As filed with the Securities and Exchange Commission on July 10, 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>
Title of Each Class of Securities to be Registered Proposed Maximum Offering
Price Amount of Registration
Fee
- ------------------------------------------------- -------------------------------
- --------------------------
<S> <C>
<C>
Common Stock, Preferred Stock and $500,000,000(2) $151,515.16(3)
Depositary Shares Representing Preferred Stock(1)
</TABLE>
(1)Includes shares of Common Stock which may be issued upon conversion of
Preferred Stock or Depositary Shares which are being registered hereunder.
(2)Estimated solely for the purpose of calculating the registration fee.
(3)Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
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 10, 1998
PROSPECTUS
AMERICAN REAL ESTATE INVESTMENT CORPORATION
$500,000,000
Common Stock
Preferred Stock
and
Depositary Shares
___________________
We may from time to time offer our Common Stock, Preferred Stock
(which may be issued in one or more series), or depositary shares representing
shares of Preferred Stock ("Depositary Shares")(together, "Securities") at an
aggregate initial offering price which will not exceed $500,000,000. We may
offer Securities from time to time in amounts, at prices and on terms which
will be determined at the time of sale. Offerings may be of particular
Securities or of units consisting of two or more types of Securities. We may
sell Securities to or through underwriters, through agents or directly to
purchasers.
The terms of particular Securities will be described in a Prospectus
Supplement which will accompany this Prospectus, and may be described in a
term sheet which precedes the Prospectus Supplement. A Prospectus Supplement
relating to a series of Preferred Stock will describe, to the extent
applicable, its title, the maximum number of shares, the liquidation
preference per share, dividend rights (which may be fixed or participating and
may be cumulative or non-cumulative), voting rights, conversion rights,
redemption provisions and sinking fund or purchase fund requirements, as well
as any other material terms. A Prospectus Supplement relating to Depositary
Shares will describe, to the extent applicable, the fractional share of
Preferred Stock represented by each Depositary Share. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Securities, in each case as may be appropriate
to preserve our status as a real estate investment trust ("REIT") for federal
income tax purposes. The applicable Prospectus Supplement will also contain
information, where applicable, about all material federal income tax
considerations relating to, and any listing on a securities exchange of, the
Securities covered by such Prospectus Supplement.
Each Prospectus Supplement will also contain the names of the
underwriters or agents, if any, through which the Securities to which it
relates will be sold, the proposed amounts, if any, to be purchased by
underwriters, and the compensation, if any, of those underwriters or agents,
the initial public offering price, information about securities exchanges or
automated quotation systems on which the Securities will be listed or traded
and any other material information about the offering and sale of the
Securities. We may not sell any Securities without delivering the applicable
Prospectus Supplement describing the method and terms of the offering of such
series of Securities.
See "Risk Factors" beginning on page 4 for a discussion of certain
factors you should consider before you invest in our Securities.
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. We may not sell these securities
nor may we 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 Securities 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 American
Stock Exchange. You may also read our reports, proxy statements and other
information which we file at the offices of the American Stock Exchange, 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 American Stock Exchange 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 dated January 23, 1998, our
Current Report on Form 8-K/A dated February 24, 1998, our Current Reports on
Form 8-K dated April 10, 1998 and May 15, 1998, our Current Report on Form
8-K/A dated June 10, 1998 and our Current Report on Form 8-K dated July 7,
1998;
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(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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RISK FACTORS
Before you invest in our Securities, you should be aware that there are
various risks, including those described below and any that we may describe in
a Prospectus Supplement. You should consider carefully these risk factors
(and any in the applicable Prospectus Supplement) together with all of the other
information included or incorporated by reference in this Prospectus and in
the applicable Prospectus Supplement before you decide to purchase our
Securities. 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 Securities 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 Securities 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
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could adversely affect our operations or cash available for dividends. Our
financial performance and our ability to pay dividends to our stockholders
will be particularly sensitive to the economic conditions in those markets.
Our revenues and the value of our properties may be adversely affected by a
number of factors, 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 17.
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 could 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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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
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
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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 22.
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 26.
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 30.
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 30.
9
<PAGE>
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 17.
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.
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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 American Stock Exchange 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
Except as we may set forth in the applicable Prospectus Supplement, we
intend to apply the net proceeds from the sale of Securities for the repayment
of indebtedness outstanding from time to time, the financing of capital
commitments, acquisitions and other general corporate purposes.
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RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the most recent
interim period and for each of the last five fiscal years are presented below:
<TABLE>
<CAPTION>
Alpine
Period Affiliates
from (Predecessor
Inception Combined
November 10 Period
1993 from January 1
Three Months to to
Ended Fiscal Years ended December 31 December 31, November 9,
- ------------ ------------------------------ ------------ -------------
March 31, 1998 1997 1996 1995 1994 1993 1993
- -------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1.94 0.10(a) 1.09 0.96(b) 1.24 2.11 1.09
(a)Earnings in 1997 were not adequate to cover fixed charges. The coverage
deficiency was $2,868,000. Earnings included $3,203,000 of non-recurring
charges associated with the buyout of certain employment agreements, options
and warrants as a result of the reorganization of the Company on December 12,
1997. Had these charges not been incurred the ratio of earnings to fixed
charges would have been 1.11 for 1997.
(b)Earnings in 1995 were not adequate to cover fixed charges. The coverage
deficiency was $168,000.
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income before gains on
sales of property, outside partners' minority interests in the income of the
Operating Partnership and equity in earnings (losses) from unconsolidated
investments. Fixed charges consist of interest expense, which include
amortization of deferred financing costs. Earnings and fixed charges are
based on the Company's proportionate share of unconsolidated investments
earnings and fixed charges.
There was no Preferred Stock outstanding for any of the periods shown
above. Accordingly, the ratio of earnings to combined fixed charges and
Preferred Stock dividends is identical to the ratio of earnings to fixed
charges. If we issue Preferred Stock, the ratios of earnings to fixed charges
and the ratio of earnings to combined fixed charges and Preferred Stock
dividends will be set forth in the applicable Prospectus Supplement.
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
available for distribution to such holders. All shares of Common Stock
12
<PAGE>
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.
Preferred Stock
General. No shares of Preferred Stock are outstanding at the date of
this Prospectus. However, 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 Preferred Stock will, when issued, be fully paid and
nonassessable and will have no preemptive rights. 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.
Terms of Preferred Stock that We May Offer. The following description of
the Preferred Stock sets forth certain general terms and provisions of the
Preferred Stock to which any Prospectus Supplement may relate. The statements
below describing the Preferred Stock are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the
Charter and our By-laws and any articles supplementary to the Charter
designating terms of a series of Preferred Stock (the "Articles
Supplementary").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including, to the extent applicable:
(1)the title of such Preferred Stock;
(2)the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3)the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4)the date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5)the provision for a sinking fund, if any, for such Preferred Stock;
(6)the provision for redemption, if applicable, of such Preferred Stock;
(7)any listing of such Preferred Stock on any securities exchange;
(8)the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock or other capital stock, including
the conversion price or rate (or manner of calculation thereof);
(9)any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock, including voting rights, if any;
(10)a discussion of federal income tax considerations applicable to such
Preferred Stock;
(11)the relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of our company;
13
<PAGE>
(12)any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs
of our company; and
(13)any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status as a REIT.
Rank. Unless otherwise specified in the applicable Prospectus
Supplement, the Preferred Stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of our company, rank (i)
senior to all classes or series of Common Stock and to all equity securities
ranking junior to such Preferred Stock with respect to dividend rights or
rights upon liquidation, dissolution or winding up of our company; (ii) on a
parity with all of our equity securities, the terms of which specifically
provide that such equity securities rank on a parity with the Preferred Stock
with respect to dividend rights or rights upon liquidation, dissolution or
winding up of our company; and (iii) junior to all of our equity securities,
the terms of which specifically provide that such equity securities rank
senior to the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of our company.
Dividends. Holders of the Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Board of Directors, out
of assets legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on our
share transfer books on such record dates as shall be fixed by the Board of
Directors.
Dividends on any series of the Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set forth
in the applicable Prospectus Supplement. If the Board of Directors fails to
declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are noncumulative, then the holders of
such series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and we
will have no obligation to pay the dividend accrued for such period, whether
or not dividends on such series are declared payable on any future dividend
payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any of our capital stock of any
other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period, unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid, or declared and a sum sufficient
for the payment thereof is set apart for such payment on the Preferred Stock
of such series for all past dividend periods and the then current dividend
period, or (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends for the then current dividend period have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of
such series. When dividends are not paid in full (or a sum sufficient for
such full payment is not so set apart) upon Preferred Stock of any series and
the shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Preferred Stock of such series, all dividends declared upon
Preferred Stock of such series and any other series of Preferred Stock ranking
on a parity as to dividends with such Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share of Preferred Stock of
such series and such other series of Preferred Stock shall in all cases bear
to each other the same ratio that accrued dividends per share on the Preferred
Stock of such series (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend) and such other series of Preferred Stock bear to
each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Stock of
such series that may be in arrears.
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Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid, or declared and a sum sufficient for the payment
thereof is set apart for payment for all past dividend periods and the then
current dividend period, or (ii) if such series of Preferred Stock does not
have a cumulative dividend, full dividends on the Preferred Stock of such
series have been or contemporaneously are declared and paid, or declared and a
sum sufficient for the payment thereof is set apart for payment for the then
current dividend period, no dividends (other than in shares of Common Stock or
other shares of capital stock ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation) shall be declared or paid or set
aside for payment nor shall any other dividend be declared or made upon the
Common Stock or any other capital stock of our company ranking junior to or on
a parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of our company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any such
shares) by us (except by conversion into or exchange for other capital stock
of our company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series that remain payable.
Redemption. If so provided in the applicable Prospectus Supplement, the
Preferred Stock will be subject to mandatory redemption or redemption at our
option, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The applicable Prospectus Supplement relating to a series of Preferred
Stock that is subject to mandatory redemption will specify the number of
shares of such Preferred Stock that we shall redeem in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Stock of any series is payable only from
the net proceeds of the issuance of shares of our capital stock, the terms of
such Preferred Stock may provide that if no such shares of capital stock shall
have been issued, or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into the
applicable shares of our capital stock pursuant to conversion provisions
specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Stock shall have been or contemporaneously are declared
and paid, or declared and a sum sufficient for the payment thereof set apart
for payment for all past dividend periods and the then current dividend
period, or (ii) if a series of Preferred Stock does not have a cumulative
dividend, full dividends on all shares of the Preferred Stock of such series
have been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no shares of such series of Preferred Stock shall be redeemed
unless all outstanding shares of Preferred Stock of such series are
simultaneously redeemed; provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Stock of such series to
preserve our REIT status or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding shares of Preferred Stock of such
series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of
such series of Preferred Stock have been or contemporaneously are declared and
paid, or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, or
(ii) if such series of Preferred Stock does not have a cumulative dividend,
full dividends on the Preferred Stock of such series have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, we shall not purchase or otherwise acquire directly or indirectly any
15
<PAGE>
shares of such series of Preferred Stock (except by conversion into or
exchange for our capital shares ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation); provided, however, that the
foregoing shall not prevent the purchase or acquisition of shares of Preferred
Stock of such series to preserve our REIT status or pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares of
Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, we will determine the number of shares to be
redeemed and we may redeem such shares pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption
of fractional shares) or by any other equitable manner which we decide.
We will mail a notice of redemption at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on our stock transfer books.
Each notice shall state: (i) the redemption date; (ii) the number of shares
and series of the Preferred Stock to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such Preferred Stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi)
the date upon which the holder's conversion rights, if any, as to such shares
shall terminate. If fewer than all the shares of Preferred Stock of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of shares of Preferred Stock to be redeemed from each
such holder. If we have given notice of redemption of any Preferred Stock and
if we have set aside the funds necessary for such redemption in trust for the
benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date, dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of our company, then, before any
distribution or payment shall be made to the holders of any Common Stock or
any other class or series of our capital stock ranking junior to the Preferred
Stock in the distribution of assets upon any liquidation, dissolution or
winding up of our company, the holders of each series of Preferred Stock shall
be entitled to receive out of our assets legally available for distribution to
stockholders liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable Prospectus
Supplement, plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
Preferred Stock will have no right or claim to any of our remaining assets.
If, upon any such voluntary or involuntary liquidation, dissolution or winding
up, our available assets are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of our
capital stock ranking on a parity with the Preferred Stock in the distribution
of assets, then the holders of the Preferred Stock and all other such classes
or series of capital stock ranking on parity with the Preferred Stock shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If we have made liquidating distributions in full to all holders of
Preferred Stock, our remaining assets shall be distributed among the holders
of any other classes or series of capital stock ranking junior to the
Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger
of our company with or into any other corporation, trust or entity, or the
sale, lease or conveyance of all or substantially all of our property or
business, shall not be deemed to constitute a liquidation, dissolution or
winding up of our company.
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<PAGE>
Voting Rights. Holders of the Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required
by law or as indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock of a series remain outstanding, we will not,
without the affirmative vote or consent of the holders of at least a majority
of the shares of such series of Preferred Stock outstanding at the time, given
in person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking senior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock into such shares, or create, authorize
or issue any obligation or security convertible into or evidencing the right
to purchase any such shares, or (ii) amend, alter or repeal the provisions of
the Charter or the Articles Supplementary for such series of Preferred Stock,
whether by merger, consolidation or otherwise (an "Event"), so as to
materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any Event set forth in (ii) above,
so long as the Preferred Stock remains outstanding with the terms thereof
materially unchanged, taking into account that upon the occurrence of an Event
we may not be the surviving entity, the occurrence of any such Event shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Stock; and provided further
that (a) any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock or (b) any
increase in the amount of authorized shares of such series or any other series
of Preferred Stock, in each case ranking on a parity with or junior to the
Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which any
series of Preferred Stock is convertible into Common Stock will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include the number of shares of Common Stock into which the shares of
Preferred Stock are convertible, the conversion price or rate (or manner of
calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred Stock or at
our option, the events requiring an adjustment of the conversion price and the
provisions affecting conversion in the event of the redemption of such series
of Preferred Stock.
Transfer Agent. The transfer agent and registrar for the Preferred Stock
will be set forth in the applicable Prospectus Supplement.
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
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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.
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.
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DESCRIPTION OF DEPOSITARY SHARES
We may issue receipts ("Depositary Receipts") representing fractional
interests in shares of a particular series of Preferred Stock ("Depositary
Shares"). We will deposit the Preferred Stock of a series which is the
subject of Depositary Shares with a depositary (the "Depositary"), which will
hold that Preferred Stock for the benefit of the holders of the Depositary
Shares, in accordance with a deposit agreement (each, a "Deposit Agreement")
between us and the Depositary. The holders of Depositary Shares will be
entitled to all the rights and preferences of the series of Preferred Stock to
which the Depositary Shares relate, including dividend, voting, conversion,
redemption and liquidation rights, to the extent of their interests in that
Preferred Stock.
While the Deposit Agreement relating to a particular series of Preferred
Stock may have provisions applicable solely to that series of Preferred Stock,
all Deposit Agreements relating to our Preferred Stock will include the
following provisions:
Dividends and Other Distributions
Each time we pay a cash dividend or make any other type of cash
distribution with regard to Preferred Stock of a series, the Depositary will
distribute to the holder of record of each Depositary Share relating to that
series of Preferred Stock an amount equal to the total dividend or other
distribution received by the Depositary on the Preferred Stock of the series
held by it divided by the total number of outstanding Depositary Shares
relating to the series (which will be the same fraction of the dividend or
other distribution paid per share of Preferred Stock that each Depositary
Share is of a share of Preferred Stock). If there is a distribution of
property other than cash, the Depositary either will distribute the property
to the record holders of Depositary Shares in proportion to the Depositary
Shares held by each of them, or the Depositary will, with our approval, sell
the property and distribute the net proceeds from the sale to the record
holders of the Depositary Shares in proportion to the Depositary Shares held
by them.
Withdrawal of Preferred Stock
A holder of Depositary Shares will be entitled to receive, upon surrender
of Depositary Receipts representing Depositary Shares, the number of whole or
fractional shares of the applicable series of Preferred Stock, and any money
or other property, to which the Depositary Shares relate.
Redemption of Depositary Shares
Whenever we redeem shares of Preferred Stock held by a Depositary, the
Depositary will be required to redeem, on the same redemption date, Depositary
Shares constituting, in total, the number of shares of Preferred Stock held by
the Depositary which are redeemed, subject to the Depositary's receiving the
redemption price of those shares of Preferred Stock. If fewer than all the
Depositary Shares are to be redeemed, we will select the Depositary Shares to
be redeemed pro rata or by another method which we determine to be equitable
and which preserves our status as a REIT.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue,
the Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts
evidencing the Depositary Shares so called for redemption will cease, except
the right to receive any amounts payable upon such redemption and any money or
other property to which the holders of such Depositary Receipts were entitled
upon such redemption upon surrender thereof to the applicable Depositary.
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Voting
Any time we send the holders of a series of Preferred Stock to which
Depositary Shares relate a notice of meeting or other materials relating to a
meeting of the holders of that series of Preferred Stock, we will provide the
Depositary with sufficient copies of those materials so they can be sent to
all holders of record of the applicable Depositary Shares on the record date
for the meeting, and the Depositary will send those materials to the holders
of record of the Depositary Shares on that record date. The Depositary will
solicit voting instructions from holders of Depositary Shares and will vote or
not vote the Preferred Stock to which the Depositary Shares relate in
accordance with those instructions. A Depositary will not be responsible for
any failure to carry out any instruction to vote, or for the manner or effect
of any such vote made, as long as such action or non-action is in good faith
and does not result from negligence or willful misconduct of such Depositary.
Liquidation Preference
Upon our liquidation, dissolution or winding up, whether voluntary or
involuntary, the holder of each Depositary Share will be entitled to a
fraction of the sum distributed to the holder of a share of the applicable
series of Preferred Stock equal to the fraction of a share of that Preferred
Stock represented by the Depositary Share.
Conversion
If shares of a series of Preferred Stock are convertible into Common
Stock or other securities or property of our company, holders of Depositary
Shares relating to that series of Preferred Stock will, if they surrender
Depositary Receipts representing Depositary Shares and give us appropriate
instructions to convert them, receive the shares of Common Stock or other
securities or property into which the number of shares (or fractions of
shares) of Preferred Stock to which the Depositary Shares relate could at the
time be converted.
Amendment and Termination of a Deposit Agreement
A Deposit Agreement may be amended by agreement between us and the
Depositary, except that an amendment which materially and adversely affects
the rights of holders of Depositary Shares or would be materially and
adversely inconsistent with the rights granted to the holders of the Preferred
Stock to which they relate, must be approved by holders of at least two-thirds
of the outstanding Depositary Shares. No amendment will impair the right of a
holder of Depositary Shares to surrender the Depositary Receipts evidencing
those Depositary Shares and receive the Preferred Stock to which they relate,
except as required to comply with law. Every holder of an outstanding
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
We may terminate a Deposit Agreement if such termination is necessary to
preserve our REIT status or with the consent of holders of a majority of the
Depositary Shares to which it relates. Upon termination of a Deposit
Agreement, the Depositary will make the whole or fractional shares of
Preferred Stock to which the Depositary Shares issued under the Deposit
Agreement relate available to the holders of those Depositary Shares. We will
agree that if a Deposit Agreement is terminated to preserve our REIT status,
then we will use our best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange.
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A Deposit Agreement will automatically terminate if (i) all outstanding
Depositary Shares to which it relates have been redeemed or converted or (ii)
a final distribution upon liquidation, dissolution or winding up of our
company has been made to the holders of the Depositary Shares issued under the
Deposit Agreement.
Miscellaneous
There will be provisions (i) requiring the Depositary to forward to
holders of record of Depositary Shares any reports or communications from us
which are received by the Depositary with respect to the Preferred Stock to
which the Depositary Shares relate, (ii) regarding compensation of the
Depositary, (iii) regarding the removal or resignation of the Depositary, (iv)
limiting our liability and the liability of the Depositary under the Deposit
Agreement (usually to failure to act in good faith, gross negligence or wilful
misconduct) and (v) indemnifying the Depositary against certain possible
liabilities.
METHOD OF SALE
We may sell Securities through underwriters or dealers, or we may sell
Securities directly to one or more purchasers (including our executive
officers or other persons that may be deemed to be our affiliates) or through
agents or through a combination of any such methods of sale. Any underwriter
or agent involved in the offer and sale of Securities will be named in the
applicable Prospectus Supplement.
We may effect the distribution of the Common Stock from time to time in
one or more transactions (which may involve block transactions) on the
American Stock Exchange or otherwise pursuant to and in accordance with the
applicable rules of the American Stock Exchange, in the over-the-counter
market, in negotiated transactions, or through the issuance of Preferred Stock
convertible into Common Stock (whether such Preferred Stock is listed on a
securities exchange or otherwise), or a combination of such methods of
distribution, at market prices prevailing at the time of the sale, at prices
related to such prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from us or from purchasers of the Securities, for whom
they may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell the Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of the Securities may be deemed to be underwriters under the
Securities Act, and any discounts or commissions they receive from us and any
profit on the resale of the Securities they realize may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
underwriter or agent will be identified, and any such compensation received
from us will be described, in the applicable Prospectus Supplement.
Unless we otherwise specify in the applicable Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the American Stock Exchange.
Any shares of Common Stock sold pursuant to a Prospectus Supplement will be
listed on the American Stock Exchange, subject to official notice of
issuance. We may elect to list any series of Preferred Stock on an exchange,
but are not obligated to do so. It is possible that one or more underwriters
may make a market in a series of Securities, but will not be obligated to do
so and may discontinue any market making at any time without notice.
Therefore, no assurance can be given as to the liquidity of, or the trading
market for, the Securities.
Under agreements into which we may enter, underwriters, dealers and
agents who participate in the distribution of the Securities may be entitled
to indemnification against and contribution toward certain liabilities by us,
including liabilities under the Securities Act.
Underwriters, dealers and agents may be a tenant in one of our Properties
and they may engage in transactions with us and they may perform services for
us in the ordinary course of business.
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In order to comply with the securities laws of certain states, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states,
the Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities may not simultaneously engage in
market making activities with respect to the Securities for a period of two
business days prior to the commencement of such 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
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
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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 26.
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 26.
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
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
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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.
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 30.
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
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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
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.
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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
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
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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
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
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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 oridinary 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
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.
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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 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
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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
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,
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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
Securities offered by this Prospectus, as well as certain legal matters
described under "Federal Income Tax Considerations." If the validity of any
Securities is also passed upon by counsel for any underwriters, dealers or
agents of an offering of those Securities, that counsel will be named in the
Prospectus Supplement relating to that offering. 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
Securities 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
Page
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
Ratio of Earnings to Fixed Charges.......................... 12
Description of Capital Stock................................ 12
Description of Depositary Shares............................ 19
Method of Sale ............................................. 21
Federal Income Tax Considerations........................... 22
Legal Matters............................................... 31
Experts..................................................... 31
_______________
=====================================================
=============
$500,000,000
American Real Estate Investment Corporation
Common Stock
Preferred Stock
and
Depositary Shares
_______________
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.$151,515.16
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 $211,515.16
==============
________________
(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
1.1 Form of Underwriting Agreement (for Common Stock)*
1.2 Form of Underwriting Agreement (for Preferred Stock)*
3.1 Amended and Restated Articles of Incorporation of the Registrant**
3.2 By-Laws of the Registrant**
3.3 Form of Articles Supplementary of the Registrant*
3.4 Amended and Restated Agreement of Limited Partnership of
the Operating Partnership**
4.1 Specimen of Common Stock Certificate**
<PAGE>
4.2 Form of Preferred Stock Certificate*
4.3 Form of Deposit Agreement (for Preferred Stock)*
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
12 Calculation of ratios of earnings to fixed charges
23.1 Consent of Rogers & Wells LLP (included in Exhibits 5.1 and 8)
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2)
23.3 Consent of Arthur Andersen LLP
24 Powers of Attorney (included on signature pages hereto)
_____________________________
*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
<PAGE>
registration statement relating to the securities offered herein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
(5) That, (i) for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective and (ii) for
the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of counsel for
the Registrant the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
<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 10, 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.
</TABLE>
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C> <C>
/s/ David F. McBride
David F. McBride Chairman, Secretary and
Director (Principal
Executive Officer) July 10, 1998
/s/ Jeffrey E. Kelter
-------------------------
Jeffrey E. Kelter President and
Director (Principal
Executive Officer) July 10, 1998
/s/ Timothy E. McKenna
-----------------------
Timothy E. McKenna Treasurer (Principal Financial
and Accounting Officer) July 10, 1998
/s/ Timothy McBride
------------------------
Timothy McBride Director July 10, 1998
/s/ Robert Branson
------------------------
Robert Branson Director July 10, 1998
/s/ James Mulvihill
-----------------------
James Mulvihill Director July 10, 1998
/s/ Evan Zucker
------------------------
Evan Zucker Director July 10, 1998
/s/ Francesco Galesi
-------------------------
Francesco Galesi Director July 10, 1998
/s/ David Lesser
-------------------------
David Lesser Director July 10, 1998
</TABLE>
Exhibit 5.1
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Tel: (212) 878-8000
Fax: (212) 878-8375
July 10, 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 offer and sale by the Company from time to time of up to $500,000,000
of its (a) shares of common stock, par value $0.001 per share (the "Common
Stock"), and (b) shares or fractional shares of preferred stock, par value
$0.001 per share (the "Preferred Stock"), which may be issued in the form of
depositary shares (the "Depositary Shares") evidenced by depositary receipts
(the "Depositary Receipts"). The Common Stock, the Preferred Stock and the
Depositary Shares are collectively referred to as the "Securities." The
Registration Statement provides that the Securities may be offered separately
or together, in separate series, in amounts, at prices and on terms to be set
forth in one or more supplements to the prospectus (the "Prospectus" and each,
a "Prospectus Supplement").
The Depositary Shares will be issued under one or more deposit agreements
(each, a "Deposit Agreement"), each to be between the Company and a financial
institution identified therein as depositary (each, a "Depositary").
<PAGE>
<PAGE>
American Real Estate 2 July 10, 1998
Investment Corporation
In rendering the opinions expressed herein, we have examined the Registration
Statement, the Company's Amended and Restated Articles of Incorporation (the
"Charter") and 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 materials 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.
We understand that prior to offering for sale any Securities the Company will
advise us in writing of the terms of such offering and of such Securities, will
afford us an opportunity to review the operative documents (including the
applicable Prospectus Supplement and any underwriting agreement) pursuant to
which the Securities are to be offered, sold and issued, and will file as an
exhibit to the Registration Statement such supplement or amendment to this
opinion (if any) as we may reasonably consider necessary or appropriate by
reason of the terms of such Securities or any changes in the Company's capital
structure or other pertinent circumstances.
We assume that (i) prior to the issuance of any shares of Common Stock,
Preferred Stock or Depository Shares (or Securities convertible into shares of
Common Stock), there will exist, under the Charter, the requisite number of
authorized but unissued shares of Common Stock or Preferred Stock, as the case
may be; and (ii) appropriate certificates representing shares of Common Stock
or Preferred Stock, as the case may be, or Depository Receipts evidencing
Depository Shares, will be executed and delivered upon the issuance and sale of
any such Securities, and that such certificates or Depository Receipts will
comply with all applicable requirements of Maryland law.
We assume that (i) the issuance, sale, amount and terms of the Securities to
be offered from time to time will be authorized and determined by proper
action of the Board of Directors of the Company in accordance with the
parameters described in the Registration Statement (each, a "Board Action")
and will be in accordance with the Charter and applicable Maryland law, (ii)
the resolutions authorizing the Company to register, offer, sell, and issue
the Securities will remain in effect and unchanged at all times during which
the Securities are offered, sold, or issued by the Company, (iii) the
Registration Statement, and any amendments thereto, will have become, and at
the time of issuance of the Securities will continue to be effective, (iv) a
Prospectus Supplement relating to the Securities offered pursuant to the
Registration Statement will have been filed with the Commission, and (v) all
Securities will be issued in compliance with applicable federal and state
securities laws.
<PAGE>
<PAGE>
American Real Estate 3 July 10, 1998
Investment Corporation
To the extent that the obligations of the Company under a Deposit Agreement
may be dependent upon such matters, we assume for purposes of this opinion
that the Depositary is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; that the Depositary is
duly qualified to engage in the activities contemplated by the Deposit
Agreement; that the Deposit Agreement has been duly authorized, executed and
delivered by the Depositary and constitutes the legally valid and binding
obligation of the Depositary enforceable against the Depositary in accordance
with its terms; that the Depositary is in compliance, generally, with respect
to acting as Depositary under the Deposit Agreement, with all applicable laws
and regulations; and that the Depositary has the requisite organizational and
legal power and authority to perform its obligations under the Deposit
Agreement.
Based upon the foregoing and such examination of law as we have deemed
necessary, and subject to the qualifications and exceptions set forth herein,
we are of the opinion that:
1.When the Registration Statement has become effective under the
Securities Act and a series of the Preferred Stock has been duly authorized
and established in accordance with the applicable Board Action, the terms of
the Charter and applicable Maryland law, such shares of Preferred Stock when
issued and sold and delivered to the purchaser or purchasers thereof against
receipt by the Company of lawful consideration therefor (a) in the manner
contemplated by the applicable Board Action, the Registration Statement, the
Prospectus or the applicable Prospectus Supplement and, if applicable, an
underwriting agreement relating to the issuance of such Preferred Stock, or
(b) pursuant to the exchange of validly issued and fully paid Depositary
Shares in accordance with the terms of an applicable valid and binding Deposit
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable by the Company.
2.When the Registration Statement has become effective under the
Securities Act, the Depositary Shares have been duly authorized and
established in accordance with the applicable Board Action, and the Depositary
Receipts in the form contemplated and authorized by a Deposit Agreement have
been duly executed and delivered by the Depositary and delivered to the
purchaser or purchasers thereof against receipt by the Company of lawful
consideration therefor in the manner contemplated by such Board Action, the
Registration Statement, the Prospectus or the applicable Prospectus Supplement
and, if applicable, an underwriting agreement relating to the issuance of such
Depositary Shares, such Depositary Shares will be validly issued and will
entitle the holders thereof to the rights specified in the Depositary Receipts
and such Deposit Agreement.
<PAGE>
<PAGE>
American Real Estate 4 July 10, 1998
Investment Corporation
3.When the Registration Statement has become effective under the
Securities Act and such shares of Common Stock have been issued and sold and
delivered to the purchaser or purchasers thereof against receipt by the
Company of lawful consideration therefor (a) in the manner contemplated by the
applicable Board Action, the Registration Statement, the Prospectus or the
applicable Prospectus Supplement and, if applicable, an underwriting agreement
relating to the issuance of such shares, or (b) pursuant to the conversion of
validly issued and fully paid and non-assessable shares of Preferred Stock in
accordance with the established terms of such Preferred Stock, such shares of
Common Stock issued thereby will be duly authorized, validly issued, fully
paid and non-assessable by the Company.
The opinions stated herein relating to the validity and binding nature of
obligations of the Company are subject to (i) the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and (ii) the effect of general principles of
equity (regardless of whether considered in a proceeding in equity or at
law).
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 Prospectus.
Very truly yours,
/s/ Rogers & Wells LLP
EXHIBIT 5.2
PIPER & MARBURY
L. L. P.
CHARLES CENTER SOUTH
36 SOUTH CHARLES STREET WASHINGTON
Baltimore, Maryland 21201-3018 NEW YORK
410-539-2530 PHILADELPHIA
FAX: 410-539-0489 EASTON
July 10, 1998
American Real Estate Investment Corporation
620 West Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have acted as special Maryland counsel to American Real Estate
Investment Corporation, a Maryland corporation (the "Company"), in connection
with the registration under the Securities Act of 1933, as amended (the "Act"),
pursuant to a Registration Statement on Form S-3 of the Company, filed with the
Securities and Exchange Commission (the "Commission") on July 10, 1998, (the
"Registration Statement"), including the prospectus included therein at the
time the Registration Statement is declared effective (the "Prospectus"), for
offering by the Company from time to time of up to $500,000,000 aggregate
initial offering price of: (i) shares of Common Stock, par value $.001 per
share (the "Common Stock"); and (ii) shares or fractional shares of Preferred
Stock, par value $.001 per share (the "Preferred Stock"), including the
Preferred Stock that is convertible into the Common Stock or other capital
stock of the Company (the "Convertible Preferred Stock"), which Preferred Stock
may be issued in the form of depositary shares (the "Depositary Shares")
evidenced by depositary receipts (the "Depositary Receipts"). The Common Stock,
the Preferred Stock, and the Depositary Shares, are collectively referred to as
the "Securities." The Registration Statement provides that the Securities may
be offered separately or together, in separate series, in amounts, at prices,
and on terms to be set forth in one or more supplements to the Prospectus (each
a "Prospectus Supplement"). 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:
<PAGE>
American Real Estate Investment Corporation Piper & Marbury
July 10, 1998 L.L.P.
Page 2
(a) The Registration Statement.
(b) The Charter of the Company, certified by the Department of
Assessments and Taxation of the State of Maryland (the "MSDAT"), and By-
Laws of the Company, as amended and restated and in effect on the date
hereof.
(c) Certified resolutions of the Board of Directors of the Company
relating to the Company's organization and to the Board's authorization
of the filing of the Registration Statement.
(d) A short-form good standing certificate for the Company, dated a
recent date, issued by the MSDAT.
(e) A Certificate of Secretary of the Company, dated the date hereof
(the "Certificate"), as to certain factual matters.
(f) Such other documents as we have considered necessary to the
rendering of the opinions expressed below.
In our examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the legal
capacity of all individuals who have executed any of the aforesaid documents,
the authenticity of all documents submitted to us as originals, the
conformity with originals of all documents submitted to us as copies (and the
authenticity of the originals of such copies), and the accuracy and
completeness of all public records reviewed by us. In making our examination
of documents executed by parties other than the Company, we have assumed that
such parties had the power, corporate or other, to enter into and perform all
obligations thereunder, and we have also assumed the due authorization by all
requisite action, corporate or other, and the valid execution and delivery by
such parties of such documents and the validity, binding effect, and
enforceability thereof with respect to such parties. As to any facts material
to this opinion which we did not independently establish or verify, we have
relied solely upon the Certificate.
We further assume that:
(a) The issuance, sale, amount, and terms of the Securities to be
<PAGE>
American Real Estate Investment Corporation Piper & Marbury
July 10, 1998 L.L.P.
Page 3
offered from time to time by the Company will be authorized and
determined by proper action of the Board of Directors of the Company
(each, a "Board Action") in accordance with the Company's Charter and
By-Laws and applicable law, in each case so as not to result in a
default under or breach of any agreement or instrument binding upon the
Company and so as to comply with any requirement or restriction imposed
by any court or governmental or regulatory body having jurisdiction over
the Company.
(b) Prior to the issuance of any shares of the Common Stock or the
Preferred Stock (including any Depositary Shares), there will exist,
under the Charter of the Company, the requisite number of authorized but
unissued shares of the Common Stock or the Preferred Stock (and
securities of any class into which any Preferred Stock may be
convertible), as the case may be, and that all actions necessary to the
creation of any such Preferred Stock (and securities of any class into
which any Preferred Stock may be convertible), whether by Charter
amendment or by classification or reclassification of existing capital
stock and the filing of Articles Supplementary, will have been taken.
(c) Appropriate certificates representing shares of the Common Stock
or the Preferred Stock will be executed and delivered upon issuance and
sale of any shares of the Common Stock or the Preferred Stock (including
any Depositary Shares), as the case may be, and will comply with the
Company's Charter and By-Laws and all applicable requirements of law.
(d) Any Depositary Shares will be issued under a valid and legally
binding deposit agreement (each, a "Deposit Agreement") that conforms to
the description thereof set forth in the Prospectus or the applicable
Prospectus Supplement, and will comply with the Company's Charter and
By-Laws and all applicable requirements of law.
(e) Appropriate Depositary Receipts representing the Depositary Shares
will be executed and delivered upon issuance and sale of any Depositary
Shares and will comply with the Company's Charter and By-Laws, the
Deposit Agreement, and all applicable requirements of law.
<PAGE>
American Real Estate Investment Corporation Piper & Marbury
July 10, 1998 L.L.P.
Page 4
(f) The underwriting or purchase agreements for offerings of the
Securities (each, an "Underwriting Agreement," and collectively, the
"Underwriting Agreements") will be valid and legally binding contracts
that conform to the description thereof set forth in the Prospectus or
the applicable Prospectus Supplement.
(g) To the extent that the obligations of the Company under any
Deposit Agreement may be dependent upon such matters, the financial
institution to be identified in such Deposit Agreement as depositary
(the "Depositary") will be duly organized, validly existing, and in good
standing under the laws of its jurisdiction of organization; the
Depositary will be duly qualified to engage in the activities
contemplated by such Deposit Agreement; such Deposit Agreement will have
been duly authorized, executed, and delivered by the Depositary and will
constitute the legally valid and binding obligation of the Depositary
enforceable against the Depositary in accordance with its terms; the
Depositary will be in compliance, generally, with respect to acting as
Depositary under such Deposit Agreement, with all applicable laws and
regulations; and the Depositary will have the requisite organizational
and legal power and authority to perform its obligations under such
Deposit Agreement.
Based upon the forgoing and having regard for such legal consideration as we
deem relevant, we are of the opinion and advise you that:
(1) Upon due authorization by Board Action of an issuance of Common
Stock, and upon issuance and delivery of certificates for shares of
such Common Stock against payment therefor in accordance with the
terms and provisions of such Board Action, the Registration
Statement (as declared effective under the Act), the Prospectus or
the applicable Prospectus Supplement and, if applicable, an
Underwriting Agreement, or upon issuance and delivery of
certificates for shares of such Common Stock pursuant to the
conversion of one or more series of Preferred Stock convertible into
Common Stock, the shares of Common Stock represented by such
certificates will be duly authorized, validly issued, fully paid,
and non-assessable.
(2) When a series of the Preferred Stock (and securities of any
<PAGE>
American Real Estate Investment Corporation Piper & Marbury
July 10, 1998 L.L.P.
Page 5
class into which any Preferred Stock may be convertible) has been
duly authorized and established in accordance with the applicable
Board Action, the terms of the Company's Charter and By-Laws, and
applicable law, and, upon issuance and delivery of certificates for
shares of such series of the Preferred Stock against payment
therefor in accordance with the terms and provisions of such Board
Action, the Registration Statement (as declared effective under the
Act), the Prospectus or the applicable Prospectus Supplement and, if
applicable, an Underwriting Agreement, or upon issuance and delivery
of certificates for shares of such Preferred Stock pursuant to the
conversion of one or more series of Preferred Stock convertible into
Preferred Stock, the shares of the Preferred Stock represented by
such certificates will be duly authorized, validly issued, fully
paid, and non-assessable.
(3) When the Depositary Shares have been duly authorized and
established in accordance with the applicable Board Action, the
terms of the Company's Charter and By-Laws, and applicable law and,
upon execution, issuance. and delivery of the Depositary Shares
against payment therefor in accordance with the terms and provisions
of such Board Action, the Deposit Agreement, the Registration
Statement (as declared effective under the Act), the Prospectus, or
the applicable Prospectus Supplement and, if applicable, an
Underwriting Agreement (and upon the taking of the action
contemplated in paragraph 2 above with respect to the underlying
Preferred Stock), the Depositary Shares will constitute valid and
legally binding obligations of the Company.
The opinion stated herein relating to the validity and binding nature of
the Depositary Shares is subject to (i) the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium, or similar laws affecting
creditors' rights generally and (ii) the effect of general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
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
<PAGE>
American Real Estate Investment Corporation Piper & Marbury
July 10, 1998 L.L.P.
Page 6
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 requited 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 L.L.P.
Exhibit
8
ROGERS & WELLS LLP
200 Park Avenue
New York, New York 10166
Tel: (212) 878-8000
Fax: (212) 878-8375
July 10, 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, covering the offer
and sale by the Company from time to time of up to
$500,000,000 aggregate initial offering price of
(a) shares of common stock, par value $0.001 per share (the
"Common Stock") and (b) shares or
fractional shares of preferred stock, par value $0.001 per
share (the "Preferred Stock"), which may
be issued in the form of depositary shares (the "Depositary
Shares") evidenced by depositary receipts
(the "Depositary Receipts"). The Common Stock, the
Preferred Stock and the Depositary Shares are
collectively referred to as the "Securities." The
Registration Statement provides that the Securities
may be offered separately or together, in separate series,
in amounts, at prices and on terms to be set
forth in one or more supplements to the prospectus (the
"Prospectus" and each, a "Prospectus
Supplement"). 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.
<PAGE>
American Real Estate Invesment Corporation
Page 2
July 10, 1998
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.
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
<PAGE>
<PAGE>
American Real Estate Invesment Corporation
Page 3
July 10, 1998
(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
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.
Very truly
yours,
/s/ Rogers &
Wells LLP
Exhibit 12
<TABLE>
<CAPTION>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
Alpine
Affiliates
Period (Predecessor
from Combined)
Inception Period
(November 10 from January 1
Three Months 1993)
Ended to to
March 31, Fiscal Years ended December 31 December 31, November 9,
------------ --------------------------------
1998 1997 1996 1995 1994 1993 1993
-------------- ---- ---- ---- ---- ---- ----
----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations, before
minority interest $ 1,630 $(2,489)(a) $ 682 $ 327 $ 695 $ 104 $ 105
Adjustments:
Fixed charges, as below 1,915 3,174 3,953 4,232 2,171 94 1,162
Equity in (earnings)
losses of unconsolidated
investments 162 (404) (570) (597) (277) -- --
------ ------ ------ ------ ------ -------- ------
Distributions from
unconsolidated
investments -- 25 230 102 107 -- --
Earnings, as adjusted 3,707 306 4,295 4,064 2,696 198 1,267
------ ------ ------ ------ ------ -------- ------
Fixed Charges:
Interest on indebtedness 1,915 3,134 3,897 4,173 1,692 94 1,162
------ ------ ------ ------ ------ -------- -------
Proportionate share
of interest for
unconsolidated
investments -- 40 56 59 479 -- --
Total Fixed Charges $1,915 $ 3,174 $ 3,953 $ 4,232 $2,171 $ 94 $ 1,162
------ ------ ------ ------ ------ -------- ------
Ratio of Earnings to
Fixed Charges 1.94 0.10(b) 1.09 0.96(c) 1.24 2.11 1.09
------ ------ ------ ------ ------ -------- ------
</TABLE>
(a)Includes $3,203 of non-recurring charges associated with the buyout of
certain employment agreements, options and warrants as a result of the
reorganization of the Company which occurred on December 12, 1997. Had these
charges not been incurred the ratio of earnings to fixed charges would have
been 1.11 for 1997.
(b)Earnings in 1997 were not adequate to cover fixed charges. The coverage
deficiency was $2,868.
(c)Earnings in 1995 were not adequate to cover fixed charges. The coverage
deficiency was $168.
<PAGE>
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 10, 1998
<PAGE>