<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 84-1246585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
------------------------------
620 W. GERMANTOWN PIKE, SUITE 200
PLYMOUTH MEETING, PENNSYLVANIA 19462
(610) 834-7950
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
JEFFREY E. KELTER
PRESIDENT
AMERICAN REAL ESTATE INVESTMENT CORPORATION
620 W. GERMANTOWN PIKE, SUITE 200
PLYMOUTH MEETING, PENNSYLVANIA 19462
(610) 834-7950
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
ROBERT E. KING, JR., ESQ.
BONNIE A. BARSAMIAN, ESQ.
ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 878-8000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time or at one time after the effective date of the Registration Statement as
determined by market conditions. If the only securities being registered on this
Form are being offered pursuant to dividend or interest reinvestment plans,
please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
2,533,833
Common Stock, par value $.001 per share........... shares(1) $13.19(2) $33,421,258 $9,292
</TABLE>
(1) Includes the 2,533,833 shares of Common Stock into which 2,533,833 OP Units
of American Real Estate Investment, L.P. are convertible (based on a
conversion ratio of 1:1)
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended, and based on the average of the high and
low sale prices of the common stock reported on the American Stock Exchange
on April 27, 1999.
------------------------------
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 MAY 3, 1999
PROSPECTUS
2,533,833 SHARES
AMERICAN REAL ESTATE
INVESTMENT CORPORATION
Common Stock
------------------------
This Prospectus relates to the offer and sale by the entities and persons
described in the section "Selling Security Holders" in this Prospectus of shares
of our common stock. The Selling Security Holders may offer and sell our shares
of common stock from time to time on the American Stock Exchange where our
common stock is listed for trading under the symbol "REA," in other markets
where our common stock may be traded or in negotiated transactions. The Selling
Security Holders may offer their shares of our common stock at whatever prices
are current when particular sales take place or at other prices to which they
agree. On April 27, 1999, the closing price of our shares of common stock
reported on the American Stock Exchange was $13.19. The Selling Security Holders
will pay any brokerage fees or commissions relating to sales by them. See the
section "Method of Sale" in this Prospectus. The Selling Security Holders
received or will receive the shares of our common stock to which this Prospectus
relates upon conversion of their units of limited partnership interest in our
operating partnership. We are registering the offer and sale by the Selling
Security Holders of shares of common stock issued or issuable upon conversion of
their units of limited partnership interest in order to permit secondary trading
of such shares of common stock that are held by the Selling Security Holders.
The Selling Security Holders may offer their shares for resale from time to
time. The registration of their shares does not necessarily mean that the
Selling Security Holders will sell their shares.
We will not receive any of the proceeds of sales by the Selling Security
Holders. We are paying the costs of preparing and filing the Registration
Statement of which this Prospectus is a part.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these Securities and they have not
determined if this Prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE HAVE FILED A REGISTRATION STATEMENT RELATING TO THESE SECURITIES WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SELLING SECURITY HOLDERS MAY NOT SELL
THESE SECURITIES PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR
SALE IS NOT PERMITTED.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. NEITHER AMERICAN REAL ESTATE INVESTMENT
CORPORATION NOR THE SELLING SECURITY HOLDERS HAVE AUTHORIZED ANY OTHER PERSON TO
PROVIDE YOU WITH DIFFERENT INFORMATION.
THE SELLING SECURITY HOLDERS ARE NOT MAKING AN OFFER OF COMMON STOCK IN ANY
LOCATION WHERE THE OFFER IS NOT PERMITTED.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information.................................................... 3
Incorporation of Documents by Reference................................................ 3
Cautionary Statements Concerning Forward-Looking Information........................... 4
Risk Factors........................................................................... 5
The Company............................................................................ 12
Use of Proceeds........................................................................ 12
Description of Capital Stock........................................................... 12
Selling Security Holders............................................................... 16
Method of Sale......................................................................... 19
Federal Income Tax Considerations...................................................... 20
Legal Matters.......................................................................... 29
Experts................................................................................ 29
</TABLE>
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, as a result, file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy those reports, proxy
statements and other information which we file with the Commission at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of
the Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may also obtain copies of that information from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants, including American Real Estate Investment Corporation,
that file electronically with the Commission. You may access the Commission's
web site at http://www.sec.gov. Our common stock is listed on the American Stock
Exchange (the "AMEX"). You may also read our reports, proxy statements and other
information which we file at the offices of the AMEX, 86 Trinity Place, New
York, New York 10006.
We have filed with the Commission a Registration Statement on Form S-3
(together with any amendments or supplements, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus is a part of the Registration Statement. This Prospectus does not
contain all the information contained in the Registration Statement, because we
have omitted certain parts of the Registration Statement in accordance with the
rules and regulations of the Commission. For further information, we refer you
to the Registration Statement, which you may read and copy at, or obtain from,
the Commission or the AMEX in the manner described above.
INCORPORATION OF DOCUMENTS BY REFERENCE
We incorporate by reference into this Prospectus the following documents
which we previously filed with the Commission under the File Number 1-12514:
(a) our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
(b) our Current Report on Form 8-K filed March 3, 1997, our Current
Report on Form 8-K filed August 21, 1997, our Current Report on Form
8-K/A filed on August 22, 1997, our Current Report on Form 8-K/A filed
August 26, 1997, our Current Report on Form 8-K filed September 4, 1997,
our Current Report on Form 8-K filed October 3, 1997, our Current Report
on Form 8-K filed November 13, 1997, our Current Report on Form 8-K filed
December 22, 1997, our Current Report on Form 8-K filed January 23, 1998,
our Current Report on Form 8-K/A filed February 24, 1998, our Current
Reports on Form 8-K filed April 10, 1998 and May 15, 1998, our Current
Report on Form 8-K/A filed June 10, 1998, our Current Report on Form 8-K
filed July 7, 1998, our Current Report on Form 8-K/A filed July 14, 1998,
our Current Report on Form 8-K filed August 13, 1998, our Current Report
on Form 8-K filed September 3, 1998, our Current Report on Form 8-K filed
November 13, 1998, our Current Report on Form 8-K filed December 18,
1998, our Current Report on Form 8-K filed January 8, 1999 and our
Current Report on Form 8-K/A filed January 13, 1999;
(c) 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
(d) all other reports we have filed pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act since December 31, 1998.
3
<PAGE>
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,
including any beneficial owner, to whom this Prospectus is delivered, copies of
the documents incorporated by reference in this Prospectus, other than exhibits
to those documents which are not specifically incorporated by reference.
Requests should be directed to: American Real Estate Investment Corporation, 620
W. Germantown Pike, Suite 200, Plymouth Meeting, Pennsylvania 19462, Attention:
Investor Relations (Telephone: (610) 834-7950).
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
Prospectus may contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of our company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of our company include, but are not limited to, changes in: economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of real estate investment trusts (each, a "REIT")), availability of capital,
interest rates, competition, supply and demand for properties in our current and
proposed market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained or incorporated by reference
herein.
4
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN SHARES OF OUR COMMON STOCK, YOU SHOULD BE AWARE THAT
THERE ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER
CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE
SHARES OF OUR COMMON STOCK. THIS SECTION INCLUDES OR REFERS TO CERTAIN
FORWARD-LOOKING STATEMENTS; YOU SHOULD REFER TO THE EXPLANATION OF THE
QUALIFICATIONS AND LIMITATIONS ON SUCH FORWARD-LOOKING STATEMENTS DISCUSSED ON
PAGE 4 OF THIS PROSPECTUS.
THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION OF NEW PROPERTIES, WHICH MAY
ADVERSELY AFFECT THE VALUE OF OUR COMMON STOCK AND OUR ABILITY TO PAY DIVIDENDS
TO OUR STOCKHOLDERS.
We have recently experienced, and may continue to experience, rapid growth
through the acquisition of additional office and industrial properties. Our
ability to manage our growth effectively requires us to integrate successfully
our new acquisitions into our existing management structure. Properties which we
acquire typically have no operating history under our management and such
properties may have characteristics or deficiencies unknown to us which affect
their valuation or revenue potential. The operating performance of these
properties may decline under our management. A decline in the operating
performance of these properties will adversely affect our operating results and
funds from operations, which could adversely impact the price of our common
stock and the amount of dividends we will be able to pay.
We currently plan to continue acquiring properties to the extent we consider
appropriate. Our success in this area depends on many factors, including the
ability to successfully (i) identify properties which meet our acquisition
criteria, (ii) negotiate acceptable price and terms with the seller and (iii)
close the transactions for such properties. Also, we plan to finance our future
acquisitions through debt offerings, equity offerings, other debt financing or
any combination thereof. By using existing credit facilities or other short-term
debt for such activities, we may not be able to secure financing in the future
or financing on equally favorable terms. By using other debt to finance such
activities, we will be subject to risks normally associated with debt financing.
See the risk factor captioned "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 our ability to pay 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,
Upstate New York, Indianapolis, Indiana, Ohio and Greenville and Spartanburg,
South Carolina. 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, Upstate New York and Greenville and Spartanburg, South Carolina.
Like other real estate markets, these commercial real estate markets have
experienced economic downturns in the past, and future declines in any of these
economies or real estate markets could adversely affect our operations or cash
available for
5
<PAGE>
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 EFFECT A CHANGE IN CONTROL OF OUR COMPANY IS
LIMITED, WHICH MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS.
OUR OWNERSHIP LIMIT MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS. For us
to maintain our qualification as a REIT for federal income tax purposes, not
more than 50% of the value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined for federal
income tax purposes to include certain entities) during the last half of each
taxable year after 1993. Our Amended and Restated Articles of Incorporation (the
"Charter") include certain restrictions regarding transfers of shares of our
capital stock and ownership limits that are intended to assist us in satisfying
such limitations. Such restrictions and limits may not be adequate in all cases,
however, to prevent the transfer of shares of our capital stock in violation of
the ownership limitations. The ownership limit discussed above may have the
effect of delaying, deferring or preventing someone from taking control of our
company, even though such a change of control could involve a premium price for
your shares of common stock or otherwise be in our stockholders' best interests.
See the section "Description of Capital Stock--Restrictions on Transfer" in this
Prospectus.
OUR STAGGERED BOARD MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS. Our
Board of Directors is divided into three classes, with the members of each class
serving a three-year term. The staggered terms for directors may reduce the
possibility of a tender offer or an attempt to effect a change in control of our
company, even if such a tender offer or change of control would be in our
stockholders' best interests.
ISSUANCES OF PREFERRED STOCK MAY PREVENT A CHANGE OF CONTROL THAT WOULD BE
IN OUR STOCKHOLDERS' BEST INTEREST. Our Board of Directors is authorized by our
Charter to establish and issue one or more series of preferred stock without
stockholder approval. In December 1998, our Board of Directors established a
series of convertible preferred stock and issued 800,000 shares of that stock.
The establishment of this series or a future 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 28% of our
company (assuming the conversion to common stock of all outstanding shares of
our Series A Convertible Preferred Stock, units of limited partnership interest
in our operating partnership and the conversion of outstanding warrants to
purchase units of limited partnership interest in our operating partnership and
our common stock). In addition, certain other investors currently own a
significant amount of our shares of common stock. Although we feel this
ownership is beneficial in aligning the interest of officers and directors with
that of the other stockholders, this may enable the officers and directors to
exercise substantial influence over the management of our company and on the
outcome of any matters submitted to a vote of our stockholders. The
concentration of beneficial ownership of our company may have the effect of
delaying, deferring or preventing a change in control of our company, may
discourage bids for our capital stock at a premium over the market price of our
capital stock and may adversely affect the market price of our capital stock.
6
<PAGE>
CERTAIN DIRECTORS AND OFFICERS WHO OWN UNITS OF LIMITED PARTNERSHIP INTEREST IN
OUR OPERATING PARTNERSHIP 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 units of limited partnership
interest in our operating partnership and, as a result, may face different and
more adverse tax consequences than you will if we sell or reduce our mortgage
indebtedness on certain of our properties. Those individuals may, therefore,
have different objectives than you regarding the appropriate pricing and timing
of any sale of such properties or reduction of mortgage debt. Accordingly, there
may be instances in which we may not sell a property or pay down the debt on a
property even though doing so would be advantageous to you.
RISKS ASSOCIATED WITH FUTURE ISSUANCES OF OUR COMMON STOCK
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 our common stock or securities
convertible into shares of our common stock without stockholder approval.
Additionally, (i) each share of our Series A Convertible Preferred Stock may be
converted by the holder into approximately 1.52 shares of our common stock
(subject to certain anti-dilution provisions), (ii) each limited partnership
interest (an "OP Unit") in American Real Estate Investment, L.P. (the "Operating
Partnership") may be converted by the holder into one share of our common stock
(subject to certain anti-dilution provisions), or, at our option, the cash value
of one share of our common stock and (iii) each Series B Convertible Preferred
Unit of limited partnership interest in the Operating Partnership (a "Preferred
OP Unit") may be converted by the holder into approximately 1.52 shares of our
common stock (subject to certain anti-dilution provisions). Such an issuance of,
or redemption for, our shares of common stock would have the effect of diluting
your existing interest in our company.
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 shares of Series A Convertible Preferred Stock,
Preferred OP Units or OP Units converted into shares of our common stock) or
exemptions from registration. The Selling Security Holders are not the only
stockholders that have registration rights with respect to shares of our common
stock and we are not prevented from granting registration rights to stockholders
in the future. Future sales of a substantial number of shares of our common
stock could adversely affect the prevailing market price for shares of our
common stock.
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
7
<PAGE>
expenditures, the owner's income and ability to pay dividends will be adversely
affected. An owner's income from properties may be adversely affected by a
variety of factors, including the general economic climate, local conditions,
such as oversupply of the particular category of real estate owned or controlled
by the owner, or reduction in demand for any such properties, competition from
properties owned by others, or the ability of the owner to provide adequate
facilities maintenance, services and amenities. With respect to office and
industrial properties, maintaining income at desired levels can be effected by a
number of factors, including the ability to locate desirable replacements for
key tenants at attractive rent levels following expiration of leases, and the
costs of reletting and providing tenant improvements required to attract and
maintain attractive tenants at desirable rentals.
Often, increased operating costs, including real estate taxes, insurance and
maintenance costs, do not decline when circumstances cause a reduction in income
from a property. If a property is mortgaged to secure payment of indebtedness,
and the owner is unable to meet its mortgage payments, a loss could be sustained
as a result of foreclosure on the property. In addition, income from properties
and real estate values are also affected by such factors as applicable laws,
including tax laws, interest rate levels and the availability of financing.
WE DEPEND ON OUR MAJOR TENANTS. Substantially all of our income is, and
will continue to be, derived from rental income on our properties and,
consequently, our distributable cash flow and ability to pay expected dividends
to stockholders would be adversely affected if a significant number of our
tenants failed to meet their lease obligations. At March 31, 1999, our ten
largest tenants represented approximately 31% 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 weakens, our cash flow and the
amounts available for dividends to you may be adversely effected.
WE COMPETE WITH OTHER OWNERS AND OPERATORS OF PROPERTIES. All of our
properties are located in well-developed market areas. There are numerous other
office and industrial properties and real estate companies (including other
REITs) within the market area of each of our properties which will compete with
us for tenants and for development and acquisition opportunities. The number of
competitive properties and real estate companies in such areas could have a
material effect on our operations, our ability to rent our properties and the
rents which we charge, and our development and acquisition opportunities. We
compete for tenants and acquisitions with others who may have greater resources
than us. We will continue to experience strong competition in pursuing
development and acquisition opportunities.
DEBT FINANCING MAY HAVE AN ADVERSE EFFECT ON OUR CASH FLOW AND OUR ABILITY
TO PAY DIVIDENDS. Our Charter, By-laws or investment policies do not contain
any limitation on the amount of aggregate indebtedness which we may incur and no
stockholder approval is required for us to incur additional indebtedness.
Accordingly, our management or Board of Directors will have discretion to incur
such amounts of aggregate indebtedness as they determine. We may seek additional
debt financing to fund future acquisitions. We are subject to risks normally
associated with debt financing, including the risk that our cash flow will be
insufficient to pay dividends at expected levels and meet required payments of
principal and interest, the risk that indebtedness on our properties (which will
not have been fully amortized at maturity in all cases) will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness. Our properties are or may be mortgaged to secure
payments on our
8
<PAGE>
indebtedness. Certain properties are secured by debt which is
cross-collateralized and cross-defaulted. As of April 27, 1999, our mortgage
debt totaled approximately $359.9 million (or 97% of our total indebtedness),
$138.5 million or approximately 38% of which constituted borrowings under our
$150 million secured credit facility (the "Credit Facility"). Based on the
market price for our common stock at the close of business on April 27, 1999,
our indebtedness was equal to approximately 62% of our total market
capitalization on that date (assuming the conversion to common stock of all
outstanding shares of Series A Convertible Preferred Stock, Preferred OP Units
and OP Units, other than those shares or units which we own).
In the future, we may increase our borrowings under the Credit Facility for
new acquisitions, capital improvements, new development projects and for general
working capital purposes. Such variable rate debt creates higher debt service
requirements if market interest rates increase, which could adversely affect our
cash flow and the amounts of cash available for dividends to you.
If we fail to make required payments of principal and interest on any
mortgage debt, our lenders could foreclose on the properties securing such debt
which would result in a loss of income and asset value to us. If principal
payments due at maturity cannot be paid or refinanced, 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, any substantial increase in
interest expense relating to any such refinanced indebtedness also would
adversely affect our cash flow and the amounts available for dividends to you.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION, REDEVELOPMENT, DEVELOPMENT
AND CONSTRUCTION ACTIVITIES. We intend to acquire office and industrial
properties to the extent that they can be acquired on terms that meet our
investment criteria. Acquisitions of office and industrial properties entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, there are general investment risks associated
with any new real estate investment.
We intend to consider future investments in the redevelopment, development
and construction of office and industrial buildings in accordance with our
growth policies. Risks associated with our redevelopment, development and
construction activities may include: abandonment of redevelopment or development
opportunities; construction costs of a property exceeding original estimates,
possibly making the property unprofitable; occupancy rates and rents at a newly
renovated or completed property may not be sufficient to make the property
profitable; financing may not be available on favorable terms for redevelopment
or development of a property; and permanent financing may not be available on
favorable terms to replace a short-term construction loan and construction and
lease-up may not be completed on schedule, resulting in increased debt service
expense and construction costs. In addition, new redevelopment or development
activities, regardless of whether they are ultimately successful, typically
require a substantial portion of management's time and attention. Redevelopment
or development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations.
WE MAY NOT BE ABLE TO RENEW LEASES OR TO RELET SPACE. We are, and will
continue to be, subject to the risk that upon expiration of leases for space
located in our properties, such leases may not be renewed, the space may not be
relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. 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
9
<PAGE>
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 effect on our business, assets or results of operations,
nor are we aware of any such condition, liability or concern. It is possible
that the ESAs relating to any of the properties do not reveal all environmental
conditions, liabilities or compliance concerns or that there are material
environmental conditions, liabilities or compliance concerns that arose at a
property after the related ESA report was completed of which we are otherwise
unaware. In addition, we cannot assure you that properties which we acquire in
the future will not have any material environmental conditions.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE OUR COMPANY TO BE TAXED AS A
CORPORATION
WE WILL BE TAXED AS A CORPORATION IF WE FAIL TO QUALIFY AS A REIT. We
believe that, commencing with our taxable year ended December 31, 1993, we have
been organized and operated in a manner that has enabled us to meet the
requirements for qualification as a REIT for federal income tax purposes and we
intend to continue to operate in such a manner. We have not requested, and we do
not plan to request, a ruling from the Internal Revenue Service ("IRS") that we
qualify as a REIT. However, we have received an opinion from the law firm of
Rogers & Wells LLP that, based on certain assumptions and representations, we
have been organized in a manner so as to qualify as a REIT under the Code and
that our proposed method of operation will enable us to continue to so qualify.
You should be aware that opinions of counsel are not binding on the IRS or
any court. Furthermore, the conclusions stated in the opinion are conditioned
on, and our continued qualification as a REIT will depend on, our meeting
various requirements imposed by the Code. Such requirements are discussed in
more detail in the section "Federal Income Tax Considerations--Taxation of the
Company" in this Prospectus.
If we fail to qualify as a REIT, we would not be allowed a deduction for
dividends paid to stockholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates. We also could be
subject to the federal alternative minimum tax. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for the four taxable years following the year during which we were disqualified.
Therefore, if we lost our REIT status, the funds available for dividends to you
would be substantially reduced for each of the years involved. In addition, we
would no longer be required to pay dividends to you.
FAILURE TO MEET MINIMUM DISTRIBUTION REQUIREMENTS MAY ADVERSELY AFFECT
US. To qualify as a REIT, we generally must distribute to our stockholders 95%
of our net taxable income. Such annual distribution
10
<PAGE>
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 the section "Federal Income Tax
Considerations--Taxation of the Company--Annual Distribution Requirements" in
this Prospectus.
POTENTIAL LEGISLATIVE ACTION REGARDING REITS MAY ADVERSELY US. In February,
1999, 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 the
section "Federal Income Tax Considerations--Other Tax Considerations" in this
Prospectus.
WE MAY BE SUBJECT TO OTHER TAX LIABILITIES. Even if we qualify as a REIT,
we may be subject to certain federal, state and local taxes on our income and
property that could reduce operating cash flow. See the section "Federal Income
Tax Considerations--Other Tax Considerations" in this Prospectus.
WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM MIGHT ADVERSELY AFFECT OUR
PERFORMANCE
We depend on the efforts of our key personnel, particularly Jeffrey E.
Kelter, our President, and David F. McBride, our Chairman, as well as certain
other senior management. While we believe that, if necessary, we could find
replacements for these key personnel, the loss of their services could have a
material adverse effect on our operations.
11
<PAGE>
THE COMPANY
We are a self-administered, self-managed REIT engaged in the ownership,
acquisition and development of industrial and office properties. As of April 27,
1999, we owned a portfolio of 104 properties comprised of 70 industrial
properties and 33 office properties containing an aggregate of approximately 12
million square feet and an investment in a direct financing lease (the
"Properties"). The Properties are located principally in the mid-Atlantic and
Northeastern United States and are approximately 97% leased to 261 tenants.
We conduct substantially all of our activities through, and substantially
all of the Properties are held directly or indirectly by, the Operating
Partnership. We are the sole general partner of the Operating Partnership and,
at March 31, 1999, owned approximately 53% of the outstanding units of limited
partnership interest in the Operating Partnership. The remaining OP Units and
Preferred OP Units are owned by limited partners of the Operating Partnership.
Our officers and directors owned approximately 28% of the outstanding units of
limited partnership interest in the Operating Partnership as of March 31, 1999.
Each OP Unit may be converted by the holder into one share of common stock
(subject to certain anti-dilution provisions), or, at our option, the cash value
one share of common stock and each Preferred OP Unit may be converted by the
holder into approximately 1.52 shares of our common stock (subject to certain
anti-dilution provisions). With each such exchange, our percentage interest in
the Operating Partnership will increase.
Our common stock is listed on the AMEX under the symbol "REA."
Our principal executive offices are located at 620 W. Germantown Pike, Suite
200, Plymouth Meeting, Pennsylvania 19462, and our telephone number is (610)
834-7950. We also maintain offices in Franklin Lakes, New Jersey, New York and
Syracuse, New York, Allentown, Pennsylvania and Greenville, South Carolina.
Unless the context otherwise requires, all references to "we," "us" or "our
company" refers to American Real Estate Investment Corporation and its
subsidiaries, including the Operating Partnership.
USE OF PROCEEDS
We will not receive any of the proceeds of sales of common stock by the
Selling Security Holders.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under our Charter, the total number of shares of all classes of stock that
we have authority to issue is 65,000,000. Currently, 64,200,000 shares are
classified as shares of common stock, $.001 par value (the "Common Stock") and
800,000 shares are classified as Series A Convertible Preferred Stock (the
"Series A Preferred Stock"). All of the authorized shares of Series A Preferred
Stock are issued and outstanding. 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.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors. Except for
the voting rights of the holders of shares of Series A Preferred Stock described
below, rights provided in any Articles Supplementary adopted by our Board of
Directors with respect to any future series of preferred stock or as otherwise
required by law, the holders of shares of Common Stock possess all voting power.
Our Board of Directors is divided into three classes. The three classes have
staggered terms of office so that the terms of office of directors of only one
class expires at each annual meeting of stockholders. The directors of each
class are elected for three year
12
<PAGE>
terms and until his or her successor is elected and duly qualified or until his
or her earlier death. The Charter does not provide for cumulative voting in the
election of directors. Subject to any preferential rights of any outstanding
series of preferred stock, the holders of shares of Common Stock are entitled to
such dividends as may be declared from time to time by our Board of Directors
from funds available therefor and upon liquidation are entitled to receive pro
rata all assets of our company available for distribution to such holders. All
shares of Common Stock outstanding are fully paid and non-assessable, and the
holders thereof have no preemptive rights under our Charter. However, under an
agreement pursuant to which certain institutional holders (for whom Morgan
Stanley Asset Management Inc. acts as agent) purchased shares of our Common
Stock, if we propose to issue shares of our Common Stock for cash, these
institutional holders have the right to purchase, on the same terms, up to an
amount of the securities such that, upon consummation of the proposed issuance,
such holders would hold the same percentage of the Common Stock as such holders
held immediately prior to such issuance. Holders of our Series A Preferred Stock
have similar rights. See "Preferred Stock" below.
PREFERRED STOCK
Under our Charter, our Board of Directors is authorized to provide for the
issuance of shares of preferred stock in one or more series, to establish the
number of shares in each series and to fix the terms thereof. Our Board of
Directors could authorize the issuance of additional 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.
There are currently 800,000 shares of our Series A Preferred Stock
outstanding, which constitute all of our outstanding preferred stock. The terms
of the Series A Preferred Stock provide for a preference as to the payment of
dividends over shares of our Common Stock and any other capital stock ranking
junior to the Series A Preferred Stock, and for cumulative quarterly dividends
at the rate of the greater of (i) $2.25 per share per year or (ii) an amount per
share equal to the aggregate annual amount of cash dividends paid or payable, if
any, with respect to the number of shares of Common Stock into which each share
of Series A Preferred Stock is then convertible in accordance with the terms of
the Articles Supplementary setting forth the terms of the Series A Preferred
Stock. Such dividends are cumulative from the date of issuance of the Series A
Preferred Stock and compound quarterly at a rate of 9% per annum.
If we propose to issue for cash shares of our Common Stock, or securities
convertible into shares of our Common Stock (with the exception of interests of
limited partnership in the Operating Partnership), we must give each holder of
shares of Series A Preferred Stock ten business days notice of this issuance and
each holder will have the right to purchase, on the same terms, up to an amount
of the Common Stock or other securities issued such that, upon consummation of
the proposed issuance, such holder would hold the same percentage of the Common
Stock as it held immediately prior to such issuance (assuming conversion to
shares of Common Stock of all shares of Series A Preferred Stock held by such
holder).
If there is (i) a voluntary or involuntary dissolution or winding up of the
Company, (ii) a consolidation or merger of the Company which results in a change
in control of the Company or (iii) a sale or transfer of all or substantially
all of the Company's assets other than to an affiliate, the holders of the
Series A Preferred Stock will be entitled to receive out of the Company's assets
available for distribution to stockholders, before any distribution of assets is
made to holders of Common Stock or any other shares of capital stock ranking as
to such distributions junior to the Series A Preferred Stock, liquidating
distributions in an amount equal to the greater of (i) (A) $25.00 per share (the
"Liquidation Preference"), plus all accrued and unpaid dividends plus (B) the
applicable liquidation premium set forth below or (ii) an amount per share of
Series A Preferred Stock equal to the amount which would have been payable had
each share of Series A Preferred Stock been converted into shares of Common
Stock immediately prior to such liquidation, merger or sale. If, on or prior to
December 15, 2003, there is a consolidation or merger of
13
<PAGE>
the Company which results in a change of control of the Company and the
surviving entity is a Qualified Entity (as such term is defined in the Articles
Supplementary relating to the Series A Preferred Stock), the holders of the
Series A Preferred Stock shall receive a liquidation premium of 5% of the
Liquidation Preference. If, on or prior to December 15, 2003, there is a
voluntary or involuntary dissolution or winding up of the Company or a sale or
transfer of all or substantially all of the Company's assets, other than to an
affiliate, the holders of the Series A Preferred Stock shall receive a
liquidation premium of 10% of the Liquidation Preference. From December 15, 2003
through December 14, 2004, the liquidation premium shall be 4.5% of the
Liquidation Preference. From December 15, 2004 through December 14, 2005, the
liquidation premium shall be 3.375% of the Liquidation Preference. From December
15, 2005 through December 14, 2006, the liquidation premium shall be 2.25% of
the Liquidation Preference. From December 15, 2006 through December 14, 2007,
the liquidation premium shall be 1.125% of the Liquidation Preference. After
December 15, 2007 the holders of shares of Series A Preferred Stock will not
receive a liquidation premium. The foregoing terms of the Series A Preferred
Stock 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.
We may not redeem shares of Series A Preferred Stock prior to December 15,
2003. On or after December 15, 2003, we may, at our option, redeem shares of
Series A Preferred Stock, in whole, but not in part, at the applicable cash
redemption price set forth below (the "Redemption Price") plus all accumulated,
accrued and unpaid dividends, if any, to the date fixed for redemption. From
December 15, 2003 through December 14, 2004, the Redemption Price will be equal
to 104.5% of the Liquidation Preference. During the period from December 15,
2004 through December 14, 2005, the Redemption Price will be equal to 103.375%
of the Liquidation Preference. During the period from December 15, 2005 through
December 14, 2006, the Redemption Price will be equal to 102.25% of the
Liquidation Preference. During the period from December 15, 2006 through
December 14, 2007, the Redemption Price will be equal to 101.125% of the
Liquidation Preference. On and after December 15, 2007, the Redemption Price
will be equal to the Liquidation Preference.
Each share of Series A Preferred Stock is convertible at any time into the
number of shares of Common Stock obtained by dividing the aggregate Liquidation
Preference of such shares of Series A Preferred Stock by $16.50 (the "Conversion
Price"). The Conversion Price will be adjusted upon the occurrence of the
following events: (i) the payment of a dividend or distribution on our capital
stock in shares of our Common Stock; (ii) a combination, subdivision or
reclassification of our outstanding Common Stock; (iii) the issuance to all
holders of Common Stock of rights, options or warrants entitling such holders to
subscribe for or purchase Common Stock at less than the then current market
price; and (iv) with certain exceptions, the distribution to all holders of
Common Stock of capital stock of the Company (other than Common Stock),
evidences of indebtedness of the Company, assets or rights or warrants to
subscribe for or purchase securities of the Company. No adjustment of the
Conversion Price will be required to be made in any case until cumulative
adjustments amount to one percent of such price, provided, however, that any
adjustment not required to be made because of such limitation shall be carried
forward and taken into account in any subsequent adjustment. No adjustment to
the Conversion Price will be made with respect to Common Stock issued pursuant
to any dividend reinvestment plan. In addition to the foregoing adjustments, we
are permitted to make such reductions to the Conversion Price as we determine to
be advisable in order that any stock dividend, subdivision of shares,
reclassification or combination of shares, distribution of rights, options or
warrants to purchase stock or securities, or a distribution of other assets
(other than cash dividends) hereafter made by the Company to its shareholders
will not be taxable to the recipients.
Except as expressly required by law and in certain other limited
circumstances, the holders of the Series A Preferred Stock are not entitled to
vote. The consent of holders of at least 66 2/3% of the outstanding shares of
Series A Preferred Stock, voting as a single class, is required to authorize
another
14
<PAGE>
class of shares senior to such preferred stock. In addition, the affirmative
vote or consent of the holders of at least 66 2/3% of the outstanding shares of
Series A Preferred Stock is required to amend or repeal any provision of, or add
any provision to, the Charter, including the Articles Supplementary relating to
the Series A Preferred Stock, if such action would materially and adversely
affect the voting powers, rights or privileges of the holders of the Series A
Preferred Stock. However, the vote of the holders of Series A Preferred Stock
will not be required if, at or prior to the time such amendment or repeal is to
take effect or the issuance of any such prior shares or convertible security is
to be made, as the case may be, provisions are made for the redemption of all
outstanding shares of Series A Preferred Stock. The amendment of or supplement
to our Charter to authorize, create, increase or decrease the authorized amount
of or to issue shares ranking junior to or an a parity with Series A Preferred
Stock shall not be deemed to materially adversely affect the voting powers,
rights or preferences of the holders of Series A Preferred Stock.
If and whenever dividends on any shares of Series A Preferred Stock are in
arrears for six or more quarterly periods (whether or not consecutive), the
number of directors then constituting our Board of Directors shall be increased
by one and the holders of shares of Series A Preferred Stock, voting as a single
class, will be entitled to nominate and vote for the election of the additional
director. Whenever dividends in arrears on outstanding shares of the Series A
Preferred Stock are paid and dividends for the current quarterly dividend period
have been paid or declared and set apart for payment, then the right of the
holders of the Series A Preferred Stock to elect an additional director shall
cease and the term of office of the director shall terminate and the number of
directors constituting our Board of Directors shall be reduced accordingly.
With respect to the exercise of the above-described voting rights, each
share of Series A Preferred Stock shall have one (1) vote per share.
The transfer agent and registrar for the Common Stock and the Series A
Preferred Stock is American Stock Transfer & Trust Company.
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) or Hudson Bay Partners II,
L.P. and any other person who the directors approve, at their option and in
their discretion, provided that such approval will not result in the termination
of our status as a REIT) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than the Ownership Limit. In connection
with certain issuances of our stock, our Board approved the exemption of certain
additional holders of our stock from the Ownership Limit. The "Ownership Limit"
means (i) with respect to shares of our Common Stock, 4.9% of the outstanding
shares of Common Stock (in value or number of shares, whichever is more
restrictive) and (ii) with respect to any class or series of preferred stock,
9.9% (in value or number of shares, whichever is more restrictive) of the
outstanding shares of such class or series of preferred stock. The foregoing
restrictions on transferability and ownership will not apply if the directors
determine that it is no longer in our best interests to attempt to qualify, or
to continue to qualify, as a REIT. If any purported transfer of shares would
cause our shares to be beneficially owned by less than 100 persons, then such
purported transfer shall be void AB INITIO and the intended transferee shall
acquire no rights in such shares. If any transfer of shares occurs which, if
effected, would (i) create a direct or indirect ownership of shares in excess of
the Ownership Limit, (ii) result in our company being "closely held" within the
meaning of Section 856(h) of the Code, or (iii) otherwise result in our failure
to qualify as a REIT, then the capital stock being transferred that would cause
one or more of the restrictions on
15
<PAGE>
ownership or transfer to be violated will be automatically transferred to a
trust for the benefit of a designated charitable beneficiary. The purported
transferee of such shares shall have no right to receive dividends or other
distributions with respect to such shares and shall have no right to vote such
shares. Any dividends or other distributions paid to such purported transferee
prior to our discovery that the shares have been transferred to a trust shall be
paid upon demand to the trustee of the trust for the benefit of the charitable
beneficiary. The trustee of the trust will have all rights to dividends with
respect to the shares of capital stock held in trust, which rights will be
exercised for the exclusive benefit of the charitable beneficiary. The trustee
shall designate a transferee of such stock so long as such shares of stock would
not violate the Ownership Limit in the hands of such designated transferee. Upon
the sale of such shares, the purported transferee shall receive the lesser of
(i) (a) the price per share such purported transferee paid for the capital stock
in the purported transfer that resulted in the transfer of shares of capital
stock to the trust, or (b) if the transfer or other event that resulted in the
transfer of shares of capital stock gave full value for such shares, a price per
share equal to the market price on the date of the purported transfer or other
event that resulted in the transfer of the shares to the trust, and (ii) the
price per share received by the trustee from the sale or disposition of the
shares held in the trust.
All certificates representing capital stock will bear a legend referring to
the restrictions described above.
Every owner of more than 1% (or such other percentage as required by the
Code or regulations thereunder) of the issued and outstanding shares of Common
Stock will be required to file a written notice with us containing the
information specified in the Charter no later than January 30 of each year. In
addition, each stockholder shall upon demand be required to disclose to us in
writing such information as we may request in good faith in order to determine
our status as a REIT.
These ownership limitations may have the effect of precluding acquisition of
control of our company unless the directors determine that maintenance of REIT
status is no longer in our best interests.
LIMITATION OF LIABILITY OF DIRECTORS
The Charter provides that, to the fullest extent permitted by Maryland law,
a director or officer will not be personally liable for monetary damages to us
or you.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Charter provides that we shall indemnify (i) our directors and officers
to the fullest extent required or permitted by Maryland law, including the
advance of expenses under the procedures and to the full extent permitted by
law, and (ii) other employees and agents to such extent as shall be authorized
by our Board of Directors or our By-laws and be permitted by law. The Charter
provides that no amendment of the Charter or repeal of any of its provisions
shall limit or eliminate the right to indemnification provided thereunder with
respect to acts or omissions occurring prior to such amendment or repeal. We
have a director and officer liability insurance policy with a $5,000,000 limit
of liability and a company retention of $75,000 in the aggregate for each claim.
SELLING SECURITY HOLDERS
Sales of the shares of Common Stock registered hereby must (i) be
accompanied by a copy of this Prospectus, together with the applicable
prospectus supplement or (ii) be effected through an exemption from
registration, such as pursuant to Rule 144 under the Securities Act.
The Selling Security Holders are persons who have received or will receive
shares of Common Stock upon conversion of their OP Units.
The following table lists (i) the Selling Security Holders who may offer
shares of our Common Stock from time to time pursuant to this Prospectus, (ii)
the number and percentage of shares of Common Stock
16
<PAGE>
beneficially owned by each Selling Security Holder, (iii) the number of shares
of Common Stock of each Selling Security Holder, the offer and sale of which is
to be registered on behalf of each Selling Security Holder pursuant to this
Prospectus (the "Registered Shares") and (iv) the amount of shares of Common
Stock that, to the knowledge of the Company, will be held by Selling Security
Holders after completion of this offering. We are registering the Registered
Shares in order to permit secondary trading of the Registered Shares, and the
Selling Security Holders may offer Registered Shares for resale from time to
time. See the section "Method of Sale" in this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING(1) OWNED AFTER
OFFERING (2)
------------------------ REGISTERED --------------------------
NAME NUMBER PERCENTAGE SHARES NUMBER PERCENTAGE
- -------------------------------------------------------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Northeastern Industrial Park, Inc....................... 468,078 3.00% 468,078 0 0%
Guilderland Ventures, Inc............................... 96,970 0.62% 96,970 0 0%
Washington Avenue Ventures, Inc......................... 53,460 0.34% 53,460 0 0%
Rotterdam Ventures, Inc................................. 96,303 0.62% 96,303 0 0%
Eastwick Development Corporation........................ 73,158 0.47% 73,158 0 0%
Equinox Equities, Inc................................... 176,025 1.13% 176,025 0 0%
Donald R. Led Duke...................................... 105,225 0.68% 105,225 0 0%
SWF, L.P.--Donald R. Led Duke........................... 24,386 0.16% 24,386 0 0%
Michael F. Bette........................................ 79,774 0.51% 79,774 0 0%
Joseph R. Nicolla....................................... 56,136 0.36% 56,136 0 0%
Eugene M. Sneeringer, Jr................................ 32,579 0.21% 32,579 0 0%
Kevin M. Bette.......................................... 41,380 0.27% 41,380 0 0%
Joseph R. Nicolla Trust II.............................. 9,630 0.06% 9,630 0 0%
Peter J. Bette.......................................... 12,459 0.08% 12,459 0 0%
Matthew J. Bette........................................ 12,459 0.08% 12,459 0 0%
Christopher J. Bette.................................... 12,459 0.08% 12,459 0 0%
Mark W. Bette........................................... 12,459 0.08% 12,459 0 0%
Mark A. Belanger........................................ 9,744 0.06% 9,744 0 0%
Mark G. Falcone......................................... 47,787 0.31% 47,787 0 0%
Michael J. Falcone...................................... 117,934 0.75% 117,557 377 --*
Michael J. Falcone Family Trust #1...................... 78,844 0.51% 78,844 0 0%
Michael J. Falcone Family Trust #2...................... 78,844 0.51% 78,844 0 0%
Michael J. Falcone Family Trust #3...................... 78,844 0.51% 78,844 0 0%
Michael J. Falcone Family Trust #4...................... 78,844 0.51% 78,844 0 0%
Michael P. Falcone...................................... 49,736 0.32% 49,736 0 0%
Robert M. Hayner........................................ 16,023 0.10% 16,023 0 0%
Gary F. Mazurkowitz..................................... 34,250 0.22% 34,250 0 0%
Daniel J. Murphy........................................ 76,616 0.49% 76,616 0 0%
David W. Murphy......................................... 9,744 0.06% 9,744 0 0%
Pioneer Partners I, L.P................................. 388,252 2.49% 388,252 0 0%
Neil A. Rube............................................ 9,744 0.06% 9,744 0 0%
Dale L. Van Epps........................................ 96,064 0.62% 96,064 0 0%
</TABLE>
- ------------------------
(1) All of the OP Units held by the Selling Security Holders are subject to a
"lock-up" period for a period of one year from the date of issuance of such
OP Units. Further, only 25% of the OP Units held by each Selling Security
Holder may be sold in each three month period following the expiration of
the applicable lock-up period, with the result that a Selling Security
Holder may only sell all of its OP units or shares of Common Stock issued
upon conversion thereof nine months after the expiration of the applicable
lock-up period. This assumes that all OP Units held by the Selling Security
Holders are
17
<PAGE>
converted into shares of Common Stock on a 1:1 basis as of the date which is
nine months after the expiration of the applicable lock-up period and that
no OP Units or shares of common stock issued upon conversion thereof have
been sold by the Selling Security Holders prior to such date. Also assumes
conversion to common stock of all outstanding shares of Series A Convertible
Preferred Stock, Preferred OP Units and OP Units.
(2) The Registered Shares may be offered from time to time in one or more
offerings. This assumes that all of the shares of Common Stock issued upon
conversion of the Selling Securing Holder's OP Units and being offered under
this Prospectus are sold, and that the Selling Security Holders acquire no
additional shares of Common Stock before the completion of this offering.
* Less than 1%
Northeastern Industrial Park, Inc., Guilderland Ventures, Inc., Washington
Avenue Ventures, Inc., Rotterdam Ventures, Inc., Eastwick Development
Corporation, Equinox Equities, Inc., Donald R. Led Duke., SWF, L.P.--Donald R.
Led Duke, Michael F. Bette, Joseph R. Nicolla, Eugene M. Sneeringer, Jr., Kevin
M. Bette, Joseph R. Nicolla Trust II, Peter J. Bette, Matthew J. Bette,
Christopher J. Bette and Mark W. Bette (collectively, the "Galesi Holders") all
received their OP Units as part of the consideration paid by us to purchase a 10
building portfolio of office and industrial facilities in Albany, New York
pursuant to contribution agreements, each dated as of February 4, 1998. Under OP
Unit Recipient Agreements, each dated as of April 30, 1998, we agreed to
register their shares of Common Stock issuable upon conversion of the Galesi
Holder's' OP Units within one year from the date of such agreements and each
Galesi Holder agreed not to convert its OP Units into shares of Common Stock or
to sell its OP Units or shares of Common Stock for a period of one year from the
date of such agreements.
Mark A. Belanger, Mark G. Falcone, Michael J. Falcone, Michael J. Falcone
Family Trust #1, Michael J. Falcone Family Trust #2, Michael J. Falcone Family
Trust #3, Michael J. Falcone Family Trust #4, Michael P. Falcone, Robert M.
Hayner, Gary F. Mazurkowitz, Daniel J. Murphy, David W. Murphy, Pioneer
Partners, L.P., Neil A. Rube and Dale L. Van Epps (collectively, the "Pioneer
Holders") all received their OP Units as part of the consideration paid by us to
purchase 11 office properties and one industrial property located in Northern
New York State pursuant to contribution agreements, dated as of April 30, 1998.
Michael J. Falcone is currently a member of our Board of Directors. Under OP
Unit Recipient Agreements, each dated as of August 19, 1998, we agreed to
register the shares of Common Stock issuable upon conversion of the Pioneer
Holder's OP Units within one year from the date of such agreements and each
Pioneer Holder agreed not to convert its OP Units into shares of Common Stock or
to sell its OP Units or shares of Common Stock for a period of one year from the
date of such agreements.
The period during which the Selling Security Holders have agreed not to
convert or sell OP Units or sell shares of Common Stock is referred to as a
"Lock-Up Period." Each of the Galesi Holders and the Pioneer Holders has agreed
not to sell more than 25% of its OP Units or shares of Common Stock issued upon
conversion of its OP Units during the three month period following the
expiration of its Lock-Up Period and not to sell more than an additional 25% of
its OP Units or shares of Common Stock issued upon conversion of its OP Units
during each three month period thereafter. As a result, each Galesi Holder and
Pioneer Holder may only sell all of its OP Units or shares of Common Stock
issued upon conversion thereof nine months after the expiration of the
applicable Lock-Up Period.
We have agreed to indemnify the Selling Security Holders against certain
liabilities. See "Method of Sale" below.
18
<PAGE>
METHOD OF SALE
This Prospectus relates to the possible offer and sale from time to time by
the Selling Security Holders (or by pledgees, donees, transferees or other
successors in interest of such Selling Security Holders) of their Registered
Shares. We have registered the Registered Shares for resale to provide them with
freely tradeable securities. However, registration of the Registered Shares does
not necessarily mean that they will offer or sell any of their Registered
Shares. We will not receive any proceeds from the offering or sale of their
Registered Shares.
The Selling Security Holders (or pledgees, donees, transferees or other
successors in interest) in one or more transactions (which may involve block
crosses or transactions) may sell the Registered Shares to which this Prospectus
relates from time to time (i) on the AMEX, where our Common Stock is listed for
trading, (ii) in other markets where our Common Stock is traded, (iii) in
negotiated transactions, (iv) through short sales or put and call option
transactions through underwriters, brokers or dealers (who may act as agent or
principal), (v) through the distribution of the Registered Shares by any Selling
Security Holder to its partners, members or shareholders, (vi) directly to one
or more purchasers, (vii) through agents or (viii) in a combination of such
methods of sale. They may sell the Registered Shares at prices which are current
when the sales take place or at other prices to which they agree.
Any underwriters, brokers, dealers or agents may receive compensation in the
form of discounts, concessions or commissions from the Selling Security Holders
or such other persons who may be effecting sales hereunder (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). Underwriters may sell Registered Shares to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. The Selling Security Holders or other persons
effecting sales hereunder, and any such underwriters, brokers, dealers and
agents may be deemed to be "underwriters" within the meaning of the Securities
Act, and any discounts or commissions they receive and any profit on the sale of
the Registered Shares they realize may be deemed to be underwriting discounts
and commissions under the Securities Act. Some sales may involve shares in which
the Selling Security Holders have granted security interests and which are being
sold because of foreclosure of those security interests. WE HAVE AGREED TO
INDEMNIFY EACH SELLING SECURITY HOLDER AGAINST CERTAIN LIABILITIES, INCLUDING
LIABILITIES ARISING UNDER THE SECURITIES ACT. THE SELLING SECURITY HOLDERS OR
OTHER PERSONS EFFECTING SALES HEREUNDER MAY AGREE TO INDEMNIFY ANY SUCH
UNDERWRITERS, DEALERS AND AGENTS AGAINST CERTAIN LIABILITIES, INCLUDING
LIABILITIES UNDER THE SECURITIES ACT.
The Selling Security Holders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of our shares of Common Stock in the course of hedging the positions they
assume with Selling Security Holders. The Selling Security Holders may also
enter into options or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of shares of our Common Stock offered hereby, which shares of our
Common Stock such broker-dealer or other financial institution may resell
pursuant to this Prospectus (as supplemented or amended to reflect such
transaction).
Under the securities laws of certain states, the Registered Shares may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Registered Shares may not be sold unless the
Registered Shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The Selling Security Holders also may resell all or a portion of their
Registered Shares in open market transactions in reliance upon Rule 144 under
the Securities Act, provided they meet the criteria and conform to the
requirements of such rule.
19
<PAGE>
Upon notification by a Selling Security Holder that any material arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, we will file a supplement to this
Prospectus, if required, pursuant to Rule 424(b) under the Securities Act,
disclosing (i) the name of each such Selling Security Holder and of the
participating broker-dealer(s), (ii) the number of Registered Shares involved,
(iii) the price at which such Registered Shares were sold, (iv) the commissions
paid or discounts or concessions allowed to such broker-dealer(s), where
applicable, (v) that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this prospectus
and (vi) other facts material to the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations that may be relevant to a U.S. person who holds Common Stock, is
based on current law, and is not intended and should not be construed as tax
advice. The following discussion, which is not exhaustive of all possible tax
considerations, does not include a detailed discussion of any state, local or
foreign tax considerations. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable to
all prospective U.S. stockholders and does not discuss all of the aspects of
federal income taxation that may be relevant to a prospective U.S. stockholder
in light of his or her particular circumstances or to certain types of
stockholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes. In addition, we have not requested and do not plan to request any
rulings from the IRS concerning our tax treatment or the tax treatment of the
Operating Partnership. Accordingly, no assurance can be given that the
statements set forth herein (which do not bind the IRS or the courts) will not
be challenged by the IRS or sustained by the courts if so challenged.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. WE
ADVISE EACH PROSPECTIVE PURCHASER OF COMMON STOCK TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. We have elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with our taxable year ended December 31, 1993. We
believe that we have been organized and operated in a manner so as to qualify
for taxation as a REIT under the Code, and we intend to continue to operate in
such a manner. No assurance, however, can be given that we have operated in a
manner so as to qualify as a REIT or will continue to operate in a manner so as
to remain qualified as a REIT. Qualification and taxation as a REIT depends upon
our ability to meet, on a continuing basis, through periodic operating results,
distribution levels, diversity of stock ownership and other qualification tests
imposed under the Code on REITs, some of which are summarized below. While we
intend to operate so
20
<PAGE>
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 the section "Failure to Qualify" in this
Prospectus.
In the opinion of Rogers & Wells LLP, our counsel ("Counsel"), commencing
with our taxable year ended December 31, 1993, we have been organized in
conformity with the requirements for qualification as a REIT under the Code and
our proposed method of operation and that of the Operating Partnership will
enable us to meet the requirements for qualification as a REIT. Counsel's
opinion is based on various assumptions and is conditioned upon certain of our
representations and the representations of the Operating Partnership as to
factual matters. In addition, Counsel's opinion is based upon our factual
representations concerning our business and properties, and the business and
properties of the Operating Partnership. Unlike a tax ruling, an opinion of
counsel is not binding upon the IRS and no assurance can be given that the IRS
will not challenge our status. Moreover, such qualification and taxation as a
REIT depends upon our ability to meet, through actual annual operating results,
distribution levels, diversity of stock ownership and various other
qualification tests imposed under the Code. Counsel will not review our
compliance with the various REIT qualification tests on a periodic or continuing
basis. Accordingly, no assurance can be given that the actual results of our
operation for any one taxable year will satisfy such requirements. See the
section "Failure to Qualify" in this Prospectus.
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject to
change, possibly with retroactive effect.
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)
21
<PAGE>
in the hands of the C corporation and we subsequently recognize gain on the
disposition of such asset in a taxable transaction during the 10-year period
(the "Recognition Period") beginning on the date on which we acquired the asset
(or we first qualified as a REIT), then pursuant to guidelines issued by the
IRS, the excess of (1) the fair market value of the asset as of the beginning of
the applicable Recognition Period, over (2) our adjusted basis in such asset as
of the beginning of such Recognition Period will be subject to tax at the
highest regular corporate rate.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) that has the calendar year as its taxable
year; (vi) the beneficial ownership of which is held by 100 or more persons;
(vii) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and
(viii) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that conditions (i) through (v),
inclusive, must be met during the entire taxable year and that condition (vi)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (vi) and
(vii), however, will not apply until after the first taxable year for which an
election is made to be taxed as a REIT.
We believe that we currently satisfy all of the conditions listed in the
preceding paragraph. 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 currently have several "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, our "qualified REIT subsidiaries" will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiaries 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 the
section "Other Tax Considerations-- Effect of Tax Status of the Operating
Partnership on REIT Qualification" in this Prospectus.
INCOME TESTS. In order to qualify as a REIT, a company must satisfy three
gross income requirements on an annual basis. First, at least 75% of its gross
income (excluding gross income from prohibited
22
<PAGE>
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of its gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% gross income test,
and from dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of its gross income
(including gross income from prohibited transactions) for each taxable year. The
Taxpayer Relief Act of 1997 (the "Taxpayer Relief Act") repealed the 30% gross
income test for taxable years beginning after its enactment on August 5, 1997.
Accordingly, the 30% gross income test no longer applies beginning with our
taxable year ending December 31, 1998.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of gross
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct or indirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an "independent contractor" who is adequately
compensated and from whom the REIT derives no income. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the REIT are "usually or customarily 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
23
<PAGE>
such items and other non-qualifying income in any taxable year will not cause us
to exceed the limits on non-qualifying income under the 75% and 95% gross income
tests.
If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet any such tests was
due to reasonable cause and not due to willful neglect, we attach a schedule of
the sources and nature of our income to our federal income tax return and any
incorrect information on the schedule was not due to fraud with the intent to
evade tax. It is not possible, however, to state whether in all circumstances we
would be entitled to the benefit of these relief provisions. As discussed above,
even if these relief provisions were to apply, a tax would be imposed on certain
excess net income.
ASSET TESTS. At the close of each quarter of its taxable year, a REIT must
also satisfy three tests relating to the nature of its assets: (i) at least 75%
of the value of its total assets must be represented by real estate assets
(including (1) its allocable share of real estate assets held by partnerships in
which it has an interest and (2) stock or debt instruments purchased with the
proceeds of a stock offering or long-term (at least five years) debt offering of
the REIT and held for not more than one year following the receipt of such
proceeds), cash, cash items and government securities; (ii) not more than 25% of
its total assets may be represented by securities other than those in the 75%
asset class; and (iii) of the investments included in the 25% asset class, the
value of any one issuer's securities (other than an interest in a partnership or
shares of a "qualified REIT subsidiary" or another REIT) owned by a REIT may not
exceed 5% of the value of its total assets, and it may not own more than 10% of
any one issuer's outstanding voting securities (other than an interest in a
partnership or securities of a "qualified REIT subsidiary" or another REIT).
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If a failure to
satisfy the asset tests results from an acquisition of securities or other
property during a quarter (including, for example, as a result of increasing our
interest in the Operating Partnership as a result of a merger, the exercise of
Redemption Rights or an additional capital contribution of proceeds of an
offering of shares of our stock), such failure may be cured by a disposition of
sufficient nonqualifying assets within 30 days following the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and plan to take such other action within
30 days following the close of any quarter as may be required to cure any
noncompliance. However, there can be no assurance that such action will always
be successful.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, a company
is generally required to distribute to its stockholders at least 95% of its
taxable income each year. In addition, it will be subject to regular capital
gains and ordinary corporate tax rates on undistributed income, and also may be
subject to a 4% excise tax on undistributed income in certain events. We believe
that we have made, and intend to continue to make, timely distributions
sufficient to satisfy the annual distribution requirements. However, it is
possible that, from time to time, we may not have sufficient cash or other
liquid assets to meet the distribution requirements. In such circumstances, we
may cause the Operating Partnership to arrange for short-term, or possibly
long-term, borrowings to permit the payment of required dividends.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a taxable year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may be able to avoid being taxed on amounts
distributed as deficiency dividends. However, we would be required to pay to the
IRS interest based upon the amount of any deduction taken for deficiency
dividends.
FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any
taxable year and special relief provisions do not apply, we will be subject to
tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to
24
<PAGE>
qualify as a REIT will not be deductible, nor will they be required to be made.
In such event, to the extent of current and accumulated earnings and profits,
all distributions to our stockholders will be taxable as ordinary income and,
subject to certain limitations in the Code, corporate distributees may be
eligible for the "dividends received deduction." In addition, our failure to
qualify as a REIT would also substantially reduce the cash available for
distributions to stockholders. Unless entitled to relief under specific
statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as we qualify as a REIT,
distributions made to our taxable domestic stockholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate stockholders
will not be eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed as
gains from the sale or exchange of a capital asset (to the extent they do not
exceed our actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. If we designate any portion
of a dividend as a capital gain dividend, a stockholder's share of such capital
gain dividend would be an amount which bears the same ratio to the total amount
of dividends paid to such stockholder for the taxable year as the total amount
of capital gain dividends bears to the total amount of all dividends paid on all
classes of stock for the taxable year. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. We may elect to retain and pay income tax on any net long-term capital
gain, in which case our domestic stockholders would include in their income as
long-term capital gain their proportionate share of such undistributed net
long-term capital gain. A domestic stockholder would also receive a refundable
tax credit for such stockholder's proportionate share of the tax paid by us on
such retained capital gains and an increase in its basis in our stock in an
amount equal to the difference between the undistributed long-term capital gains
and the amount of tax paid by us. See "Capital Gains and Losses" below.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's Common Stock, but rather will reduce the
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.
25
<PAGE>
CAPITAL GAINS AND LOSSES. The maximum marginal individual federal income
tax rate is 39.6%. The maximum tax rate on net capital gains applicable to
individuals, trusts and estates from the sale or exchange of capital assets held
for more than one year is 20%, and the maximum rate is reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
individuals, trusts and estates who would be subject to a maximum tax rate of
15%, the rate on net capital gains is reduced to 10%, and, effective for taxable
years commencing after December 31, 2000, the rate is reduced to 8% for assets
held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than one
year is 25% to the extent of the deductions for depreciation (other than certain
depreciation recapture taxable as ordinary income) with respect to such
property. Accordingly, the tax rate differential between capital gain and
ordinary income for noncorporate taxpayers may be significant. In addition, the
characterization of income as capital or ordinary may affect the deductibility
of capital losses. Capital losses not offset by capital gains may be deducted
against a noncorporate taxpayer's ordinary income only up to a maximum annual
amount of $3,000. Unused capital losses may be carried forward. All net capital
gain of a corporate taxpayer is subject to tax at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the extent of capital
gains, with unused losses being carried back three years and forward five years.
IRS Notice 97-64 provides temporary guidance with respect to the taxation of
distributions by REITs that are designated as capital gain dividends. Pursuant
to Notice 97-64, forthcoming Treasury Regulations will provide that capital
gains allocated to a stockholder by us may be designated as a 20% rate gain
distribution, a 25% rate gain distribution, or a 28% rate gain distribution. In
determining the amounts which may be designated as each class of capital gains
dividends, a REIT must calculate its net capital gains as if it were an
individual subject to a marginal tax rate on ordinary income of 28%. Unless
specifically designated otherwise by us, a distribution designated as a capital
gain distribution is presumed to be a 28% rate gain distribution. If we elect to
retain any net long-term capital gain, as discussed above, the undistributed
long-term capital gains are considered to be designated as capital gain
dividends for purposes of Notice 97-64. Furthermore, Notice 97-64 provides that
designations of capital gain dividends made by us will only be effective to the
extent that the distributions with respect to our different classes of stock are
composed proportionately of ordinary and capital gain dividends. However, Notice
97-64 was issued prior to the IRS Restructuring and Reform Act of 1998 (the
"1998 Reform Act") which significantly changed the taxation of capital gains of
certain non-corporate taxpayers. We expect the IRS to issue clarifying guidance
regarding the impact of Notice 97-64 in light of the 1998 Reform Act.
BACKUP WITHHOLDING. We will report to our domestic stockholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholdings rules. Any amount paid as backup withholding will be creditable
against the stockholder's income tax liability. The United States Treasury has
issued final regulations on October 6, 1997 (the "Final Regulations") regarding
the withholding and information reporting rules discussed above. In general, the
Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The Final Regulations are generally
effective for payments made on or after January 1, 2000, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of Common Stock.
In addition, we may be required to withhold a portion of capital gain
dividends made to any stockholders which fail to certify their non-foreign
status to us. See "Taxation of Foreign Stockholders" below.
26
<PAGE>
TAXATION OF TAX-EXEMPT STOCKHOLDERS. Distributions that we make to a
stockholder that is a tax-exempt entity will not constitute "unrelated business
taxable income" ("UBTI"), provided that the tax-exempt entity has not financed
the acquisition of Common Stock with "acquisition indebtedness" within the
meaning of the Code and the Common Stock is not otherwise used in an unrelated
trade or business of the tax-exempt entity. In addition, under certain
circumstances, qualified trusts that own more than 10% (by value) of our shares
may be required to treat a certain percentage of dividends as UBTI. This
requirement will only apply if we are a "pension-held REIT." The restrictions on
ownership in our Charter should prevent us from being classified as a
pension-held REIT.
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing the United States
federal income taxation of the ownership and disposition of Common Stock by
persons that are, for purposes of such taxation, nonresident alien individuals,
foreign corporations, foreign partnerships and other foreign stockholders
(collectively, "Non-U.S. Stockholders") are complex and no attempt will be made
herein to provide more than a very limited summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN SHARES, INCLUDING ANY REPORTING REQUIREMENTS, AS WELL AS THE TAX
TREATMENT OF SUCH AN INVESTMENT UNDER THEIR HOME COUNTRY LAWS.
Distributions that are not attributable to gain from sales or exchanges of
U.S. real property interests and not designated by us as capital gain dividends
will be treated as dividends and taxed as ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. Such
distributions are, generally, subject to a withholding tax equal to 30% of the
gross amount of the distribution, unless an applicable tax treaty reduces that
tax. Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a Non-U.S. Stockholder to the extent that they do not
exceed the adjusted basis of the Non-U.S. Stockholder's Common Stock, but rather
will reduce the adjusted basis of such Common Stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to tax liability if the Non-U.S. Stockholder
otherwise would be subject to tax on any gain from the sale or disposition of
his Common Stock as described below (in which case they also may be subject to a
30% branch profits tax if the stockholder is a foreign corporation).
For withholding tax purposes, we are currently required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Stockholder. Under the
Final Regulations, generally effective for distributions on or after January 1,
2000, we would not be required to withhold at the 30% rate on distributions we
reasonably estimate to be in excess of our current and accumulated earnings and
profits. If it cannot be determined at the time a distribution is made whether
such distribution will 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
27
<PAGE>
designated by us as a capital gain dividend. This amount is creditable against
the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock will
generally not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which, at all times during a specified testing
period, less than 50% in value of the stock was held directly or indirectly by
foreign persons. We believe that we are a "domestically controlled REIT" and,
therefore, the sale of Common Stock will not be subject to taxation under
FIRPTA. However, because the Common Stock is publicly traded, no assurance can
be given that we will continue to qualify as a "domestically controlled REIT."
If the gain on the sale of Common Stock were to be subject to tax under FIRPTA,
the Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax, possible withholding tax and a special alternative minimum tax in
the case of nonresident alien individuals), and the purchaser of the Common
Stock would be required to withhold and remit to the IRS 10% of the purchase
price. In addition, if we are not a "domestically controlled REIT,"
distributions in excess of our current and accumulated earnings and profits
would be subject to withholding at a rate of 10%.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT
QUALIFICATION. All of our investments are through the Operating Partnership. We
believe that the Operating Partnership is properly treated as a partnership for
tax purposes (and not as an association taxable as a corporation). If, however,
the Operating Partnership were to be treated as an association taxable as a
corporation, we would cease to qualify as a REIT. Furthermore, in such a
situation, the Operating Partnership would be subject to corporate income taxes
and we would not be able to deduct our share of any losses generated by the
Operating Partnership in computing our taxable income.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties). When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The partnership agreement of the
Operating Partnership requires allocations of income, gain, loss and deduction
with respect to contributed Property to be made in a manner consistent with the
special rules in Section 704(c) of the Code, and the regulations thereunder,
which tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the depreciable lives of the contributed Properties. However,
because of certain technical 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.
28
<PAGE>
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 1, 1999, 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. However, REITs would be allowed to
hold two types of "taxable REIT subsidiaries" which would be subject to full
corporate level taxation. Under the proposal, we would be allowed to combine or
convert our existing stock interest in the Management Company into a "taxable
REIT subsidiary," subject to certain transition rules. If enacted in its present
form, the proposal may limit the future activities and growth of the Management
Company. No prediction can be made as to whether such proposal or any other
proposal affecting REITs will be enacted into legislation and the impact of any
such legislation on our operations.
LEGAL MATTERS
Rogers & Wells LLP, New York, New York will pass upon the validity of the
Common Stock offered by this Prospectus, as well as certain legal matters
described under "Federal Income Tax Considerations." Rogers & Wells LLP will
rely as to certain matters of Maryland law on the opinion of Piper & Marbury
L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements and the related financial statement
schedule 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.
29
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission............................ 9,292.00
Accounting fees and expenses.................................................... 3,000.00(a)
Legal fees and expenses......................................................... 25,000.00(a)
Printing and engraving expenses................................................. 5,000.00(a)
Miscellaneous................................................................... 15,000.00(a)
----------
Total....................................................................... 57,292.00
----------
----------
</TABLE>
- ------------------------
(a) Does not include expenses of preparing prospectus supplements and other
expenses relating to offerings of particular securities.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Maryland General Corporation Law (the "MGCL"), our
Charter provides that we shall indemnify (i) our directors and officers to the
fullest extent required or permitted by Maryland law, including the advance of
expenses under the procedures and to the full extent permitted by law and (ii)
other employees and agents to such extent as shall be authorized by our Board of
Directors or our By-laws and be permitted by law. The MGCL permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities, unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith, or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful.
The MGCL permits the Articles of Incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(1) it is provided that the person actually received an improper benefit or
profit in money, property or services or (2) a judgment or other final
adjudication is entered in a proceeding based on a finding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. Our
Charter contains a provision providing for elimination of the liability of our
directors or officers to us or our stockholders for money damages to the maximum
extent permitted by Maryland law from time to time.
We have a director and officer liability insurance policy with a $5,000,000
limit of liability and a company retention of $75,000 in the aggregate for each
claim.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
4.1 Amended and Restated Articles of Incorporation of the Registrant incorporated by
reference to Exhibit 4.1 of our Registration Statement on Form S-3, filed with the
Commission on March 11, 1999 (File No. 333-74277).
4.2 Articles Supplementary of the Registrant relating to the Series A Preferred Stock
(incorporated by reference to Exhibit 4.2 of our Registration Statement on Form S-3,
filed with the Commission on March 11, 1999 (File No. 333-74277)).
4.3 By-Laws of the Registrant (incorporated by reference to Exhibit 3.3 of our Form 8-K,
filed with the Commission on December 22, 1997).
4.4 Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4(a) of our
Amendment No. 2 to Form S-11, filed with the Commission on October 8, 1993).
5.1 Opinion of Rogers & Wells LLP (Counsel).
5.2 Opinion of Piper & Marbury L.L.P. (Counsel).
8 Opinion of Rogers & Wells LLP regarding tax matters.
23.1 Consent of Rogers & Wells LLP (included in Exhibits 5.1 and 8).
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
24 Powers of Attorney (included on signature pages hereto).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment will be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement will be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time will be deemed to be the initial bona fide offering thereof.
(5) That, (i) for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective and (ii) for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel for the
Registrant the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on April 30, 1999.
AMERICAN REAL ESTATE INVESTMENT CORPORATION
BY: /S/ JEFFREY E. KELTER
-----------------------------------------
Jeffrey E. Kelter
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Jeffrey E. Kelter, Timothy A. Peterson and
Timothy E. McKenna, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including any post-effective amendments, to this Registration
Statement on Form S-3 and any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and any and all applications and other documents in
connection therewith, with the Securities and Exchange Commission and any state
or other securities authority, granting unto said attorneys-in-fact and agents,
and each of them full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact or agents, or any of them, or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ DAVID F. MCBRIDE Chairman And Director
- ------------------------------ (Principal Executive April 30, 1999
David F. McBride Officer)
/s/ JEFFREY E. KELTER President And Director
- ------------------------------ (Principal Executive April 30, 1999
Jeffrey E. Kelter Officer)
II-4
<PAGE>
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
Chief Financial Officer And
/s/ TIMOTHY E. PETERSON Secretary
- ------------------------------ (Principal Financial April 30, 1999
Timothy E. Peterson Officer)
/s/ TIMOTHY E. MCKENNA Treasurer
- ------------------------------ (Principal Accounting April 30, 1999
Timothy E. McKenna Officer)
/s/ TIMOTHY MCBRIDE Director
- ------------------------------ April 30, 1999
Timothy McBride
/s/ ROBERT BRANSON Director
- ------------------------------ April 30, 1999
Robert Branson
/s/ JAMES MULVIHILL Director
- ------------------------------ April 30, 1999
James Mulvihill
/s/ EVAN ZUCKER Director
- ------------------------------ April 30, 1999
Evan Zucker
/s/ FRANCESCO GALESI Director
- ------------------------------ April 30, 1999
Francesco Galesi
/s/ MICHAEL FALCONE Director
- ------------------------------ April 30, 1999
Michael Falcone
/s/ DAVID LESSER Director
- ------------------------------ April 30, 1999
David Lesser
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- -----
<C> <S> <C>
4.1 Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 4.1 of our Registration Statement on Form S-3, filed with the Commission on March 11,
1999 (File No. 333-74277)).
4.2 Articles Supplementary of the Registrant relating to the Series A Preferred Stock (incorporated
by reference to Exhibit 4.2 of our Registration Statement on Form S-3 filed with the Commission
on March 11, 1999 (File No. 333-74277)).
4.3 By-Laws of the Registrant (incorporated by reference to Exhibit 3.3 of our Form 8-K, filed with
the Commission on December 22, 1997).
4.4 Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4(a) to our Amendment
No. 2 to Form S-11, filed with the Commission on October 8, 1993).
5.1 Opinion of Rogers & Wells LLP (Counsel).
5.2 Opinion of Piper & Marbury L.L.P. (Counsel).
8 Opinion of Rogers & Wells LLP regarding tax matters.
23.1 Consent of Rogers & Wells LLP (included in Exhibits 5.1 and 8).
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
24 Powers of Attorney (included on signature pages hereto).
</TABLE>
<PAGE>
Exhibit 5.1
[LETTERHEAD OF ROGERS & WELLS]
May 3, 1999
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 W. Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
Dear 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 from
time to time by the securityholders listed in the Registration Statement of up
to 2,533,833 shares of common stock, par value $.001 per share (the "Shares"),
of the Company issuable upon conversion of units of limited partnership interest
(the "OP Units") American Real Estate Investment, L.P., a Delaware limited
partnership (the "Operating Partnership"), held by such securityholders.
In rendering the opinions expressed herein, we have examined the Registration
Statement, the Company's Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership and such corporate proceedings of the
Company and other documents as we have deemed necessary. As to questions of fact
material to this opinion, we have relied on certificates of officers of the
Company and have not independently verified the accuracy of the matters
contained therein.
In our examination of the documents, certificates and instruments referred to
above, 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, certificates and instruments
submitted to us as copies and the absence of any amendments or modifications to
those items reviewed by us.
Based upon the foregoing and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that the
Shares have been duly authorized and, when issued upon conversion of the OP
Units in accordance with the terms thereof, will be validly issued, fully paid
and nonassessable.
The opinions stated herein are limited to the federal laws of the United States,
the laws of the State of New York and the laws of the State of Maryland. To the
extent that any opinions set forth herein are dependent on the laws of the State
of Maryland, we have relied on the opinion of Piper & Marbury
<PAGE>
American Real Estate Investment Corporation Page 2
May 3, 1999
L.L.P., dated the date hereof. Our opinion, to the extent based upon such
reliance, is limited by the qualifications, assumptions and conditions set forth
in such opinion in addition to those set forth herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
concede that we are within the category of persons whose consent is required
under the Securities Act or the rules and regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ Rogers & Wells LLP
<PAGE>
Exhibit 5.2
[LETTERHEAD OF PIPER & MARBURY]
May 3, 1999
AMERICAN REAL ESTATE INVESTMENT CORPORATION
620 West Germantown pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Ladies and Gentlemen:
We have acted as 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 (the
"Registration Statement") filed with the Securities and Exchange Commission
(the "Commission"), of up to 2,533,833 shares (the "Shares") of Common Stock,
par value $.001 per share, of the Company issued upon conversion of 2,533,833
units of limited partnership of American Real Estate Investment, L.P. (the
"Operating Partnership"). The Company is the sole general partner of the
Operating Partnership. 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
originals or copies, certified or otherwise identified to our satisfaction,
of the Registration Statement, the Charter and By-Laws of the Company as in
effect on the date hereof, minutes of the proceedings of the Company's Board
of Directors and stockholders authorizing the issuance and delivery of the
Shares (the "Board Resolutions"), the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Partnership
Agreement"), an Officer's Certificate of the Company dated the date hereof
(the "Certificate"), and such other documents as we have considered
necessary. In such 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. As to factual matters, we
have relied on the Certificate and have not independently verified the
matters stated therein.
<PAGE>
PIPER & MARBURY
LLP
AMERICAN REAL ESTATE INVESTMENT CORPORATION
May 3, 1999
Page 2
Based upon the foregoing, having regard for such legal
considerations as we deem relevant, and limited in all respects to applicable
Maryland law, we are of the opinion and so advise you that the Shares have
been duly authorized and, upon the issuance and delivery of the Shares in
accordance with the Board Resolutions and the Partnership Agreement, will be
validly issued, fully paid, and non-assessable.
This opinion is limited to the laws of the State of Maryland,
exclusive of the securities or "blue sky" laws of the State of Maryland. This
opinion is rendered as of the date hereof. We assume no obligation to update
such opinion to reflect any facts or circumstances which may hereafter come
to our attention or changes in the law which may hereafter occur. This
opinion is limited to the matters set forth herein, and no other opinion
should be inferred beyond the matters expressly stated. To the extent that
any documents referred to herein are governed by the law of a jurisdiction
other than Maryland, we have assumed that the laws of such jurisdiction are
the same as the laws of the State of Maryland.
We hereby consent to the filing of this opinion with the Commission
as Exhibit 5.2 to the Registration Statement and to the reference to our firm
under the heading "Legal Matters" in the Registration Statement. In giving
our consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission thereunder. This opinion may be relied upon by
Rogers & Wells LLP. This opinion is limited to the matters set forth herein,
and no other opinion should be inferred beyond the matters expressly stated.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE>
Exhibit 8
[LETTERHEAD OF ROGERS & WELLS]
May 3, 1999
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 West Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
Re: REIT Status of American Real Estate Investment Corporation
Ladies and Gentlemen:
We have acted as special counsel to American Real Estate Investment
Corporation, a Maryland corporation (the "Company") and the general partner
of American Real Estate Investment, L.P., a Delaware limited partnership (the
"Operating Partnership"), in connection with the preparation and filing of
the Company's Registration Statement on Form S-3 (as the same may be amended
or supplemented from time to time, the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), covering the possible offer
and sale from time to time of up to 2,533,833 shares of common stock, par
value $0.001 per share (the "Shares"), by the stockholders of the Company
listed in the Registration Statement. This opinion is being provided at your
request in connection with the filing of the Registration Statement.
In rendering the opinion expressed herein, we have examined and relied on the
following items:
1. The Registration Statement;
2. The Company's Charter;
3. The Amended and Restated Agreement of Limited Partnership of
the Operating Partnership dated December 12, 1997; and
4. Such other documents, records and instruments as we have
deemed necessary in order to enable us to render the opinion
referred to in this letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures of each original document are genuine,
<PAGE>
American Real Estate Investment Corporation Page 2
May 3, 1999
(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 May 3, 1999, provided to us by the Company and the
Operating Partnership. These representations generally relate to the
classification and operation of the Company as a REIT and the organization and
operation of the Operating Partnership.
Based upon and subject to the foregoing, we are of the opinion that:
(1) Commencing with its taxable year ended December 31, 1993, the
Company was and is organized in conformity with the
requirements for qualification as a REIT under the Code and
that the present and proposed method of operation of the
Company and the Operating Partnership, as described in the
Registration Statement and as represented by the Company and
the Operating Partnership, will permit the Company to continue
to so qualify; and
(2) The information in the Registration Statement under the
heading "Federal Income Tax Considerations" has been reviewed
by us and, to the extent that it constitutes matters of law,
summaries of legal matters or documents, or legal conclusions,
is correct in all material respects.
The opinion stated above represents our conclusions as to the application of the
federal income tax laws existing as of the date of this letter to the
transactions contemplated in the Registration Statement and we can give no
assurance that legislative enactments, administrative changes or court decisions
may not be forthcoming that would modify or supersede our opinion. Moreover,
there can be no assurance that positions contrary to our opinion will not be
taken by the Internal Revenue Service, or that a court considering the issues
would not hold contrary to such opinion. Further, the opinion set forth above
represents our conclusions based upon the documents, facts and representations
referred to above. Any material amendments to such documents, changes in any
significant facts or inaccuracy of such representations could affect the opinion
referred to herein. Moreover, the Company's qualification and taxation as a REIT
depend upon the Company's ability to meet, through actual annual operating
results, requirements under the Code regarding income, assets, distributions and
diversity of stock ownership. Because the Company's satisfaction of these
requirements will depend on future events, no assurance can be given that the
actual results of the Company's operations for any particular taxable year will
satisfy the tests necessary to qualify as or be taxed as a REIT under the
<PAGE>
American Real Estate Investment Corporation Page 3
May 3, 1999
Code. Although we have made such inquiries and performed such investigations as
we have deemed necessary to fulfill our professional responsibilities as
counsel, we have not undertaken an independent investigation of all of the facts
referred to in this letter and the Certificate of Representations.
The opinion set forth in this letter: (i) is limited to those matters expressly
covered; no opinion is to be implied in respect of any other matter; (ii) is as
of the date hereof; and (iii) is rendered by us solely for your benefit and may
not be provided to or relied upon by any person or entity other than you without
our express consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the captions "Legal
Matters" and "Federal Income Tax Considerations" in the Registration Statement.
In giving this consent, we do not concede that we are within the category of
persons whose consent is required under the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Rogers & Wells LLP
<PAGE>
Exhibit 23.3
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference into this Registration Statement on Form S-3 (the "Registration
Statement") of American Real Estate Investment Corporation (the "Company")
of: our report dated February 18, 1999, on the consolidated financial
statements of the Company, included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998; our report dated February 13, 1998
on the statement of revenue and certain expenses of 101 Commerce Drive for
the year ended December 31, 1996, included in the Company's Form 8-K/A dated
February 24, 1998; our report dated April 1, 1998 on the statement of revenue
and certain expenses of GATX Properties for the year ended December 31, 1997
and our report dated June 5, 1998 on the statement of revenue and certain
expenses of Double M Development Properties for the year ended December 31,
1997, both included in the Company's Form 8-K/A dated June 10, 1998; our
report dated April 1, 1998 on the combined statement of revenue and certain
expenses of Galesi Properties for the year ended December 31, 1997 and our
report dated June 15, 1998 on the statement of revenue and certain expenses
of Fed One Portfolio for the year ended December 31, 1997, both included in
the Company's Form 8-K/A dated July 14, 1998; our report dated July 6, 1998
on the combined statement of revenue and certain expenses of Pioneer
Portfolio for the year ended December 31, 1997, our report dated July 7, 1998
on the statement of revenue and certain expenses of ASW Portfolio for the
year ended December 31, 1997 and our report dated July 31, 1998 on the
combined statement of revenue and certain expenses of Szeles Portfolio for
the year ended December 31, 1997, all included in the Company's 8-K dated
August 13, 1998; our report dated December 5, 1998 on the combined statement
of revenue and certain expenses of Chambersburg Properties for the year ended
December 31, 1997, our report dated December 16, 1998 on the combined
statement of revenue and certain expenses of Browning Investment Portfolio
for the year ended December 31, 1997 and our report dated December 23, 1998
on the combined statement of revenue and certain expenses of Brashier
Portfolio for the year ended December 31, 1997, all included in the Company's
8-K/A dated January 13, 1999; and to all references to our Firm included in
the Registration Statement.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania,
May 3, 1999
