As filed with the Securities and Exchange Commission on July 16, 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)
Maryland 84-1246585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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.
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Approximate date of commencement of proposed sale to the public: From
time to time or at one time after the effective date of this Registration
Statement as determined by market conditions.
----------------------------
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. <square>
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. <checked-box>
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. <square>_____
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. <square>_____
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. <square>
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum
Title of Class of Amount to be Offering Price Per Proposed Maximum Amount
of
Securities Being Registered Registered Share Aggregate Offering Price Registration
Fee
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share 1,092,051 shares $17.375(1) $18,974,386.12(1)
$5,597.44
</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 July 14,
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 July 16, 1998
PROSPECTUS
1,092,051 Shares
AMERICAN REAL ESTATE INVESTMENT CORPORATION
Common Stock
___________________
This Prospectus relates to the 1,092,051 shares of our Common Stock
which the entities described under "Selling Security Holders" may offer from
time to time on the American Stock Exchange (the "AMEX"), 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, at whatever prices
which are current when particular sales take place or at other prices to which
they agree. The respective Selling Security Holders will pay any brokerage
fees or commissions relating to sales by them. See "Method of Sale." The
Selling Security Holders received the shares to which this Prospectus relates
from us without registration. The registration of their shares does not
necessarily mean that any of 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 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
<PAGE>
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 Holders may
not sell these securities nor may they accept any offers to buy these
securities prior to the time the Registration Statement becomes effective.
This Prospectus is not an offer to sell or an offer to buy these securities in
any State where such offer or sale is not permitted.
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus or the applicable Prospectus Supplement. If
given or made, that information or representation must not be relied upon as
having been authorized by us or by any agent, underwriter or dealer. This
Prospectus does not, and no Prospectus Supplement will, constitute an offer to
sell, or a solicitation of an offer to buy, by any person in any jurisdiction
in which it is unlawful for that person to make such an offer or
solicitation. Neither the delivery of this Prospectus or any Prospectus
Supplement nor any sale of Common Stock will, under any circumstances, imply
that the information in this Prospectus or any Prospectus Supplement is
correct at any time after its date.
--------------------------
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 in accordance
therewith we file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). You may read and copy those
reports, proxy statements and other information which we file with the SEC at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the SEC 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 SEC 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 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 SEC 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 SEC or the AMEX in the manner described above.
INCORPORATION OF CERTAIN 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 Report on Form 10-Q for the calendar quarter ended
March 31, 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
and our Current Report on Form 8-K/A filed July 14, 1998;
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<PAGE>
(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 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
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).
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 REITs), 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.
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<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.
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 we 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
criteria, (ii) negotiate acceptable price and terms with the seller and (iii)
close on 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
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<PAGE>
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, 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 Affect 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") includes 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.
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 affect 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 (the
"OP Units") 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. The 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 37.8% of our company (assuming the conversion to Common Stock
of all 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 capital stock. Although we feel this ownership is
beneficial in aligning the interest of officers and directors with that of the
other shareholders, 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.
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<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 such, may face
different and more adverse tax consequences than will you 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 affected 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 May 30, 1998, our
ten largest tenants represented approximately 49.9% 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
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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 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 affected.
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. None of our Charter, By-laws or investment policies
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 and 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. Some of our properties are or may be mortgaged to secure
payments on our indebtedness. Certain other properties are secured by debt
which is cross-collateralized and cross-defaulted. As of the date of this
Prospectus, our mortgage debt totaled approximately $144.7 million (or 97.5%
of our total indebtedness), $38.8 million or approximately 26.8% 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%. On July 10, 1998, there was $38.8 million
outstanding under our Credit Facility. 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.
When a property or properties are mortgaged to secure payment of
indebtedness and 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 July 9, 1998, our indebtedness is equal to approximately 41.0% 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 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 advantageous
terms and meet our investment criteria. Acquisitions of office and industrial
properties entail risks that investments will fail to perform in accordance
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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, the leases may not be renewed, the space may not be
relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. 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 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
affect 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.
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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 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 15.
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 19.
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"). 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 22.
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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 22.
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) or exemptions from registration.
Such sales 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.
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.
<PAGE>
THE COMPANY
We are a self-administered, self-managed REIT engaged in the ownership,
acquisition and development of industrial and office properties. At July 9,
1998, we owned a portfolio of 49 properties comprised of 30 industrial
properties and 18 office properties containing an aggregate of 5.7 million
square feet (the "Properties"), and one non-core property comprised of 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%
leased to 163 tenants.
We conduct substantially all of our activities through, and substantially
all of the Properties are held directly or indirectly by, the Operating
Partnership. American Real Estate Investment Corporation is the sole general
partner of the Operating Partnership and owns, at July 9, 1998, approximately
55.7% of the OP Units. The remaining OP Units are owned by limited partners
of the Operating Partnership. Our officers and directors own approximately
38% of the outstanding OP Units as of July 9, 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, Attention: Investor Relations
(Telephone: (610) 834-7950). We also maintain regional offices in Franklin
Lakes, New Jersey, Albany, 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
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 the 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. 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 the Board of Directors from funds available therefor, and upon
liquidation are entitled to receive pro rata all assets of our company
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available for distribution to such holders. All shares of Common 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, the Board of Directors is authorized to provide for
the issuance of shares of Preferred Stock in one or more series, to establish
the number of shares in each series and to fix the terms thereof. The 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 lesser of 4.9% and the percentage obtained by dividing (i) 49.5%
minus the McBride Family Excepted Holder Limit (as defined in the Charter) by
(ii) two (the "Ownership Limit"), of the outstanding shares of Common Stock
(in value or number of shares, whichever is more restrictive) and 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 (A) (i)
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 (ii) 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 (B) the price per share received by the trustee from the sale or
disposition of the shares held in the trust.
All certificates representing capital stock will bear a legend referring
to the restrictions described above.
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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 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
This Prospectus relates to possible sales by the following Selling
Security Holders:
Shares Owned and
Name Which May Be Sold
Morgan Stanley Real Estate
Special Situations, Inc.{1} 44,320
Morgan Stanley Real Estate Special
Situations Investors, L.P.{1} 17,013
The Morgan Stanley Real Estate Special
Situations Fund I, L.P.{1} 200,000
The Morgan Stanley Real Estate Special
Situations Fund II, L.P.{1} 266,667
Stichting Bedrijfspensioenfonds Voor De
Metaalnijverheid{1} 132,000
Stichting Pensioenfonds ABP{1} 198,000
MS Special Funds Pte Ltd{1} 132,000
BellSouth Corp.{2} 34,051
IBM Retirement Fund{2} 20,000
PA State Employees Retirement System{2} 23,000
TRW Investment Mgt{2} 25,000
_________________
{1} Morgan Stanley Asset Management inc. acts as investment advisor to the
accounts that beneficially own these shares of Common Stock.
{2} CRA Real Estate Securities acts as investment advisor to the accounts
that beneficially own these shares of Common Stock
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Since the Selling Security Holders may sell all, some or none of their
shares of Common Stock, we cannot estimate the actual number of shares which
will be offered pursuant to this Prospectus.
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 shares of
Common Stock. We have registered their shares for resale to provide them with
freely tradeable securities. However, registration of their shares does not
necessarily mean that they will offer or sell any of their shares. We will
not receive any proceeds from the offering or sale of their shares.
Selling Security Holders (or pledgees, donees, transferees or other
successors in interest) may sell the shares of Common Stock 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 underwriters of dealers, directly to one or
more purchasers, through agents or in a combination of such methods of sale.
They will sell the Common Stock 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 Common Stock 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 Common Stock they
realize may be deemed to be underwriting discounts and commissions under the
Securities Act. Some sales may involve shares in which Selling Security
Holders have granted security interests and which are being sold because of
foreclosure of those security interests. 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. There is no present plan of distribution.
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
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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 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 19.
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 19.
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.
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
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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
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.
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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 22.
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 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
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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 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
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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
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 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
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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 18 months 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 18 months is 25% to the extent of the deductions for
depreciation (other than certain depreciation recapture taxable as ordinary
income) with respect to such property. The maximum rate of capital gains tax
for capital assets held more than one year but not more than 18 months is 28%.
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 stock are composed proportionately of
ordinary and capital gain dividends.
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
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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 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
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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 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
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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. 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, to the extent and for the
periods indicated in their reports and are incorporated by reference herein,
and have been so incorporated in reliance upon the authority of said firm as
experts in giving said reports.
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No dealer, salesperson or other person is authorized to give any information
or to make any representation not contained or incorporated by reference in
this Prospectus or the applicable Prospectus Supplement. If given or made,
that information or representation must not be relied upon as having been
authorized by us or by any agent, underwriter or dealer. This Prospectus does
not, and no Prospectus Supplement will, constitute an offer to sell, or a
solicitation of an offer to buy, by any person in any jurisdiction in which it
is unlawful for that person to make such an offer or solicitation. Neither
the delivery of this Prospectus or any Prospectus Supplement nor any sale of
Common Stock will, under any circumstances, imply that the information in this
Prospectus or any Prospectus Supplement is correct at any time after its date.
_______________
TABLE OF CONTENTS
Where You Can Find More Information................. 2
Incorporation of Certain Documents
by Reference....................................... 2
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................... 14
Legal Matters....................................... 23
Experts............................................. 23
_______________
1,092,051 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:
Registration fee -- Securities and Exchange Commission.... $5,597.44
Accounting fees and expenses.............................. 10,000.00 (a)
Legal fees and expenses................................... 30,000.00 (a)
Printing and engraving expenses............................ 5,000.00 (a)
Miscellaneous............................................. 15,000.00 (a)
--------------
Total................................................$65,597.44
==============
________________
(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 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.
Item 16. Exhibits
3.1 Amended and Restated Articles of Incorporation of the Registrant**
3.2 By-Laws of the Registrant**
3.3 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership**
4.1 Specimen of Common Stock Certificate**
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
<PAGE>
24 Powers of Attorney (included on signature pages hereto)
_____________________________
*To be filed by amendment or by a Current Report on Form 8-K pursuant to
the Securities Exchange Act of 1934, as appropriate.
**Previously filed.
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.
(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
<PAGE>
(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.
<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
July 16, 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 and Timothy E.
McKenna, his true and lawful attorney-in-fact and agent, each acting alone,
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, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, each acting alone, 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 they might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact or agent, each acting alone, or his substitute 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
- ------------------------
David F. McBride Chairman, Secretary and
Director (Principal
Executive Officer) July 16, 1998
/s/ Jeffrey E. Kelter
- ------------------------
Jeffrey E. Kelter President and
Director (Principal
Executive Officer) July 16, 1998
/s/ Timothy E. McKenna
- ------------------------
Timothy E. McKenna Treasurer (Principal Financial
and Accounting Officer) July 16, 1998
/s/ Timothy McBride
- -------------------------
Timothy McBride Director July 16, 1998
<PAGE>
/s/ Robert Branson
- -------------------------
Robert Branson Director July 16, 1998
/s/ James Mulvihill
- -------------------------
James Mulvihill Director July 16, 1998
/s/ Evan Zucker
- -------------------------
Evan Zucker Director July 16, 1998
/s/ Francesco Galesi
- -------------------------
Francesco Galesi Director July 16, 1998
/s/ David Lesser
- -------------------------
David Lesser Director July 16, 1998
<PAGE>
Exhibit 5.1
July 16, 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 1,092,051 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, validly issued and fully paid, and are
nonassessable by the Company.
<PAGE>
<PAGE>
American Real Estate 2 July 16, 1998
Investment Corporation
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.
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/ Rogers & Wells LLP
Exhibit 5.2
PIPER & MARBURY L.L.P.
CHARLES CENTER SOUTH
36 SOUTH CHARLES STREET
Baltimore, Maryland 21201-3018
410-539-2530
FAX: 410-539-0489
WASHINGTON
NEW YORK
PHILADELPHIA
EASTON
July 16, 1998
American Real Estate Investment Corporation
620 West Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Registration Statement of 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 July 16, 1998,
the "Registration Statement") of 1,092,051 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"). The
Company is registering the Shares pursuant to the terms of a Registration
Rights Agreement dated July 9, 1998 (the "Registration Rights Agreement") by
and among the Company and 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) The Registration Rights Agreement.
(d) 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.
(e) A short-form good standing certificate for the Company, dated a recent
date, issued by the MSDAT.
(f) A Certificate of Secretary of the Company, dated the date hereof (the
"Certificate"), as to certain factual matters.
(g) Such other documents as we have considered necessary to the rendering of
the opinions expressed below.
<PAGE>
2
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.
We consent to the reliance on this opinion by Rogers & Wells LLP, 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
Exhibit 8
Rogers & Wells
200 Park Avenue
New York, New York 10166
Tel: (212) 878-8000
Fax: (212) 878-8375
July 16, 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 1,092,051 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, (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 July 10, 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.
PAGE
<PAGE>
American Real Estate 2 July 16, 1998
Investment Corporation
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 Code. Although we have made such inquiries and
PAGE
<PAGE>
American Real Estate 3 July 16, 1998
Investment Corporation
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
Exhibit 23.3
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
July 16, 1998
