<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AMERICAN REAL ESTATE INVESTMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 84-1246585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
620 W. GERMANTOWN PIKE, SUITE 200
PLYMOUTH MEETING, PENNSYLVANIA 19462
(610) 834-7950
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
JEFFREY E. KELTER
PRESIDENT
AMERICAN REAL ESTATE INVESTMENT CORPORATION
620 W. GERMANTOWN PIKE, SUITE 200
PLYMOUTH MEETING, PENNSYLVANIA 19462
(610) 834-7950
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
ROBERT E. KING, JR., ESQ.
BONNIE A. BARSAMIAN, ESQ.
ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 878-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time or at one time after the effective date of the Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
BEING REGISTERED REGISTERED SHARE PRICE
<S> <C> <C> <C>
Common Stock, par value
$.001 per share........................................... 892,009 shares $13.31(1) $11,872,640(1)
<CAPTION>
TITLE OF CLASS OF SECURITIES AMOUNT OF
BEING REGISTERED REGISTRATION FEE
<S> <C>
Common Stock, par value
$.001 per share........................................... $3,300.59
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended, and based on the average of the high and
low sale prices of the Common Stock reported on the American Stock Exchange
on November 17, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1998
PROSPECTUS
892,009 SHARES
AMERICAN REAL ESTATE INVESTMENT CORPORATION
COMMON STOCK
------------------
This Prospectus relates to the 892,009 shares of our Common Stock which the
individuals and/or entities described under "Selling Security Holders" may offer
from time to time on the American Stock Exchange, where our Common Stock is
listed for trading under the symbol "REA," in other markets where our Common
Stock may be traded or in negotiated transactions. The Selling Security Holders
may offer their shares of our Common Stock at whatever prices are current when
particular sales take place or at other prices to which they agree. On November
17, 1998, the closing price of our shares of Common Stock reported on the
American Stock Exchange was $13.31. The Selling Security Holders will pay any
brokerage fees or commissions relating to sales by them. See "Method of Sale" on
page 14 of this Prospectus. The Selling Security Holders received the shares to
which this Prospectus relates from us without registration. We are registering
the shares in order to permit secondary trading of such shares, and the Selling
Security Holders may offer their shares for resale from time to time. The
registration of their shares does not necessarily mean that the Selling Security
Holders will sell their shares.
We will not receive any of the proceeds of sales by the Selling Security
Holders. We are paying the costs of preparing and filing the Registration
Statement of which this Prospectus is a part.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these Securities, and they have not
determined if this Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE HAVE FILED A REGISTRATION STATEMENT RELATING TO THESE SECURITIES WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SELLING SECURITY HOLDER MAY NOT SELL
THESE SECURITIES PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR
SALE IS NOT PERMITTED.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, as a result, file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy those reports, proxy
statements and other information which we file with the Commission at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of
the Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may also obtain copies of that information from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Please call the Commission at 1-800-SEC-0330 for further information on
the public reference rooms. The Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants, including American Real Estate Investment Corporation, that file
electronically with the SEC. You may access the SEC's web site at
http://www.sec.gov. Our Common Stock is listed on the American Stock Exchange
(the "AMEX"). You may also read our reports, proxy statements and other
information which we file at the offices of the AMEX, 86 Trinity Place, New
York, New York 10006.
We have filed with the Commission a Registration Statement on Form S-3
(together with any amendments or supplements, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus is a part of the Registration Statement. This Prospectus does not
contain all the information contained in the Registration Statement, because we
have omitted certain parts of the Registration Statement in accordance with the
rules and regulations of the SEC. For further information, we refer you to the
Registration Statement, which you may read and copy at, or obtain from, the
Commission or the AMEX in the manner described above.
INCORPORATION OF DOCUMENTS BY REFERENCE
We incorporate by reference into this Prospectus the following documents
which we previously filed with the Commission under the File Number 1-12514:
(a) our Annual Report on Form 10-KSB for the fiscal year ended December
31, 1997;
(b) our Quarterly Reports on Form 10-Q for the calendar quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
(c) our Current Report on Form 8-K filed January 23, 1998, our Current
Report on Form 8-K/A filed February 24, 1998, our Current Reports on Form
8-K filed April 10, 1998 and May 15, 1998, our Current Report on Form 8-K/A
filed June 10, 1998, our Current Report on Form 8-K filed July 7, 1998, our
Current Report on Form 8-K/A filed July 14, 1998, our Current Report on Form
8-K filed August 13, 1998, our Current Report on Form 8-K filed September 3,
1998 and our Current Report on Form 8-K filed November 13, 1998;
(d) the description of our Common Stock contained in our Registration
Statement on Form 8-A filed on August 24, 1994 (including any amendments or
reports filed for the purpose of updating such description); and
(e) all other reports we have filed pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act since December 31, 1997.
When we file documents in accordance with Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act between the date of this Prospectus and the time we
file a post-effective amendment to the Registration Statement of which this
Prospectus is a part saying all the securities which are the subject of that
Registration Statement have been sold or deregistering any securities which have
not been sold, the documents we file will be incorporated into this Prospectus
and will be a part of it beginning on the date
2
<PAGE>
the documents are filed. If any document which we file changes anything said in
this Prospectus or in an earlier document which is incorporated into this
Prospectus, the later document will modify or supersede what is said in this
Prospectus or the earlier document.
We will provide, without charge, at the written or oral request of anyone,
including any beneficial owner, to whom this Prospectus is delivered, copies of
the documents incorporated by reference in this Prospectus, other than exhibits
to those documents which are not specifically incorporated by reference.
Requests should be directed to: American Real Estate Investment Corporation, 620
W. Germantown Pike, Suite 200, Plymouth Meeting, Pennsylvania 19462, Attention:
Investor Relations (Telephone: (610) 834-7950).
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
Prospectus may contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of our company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of our company include, but are not limited to, changes in: economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of real estate investment trusts (each, a "REIT")), availability of capital,
interest rates, competition, supply and demand for properties in our current and
proposed market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained or incorporated by reference
herein.
3
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN SHARES OF OUR COMMON STOCK, YOU SHOULD BE AWARE THAT
THERE ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER
CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE
SHARES OF OUR COMMON STOCK. THIS SECTION INCLUDES OR REFERS TO CERTAIN
FORWARD-LOOKING STATEMENTS; YOU SHOULD REFER TO THE EXPLANATION OF THE
QUALIFICATIONS AND LIMITATIONS ON SUCH FORWARD-LOOKING STATEMENTS DISCUSSED ON
PAGE 3 OF THIS PROSPECTUS.
THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION OF NEW PROPERTIES, WHICH MAY
ADVERSELY AFFECT THE VALUE OF OUR COMMON STOCK AND OUR ABILITY TO PAY DIVIDENDS
TO OUR STOCKHOLDERS
We have recently experienced, and may continue to experience, rapid growth
through the acquisition of additional office and industrial properties. Our
ability to manage our growth effectively requires us to integrate successfully
our new acquisitions into our existing management structure. Properties which we
acquire typically have no operating history under our management and such
properties may have characteristics or deficiencies unknown to us which affect
their valuation or revenue potential. The operating performance of these
properties may decline under our management. A decline in the operating
performance of these properties will adversely affect our operating results and
funds from operations, which could adversely impact the price of our Common
Stock and the amount of dividends we will be able to pay.
We currently plan to continue acquiring properties to the extent we consider
appropriate. Our success in this area depends on many factors, including the
ability to successfully (i) identify properties which meet our acquisition
criteria, (ii) negotiate acceptable price and terms with the seller and (iii)
close the transactions for such properties. Also, we plan to finance our future
acquisitions through debt offerings, equity offerings, other debt financing or
any combination thereof. By using existing credit facilities or other short-term
debt for such activities, we may not be able to secure financing in the future
or financing on equally favorable terms. By using other debt to finance such
activities, we will be subject to risks normally associated with debt financing.
See "--Our Financial Performance and Value are Subject to Risks Associated with
the Real Estate Industry That Could Adversely Affect Our Financial
Condition--Debt financing may have an adverse effect on our cash flow and
dividends" below. By using equity to finance such activities, we may dilute your
current interest in our company. Accordingly, our acquisition activities may
have an adverse effect on our financial performance and ability to pay dividends
to our stockholders.
THERE ARE RISKS ASSOCIATED WITH OUR ENTRY INTO NEW MARKETS
We currently intend to continue to seek expansion of our operations into
additional new markets other than Northern New Jersey, Eastern Pennsylvania and
Upstate New York. In determining whether to enter a new market, we consider,
among other factors, demographics, job growth, employment, real estate
fundamentals, competition and other related matters. We cannot assure you that
we will be successful in our efforts to identify new markets, or that once we
identify new markets, that we will be able to successfully acquire properties in
those markets and achieve favorable operating results from properties acquired
in those markets.
WE DEPEND ON THE PERFORMANCE OF OUR PRIMARY MARKETS, AND CHANGES IN SUCH MARKETS
MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION
Most of our properties are currently located in Northern New Jersey, Eastern
Pennsylvania and Upstate New York. Like other real estate markets, these
commercial real estate markets have experienced economic downturns in the past,
and future declines in any of these economies or real estate markets could
adversely affect our operations or cash available for dividends. Our financial
performance and our ability to pay dividends to our stockholders will be
particularly sensitive to the economic conditions in those markets. Our revenues
and the value of our properties may be adversely affected by a number of
factors,
4
<PAGE>
including the local economic climate (which may be adversely impacted by
business layoffs, industry slowdowns, changing demographics and other factors)
and local real estate conditions (such as oversupply of or reduced demand for
office and industrial properties). These factors, when and if they occur in the
area in which our properties are located, would adversely affect our ability to
pay dividends to our stockholders.
OUR STOCKHOLDERS' ABILITY TO EFFECT A CHANGE IN CONTROL OF OUR COMPANY IS
LIMITED, WHICH MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS
OUR OWNERSHIP LIMIT MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS. For us
to maintain our qualification as a REIT for federal income tax purposes, not
more than 50% of the value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined for federal
income tax purposes to include certain entities) during the last half of each
taxable year after 1993. Our Amended and Restated Articles of Incorporation (the
"Charter") include certain restrictions regarding transfers of shares of our
capital stock and ownership limits that are intended to assist us in satisfying
such limitations. Such restrictions and limits may not be adequate in all cases,
however, to prevent the transfer of shares of our capital stock in violation of
the ownership limitations. The ownership limit discussed above may have the
effect of delaying, deferring or preventing someone from taking control of our
company, even though such a change of control could involve a premium price for
your shares of Common Stock or otherwise be in our stockholders' best interests.
See "Description of Capital Stock--Restrictions on Transfer" on page 12 of this
Prospectus.
OUR STAGGERED BOARD MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS. Our
Board of Directors is divided into three classes, with the members of each class
serving a three-year term. The staggered terms for directors may reduce the
possibility of a tender offer or an attempt to effect a change in control of our
company, even if such a tender offer or change of control would be in our
stockholders' best interests.
FUTURE ISSUANCES OF COMMON STOCK OR SECURITIES CONVERTIBLE INTO COMMON STOCK
MAY DILUTE YOUR INTEREST IN OUR COMPANY. Our Charter authorizes our Board of
Directors to issue additional shares of Common Stock without stockholder
approval. Additionally, each limited partnership interest (an "OP Unit") in
American Real Estate Investment, L.P. (the "Operating Partnership") may be
redeemed by the holder for one share of Common Stock (subject to certain
anti-dilution provisions), or, at our option, the cash value of one share of
Common Stock. Such an issuance of, or redemption for, Common Stock would have
the effect of diluting your existing interest in our company.
ISSUANCES OF PREFERRED STOCK MAY PREVENT A CHANGE OF CONTROL THAT WOULD BE
IN OUR STOCKHOLDERS' BEST INTEREST. Our Board of Directors is authorized by our
Charter to establish and issue one or more series of preferred stock without
stockholder approval. Establishing a series of preferred stock could make more
difficult a change of control of our company that would be in your best
interest.
THE CONCENTRATION OF OWNERSHIP OF OUR CAPITAL STOCK MAY NOT BE IN OUR
STOCKHOLDERS' BEST INTEREST. Our officers and directors as a group currently
beneficially own 33.8% of our company (assuming the conversion to Common Stock
of all outstanding OP Units and the conversion of outstanding warrants to
purchase OP Units and Common Stock). In addition, certain other investors
currently own a significant amount of our shares of Common Stock. Although we
feel this ownership is beneficial in aligning the interest of officers and
directors with that of the other stockholders, this may enable the officers and
directors to exercise substantial influence over the management of our company
and on the outcome of any matters submitted to a vote of our stockholders. The
concentration of beneficial ownership of our company may have the effect of
delaying, deferring or preventing a change in control of our company, may
discourage bids for our capital stock at a premium over the market price of our
capital stock and may adversely affect the market price of our capital stock.
5
<PAGE>
CERTAIN DIRECTORS AND OFFICERS WHO OWN OP UNITS MAY BE AFFECTED DIFFERENTLY THAN
OUR STOCKHOLDERS AS A RESULT OF THE SALE OF, OR REDUCTION OF MORTGAGE DEBT ON,
CERTAIN OF THE PROPERTIES.
Certain of our directors and officers own OP Units and, as a result, may face
different and more adverse tax consequences than you will if we sell or reduce
our mortgage indebtedness on certain of our properties. Those individuals may,
therefore, have different objectives than you regarding the appropriate pricing
and timing of any sale of such properties or reduction of mortgage debt.
Accordingly, there may be instances in which we may not sell a property or pay
down the debt on a property even though doing so would be advantageous to you.
WE HAVE AGREED NOT TO SELL CERTAIN OF OUR PROPERTIES.
We have agreed with the sellers of certain of our properties not to sell
certain properties for a period of time ranging from one to ten years in any
transaction that would trigger taxable income, subject to certain exceptions.
Some of these agreements are with current officers and directors of our company.
In addition, we may enter into similar agreements with future sellers of
properties. These agreements generally provide that we may dispose of these
properties in transactions that qualify as tax-free exchanges under Section 1031
of the Internal Revenue Code of 1986, as amended (the "Code"). Therefore, we may
be precluded from selling certain properties other than in transactions that
would qualify as tax-free exchanges for federal income tax purposes, even if it
would be in your best interest to do so.
OUR FINANCIAL PERFORMANCE AND VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY THAT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend upon the
amount of income generated and expenses incurred. If properties do not generate
income sufficient to meet operating expenses, including debt service and capital
expenditures, the owner's income and ability to pay dividends will be adversely
affected. An owner's income from properties may be adversely affected by a
variety of factors, including the general economic climate, local conditions,
such as oversupply of the particular category of real estate owned or controlled
by the owner, or reduction in demand for any such properties, competition from
properties owned by others, or the ability of the owner to provide adequate
facilities maintenance, services and amenities. With respect to office and
industrial properties, maintaining income at desired levels can be effected by a
number of factors, including the ability to locate desirable replacements for
key tenants at attractive rent levels following expiration of leases, and the
costs of reletting and providing tenant improvements required to attract and
maintain attractive tenants at desirable rentals.
Often, increased operating costs, including real estate taxes, insurance and
maintenance costs, do not decline when circumstances cause a reduction in income
from a property. If a property is mortgaged to secure payment of indebtedness,
and the owner is unable to meet its mortgage payments, a loss could be sustained
as a result of foreclosure on the property. In addition, income from properties
and real estate values are also affected by such factors as applicable laws,
including tax laws, interest rate levels and the availability of financing.
WE DEPEND ON OUR MAJOR TENANTS. Substantially all of our income is, and
will continue to be, derived from rental income on our properties and,
consequently, our distributable cash flow and ability to pay expected dividends
to stockholders would be adversely affected if a significant number of our
tenants failed to meet their lease obligations. At October 31, 1998, our ten
largest tenants represented approximately 36.59% of our industrial and office
properties' annualized rental income. At any time, a tenant at any of our
properties may seek the protection of the bankruptcy laws, which could result in
delays in rental payments or in the rejection and termination of such tenant's
lease and thereby cause a reduction in our cash flow and the amounts available
for dividends to our stockholders. We cannot assure you that tenants will not
file for bankruptcy protection in the future or, if any tenants file, that they
will affirm their leases and continue to make rental payments in a timely
manner. In addition, a tenant from time to time may experience a
6
<PAGE>
downturn in its business which may weaken its financial condition and result in
the failure to make rental payments when due. If tenant leases are not affirmed
following bankruptcy or if a tenant's financial condition weakens, our cash flow
and the amounts available for dividends to you may be adversely effected.
WE COMPETE WITH OTHER OWNERS AND OPERATORS OF PROPERTIES. All of our
properties are located in well-developed market areas. There are numerous other
office and industrial properties and real estate companies (including other
REITs) within the market area of each of our properties which will compete with
us for tenants and for development and acquisition opportunities. The number of
competitive properties and real estate companies in such areas could have a
material effect on our operations, our ability to rent our properties and the
rents which we charge, and our development and acquisition opportunities. We
compete for tenants and acquisitions with others who may have greater resources
than us. We will continue to experience strong competition in pursuing
development and acquisition opportunities.
DEBT FINANCING MAY HAVE AN ADVERSE EFFECT ON OUR CASH FLOW AND OUR ABILITY
TO PAY DIVIDENDS. Our Charter, By-laws or investment policies do not contain
any limitation on the amount of aggregate indebtedness which we may incur and no
stockholder approval is required for us to incur additional indebtedness.
Accordingly, our management or Board of Directors will have discretion to incur
such amounts of aggregate indebtedness as they determine. We may seek additional
debt financing to fund future acquisitions. We will be subject to risks normally
associated with debt financing, including the risk that our cash flow will be
insufficient to pay dividends at expected levels and meet required payments of
principal and interest, the risk that indebtedness on our properties (which will
not have been fully amortized at maturity in all cases) will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness. Our properties are or may be mortgaged to secure
payments on our indebtedness. Certain properties are secured by debt which is
cross-collateralized and cross-defaulted. As of the date of this Prospectus, our
mortgage debt totaled approximately $292.6 million (or 98.8% of our total
indebtedness), $94.7 million or approximately 32.4% of which constituted
borrowings under our $150 million secured credit facility (the "Credit
Facility") which currently bears interest at the London Interbank Offered Rate
(LIBOR) plus 1.625%. In October 1998, we refinanced a portion of the outstanding
debt under our Credit Facility and certain other debt with a $94,900,000
ten-year fixed rate, non-recourse term loan. The loan was funded in two
tranches. The first tranche was in the amount of $77,700,000 and bears interest
at a rate of 7.50% and the second tranche was in the amount of $17,200,000 and
bears interest at a rate of 7.58%. We used the proceeds from the first tranche
to repay a portion of the balance outstanding under the Credit Facility and
certain other existing debt. We used the proceeds from the second tranche to
acquire three properties, aggregating 1.4 million square feet, in October 1998.
In the future, we may increase our borrowings under the Credit Facility for new
acquisitions, capital improvements, new development projects and for general
working capital purposes. Such variable rate debt creates higher debt service
requirements if market interest rates increase, which could adversely affect our
cash flow and the amounts of cash available for dividends to you.
If, when a property or properties are mortgaged to secure payment of
indebtedness, we are unable to meet mortgage payments, including amounts due at
maturity or on default, the property could be foreclosed upon by or otherwise
transferred to the mortgagee resulting in a loss of income and asset value.
Based on the market price for our Common Stock at the close of business on
November 16, 1998, our indebtedness is equal to approximately 61.2% of our total
market capitalization on that date (assuming the conversion to Common Stock of
all outstanding OP Units other than those which we own). If principal payments
due at maturity cannot be refinanced, extended or paid with proceeds of other
capital transactions, such as the issuance of new equity or debt, we expect that
our cash flow would not be sufficient in all years to pay dividends at expected
levels and to repay all maturing debt. Furthermore, if prevailing interest rates
or other factors at the time of refinancing result in higher interest rates upon
refinancing, the interest
7
<PAGE>
expense relating to such refinanced indebtedness would increase, which would
adversely affect our cash flow and the amounts available for dividends to you.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION, REDEVELOPMENT, DEVELOPMENT
AND CONSTRUCTION ACTIVITIES. We intend to acquire office and industrial
properties to the extent that they can be acquired on terms that meet our
investment criteria. Acquisitions of office and industrial properties entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, there are general investment risks associated
with any new real estate investment.
We intend to consider future investments in the redevelopment, development
and construction of office and industrial buildings in accordance with our
growth policies. Risks associated with our redevelopment, development and
construction activities may include: abandonment of redevelopment or development
opportunities; construction costs of a property exceeding original estimates,
possibly making the property unprofitable; occupancy rates and rents at a newly
renovated or completed property may not be sufficient to make the property
profitable; financing may not be available on favorable terms for redevelopment
or development of a property; and permanent financing may not be available on
favorable terms to replace a short-term construction loan and construction and
lease-up may not be completed on schedule, resulting in increased debt service
expense and construction costs. In addition, new redevelopment or development
activities, regardless of whether they are ultimately successful, typically
require a substantial portion of management's time and attention. Redevelopment
or development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations.
WE MAY NOT BE ABLE TO RENEW LEASES OR TO RELET SPACE. We are, and will
continue to be, subject to the risk that upon expiration of leases for space
located in our properties, such leases may not be renewed, the space may not be
relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. We have estimated
expenditures for 1998 and 1999 for renovation and reletting expenses, which are
intended to take into consideration our views of both the current and expected
business conditions in the appropriate markets, but we cannot assure you that
these estimates will be accurate. If we are unable to relet promptly or renew
the leases for all or a substantial portion of any vacant space, if the rental
rates upon such renewal or reletting were significantly lower than expected or
if our cash available proves inadequate, then our cash flow and ability to pay
expected dividends to you may be adversely affected.
LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Under various federal, state, and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow using such real
property as collateral and to lease the property. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of, and exposure to, hazardous
substances, including asbestos-containing materials ("ACMs") into the air, and
third parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released
hazardous substances, including ACMs. As the owner of our properties, we may be
potentially liable for any such costs. Phase I environmental site assessments
("ESAs") have been obtained on all of our properties. The purpose of Phase I
ESAs is to identify potential sources of contamination for which we
8
<PAGE>
may be responsible and to assess the status of environmental regulatory
compliance. For a number of the properties, the Phase I ESAs referenced prior
Phase II ESAs obtained on such properties. Phase II ESAs generally involve more
invasive procedures than Phase I ESAs, such as soil sampling and testing or the
installation and monitoring of groundwater wells. The ESAs have not revealed any
environmental condition, liability or compliance concern that we believe would
have a material adverse effect on our business, assets or results of operations,
nor are we aware of any such condition, liability or concern. It is possible
that the ESAs relating to any of the properties do not reveal all environmental
conditions, liabilities or compliance concerns or that there are material
environmental conditions, liabilities or compliance concerns that arose at a
property after the related ESA report was completed of which we are otherwise
unaware. In addition, we cannot assure you that properties which we acquire in
the future will not have any material environmental conditions.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE OUR COMPANY TO BE TAXED AS A
CORPORATION
WE WILL BE TAXED AS A CORPORATION IF WE FAIL TO QUALIFY AS A REIT. We
believe that, commencing with our taxable year ended December 31, 1993, we have
been organized and operated in a manner that has enabled us to meet the
requirements for qualification as a REIT for federal income tax purposes and we
intend to continue to operate in such a manner. We have not requested, and we do
not plan to request, a ruling from the Internal Revenue Service ("IRS") that we
qualify as a REIT. However, we have received an opinion from the law firm of
Rogers & Wells LLP that, based on certain assumptions and representations, we
have been organized in a manner so as to qualify as a REIT under the Code and
that our proposed method of operation will enable us to continue to so qualify.
You should be aware that opinions of counsel are not binding on the IRS or
any court. Furthermore, the conclusions stated in the opinion are conditioned
on, and our continued qualification as a REIT will depend on, our meeting
various requirements imposed by the Code. Such requirements are discussed in
more detail in "Federal Income Tax Considerations--Taxation of the Company" on
page 16 of this Prospectus.
If we fail to qualify as a REIT, we would not be allowed a deduction for
dividends paid to stockholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates. We also could be
subject to the federal alternative minimum tax. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for the four taxable years following the year during which we were disqualified.
Therefore, if we lost our REIT status, the funds available for dividends to you
would be substantially reduced for each of the years involved. In addition, we
would no longer be required to pay dividends to you.
FAILURE TO MEET MINIMUM DISTRIBUTION REQUIREMENTS MAY ADVERSELY AFFECT
US. To qualify as a REIT, we generally must distribute to our stockholders 95%
of our net taxable income. Such annual distribution requirements limit the
amount of cash we have available for other business purposes, including amounts
to fund our growth and make payments on our debt. If we fail to meet these
distribution requirements, we may be disqualified as a REIT and subject to
certain income and excise taxes. In addition, we will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
we make with respect to any calendar year are less than the sum of (i) 85% of
our REIT ordinary income for that year, (ii) 95% of our REIT capital gain net
income for that year and (iii) any undistributed taxable income from prior
years. We intend to make distributions to our stockholders to comply with the
95% distribution requirement and to avoid the nondeductible excise tax.
Differences in timing between (i) the actual receipt of income and actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at our taxable income could require us,
directly or indirectly through the Operating Partnership, to borrow funds on a
short-term or long-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax. See "Federal Income Tax Considerations--
Taxation of the Company--Annual Distribution Requirements" on page 20 of this
Prospectus.
9
<PAGE>
POTENTIAL LEGISLATIVE ACTION REGARDING REITS MAY ADVERSELY US. On February
2, 1998, the Clinton Administration released a summary of its proposed budget
plan which contained several proposals affecting REITs. One such proposal, if
enacted in its present form, would prohibit a REIT from holding securities
representing more than 10% of the value of all classes of stock of a
corporation, other than a qualified REIT subsidiary or another REIT. If enacted
in its present form, the proposal may limit the future activities and growth of
American Real Estate Management Inc. (the "Management Company"). Although the
proposal has not been enacted this year, no prediction can be made as to whether
such proposal or any other proposal affecting REITs will be enacted into
legislation and the impact of any such legislation on our operations. See
"Federal Income Tax Considerations--Other Tax Considerations" on page 23 of this
Prospectus.
WE MAY BE SUBJECT TO OTHER TAX LIABILITIES. Even if we qualify as a REIT,
we may be subject to certain federal, state and local taxes on our income and
property that could reduce operating cash flow. See "Federal Income Tax
Considerations--Other Tax Considerations" on page 23 of this Prospectus.
FUTURE SALES OF OUR COMMON STOCK MAY ADVERSELY AFFECT THE PRICE OF OUR COMMON
STOCK
Future sales of a substantial number of shares of our Common Stock may occur
as a result of option holders exercising their rights to purchase our shares or
by resale availability from registration rights (including with respect to OP
Units redeemed for shares of our Common Stock) or exemptions from registration.
The Selling Security Holders are not the only stockholders that have
registration rights with respect to shares of our Common Stock and we are not
prevented from granting registration rights to stockholders in the future.
Future sales of a substantial number of shares of our Common Stock could
adversely affect the prevailing market price for shares of our Common Stock.
TRANSFER RESTRICTIONS MAY MAKE IT MORE DIFFICULT TO SELL OUR CAPITAL STOCK
Our Charter contains limitations on the ownership of our capital stock which
may make it more difficult for you to sell our capital stock. See "Description
of Capital Stock--Restrictions on Transfer" on page 12 of this Prospectus.
WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM MIGHT ADVERSELY AFFECT OUR
PERFORMANCE
We depend on the efforts of our key personnel, particularly Jeffrey E.
Kelter, our President, and David F. McBride, our Chairman, as well as certain
other senior management. While we believe that, if necessary, we could find
replacements for these key personnel, the loss of their services could have a
material adverse effect on our operations.
10
<PAGE>
THE COMPANY
We are a self-administered, self-managed REIT engaged in the ownership,
acquisition and development of industrial and office properties. At October 31,
1998, we owned a portfolio of 70 properties comprised of 36 industrial
properties and 33 office properties containing an aggregate of 8.6 million
square feet (the "Properties") and one non-core property, a community shopping
center (we refer to the non-core property in this Prospectus as the "Non-Core
Property"). The Properties are located principally in the mid-Atlantic and
Northeastern United States and are 98.6% leased to 258 tenants.
We conduct substantially all of our activities through, and substantially
all of the Properties are held directly or indirectly by, the Operating
Partnership. We are the sole general partner of the Operating Partnership and,
at October 31, 1998, owned approximately 53.3% of the OP Units. The remaining OP
Units are owned by limited partners of the Operating Partnership. Our officers
and directors owned approximately 33.4% of the outstanding OP Units as of
October 31, 1998. Each OP Unit may be redeemed by the holder for one share of
Common Stock (subject to certain anti-dilution provisions), or, at our option,
the cash value of one share of Common Stock. With each such exchange, our
percentage interest in the Operating Partnership will increase.
Our Common Stock is listed on the AMEX under the symbol "REA."
Our principal executive offices are located at 620 W. Germantown Pike, Suite
200, Plymouth Meeting, Pennsylvania 19462, and our telephone number is (610)
834-7950. We also maintain offices in Franklin Lakes, New Jersey, New York and
Syracuse, New York and Allentown, Pennsylvania. Unless the context otherwise
requires, all references to "we," "us" or "our company" refers to American Real
Estate Investment Corporation and its subsidiaries, including the Operating
Partnership.
USE OF PROCEEDS
We will not receive any of the proceeds of sales of Common Stock by the
Selling Security Holders.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under our Charter, the total number of shares of all classes of stock that
we have authority to issue is 65,000,000, all of which are initially classified
as shares of Common Stock, $.001 par value. Our Board of Directors may classify
and reclassify any unissued shares of capital stock by setting or changing in
any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of capital stock. No shares of Preferred
Stock are outstanding or have been classified by our Board of Directors at the
date of this Prospectus.
The holders of 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 Articles Supplementary adopted
by our Board of Directors with respect to any series of Preferred Stock
establishing the voting powers of such series, the holders of such shares
exclusively possess all voting power. Our Board of Directors is divided into
three classes. The three classes have staggered terms of office so that the
terms of office of directors of only one class expires at each annual meeting of
stockholders. The directors of each class are elected for three year terms and
until his or her successor is elected and duly qualified or until his or her
earlier death. The Charter 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 shares of Common Stock are entitled to
such dividends as may be declared from time to time by our Board of Directors
from funds available therefor and upon liquidation are entitled to receive pro
rata all assets of our company available for distribution to such holders. All
shares of Common
11
<PAGE>
Stock outstanding are fully paid and non-assessable and the holders thereof have
no preemptive rights. The transfer agent and registrar for the Common Stock is
American Stock Transfer & Trust Company.
Under the Charter, our 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 terms thereof. Our Board of
Directors could authorize the issuance of shares of Preferred Stock with terms
and conditions that could have the effect of discouraging a takeover or other
transaction that holders of Common Stock might believe to be in their best
interests or in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares over the then market price of
such shares of Common Stock.
RESTRICTIONS ON TRANSFER
For us to qualify as a REIT under the Code, not more than 50% in value of
our outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year, and the shares of capital 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
certain percentages of our gross income must be from particular activities.
Because our directors believe it is essential for us to continue to qualify as a
REIT, the Charter, subject to certain exceptions, provides that no holder (other
than the McBride Family (as defined in the Charter) and Hudson Bay Partners II,
L.P., and any other person who the directors approve, at their option and in
their discretion, provided that such approval will not result in the termination
of our status as a REIT) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than the Ownership Limit. The
"Ownership Limit" means (i) the lesser of 4.9% or the percentage obtained by
dividing (a) 49.5% minus the McBride Family Excepted Holder Limit (as defined in
the Charter) by (b) two, of the outstanding shares of Common Stock (in value or
number of shares, whichever is more restrictive) and (ii) with respect to any
class or series of Preferred Stock, 9.9% (in value or number of shares,
whichever is more restrictive) of the outstanding shares of such class or series
of Preferred Stock. The foregoing restrictions on transferability and ownership
will not apply if the directors determine that it is no longer in our best
interests to attempt to qualify, or to continue to qualify, as a REIT. If any
purported transfer of shares would cause our shares to be beneficially owned by
less than 100 persons, then such purported transfer shall be void AB INITIO and
the intended transferee shall acquire no rights in such shares. If any transfer
of shares occurs which, if effected, would (i) create a direct or indirect
ownership of shares in excess of the Ownership Limit, (ii) result in our company
being "closely held" within the meaning of Section 856(h) of the Code, or (iii)
otherwise result in our failure to qualify as a REIT, then the capital stock
being transferred that would cause one or more of the restrictions on ownership
or transfer to be violated will be automatically transferred to a trust for the
benefit of a designated charitable beneficiary. The purported transferee of such
shares shall have no right to receive dividends or other distributions with
respect to such shares and shall have no right to vote such shares. Any
dividends or other distributions paid to such purported transferee prior to our
discovery that the shares have been transferred to a trust shall be paid upon
demand to the trustee of the trust for the benefit of the charitable
beneficiary. The trustee of the trust will have all rights to dividends with
respect to the shares of capital stock held in trust, which rights will be
exercised for the exclusive benefit of the charitable beneficiary. The trustee
shall designate a transferee of such stock so long as such shares of stock would
not violate the Ownership Limit in the hands of such designated transferee. Upon
the sale of such shares, the purported transferee shall receive the lesser of
(i) (a) the price per share such purported transferee paid for the capital stock
in the purported transfer that resulted in the transfer of shares of capital
stock to the trust, or (b) if the transfer or other event that resulted in the
transfer of shares of capital stock gave full value for such shares, a price per
share equal to the market price on the date of the purported transfer or other
event that resulted in the transfer of the shares to the trust, and (ii) the
price per share received by the trustee from the sale or disposition of the
shares held in the trust.
12
<PAGE>
All certificates representing capital stock will bear a legend referring to
the restrictions described above.
Every owner of more than 1% (or such other percentage as required by the
Code or regulations thereunder) of the issued and outstanding shares of Common
Stock will be required to file a written notice with us containing the
information specified in the Charter no later than January 30 of each year. In
addition, each stockholder shall upon demand be required to disclose to us in
writing such information as we may request in good faith in order to determine
our status as a REIT.
These ownership limitations may have the effect of precluding acquisition of
control of our company unless the directors determine that maintenance of REIT
status is no longer in our best interests.
LIMITATION OF LIABILITY OF DIRECTORS
The Charter provides that, to the fullest extent permitted by Maryland law,
a director or officer will not be personally liable for monetary damages to us
or you.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Charter provides that we shall indemnify (i) our directors and officers
to the fullest extent required or permitted by Maryland law, including the
advance of expenses under the procedures and to the full extent permitted by
law, and (ii) other employees and agents to such extent as shall be authorized
by our Board of Directors or our By-laws and be permitted by law. The Charter
provides that no amendment of the Charter or repeal of any of its provisions
shall limit or eliminate the right to indemnification provided thereunder with
respect to acts or omissions occurring prior to such amendment or repeal. We
have a director and officer liability insurance policy with a $5,000,000 limit
of liability and a company retention of $75,000 in the aggregate for each claim.
SELLING SECURITY HOLDERS
Sales of the shares of our Common Stock registered hereby must (i) be
accompanied by a copy of this Prospectus, together with the applicable
prospectus supplement or (ii) be effected through an exemption from
registration, such as pursuant to Rule 144 under the Securities Act.
The following table lists (i) the stockholders who may offer shares of our
Common Stock pursuant to this Prospectus (the "Selling Security Holders"), (ii)
the number and percentage of shares of Common Stock beneficially owned by each
Selling Security Holder as of October 31, 1998, (iii) the number of shares of
Common Stock of each Selling Security Holder to be registered on behalf of each
Selling Security Holder pursuant to this Prospectus (the "Registered Shares")
and (iv) the amount of shares of Common Stock that will be held by Selling
Security Holders after completion of this offering. We are registering the
Registered Shares in order to permit secondary trading of the Registered Shares,
and the Selling Security Holders may offer Registered Shares for resale from
time to time. See "Method of Sale" on page 14 of this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER OFFERING(1)
OWNED BEFORE OFFERING
------------------------ REGISTERED ------------------------
NAME NUMBER PERCENTAGE SHARES NUMBER PERCENTAGE
- ----------------------------------- --------- ------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
James Mulvihill.................... 365,627(2) 4.12% 68,869 298,758 3.37%
Evan Zucker........................ 127,685(3) 1.44% 75,687 51,998 *
Rick Burger........................ 27,210 0.29% 26,710 0 --
New York State Common Retirement
Fund............................. 720,743 8.13% 720,743 0 --
</TABLE>
- ------------------------
*Less than 1%
13
<PAGE>
(1) The Registered shares may be offered from time to time in one or more
offerings. This assumes that all of the shares of Common Stock held by the
Selling Security Holders and being offered under this Prospectus are sold,
and that the Selling Security Holders acquire no additional shares of Common
Stock before the completion of this offering.
(2) Includes 76,389 OP Units and 190 shares of Common Stock held by Mr.
Mulvihill's wife, as to which Mr. Mulvihill disclaims any beneficial
interest. Includes 128,456 and 2,194 OP Units held by Mr. Mulvihill's
parents and siblings, respectively, and 57,359 shares of Common Stock
directly and indirectly owned by Mr. Mulvihill's parents, as to which Mr.
Mulvihill disclaims any beneficial interest. Also includes 38,616 shares
held by a Rabbi Trust of which Wells Fargo, N.A. is the trustee and Mr.
Mulvihill is the sole beneficiary.
(3) Includes 29,391 shares of Common Stock issuable on exercise of the right to
convert OP Units to shares of Common Stock; which number incudes 1,027 of
such OP Units held by Mr. Zucker's parents and siblings, as to which Mr.
Zucker disclaims beneficial ownership. Also includes 750 shares of Common
Stock held by Mr. Zucker's parents, as to which Mr. Zucker disclaims
beneficial ownership. Includes 75,687 shares of Common Stock owned by Mr.
Zucker which are subject to a Lock-up Agreement until December 12, 1998,
including 45,434 shares of Common Stock held by a Rabbi Trust of which Wells
Fargo, N.A. is the trustee and Mr. Zucker is the sole beneficiary.
Each of Messrs. Mulvihill and Zucker is currently a member of our Board of
Directors. Messrs. Burger, Mulvihill and Zucker received 26,710, 68,869 and
75,687 shares of Common Stock, respectively, as the part of the series of
transactions pursuant to which we were transformed from a multi-family
residential REIT into an office and industrial REIT (the "Reorganization").
Under a Registration Rights Agreement, dated as of December 12, 1997, with
Messrs. Burger, Mulvihill and Zucker, we agreed to register the shares of Common
Stock which they received as part of the Reorganization. Pursuant to a Lock-Up
Agreement, dated as of December 12, 1997, Messrs. Burger, Mulvihill and Zucker
agreed not to sell such shares for a period of one year from the date of such
Agreement. In addition, as part of the Reorganization, we organized and agreed
to spin-off at a later date, a subsidiary to enable Messrs. Mulvihill and Zucker
to pursue real estate investment opportunities other than in the office and
industrial sectors in the United States. We have not yet determined the terms of
the spin-off. New York State Common Retirement Fund acquired its shares of our
Common Stock in lieu of repayment of indebtedness relating to portions of
certain properties sold to us by affiliates of Michael Falcone, one of our
directors. Under a Registration Rights Agreement, dated as of August 19, 1998,
with the New York State Common Retirement Fund, we agreed to register its shares
of Common Stock and New York State Common Retirement Fund agreed not to offer or
sell its shares of our Common Stock for a period of six months from the date of
such agreement. We have agreed to indemnify the Selling Security Holders against
certain liabilities. See "Method of Sale".
METHOD OF SALE
This Prospectus relates to the possible offer and sale from time to time by
the Selling Security Holders (or by pledgees, donees, transferees or other
successors in interest of such Selling Security Holders) of their Registered
Shares. We have registered the Registered Shares for resale to provide them with
freely tradeable securities. However, registration of the Registered Shares does
not necessarily mean that they will offer or sell any of their Registered
Shares. We will not receive any proceeds from the offering or sale of their
Registered Shares.
The Selling Security Holders (or pledgees, donees, transferees or other
successors in interest) in one or more transactions (which may involve block
transactions) may sell the Registered Shares to which this Prospectus relates
from time to time on the AMEX, where our Common Stock is listed for trading, in
other markets where our Common Stock is traded, in negotiated transactions,
through short sales or put and call option transactions through underwriters or
dealers (who may act as agent or principal), directly to one or more purchasers,
through agents or in a combination of such methods of sale. They may sell the
14
<PAGE>
Registered Shares at prices which are current when the sales take place or at
other prices to which they agree.
Any underwriters or agents may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders or such
other persons who may be effecting sales hereunder. Underwriters may sell
Registered Shares to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. The Selling Security Holders or other persons effecting sales hereunder,
and any such underwriters, dealers and agents may be deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts or commissions they
receive and any profit on the sale of the Registered Shares they realize may be
deemed to be underwriting discounts and commissions under the Securities Act.
Some sales may involve shares in which the Selling Security Holders have granted
security interests and which are being sold because of foreclosure of those
security interests. We have agreed to indemnify each Selling Security Holder
against certain liabilities, including liabilities arising under the Securities
Act. The Selling Security Holders or other persons effecting sales hereunder may
agree to indemnify any such underwriters, dealers and agents against certain
liabilities, including liabilities under the Securities Act.
The Selling Security Holders also may resell all or a portion of their
Registered Shares in open market transactions in reliance upon Rule 144 under
the Securities Act, provided they meet the criteria and conform to the
requirements of such rule.
Upon notification by a Selling Security Holder that any material arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this Prospectus will be
filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing
(i) the name of each such Selling Security Holder and of the participating
broker-dealer(s), (ii) the number of Registered Shares involved, (iii) the price
at which such Registered Shares were sold, (iv) the commissions paid or
discounts or concessions allowed to such broker-dealer(s), where applicable, (v)
that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus and (vi)
other facts material to the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations that may be relevant to a U.S. person who holds Common Stock, is
based on current law, and is not intended and should not be construed as tax
advice. The following discussion, which is not exhaustive of all possible tax
considerations, does not include a detailed discussion of any state, local or
foreign tax considerations. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable to
all prospective U.S. stockholders and does not discuss all of the aspects of
federal income taxation that may be relevant to a prospective U.S. stockholder
in light of his or her particular circumstances or to certain types of
stockholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes. In addition, we have not requested and do not plan to request any
rulings from the IRS concerning our tax treatment or the tax treatment of the
Operating Partnership. Accordingly, no assurance
15
<PAGE>
can be given that the statements set forth herein (which do not bind the IRS or
the courts) will not be challenged by the IRS or sustained by the courts if so
challenged.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. WE
ADVISE EACH PROSPECTIVE PURCHASER OF COMMON STOCK TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. We have elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with our taxable year ended December 31, 1993. We
believe that we have been organized and operated in a manner so as to qualify
for taxation as a REIT under the Code, and we intend to continue to operate in
such a manner. No assurance, however, can be given that we have operated in a
manner so as to qualify as a REIT or will continue to operate in a manner so as
to remain qualified as a REIT. Qualification and taxation as a REIT depends upon
our ability to meet, on a continuing basis, through periodic operating results,
distribution levels, diversity of stock ownership and other qualification tests
imposed under the Code on REITs, some of which are summarized below. While we
intend to operate so as to qualify as a REIT, given the highly complex nature of
the rules governing REITs, the ongoing importance of factual determinations and
the possibility of future changes in our circumstances, no assurance can be
given that we will so qualify for any particular year. See "--Failure to
Qualify" on page 20 of this Prospectus.
In the opinion of Rogers & Wells LLP, our counsel ("Counsel"), commencing
with our taxable year ended December 31, 1993, we have been organized in
conformity with the requirements for qualification as a REIT under the Code and
our proposed method of operation and that of the Operating Partnership will
enable us to meet the requirements for qualification as a REIT. Counsel's
opinion is based on various assumptions and is conditioned upon certain of our
representations and the representations of the Operating Partnership as to
factual matters. In addition, Counsel's opinion is based upon our factual
representations concerning our business and properties, and the business and
properties of the Operating Partnership. Unlike a tax ruling, an opinion of
counsel is not binding upon the IRS and no assurance can be given that the IRS
will not challenge our status. Moreover, such qualification and taxation as a
REIT depends upon our ability to meet, through actual annual operating results,
distribution levels, diversity of stock ownership and various other
qualification tests imposed under the Code. Counsel will not review our
compliance with the various REIT qualification tests on a periodic or continuing
basis. Accordingly, no assurance can be given that the actual results of our
operation for any one taxable year will satisfy such requirements. See
"--Failure to Qualify" on page 20 of this Prospectus.
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject to
change, possibly with retroactive effect.
16
<PAGE>
So long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that we distribute
currently to our stockholders. This treatment substantially eliminates the
"double taxation" (taxation at both the corporate and stockholder levels) that
generally results from an investment in a corporation. If we do not qualify as a
REIT, we would be taxed at rates applicable to corporations on all of our
income, whether or not distributed to our stockholders. Even if we qualify as a
REIT, we will be subject to federal income or excise tax as follows: (i) we will
be taxed at regular corporate rates on any undistributed REIT taxable income and
undistributed net capital gains other than retained capital gains as discussed
below; (ii) under certain circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference, if any; (iii) if we have (1) net
income from the sale or other disposition of "foreclosure property" (generally,
property acquired by reason of a foreclosure or otherwise on default of a loan
secured by the property) that is held primarily for sale to customers in the
ordinary course of business or (2) other nonqualifying net income from
foreclosure property, we will be subject to tax at the highest corporate rate on
such income; (iv) if we have net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property (other than
dispositions of foreclosure property and dispositions of property that occur due
to involuntary conversion) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax; (v) if we should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), and nonetheless maintain our qualification as a REIT because
certain other requirements are met, we will be subject to a 100% tax on the net
income attributable to the greater of the amount by which we fail the 75% or 95%
test, multiplied by a fraction intended to reflect our profitability; (vi) if we
should fail to distribute with respect to each calendar year at least the sum of
(1) 85% of our REIT ordinary income for such year, (2) 95% of our REIT capital
gain net income for such year, and (3) any undistributed taxable income from
prior years, we would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed; (vii) if we acquire
any asset from a C corporation (I.E., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation and we subsequently recognize gain
on the disposition of such asset in a taxable transaction during the 10-year
period (the "Recognition Period") beginning on the date on which we acquired the
asset (or we first qualified as a REIT), then pursuant to guidelines issued by
the IRS, the excess of (1) the fair market value of the asset as of the
beginning of the applicable Recognition Period, over (2) our adjusted basis in
such asset as of the beginning of such Recognition Period will be subject to tax
at the highest regular corporate rate.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) that has the calendar year as its taxable
year; (vi) the beneficial ownership of which is held by 100 or more persons;
(vii) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and
(viii) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that conditions (i) through (v),
inclusive, must be met during the entire taxable year and that condition (vi)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (vi) and
(vii), however, will not apply until after the first taxable year for which an
election is made to be taxed as a REIT.
We believe that we currently satisfy all conditions. In addition, our
Charter includes restrictions regarding the transfer of our Common Stock that
are intended to assist us in continuing to satisfy the share ownership
requirements described in (vi) and (vii) above. See "Description of Capital
Stock--Restrictions on Transfer." In rendering its opinion that we are organized
in conformity with the requirements for qualification as a REIT, Counsel is
relying on our representation that ownership of our stock satisfies
17
<PAGE>
condition (vii) and Counsel expresses no opinion as to whether the ownership
restrictions contained in the Charter preclude us from failing to satisfy
condition (vii) above. In addition, we intend to continue to comply with the
Treasury Regulations requiring us to ascertain and maintain records which
disclose the actual ownership of our shares. Although a failure to ascertain the
actual ownership of our shares will not cause our disqualification as a REIT
beginning with our taxable year ending December 31, 1998, a monetary fine may
result.
We may have one or more "qualified REIT subsidiaries." A corporation that is
a "qualified REIT subsidiary" is not treated as a separate corporation for
federal income tax purposes, and all assets, liabilities and items of income,
deduction and credit of a "qualified REIT subsidiary" are treated as assets,
liabilities and items of the REIT. In applying the requirements described
herein, any "qualified REIT subsidiary" of ours will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiary will be
treated as our assets, liabilities and items of income, deduction and credit.
Any "qualified REIT subsidiary" of ours will therefore not be subject to federal
corporate income taxation, although such "qualified REIT subsidiary" may be
subject to state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is deemed
to own its proportionate share of the assets of the partnership and is deemed to
receive the income of the partnership attributable to such share. In addition,
the character of the assets and gross income of the partnership shall retain the
same character in the hands of the REIT. Accordingly, our proportionate share of
the assets, liabilities and items of income of the Operating Partnership are
treated as assets, liabilities and items of income of ours for purposes of
applying the requirements described herein, provided that the Operating
Partnership is treated as a partnership for federal income tax purposes. See
"--Other Tax Considerations--Effect of Tax Status of the Operating Partnership
on REIT Qualification" on page 23 of this Prospectus.
INCOME TESTS. In order to qualify as a REIT, a company must satisfy three
gross income requirements on an annual basis. First, at least 75% of its gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of its gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived from the
same items which qualify under the 75% gross income test, and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of its gross income (including gross income from
prohibited transactions) for each taxable year. The Taxpayer Relief Act of 1997
(the "Taxpayer Relief Act") repealed the 30% gross income test for taxable years
beginning after its enactment on August 5, 1997. Accordingly, the 30% gross
income test no longer applies beginning with our taxable year ending December
31, 1998.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of gross
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct or indirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must
18
<PAGE>
not operate or manage the property or furnish or render services to tenants,
except through an "independent contractor" who is adequately compensated and
from whom the REIT derives no income. The "independent contractor" requirement,
however, does not apply to the extent the services provided by the REIT are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant." The
Taxpayer Relief Act provides a DE MINIMIS rule for non-customary services
beginning with our taxable year ending December 31, 1998. Specifically, if the
value of the non-customary service income with respect to a property (valued at
no less than 150% of the direct costs of performing such services) is 1% or less
of the total income derived from the property, then all rental income except the
non-customary service income will qualify as "rents from real property."
We do not anticipate charging rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a fixed
percentage or percentages of gross receipts or sales consistent with the rules
described above). We do not anticipate receiving more than a DE MINIMIS amount
of rents from any Related Party Tenant or rents attributable to personal
property leased in connection with real property that will exceed 15% of the
total rents received with respect to such property.
We will provide certain services with respect to our Properties through the
Operating Partnership, which is not an "independent contractor." However, we
believe (and have represented to Counsel) that all of such services will be
considered "usually or customarily rendered" in connection with the rental of
space for occupancy only so that the provision of such services will not
jeopardize the qualification of rent from the Properties as "rents from real
property." In rendering its opinion on our ability to qualify as a REIT, Counsel
is relying on such representations. In the case of any services that are not
"usual and customary" under the foregoing rules, we will employ an "independent
contractor" to provide such services.
The Operating Partnership may receive certain types of income that will not
qualify under the 75% or 95% gross income tests. In particular, dividends
received from the Management Company will not qualify under the 75% test. We
believe, and have represented to Counsel, however, that the aggregate amount of
such items and other non-qualifying income in any taxable year will not cause us
to exceed the limits on non-qualifying income under the 75% and 95% gross income
tests.
If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet any such tests was
due to reasonable cause and not due to willful neglect, we attach a schedule of
the sources and nature of our income to our federal income tax return and any
incorrect information on the schedule was not due to fraud with the intent to
evade tax. It is not possible, however, to state whether in all circumstances we
would be entitled to the benefit of these relief provisions. As discussed above,
even if these relief provisions were to apply, a tax would be imposed on certain
excess net income.
ASSET TESTS. At the close of each quarter of its taxable year, a REIT must
also satisfy three tests relating to the nature of its assets: (i) at least 75%
of the value of its total assets must be represented by real estate assets
(including (1) its allocable share of real estate assets held by partnerships in
which it has an interest and (2) stock or debt instruments purchased with the
proceeds of a stock offering or long-term (at least five years) debt offering of
the REIT and held for not more than one year following the receipt of such
proceeds), cash, cash items and government securities; (ii) not more than 25% of
its total assets may be represented by securities other than those in the 75%
asset class; and (iii) of the investments included in the 25% asset class, the
value of any one issuer's securities (other than an interest in a partnership or
shares of a "qualified REIT subsidiary" or another REIT) owned by a REIT may not
exceed 5% of the value of its total assets, and it may not own more than 10% of
any one issuer's outstanding voting securities (other than an interest in a
partnership or securities of a "qualified REIT subsidiary" or another REIT).
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If a failure to
satisfy the asset tests results from an acquisition of securities or other
property during a
19
<PAGE>
quarter (including, for example, as a result of increasing our interest in the
Operating Partnership as a result of a merger, the exercise of Redemption Rights
or an additional capital contribution of proceeds of an offering of shares of
our stock), such failure may be cured by a disposition of sufficient
nonqualifying assets within 30 days following the close of that quarter. We
intend to maintain adequate records of the value of our assets to ensure
compliance with the asset tests and plan to take such other action within 30
days following the close of any quarter as may be required to cure any
noncompliance. However, there can be no assurance that such action will always
be successful.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, a company
is generally required to distribute to its stockholders at least 95% of its
taxable income each year. In addition, it will be subject to regular capital
gains and ordinary corporate tax rates on undistributed income, and also may be
subject to a 4% excise tax on undistributed income in certain events. We believe
that we have made, and intend to continue to make, timely distributions
sufficient to satisfy the annual distribution requirements. However, it is
possible that, from time to time, we may not have sufficient cash or other
liquid assets to meet the distribution requirements. In such circumstances, we
may cause the Operating Partnership to arrange for short-term, or possibly
long-term, borrowings to permit the payment of required dividends.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a taxable year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may be able to avoid being taxed on amounts
distributed as deficiency dividends. However, we would be required to pay to the
IRS interest based upon the amount of any deduction taken for deficiency
dividends.
FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any
taxable year and special relief provisions do not apply, we will be subject to
tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify as a REIT will not be deductible, nor will they be required to
be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to our stockholders will be taxable as ordinary
income and, subject to certain limitations in the Code, corporate distributees
may be eligible for the "dividends received deduction." In addition, our failure
to qualify as a REIT would also substantially reduce the cash available for
distributions to stockholders. Unless entitled to relief under specific
statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as we qualify as a REIT,
distributions made to our taxable domestic stockholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate stockholders
will not be eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed as
gains from the sale or exchange of a capital asset (to the extent they do not
exceed our actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. If we designate any portion
of a dividend as a capital gain dividend, a 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 stockholder for the taxable year as the total amount
of capital gain dividends bears to the total amount of all dividends paid on all
classes of stock for the taxable year. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. We may elect to retain and pay income tax on any net long-term capital
gain, in which case our domestic stockholders would include in their income as
long-term capital gain their proportionate share of such undistributed net
long-term capital gain. A domestic stockholder would also receive a refundable
tax credit for such stockholder's proportionate share of the tax paid by us on
such retained capital gains and an increase in its basis in our stock in an
amount equal to the difference between the
20
<PAGE>
undistributed long-term capital gains and the amount of tax paid by us. See
"--Capital Gains and Losses" below.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's Common Stock, but rather will reduce the
adjusted basis of such Common Stock. To the extent that such distributions
exceed the adjusted basis of a stockholder's Common Stock, they will be included
in income as short-term or long-term capital gain (depending on the length of
time the shares have been held), assuming the Common Stock is a capital asset in
the hands of the stockholder. In addition, any dividend declared by us in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by us and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by us during January of the following calendar year.
Stockholders may not include in their individual income tax returns any of our
net operating losses or capital losses.
In general, a domestic stockholder will realize capital gain or loss on the
disposition of Common Stock equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the stockholder's adjusted basis of such Common Stock. Such gain or loss
generally will constitute short-term capital gain or loss if the stockholder has
not held such shares for more than one year and long-term capital gain or loss
if the stockholder has held such shares for more than one year. See "--Capital
Gains and Losses" below. Loss upon a sale or exchange of Common Stock by a
stockholder who has held such Common 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 us required to be treated by such
stockholder as long-term capital gain.
CAPITAL GAINS AND LOSSES. The maximum marginal individual federal income
tax rate is 39.6%. The maximum tax rate on net capital gains applicable to
individuals, trusts and estates from the sale or exchange of capital assets held
for more than one year is 20%, and the maximum rate is reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
individuals, trusts and estates who would be subject to a maximum tax rate of
15%, the rate on net capital gains is reduced to 10%, and, effective for taxable
years commencing after December 31, 2000, the rate is reduced to 8% for assets
held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than one
year is 25% to the extent of the deductions for depreciation (other than certain
depreciation recapture taxable as ordinary income) with respect to such
property. Accordingly, the tax rate differential between capital gain and
ordinary income for noncorporate taxpayers may be significant. In addition, the
characterization of income as capital or ordinary may affect the deductibility
of capital losses. Capital losses not offset by capital gains may be deducted
against a noncorporate taxpayer's ordinary income only up to a maximum annual
amount of $3,000. Unused capital losses may be carried forward. All net capital
gain of a corporate taxpayer is subject to tax at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the extent of capital
gains, with unused losses being carried back three years and forward five years.
IRS Notice 97-64 provides temporary guidance with respect to the taxation of
distributions by REITs that are designated as capital gain dividends. Pursuant
to Notice 97-64, forthcoming Treasury Regulations will provide that capital
gains allocated to a stockholder by us may be designated as a 20% rate gain
distribution, a 25% rate gain distribution, or a 28% rate gain distribution. In
determining the amounts which may be designated as each class of capital gains
dividends, a REIT must calculate its net capital gains as if it were an
individual subject to a marginal tax rate on ordinary income of 28%. Unless
specifically designated otherwise by us, a distribution designated as a capital
gain distribution is presumed to be a 28% rate gain distribution. If we elect to
retain any net long-term capital gain, as discussed above, the undistributed
long-term capital gains are considered to be designated as capital gain
dividends for purposes of Notice 97-64. Furthermore, Notice 97-64 provides that
designations of capital gain dividends made by us will only be effective to the
extent that the distributions with respect to our different classes of
21
<PAGE>
stock are composed proportionately of ordinary and capital gain dividends.
However, Notice 97-64 was issued prior to the IRS Restructuring and Reform Act
of 1998 (the "1998 Reform Act") which significantly changed the taxation of
capital gains of certain non-corporate taxpayers. We expect the IRS to issue
clarifying guidance regarding the impact of Notice 97-64 in light of the 1998
Reform Act.
BACKUP WITHHOLDING. We will report to our domestic stockholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. 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 (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholdings rules. Any amount paid as backup withholding will be creditable
against the stockholder's income tax liability. The United States Treasury has
issued final regulations on October 6, 1997 (the "Final Regulations") regarding
the withholding and information reporting rules discussed above. In general, the
Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The Final Regulations are generally
effective for payments made on or after January 1, 2000, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of Common Stock.
In addition, we may be required to withhold a portion of capital gain
dividends made to any stockholders which fail to certify their non-foreign
status to us. See "--Taxation of Foreign Stockholders" below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. Distributions that we make to a
stockholder that is a tax-exempt entity will not constitute "unrelated business
taxable income" ("UBTI"), provided that the tax-exempt entity has not financed
the acquisition of Common Stock with "acquisition indebtedness" within the
meaning of the Code and the Common Stock is not otherwise used in an unrelated
trade or business of the tax-exempt entity. In addition, under certain
circumstances, qualified trusts that own more than 10% (by value) of our shares
may be required to treat a certain percentage of dividends as UBTI. This
requirement will only apply if we are a "pension-held REIT." The restrictions on
ownership in our Charter should prevent us from being classified as a
pension-held REIT.
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing the United States
federal income taxation of the ownership and disposition of Common Stock by
persons that are, for purposes of such taxation, nonresident alien individuals,
foreign corporations, foreign partnerships and other foreign stockholders
(collectively, "Non-U.S. Stockholders") are complex and no attempt will be made
herein to provide more than a very limited summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN SHARES, INCLUDING ANY REPORTING REQUIREMENTS, AS WELL AS THE TAX
TREATMENT OF SUCH AN INVESTMENT UNDER THEIR HOME COUNTRY LAWS.
Distributions that are not attributable to gain from sales or exchanges of
U.S. real property interests and not designated by us as capital gain dividends
will be treated as dividends and taxed as ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. Such
distributions are, generally, subject to a withholding tax equal to 30% of the
gross amount of the distribution, unless an applicable tax treaty reduces that
tax. Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a Non-U.S. Stockholder to the extent that they do not
exceed the adjusted basis of the Non-U.S. Stockholder's Common Stock, but rather
will reduce the adjusted basis of such Common Stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to tax liability if the Non-U.S. Stockholder
otherwise would be subject to tax on any gain from the sale or disposition of
his Common Stock as
22
<PAGE>
described below (in which case they also may be subject to a 30% branch profits
tax if the stockholder is a foreign corporation).
For withholding tax purposes, we are currently required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Stockholder. Under the
Final Regulations, generally effective for distributions on or after January 1,
2000, we would not be required to withhold at the 30% rate on distributions we
reasonably estimate to be in excess of our current and accumulated earnings and
profits. If it cannot be determined at the time a distribution is made whether
such distribution will be in excess of current and accumulated earnings and
profits, the distribution will be subject to withholding at the rate applicable
to ordinary dividends. However, a Non-U.S. Stockholder may seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of our current or accumulated earnings and profits, and
the amount withheld exceeded the Non-U.S. Stockholder's United States tax
liability, if any, with respect to the distribution.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of U.S. real property interests
will be taxed to a Non-U.S. Stockholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") at the normal capital
gain rates applicable to U.S. stockholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a corporate Non-U.S. Stockholder not
entitled to treaty relief or exemption. We are required by the Code to withhold
35% of any distribution that could be designated by us as a capital gain
dividend. This amount is creditable against the Non-U.S. Stockholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock will
generally not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which, at all times during a specified testing
period, less than 50% in value of the stock was held directly or indirectly by
foreign persons. We believe that we are a "domestically controlled REIT" and,
therefore, the sale of Common Stock will not be subject to taxation under
FIRPTA. However, because the Common Stock is publicly traded, no assurance can
be given that we will continue to qualify as a "domestically controlled REIT."
If the gain on the sale of Common Stock were to be subject to tax under FIRPTA,
the Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax, possible withholding tax and a special alternative minimum tax in
the case of nonresident alien individuals), and the purchaser of the Common
Stock would be required to withhold and remit to the IRS 10% of the purchase
price. In addition, if we are not a "domestically controlled REIT,"
distributions in excess of our current and accumulated earnings and profits
would be subject to withholding at a rate of 10%.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT
QUALIFICATION. All of our investments are through the Operating Partnership. We
believe that the Operating Partnership is properly treated as a partnership for
tax purposes (and not as an association taxable as a corporation). If, however,
the Operating Partnership were to be treated as an association taxable as a
corporation, we would cease to qualify as a REIT. Furthermore, in such a
situation, the Operating Partnership would be subject to corporate income taxes
and we would not be able to deduct our share of any losses generated by the
Operating Partnership in computing our taxable income.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties). When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
23
<PAGE>
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The partnership agreement of the
Operating Partnership requires allocations of income, gain, loss and deduction
with respect to contributed Property to be made in a manner consistent with the
special rules in Section 704(c) of the Code, and the regulations thereunder,
which tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the depreciable lives of the contributed Properties. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed Properties in the hands of the
Operating Partnership could cause us to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to us
if all Properties were to have a tax basis equal to their fair market value at
the time of acquisition. The foregoing principles also apply in determining our
earnings and profits for purposes of determining the portion of distributions
taxable as dividend income. The application of these rules over time may result
in a higher portion of distributions being taxed as dividends than would have
occurred had we purchased our interests in the Properties at their agreed value.
Treasury Regulations under Section 704(c) of the Code allow partnerships to
use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the property. The Operating Partnership has determined
to use the "traditional method" (which is specifically approved in the Treasury
Regulations) for accounting for Book-Tax Differences with respect to the
contributed Properties.
STATE AND LOCAL TAXES. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
we or they transact business or reside. The state and local tax treatment of us
and our stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult with
their own tax advisors regarding the effect of state, local and other tax laws
of any investment in our Common Stock.
POTENTIAL LEGISLATIVE ACTION REGARDING REITS. On February 2, 1998, the
Clinton Administration released a summary of its proposed budget plan which
contained several proposals affecting REITs. One such proposal, if enacted in
its present form, would prohibit a REIT from holding securities representing
more than 10% of the value of all classes of stock of a corporation, other than
a qualified REIT subsidiary or another REIT. Although our existing stock
interest in the Management Company may be grandfathered under such proposal, the
Management Company would be prohibited from acquiring substantial new assets or
engaging in a new trade or business. If enacted in its present form, the
proposal may limit the future activities and growth of the Management Company.
Although the proposal has not been enacted this year, no prediction can be made
as to whether such proposal or any other proposal affecting REITs will be
enacted into legislation and the impact of any such legislation on our
operations.
LEGAL MATTERS
Rogers & Wells LLP, New York, New York will pass upon the validity of the
Common Stock offered by this Prospectus, as well as certain legal matters
described under "Federal Income Tax Considerations." Rogers & Wells LLP will
rely as to certain matters of Maryland law on the opinion of Piper & Marbury
L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of American Real Estate Investment Corporation and subsidiaries
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports and
are incorporated by reference herein in reliance upon the authority of said firm
as experts in giving said reports.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. NEITHER AMERICAN REAL ESTATE INVESTMENT
CORPORATION NOR THE SELLING SECURITY HOLDERS HAVE AUTHORIZED ANY OTHER PERSON TO
PROVIDE YOU WITH DIFFERENT INFORMATION.
THE SELLING SECURITY HOLDERS ARE NOT MAKING AN OFFER OF COMMON STOCK IN ANY
LOCATION WHERE THE OFFER IS NOT PERMITTED.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information.... 2
Incorporation of Documents by
Reference.............................. 2
Cautionary Statements Concerning
Forward-Looking Information............ 3
Risk Factors........................... 4
The Company............................ 11
Use of Proceeds........................ 11
Description of Capital Stock........... 11
Selling Security Holders............... 13
Method of Sale......................... 14
Federal Income Tax Considerations...... 15
Legal Matters.......................... 24
Experts................................ 24
</TABLE>
------------------------
892,009 SHARES
AMERICAN REAL ESTATE
INVESTMENT CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration fee -- Securities and Exchange Commission......... $ 3,300.59
Accounting fees and expenses................................... 5,000.00(a)
Legal fees and expenses........................................ 15,000.00(a)
Printing and engraving expenses................................ 5,000.00(a)
Miscellaneous.................................................. 15,000.00(a)
-----------
Total.......................................................... $ 43,300.59
-----------
-----------
</TABLE>
- ------------------------
(a) Does not include expenses of preparing prospectus supplements and other
expenses relating to offerings of particular securities.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Maryland General Corporation Law (the "MGCL"), our
Charter provides that we shall indemnify (i) our directors and officers to the
fullest extent required or permitted by Maryland law, including the advance of
expenses under the procedures and to the full extent permitted by law and (ii)
other employees and agents to such extent as shall be authorized by our Board of
Directors or our By-laws and be permitted by law. The MGCL permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities, unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith, or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful.
The MGCL permits the Articles of Incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(1) it is provided that the person actually received an improper benefit or
profit in money, property or services or (2) a judgment or other final
adjudication is entered in a proceeding based on a finding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. Our
Charter contains a provision providing for elimination of the liability of our
directors or officers to us or our stockholders for money damages to the maximum
extent permitted by Maryland law from time to time.
We have a director and officer liability insurance policy with a $5,000,000
limit of liability and a company retention of $75,000 in the aggregate for each
claim.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 of our Form 8-K, filed
with the Commission on December 22, 1997).
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.3
of our Form 8-K, filed with the Commission on December 22, 1997)
3.3 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (incorporated by reference to Exhibit 10.1 of
our Form 8-K filed with the Commission on December 22, 1997)
4.1 Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4(a) of our Amendment No. 2 to Form S-11, filed with the
Commission on October 8, 1993)
5.1 Opinion of Rogers & Wells LLP (Counsel)
5.2 Opinion of Piper & Marbury L.L.P. (Counsel)
8 Opinion of Rogers & Wells LLP regarding tax matters
23.1 Consent of Rogers & Wells LLP (included in Exhibits 5.1 and 8)
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2)
23.3 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature pages hereto)
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment will be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement will be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time will be deemed to be the initial bona fide offering thereof.
(5) That, (i) for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective and (ii) for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel for the
Registrant the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on November 20, 1998.
AMERICAN REAL ESTATE INVESTMENT CORPORATION
BY: /S/ JEFFREY E. KELTER
-----------------------------------------
Jeffrey E. Kelter
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Jeffrey E. Kelter, Timothy A. Peterson and
Timothy E. McKenna, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including any post-effective amendments, to this Registration
Statement on Form S-3 and any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and any and all applications and other documents in
connection therewith, with the Securities and Exchange Commission and any state
or other securities authority, granting unto said attorneys-in-fact and agents,
and each of them full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact or agents, or any of them, or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ DAVID F. MCBRIDE Chairman, Secretary and
- ------------------------------ Director (Principal November 20, 1998
David F. Mcbride Executive Officer)
/s/ JEFFREY E. KELTER President and Director
- ------------------------------ (Principal Executive November 20, 1998
Jeffrey E. Kelter Officer)
/s/ TIMOTHY A. PETERSON Chief Financial Officer
- ------------------------------ (Principal Financial November 20, 1998
Timothy A. Peterson Officer)
/s/ TIMOTHY E. MCKENNA Treasurer (Principal
- ------------------------------ Accounting Officer) November 20, 1998
Timothy E. McKenna
II-4
<PAGE>
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ TIMOTHY MCBRIDE Director
- ------------------------------ November 20, 1998
Timothy McBride
/s/ ROBERT BRANSON Director
- ------------------------------ November 20, 1998
Robert Branson
/s/ JAMES MULVIHILL Director
- ------------------------------ November 20, 1998
James Mulvihill
/s/ EVAN ZUCKER Director
- ------------------------------ November 20, 1998
Evan Zucker
/s/ FRANCESCO GALESI Director
- ------------------------------ November 20, 1998
Francesco Galesi
/s/ MICHAEL FALCONE Director
- ------------------------------ November 20, 1998
Michael Falcone
/s/ DAVID LESSER Director
- ------------------------------ November 20, 1998
David Lesser
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of our Form 8-K, filed with the Commission on December 22, 1997).
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.3 of our Form 8-K, filed with
the Commission on December 22, 1997)
3.3 Amended and Restated Agreement of Limited Partnership of the Operating Partnership (incorporated
by reference to Exhibit 10.1 of our Form 8-K filed with the Commission on December 22, 1997)
4.1 Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4(a) to our Amendment
No. 2 to Form S-11, filed with the Commission on October 8, 1993)
5.1 Opinion of Rogers & Wells LLP (Counsel)
5.2 Opinion of Piper & Marbury L.L.P. (Counsel)
8 Opinion of Rogers & Wells LLP regarding tax matters
23.1 Consent of Rogers & Wells LLP (included in Exhibits 5.1 and 8)
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2)
23.3 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature pages hereto)
</TABLE>
<PAGE>
Exhibit 5.1
[LETTERHEAD OF ROGERS & WELLS LLP]
November 20, 1998
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 W. Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
Ladies and Gentlemen:
We have acted as special counsel to American Real Estate Investment Corporation,
a Maryland corporation (the "Company"), in connection with the preparation and
filing of the Company's Registration Statement on Form S-3 (as the same may be
amended or supplemented from time to time, the "Registration Statement") with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), covering the possible offer and
sale from time to time of up to 892,009 shares of common stock, par value $.001
per share (the "Shares"), by the stockholders of the Company listed in the
Registration Statement.
In rendering the opinions expressed herein, we have examined the Registration
Statement, the Company's Amended and Restated Articles of Incorporation and the
Amended and Restated Bylaws and such corporate proceedings of the Company and
such other documents as we have deemed necessary. As to questions of fact
material to this opinion, we have relied on certificates of officers of the
Company and have not independently verified the accuracy of the matters
contained therein.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents, certificates and instruments submitted to us as
originals, the conformity with originals of all documents submitted to us as
copies and the absence of any amendments or modifications to those items
reviewed by us.
Based upon the foregoing and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that the
Shares have been duly authorized and are validly issued, fully paid and
nonassessable.
The opinions stated herein are limited to the federal laws of the United States,
the laws of the State of New York and the laws of the State of Maryland. To the
extent that any opinions set forth herein are dependent on the laws of the State
of Maryland, we have relied on the opinion of Piper & Marbury L.L.P., dated the
date hereof. Our opinion, to the extent based upon such reliance, is limited by
the qualifications, assumptions and conditions set forth in such opinion in
addition to those set forth herein.
<PAGE>
American Real Estate Investment Corporation Page 2
November 20, 1998
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
concede that we are within the category of persons whose consent is required
under the Securities Act or the rules and regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ Roges & Wells LLP
<PAGE>
Exhibit 5.2
[LETTERHEAD OF PIPER & MARBURY L.L.P.]
November 20, 1998
AMERICAN REAL ESTATE INVESTMENT CORPORATION
620 West Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special Maryland counsel to American Real Estate
Investment Corporation, a Maryland corporation (the "Company"), in connection
with the registration under the Securities Act of 1933, as amended (the
"Act"), pursuant to a Registration Statement on Form S-3 of the Company,
filed with the Securities and Exchange Commission (the "Commission") on
November 20, 1998, (the "Registration Statement") of 892,009 shares (the
"Shares") of Common Stock, par value $.001 per share of the Company. The
Shares are owned, and may be sold from time to time, by certain stockholders
of the Company who purchased the Shares in a private placement (the "Selling
Stockholders"). This opinion is being provided at your request in connection
with the filing of the Registration Statement.
In our capacity as special Maryland counsel, we have reviewed the
following documents:
(a) The Registration Statement
(b) The Charter of the Company, certified by the Department of
Assessments and Taxation of the State of Maryland (the "MSDAT"), and
By-Laws of the Company, as amended and restated and in effect on the
date hereof.
(c) Certified resolutions of the Board of Directors of the
Company relating to the Company's organization, to the issuance of the
Shares, and to the Board's authorization of the filing of the
Registration Statement.
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
November 20, 1998
Page 2
(d) A short-form good standing certificate for the Company, dated
a recent date, issued by the MSDAT.
(e) A Certificate of Secretary of the Company, dated the date
hereof (the "Certificate"), as to certain factual matters.
(f) Such other documents as we have considered necessary to the
rendering of the opinions expressed below.
In our examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the legal capacity
of all individuals who have executed any of the aforesaid documents, the
authenticity of all documents submitted to us as originals, the conformity with
originals of all documents submitted to us as copies (and the authenticity of
the originals of such copies), and the accuracy and completeness of all public
records reviewed by us. In making our examination of documents executed by
parties other than the Company, we have assumed that such parties had the power,
corporate or other, to enter into and perform all obligations thereunder, and we
have also assumed the due authorization by all requisite action, corporate or
other, and the valid execution and delivery by such parties of such documents
and the validity, binding effect, and enforceability thereof with respect to
such parties. As to any facts material to this opinion which we did not
independently establish or verify, we have relied solely upon the Certificate.
Based upon the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion and so advise you that
the Shares have been duly authorized and are validly issued, fully paid, and
non-assessable.
In addition to the qualifications set forth above, this opinion is
subject to the qualification that we express no opinion as to the laws of any
jurisdiction other than the State of Maryland. This opinion concerns only the
effect of the laws (exclusive of the securities or "blue sky" laws and the
principles of conflict of laws) of the State of Maryland as currently in effect.
We assume no obligation to supplement this opinion if any applicable laws change
after the date hereof or if any facts or circumstances come to our attention
after the date hereof that might change this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission thereunder.
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
November 20, 1998
Page
We consent to the reliance on this opinion by Rogers & Wells L.L.P. in
rendering their opinion to the Company in connection with the filing of the
Registration Statement. This opinion is limited to the matters set forth herein,
and no other opinion should be inferred beyond the matters expressly stated.
Very truly yours,
/s/ PIPER & MARBURY L.L.P.
<PAGE>
Exhibit 8
November 20, 1998
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 West Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
Re: REIT Status of American Real Estate Investment Corporation
Ladies and Gentlemen:
We have acted as special counsel to American Real Estate Investment Corporation,
a Maryland corporation (the "Company") and the general partner of American Real
Estate Investment, L.P., a Delaware limited partnership (the "Operating
Partnership"), in connection with the preparation and filing of the Company's
Registration Statement on Form S-3 (as the same may be amended or supplemented
from time to time, the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), covering the possible offer and sale from time
to time of up to 892,009 shares of common stock, par value $0.001 per share (the
"Shares"), by the stockholders of the Company listed in the Registration
Statement. This opinion is being provided at your request in connection with the
filing of the Registration Statement.
In rendering the opinion expressed herein, we have examined and relied on the
following items:
1. The Registration Statement;
2. The Company's Charter;
3. The Amended and Restated Agreement of Limited Partnership of
the Operating Partnership dated December 12, 1997; and
4. Such other documents, records and instruments as we have
deemed necessary in order to enable us to render the opinion
referred to in this letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures of each original document are genuine,
<PAGE>
American Real Estate Investment Corporation Page 2
November 20, 1998
(iii) each party who executed the document had proper authority and capacity,
(iv) all representations and statements set forth in such documents are true and
correct, (v) all obligations imposed by any such documents on the parties
thereto have been or will be performed or satisfied in accordance with their
terms and (vi) the Company and the Operating Partnership at all times have been
and will continue to be organized and operated in accordance with the terms of
such documents. We have further assumed the accuracy of the statements and
descriptions of the Company's and the Operating Partnership's intended
activities as described in the Registration Statement and that the Company and
the Operating Partnership have operated and will continue to operate in
accordance with the method of operation described in the Registration Statement.
For purposes of rendering the opinion stated below, we have also assumed, with
your consent, the accuracy of the representations contained in the Certificate
of Representations, dated November 18, 1998, provided to us by the Company and
the Operating Partnership. These representations generally relate to the
classification and operation of the Company as a REIT and the organization and
operation of the Operating Partnership.
Based upon and subject to the foregoing, we are of the opinion that:
(1) Commencing with its taxable year ended December 31, 1993, the
Company was and is organized in conformity with the
requirements for qualification as a REIT under the Code and
that the present and proposed method of operation of the
Company and the Operating Partnership, as described in the
Registration Statement and as represented by the Company and
the Operating Partnership, will permit the Company to continue
to so qualify; and
(2) The information in the Registration Statement under the
heading "Federal Income Tax Considerations" has been reviewed
by us and, to the extent that it constitutes matters of law,
summaries of legal matters or documents, or legal conclusions,
is correct in all material respects.
The opinion stated above represents our conclusions as to the application of the
federal income tax laws existing as of the date of this letter to the
transactions contemplated in the Registration Statement and we can give no
assurance that legislative enactments, administrative changes or court decisions
may not be forthcoming that would modify or supersede our opinion. Moreover,
there can be no assurance that positions contrary to our opinion will not be
taken by the Internal Revenue Service, or that a court considering the issues
would not hold contrary to such opinion. Further, the opinion set forth above
represents our conclusions based upon the documents, facts and representations
referred to above. Any material amendments to such documents, changes in any
significant facts or inaccuracy of such representations could affect the opinion
referred to herein. Moreover, the Company's qualification and taxation as a REIT
depend upon the Company's ability to meet, through actual annual operating
results, requirements under the Code regarding income, assets, distributions and
diversity of stock ownership. Because the Company's satisfaction of these
requirements will depend on future events, no assurance can be given that the
actual results of the Company's operations for any particular taxable year will
satisfy the tests necessary to qualify as or be taxed as a REIT under the
<PAGE>
American Real Estate Investment Corporation Page 3
November 20, 1998
Code. Although we have made such inquiries and performed such investigations as
we have deemed necessary to fulfill our professional responsibilities as
counsel, we have not undertaken an independent investigation of all of the facts
referred to in this letter and the Certificate of Representations.
The opinion set forth in this letter: (i) is limited to those matters expressly
covered; no opinion is to be implied in respect of any other matter; (ii) is as
of the date hereof; and (iii) is rendered by us solely for your benefit and may
not be provided to or relied upon by any person or entity other than you without
our express consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the captions "Legal
Matters" and "Federal Income Tax Considerations" in the Registration Statement.
In giving this consent, we do not concede that we are within the category of
persons whose consent is required under the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Rogers & Wells LLP
<PAGE>
EXHIBIT 23.3
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated March 10, 1998 included in American Real Estate
Investment Corporation's Form 10-K for the year ended December 31, 1997 (and to
all references to our Firm) included in this Registration Statement on Form S-3
of American Real Estate Investment Corporation.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.
November 17, 1998
