares are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Redemption notices shall be sent to DTC. If less than all of the Depositary
Shares represented by the Global Securities are being redeemed, DTC's practice
is to determine by lot the amount of the interest of each Direct Participant
therein to be redeemed.
Conveyance 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 will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
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Redemption proceeds, distributions and dividend payments on the Depositary
Shares will be made to Cede & Co., as nominee of DTC. DTC's practice is to
credit Direct Participants' accounts upon receipt of funds and corresponding
detail information from the Company or the Depositary on the payable date in
accordance with their respective holdings shown on DTC's records. 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 or the Depositary or the
Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of redemption proceeds, distributions and
dividends to Cede & Co. is the responsibility of the Depositary, disbursement
of such payments to Direct Participants shall be the responsibility of DTC,
and disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants. The Company will not have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Securities or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
DTC may discontinue providing its services as securities depository with
respect to the Depositary Shares at any time by giving reasonable notice to
the Depositary and the Company. Under such circumstances, in the event that a
successor securities depository is not obtained, Depositary Receipts
evidencing Depositary Shares 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, Depositary
Receipts evidencing Depositary Shares will be printed and delivered.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), pertaining to REITs are highly technical and complex. The following
is a summary of the material provisions which currently govern the federal
income tax treatment of the Company and its stockholders and the tax
consequences of ownership of PIERS. The tax treatment of a holder of PIERS
will vary depending upon the holder's particular situation, and this
discussion addresses only U.S. Stockholders (as defined below) that hold PIERS
as capital assets and does not purport to deal with all aspects of taxation
that may be relevant to particular holders in light of their personal
investment or tax circumstances, or to certain types of holders (including tax
exempt pension trusts, nonresident alien individuals, foreign corporations,
foreign partnerships, other foreign stockholders, dealers in securities or
currencies, traders in securities that elect to mark-to-market, banks, tax-
exempt organizations, life insurance companies, persons that hold PIERS that
are a hedge or that are hedged against currency risks or that are part of a
straddle or conversion transaction, or persons whose functional currency is
not the U.S. dollar) subject to special treatment under the federal income tax
law. This summary is based on the Code, its legislative history, existing and
proposed regulations thereunder, published rulings and court decisions, all as
currently in effect and
all subject to change at any time, perhaps with retroactive effect. For the
particular provisions which govern the federal income tax treatment of the
Company and its stockholders, reference is made to Sections 856 through 860 of
the Code and the United States Treasury Regulations ("Treasury Regulations")
promulgated thereunder. The following summary is qualified in its entirety by
such reference. This discussion does not address foreign, state or local
taxation considerations or issues that arise as a result of an investor's
special circumstances or special status under the Code.
Investors are urged to consult their own tax advisors with respect to the
tax consequences arising under federal law and the laws of any state,
municipality or other taxing jurisdiction. Foreign investors should consult
their own tax advisors concerning the tax consequences of an investment in the
Company including the possibility of U.S. income tax withholding on Company
distributions.
The Company has received an opinion of Neal, Gerber & Eisenberg, based in
part on representations from the Company and from certain entities in which
the Company directly or indirectly holds an interest, that commencing with its
taxable year ended December 31, 1993, the Company has been organized and
operated in a manner that has enabled it to qualify as a REIT under Sections
856 through 860 of the Code, and its proposed
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method of operation will enable it to continue to so qualify. Investors should
be aware, however, that opinions of counsel are not binding on the Internal
Revenue Service (the "IRS") or any court. Accordingly, no assurance can be
given that the Company has so qualified or will continue to so qualify. The
Company's ability to qualify as a REIT under the requirements of the Code and
the Treasury Regulations promulgated thereunder is dependent upon actual
operating results.
TAXATION OF THE COMPANY AS A REIT
To qualify as a REIT under the Code for a taxable year, the Company must
meet certain organizational and operational requirements, which generally
require it to be a passive investor in operating real estate and to avoid
excessive concentration of ownership of its stock. First, its principal
activities must be real estate related. Generally, at least 75% of the value
of the total assets of the Company at the end of each calendar quarter must
consist of real estate assets, cash or governmental securities. The Company
may not own more than 10% of the outstanding voting securities of any
corporation and the value of any one issuer's securities may not exceed 5% of
the Company's gross assets; shares of qualified REITs and of certain wholly
owned subsidiaries are exempt from this prohibition. The Company's ability to
satisfy the 5% and 10% asset tests will depend in part on the ability of
USPPI, MEPC, GGP/Homart, GGP/Ivanhoe and any other REITs in which the Company,
directly or indirectly, holds an interest to continue to satisfy the
qualifications for REIT status. For each taxable year, at least 75% of a
REIT's gross income must be derived from specified real estate sources and 95%
must be derived from such real estate sources plus certain other permitted
sources. Real estate income for purposes of these requirements includes gains
from the sale of real property not held primarily for sale to customers in the
ordinary course of business, dividends on REIT shares, interest on loans
secured by mortgages on real property, certain rents from real property and
income from foreclosure property. For rents to qualify, they may not be based
on the income or profits of any person, except that they may be based on a
percentage or percentages of sales or gross receipts, and, subject to certain
limited exceptions, the REIT may not manage the property or furnish services
to residents except through an independent contractor which is paid an arms'-
length fee and from which the REIT derives no income.
For the Company to remain qualified as a REIT, no more than 50% in value of
the outstanding capital stock including, in some circumstances, stock into
which outstanding securities might be converted, may be owned actually or
constructively by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the last half of the Company's taxable
year. For purposes of the five or fewer test described above, beneficiaries of
a domestic pension trust that owns shares in the Company generally will be
treated as owning such shares in proportion to their actuarial interest in the
trust. Accordingly, the Certificate of Incorporation of the Company, as
amended, contains provisions restricting the acquisition of shares of capital
stock. See "Description of Common Stock--Restrictions on Transfer" in the
accompanying Prospectus.
So long as the Company qualifies for taxation as a REIT and distributes at
least 95% of the sum of (a) its REIT taxable income (as computed without
regard to net capital gains or the dividends-paid deduction) and (b) its net
income (after tax) from foreclosure property for its taxable year to its
stockholders annually, the Company itself will not be subject to federal
income tax on that portion of such income distributed to stockholders. The
Company will be taxed at regular corporate rates on any REIT taxable income
(including any net capital gains) not distributed to stockholders. The
Company's policy is to distribute at least 95% of the sum of its REIT taxable
income and net income from foreclosure property. REITs may also incur taxes
for certain other activities or to the extent distributions do not satisfy
certain other requirements.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to earn the income
of the partnership attributable to such share. In addition, for purposes of
satisfying the asset and income tests described above, the character of the
gross income and assets in the hands of the partnership remains the same when
allocated to the REIT. Accordingly, the Company's proportionate share of the
assets, liabilities and items of income of the Operating Partnership will be
treated as assets, liabilities, and items of income of the Company for
purposes of qualifying as a REIT.
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Failure of the Company to qualify during any taxable year as a REIT could,
unless certain relief provisions were available, have a material adverse
effect upon investors. If disqualified for taxation as a REIT for a taxable
year, the Company would also be disqualified for taxation as a REIT for the
next four taxable years, unless the failure was due to reasonable cause rather
than willful neglect and certain other conditions are met. The Company would
be subject to federal income tax at corporate rates on all of its taxable
income and would not be able to deduct the dividends paid, which could result
in a discontinuation of or substantial reduction in dividends to stockholders.
Dividends would also be subject to the regular tax rules applicable to
dividends received by stockholders of corporations. Should the failure to
qualify be determined to have occurred retroactively in an earlier tax year of
the Company, the imposition of a substantial federal income tax liability on
the Company attributable to such nonqualifying tax years may adversely affect
the Company's ability to pay dividends. In the event that the Company fails to
meet certain income tests of the tax law, it may, generally, nonetheless
retain its qualification as a REIT if it pays a 100% tax on the amount by
which it failed to meet the income tests multiplied by a fraction intended to
reflect profitability, so long as its failure was due to reasonable cause and
not willful neglect. Any such taxes would adversely affect the Company's
ability to pay dividends.
TAXATION OF U.S. STOCKHOLDERS OF THE COMPANY GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of Capital Stock
(including PIERS) who, for United Stated federal income tax purposes is (i) a
citizen or resident of the United States, (ii) a corporation created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over
the administration of such trust and one or more United States persons as
defined in section 7701(a)(30) of the Code have the authority to control all
the substantial decisions of such trust.
As long as the Company qualifies as a REIT, distributions made to its U.S.
Stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taxable to such U.S.
Stockholders as ordinary income. Corporate U.S. Stockholders will not be
entitled to the dividends-received deduction with respect to distributions by
the Company. Distributions that are designated as capital gain dividends will
be taxable to U.S. Stockholders as gain from the sale of a capital asset held
for more than one year (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 U.S. Stockholder has held its stock. Subject to certain limitations, such
capital gains dividends received by an individual U.S. Stockholder may be
eligible for 20%, 25% or 28% capital gains rates of taxation. However,
corporate U.S. Stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions by the Company in
excess of its current and accumulated earnings and profits will not be taxable
to a U.S. Stockholder to the extent that such distributions do not exceed the
adjusted basis of the U.S. Stockholder's shares, but rather, will be a
nontaxable reduction in a U.S. Stockholder's adjusted basis in such shares to
the extent thereof and thereafter will be taxed as capital gain.
For purposes of determining the portion of distributions on separate classes
of Capital Stock that will be treated as dividends for federal income tax
purposes, current and accumulated earnings and profits will be allocated to
distributions resulting from priority rights of preferred stock (including the
PIERS) before being allocated to other distributions. Dividends authorized by
the Company in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by the Company on or
before January 31 of the following calendar year.
U.S. Stockholders holding Capital Stock at the close of the Company's
taxable year will be required to include, in computing their long-term capital
gains for the taxable year in which the last day of the Company's taxable year
falls, such amount as the Company may designate in a written notice mailed to
its shareholders. The Company may not designate amounts in excess of the
Company's undistributed net capital gain for the taxable year. Each U.S.
Stockholder required to include such a designated amount in determining such
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shareholder's long-term capital gains will be deemed to have paid, in the
taxable year of the inclusion, the tax paid by the Company in respect of such
undistributed net capital gains. U.S. Stockholders subject to these rules will
be allowed a credit or a refund, as the case may be, for the tax deemed to
have been paid by such shareholders. U.S. Stockholders will increase their
basis in their Capital Stock by the difference between the amount of such
includible gains and the tax deemed paid by the shareholder in respect of such
gains.
U.S. Stockholders may not include in their individual income tax returns any
net operating losses or capital losses of the Company. Instead, such losses
would be carried over by the Company for potential offset against its future
income (subject to certain limitations). Taxable distributions from the
Company and gain from the disposition of the capital stock will not be treated
as passive activity income and, therefore, U.S. Stockholders generally will
not be able to apply any "passive activity losses" (such as losses from
certain types of limited partnerships in which the stockholder is a limited
partner) against such income. In addition, taxable distributions from the
Company generally will be treated as investment income for purposes of the
investment interest limitations; gain arising from the sale or other
disposition of capital stock, however, will not be treated as investment
income unless the U.S. Stockholder elects to have the gain taxed at ordinary
income rates. The Company will notify the U.S. Stockholders after the close of
the Company's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and capital gain. In general, any gain or loss realized upon a taxable
disposition of the Capital Stock by a U.S. Stockholder who is not a dealer in
securities will be treated as long-term capital gain or loss if the capital
stock has been held for more than one year and otherwise as short-term capital
gain or loss. Long-term capital gain of an individual U.S. Stockholder is
generally subject to a maximum tax rate of 20% in respect of property held in
excess of 18 months and a maximum tax rate of 28% in respect of property held
for more than one year but not more than 18 months. However, any loss upon a
sale or exchange of capital stock by a U.S. Stockholder who has held such
stock 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 U.S. Stockholder as long-term
capital gain. All or a portion of any loss realized upon a taxable disposition
of the capital stock may be disallowed if other shares of the capital stock
are purchased within 30 days before or after the disposition.
TAXATION OF HOLDERS OF PIERS
Conversion of Depositary Shares into PIERS. In general, assuming that the
representations of the Depositary are true and correct and that each
obligation in the Deposit Agreement and any related agreement will be
performed in accordance with its terms, U.S. Stockholders of Depositary Shares
will be treated as the owners of the PIERS represented by those Depositary
Shares, and an exchange of Depositary Shares for PIERS will not be subject to
United States federal income tax. Upon such an exchange, a U.S. Stockholder's
basis in the PIERS will equal the U.S. Stockholder's basis in the exchanged
Depositary Shares, and a U.S. Stockholder's holding period of such PIERS will
include the holding period of the exchanged Depositary Shares.
Tax Consequences upon Conversion of PIERS into shares of Common Stock at the
Holder's Option and Redemption of PIERS for shares of Common Stock at the
Option of the Company. Generally, except with respect to cash received in lieu
of fractional shares, and except in the case of foreign holders of the PIERS,
no gain or loss will be recognized upon the conversion of PIERS into Common
Stock or upon the redemption of PIERS for Common Stock at the option of the
Company. The tax basis of a U.S. holder of PIERS (a "PIERS Holder") in the
Common Stock received will equal such PIERS Holder's tax basis in the PIERS
surrendered in the conversion or redemption, reduced by any basis attributable
to fractional shares deemed received, and the holding period for the Common
Stock received will include the PIERS Holder's holding period for the PIERS
exchanged therefor. Based on the IRS's present advance ruling policy, cash
received in lieu of a fractional share of Common Stock upon conversion of
PIERS should be treated as a payment in redemption of the fractional interest
in such Common Stock.
Deemed Dividends on PIERS. The Conversion Price of the PIERS may be adjusted
if the Company makes certain distributions of stock, cash or other property to
its stockholders. While the Company does not presently
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contemplate making such a distribution, if the Company does make a
distribution of cash or other property that results in an adjustment to the
Conversion Price, a PIERS Holder may be viewed as having received a "deemed
distribution" that is taxable as a dividend under Sections 301 and 305 of the
Code.
Redemption of PIERS for Cash. The treatment accorded to any redemption by
the Company for cash (as distinguished from a sale, exchange or other
disposition) of PIERS can only be determined on the basis of particular facts
applicable to each PIERS holder at the time of redemption. In general, a PIERS
Holder will recognize ordinary income to the extent of accrued but unpaid
dividends and will recognize capital gain or loss measured by the difference
between the amount received (less the amount attributable to accrued but
unpaid dividends) by the PIERS Holder upon the redemption and such holder's
adjusted tax basis in the PIERS redeemed if such redemption (i) results in a
"complete termination" of the PIERS Holder's interest in all classes of shares
of the Company under Section 302(b)(3) of the Code, (ii) is a "substantially
disproportionate redemption" with respect to the PIERS Holder under Section
302(b)(2) of the Code (if the PIERS have voting rights at the time of such
redemption) or (iii) is "not essentially equivalent to a dividend" with
respect to the PIERS Holder under Section 302(b)(1) of the Code. In applying
these tests, there must be taken into account not only any PIERS owned by the
PIERS Holder, but also such PIERS Holder's ownership of Common Stock and any
options to acquire any of the foregoing. The PIERS Holder also must take into
account any such securities (including options) which are considered to be
owned by such PIERS Holder by reason of the constructive ownership rules set
forth in Sections 318 and 302(c) of the Code.
If a PIERS Holder owns (actually or constructively) no Common Stock or an
insubstantial percentage of the outstanding Common Stock, based upon current
law, it is likely that a redemption of PIERS from a PIERS Holder would be
considered "not essentially equivalent to a dividend." However, whether a
distribution is "not essentially equivalent to a dividend" depends on all of
the facts and circumstances and a PIERS Holder intending to rely on any of
these tests at the time of redemption should consult its own tax advisor to
determine their application to its particular situation.
If the redemption does not meet any of the tests under Section 302(b) of the
Code, then the redemption proceeds received from the PIERS will be treated as
a distribution on the PIERS. If the redemption is taxed as a dividend, the
PIERS Holder's adjusted tax basis in the PIERS redeemed will be transferred to
any other stockholdings of the PIERS Holder in the Company. If the PIERS
Holder owns no other shares of the Company, under certain circumstances such
basis may be transferred to a related person, or it may be lost entirely.
Redemption Premium. Under certain circumstances, the difference between the
issue price and optional redemption amount (the "redemption premium") can be
taxed to a holder of preferred stock as phantom discount income. The Company
believes that the PIERS qualify for a "safe harbor" which will preclude
application of such tax treatment.
Information Reporting and Backup Withholding. The Company will report to its
U.S. Stockholders and to 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 a 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 U.S. Stockholders that fail to
certify their non-foreign status to the Company.
TAXATION OF NON-U.S. SHAREHOLDERS OF THE COMPANY
The rules governing United States federal income taxation of the ownership
and disposition of PIERS or Common Stock by persons that are, for purposes of
such taxation, nonresident alien individuals, foreign
S-40
<PAGE>
corporations, foreign partnerships or foreign estates or trusts (collectively,
"Non-U.S. Shareholders") are complex, and no attempt is made herein to provide
more than a brief summary of such rules. Accordingly, the discussion does not
address all aspects of United States federal income tax and does not address
state, local or foreign tax consequences that may be relevant to a Non-U.S.
Shareholder in light of its particular circumstances. In addition, this
discussion is based on current law, which is subject to change, and assumes
that the Company qualifies for taxation as a REIT. Prospective Non-U.S.
Shareholders should consult with their own tax advisers to determine the
impact of federal, state, local and foreign income tax laws with regard to an
investment in PIERS or Common Stock, including any reporting requirements.
Distributions by the Company. Distributions by the Company to a Non-U.S.
Shareholder that are neither attributable to gain from sales or exchanges by
the Company of United States real property interests nor designated by the
Company as capital gains dividends will be 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
withholding of United States federal income tax on a gross basis (that is,
without allowance of deductions) at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are treated
as effectively connected with the conduct by the Non-U.S. Shareholder of a
United States trade or business. Dividends that are effectively connected with
such a trade or business will be subject to tax on a net basis (that is, after
allowance of deductions) at graduated rates, in the same manner as domestic
shareholders are taxed with respect to such dividends, and are generally not
subject to withholding. Any such dividends received by a Non-U.S. Shareholder
that is a corporation may also be subject to an additional branch profits tax
at a 30% rate or such lower rate as may be specified by an applicable income
tax treaty. The Company expects to withhold United States income tax at the
rate of 30% on the gross amount of any such distributions made to a Non-U.S.
Shareholder unless (i) a lower treaty rate applies and any required form or
certification evidencing eligibility for that reduced rate is filed with the
Company or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the
Company claiming that the distribution is effectively connected income.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's PIERS or Common
Shares, but rather will reduce the adjusted basis of such PIERS or Common
Stock. To the extent that such distributions exceed the adjusted basis of a
Non-U.S. Shareholder's PIERS or Common Stock, they will give rise to gain from
the sale or exchange of its PIERS or Common Stock, the tax treatment of which
is described below. As a result of a legislative change made by the Small
Business Job Protection Act of 1996, it appears that the Company will be
required to withhold 10% of any distribution in excess of the Company's
current and accumulated earnings and profits. Consequently, although the
Company intends to withhold at a rate of 30% on the entire amount of any
distribution (or a lower applicable treaty rate), to the extent that the
Company does not do so, any portion of a distribution not subject to
withholding at a rate of 30% (or a lower applicable treaty rate) will be
subject to withholding at a rate of 10%. However, the Non-U.S. Shareholder may
seek a refund of such amounts from the IRS if it subsequently determined that
such distribution was, in fact, in excess of current or accumulated earnings
and profits of the Company, and the amount withheld exceeded the Non-U.S.
Shareholder's United States tax liability, if any, with respect to the
distribution.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) the investment in the PIERS or Common Stock is effectively connected with
the Non-U.S. Shareholder's United States trade or business, in which case the
Non-U.S. Shareholder will be subject to the same treatment as domestic
shareholders with respect to such gain (except that a shareholder that is a
foreign corporation may also be subject to the 30% branch profits tax, as
discussed above), or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and 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.
S-41
<PAGE>
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests
(whether or not designated as a capital gain dividend) will cause the Non-U.S.
Shareholder to be treated as recognizing such gain as income effectively
connected with a United States trade or business. Non-U.S. Shareholders would
thus generally be taxed at the same rates applicable to domestic shareholders
(subject to a special alternative minimum tax in the case of nonresident alien
individuals). Also, such gain may be subject to a 30% branch profits tax in
the hands of a Non-U.S. Shareholder that is a corporation, as discussed above.
The Company is required to withhold 35% of any such distribution. That amount
is creditable against the Non-U.S. Shareholder's United States federal income
tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of shareholders' shares would be treated with respect
to Non-U.S. Shareholders in the manner outlined in the preceding two
paragraphs for actual distributions by the Company of capital gain dividends.
Under that approach, the Non-U.S. Shareholders would be able to offset as a
credit against their United States federal income tax liability resulting
therefrom their proportionate share of the tax paid by the Company on such
undistributed capital gains (and to receive from the IRS a refund to the
extent their proportionate share of such tax paid by the Company were to
exceed their actual United States federal income tax liability).
Sale of PIERS or Common Stock. Gain recognized by a Non-U.S. Shareholder
upon the sale or exchange of PIERS or Common Stock (including a redemption of
PIERS that is not treated as a dividend) generally will not be subject to
United States taxation unless such shares constitute a "United States real
property interest" within the meaning of FIRPTA. The PIERS or Common Stock
will not constitute a "United States real property interest" so long as the
Company is a "domestically controlled REIT." A "domestically controlled REIT"
is a REIT in which at all times during a specified testing period less than
50% in value of its stock is held directly or indirectly by Non-U.S.
Shareholders. Notwithstanding the foregoing, gain from the sale or exchange of
PIERS or Common Stock not otherwise subject to FIRPTA will be taxable to a
Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States
withholding tax on the amount of such individual's gain.
The Company believes that it will continue to be a "domestically controlled
REIT," and therefore that the sale of PIERS or Common Stock will not be
subject to taxation under FIRPTA. However, because the PIERS or Common Stock
are publicly traded, no assurance can be given that the Company will continue
to be a "domestically controlled REIT." If the Company fails to qualify as a
"domestically controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Shareholder of PIERS or Common Stock still would not be subject to
United States taxation under FIRPTA as a sale of a "United States real
property interest," if (i) the PIERS or Common Stock (as applicable) are
"regularly traded" (as defined by applicable Treasury Regulations) on an
established securities market (e.g., the New York Stock Exchange) and (ii) the
selling Non-U.S. Shareholder held 5% or less of the value of the outstanding
class or series of shares being sold at all times during a specified testing
period. If gain on the sale or exchange of PIERS or Common Stock were subject
to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to regular
United States income tax with respect to such gain in the same manner as a
U.S. Stockholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals),
and the purchaser of the PIERS or Common Stock would be required to withhold
and remit to the IRS 10% of the purchase price.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a
S-42
<PAGE>
general matter, backup withholding and information reporting will not apply to
a payment of the proceeds of a sale of PIERS or Common Stock by or through a
foreign office of a foreign broker. Information reporting (but not backup
withholding) will apply, however, to a payment of the proceeds of a sale of
PIERS or Common Stock by a foreign office of a broker that (a) is a United
States person, (b) derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (c) is a
"controlled foreign corporation" (generally, a foreign corporation controlled
by United States shareholders) for United States tax purposes, unless the
broker has documentary evidence in its records that the holder is a Non-U.S.
Shareholder and certain other conditions are met, or the shareholder otherwise
establishes an exemption. Payment to or through a United States office of a
broker of the proceeds of a sale of PIERS or Common Stock is subject to both
backup withholding and information reporting unless the shareholder certifies
under penalty of perjury that the shareholder is a Non-U.S. Shareholder, or
otherwise establishes an exemption. A Non-U.S. Shareholder may obtain a refund
of any amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS.
The United States Treasury Department has recently finalized regulations
regarding the withholding and information reporting rules discussed above. In
general, these regulations do not alter the substantive withholding and
information reporting requirements but unify certification procedures and
forms and clarify and modify reliance standards. These regulations generally
are effective for payments made after December 31, 1999, subject to certain
transition rules. A Non-U.S. Shareholder should consult its own advisor
regarding the effect of the new Treasury Regulations.
S-43
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement (the "Underwriting Agreement"), among the Company and each of the
underwriters named below (the "Underwriters"), each of the several
Underwriters has agreed to purchase from the Company, and the Company has
agreed to sell to each Underwriter, the aggregate number of Depositary Shares
set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
DEPOSITARY
UNDERWRITER SHARES
----------- ----------
<S> <C>
Lehman Brothers Inc. ............................................. 3,693,750
Goldman, Sachs & Co. ............................................. 1,593,750
Morgan Stanley & Co. Incorporated................................. 1,312,500
PaineWebber Incorporated.......................................... 1,312,500
Prudential Securities Incorporated................................ 1,312,500
SBC Warburg Dillon Read Inc. ..................................... 656,250
UBS Securities LLC................................................ 656,250
BancAmerica Robertson Stephens.................................... 112,500
A.G. Edwards & Sons, Inc. ........................................ 112,500
Everen Securities, Inc. .......................................... 112,500
Advest, Inc. ..................................................... 75,000
Dain Rauscher Wessels............................................. 75,000
A Division of Dain Rauscher Incorporated
Fahnestock & Co. Inc. ............................................ 75,000
Janney Montgomery Scott Inc. ..................................... 75,000
Edward D. Jones & Co., L.P. ...................................... 75,000
First of Michigan Corporation..................................... 75,000
Legg Mason Wood Walker, Incorporated.............................. 75,000
McDonald & Company Securities, Inc. .............................. 75,000
Piper Jaffray Inc. ............................................... 75,000
Raymond James & Associates, Inc. ................................. 75,000
Stifel, Nicolaus & Company Incorporated........................... 75,000
The Robinson-Humphrey Company, LLC................................ 75,000
Sutro & Co. Incorporated.......................................... 75,000
Tucker Anthony Incorporated....................................... 75,000
Wheat First Securities, Inc. ..................................... 75,000
----------
Total........................................................... 12,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase Depositary Shares are subject to the approval of certain legal
matters by counsel and to certain other conditions and that if any of the
Depositary Shares are purchased by the Underwriters pursuant to the
Underwriting Agreement, all the Depositary Shares agreed to be purchased by
the Underwriters pursuant to the Underwriting Agreement must be so purchased.
The Company has been advised that the Underwriters propose to offer
Depositary Shares directly to the public initially at the public offering
price set forth on the cover page of this Prospectus Supplement and to certain
selected dealers (who may include the Underwriters) at such public offering
price less a selling concession not to exceed $0.60 per Depositary Share. The
selected dealers may reallow a concession not to exceed $0.10 per Depositary
Share. After the initial offering of the Depositary Shares, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Underwriters.
For a period of 90 days from the date of this Prospectus Supplement, the
Company will not, directly or indirectly, offer for sale, contract to sell,
sell or otherwise dispose of any Common Stock or securities exercisable or
exchangeable for Common Stock in an underwritten offering to the public (other
than the PIERS, the Depositary Shares and any shares of Common Stock or units
in the Operating Partnership that have been or may
S-44
<PAGE>
be issued by the Company in connection with any acquisition of a property or
business and any shares of Common Stock offered on behalf of selling security-
holders pursuant to existing registration rights agreements or similar
contractual arrangements), or sell or grant options, rights or warrants with
respect to any Common Stock (except pursuant to customary compensation
arrangements and employee benefit plans or as permitted by the preceding
parenthetical), without the prior written consent of Lehman Brothers.
The Company has granted to the Underwriters an option to purchase up to an
additional 1,800,000 Depositary Shares (representing 45,000 PIERS) at the
public offering price, less the underwriting discounts and commissions shown
on the cover page of this Prospectus Supplement, solely to cover over-
allotments, if any. The option may be exercised at any time up to 30 days
after the date of this Prospectus Supplement. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed
(subject to certain conditions) to purchase a number of additional shares
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.
The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
Until the distribution of the Depositary Shares offered hereby is completed,
rules of the Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase Depositary Shares or shares of
Common Stock. As an exception to these rules, the Underwriters are permitted
to engage in certain transactions that stabilize the price of the Depositary
Shares and the Common Stock. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Depositary Shares or the Common Stock.
If the Underwriters create a short position in the Depositary Shares in
connection with the offering (i.e., if they sell more Depositary Shares than
are set forth on the cover page of this Prospectus Supplement), the
Underwriters may reduce that short position by purchasing Depositary Shares in
the open market after the distribution has been completed. The Underwriters
may elect to reduce any short position by exercising all or part of the over-
allotment option described herein.
In general, purchases of a security for the purposes of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
Neither the Company nor any of the Underwriters 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 Depositary Shares.
In addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
It is anticipated that $242 million of the net proceeds of the Depositary
Shares will be used by the Company to repay certain indebtedness of the
Company to an affiliate of Lehman Brothers Inc. Certain of the Underwriters
and their affiliates have from time to time performed, and may continue to
perform in the future, various other financial advisory and investment banking
services for the Company, for which customary compensation has been received.
The Company is currently conducting negotiations with certain of the
Underwriters to provide an interim secured financing facility, for which such
Underwriters will receive customary compensation.
VALIDITY OF DEPOSITARY SHARES, PIERS AND COMMON STOCK
The validity of the Depositary Shares, the PIERS and the shares of Common
Stock into which the PIERS are convertible will be passed upon for the Company
by Sullivan & Cromwell, New York, New York, and for the Underwriters by
Simpson Thacher & Bartlett, New York, New York. Certain federal income tax
matters will be passed upon for the Company by Neal, Gerber & Eisenberg,
Chicago, Illinois.
S-45
<PAGE>
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997 have been incorporated by reference
herein from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, and the Statement of Revenues and Certain Expenses of
Northbrook Court for the year ended December 31, 1997 has been included herein
and incorporated by reference herein from the Company's Current Report on Form
8-K/A dated June 2, 1998, all in reliance upon the reports of Coopers &
Lybrand, LLP, independent certified public accountants, and upon the authority
of said firm as experts in accounting and auditing. The combined statement of
revenues and certain expenses of certain retail properties of MEPC American
Holdings Inc., U.K.-American Properties, Inc. and Caledonian Holding Company,
Inc. (wholly owned subsidiaries of MEPC plc) for the year ended September 30,
1997 has been included herein and incorporated by reference herein from the
Company's Current Report on Form 8-K/A dated June 2, 1998 in reliance upon the
report of KPMG Peat Marwick, LLP, independent certified public accountants,
and upon the authority of said firm as experts in accounting and auditing. The
combined statement of revenues and certain expenses of the Landmark Mall,
Mayfair Complex, The Meadows, Northgate Mall, Oglethorpe Mall and Park City
Center for the year ended December 31, 1997 has been included herein and
incorporated by reference herein from the Company's Current Report on Form 8-
K/A dated June 2, 1998 in reliance upon the report of Deloitte & Touche, LLP,
independent certified public accountants, and upon the authority of said firm
as experts in accounting and auditing.
S-46
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SOUTHWEST PLAZA
- ---------------
Statements of Revenues and Certain Expenses for the Year Ended December
31, 1997 and for the Three Months Ended March 31, 1998 (Unaudited)....... F-2
NORTHBROOK COURT
- ----------------
Statement of Revenues and Certain Expenses for the Three Months Ended
March 31, 1998 (Unaudited)............................................... F-3
Independent Auditors' Report.............................................. F-5
Statement of Revenues and Certain Expenses for the Year Ended December 31,
1997..................................................................... F-6
Notes to Statement of Revenues and Certain Expenses....................... F-7
LANDMARK MALL, MAYFAIR COMPLEX, THE MEADOWS, NORTHGATE MALL, OGLETHORPE
MALL
AND PARK CITY CENTER
- -----------------------------------------------------------------------
Independent Auditors' Report.............................................. F-9
Combined Statements of Revenues and Certain Expenses for the Year Ended
December 31, 1997 and for the Three Months Ended March 31, 1998
(Unaudited).............................................................. F-10
Notes to Combined Statements of Revenues and Certain Expenses............. F-11
MEPC AMERICAN HOLDINGS INC., U.K.-AMERICAN PROPERTIES, INC. AND CALEDONIAN
HOLDING COMPANY, INC.
- --------------------------------------------------------------------------
Independent Auditors' Report.............................................. F-14
Combined Statements of Revenues and Certain Expenses for Certain Retail
Properties for the Year Ended September 30, 1997 and for the Three Months
Ended December 31, 1997 (Unaudited) and March 31, 1998 (Unaudited)....... F-15
Notes to Combined Statements of Revenues and Certain Expenses............. F-16
GENERAL GROWTH PROPERTIES, INC.
- -------------------------------
Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended
December 31, 1997 (Unaudited)............................................ F-19
Notes to Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended
December 31, 1997 (Unaudited)............................................ F-20
Pro Forma Condensed Consolidated Statement of Operations for the Three
Months Ended
March 31, 1998 (Unaudited)............................................... F-23
Notes to Pro Forma Condensed Consolidated Statement of Operations for the
Three Months
Ended March 31, 1998 (Unaudited)......................................... F-24
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998
(Unaudited).............................................................. F-26
Notes to Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1998 (Unaudited)......................................................... F-27
</TABLE>
F-1
<PAGE>
SOUTHWEST PLAZA
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(AMOUNTS IN THOUSANDS--UNAUDITED)
The Statements of Revenues and Certain Expenses, as shown below, present the
summarized results of operations of Southwest Plaza. On April 3, 1998, the
Company acquired 100% of Southwest Plaza, a two-level enclosed mall shopping
center located in Denver, Colorado, with approximately 1.3 million square feet
of GLA. Southwest Plaza, which opened in 1983 and was renovated in 1994 and
1995, is anchored by Joslin's, Foley's, Sears, JCPenney and Montgomery Ward.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Revenues:
Rental income.......................................... $ 9,650 $2,391
Percentage rent........................................ 311 203
Tenant recoveries and other charges.................... 5,040 1,227
------- ------
15,001 3,821
Expenses:
Real estate taxes...................................... 2,220 588
Management fee......................................... 505 130
Property operating expenses............................ 3,609 931
------- ------
6,334 1,649
------- ------
Revenues in excess of certain expenses................. $ 8,667 $2,172
======= ======
</TABLE>
F-2
<PAGE>
NORTHBROOK COURT
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(AMOUNTS IN THOUSANDS--UNAUDITED)
The Statements of Revenues and Certain Expenses, as shown below, present the
summarized results of operations of Northbrook Court. On May 8, 1998, the
Company acquired 100% of the partnership interests in Westcoast Estates, the
partnership that owns Northbrook Court, a two-level enclosed mall shopping
center located in Northbrook (Chicago), Illinois, with approximately 1.0
million square feet of GLA. Northbrook Court, which opened in 1976 and was
renovated in 1996, is anchored by Lord & Taylor, Marshall Fields, Neiman
Marcus and General Cinema.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
1998
---------
<S> <C>
Revenues:
Rental income....................................................... $5,138
Expenses:
Property operating expenses......................................... 2,341
Management fee...................................................... 131
------
2,472
------
Revenues in excess of certain expenses.............................. $2,666
======
</TABLE>
F-3
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NORTHBROOK COURT
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
General Growth Properties, Inc.
We have audited the accompanying statement of revenues and certain expenses
of Northbrook Court for the year ended December 31, 1997. This financial
statement is the responsibility of Northbrook Court's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission, and is not intended to be a complete presentation of
Northbrook Court's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of Northbrook
Court for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
San Francisco, California
February 6, 1998, except for Note 1
for which the date is May 28, 1998
F-5
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NORTHBROOK COURT
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenues:
Minimum rent......................................................... $10,653
Percentage rent...................................................... 620
Tenant recoveries.................................................... 8,209
Other income......................................................... 772
-------
Total revenues..................................................... 20,254
-------
Expenses:
CAM expenses......................................................... 4,462
Real estate taxes.................................................... 4,255
Management fee....................................................... 496
Other property operating expenses.................................... 674
-------
Total expenses..................................................... 9,887
-------
Revenues in excess of certain expenses................................. $10,367
=======
</TABLE>
The accompanying notes are an integral part of the financial statement.
F-6
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NORTHBROOK COURT
NOTES TO FINANCIAL STATEMENT
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The statement of revenues and certain expenses is for an enclosed mall
shopping center including all free standing stores which was acquired by
General Growth Properties, Inc. (the "Company") on May 8, 1998 located in
Northbrook (Chicago), Illinois and referred to as Northbrook Court.
The statement is not representative of the actual operations for the period
presented as certain expenses, primarily depreciation and amortization
expense, interest expense and other costs not directly related to the future
operations of the property have been excluded.
Revenue Recognition
Minimum rent revenues are recognized on a straight-line basis over the terms
of the related leases. The amount of straight-line rent included in minimum
rent is approximately $107. Percentage rents are recognized on an accrual
basis. Recoveries from tenants for taxes, insurance and other shopping center
operating expenses are recognized as revenues in the period the applicable
costs are incurred.
A provision for doubtful accounts representing that portion of accounts
receivable which is estimated to be uncollectible has been included in other
property operating expenses.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions of the reported amounts of revenues and certain expenses during
the reporting period. Actual results could differ from those estimates.
2. FUTURE REVENUE RENTALS
The minimum future rentals based on noncancelable operating leases held as
of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
------------
<S> <C>
1998........................................................... $10,709
1999........................................................... 10,187
2000........................................................... 10,064
2001........................................................... 9,327
2002........................................................... 8,110
Thereafter..................................................... 31,591
</TABLE>
F-7
<PAGE>
LANDMARK MALL, MAYFAIR COMPLEX, THE MEADOWS,
NORTHGATE MALL, OGLETHORPE MALL AND PARK CITY CENTER
COMBINED STATEMENTS OF REVENUES AND
CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
General Growth Properties, Inc.
We have audited the accompanying combined statements of revenues and certain
expenses of the Landmark Mall, Mayfair Complex, The Meadows, Northgate Mall,
Oglethorpe Mall and Park City Center (the "Malls") for the year ended December
31, 1997. This financial statement is the responsibility of the Malls'
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statement of revenues
and certain expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined statement of revenues and certain expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
combined statement of revenues and certain expenses. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying combined statements of revenues and certain expenses was
prepared for purposes of complying with certain rules and regulations of the
Securities and Exchange Commission as described in Note 2 to the combined
statement of revenues and certain expenses and is not intended to be a
complete presentation of the combined revenues and expenses of the Malls.
In our opinion, the aforementioned combined statements of revenues and
certain expenses presents fairly, in all material respects, the combined
revenues and certain expenses of the Malls for the year ended December 31,
1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Atlanta, Georgia
May 14, 1998
F-9
<PAGE>
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF:
LANDMARK MALL, MAYFAIR COMPLEX, THE MEADOWS,
NORTHGATE MALL, OGLETHORPE MALL AND PARK CITY CENTER
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER MARCH 31, 1998
31, 1997 (UNAUDITED)
----------- ------------------
<S> <C> <C>
REVENUES:
Rental income, including percentage rentals..... $50,395,444 $12,771,299
Tenant common area, property taxes and insurance
recovery....................................... 29,800,315 7,589,063
Other operating income.......................... 4,932,749 902,294
----------- -----------
$85,128,508 $21,262,656
=========== ===========
EXPENSES:
Building and common area........................ $19,699,537 $ 4,652,847
Real estate taxes............................... 10,052,263 2,600,512
Management fee.................................. 2,387,575 651,676
Other operating expenses........................ 5,420,300 1,308,107
----------- -----------
37,559,675 9,213,142
----------- -----------
Revenues in excess of certain expenses.......... $47,568,833 $12,049,514
=========== ===========
</TABLE>
See notes to combined statements of revenues and certain expenses.
F-10
<PAGE>
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES OF:
LANDMARK MALL, MAYFAIR COMPLEX, THE MEADOWS,
NORTHGATE MALL, OGLETHORPE MALL AND PARK CITY CENTER
1. BUSINESS:
The combined statements of revenues and certain expenses include the
operations of the Landmark Mall, Mayfair Complex, The Meadows, Northgate Mall,
Oglethorpe Mall and Park City Center ("the Malls"). Other than Park City
Center, the Malls are owned by U.S. Prime Property Inc. ("USPPI"), a privately
held Real Estate Investment Trust. USPPI has a 50% interest in Parcit-IIP
Lancaster Venture, the owner of Park City Center. P City, Inc. ("PCI"), an
affiliate of a shareholder of USPPI, owns the remaining 50% interest.
<TABLE>
<CAPTION>
Property City State
---------------- ----------- ------------
<S> <C> <C>
Landmark Mall Alexandria Virginia
Mayfair Complex Wauwatosa Wisconsin
The Meadows Las Vegas Nevada
Northgate Mall Chattanooga Tennessee
Oglethorpe Mall Savannah Georgia
Park City Center Lancaster Pennsylvania
</TABLE>
On May 14, 1998, USPPI entered into a Merger Agreement with GGP Limited
Partnership (the "Buyer"), an affiliate of General Growth Properties, Inc.
Under the Merger Agreement, the Buyer will acquire all of the outstanding
capital stock of USPPI for cash. Immediately prior to the merger, PCI will
transfer its interest in Park City Center to USPPI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Basis of Presentation: The accounts of each property are combined in the
statements of revenues and certain expenses. The financial statements are not
representative of the actual operations for the period presented as certain
expenses that may not be comparable to the expenses expected to be incurred in
the future operations of the to be acquired properties have been excluded in
accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Expenses excluded consist of interest, depreciation, amortization,
impairment, corporate expenses and other costs not directly related to the
future operations of the properties.
b. Revenue Recognition: The Malls recognize minimum rental income over the
term of a lease on a straight-line basis. Contingent rentals based on the
properties' operating expenses and tenant sales volumes are recognized as
revenue when earned. Percentage rental income based on tenant sales volumes
were $2,811,000 for the year ended December 31, 1997 and $635,000 (unaudited)
for the three-month period ended March 31, 1998.
c. Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
d. Unaudited Information: The combined financial statement for the three-
month period ended March 31, 1998 is unaudited. In management's opinion, such
combined financial statement includes all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation.
F-11
<PAGE>
3. LEASES:
The following is a schedule, by year, of combined future minimum rental
payments expected under executed operating leases of Landmark Mall, Mayfair
Complex, The Meadows, Northgate Mall, Oglethorpe Mall and Park City Center
that have initial or remaining noncancelable lease terms in excess of one
year, as of December 31, 1997.
<TABLE>
<S> <C>
1998.......................................................... $ 47,659,260
1999.......................................................... 43,238,731
2000.......................................................... 38,210,654
2001.......................................................... 32,726,133
2002.......................................................... 28,508,047
Thereafter.................................................... 97,022,481
------------
Total....................................................... $287,365,306
============
</TABLE>
F-12
<PAGE>
MEPC AMERICAN HOLDINGS INC., U.K.-AMERICAN PROPERTIES, INC.
AND CALEDONIAN HOLDINGS COMPANY, INC.
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR CERTAIN RETAIL PROPERTIES
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
AND MARCH 31, 1998 (UNAUDITED)
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
General Growth Properties, Inc.
We have audited the accompanying combined statement of revenues and certain
expenses for certain retail properties of MEPC American Holdings Inc., U.K.-
American Properties, Inc. and Caledonian Holding Company, Inc., wholly owned
subsidiaries of MEPC plc., a United Kingdom Company (the MEPC American Group)
(the combined statement) described in Note A for the year ended September 30,
1997. This combined statement is the responsibility of MEPC American Group
management. Our responsibility is to express an opinion on the combined
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the combined statement. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying combined statement was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in the registration statement of General Growth
Properties, Inc. as described in Note B. The presentation is not intended to
be a complete presentation of the retail properties' revenues and expenses.
In our opinion, the aforementioned combined statement referred to above
presents fairly, in all material respects, the combined revenues and certain
expenses for certain retail properties for the year ended September 30, 1997,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
May 8, 1998
F-14
<PAGE>
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR CERTAIN RETAIL PROPERTIES OF MEPC AMERICAN HOLDINGS INC.,
U.K.-AMERICAN PROPERTIES, INC. AND CALEDONIAN HOLDING COMPANY, INC.
(MEPC AMERICAN GROUP)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
AND DECEMBER 31, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THREE
MONTHS
THREE MONTHS ENDED YEAR ENDED
ENDED DEC. 31, SEPTEMBER
MARCH 31, 1998 1997 30, 1997
-------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Rental revenues........................ $15,869,770 $15,555,344 $59,570,310
Other real estate income............... 7,750,155 8,223,698 31,938,695
----------- ----------- -----------
23,619,925 23,779,042 91,509,005
----------- ----------- -----------
Certain Expenses:
Salaries and benefits.................. 1,062,357 1,145,663 3,834,805
Utilities.............................. 1,199,774 1,450,634 5,966,312
Repairs and maintenance................ 1,685,768 1,621,219 7,269,609
Real estate taxes...................... 2,169,147 1,921,710 8,233,418
Advertising and promotion.............. 321,208 797,589 2,021,929
Insurance.............................. 634,179 634,533 3,769,011
Other.................................. 1,505,570 1,988,377 5,667,387
----------- ----------- -----------
8,578,003 9,559,725 36,762,471
----------- ----------- -----------
Revenues in excess of certain expenses... $15,041,922 $14,219,317 $54,746,534
=========== =========== ===========
</TABLE>
See notes to combined statements of revenues and certain expenses.
F-15
<PAGE>
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR CERTAIN RETAIL PROPERTIES OF MEPC AMERICAN HOLDINGS INC.,
U.K.-AMERICAN PROPERTIES, INC. AND CALEDONIAN HOLDING COMPANY, INC.
(MEPC AMERICAN GROUP)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
AND DECEMBER 31, 1997 (UNAUDITED)
AND FOR THE YEAR ENDED SEPTEMBER 30, 1997
A. OPERATING PROPERTIES:
The combined statements of revenues and certain expenses for certain retail
properties, (the combined statements) for the three-month periods ended March
31, 1998 and December 31, 1997 and for the year ended September 30, 1997
relates to the operations of the following retail properties which are
expected to be acquired by General Growth Properties, Inc. (General Growth)
from the MEPC American Group:
<TABLE>
<CAPTION>
RETAIL PROPERTIES LOCATION
----------------- --------
<S> <C>
Apache Mall Rochester, Minnesota
Boulevard Mall Las Vegas, Nevada
Cumberland Mall Atlanta, Georgia
McCreless Mall San Antonio, Texas
Northridge Fashion Center Northridge, California
Regency Square Mall Jacksonville, Florida
Riverlands Shopping Center LaPlace, Louisiana
Valley Plaza Mall Bakersfield, California
</TABLE>
On April 17, 1998, GGP Limited Partnership, (of which General Growth is the
general partner), agreed to purchase the stock of MEPC American Holdings Inc.,
U.K.-American Properties, Inc. and Caledonian Holding Company, Inc. (wholly
owned subsidiaries of MEPC plc) from MEPC plc in a transaction anticipated to
close during the second quarter of 1998.
B. BASIS OF PRESENTATION:
The accompanying combined statements have been prepared on the accrual basis
of accounting. The combined statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and for inclusion in a registration statement for General Growth.
The combined statements are not intended to be a complete presentation of the
combined revenues and expenses of the retail properties listed above for the
three-month periods ended March 31, 1998 (unaudited) and December 31, 1997
(unaudited), and for the year ended September 30, 1997.
The combined statements exclude certain amounts, which would not be
comparable to the proposed future operations of the retail properties as
follows:
(a) depreciation of the buildings and improvements;
(b) amortization of other assets;
(c) interest expense;
(d) interest income;
(e) income taxes;
(f) gain from condemnation transaction at Cumberland Mall;
(g) loss from abandonment of renovation projects at Valley Plaza Mall;
and
(h) other income and expense items unique to MEPC American Group.
F-16
<PAGE>
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR CERTAIN RETAIL PROPERTIES OF MEPC AMERICAN HOLDINGS INC.,
U.K.-AMERICAN PROPERTIES, INC. AND CALEDONIAN HOLDING COMPANY, INC.
(MEPC AMERICAN GROUP)--(CONTINUED)
C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
Rental income from leasing activities consists of lease payments earned from
tenants under lease agreements.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising and Promotion
The cost of advertising and promotion is expensed as incurred.
Use of Estimates
The preparation of the combined statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the combined statements and
accompanying notes. Actual results could differ from those estimates.
Unaudited Interim Combined Statements
The combined statements for the three-month periods ended March 31, 1998 and
December 31, 1997 are unaudited. In the opinion of management, all significant
adjustments necessary for a fair presentation of the combined statements for
the interim periods have been included. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year for the retail properties.
F-17
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
PRO FORMA FINANCIAL STATEMENTS
F-18
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA--UNAUDITED)
<TABLE>
<CAPTION>
1998 ACQUISITIONS
------------------------------------
HISTORICAL PROPERTY
GENERAL ACQUISITIONS
GROWTH PRO FORMA -------------------- TOTAL
PROPERTIES, FISCAL 1997 PRO FORMA FISCAL SOUTHWEST NORTHBROOK PRO FORMA PRO FORMA
INC.(1) ACQUISITIONS ADJUSTMENTS 1997 PLAZA COURT MEPC(2) USPPI ADJUSTMENTS COMBINED
----------- ------------ ----------- --------- --------- ---------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues... $291,147 $14,427 $ -- $305,574 $15,001 $20,254 $91,509 $85,129 $ -- $517,467
Expenses:
Property
operating....... 106,369 5,818 -- 112,187 5,829 9,391 36,762 35,172 -- 199,341
Management fees. 3,308 252 (46) 3,514 505 496 -- 2,388 (1,789)(a) 5,114
Depreciation and
amortization.... 48,509 -- 2,077 50,586 -- -- -- -- 39,591(b) 90,177
-------- ------- -------- -------- ------- ------- ------- ------- --------- --------
Total Expenses... 158,186 6,070 2,031 166,287 6,334 9,887 36,762 37,560 37,802 294,632
-------- ------- -------- -------- ------- ------- ------- ------- --------- --------
Operating Income. 132,961 8,357 (2,031) 139,287 8,667 10,367 54,747 47,569 (37,802) 222,835
Interest
expense, net.... (70,252) -- (8,459) (78,711) -- -- -- -- (97,520)(c) (176,231)
Equity in net
income/(loss)
unconsolidated
affiliates:
GGP/Homart,
Inc. ........... 16,506 -- -- 16,506 -- -- -- -- -- 16,506
Property Joint
Ventures........ 3,032 391 -- 3,423 -- -- -- -- -- 3,423
General Growth
Management,
Inc. ........... (194) -- -- (194) -- -- -- -- -- (194)
-------- ------- -------- -------- ------- ------- ------- ------- --------- --------
Income before
minority
interest......... 82,053 8,748 (10,490) 80,311 8,667 10,367 54,747 47,569 (135,322) 66,339
Minority interest
in Operating
Partnership...... (29,398) -- 37 (29,361) -- -- -- -- 12,785(d) (16,576)
-------- ------- -------- -------- ------- ------- ------- ------- --------- --------
Net income....... 52,655 8,748 (10,453) 50,950 8,667 10,367 54,747 47,569 (122,537) 49,763
Convertible
preferred stock
dividends(3)..... -- -- -- -- -- -- -- -- (21,750) (21,750)
-------- ------- -------- -------- ------- ------- ------- ------- --------- --------
Net income
available to
common
stockholders..... $ 52,655 $ 8,748 $(10,453) $ 50,950 $ 8,667 $10,367 $54,747 $47,569 $(144,287) $ 28,013
======== ======= ======== ======== ======= ======= ======= ======= ========= ========
Weighted average
shares
outstanding--
basic............ 32,623
Weighted average
shares
outstanding--
diluted.......... 32,840
Earnings per
share--basic..... $ 0.86
Earnings per
share--diluted... $ 0.85
<CAPTION>
TOTAL
PRO FORMA PRO FORMA
EQUITY ADJUSTED FOR
PARTNER POTENTIAL
ADJUSTMENTS EQUITY PARTNER
-------------- --------------
<S> <C> <C>
Total revenues... $(85,129)(e) $432,338
Expenses:
Property
operating....... (35,172)(f) 164,169
Management fees. (600)(g) 4,514
Depreciation and
amortization.... (14,063)(h) 76,114
-------------- --------------
Total Expenses... (49,835) 244,797
-------------- --------------
Operating Income. (35,294) 187,541
Interest
expense, net.... 33,916 (i) (142,315)
Equity in net
income/(loss)
unconsolidated
affiliates:
GGP/Homart,
Inc. ........... -- 16,506
Property Joint
Ventures........ 3,433 (j) 6,856
General Growth
Management,
Inc. ........... 3,405 (k) 3,211
-------------- --------------
Income before
minority
interest......... 5,460 71,799
Minority interest
in Operating
Partnership...... (2,030)(d) (18,606)
-------------- --------------
Net income....... 3,430 53,193
Convertible
preferred stock
dividends(3)..... -- (21,750)
-------------- --------------
Net income
available to
common
stockholders..... $ 3,430 $ 31,443
============== ==============
Weighted average
shares
outstanding--
basic............ 32,623
Weighted average
shares
outstanding--
diluted.......... 32,840
Earnings per
share--basic..... $ 0.96
Earnings per
share--diluted... $ 0.96
</TABLE>
- ----
(1) Amounts are from the statements and footnotes included in the Company's
1997 Form 10-K except that the non-recurring gain on sale of a portion of
the CenterMark stock and the extraordinary item are excluded.
(2) Reflects the results of MEPC operations for the fiscal year ended
September 30, 1997.
(3) Pro forma earnings have been reduced by the pro forma dividends on the
7.25% Preferred Income Equity Redeemable Stock, Series A.
The accompanying notes are an integral part of the Pro Forma Condensed
Consolidated Statement of Operations.
For alphabetical references, please refer to Note 3--Pro Forma Adjustments.
F-19
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 1 PRO FORMA BASIS OF PRESENTATION
This unaudited pro forma condensed consolidated statement of operations is
presented as if (i) the sale of CenterMark Properties, Inc. ("CenterMark") and
the acquisitions made in 1997 (Market Place Mall, Century Plaza Shopping
Center, Town East Mall, Southlake Mall, Eden Prairie Mall, GGP/Ivanhoe
Portfolio Malls and Valley Hills Mall), (ii) the acquisitions made or to be
made in 1998 (Southwest Plaza, Northbrook Court (collectively the "Property
Acquisitions"), the MEPC Portfolio and the USPPI Portfolio) and (iii) the
Company's use of the net proceeds of the Offering to fund the acquisitions and
for other working capital purposes, had all occurred on January 1, 1997. The
total pro forma condensed consolidated statement of operations adjusted for a
potential equity partner reflects these transactions plus the effect of a
potential joint venture partner with respect to the USPPI Portfolio (as
described below). In management's opinion, all adjustments necessary to
reflect these transactions have been included. Such pro forma statement of
operations is based upon the historical information of General Growth
Properties, Inc. excluding the non-recurring gain on sale of a portion of
CenterMark stock and extraordinary item and the historical information of each
of the above-mentioned entities for the year ended December 31, 1997. The MEPC
Portfolio information reflects the results of operations for the fiscal year
ended September 30, 1997. This unaudited pro forma statement of operations
should be read in conjunction with the "Selected Consolidated Financial Data"
included elsewhere herein and is not necessarily indicative of what actual
results of General Growth Properties, Inc. would have been assuming such
transactions had been completed as of January 1, 1997 nor does it purport to
represent the results of operations for future periods.
NOTE 2 ACQUISITIONS/DISPOSITIONS
On June 28, 1996, Westfield U.S. Investments, Pty. Limited exercised its
option to acquire the remaining 30% of the outstanding CenterMark stock from
General Growth Properties, Inc. (the "Company") in two transactions. The first
payment in the amount of $87.0 million was received on July 1, 1996, and the
second payment in the amount of $130.5 million was received on January 2,
1997. As described above, the gain on this transaction has been excluded from
the continuing operations of the Company and its pro forma operations for the
year ended December 31, 1997.
On March 31, 1997, the Company acquired a 100% interest in Market Place Mall
for a cash purchase price of approximately $70.0 million which was funded by
an unsecured short-term facility. Market Place Mall is located in Champaign,
Illinois.
During the second quarter of 1997, the Company also acquired a 100%
ownership interest in three properties, Century Plaza Shopping Center,
Southlake Mall, Eden Prairie Mall and a 50% interest in Town East Mall.
Century Plaza Shopping Center located in Birmingham, Alabama was acquired on
May 1, 1997 for $31.8 million in cash. Southlake Mall was acquired on June 19,
1997, for a purchase price of $67.0 million. The purchase price consisted of
$45.1 million of mortgage debt assumption, $11.5 million (353,537 units) of
newly issued Operating Partnership Units, and $10.4 million in cash. Southlake
Mall is located in Atlanta, Georgia. The aggregate consideration paid for Eden
Prairie Center located in Minneapolis, Minnesota was $19.9 million. It
included the assumption of a $16.8 million mortgage, the payment of $1.1
million in cash and the assumption of $2.0 million in short-term liabilities.
On June 11, 1997, the Company acquired a 50% interest in Town East Mall,
located in Mesquite, Texas for $56.5 million. The consideration included
approximately $27.5 million in cash, the assumption of approximately $27.9
million of mortgage indebtedness and the assumption of $1.1 million in net
current liabilities.
On September 17, 1997, GGP/Ivanhoe, Inc. ("GGP/Ivanhoe") acquired both The
Oaks Mall in Gainesville, Florida and Westroads Mall in Omaha, Nebraska. The
purchase price for the two properties was approximately
F-20
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS--(CONTINUED)
$206 million of which $125 million was financed through property level
indebtedness. The Company owns 51% of the ownership interest in GGP/Ivanhoe
for a net investment of approximately $43.8 million. Ivanhoe, Inc. of
Montreal, Quebec, Canada owns the remaining 49% ownership interest in
GGP/Ivanhoe.
On April 3, 1998 and May 8, 1998, the Company acquired a 100% ownership
interest in Southwest Plaza in Denver, Colorado and Northbrook Court in
Northbrook, Illinois, respectively.
On June 2, 1998, the Company acquired the U.S. retail property portfolio of
MEPC plc (the "MEPC Portfolio"), a United Kingdom based real estate company
("MEPC"). Through the purchase of the stock of the three U.S. subsidiaries of
MEPC that directly or indirectly own the MEPC Portfolio (the "MEPC U.S.
Subsidiaries"), the Company acquired for approximately $871 million in cash
(less certain adjustments) 100% of eight enclosed mall shopping centers
located throughout the United States.
On May 14, 1998, the Company entered into a definitive merger agreement to
acquire U.S. Prime Property, Inc. ("USPPI"), which owns (or as of closing will
own) 100% of six enclosed mall shopping centers (and office buildings adjacent
to one of the malls)(the "USPPI Portfolio"). The Company expects to acquire
USPPI together with an approximately 50% joint venture partner. The purchase
price for the USPPI acquisition is approximately $625 million in cash (subject
to certain adjustments), less approximately $65 million of mortgage
indebtedness. This transaction is expected to close during the second quarter
of 1998.
NOTE 3 PRO FORMA ADJUSTMENTS
(a) Management Fees
The management fee adjustment represents the difference in management costs
charged and/or allocated to the properties by the previous owners and the new
rates charged by General Growth Management, Inc.
(b) Depreciation and Amortization
Depreciation and amortization is adjusted to include additional amounts
related to the periods from January 1, 1997 to the dates of acquisition for
the 1997 acquisitions and for the entire year of 1997 for the acquisitions
made or to be made in 1998.
(c) Interest Expense
Interest expense increased due to a combination of debt assumption and
increased borrowings. In connection with the acquisitions described above, the
Company assumed $114.1 million of mortgage debt bearing interest at the
weighted average rate of 8.50%. The Company also issued approximately $1,320.7
million of secured and unsecured borrowings to fund the cash portion of the
acquisitions. The pro forma interest expense on new borrowings was calculated
using an interest rate of 6.65%.
(d) Minority Interest
The pro forma income statement has been adjusted to reflect the allocation
of earnings to the minority interest.
(e) Revenues
Revenues relating to the USPPI Portfolio have been eliminated to reflect on
an equity basis the potential inclusion of a joint venture partner.
F-21
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS--(CONTINUED)
(f) Property Operating
Property operating expenses relating to the USPPI Portfolio have been
eliminated to reflect on an equity basis the potential inclusion of a joint
venture partner.
(g) Management Fees
Management fees related to the USPPI Portfolio have been adjusted to reflect
the fee to be charged by General Growth Management, Inc., given the potential
inclusion of a joint venture partner.
(h) Depreciation and Amortization
Depreciation and amortization relating to the USPPI Portfolio has been
eliminated to reflect on an equity basis the potential inclusion of a joint
venture partner.
(i) Interest Expense
Interest expense has been adjusted to reflect the potential inclusion of a
joint venture partner related to the USPPI Portfolio.
(j) Equity in Property Joint Ventures
Reflects the reduction in ownership and the change to the equity method of
accounting for the pro forma operating results of the USPPI Portfolio during
the fiscal year ended December 31, 1997 due to the potential inclusion of a
joint venture partner.
(k) Equity in General Growth Management, Inc.
Reflects the increase in General Growth Management, Inc. net income for
management fees assuming the USPPI Portfolio is acquired with a joint venture
partner.
F-22
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA--UNAUDITED)
<TABLE>
<CAPTION>
1998 ACQUISITIONS
-----------------------------------------
PROPERTY ACQUISITIONS
------------------------ PRO FORMA
HISTORICAL ADJUSTED
GENERAL PRO FORMA FOR
GROWTH TOTAL EQUITY POTENTIAL
PROPERTIES, SOUTHWEST NORTHBROOK PRO FORMA PRO FORMA PARTNER EQUITY
INC.(1) PLAZA COURT MEPC USPPI ADJUSTMENTS COMBINED ADJUSTMENTS PARTNER
----------- ---------- ----------- ------- ------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues......... $ 80,447 $ 3,821 $ 5,138 $23,620 $21,263 $ -- $134,289 $(21,263)(e) $113,026
Expenses:
Property operating.... 29,647 1,519 2,341 8,578 8,561 -- 50,646 (8,561)(f) 42,085
Management fees....... 875 130 131 -- 652 (513)(a) 1,275 (150)(g) 1,125
Depreciation and
amortization......... 13,967 -- -- -- -- 9,898 (b) 23,865 (3,516)(h) 20,349
-------- ---------- ---------- ------- ------- -------- -------- -------- --------
Total Expenses........ 44,489 1,649 2,472 8,578 9,213 9,385 75,786 (12,227) 63,559
-------- ---------- ---------- ------- ------- -------- -------- -------- --------
Operating Income....... 35,958 2,172 2,666 15,042 12,050 (9,385) 58,503 (9,036) 49,467
Interest expense, net. (17,883) -- -- -- -- (24,381)(c) (42,264) 8,479 (i) (33,785)
Equity in
unconsolidated
affiliates:
GGP/Homart, Inc....... 1,735 -- -- -- -- -- 1,735 -- 1,735
Joint Venture
Properties........... 1,041 -- -- -- -- -- 1,041 967 (j) 2,008
General Growth
Management, Inc...... (7,969) -- -- -- -- -- (7,969) 851 (k) (7,118)
-------- ---------- ---------- ------- ------- -------- -------- -------- --------
Income before minority
interest.............. 12,882 2,172 2,666 15,042 12,050 (33,766) 11,046 1,261 12,307
Minority interest in
Operating Partnership. (4,427) -- -- -- -- 2,466 (d) (1,961) (441)(d) (2,402)
-------- ---------- ---------- ------- ------- -------- -------- -------- --------
Net income............. 8,455 2,172 2,666 15,042 12,050 (31,300) 9,085 820 9,905
Convertible preferred
stock dividends(2).... -- -- -- -- -- (5,438) (5,438) -- (5,438)
-------- ---------- ---------- ------- ------- -------- -------- -------- --------
Net income available to
common stockholders... $ 8,455 $ 2,172 $ 2,666 $15,042 $12,050 $(36,738) $ 3,647 $ 820 $ 4,467
======== ========== ========== ======= ======= ======== ======== ======== ========
Weighted average shares
outstanding--basic.... 35,689 35,689
Weighted average shares
outstanding--diluted.. 35,937 35,937
Earnings per share--
basic................. $ 0.10 $ 0.13
Earnings per share--
diluted............... $ 0.10 $ 0.12
</TABLE>
- --------
(1) Amounts are from the statements and footnotes included in the Company's
Form 10-Q for the quarter ended March 31, 1998.
(2) Pro forma earnings have been reduced by pro forma dividends on the 7.25%
Preferred Income Equity Redeemable Stock, Series A.
The accompanying notes are an integral part of the Pro Forma Condensed
Consolidated Statement of Operations.
For alphabetical references please refer to Note 3--Pro Forma Adjustments.
F-23
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(AMOUNTS IN THOUSANDS--UNAUDITED)
NOTE 1 PRO FORMA BASIS OF PRESENTATION
This unaudited condensed consolidated statement of operations is presented
as if (i) the acquisitions made or to be made in 1998 (Southwest Plaza,
Northbrook Court (collectively the "Property Acquisitions"), the MEPC
Portfolio and the USPPI Portfolio) and (ii) the Company's use of the net
proceeds of the Offering to fund the acquisitions and for other working
capital purposes, had all occurred on January 1, 1998. The total pro forma
condensed consolidated statement of operations adjusted for a potential equity
partner reflects these transactions plus the effect of a potential joint
venture partner with respect to the USPPI Portfolio (as described below). In
management's opinion, all adjustments necessary to reflect these transactions
have been included. Such pro forma statement of operations is based upon the
historical information of General Growth Properties, Inc. and the historical
information of each of the above-mentioned entities for the three months ended
March 31, 1998. This unaudited pro forma statement of operations should be
read in conjunction with the "Selected Consolidated Financial Data" included
elsewhere herein and is not necessarily indicative of what actual results of
General Growth Properties, Inc. would have been assuming such transactions had
been completed as of January 1, 1998 nor does it purport to represent the
results of operations for future periods.
NOTE 2 ACQUISITIONS
On April 3, 1998 and May 8, 1998, the Company acquired a 100% ownership
interest in Southwest Plaza in Denver, Colorado and Northbrook Court in
Northbrook, Illinois, respectively.
On June 2, 1998, the Company acquired the U.S. retail property portfolio of
MEPC plc (the "MEPC Portfolio"), a United Kingdom based real estate company
("MEPC"). Through the purchase of the stock of the three U.S. subsidiaries of
MEPC that directly or indirectly own the MEPC portfolio (the "MEPC U.S.
Subsidiaries"), the Company acquired for approximately $871 million in cash
(less certain adjustments) 100% of eight enclosed mall shopping centers
located throughout the United States.
On May 14, 1998, the Company entered into a definitive merger agreement to
acquire U.S. Prime Property, Inc. ("USPPI"), which owns (or as of closing will
own) 100% of six enclosed mall shopping centers (and office buildings adjacent
to one of the malls)(the "USPPI Portfolio"). The Company expects to acquire
USPPI together with an approximately 50% joint venture partner. The purchase
price for the USPPI acquisition is approximately $625 million in cash (subject
to certain adjustments), less approximately $65 million of mortgage
indebtedness. This transaction is expected to close during the second quarter
of 1998.
NOTE 3 PRO FORMA ADJUSTMENTS
(a) Management Fees
The management fee adjustment represents the difference in management costs
charged and/or allocated to the properties by the previous owners and the new
rates charged by General Growth Management, Inc.
(b) Depreciation and Amortization
Depreciation and amortization is adjusted to include additional amounts
related to the three months ended March 31, 1998 for the acquisitions made or
to be made in 1998.
F-24
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS--(CONTINUED)
(c) Interest Expense
Interest expense increased due to a combination of debt assumption and
increased borrowings. In connection with the acquisitions described above, the
Company assumed $114.1 million of mortgage debt bearing interest at the
weighted average rate of 8.50%. The Company also issued approximately $1,320.7
million of secured and unsecured borrowings to fund the cash portion of the
acquisitions. The pro forma interest expense on new borrowings was calculated
using an interest rate of 6.65%.
(d) Minority Interest
The pro forma income statement has been adjusted to reflect the allocation
of earnings to the minority interest.
(e) Revenues
Revenues relating to the USPPI Portfolio have been eliminated to reflect on
an equity basis the potential inclusion of a joint venture partner.
(f) Property Operating
Property operating expenses relating to the USPPI Portfolio have been
eliminated to reflect on an equity basis the potential inclusion of a joint
venture partner.
(g) Management Fees
Management fees related to the USPPI Portfolio have been adjusted to reflect
the fee to be charged by General Growth Management, Inc., given the potential
inclusion of a joint venture partner.
(h) Depreciation and Amortization
Depreciation and amortization relating to the USPPI Portfolio have been
eliminated to reflect on an equity basis the potential inclusion of a joint
venture partner.
(i) Interest Expense
Interest expense has been adjusted to reflect the potential inclusion of a
joint venture partner related to the USPPI Portfolio.
(j) Equity in Property Joint Ventures
Reflects the reduction in ownership and the change to the equity method of
accounting for the pro forma operating results of the USPPI Portfolio during
the three months ended March 31, 1998 due to the potential inclusion of a
joint venture partner.
(k) Equity in General Growth Management, Inc.
Reflects the increase in General Growth Management, Inc. net income for
management fees assuming the USPPI Portfolio is acquired with a joint venture
partner.
F-25
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(AMOUNTS IN THOUSANDS--UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
HISTORICAL PRO FORMA
GENERAL PRO FORMA ADJUSTED
GROWTH TOTAL EQUITY FOR POTENTIAL
PROPERTIES, PRO FORMA PRO FORMA PARTNER EQUITY
INC.(1) ADJUSTMENTS COMBINED ADJUSTMENTS PARTNER
----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Investment in real
estate
Land................... $ 200,906 $ 173,400(a) $ 374,306 $ (62,500)(g) $ 311,806
Buildings and
equipment............. 1,615,222 1,583,600(a) 3,198,822 (562,500)(g) 2,636,322
Less accumulated
depreciation.......... (245,776) -- (245,776) -- (245,776)
Developments in
progress.............. 87,710 -- 87,710 -- 87,710
---------- ---------- ---------- --------- ----------
Net property and
equipment........... 1,658,062 1,757,000 3,415,062 (625,000) 2,790,062
Investment in
GGP/Homart............ 198,620 -- 198,620 -- 198,620
Investment in Property
Joint Ventures........ 91,151 -- 91,151 127,500 (g) 218,651
---------- ---------- ---------- --------- ----------
Net investment in
real estate......... 1,947,833 1,757,000 3,704,833 (497,500) 3,207,333
Cash and cash
equivalents............ 6,436 -- 6,436 -- 6,436
Tenant accounts
receivable, net........ 35,332 -- 35,332 -- 35,332
Deferred expenses, net.. 45,734 -- 45,734 -- 45,734
Investment in and note
receivable from GGMI... 67,439 -- 67,439 -- 67,439
Mortgage note
receivable............. 49,948 -- 49,948 -- 49,948
Prepaid expenses and
other assets........... 9,638 -- 9,638 -- 9,638
---------- ---------- ---------- --------- ----------
Total Assets......... $2,162,360 $1,757,000 $3,919,360 $(497,500) $3,421,860
========== ========== ========== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
---------------------
Mortgage notes and other
debt payable........... $1,349,009 $1,434,760(b) $2,783,769 $(497,500)(g) $2,286,269
Distributions payable... 25,620 -- 25,620 -- 25,620
Accounts payable and
accrued expenses....... 40,514 16,553(c) 57,067 -- 57,067
---------- ---------- ---------- --------- ----------
Total Liabilities.... 1,415,143 1,451,313 2,866,456 (497,500) 2,368,956
Minority interest in
Operating Partnership.. 256,052 6,507 262,559 -- 262,559
Mandatory Redeemable
Preferred Stock, $100
par value; 300,000
shares issued and
outstanding on a pro
forma basis............ -- 300,000(e) 300,000 -- 300,000
Stockholder's equity
Common stock; $.10 par
value; 210,000,000
shares authorized;
35,769,454 shares
issued; 35,736,572
shares outstanding.... 3,577 -- 3,577 -- 3,577
Additional paid-in
capital............... 738,960 (820)(f) 738,140 -- 738,140
Retained earnings
(deficit)............. (250,218) -- (250,218) -- (250,218)
Treasury stock, at
cost; 32,882 shares
held.................. (1,154) -- (1,154) -- (1,154)
---------- ---------- ---------- --------- ----------
Total stockholders'
equity.............. 491,165 (820) 490,345 -- 490,345
---------- ---------- ---------- --------- ----------
Total Liabilities and
Equity................. $2,162,360 $1,757,000 $3,919,360 $(497,500) $3,421,860
========== ========== ========== ========= ==========
</TABLE>
- --------
(1) Amounts are from the statements included in the Company's Form 10-Q for the
quarter ended March 31, 1998.
The accompanying notes are an integral part of the Pro Forma Condensed
Consolidated Balance Sheet.
For alphabetical references, please refer to Note 2--Pro Forma Adjustments.
F-26
<PAGE>
GENERAL GROWTH PROPERTIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(AMOUNTS IN THOUSANDS--UNAUDITED)
NOTE 1 PRO FORMA BASIS OF PRESENTATION
This unaudited condensed consolidated balance sheet is presented as if (i)
the acquisitions or pending acquisitions of Southwest Plaza, Northbrook Court
(collectively the "Property Acquisitions"), the MEPC Portfolio and the USPPI
Portfolio and (ii) the Company's use of the net proceeds of the Offering to
fund the acquisitions and for other working capital purposes, had all occurred
on March 31, 1998. In management's opinion, all adjustments necessary to
reflect these transactions have been included.
NOTE 2 PRO FORMA ADJUSTMENTS
(a) Investment in Real Estate
<TABLE>
<S> <C>
Asset additions are as follows:
Property Acquisitions........................................ $ 261,000
MEPC Portfolio............................................... 871,000
USPPI Portfolio.............................................. 625,000
----------
$1,757,000
==========
Allocated to:
Land......................................................... $ 173,400
Buildings and equipment...................................... 1,583,600
----------
$1,757,000
==========
</TABLE>
(b) Mortgage Notes and other Debt Payable
Debt incurred was as follows:
<TABLE>
<S> <C>
Property Acquisitions (including debt assumed)................. $ 226,010
MEPC Portfolio................................................. 583,750
USPPI Portfolio (including debt assumed)....................... 625,000
----------
$1,434,760
==========
</TABLE>
(c) Working capital assumed by the Company at closing.
(d) Minority Interest
<TABLE>
<S> <C>
Operating Partnership Units issued for a portion of the Property
Acquisitions cost............................................... $18,437
Adjustment to minority interest for additional stockholders'
equity as determined by the relationship of the units to common
stock at March 31, 1998......................................... (11,930)
-------
$ 6,507
=======
</TABLE>
(e) Convertible preferred stock issued to fund acquisitions and for other
working capital purposes shown at liquidation value.
(f) Additional Paid-in Capital
<TABLE>
<S> <C>
Adjustment to additional paid-in capital for minority interest as
determined by the relationship of the units to common stock at
March 31, 1998.................................................. $11,930
Costs related to the issuance of convertible preferred stock..... (12,750)
-------
$ (820)
=======
</TABLE>
(g) Adjustments to reflect the inclusion of a joint venture partner related
to the USPPI Portfolio resulting in a change to the equity method of
accounting.
F-27
<PAGE>
PROSPECTUS
GENERAL GROWTH PROPERTIES, INC.
PREFERRED STOCK, DEPOSITARY SHARES,
COMMON STOCK, COMMON STOCK WARRANTS
AND DEBT SECURITIES
----------------
General Growth Properties, Inc. (the "Company") may offer from time to time,
together or separately, in one or more series (a) shares of the Company's
preferred stock, par value $100 per share ("Preferred Stock"), (b) depositary
shares representing entitlement to all rights and preferences of a fraction of
a share of Preferred Stock of a specified series ("Depositary Shares"), (c)
shares of the Company's common stock, par value $.10 per share ("Common
Stock"), (d) warrants to purchase shares of Common Stock (the "Common Stock
Warrants") and (e) debt securities of the Company ("Debt Securities") (the
Preferred Stock, Depositary Shares, Common Stock, Common Stock Warrants and
Debt Securities are collectively referred to as the "Securities"), separately
or together, at an aggregate initial offering price not to exceed U.S.
$1,000,000,000, in amounts, at prices and on terms to be determined at the
time of sale.
The specific terms of any Securities offered pursuant to this Prospectus
will be set forth in an accompanying supplement to this Prospectus (a
"Prospectus Supplement"), together with the terms of the offering of such
Securities and the initial price and the net proceeds to the Company from the
sale thereof. The Prospectus Supplement will include, with regard to the
particular Securities, the following information: (a) in the case of Preferred
Stock, the designation, number of shares, liquidation preference per share,
initial offering price, dividend rate (or method of calculation thereof),
dates on which dividends shall be payable and dates from which dividends shall
accrue, any redemption or sinking fund provision, and any conversion or
exchange rights; (b) in the case of Common Stock, the number of shares and the
terms of the offering and sale thereof; (c) in the case of Common Stock
Warrants, the number and terms thereof, the designation and the number of
shares of Common Stock issuable upon exercise, the exercise price, the terms
of the offering and sale thereof, and where applicable, the duration and
detachability thereof; (d) in the case of Debt Securities, the specific
designation, aggregate principal amount, authorized denominations, currencies
in which such Debt Securities are issued or payable, maturity, rate (or manner
of calculation thereof) and time of payment of interest, if any, whether the
Debt Securities are issuable in registered form or bearer form or both,
whether any series of the Debt Securities will be represented by a single
global certificate, any terms for redemption or for sinking fund payments, the
terms and conditions, if any, on which the Debt Securities are convertible
into Common Stock or Debt Securities of a different series, the initial public
offering price and the net proceeds to the Company from the sale of the Debt
Securities; and (e) in the case of all Securities, whether such Securities
will be offered separately or as a unit with other Securities. The Prospectus
Supplement will also contain information, where applicable, about material
United States Federal income tax considerations relating to, and any listing
on a securities exchange of, the Securities covered by such Prospectus
Supplement.
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "GGP". Any Common Stock offered pursuant to a
Prospectus Supplement will be listed on such exchange, subject to official
notice of issuance.
The Company may sell Securities directly through agents, underwriters or
dealers designated from time to time. If any agents, underwriters, or dealers
are involved in the sale of the Securities, the names of such agents,
underwriters, or dealers and any applicable commissions or discounts and the
net proceeds to the Company from such sale will be set forth in the applicable
Prospectus Supplement.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is January 29, 1998
<PAGE>
IN CONNECTION WITH AN OFFERING OF SECURITIES, THE UNDERWRITERS, IF ANY, FOR
SUCH OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICES 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 OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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"). Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the Commission's regional offices at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Room of the Commission, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
Such materials also may be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov. The Company's
Common Stock is listed on the NYSE and such reports, proxy statements and
other information also can be inspected at the offices of the NYSE, 20 Broad
Street, 17th Floor, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which
are contained in schedules and exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. Items and information omitted from this Prospectus
but contained in the Registration Statement may be inspected and copied at the
Public Reference Room of the Commission.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained or incorporated by
reference in this Prospectus or the Prospectus Supplement, and, if given or
made, such information or representations must not be relied upon as having
been authorized. This Prospectus and the Prospectus Supplement do not
constitute an offer of any securities other than those to which it relates or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus or any Prospectus Supplement nor any sale made
hereunder or thereunder shall, under any circumstances, create any implication
that the information contained herein or therein is correct as of any time
subsequent to their respective dates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated in this Prospectus by reference and are made
a part hereof: (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as amended by Form 10-K/A dated January 15, 1998 (the
"Company 10-K"); (ii) Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, as amended by Form 10-Q/A dated January 15, 1998; (iii)
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as amended
by Form 10-Q/A dated January 15, 1998; (iv) Quarterly Report on Form 10-Q for
the quarter ended
2
<PAGE>
September 30, 1997, as amended by Form 10-Q/A dated January 15, 1998; (v)
Current Report on Form 8-K dated January 16, 1997, as amended by Form 8-K/A
dated February 18, 1997 and as further amended by a Form 8-K/A dated January
15, 1998; (vi) Current Report on Form 8-K dated July 2, 1997, as amended by
Form 8-K/A dated August 28, 1997; (vii) Current Report on Form 8-K dated
August 18, 1997; (viii) the portions of the Company's Proxy Statement for its
1997 Annual Meeting of Stockholders that have been incorporated by reference
into the Company 10-K; and (ix) the description of the Company's Common Stock
which is contained in the Registration Statement on Form 8-A filed by the
Company with the Commission on January 12, 1993, pursuant to Section 12(b) of
the Exchange Act.
All other documents and reports filed pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act from the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference herein and shall be deemed to be a part hereof from
the date of the filing of such reports and documents (provided, however, that
the information referred to in Item 402(a)(8) of Regulation S-K of the
Commission shall not be deemed specifically incorporated by reference herein).
The Company will provide without charge to each person to whom a copy of this
Prospectus or any Prospectus Supplement is delivered, on written or oral
request of such person, a copy of any or all documents which are incorporated
herein by reference (not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in the document which this
Prospectus incorporates). Requests should be directed to General Growth
Properties, Inc., 55 West Monroe Street--Suite 3100, Chicago, Illinois 60603,
Attention: Director of Investor Relations, Telephone (312) 551-5000.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which 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.
3
<PAGE>
THE COMPANY
The Company is a self-managed real estate investment trust which, through
its general partnership interest in GGP Limited Partnership, a Delaware
limited partnership (the "Operating Partnership"), and its interest in
GGP/Homart, Inc. ("GGP/Homart"), owns, operates, acquires, develops and
manages enclosed mall shopping centers located throughout the United States.
The Company and the Operating Partnership together own, directly or
indirectly, 100% of 35 enclosed mall shopping centers, a 51% interest in two
other enclosed mall shopping centers, a 50% interest in two additional
enclosed mall shopping centers and a 100% interest in one property under
development. These properties contain an aggregate of approximately 30.1
million square feet of gross retail space, including anchor stores,
freestanding stores and mall tenant areas ("GLA"). In addition, the Company,
through the Operating Partnership's ownership of stock in GGP/Homart, owns a
38.2% interest in substantially all of the regional mall assets formerly owned
by a subsidiary of Sears, Roebuck & Co. GGP/Homart currently owns interests in
24 shopping centers containing an aggregate of approximately 22.0 million
square feet of GLA. The Operating Partnership also owns 95% of the non-voting
preferred stock of General Growth Management, Inc., a company which manages,
leases, develops and operates enclosed malls. The Company has qualified as a
real estate investment trust (a "REIT") for federal income tax purposes. The
Company is incorporated under the laws of the State of Delaware. Its principal
executive offices are located at 55 West Monroe Street--Suite 3100, Chicago,
Illinois 60603, and its telephone number is (312) 551-5000.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of the Securities will be used for general corporate
purposes, which may include the acquisition of shopping centers as suitable
opportunities arise, the expansion and improvement of certain properties in
the Company's portfolio, payment of development costs for new centers, and the
repayment of indebtedness outstanding at such time.
CONSOLIDATED RATIOS OF EARNINGS TO
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's consolidated ratios of earnings
to fixed charges for each of the last five fiscal years. There was no
Preferred Stock outstanding for any of the periods shown below. Accordingly,
the ratio of earnings to fixed charges and Preferred Stock dividends is
identical to the ratio of earnings to fixed charges.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:............... 2.61 2.37 2.43 1.67 1.53
</TABLE>
4
<PAGE>
CAPITAL STOCK
The authorized capital stock of the Company consists of 210,000,000 shares
of Common Stock, par value $.10 per share, and 5,000,000 shares of Preferred
Stock, par value $100 per share. The following summary description of the
capital stock of the Company does not purport to be complete and is qualified
in its entirety by reference to the Company's Second Amended and Restated
Certificate of Incorporation, as amended (the "Certificate"), and the
certificates of designations which will be filed with the Commission in
connection with any offering of Preferred Stock. As of December 31, 1997,
35,634,977 shares of the Company's Common Stock were issued and outstanding
and no shares of the Company's Preferred Stock were issued and outstanding.
The Board of Directors is authorized to provide for the issuance of shares of
Preferred Stock in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences and rights of each
such series and the qualifications, limitations or restrictions thereof. See
"Description of Preferred Stock". The Company's Common Stock is listed on the
New York Stock Exchange under the symbol "GGP".
DESCRIPTION OF COMMON STOCK
The holders of the Company's Common Stock are entitled to one vote per share
on all matters voted on by stockholders, including elections of directors,
and, except as otherwise required by law or provided in any resolution adopted
by the Board of Directors with respect to any series of Preferred Stock
establishing the powers, designations, preferences and relative,
participating, option or other special rights of such series ("Preferred Stock
Designation"), the holders of such shares exclusively possess all voting
power. The Certificate does not provide for cumulative voting in the election
of directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors from funds legally
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. All shares
of Common Stock offered hereby, upon issuance against full payment of the
purchase price therefor, will be fully paid and nonassessable and the holders
thereof will not have preemptive rights.
RESTRICTIONS ON TRANSFER
For the Company to remain qualified as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), not more than 50% in value of its
outstanding Common Stock and Preferred Stock (collectively, the "Capital
Stock") may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code) during the last half of a taxable year, the Capital Stock
must be beneficially owned (without regard to any rules of attribution of
ownership) 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 and
certain percentages of the Company's gross income must be derived from
particular activities. Because the Board of Directors believes it is essential
for the Company to continue to qualify as a REIT, the Company's Certificate
restricts the acquisition of shares of Capital Stock (the "Ownership Limit").
The Ownership Limit provides that, subject to certain exceptions specified
in the Certificate, no stockholder (other than Martin Bucksbaum, Matthew
Bucksbaum, their families and related trusts (collectively, the "Bucksbaums")
and the International Business Machines Retirement Plan (the "IBM Retirement
Plan")) may own, or be deemed to own by virtue of the applicable attribution
provisions of the Code, more than the Ownership Limit. The Ownership Limit was
originally set at 6.5% of the outstanding Capital Stock, and was increased to
7.5% of the value of the outstanding Capital Stock as a result of legislation
passed in 1993. The Board of Directors is authorized to further increase the
Ownership Limit to not more than 9.8%. The Bucksbaums and the IBM Retirement
Plan are each permitted by the Certificate to exceed the Ownership Limit and
the Bucksbaums currently exceed such limit and may continue to do so. The
Ownership Limit provides that the Bucksbaums may acquire additional shares
pursuant to certain rights granted to them in connection with the Company's
initial public offering or from other sources so long as the acquisition does
not result in the five largest beneficial owners of Capital Stock holding more
than 50% of the outstanding Capital Stock. The Board
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of Directors may waive the Ownership Limit if presented with satisfactory
evidence that such ownership will not jeopardize the Company's status as a
REIT (and, from time to time, the Board of Directors has waived the Ownership
Limit). As a condition of such waiver, the Board of Directors may require
opinions of counsel satisfactory to it and/or an undertaking from the
applicant with respect to preserving the REIT status of the Company. The
Ownership Limit will not apply if the Board of Directors and the holders of
Capital Stock determine that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT. If shares
of Common Stock in excess of the Ownership Limit, or shares which would cause
the Company to be beneficially owned by fewer than 100 persons, are issued or
transferred to any person, such issuance or transfer shall be null and void
and the intended transferee will acquire no rights to such shares.
The Certificate further provides that upon a transfer or other event that
results in a person owning (either directly or by virtue of the applicable
attribution rules) Capital Stock in excess of the applicable Ownership Limit
("Excess Shares"), such person (a "Prohibited Owner") will not acquire or
retain any rights or beneficial economic interest in such Excess Shares.
Rather, the Excess Shares will be automatically transferred to a person or
entity unaffiliated with and designated by the Company to serve as trustee
(the "Trustee") of a trust for the exclusive benefit of a charitable
beneficiary (the "Beneficiary") to be designated by the Company within five
(5) days after the discovery of the transaction which created the Excess
Shares. The Trustee shall have the exclusive right to designate a person who
may acquire the Excess Shares without violating the applicable ownership
restrictions (a "Permitted Transferee") to acquire all of the shares held by
the Trust. The Permitted Transferee must pay the Trustee an amount equal to
the fair market value (determined at the time of transfer to the Permitted
Transferee) for the Excess Shares. The Trustee shall pay to the Prohibited
Owner the lesser of: a) the value of the shares at the time they became Excess
Shares and b) the price received by the Trustee from the sale of the Excess
Shares to the Permitted Transferee. The excess of: a) the sale proceeds from
the transfer to the Permitted Transferee over b) the amount paid to the
Prohibited Owner, if any, in addition to any dividends paid with respect to
the Excess Shares will be distributed to the Beneficiary.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limit would require an amendment to the Certificate. Amendments to the
Certificate require the affirmative vote of holders owning a majority of the
outstanding Capital Stock. In addition to preserving the Company's status as a
REIT, the Ownership Limit may have the effect of precluding an acquisition of
control of the Company without the approval of the Board of Directors.
All certificates representing Capital Stock will bear a legend referring to
the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 1.0% of the outstanding Capital Stock must file an
affidavit with the Company containing the information specified in the
Certificate within 30 days after January 1 and June 30 of each year. In
addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of shares as the Board of Directors deems necessary to
comply with the provisions of the Code applicable to a REIT or to comply with
the requirements of any taxing authority or governmental agency. United States
Treasury Regulations (the "Regulations") currently require that the Company
annually request written statements requesting information as to the actual
ownership of the Capital Stock from each record holder of more than 1% of the
Company's outstanding Capital Stock. Depending upon the number of record
holders of the Capital Stock, the reporting threshold required by the
Regulations can fall as low as .5%. Record holders that fail to submit a
written statement in response to the request required by the Regulations are
required to attach to their federal income tax returns specified information
regarding the actual ownership of shares of Capital Stock of which they are
the record holder.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director will not be personally liable for
monetary damages to the Company or its stockholders for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
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duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for paying a dividend or approving a stock repurchase
in violation of Section 174 of the Delaware General Corporation Law ("DGCL")
or (iv) for any transaction from which the director derived an improper
personal benefit.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Certificate will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions of the
Certificate described above apply to an officer of the Company only if he or
she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of its
officers and directors. The indemnification agreements require, among other
things, that the Company indemnify its officers and directors to the fullest
extent permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company must also indemnify and advance
all expenses incurred by officers and directors seeking to enforce their
rights under the indemnification agreements, and cover officers and directors
under the Company's directors' and officers' liability insurance. Although the
form of the indemnification agreement offers substantially the same scope of
coverage afforded by provisions in the Company's Certificate and Bylaws, it
provides greater assurance to directors and officers that indemnification will
be available, because, as a contract, it cannot be modified unilaterally in
the future by the Board of Directors or by stockholders to eliminate the
rights it provides.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of the Company's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with the Company for three years following the date that person becomes an
interested stockholder unless (a) before that person became an interested
stockholder, the Company's Board of Directors approved the transaction in
which the interested stockholder became an interested stockholder or approved
the business combination, (b) upon completion of the transaction that resulted
in the interested stockholder's becoming an interested stockholder, the
interested stockholder owns at least 85% of the Company's voting stock
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the Company and by employee stock plans
that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer), or (c) following the transaction in which that person became
an interested stockholder, the business combination is approved by the
Company's Board of Directors and authorized at a meeting of stockholders by
the affirmative vote of the holders of at least two-thirds of the Company's
outstanding voting stock not owned by the interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of one of certain extraordinary transactions involving the
Company and a person who was not an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the Company's directors, if that extraordinary transaction is
approved or not opposed by a majority of the directors who were directors
before any person became an interested stockholder in the previous three years
or who were recommended for election or elected to succeed such directors by a
majority of such directors then in office.
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DESCRIPTION OF PREFERRED STOCK
The following is a description of certain general terms and provisions of
the Preferred Stock. The particular terms of any series of Preferred Stock
will be described in the applicable Prospectus Supplement. If so indicated in
a Prospectus Supplement, the terms of any such series may differ from the
terms set forth below.
The summary of terms of any series of the Company's Preferred Stock
contained in this Prospectus does not purport to be complete and is subject
to, and qualified in its entirety by, the provisions of the Certificate and
the applicable Preferred Stock Designation, which will be filed as an exhibit
to or incorporated by reference in the Registration Statement of which this
Prospectus is a part at or prior to the time of issuance of such series of the
Preferred Stock.
Under the Company's Certificate, the Board of Directors is authorized,
without further stockholder action, to provide for the issuance of up to
5,000,000 shares of Preferred Stock, par value $100 per share. No Preferred
Stock is outstanding as of the date of this Prospectus. The Preferred Stock
authorized by the Certificate may be issued, from time to time, in one or more
series in such amounts and with such designations, powers, preferences or
other rights, qualifications, limitations and restrictions as may be fixed by
the Board of Directors. Under certain circumstances, the issuance of Preferred
Stock could have the effect of delaying, deferring or preventing a change of
control of the Company and may adversely affect the voting and other rights of
the holders of Common Stock.
The Preferred Stock shall have the dividend, liquidation, redemption, voting
and certain other rights set forth below unless otherwise described in a
Prospectus Supplement relating to a particular series of Preferred Stock. The
applicable Prospectus Supplement will describe the following terms of the
series of Preferred Stock offered thereby: (1) the designation of such series
and the number of shares offered; (2) the liquidation preference of such
series; (3) the initial offering price at which such series will be issued;
(4) the dividend rate (or method of calculation), the dates on which dividends
shall be payable and the dates from which dividends shall commence to
cumulate, if any; (5) any redemption or sinking fund provisions; (6) any
conversion or exchange rights; (7) any additional voting, dividend,
liquidation, redemption, sinking fund and other rights, preferences,
privileges, limitations and restrictions; (8) any listing of such Preferred
Stock on any securities exchange; (9) a discussion of federal income tax
considerations applicable to such series; (10) the relative ranking and
preferences of such series as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; (11) any limitations
on issuance of any series of Preferred Stock ranking senior to or on a parity
with such series as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; (12) 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 for
federal tax purposes; and (13) any other specific terms, preferences, rights,
limitations or restrictions of such series.
The Preferred Stock offered hereby will be issued in one or more series. The
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The liquidation preference is
not indicative of the price at which the Preferred Stock will actually trade
on or after the date of issuance.
The Preferred Stock shall, with respect to dividend rights and rights upon
liquidation, dissolution and winding up of the Company, rank prior to the
Common Stock and to all other classes and series of equity securities of the
Company now or hereafter authorized, issued or outstanding (the Common Stock
and such other classes and series of equity securities collectively may be
referred to herein as the "Junior Stock"), other than any classes or series of
equity securities of the Company which by their terms specifically provide for
a ranking on a parity with (the "Parity Stock") or senior to (the "Senior
Stock") the Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the Company. The Preferred Stock shall be junior
to all outstanding debt of the Company. The Preferred Stock shall be subject
to creation of Senior Stock, Parity Stock and Junior Stock to the extent not
expressly prohibited by the Company's Certificate.
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DIVIDENDS
Holders of Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of assets of the Company legally
available for payment, dividends, or distributions in cash, property or other
assets of the Company or in Securities of the Company or from any other source
as the Board of Directors in their discretion shall determine and at such
dates and at such rates per share per annum as described in the applicable
Prospectus Supplement. Such rate may be fixed or variable or both. Each
declared dividend shall be payable to holders of record as they appear at the
close of business on the books of the Company on such record dates, not more
than 90 calendar days preceding the payment dates therefor, as are determined
by the Board of Directors (each of such dates, a "Record Date").
Dividends on a series of Preferred Stock may be cumulative or noncumulative.
If dividends on a series of Preferred Stock are noncumulative and if the Board
of Directors fails to declare a dividend in respect of a dividend period with
respect to such series, then holders of such Preferred Stock will have no
right to receive a dividend in respect of such dividend period, and the
Company will have no obligation to pay the dividend for such period, whether
or not dividends are declared payable on any future dividend payment dates. If
dividends of a series of Preferred Stock are cumulative, the dividends on such
shares will accrue from and after the date set forth in the applicable
Preferred Stock Designation.
No full dividends shall be declared or paid or set apart for payment on any
series of Preferred Stock ranking, as to dividends, on a parity with or junior
to the series of Preferred Stock offered by the applicable Prospectus
Supplement for any period unless full dividends for the immediately preceding
dividend period on such Preferred Stock (including any accumulation in respect
of unpaid dividends for prior dividend periods, if dividends on such Preferred
Stock are cumulative) have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof is set apart for such
payment. When dividends are not so paid in full (or a sum sufficient for such
full payment is not so set apart) on such Preferred Stock and any Parity Stock
of the Company ranking on a parity as to dividends with such Preferred Stock,
dividends upon such Preferred Stock and dividends upon such Parity Stock shall
be declared pro rata so that the amount of dividends declared per share on
such Preferred Stock and such Parity Stock shall in all cases bear to each
other the same ratio that accrued dividends for the then-current dividend
period per share on such Preferred Stock (including any accumulation in
respect of unpaid dividends for prior dividend periods, if dividends on such
Preferred Stock are cumulative) and accrued dividends, including required or
permitted accumulations, if any, on shares of such Parity Stock, bear to each
other.
No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment(s) on Preferred Stock which may be in arrears.
Unless full dividends on the series of Preferred Stock offered by the
applicable Prospectus Supplement have been declared and paid or set apart for
payment for the immediately preceding dividend period (including any
accumulation in respect of unpaid dividends for prior dividend periods, if
dividends on such Preferred Stock are cumulative), (a) no cash dividend or
distribution (other than in shares of Junior Stock) may be declared, set aside
or paid on the Junior Stock, (b) the Company may not, directly or indirectly,
repurchase, redeem or otherwise acquire any shares of its Junior Stock (or pay
any monies into a sinking fund for the redemption of any shares) except by
conversion into or exchange for Junior Stock, and (c) the Company may not,
directly or indirectly, repurchase, redeem or otherwise acquire any such
Preferred Stock or any Parity Stock ranking on parity with such Preferred
Stock (or pay any monies into a sinking fund for the redemption of any shares
of any such stock) otherwise than pursuant to pro rata offers to purchase or a
concurrent redemption of all, or a pro rata portion, of such Preferred Stock
and such Parity Stock (except by conversion into or exchange for Junior
Stock).
Any dividend payment made on a series of Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series.
REDEMPTION
The terms, if any, on which Preferred Stock of any series may be redeemed
will be set forth in the applicable Prospectus Supplement.
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CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock will be convertible into Common Stock will be set forth in the
applicable Prospectus Supplement. 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.
LIQUIDATION
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the holders of a series of Preferred
Stock will be entitled, subject to the rights of creditors, but before any
distribution or payment to the holders of Common Stock or any Junior Stock on
liquidation, dissolution or winding up of the Company, to receive a
liquidating distribution in the amount of the liquidation preference per share
as set forth in the applicable Prospectus Supplement plus accrued and unpaid
dividends for the then-current dividend period (including any accumulation in
respect of unpaid dividends for prior dividend periods, if dividends on such
series of Preferred Stock are cumulative). If the amounts available for
distribution with respect to a series of Preferred Stock and all other
outstanding Parity Stock are not sufficient to satisfy the full liquidation
rights of all such Preferred Stock outstanding and such other Parity Stock
outstanding, then the holders of each such series will share ratably in any
such distribution of assets in proportion to the full respective preferential
amount (which in the case of Preferred Stock may include accumulated
dividends) to which they are entitled. Unless otherwise provided in the
applicable Preferred Stock Designation for a particular series of Preferred
Stock, after payment of the full amount of the liquidation distribution, the
holders of Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Company.
VOTING
The Preferred Stock of a series will not be entitled to vote, except as
described below or in the applicable Prospectus Supplement. Without the
affirmative vote of a majority of the Preferred Stock then outstanding (voting
separately as a class together with any Parity Stock), the Company may not (i)
increase or decrease the aggregate number of authorized shares of such class
or increase the aggregate number of authorized shares of any security ranking
prior to the Preferred Stock, (ii) increase or decrease the par value of the
shares of holders of such class, or (iii) alter or change the voting or other
powers, preferences or special rights of such class so as to affect them
adversely. An amendment which increases the number of authorized shares of or
authorizes the creation or issuance of other classes or series of Junior Stock
or Parity Stock, or substitutes the surviving entity in a merger,
consolidation, reorganization or other business combination for the Company,
shall not be considered to be such an adverse change.
NO OTHER RIGHTS
The shares of a series of Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or described in the applicable Prospectus
Supplement, set forth in the Certificate or in the applicable Preferred Stock
Designation or as otherwise required by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent for each series of Preferred Stock will be described in
the related Prospectus Supplement.
RESTRICTIONS ON OWNERSHIP
As discussed above, for the Company to maintain its qualification as a REIT
under the Code, (i) not more than 50% in value of its outstanding Capital
Stock may be owned, directly or indirectly, by five or fewer
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individuals (as defined in the Code) during the last half of a taxable year,
(ii) the Capital Stock, which term includes the Preferred Stock, must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year and (iii) certain percentages of the Company's gross income must be from
particular activities. For a discussion of the restriction on ownership of
Preferred Stock, see "Description of Common Stock--Restrictions on Transfer"
above.
DELAWARE ANTI-TAKEOVER STATUTE
See "Description of Common Stock--Delaware Anti-Takeover Statute" above.
DESCRIPTION OF DEPOSITARY SHARES
The Company may, at its option, elect to offer fractional interests in
shares of Preferred Stock, rather than a full share of Preferred Stock. In
such event, receipts ("Depositary Receipts") for such Depositary Shares, each
of which will represent a fraction (to be set forth in the Prospectus
Supplement relating to a particular series of Preferred Stock) of a share of a
particular series of Preferred Stock, will be issued as described below.
Any series of Preferred Stock represented by Depositary Shares will be
deposited under a Deposit Agreement (the "Deposit Agreement") between the
Company and a depositary specified in the applicable Prospectus Supplement
(the "Depositary"). Subject to the terms of the Deposit Agreement, each owner
of a Depositary Share will be entitled, in proportion to the applicable
fraction of a share of Preferred Stock represented by such Depositary Share,
to all the rights and preferences of the Preferred Stock represented thereby
(including dividend, voting, redemption, subscription and liquidation rights).
The description set forth above and in any Prospectus Supplement of certain
provisions of the Deposit Agreement, the Depositary Shares and the Depositary
Receipts does not purport to be complete and is subject to and qualified in
its entirety by reference to the forms of Deposit Agreement and Depositary
Receipts relating to each series of Preferred Stock which have been or will be
filed with the Commission at or prior to the time of the offering of such
series of the Preferred Stock. If so indicated in a Prospectus Supplement, the
terms of any series of Depositary Shares may differ from the terms set forth
herein.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Stock to the record holders
of Depositary Shares relating to such Preferred Stock in proportion to the
numbers of such Depositary Shares owned by such holders on the relevant Record
Date. The Depositary shall distribute only such amount, however, as can be
distributed without attributing to any holder of Depositary Shares a fraction
of one cent, and the balance not so distributed shall be added to and treated
as part of the next sum received by the Depositary for distribution to record
holders of Depositary Shares.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
in an equitable manner, unless the Depositary determines that it is not
feasible to make such distribution, in which case the Depositary may sell such
property and distribute the net proceeds from such sale to such holders.
The Deposit Agreement will also contain provisions relating to the manner in
which any subscription or similar rights offered by the Company to holders of
the Preferred Stock shall be made available to the holders of Depositary
Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of Preferred Stock represented by Depositary Shares is subject
to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Depositary resulting from the redemption, in whole
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or in part, of such series of Preferred Stock held by the Depositary. The
Depositary shall mail notice of redemption not less than 30 and not more than
60 days prior to the date fixed for redemption to the record holders of the
Depositary Shares to be so redeemed at their respective addresses appearing in
the Depositary's books. The redemption price per Depositary Share will be
equal to the applicable fraction of the redemption price per share payable
with respect to such series of the Preferred Stock. Whenever the Company
redeems Preferred Stock held by the Depositary, the Depositary will redeem as
of the same redemption date the number of Depositary Shares representing
Preferred Stock so redeemed. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot or pro
rata as may be determined to be equitable by the Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be outstanding and all rights of the holders of the
Depositary Shares will cease, except the right to receive the money,
securities, or other property payable upon such redemption and any money,
securities, or other property to which the holders of such Depositary Shares
were entitled upon such redemption upon surrender to the Depositary of the
Depositary Receipts evidencing such Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Depositary will mail the information contained
in such notices of meeting to the record holders of the Depositary Shares
relating to such Preferred Stock. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Stock) will be entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the amount of the Preferred Stock
represented by such holder's Depositary Shares. The Depositary will endeavor,
insofar as practicable, to vote the number of shares of Preferred Stock
represented by such Depositary Shares in accordance with such instructions,
and the Company will agree to take all reasonable action which may be deemed
necessary by the Depositary in order to enable the Depositary to do so. The
Depositary will abstain from voting the Preferred Stock to the extent it does
not receive specific instructions from the holder of Depositary Shares
representing such shares of Preferred Stock.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may be amended at any time by agreement
between the Company and the Depositary. However, any amendment which
materially and adversely alters the rights of the holders of Depositary Shares
will not be effective unless such amendment has been approved by the holders
of at least a majority of the Depositary Shares then outstanding. The Deposit
Agreement will only terminate if (i) all outstanding Depositary Shares related
thereto have been redeemed or (ii) there has been a final distribution in
respect of the Preferred Stock in connection with any liquidation, dissolution
or winding up of the Company and such distribution has been distributed to the
holders of the related Depositary Shares.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the Preferred Stock and issuance of Depositary Receipts, all withdrawals of
Preferred Stock by owners of Depositary Shares and any redemption of the
Preferred Stock. Holders of Depositary Receipts will pay all other transfer
and other taxes and governmental charges and such other charges as are
expressly provided in the Deposit Agreement to be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the
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appointment of a successor Depositary and such successor Depositary's
acceptance of the appointment. Such successor Depositary must be appointed
within 60 days after delivery of the notice of resignation or removal and must
be a bank or trust company having its principal office in the United States
and having a combined capital and surplus of at least $50,000,000.
RESTRICTIONS ON OWNERSHIP
In order to safeguard the Company against an inadvertent loss of REIT
status, the Deposit Agreement or the Certificate will contain provisions
restricting the ownership and transfer of Depositary Shares. Such restrictions
will be described in the applicable Prospectus Supplement and will be
referenced on the applicable Depositary Receipts.
MISCELLANEOUS
The Depositary will forward all reports and communications from the Company
which are delivered to the Depositary and which the Company is required or
otherwise determines to furnish to the holders of the Preferred Stock.
Neither the Depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares
or Preferred Stock unless satisfactory indemnity is furnished. They may rely
upon written advice of counsel or accountants, or information provided by
persons presenting Preferred Stock for deposit, holders of Depositary Shares
or other persons believed to be competent and on documents believed to be
genuine.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue warrants for the purchase of Common Stock ("Common
Stock Warrants"). Common Stock Warrants may be issued independently or
together with any other Securities and may be attached to or separate from any
such Securities. Each series of Common Stock Warrants will be issued under a
separate warrant agreement (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 Common Stock 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 Common Stock Warrants. The
following summary of certain provisions of the Common Stock Warrants does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Warrant Agreement that will be filed with
the Commission in connection with the offering of such Common Stock Warrants.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (a) the title of such Common Stock
Warrants; (b) the aggregate number of such Common Stock Warrants; (c) the
price or prices at which such Common Stock Warrants will be issued; (d) the
number of shares of Common Stock purchasable upon exercise of such Common
Stock Warrants; (e) if applicable, the designation and terms of the Securities
with which such Common Stock Warrants are issued and the number of such Common
Stock Warrants issued with each such Security; (f) the date, if any, from and
after which such Common Stock Warrants and any Securities issued therewith
will be separately transferable; (g) the number of shares of Common Stock
purchasable upon exercise of a Common Stock Warrant and the price at which
such shares may be purchased upon exercise (which price may be payable in
cash, securities, or other property); (h) the date on which the right to
exercise such Common Stock Warrant shall commence and the date on which such
right shall expire; (i) the minimum or maximum amount of such Common Stock
Warrants which may be exercised at any one time; (j) the antidilution
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provisions of such Common Stock Warrants, if any; (k) a discussion of certain
federal income tax considerations; and (l) any other terms of such Common
Stock Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Common Stock Warrants.
Reference is made to the section captioned "Description of Common Stock" for
a general description of the Common Stock to be acquired upon the exercise of
the Common Stock Warrants, including a description of certain restrictions on
the ownership of Common Stock.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms and provisions of the series of Debt Securities offered by a
Prospectus Supplement, including any additional covenants or changes to
existing covenants relating to such series, and the extent to which such
general terms and provisions described below may apply thereto, will be
described in the Prospectus Supplement relating to such series of Debt
Securities.
The Debt Securities are to be issued under an Indenture, as supplemented
(the "Debt Indenture"), between the Company and a trustee to be named prior to
an offering of Debt Securities (the "Debt Trustee"). The following summaries
of certain provisions of the Debt Securities and the Debt Indenture do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of the Debt Securities and the Debt Indenture,
including the definitions therein of certain terms. Particular sections of the
Debt Indenture which are relevant to the discussion are cited parenthetically.
Wherever particular sections or defined terms of the Debt Indenture are
referred to, it is intended that such sections or defined terms shall be
incorporated herein by reference. Capitalized terms not otherwise defined
herein shall have the meaning ascribed to such terms in the Debt Indenture.
GENERAL
The Debt Indenture does not limit the amount of Debt Securities which can be
issued thereunder or the amount of debt which may otherwise be incurred by the
Company, and additional Debt Securities may be issued under the Debt Indenture
up to the aggregate principal amount which may be authorized from time to time
by, or pursuant to a resolution of, the Company's Board of Directors or by a
supplemental indenture. Reference is made to the applicable Prospectus
Supplement for the following terms, if applicable, of the particular series of
Debt Securities being offered thereby: (i) the title of the Debt Securities of
the series; (ii) any limit upon the aggregate principal amount of the Debt
Securities of the series; (iii) the date or dates on which the principal of
the Debt Securities of the series will be payable; (iv) the rate or rates (or
manner of calculation thereof), if any, at which the Debt Securities of the
series will bear interest, the date or dates from which any such interest will
accrue and on which such interest will be payable, and, with respect to Debt
Securities of the series issued in registered form, the record date for the
interest payable on any interest payment date; (v) the place or places where
the principal of and interest, if any, on the Debt Securities of the series
will be payable; (vi) any redemption or sinking fund provisions; (vii) the
denominations in which Debt Securities of the series shall be issuable; (viii)
if other than the principal amount thereof, the portion of the principal
amount of Debt Securities of the series which will be payable upon declaration
of acceleration of the maturity thereof; (ix) whether the Debt Securities of
the series will be issuable in registered or bearer form or both, any
restrictions applicable to the offer, sale or delivery of Debt Securities in
bearer form ("bearer Debt Securities") and whether and the terms upon which
bearer Debt Securities will be exchangeable for Debt Securities in registered
form ("registered Debt Securities") and vice versa; (x) the terms and
conditions, if any, on which the Debt Securities of the series are convertible
into Common Stock or Debt Securities of a different series; (xi) whether and
under what circumstances the Company will pay additional amounts on the Debt
Securities of the series held by a person who is not a U.S. person (as defined
below) in respect of taxes or similar charges withheld or deducted and, if so,
whether the Company will have the option to redeem such Debt Securities rather
than pay such additional amounts; (xii) the currencies in which payments of
interest, premium or principal are payable with respect to
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such Debt Securities; (xiii) whether the Debt Securities of any series will be
issued as one or more Global Securities; (xiv) whether Debt Securities of the
series will be issuable in Tranches; and (xv) any additional provisions or
other terms not inconsistent with the provisions of the Debt Indenture,
including any terms which may be required by or advisable under United States
laws or regulations or advisable in connection with the marketing of Debt
Securities of such series. (Section 2.1 and 2.2) To the extent not described
herein, principal and interest, if any, will be payable, and the Debt
Securities of a particular series will be transferable, in the manner
described in the Prospectus Supplement relating to such series. "Principal"
when used herein includes, when appropriate, the premium, if any, on the Debt
Securities.
Each series of Debt Securities will constitute unsecured and unsubordinated
indebtedness of the Company and will rank on a parity with the Company's other
unsecured and unsubordinated indebtedness. Unless otherwise described in a
Prospectus Supplement, there are no covenants or "event risk" provisions
contained in the Debt Indenture that may afford holders of Debt Securities
protection in the event of a highly leveraged transaction involving the
Company.
Debt Securities of any series may be issued as registered Debt Securities or
bearer Debt Securities or both as specified in the terms of the series.
Additionally, Debt Securities of any series may be represented by a single
global note registered in the name of a depository's nominee and, if so
represented, beneficial interests in such global note will be shown on, and
transfers thereof will be effected only through, records maintained by a
designated depository and its participants. Unless otherwise indicated in the
Prospectus Supplement, Debt Securities will be issued in the denomination of
$1,000 and integral multiples thereof and bearer Debt Securities will not be
offered, sold, resold or delivered to U.S. persons in connection with their
original issuance. Debt Securities of any series may be denominated in and
payments of principal and interest may be made in United States dollars or any
other currency, including composite currencies such as the European Currency
Unit. For purposes of this Prospectus, "U.S. person" means a citizen or
resident of the United States, any corporation, partnership or other entity
created or organized in or under the laws of the United States or any
political subdivision thereof, or any estate or trust the income of which is
subject to United States federal income taxation regardless of its source.
To the extent set forth in a Prospectus Supplement, except in special
circumstances set forth in the Debt Indenture, interest on bearer Debt
Securities will be payable only against presentation and surrender of the
coupons for the interest installments evidenced thereby as they mature at a
paying agency of the Company located outside of the United States and its
possessions. (Section 2.5(c)) The Company will maintain such an agency for a
period of two years after the principal of such bearer Debt Securities has
become due and payable. During any period thereafter for which it is necessary
in order to conform to United States tax laws or regulations, the Company will
maintain a paying agent outside of the United States and its possessions to
which the bearer Debt Securities and coupons related thereto may be presented
for payment and will provide the necessary funds therefor to such paying agent
upon reasonable notice. (Section 2.4)
Bearer Debt Securities and the coupons related thereto will be transferable
by delivery. (Section 2.8(f))
If appropriate, United States federal income tax consequences applicable to
a series of Debt Securities will be described in the Prospectus Supplement
relating thereto.
BOOK-ENTRY REGISTRATION
If a Prospectus Supplement so indicates, the Debt Securities will be
represented by one or more certificates (the "Global Securities"). The Global
Securities representing Debt Securities will be deposited with, or on behalf
of, The Depository Trust Company ("DTC") or other successor depository
appointed by the Company (DTC or such other depository is herein referred to
as the "Depository") and registered in the name of the Depository or its
nominee. Debt Securities represented by a Global Security will not be issuable
in definitive form.
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DTC currently limits the maximum denomination of any single Global Security
to $200,000,000. Therefore, for purposes hereof, "Global Security" refers to
the Global Security or Global Securities representing the entire issue of Debt
Securities of a particular series.
DTC has advised the Company and any underwriters, dealers or agents named in
a Prospectus Supplement as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, 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 was created to hold
securities for its participants ("DTC Participants") and to facilitate the
clearance and settlement of securities transactions between DTC Participants
through electronic book-entry changes in accounts of DTC Participants, thereby
eliminating the need for physical movement of securities certificates.
DTC Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies, that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect Participants").
Upon the issuance by the Company of Debt Securities represented by a Global
Security, DTC will credit, on its book-entry registration and transfer system,
the respective principal amounts of the Debt Securities represented by such
Global Security to the accounts of DTC Participants. The accounts to be
credited shall be designated by the underwriters, dealers or agents. Ownership
of beneficial interests in the Global Security will be limited to DTC
Participants and Indirect Participants. Ownership of beneficial interests in
Debt Securities represented by the Global Security will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by DTC (with respect to interests of DTC Participants), or by DTC Participants
or Indirect Participants (with respect to persons other than DTC
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests
in the Global Security.
So long as the Depository for the Global Security, or its nominee, is the
registered owner of the Global Security, the Depository or its nominee, as the
case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the Debt
Indenture. Except as provided below, owners of beneficial interests in Debt
Securities represented by the Global Security will not be entitled to have
Debt Securities represented by such Global Security registered in their names,
will not receive or be entitled to receive physical delivery of Debt
Securities in definitive form and will not be considered the owners or holders
thereof under the Debt Indenture.
Payments of principal of and interest, if any, on the Debt Securities
represented by the Global Security registered in the name of DTC or its
nominee will be made by the Company through the Debt Trustee under the Debt
Indenture or a paying agent (the "Paying Agent"), which may also be the Debt
Trustee under the Debt Indenture, to DTC or its nominee, as the case may be,
as the registered owner of the Global Security. Neither the Company, the Debt
Trustee, nor the Paying Agent will have any responsibility or liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests of the Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company has been advised that DTC, upon receipt of any payment of
principal or interest in respect of a Global Security, will credit immediately
the accounts of DTC Participants with payment in amounts proportionate to
their respective holdings in principal amount of beneficial interest in such
Global Security as shown on the records of DTC. The Company expects that
payments by DTC Participants to owners of beneficial interests in a Global
Security will be governed by standing customer instructions and customary
practices, as is now 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 DTC Participants.
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If the Depository with respect to a Global Security is at any time unwilling
or unable to continue as Depository and a successor Depository is not
appointed by the Company within 90 days, the Company will issue certificated
notes in exchange for the Debt Securities represented by such Global Security.
The information contained in this section concerning DTC and DTC's book-
entry system has been obtained from sources that the Company believes to be
reliable but the Company takes no responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT
If a Prospectus Supplement so indicates, settlement for the Debt Securities
will be made by the underwriters, dealers or agents in immediately available
funds and all payments of principal and interest on the Debt Securities 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
clearinghouse or next-day funds. In contrast, the Debt Securities subject to
settlement in immediately available funds will trade in the Depository's Same-
Day Funds Settlement System until maturity, and secondary market trading
activity in such Debt Securities will therefore be required by the Depository
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 Debt Securities.
EXCHANGE OF DEBT SECURITIES
Registered Debt Securities may be exchanged, subject to certain specified
restrictions, for an equal aggregate principal amount of registered Debt
Securities of the same series and date of maturity in such authorized
denominations as may be requested upon surrender of the registered Debt
Securities at an agency of the Company maintained for such purpose and upon
fulfillment of all other requirements of such agent. (Section 2.8(a))
To the extent permitted by the terms of a series of Debt Securities
authorized to be issued in registered form and bearer form, bearer Debt
Securities may be exchanged for an equal aggregate principal amount of
registered or bearer Debt Securities of the same series and date of maturity
in such authorized denominations as may be requested upon surrender of the
bearer Debt Securities with all unpaid coupons relating thereto at an agency
of the Company maintained for such purpose and upon fulfillment of all other
requirements of such agent. (Section 2.8(b)) As of the date of this
Prospectus, temporary United States Treasury regulations essentially prohibit
exchanges of registered Debt Securities for bearer Debt Securities and, unless
such regulations are modified, the terms of a series of Debt Securities will
not permit registered Debt Securities to be exchanged for bearer Debt
Securities.
AMENDMENT AND WAIVER
Subject to certain exceptions, the Debt Indenture and the Debt Securities
may be amended or supplemented by the Company and the Debt Trustee with the
written consent of the holders of a majority in principal amount of the
outstanding Debt Securities of each series affected by the amendment or
supplement (with each series voting as a class), or compliance with any
provision may be waived with the consent of the holders of a majority in
principal amount of the outstanding Debt Securities of each series affected by
such waiver (with each series voting as a class). However, without the consent
of each Securityholder affected, an amendment or waiver may not (i) reduce the
amount of Debt Securities whose holders must consent to an amendment or
waiver, (ii) change the rate of or change the time for payment of interest on
any Debt Security; (iii) change the principal of or change the Stated Maturity
of any Debt Security; (iv) reduce any premium payable upon redemption of any
Debt Security; (v) waive a default in the payment of the principal of or
interest on any Debt Security; (vi) make any Debt Security payable in money
other than that stated in the Debt Security; or (vii) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Debt Security. (Section 9.02) The Debt Indenture may be amended or
supplemented without the consent of any Securityholder (i) to cure any
ambiguity, defect or inconsistency in the Debt Indenture or in the Debt
Securities of any series; (ii) to provide
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for the assumption of all the obligations of the Company under the Debt
Securities and any coupons appertaining thereto and under the Debt Indenture
by any corporation in connection with a merger, consolidation, or transfer or
lease of the Company's property and assets substantially as an entirety, as
provided for in the Debt Indenture; (iii) to secure the Debt Securities; (iv)
to provide for uncertificated Debt Securities in addition to or in place of
certificated Debt Securities; (v) to make any change that does not adversely
affect the rights of any Securityholder; (vi) to provide for the issuance of
and establish the form and terms and conditions of a series of Debt Securities
or to establish the form of any certifications required to be furnished
pursuant to the terms of the Debt Indenture or any series of Debt Securities;
or (vii) to add to rights of Securityholders. (Section 9.1)
SUCCESSOR ENTITY
The Company may consolidate with, or merge into, or be merged into, or
transfer or lease its property and assets substantially as an entirety to,
another U.S. corporation which assumes all the obligations of the Company
under the Debt Securities and any coupons appertaining thereto and under the
Debt Indenture if, after giving effect thereto, no default under the Debt
Indenture shall have occurred and be continuing. Thereafter, except in the
case of a lease, all such obligations of the Company shall terminate. (Section
5.1 and Section 5.2)
DEFEASANCE, SATISFACTION AND DISCHARGE OF THE DEBT SECURITIES PRIOR TO
MATURITY
Defeasance. Unless provided for otherwise in a Prospectus Supplement, if the
Company shall deposit with the Debt Trustee, in trust, at or before maturity,
lawful money or direct obligations of the United States of America or
obligations the principal of and interest on which are guaranteed by the
United States of America in such amounts and maturing at such times that the
proceeds of such obligations to be received upon the respective maturities and
interest payment dates of such obligations will provide funds sufficient, in
the opinion of a nationally recognized firm of independent public accountants
chosen by the Company, to pay when due the principal of and interest on the
Debt Securities to maturity (such money or direct obligations of, or
obligations guaranteed by, the United States of America, initially deposited
or equivalent cash or securities subsequently exchanged therefor, to be held
as security for the payment of such principal and interest), then the Company
may omit to comply with certain of the terms of the Debt Indenture as they
relate to the Debt Securities, and the Event of Default described in clause
(iv) under the caption "Description of Debt Securities--Events of Default,"
and such other restrictive covenants or Events of Default as may be set forth
in the Prospectus Supplement. Defeasance of the Debt Securities would be
subject to the satisfaction of certain conditions, including, among others,
(i) the absence of an Event of Default at the date of the deposit, (ii) the
perfection of the holders' interest in such deposit and (iii) that such
deposit would not result in a breach of a material instrument by which the
Company is bound. (Section 8.2)
Satisfaction and Discharge. Upon the deposit of money or securities
contemplated above and the satisfaction of certain conditions, the Company may
omit to comply with its obligations duly and punctually to pay the principal
of and interest on the Debt Securities, or with any Events of Default with
respect thereto, and thereafter the holders of Debt Securities shall be
entitled only to payment out of the money or securities deposited with the
Debt Trustee. Such conditions may include, among others, (i) except in certain
limited circumstances involving a deposit made within one year of maturity,
(A) the absence of an Event of Default at the date of deposit or on the 91st
day thereafter, and (B) the delivery to the Debt Trustee by the Company of an
opinion of nationally recognized tax counsel to the effect that holders of
Debt Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and discharge and will be subject to
Federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and discharge had not
occurred, and (ii) the receipt by the Company of an opinion of counsel to the
effect that such satisfaction and discharge will not result in a violation of
the rules of any nationally recognized exchange on which the Debt Securities
are listed. (Section 8.1)
EVENTS OF DEFAULT
The following events are defined in the Debt Indenture as "Events of
Default" with respect to a series of Debt Securities: (i) default in the
payment of interest on any Debt Security of such series for 30 days; (ii)
default
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in the payment of the principal of any Debt Security of such series; (iii)
default in the payment of any sinking fund installment required to be made by
the Company with respect to any series of Debt Securities; (iv) failure by the
Company for 90 days after notice to it to comply with any of its other
agreements in the Debt Securities of such series, in the Debt Indenture or in
any supplemental indenture under which the Debt Securities of that series may
have been issued; and (v) certain events of bankruptcy or insolvency. (Section
6.1) If an Event of Default occurs with respect to the Debt Securities of any
series and is continuing, the Debt Trustee or the holders of at least 25% in
principal amount of all of the outstanding Debt Securities of that series may
declare the principal (or, if the Debt Securities of that series are original
issue discount Debt Securities, such portion of the principal amount as may be
specified in the terms of that series) of, and any accrued interest on, all
the Debt Securities of that series to be due and payable. Upon such
declaration, such principal (or, in the case of original issue discount Debt
Securities, such specified amount) and all accrued interest thereon shall be
due and payable immediately. (Section 6.2)
Securityholders may not enforce the Debt Indenture or the Debt Securities,
except as provided in the Debt Indenture. (Section 6.6) The Debt Trustee may
require indemnity satisfactory to it before it enforces the Debt Indenture or
the Debt Securities. (Section 7.1(f)) Subject to certain limitations, holders
of a majority in principal amount of the Debt Securities of each series
affected (with each series voting as a class) may direct the Debt Trustee in
its exercise of any trust power. (Section 6.5) The Debt Trustee may withhold
from Securityholders notice of any continuing default (except a default in
payment of principal or interest) if it determines in good faith that
withholding notice is in their interests. (Section 7.5) The Company is not
required under the Debt Indenture to furnish any periodic evidence as to the
absence of default or as to compliance with the terms of the Debt Indenture.
CONCERNING THE DEBT TRUSTEE
The Company may maintain banking relationships in the ordinary course of
business with the Debt Trustee.
PLAN OF DISTRIBUTION
The Company may sell the Securities in or outside the United States through
underwriters or dealers, directly to one or more purchasers, or through
agents. The Prospectus Supplement with respect to the Securities will set
forth the terms of the offering of the Securities, including the name or names
of any underwriters, dealers, or agents, the purchase price of the Securities
and the proceeds to the Company from such sale, any delayed delivery
arrangements, any underwriting discounts and other items constituting
underwriters' compensation, the initial public offering price, any discounts
or concessions allowed or reallowed or paid to dealers, and any securities
exchanges on which the Securities may be listed.
If underwriters are used in the sale of the Securities, the Securities may
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined at the time
of sale. The Securities may be offered to the public either through
underwriting syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. The underwriter or
underwriters with respect to a particular underwritten offering of Securities
will be named in the Prospectus Supplement relating to such offering, and if
an underwriting syndicate is used, the managing underwriter or underwriters
will be set forth on the cover of such Prospectus Supplement. Unless otherwise
set forth in the Prospectus Supplement relating thereto, the obligations of
the underwriters or agents to purchase the Securities will be subject to
conditions precedent and the underwriters will be obligated to purchase all
the Securities if any are purchased. The initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If dealers are utilized in the sale of Securities with respect to which this
Prospectus is delivered, the Company will sell such Securities to the dealers
as principals. The dealers may then resell such Securities to the
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public at varying prices to be determined by such dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in the Prospectus Supplement relating thereto.
Securities may be sold directly by the Company or through agents designated
by the Company from time to time at fixed prices, which may be changed, or at
varying prices determined at the time of sale. Any agent involved in the offer
or sale or the Securities with respect to which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent will
be set forth, in the Prospectus Supplement relating thereto. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a
best efforts basis for the period of its appointment.
In connection with the sale of the Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities from
whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters, agents, and dealers participating in the
distribution of the Securities may be deemed to be underwriters and any
discounts or commissions received by them from the Company and any profit on
the resale of the Securities by them may be deemed to be underwriting
discounts or commissions under the Securities Act.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters, or dealers to solicit offers from certain types of
institutions to purchase Securities from the Company at the public offering
price set forth in the Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject only to those conditions set forth in
the Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Agents, dealers, and underwriters may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that such agents, dealers, or
underwriters may be required to make with respect thereto. Agents, dealers,
and underwriters may be customers of, engage in transactions with, or perform
services for the Company in the ordinary course of business.
The Preferred Stock, the Depositary Shares, the Common Stock Warrants and
the Debt Securities may or may not be listed on a national securities
exchange. The Common Stock currently trades on the NYSE, and any Common Stock
offered hereby will be listed on the NYSE, subject to an official notice of
issuance. No assurances can be given that there will be a market for the
Securities.
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LEGAL MATTERS
Certain legal matters concerning the validity of the Securities will be
passed upon for the Company by Neal, Gerber & Eisenberg, Chicago, Illinois.
Marshall E. Eisenberg, a partner of Neal, Gerber & Eisenberg, is the Secretary
of the Company.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1996 and 1995 and for the three years in the period ended
December 31, 1996 and the consolidated financial statements of Westfield
America, Inc. (formerly CenterMark Properties, Inc.) as of December 31, 1995
and for the year ended December 31, 1995 and the periods from February 12,
1994 through December 31, 1994 and from January 1, 1994 through February 11,
1994 have been incorporated by reference herein from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, as amended by Form
10-K/A dated January 15, 1998, and the combined statement of revenues and
certain expenses of the Lansing Mall, the Westwood Mall and the Lakeview Mall
for the year ended December 31, 1995 has been incorporated by reference herein
from the Company's Current Report on Form 8-K/A, as amended, dated February
18, 1997, as further amended by a Current Report on Form 8-K/A dated January
15, 1998, in reliance upon the reports of Coopers & Lybrand L.L.P.,
independent accountants, and upon the authority of that firm as experts in
accounting and auditing. The consolidated financial statements and financial
statement schedule of Westfield America, Inc. and Subsidiaries (formerly
CenterMark Properties, Inc.) as of December 31, 1996 and for the year then
ended have been incorporated by reference herein from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, as amended by
Form 10-K/A dated January 15, 1998, in reliance upon the report of Ernst &
Young LLP, independent auditors, and upon authority of that firm as experts in
accounting and auditing. The statement of revenues and certain expenses of
Park Mall for the year ended December 31, 1995 has been incorporated by
reference herein from the Company's Current Report on Form 8-K/A, as amended,
dated February 18, 1997, as further amended by a Current Report on Form 8-K/A
dated January 15, 1998, in reliance upon the report of Addison, Roberts &
Ludwig, P.C., independent auditors, and upon the authority of that firm as
experts in accounting and auditing. The statement of revenues and certain
expenses of Market Place Shopping Center for the year ended December 31, 1996
has been incorporated by reference herein from the Company's Current Report on
Form 8-K/A dated August 28, 1997 in reliance upon the report of Shepard
Schwartz & Harris LLP, independent accountants, and upon the authority of that
firm as experts in accounting and auditing. The statement of revenues and
certain expenses of Southlake Mall for the year ended December 31, 1996 has
been incorporated by reference herein from the Company's Current Report on
Form 8-K/A dated August 28, 1997 in reliance upon the report of KPMG Peat
Marwick LLP, independent accountants, and upon the authority of that firm as
experts in accounting and auditing.
21
<PAGE>
GREENWOOD MALL-BOWLING GREEN, KY
PEMBROKE LAKES MALL-PEMBROKE PINES, FL
BIRCHWOOD MALL-PORT HURON, MI
BRASS MILL CENTER-WATERBURY, CT CHAPEL HILLS MALL-COLORADO SPRINGS, CO
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE PROSPECTUS CONSTITUTES AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................................. S-1
Risk Factors.............................................................. S-7
Selected Consolidated Financial Data...................................... S-10
Pro Forma Condensed Consolidated Financial Data........................... S-11
Price Range of Common Stock and Distributions............................. S-12
Consolidated Ratio of Earnings to Fixed Charges........................... S-12
Capitalization............................................................ S-13
Use of Proceeds........................................................... S-14
The Company............................................................... S-15
Recent Developments....................................................... S-15
Business and Properties................................................... S-17
Description of PIERS...................................................... S-23
Description of Depositary Shares.......................................... S-30
Certain Federal Income Tax Considerations................................. S-36
Underwriting.............................................................. S-44
Validity of Depositary Shares, PIERS and Common Stock..................... S-45
Experts................................................................... S-46
Index to Financial Statements and Pro Forma Financial Information......... F-1
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 4
Use of Proceeds........................................................... 4
Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock
Dividends................................................................ 4
Capital Stock............................................................. 5
Description of Common Stock............................................... 5
Description of Preferred Stock............................................ 8
Description of Depositary Shares.......................................... 11
Description of Common Stock Warrants...................................... 13
Description of Debt Securities............................................ 14
Plan of Distribution...................................................... 19
Legal Matters............................................................. 21
Experts................................................................... 21
</TABLE>
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12,000,000 SHARES
LOGO
GENERAL GROWTH
PROPERTIES, INC.
DEPOSITARY SHARES, EACH REPRESENTING 1/40 OF A SHARE OF
7.25% PREFERRED INCOME
EQUITY REDEEMABLE STOCKSM, SERIES A
("PIERSSM")
(LIQUIDATION PREFERENCE EQUIVALENT
TO $25.00 PER DEPOSITARY SHARE)
---------------
PROSPECTUS SUPPLEMENT
June 4, 1998
---------------
PREFERRED INCOME EQUITY
REDEEMABLE STOCKSM AND
"PIERSSM" ARE
SERVICE MARKS OWNED BY
LEHMAN BROTHERS INC.
Joint Lead Managers
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
---------------
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SBC WARBURG DILLON READ INC.
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