PROSPECTUS SUPPLEMENT
(To Prospectus dated November 21, 1996)
3,000,000 Shares
URBAN SHOPPING CENTERS, INC.
COMMON STOCK
--------------------
Urban Shopping Centers, Inc. (the "Company") is a self-
administered and self-managed real estate investment trust (a
"REIT") focused on owning, managing, leasing, acquiring,
developing and redeveloping a portfolio of super-regional and
regional malls located throughout the United States, particularly
high-quality regional malls. The Company currently owns
interests in nine regional malls (including one under
construction that is scheduled to open in February 1997) and
three community centers and, through its interest in Urban Retail
Properties Co. (the "Management Company"), participates
economically in one of the nation's largest managers of retail
properties.
This Prospectus Supplement relates to the offering (the
"Offering") by the Company of shares of its common stock, par
value $.01 per share, (the "Common Stock"). See "Underwriting."
The Common Stock is currently listed on the New York Stock
Exchange (the "NYSE") under the symbol "URB." On November 20,
1996, the closing price of the Company's Common Stock, as
reported by the NYSE, was $26.25 per share. The Company has paid
regular quarterly distributions to holders of its Common Stock,
and it expects to continue to pay distributions in the future.
See "Price Range of Common Stock and Distributions."
To help ensure that the Company qualifies as a REIT for
federal income tax purposes, transfer of shares of Common Stock
is restricted and ownership by any person is limited to 4.9% of
the number or value of the issued and outstanding shares of the
Common Stock, subject to certain exceptions. See "Description of
Common Stock - Restrictions on Transfer" in the accompanying
Prospectus.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
Lehman Brothers Inc. (the "Underwriter") has agreed to
purchase from the Company the shares of Common Stock offered
hereby at a purchase price of $25.00 per share, resulting in total
net proceeds to the Company of $75,000,000, before deducting expenses
payable by the Company, estimated at approximately $150,000. The
Company has granted to the Underwriter a 30-day option to purchase up
to 300,000 additional shares of Common Stock at a purchase price of
$25.00 per share, solely to cover over-allotments, if any. If such
option is exercised in full, the total net proceeds to the Company will
be $82,500,000, before deducting expenses payable by the Company, estimated
at approximately $150,000.
The Common Stock offered hereby may be offered by the
Underwriter from time to time in one or more transactions on the
NYSE or otherwise, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at
negotiated prices. See "Underwriting."
The Company has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
--------------------
The shares of Common Stock offered by this Prospectus
Supplement and the accompanying Prospectus are offered by the
Underwriter subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery and
acceptance by the Underwriter and to certain further conditions.
It is expected that delivery of the shares of Common Stock will
be made at the offices of Lehman Brothers Inc., New York, New
York on or about November 26, 1996.
--------------------
LEHMAN BROTHERS
November 21, 1996
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY
BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
THE FOLLOWING INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT,
THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN OR THEREIN BY
REFERENCE. CERTAIN TERMS USED BUT NOT DEFINED HEREIN ARE AS
DEFINED IN THE ACCOMPANYING PROSPECTUS.
THE COMPANY
The Company was formed in May 1993 to continue the regional
mall business of JMB Realty Corporation ("JMB Realty") and
certain of its affiliates in owning, managing, leasing,
acquiring, developing and redeveloping a portfolio of super-
regional and regional malls located throughout the United States.
The Company is a self-administered real estate company with a
focus on high-quality regional malls. The management of the
Company and its subsidiaries has been involved in the retail
business for over 25 years.
The Company owns, through its approximately 65% ownership
interest in Urban Shopping Centers, L.P. (the "Operating
Partnership"), interests in some of the premier super-regional
and regional malls in the United States, including Water Tower
Place (Chicago, Illinois), Oak Brook Center (Oak Brook,
Illinois), and MainPlace (Orange County, California). The
Company owns interests in nine regional malls (including one
under construction that is scheduled to open in February 1997)
and three community centers (collectively, the "Properties"). In
addition, through its interest in the Management Company, the
Company participates economically in one of the nation's largest
managers of retail properties. The Company intends to grow its
portfolio through acquisition and development of regional malls
and expansion of certain existing Properties.
The Company has elected to be taxed as a REIT for Federal
income tax purposes and is self-administered. The Company's
executive offices are located at 900 North Michigan Avenue, Suite
1500, Chicago, Illinois 60611, and its telephone number is (312)
915-2000. The Company is a Maryland corporation that was
incorporated on May 12, 1993.
THE PROPERTIES
The following table sets forth certain information with
respect to the Properties (other than Old Orchard Center located
in Skokie, Illinois which the Company has agreed to acquire, see
"Recent Developments," and Wolfchase Galleria, in Memphis,
Tennessee, which is under construction):
Property Location Ownership Total GLA(1) Mall GLA(2)
- ------------------- ----------------- --------- ------------ -----------
Water Tower Place Chicago, IL 55% 727,497 311,825
Oakbrook Center Oak Brook, IL 100% 2,014,962 832,384
MainPlace Santa Ana, CA 100% 1,116,401 455,901
Penn Square Mall Oklahoma City, OK 100% 1,074,816 384,998
Coral Square Mall Coral Springs, FL 50% 947,778 299,634
Miami International
Mall Miami, FL 40% 975,873 292,565
Valencia Town Center Valencia, CA 25% 673,114 280,195
Brandon Town Center Brandon, FL 100% 969,554 360,370
New York Square Aurora, IL 100% 115,685 16,760
Service Merchandise
Plaza Columbus, OH 100% 133,987 69,968
The Plaza at Brandon
Town Center Brandon, FL 100% 242,635 88,785
(1) Total GLA is the total gross retail space, including anchors
and mall tenant areas.
(2) Mall GLA is the total gross retail space, excluding anchors.
The following is a brief description of each of the
Properties:
Water Tower Place - Chicago, Illinois
Water Tower Place is a 74-story mixed-use urban complex
which contains approximately 3.1 million square feet of
commercial, office and residential space. It was the first high-
rise urban mixed-use facility ever built. The property has been
recognized as one of the country's premier real estate projects
and has won several national design awards. Water Tower Place is
situated in the heart of a high-end retail corridor on North
Michigan Avenue known as Chicago's Magnificent Mile. The project
consists of an eight-level retail mall, one floor of corporate
and professional office space, a four-level below-grade parking
structure, a 22-story Ritz Carlton luxury hotel and 260
condominium units. The retail mall, office space and parking
structure are included in the Company (the hotel and condominium
units are not). The retail mall contains 727,497 total square
feet. It is anchored by Marshall Field's and Lord & Taylor and
includes 311,825 square feet of Mall GLA. The office component
includes 93,877 rentable square feet and the garage contains 690
spaces.
Water Tower Place is owned by a general partnership in which
the Operating Partnership holds a 55% partnership interest and an
unaffiliated third party holds a 45% partnership interest. Both
partners must consent to any significant action. The partnership
agreement provides that neither partner may transfer its interest
in the partnership (other than to an affiliate) without the
consent of the other partner and that each partner has a right of
first refusal with respect to a sale by the other partner.
Oakbrook Center - Oak Brook, Illinois
Oakbrook Center is located approximately 18 miles west of
downtown Chicago. The project consists of an approximate two
million square foot retail regional mall, three office buildings,
a hotel and a free-standing movie theater. Both the hotel and
freestanding theater are lessees pursuant to long-term ground sub-
leases from the Operating Partnership. The retail component
contains 2,014,962 square feet, is anchored by Marshall Field's,
Sears, Nordstrom, Neiman-Marcus, Lord & Taylor and Saks Fifth
Avenue and includes 832,384 square feet of Mall GLA.
The Operating Partnership owns 100% of Oakbrook Center.
Oakbrook Center is subject to a ground lease with an unaffiliated
institutional investor which matures in December 2040 and
provides options to renew for an additional 49 years upon
expiration.
MainPlace - Santa Ana, California
MainPlace contains 1,116,401 total square feet. The mall is
anchored by Macy's (formerly Bullock's), Nordstrom, and two
Robinsons-May Stores and includes 455,901 square feet of Mall
GLA. The Operating Partnership owns 100% of MainPlace.
The Company intends to pursue the possible addition of
another department store at MainPlace, together with the possible
addition of up to 30,000 square feet of Mall GLA, subject to the
approval of the existing department stores and of the parties
entitled to develop office and hotel improvements adjacent to
MainPlace. These parties include affiliates of JMB Realty and
of Mr. Henry Segerstrom, one of the Company's disinterested
directors.
Penn Square Mall - Oklahoma City, Oklahoma
Penn Square Mall contains 1,074,816 total square feet. The
mall is anchored by Dillard's, Foley's, JCPenney and Montgomery
Ward and includes 384,998 square feet of Mall GLA. Penn Square
Mall was most recently expanded in 1995 with the addition of a
125,000 square foot JCPenney store and a reconfiguration and
retenanting of an adjacent wing of the mall.
The Operating Partnership owns 100% of Penn Square Mall.
Penn Square Mall is subject to a ground lease with an
unaffiliated third party which expires in September 2060.
Coral Square Mall - Coral Springs, Florida
Coral Square Mall contains 947,778 total square feet. The
mall is anchored by two Burdines stores, Sears, JCPenney and
Mervyn's and includes 299,634 square feet of Mall GLA.
Coral Square Mall is owned by a general partnership in which
the Operating Partnership holds a 50% partnership interest and an
affiliate of Simon DeBartolo Group is the managing general
partner owning a 50% interest. All major decisions of the
partnership require the approval of both partners. Transfers of a
partner's interest in the partnership (other than transfers to an
affiliate) require the consent of the other partner and are
subject to a right of first refusal.
Miami International Mall - Miami, Florida
Miami International Mall contains 975,873 total square feet.
The mall is anchored by two Burdines stores, Sears, JCPenney and
Mervyn's and includes 292,565 square feet of Mall GLA.
Miami International Mall is held by a joint venture in which
an affiliate of Simon DeBartolo Group owns a 60% interest and the
Operating Partnership owns a 40% interest. The Company increased
its ownership interest in Miami International Mall to 40% in
April 1996 when the Company and the Simon DeBartolo affiliate
purchased the 27.55% share of the mall that was previously held
by affiliates of JMB Realty. The Simon DeBartolo affiliate is
the managing partner of the venture owning the property, subject
to the approval of the Operating Partnership on all major
decisions, including sale of the property, significant
expenditures and major leasing decisions. Sales of partnership
interests in both the venture owning the property and in the
Simon DeBartolo affiliated partnership are subject to a right of
first refusal by the other partner.
Valencia Town Center - Valencia, California
Valencia Town Center is located approximately 35 miles north
of downtown Los Angeles in the Newhall Land and Farming Company's
("Newhall") master-planned community of Valencia. The mall
contains 673,114 total square feet. It is anchored by Sears,
Robinsons-May and JCPenney and includes 280,195 square feet of
Mall GLA. Valencia Town Center opened in September 1992.
Valencia Town Center is owned by a limited partnership
between the Operating Partnership (a 25% limited partner) and
Newhall (a 75% general partner), the landowner and master-planner
for the surrounding 50,000-acre community. Newhall is
unaffiliated with the Company. Newhall, as general partner, has
sole authority to manage the affairs of the partnership, except
that the Operating Partnership has a right to approve any sale of
the property to any affiliate of Newhall. Each partner may sell
or assign its partnership interest to an unaffiliated third party
subject to a right of first refusal of the other partner. Any
distributions with respect to the 25% interest of the Operating
Partnership are subordinated to the return of Newhall's capital
investment, plus a return thereon. The property currently
operates subject to a ground lease (with Newhall as the lessor)
which will expire in December 2022. The partnership has an
option to purchase the fee interest at any time at a
predetermined price.
Brandon Town Center - Brandon, Florida
Brandon Town Center contains 969,554 total square feet. It
is anchored by JCPenney, Dillard's, Sears and Burdines and
includes 360,370 square feet of Mall GLA. The Operating
Partnership owns 100% of Brandon Town Center.
New York Square - Aurora, Illinois
New York Square is located approximately 30 miles west of
downtown Chicago. The center contains 115,685 total square feet.
It is anchored by Kohl's and OfficeMax (a subsidiary of Kmart
Corporation) and contains 16,760 square feet of Mall GLA. The
Operating Partnership owns 100% of New York Square.
Service Merchandise Plaza - Columbus, Ohio
Formerly called The Plaza at Sawmill Place, Service
Merchandise Plaza is located in the northwest quadrant of
Columbus, Ohio. The center contains 133,987 total square feet.
It is anchored by Service Merchandise and includes 69,968 square
feet of Mall GLA in two buildings, one of which is a 14,449
square foot outparcel.
The Operating Partnership owns 100% of Service Merchandise
Plaza. The Operating Partnership also owns 8.5 acres of
contiguous land which may be suitable for development as an
addition to Service Merchandise Plaza.
The Plaza at Brandon Town Center - Brandon, Florida
The Plaza at Brandon Town Center is a 242,635 square foot
community shopping center located adjacent to Brandon Town
Center. The center opened in August 1994. It is anchored by
Target (a subsidiary of Dayton Hudson Corp.) and Service
Merchandise and includes 88,785 square feet of Mall GLA. The
Operating Partnership owns 100% of The Plaza at Brandon Town
Center.
Wolfchase Galleria - Memphis, Tennessee
Wolfchase Galleria is an approximate 1.1 million square foot
regional mall currently under construction. It is being
developed by the Management Company for the Operating Partnership
and is expected to open in February 1997. It will be anchored by
Dillard's, Goldsmith's, JCPenney and Sears and will contain
approximately 360,000 square feet of Mall GLA. The Operating
Partnership owns 100% of Wolfchase Galleria.
RECENT DEVELOPMENTS
On November 7, 1996, the Operating Partnership announced
that it had reached an agreement in principle to acquire the Old
Orchard Shopping Center ("Old Orchard") for approximately $78
million in cash and the issuance of approximately $28 million in
units of partnership interests ("Units") in the Operating
Partnership, subject to approximately $160 million of existing
indebtedness. Old Orchard, an open-air regional shopping center
located in Skokie, Illinois, is currently owned 90% by an
unaffiliated third party and 10% by an affiliate of JMB Realty.
Completion of the acquisition is subject to the negotiation and
execution of a definitive agreement, satisfactory completion of
customary due diligence reviews and other customary closing
conditions. There can be no assurance that the acquisition of
Old Orchard will be completed. Old Orchard is currently managed
by the Management Company. Assuming all closing conditions are
satisfied or waived, the acquisition is expected to close by the
end of 1996. Upon closing, the Operating Partnership will own
100% of Old Orchard. The Units to be issued will be of a new
class of cumulative convertible redeemable preferred Units. The
cash portion of the acquisition price is expected to be funded
primarily from the proceeds of this Offering.
Old Orchard contains 1.7 million square feet of retail space
and is anchored by Marshall Field's which owns it own store, Saks
Fifth Avenue, Nordstrom, Lord & Taylor and Bloomingdale's. In
addition, Old Orchard contains 120 other stores, theaters and
restaurants. Old Orchard includes approximately 675,000 square
feet of Mall GLA and contains parking for over 7,500 vehicles and
60,000 square feet of office space. A predecessor to the Company
originally opened Old Orchard in 1956. Most recently the
property was extensively redeveloped by the Management Company
for the existing owners in 1994 and 1995. The redevelopment
included the expansion and renovation of existing anchors, the
addition of two new anchors (Nordstrom and Bloomingdale's), the
renovation, expansion and retenanting of the mall stores and the
construction of two new multi-level parking decks.
Assuming completion of the acquisition of Old Orchard, the
Company will own interests in thirteen shopping centers comprised
of approximately 11 million square feet of existing space and one
million square feet in a regional mall currently under
construction that is scheduled to open in February 1997.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common
Stock offered hereby are estimated to be $74,850,000 ($82,350,000
if the Underwriter's over-allotment option is exercised in full).
The Company intends to use the net proceeds of the Offering to
partially fund the acquisition of Old Orchard. In the event the
Company does not acquire Old Orchard, the net proceeds of the
Offering will be used for general corporate purposes, including
the repayment of indebtedness.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The Company's Common Stock is listed for trading on the NYSE
under the symbol "URB." The following table sets forth the range
of high and low sales prices of the Common Stock as reported on
the NYSE, as well as the dividends declared and made, for the
fiscal periods indicated:
High Low Dividends(1)
------ ------ ------------
Year ended December 31, 1994
First quarter $23.875 $20.875 $0.410
Second quarter 23.000 20.750 0.470
Third quarter 23.250 21.500 0.470
Fourth quarter 22.250 18.750 0.470
Year ended December 31, 1995(2)
First quarter $20.875 $19.750 $0.485
Second quarter 22.125 19.875 0.485
Third quarter 22.375 20.250 0.485
Fourth quarter 22.500 20.125 0.485
Year ending December 31, 1996
First quarter 22.375 20.125 $0.495
Second quarter 24.250 22.125 0.495
Third quarter 25.375 22.875 0.495
Fourth quarter
(through November 20, 1996) 27.875 24.250 0.495(3)
(1) Distributions are declared and paid in the quarter
immediately following the quarter in which they are earned.
(2) Of the total dividends paid in 1995, 63.69% was treated as
ordinary income, 26.62% was treated as long-term capital gain and
9.69% was treated as a return of capital for federal income tax
purposes.
(3) The record date for this dividend is November 19, 1996 and
the payment date is expected to be December 6, 1996.
On November 20, 1996, the last reported sale price of the
Common Stock on the NYSE was $26.25 per share. The Company has
paid, and expects to continue to pay, dividends to its
shareholders on a quarterly basis.
As of November 15, 1996, there were approximately 440
holders of record of the outstanding Common Stock and the Company
estimates that, at such date, there were approximately 10,000
beneficial holders.
UNDERWRITING
Subject to the terms and conditions set forth in the
underwriting agreement between the Underwriter and the Company
(the "Underwriting Agreement"), the Underwriter has agreed to
purchase from the Company, and the Company has agreed to sell to
the Underwriter, 3,000,000 shares of Common Stock at the price
set forth on the cover page of this Prospectus Supplement.
The Underwriting Agreement provides that the Underwriter's
obligation to purchase the shares of Common Stock is subject to
the satisfaction of certain conditions, including the receipt of
certain legal opinions. The nature of the Underwriter's
obligation is such that it is committed to purchase all of the
shares of Common Stock if any are purchased.
The Underwriter has advised the Company that it proposes to
offer the shares of Common Stock offered hereby for sale, from
time to time, to purchasers directly or through agents, or
through brokers in brokerage transactions on the NYSE, or to
underwriters or dealers in negotiated transactions or in a
combination of such methods of sale, at fixed prices which may be
changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated
prices.
Brokers, dealers, agents and underwriters that participate
in the distribution of the shares of Common Stock offered hereby
may be deemed to be underwriters under the Securities Act. Those
who act as underwriter, broker, dealer or agent in connection
with the sale of the shares of Common Stock offered hereby will
be selected by the Underwriter and may have other business
relationships with the Company and its subsidiaries or affiliates
in the ordinary course of business.
The Company has granted to the Underwriter an option to
purchase up to an additional 300,000 shares of Common Stock at a
purchase price of $25.00 per share, solely to cover over-
allotments, if any. Such option may be exercised at any time
until 30 days after the date of this Prospectus Supplement.
The Company has agreed not to, directly or indirectly, offer,
sell, contract to sell, grant any options for the sale of or otherwise
dispose of any shares of Common Stock, or any security convertible
into or exercisable for shares of Common Stock, for a
period of 90 days from the completion of this Offering, without
the prior written consent of Lehman Brothers Inc., except for the
issuance of shares of Common Stock and Units in connection with
the Company's 1993 Stock Option Plan, as amended, the exchange of
Units for shares of Common Stock and except that the Company
may issue shares of Common Stock or unit voting common stock (or
securities convertible into or exercisable for shares of Common
Stock), respectively, in connection with the acquisition
of real property or direct or indirect interests in real
property.
The Company has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities
Act, or to contribute to payments that the Underwriter may be
required to make in respect thereof.
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements set forth herein or incorporated by
reference herein from the Company's filings under the Securities
Exchange Act of 1934, as amended (see "Incorporation by
Reference" in the accompanying Prospectus), contain forward-
looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are
based on reasonable assumptions, the actual results may differ
materially from those set forth in the forward-looking
statements. Certain factors that might cause such differences
include general economic conditions and local real estate
conditions. Consequently, such forward-looking statements should
be regarded solely as reflections of the Company's current
operating and development plans and estimates. The plans and
estimates are subject to revision from time to time as additional
information becomes available, and actual results may differ from
those indicated in the referenced statements.
LEGAL MATTERS
The legality of the Common Stock offered hereby, and certain
other legal matters, will be passed upon for the Company by
Mayer, Brown & Platt, Chicago, Illinois and certain legal matters
will be passed upon for the Underwriter by Skadden, Arps, Slate,
Meagher & Flom (Illinois). Mayer, Brown & Platt has in the past
represented and is currently representing the Company and certain
of its affiliates. Susan Getzendanner, a partner with the firm
of Skadden, Arps, Slate, Meagher & Flom (Illinois), is a director
of the Company and currently owns options to purchase 6,000
shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements and schedule of the
Company and consolidated partnerships as of December 31, 1995 and
1994, and for each of the years in the three-year period ended
December 31, 1995, have been incorporated by reference herein and
in the Registration Statement, and the statements of operations
of Old Orchard Shopping Center for the years ended December 31,
1995, 1994 and 1993 have been included herein and in the
Registration Statement, in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, which
report on the consolidated financial statements of the Company is
incorporated by reference herein and which report on the
statements of operations of Old Orchard Shopping Center appears
elsewhere herein, and upon the authority of such firm as experts
in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the consolidated financial statements of the Company
refers to a change in the Company's method of accounting for its
investment in the Management Company from the cost method to the
equity method in 1995.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Statements of Operations for Old Orchard Shopping Center for the
nine months ended September 30, 1996 (unaudited) and the years
ended December 31, 1995, 1994 and 1993 F-3
Notes to Statements of Operations for the nine months ended
September 30, 1996 (unaudited) and the years ended December 31,
1995, 1994 and 1993 F-4
Pro Forma Financial Statements F-6
Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1996 (unaudited) F-7
Pro Forma Condensed Consolidated Statement of Operations for the
nine months ended September 30, 1996 (unaudited) F-8
Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1995 (unaudited) F-9
Notes to Pro Forma Financial Statements at September 30, 1996 and
for the nine months ended September 30, 1996 and the year ended
December 31, 1995 (unaudited) F-10
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Urban Shopping Centers, Inc.:
We have audited the accompanying Statements of Operations of
Old Orchard Shopping Center (Old Orchard) for the years ended
December 31, 1995, 1994 and 1993. These Statements are the
responsibility of management. Our responsibility is to express
an opinion on the Statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the Statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the Statements. We believe that our audits
provide a reasonable basis for our opinion.
As explained in Note 1, the accompanying Statements were
prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission.
The presentation is not intended to be a complete presentation of
Old Orchard's revenues and expenses.
In our opinion, the Statements referred to above present
fairly, in all material respects, certain revenues and expenses
of Old Orchard for the years ended December 31, 1995, 1994 and
1993, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
November 21, 1996
<TABLE>
URBAN SHOPPING CENTERS, INC.
OLD ORCHARD SHOPPING CENTER
STATEMENTS OF OPERATIONS (NOTE 1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
($000's omitted)
<CAPTION>
Nine
Months
Ended
September 30,
1996 Year Ended December 31,
------------ ----------------------------------------
(Unaudited) 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Shopping center and
office revenues:
Minimum rents $ 13,319 $ 13,529 $ 4,810 $ 4,168
Percentage rents 557 1,129 804 1,053
Recoveries from
tenants 8,158 7,473 3,475 2,437
Other 1,099 698 221 87
------------ ------------ ------------ ------------
23,133 22,829 9,310 7,745
Interest income 514 682 178 --
------------ ------------ ------------ ------------
23,647 23,511 9,488 7,745
------------ ------------ ------------ ------------
Expenses:
Shopping center and
office expenses:
Real estate taxes 4,650 3,675 3,030 2,354
Utilities 1,064 1,267 506 701
Repairs and
maintenance 2,279 2,147 1,710 1,450
Advertising 458 959 -- --
Other operating 1,073 2,358 1,576 1,143
------------ ------------ ------------ ------------
9,524 10,406 6,822 5,648
Mortgage interest 9,648 8,890 2,164 1,003
------------ ------------ ------------ ------------
19,172 19,296 8,986 6,651
------------ ------------ ------------ ------------
Operating income $ 4,475 $ 4,215 $ 502 $ 1,094
============ ============ ============ ============
<FN>
See accompanying notes to statements of operations.
</TABLE>
URBAN SHOPPING CENTERS, INC.
NOTES TO STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
($000's omitted)
(1) BASIS OF PRESENTATION
The accompanying historical statements of operations for Old
Orchard Shopping Center (Old Orchard) are presented in conformity
with Rule 3-14 of the Securities and Exchange Commission. The
statements of operations are not representative of the actual
operations for the nine months ended September 30, 1996 and the
years ended December 31, 1995, 1994 and 1993, as certain revenues
and expenses, which may not be comparable to the revenues and
expenses expected to be incurred in the future operations have
been excluded. Revenues and expenses excluded consist of income
from the 1993 bankruptcy settlement with Federated Department
Stores, Inc., interest income on short-term investments,
management fees, and depreciation and amortization. Interest
income reflected in the accompanying historical statements of
operations represents interest on two notes receivable
anticipated to be acquired upon acquisition of Old Orchard by
Urban Shopping Centers, Inc. (Urban).
In 1994 and 1995, the property was extensively redeveloped
by Urban Retail Properties Co. (the Management Company) for the
current owners. The redevelopment included the expansion and
renovation of existing anchors, the addition of two new anchors,
the renovation, expansion and retenanting of the mall stores and
the construction of two new multi-level parking decks. The
average mall shop occupancy for the nine months ended September
30, 1996 and the years ended December 31, 1995, 1994 and 1993,
was approximately 88%, 85%, 35% and 45%, respectively.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Property
Repair and maintenance expenses are charged to operations as
incurred. Significant betterments and improvements are
capitalized and depreciated over their estimated useful lives.
Revenue Recognition
Minimum rent is recognized on a straight-line basis over the
terms of the related leases.
Income Taxes
Old Orchard will be owned by Urban through Urban Shopping
Centers, L.P. Urban operates as a real estate investment trust
(REIT) and under the provision of the Internal Revenue Code, a
REIT will generally not be subject to Federal and state income
taxes.
Use of Estimates
The preparation of statements of operations in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
URBAN SHOPPING CENTERS, INC.
NOTES TO STATEMENTS OF OPERATIONS - CONTINUED
(3) MORTGAGE NOTES PAYABLE
Urban anticipates assuming outstanding debt of approximately
$160,000 in connection with the acquisition of Old Orchard. The
debt consists of three notes (i) two $52,500 notes which required
monthly interest payments through October 1, 1996 and require
monthly principal and interest payments from November 1, 1996
through maturity of September 16, 2000, at an interest rate of
9.09% and (ii) a $55,000 note which required monthly interest
payments through October 1, 1996 and requires monthly principal
and interest payments from November 1, 1996 through maturity of
September 16, 2000, at an interest rate of 7.45%. These loans
were issued in 1994 in connection with the renovation of Old
Orchard and as of September 30, 1996 the outstanding amount on
the loans, in the aggregate, was $149,865, of which $105,000
relates to the two $52,500 notes and $44,865 relates to the
$55,000 note. Balances outstanding at December 31, 1995, 1994
and 1993 were $148,014, $79,161 and $23,478, respectively.
Mortgage interest in the accompanying statements of operations is
net of amounts capitalized of $840, $1,312 and $571 for the years
ended December 31, 1995, 1994 and 1993, respectively.
(4) LEASES
Management has determined that all leases relating to Old
Orchard are properly classified as operating leases; therefore,
rental income is reported when earned. Leases with tenants range
in term from one to 48 years and generally provide for fixed
minimum rents and reimbursement of operating costs. In addition,
leases with shopping center tenants provide for additional rent
based upon percentages of tenant sales volumes. One anchor
tenant, Marshall Field's, owns their own store.
Minimum lease payments to be received in the years 1996 to
2000, and thereafter, under the above lease agreements are
$15,054, $14,847, $14,638, $14,688, $14,627, and $87,088,
respectively.
URBAN SHOPPING CENTERS, INC.
PRO FORMA FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
The following unaudited pro forma condensed consolidated
financial statements for Urban Shopping Centers, Inc. (Urban)
reflect the anticipated acquisition by Urban of Old Orchard
Shopping Center (Old Orchard). The pro forma condensed
consolidated financial statements have been prepared based upon
certain pro forma adjustments to the historical financial
statements of Urban.
The accompanying unaudited pro forma condensed consolidated
balance sheet as of September 30, 1996 has been prepared as if
Old Orchard had been acquired as of the balance sheet date.
The accompanying unaudited pro forma condensed consolidated
statements of operations for the nine months ended September 30,
1996 and for the year ended December 31, 1995 have been prepared
as if the Old Orchard acquisition had occurred as of January 1,
1995.
The unaudited pro forma condensed consolidated financial
statements do not purport to be indicative of the results which
would actually have been obtained had the transactions described
above been completed on the dates indicated or which may be
obtained in the future. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction
with the statements of operations for Old Orchard included
herein.
<TABLE>
URBAN SHOPPING CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
($000's omitted, except share amounts)
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Investment properties, net of
accumulated depreciation $ 571,543 $ 258,800 (a) $ 830,343
Investments in unconsolidated
partnerships and the Management
Company 29,230 29,230
Cash, cash equivalents and
short-term investments 4,548 (2,450)(b) 2,098
Interest, rents and other
receivables 10,251 7,600 (c) 17,851
Deferred expenses and other
assets 11,515 11,515
------------ ------------ ------------
$ 627,087 $ 263,950 $ 891,037
============ ============ ============
Liabilities and Stockholders'
Equity
Liabilities:
Mortgage notes payable $ 281,705 $ 160,000 (d) $ 441,705
Land sale-leaseback proceeds 75,000 75,000
Deferred lease accrual 15,667 15,667
Accounts payable and other
liabilities 23,681 23,681
Investments in unconsolidated
partnerships 36,925 36,925
Commitments and contingencies
------------ ------------ ------------
Total liabilities 432,978 160,000 592,978
Minority interest 67,638 42,644 (e) 110,282
URBAN SHOPPING CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET - CONTINUED
Pro Forma
Historical Adjustments Pro Forma
------------ ------------ ------------
Stockholders' equity:
Common stock, $.01 par value,
140,000,000 shares authorized,
13,447,292 and 16,447,292
historical and pro forma
shares, respectively, issued
and outstanding 134 30 (f) 164
Unit voting stock, $.01 par
value, 5,000,000 shares
authorized, 301,633 and
344,058 historical and pro
forma shares, respectively,
issued and outstanding 3 -- 3
Additional paid-in capital 259,258 61,276 (g) 320,534
Retained earnings (deficit) (132,924) (132,924)
------------ ------------ ------------
Total stockholders'
equity 126,471 61,306 187,777
------------ ------------ ------------
$ 627,087 $ 263,950 $ 891,037
============ ============ ============
<FN>
See accompanying notes to pro forma financial statements.
</TABLE>
<TABLE>
URBAN SHOPPING CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
($000's omitted, except share amounts)
<CAPTION>
Pro Forma
Historical Adjustments(h) Pro Forma
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Shopping center and office
revenues:
Minimum rents $ 44,918 $ 13,319 $ 58,237
Percentage rents 2,752 557 3,309
Recoveries from tenants 20,188 8,158 28,346
Other 1,405 1,099 2,504
------------ ------------ ------------
69,263 23,133 92,396
Interest income 1,301 514 1,815
------------ ------------ ------------
70,564 23,647 94,211
------------ ------------ ------------
Expenses:
Shopping center and office
expenses 23,064 9,524 (i) 32,588
Mortgage and other interest
and ground rent 13,759 10,214 (j) 23,973
Depreciation, amortization
and write-off of assets 16,068 5,870 (k) 21,938
General and administrative 2,034 2,034
------------ ------------ ------------
54,925 25,608 80,533
------------ ------------ ------------
URBAN SHOPPING CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - CONTINUED
Pro Forma
Historical Adjustments(h) Pro Forma
------------ ------------ ------------
Operating income (loss) 15,639 (1,961) 13,678
Income from unconsolidated
partnerships and the
Management Company 1,991 1,991
------------ ------------ ------------
Income (loss) before other
gains and minority
interest 17,630 (1,961) 15,669
Other gains 1,328 1,328
Minority interest (6,727) 418 (l) (6,309)
------------ ------------ ------------
Net income (loss) $ 12,231 $ (1,543) $ 10,688
============ ============ ============
Net income per common and
unit voting stock $ 0.89 $ 0.64
============ ============
Weighted average common and
unit voting stock
outstanding 13,742,708 16,785,133
============ ============
<FN>
See accompanying notes to pro forma financial statements.
</TABLE>
<TABLE>
URBAN SHOPPING CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
($000's omitted, except share amounts)
Pro Forma
Historical Adjustments(h) Pro Forma
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Shopping center and office
revenues:
Minimum rents $ 57,683 $ 13,529 $ 71,212
Percentage rents 3,414 1,129 4,543
Recoveries from tenants 24,972 7,473 32,445
Other 2,971 698 3,669
------------ ------------ ------------
89,040 22,829 111,869
Interest income 2,587 682 3,269
------------ ------------ ------------
91,627 23,511 115,138
------------ ------------ ------------
Expenses:
Shopping center and office
expenses 30,655 10,406 (i) 41,061
Mortgage and other interest
and ground rent 18,905 9,645 (j) 28,550
Depreciation, amortization and
write-off of assets 19,915 5,479 (k) 25,394
General and administrative 2,428 2,428
------------ ------------ ------------
71,903 25,530 97,433
------------ ------------ ------------
URBAN SHOPPING CENTERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - CONTINUED
Pro Forma
Historical Adjustments(h) Pro Forma
------------ ------------ ------------
Operating income (loss) 19,724 (2,019) 17,705
Income from unconsolidated
partnerships and the
Management Company 4,375 4,375
------------ ------------ ------------
Income (loss) before other
gains, minority interest
and extraordinary loss 24,099 (2,019) 22,080
Other gains 4,496 4,496
Minority interest (9,951) 497 (l) (9,454)
------------ ------------ ------------
Income (loss) before
extraordinary loss $ 18,644 $ (1,522) $ 17,122
============ ============ ============
Income before
extraordinary loss per
common and
unit voting stock $ 1.36 $ 1.02
============ ============
Weighted average common and
unit voting stock
outstanding 13,742,259 16,784,684
============ ============
<FN>
See accompanying notes to pro forma financial statements.
</TABLE>
URBAN SHOPPING CENTERS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
($000's omitted, except share amounts)
(a) The pro forma adjustment reflects Urban's anticipated
acquisition of Old Orchard, including closing costs, as if
it occurred on September 30, 1996.
(b) The pro forma adjustment reflects the use of working capital
to fund, in part, the pro forma acquisition of Old Orchard.
(c) The pro forma adjustment reflects Urban's anticipated
acquisition of two notes receivable in connection with the
acquisition of Old Orchard.
(d) The pro forma adjustment reflects the anticipated assumption
of Old Orchard's approximately $160,000 in mortgage notes
payable upon purchase .
(e) The pro forma adjustment reflects (i) the anticipated
issuance of $28,000 of convertible preferred operating
partnership units in connection with the acquisition of Old
Orchard and (ii) the reallocation of minority interest and
stockholders' equity in connection with the issuance of
common and unit voting stock. The preferred units have an
anticipated distribution rate of 7.0% and a conversion price
of $27.50 per unit to operating partnership units which in
turn are convertible to common stock. The preferred units
have a perpetual term with a seven year lock-out period.
After seven years the units are callable only in the form of
a common stock payment.
(f) The pro forma adjustment reflects the par value of 3,000,000
shares of common stock anticipated to be issued at $25.50
per share in connection with the acquisition of Old Orchard.
(g) The pro forma adjustment reflects (i) the excess of net
proceeds over par value from the issuance of 3,000,000
shares of common stock at $25.50 per share and 42,425 shares
of unit voting common stock at $26.75 per share and (ii) the
reallocation of minority interest and stockholders' equity
in connection with the issuance of common and unit voting
stock.
(h) The pro forma adjustments reflect, unless otherwise noted,
certain historical revenues and expenses for Old Orchard.
Interest income represents interest on the two notes
receivable discussed in note (c) above.
(i) The pro forma adjustment excludes management fees due to the
anticipated management by Urban Shopping Centers, L.P. As a
result these fees are eliminated in consolidation.
(j) The pro forma adjustment reflects (i) interest expense on
the differential between Old Orchard's $160,000 mortgage
notes payable anticipated to be assumed upon purchase and
the September 30, 1996, current outstanding balance of
$149,865 and (ii) the historical interest expense for Old
Orchard. Reference is made to Note 3 of Notes to Statements
of Operations included herein for a further discussion of
historical interest expense.
(k) The pro forma adjustment reflects the depreciation expense
resulting from the acquisition of Old Orchard, assuming an
asset life of 30 years and buildings and improvements of
$234,800. During 1995, depreciation expense was provided
only on assets in operation.
URBAN SHOPPING CENTERS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)
($000's omitted, except share amounts)
(l) The pro forma adjustment reflects (i) the adjustment for the
operating partnership unit holders' share of pro forma
income before extraordinary items and (ii) the distribution
on the preferred units at a rate of 7.0%.
PROSPECTUS
- ----------
URBAN SHOPPING CENTERS, INC.
$200,000,000
Preferred Stock, Depositary Shares, Common Stock,
Stock Warrants and Rights
Urban Shopping Centers, Inc. (the "Company") may from time
to time offer and sell in one or more series (i) its series
preferred stock, par value $.01 per share ("Preferred Stock");
(ii) depositary shares representing entitlement to all rights and
preferences of a fraction of a share of Preferred Stock of a
specified series ("Depositary Shares"); (iii) its common stock,
par value $.01 per share ("Common Stock"); (iv) warrants to
purchase Preferred Stock ("Preferred Stock Warrants") and
warrants to purchase Common Stock ("Common Stock Warrants"); or
(v) stockholder purchase rights entitling stockholders to
subscribe for and purchase Offered Securities (as defined below)
("Rights"), with an aggregate public offering price of up to
$200,000,000, on terms to be determined by market conditions at
the time of offering. The Preferred Stock Warrants and Common
Stock Warrants are collectively referred to herein as "Stock
Warrants." The Preferred Stock, Depositary Shares, Common Stock,
Stock Warrants and Rights (collectively, the "Offered
Securities") may be offered separately or together, in separate
series, in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of
which this Prospectus is being delivered will be set forth in the
applicable Prospectus Supplement and will include, where
applicable: (i) in the case of Preferred Stock, the specific
title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, whether interests in the
Preferred Stock will be represented by Depositary Shares, and any
initial public offering price, along with any other relevant
specific terms; (ii) in the case of Common Stock, any initial
public offering price; (iii) in the case of Stock Warrants, the
duration, offering price, exercise price and detachability, if
applicable, along with any other relevant specific terms; and
(iv) in the case of Rights, the kind and number of Offered
Securities which will be offered pursuant to the Rights, and the
period during which and the price at which the Rights will be
exercisable, along with any other relevant specific terms. In
addition, such specific terms may include limitations on direct
or beneficial ownership and restrictions on transfer of the
Offered Securities, in each case as may be appropriate to
preserve the status of the Company as a real estate investment
trust ("REIT") for Federal income tax purposes.
The applicable Prospectus Supplement will also contain
information, where applicable, about certain United States
Federal income tax considerations relating to, and any listing on
a securities exchange of, the Offered Securities covered by such
Prospectus Supplement.
The Offered Securities may be offered directly by the
Company, through agents designated from time to time by the
Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be
set forth, or will be calculable from the information set forth,
in the applicable Prospectus Supplement. See "Plan of
Distribution." No Offered Securities may be sold without delivery
of the applicable Prospectus Supplement describing the method and
terms of the offering of such Offered Securities.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
--------------------
The date of this Prospectus is November 21, 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and
other information filed by the Company can be inspected and
copied at the offices of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 or at its regional offices at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661
and Seven World Trade Center, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Company's outstanding Common Stock
is listed on the New York Stock Exchange (the "NYSE") and the
Chicago Stock Exchange (the "CSE") under the symbol "URB", and
all such reports, proxy statements and other information filed by
the Company with the NYSE and the CSE may be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005
and at the offices of the CSE at One Financial Place, 440 South
LaSalle Street, Chicago, Illinois 60605.
The Company has filed with the Commission a registration
statement on Form S-3 (together with all amendments and exhibits,
the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the securities
offered hereby. This prospectus ("Prospectus"), which constitutes
a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain
parts of which are omitted as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus
as to the content of any contract, agreement or other document
referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed or incorporated
by reference as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description
of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
INCORPORATION BY REFERENCE
The following documents filed by the Company with the
Commission (File No. 1-12278) pursuant to the Exchange Act are
incorporated by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the
year ended December 31, 1995;
(2) The Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996; and
(3) The description of the Common Stock included in
the Company's Registration Statement on Form 8-A.
All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the
offering made hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained
herein, or in any subsequently filed document which is
incorporated or deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person,
including any beneficial owner, to whom this Prospectus is
delivered, upon written or oral request of such person, a copy of
any or all of the information that has been incorporated by
reference herein, (not including exhibits to such information
unless such exhibits are specifically incorporated by reference
into such information). Requests should be directed to Urban
Shopping Centers, Inc., 900 North Michigan Avenue, Suite 1500,
Chicago, Illinois 60611, Attention: Secretary, telephone (312)
915-2000.
THE COMPANY
The Company was formed in May 1993 to continue the regional
mall business of JMB Realty Corporation ("JMB Realty") and
certain of its affiliates in owning, managing, leasing,
acquiring, developing and redeveloping a portfolio of super-
regional and regional malls located throughout the United States.
The Company is a self-administered real estate company with a
focus on high-quality, fashion-oriented regional malls. The
management of the Company and its subsidiaries has been involved
in the retail business for over 25 years.
The Company owns, through its ownership interest in Urban
Shopping Centers, L.P. (the "Operating Partnership"), interests
in some of the premier super-regional and regional malls in the
United States, including Water Tower Place (Chicago, Illinois),
Oak Brook Center (Oak Brook, Illinois), and MainPlace (Orange
County, California). The Company owns interests in eight regional
malls and three community centers (the "Properties"). In
addition, through its interest in Urban Retail Properties Co.
(the "Management Company"), the Company participates economically
in one of the nation's largest managers of retail properties. The
Company intends to grow its portfolio through acquisition and
development of regional malls and expansion of certain existing
Properties.
The Company has elected to be taxed as a REIT for Federal
income tax purposes and is self-administered. The Company's
executive offices are located at 900 North Michigan Avenue, Suite
1500, Chicago, Illinois 60611, and its telephone number is (312)
915-2000. The Company is a Maryland corporation that was
incorporated on May 12, 1993.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus
Supplement, the Company intends to use the net proceeds from the
sale of the Offered Securities for general corporate purposes,
which may include acquisition and development of regional malls
and community centers, capital improvements to existing
Properties and repayment of certain then-outstanding secured or
unsecured indebtedness.
CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of
140,000,000 shares of Common Stock, 5,000,000 shares of unit
voting common stock, par value $.01 per share ("Unit Voting
Stock") and 5,000,000 shares of Preferred Stock. No holder of any
class of capital stock of the Company will have any preemptive
right to subscribe to any securities of the Company except as may
be granted by the Board of Directors in authorizing the issuance
of a class of Preferred Stock.
DESCRIPTION OF COMMON STOCK
General
The following description sets forth certain general terms
and provisions of the Common Stock to which any Prospectus
Supplement may relate, including a Prospectus Supplement which
provides for Common Stock issuable pursuant to subscription
offerings or rights offerings or upon conversion of Preferred
Stock which is offered pursuant to such Prospectus Supplement and
convertible into Common Stock for no additional consideration.
The statements below describing the Common Stock are in all
respects subject to and qualified in their entirety by reference
to the applicable provisions of the Company's Articles of
Incorporation and Bylaws.
Each outstanding share of Common Stock entitles the holder
to one vote on all matters voted on by stockholders, including
the election of directors. All shares of Common Stock issued will
be duly authorized, fully paid and non-assessable. Distributions
may be paid to the holders of Common Stock when, as and if
declared by the Board of Directors of the Company out of funds
legally available therefor. The Company currently pays regular
quarterly dividends. If the Company is liquidated, each
outstanding share of Common Stock and Unit Voting Stock will be
entitled to participate pro rata in the assets remaining after
payment of, or adequate provision for, all known debts and
liabilities of the Company and the rights of holders of any
Preferred Stock. The rights of holders of Common Stock are
subject to the rights and preferences established by the Board of
Directors for any Preferred Stock which may subsequently be
issued by the Company. See "Description of Preferred Stock."
First Chicago Trust Company of New York is the transfer agent and
registrar for the Common Stock.
Unit Voting Stock
Each outstanding share of Unit Voting Stock entitles the
holder to 25 votes on all matters voted on by stockholders,
including the election of directors. All shares of Unit Voting
Stock are duly authorized, fully paid and non-assessable. Each
share of Unit Voting Stock is entitled to share equally in
distributions with the holders of Common Stock when, as and if
declared by the Board of Directors of the Company out of funds
legally available therefor. Upon any liquidation of the Company,
each share of Unit Voting Stock is entitled, subject to the
rights of any holders of Preferred Stock, to participate equally
with each share of Common Stock in the assets remaining after
payment of, or adequate provision for, all known debts and
liabilities of the Company. Shares of Unit Voting Stock are
freely transferrable, subject to applicable securities law
limitations. In addition, upon any transfer of Unit Voting Stock
(other than transfers to affiliates of the transferor) each share
of Unit Voting Stock so transferred shall be automatically
converted into a share of Common Stock on the same basis as
discussed below.
The Company's Articles of Incorporation provide that at the
time of any issuance of Unit Voting Stock, the outstanding Unit
Voting Stock as a class, after giving effect to such issuance,
may not exceed 40% of the voting power of the then-outstanding
capital stock of the Company entitled to vote in the election of
directors. Further, Unit Voting Stock may only be issued to any
person to provide such person a voting interest in the Company
which does not exceed such person's economic interest in the
Operating Partnership.
Exchange of Units and Unit Voting Stock into Common Stock
Any holder of Units and Unit Voting Stock may exchange one
share of Unit Voting Stock together with 24 Units for 25 shares
of Common Stock at any time. Upon any such exchange, the shares
of Unit Voting Stock will be returned to the authorized but
unissued shares of Unit Voting Stock.
Restrictions on Transfer
The Company's Articles of Incorporation contain certain
restrictions on the number of shares of Common Stock that
individual stockholders may own. For the Company to qualify as a
REIT under the Internal Revenue Code of 1986, as amended (the
"Code"), no more than 50% in value of its stock (after taking
into account options to acquire stock) may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code
to include certain entities and constructive ownership among
specified family members) during the last half of a taxable year
(other than the first taxable year) or during a proportionate
part of a shorter taxable year. The Common Stock must also be
beneficially owned (other than during the first taxable year) by
100 or more persons during at least 335 days of a taxable year or
during a proportionate part of a shorter taxable year. Because
the Company expects to continue to qualify as a REIT, the
Company's Articles of Incorporation contain restrictions on the
acquisition of Common Stock intended to ensure compliance with
these requirements.
Subject to certain exceptions specified in the Company's
Articles of Incorporation, no holder may own, or be deemed to own
by virtue of the attribution provisions of the Code, more than
4.9% (the "Ownership Limit") of the number or value of the issued
and outstanding stock of the Company. The Company's Board of
Directors, upon receipt of a ruling from the Internal Revenue
Service (the "Service"), an opinion of counsel or other evidence
satisfactory to the Board of Directors and upon such other
conditions as the Board of Directors may direct, may also exempt
a proposed transferee from the Ownership Limit. As a condition of
such exemption, the intended transferee must give written notice
to the Company of the proposed transfer no later than the
fifteenth day prior to any transfer which, if consummated, would
result in the intended transferee owning stock in excess of the
Ownership Limit. The Board of Directors of the Company may
require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to
determine or ensure the Company's status as a REIT. Any transfer
of Common Stock that would (i) create a direct or indirect
ownership of the Company's stock in excess of the Ownership
Limit, (ii) result in the Company's stock being owned by fewer
than 100 persons or (iii) result in the Company being "closely
held" within the meaning of Section 856(h) of the Code, shall be
null and void, and the intended transferee will acquire no rights
to the Common Stock. The foregoing restrictions on
transferability and ownership will not apply if the Board of
Directors determines, which determination must be approved by the
stockholders, that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a
REIT.
The Company's Articles of Incorporation exclude from the
foregoing ownership restriction JMB Realty and certain of its
affiliates who would exceed the Ownership Limit as a result of
the exchange of Units or Unit Voting Stock for Common Stock.
These persons may also acquire additional stock through the
Company's option plan, or a dividend reinvestment plan approved
by the Company's Board of Directors, but in no event will such
persons be entitled to acquire additional stock such that the
five largest beneficial owners of the Company's stock hold more
than 50% of the total outstanding stock. The Board of Directors
has exempted Messrs. Bluhm and Malkin and their respective
families from the foregoing ownership limits, provided that
neither the Bluhm family nor the Malkin family may beneficially
own in excess of 30% of the outstanding Common Stock or together
beneficially own in excess of 35% of the outstanding Common
Stock.
All certificates representing shares of the Company's stock
will bear a legend referring to the restrictions described above.
DESCRIPTION OF PREFERRED STOCK
General
No shares of Preferred Stock are currently issued or
outstanding. The Board of Directors is empowered, without the
approval of the stockholders, to cause shares of Preferred Stock
to be issued in one or more series and to determine the number of
shares of each series and the rights, preferences, powers and
limitations of each series, which may be senior to the rights of
Common Stock or Unit Voting Stock. All shares of Preferred Stock
issued will be duly authorized, fully paid and non-assessable.
Reference is made to the Prospectus Supplement relating to
the series of Preferred Stock offered thereby for the specific
terms of such Preferred Stock, including:
(1) The title and stated value of such series of Preferred
Stock;
(2) The number of shares of such Preferred Stock offered,
the liquidation preference per share and the offering price of
such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s)
or method(s) of calculation thereof applicable to such Preferred
Stock;
(4) The date from which dividends on such Preferred Stock
shall cumulate, if applicable;
(5) The procedures for any auction and remarketing, if any,
for such Preferred Stock;
(6) The provision for a sinking fund, if any, for such
Preferred Stock;
(7) The provision for redemption, if applicable, of such
Preferred Stock;
(8) Any listing of such Preferred Stock on any securities
exchange;
(9) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock, including
the conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Stock will be
represented by global securities;
(11) Any other specific terms, preferences, rights,
limitations or restrictions of such Preferred Stock;
(12) A discussion of Federal income tax considerations
applicable to such Preferred Stock;
(13) The relative ranking and preferences of such Preferred
Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(14) Any limitations on issuance of any series of Preferred
Stock ranking senior to or on a parity with such series of
Preferred Stock as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the
Company; and
(15) Any limitations on direct or beneficial ownership and
restrictions on transfer of such Preferred Stock, in each case as
may be appropriate to preserve the status of the Company as a
REIT.
Rank
Unless otherwise specified in the applicable Prospectus
Supplement, each series of Preferred Stock will, with respect to
dividend rights and rights upon liquidation, dissolution or
winding up of the Company, rank (i) senior to all classes or
series of Common Stock and to all equity securities ranking
junior to such series of Preferred Stock; (ii) on a parity with
all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity
with such series of Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to
such series of Preferred Stock. The rights of the holders of each
series of Preferred Stock will be subordinate to those of the
Company's general creditors.
Dividends
Holders of each series of Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors of
the Company, out of assets of the Company legally available for
payment, cash dividends at such rates and on such dates as will
be set forth in the applicable Prospectus Supplement. Such rate
may be fixed or variable or both. Each such dividend shall be
payable to holders of record as they appear on the stock transfer
books of the Company on such record dates as shall be fixed by
the Board of Directors of the Company.
Dividends on any series of Preferred Stock may be cumulative
or non-cumulative, as provided in the applicable Prospectus
Supplement. Dividends, if cumulative, will be cumulative from and
after the date set forth in the applicable Prospectus Supplement.
If the Board of Directors of the Company fails to declare a
dividend payable on a dividend payment date on any series of
Preferred Stock for which dividends are non-cumulative, then the
holders of such Preferred Stock will have no right to receive a
dividend in respect of the dividend period ending on such
dividend payment date, and the Company will have no obligation to
pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future
dividend payment date.
If shares of Preferred Stock of any series are outstanding,
no full dividends shall be declared or paid or set apart for
payment on any other series of Preferred Stock of the Company
ranking, as to dividends, on a parity with or junior to such
series of Preferred Stock for any period unless (i) if such
series of Preferred Stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on Preferred Stock of such series for
all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends for the then current dividend period
have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for such
payment on Preferred Stock of such series. When dividends are not
paid in full (or a sum sufficient for such full payment is not so
set apart) upon Preferred Stock of any series and any other
series of Preferred Stock ranking on a parity as to dividends
with such series of Preferred Stock, all dividends declared upon
Preferred Stock of such series and Preferred Stock of such other
series ranking on a parity as to dividends with such Preferred
Stock shall be declared pro rata so that the amount of dividends
declared per share on Preferred Stock of such series and
Preferred Stock of such other series shall in all cases bear to
each other the same ratio that accrued dividends per share on
Preferred Stock of such series (which shall not include any
cumulation in respect of unpaid dividends for prior dividend
periods if such series of Preferred Stock does not have a
cumulative dividend) and Preferred Stock of such other series
bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in
arrears.
Except as provided in the immediately preceding paragraph,
unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on Preferred Stock of such
series have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart
for payment for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Stock does
not have a cumulative dividend, full dividends on Preferred Stock
of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no
dividends (other than in Common Stock or other stock ranking
junior to such series of Preferred Stock as to dividends and upon
liquidation) shall be declared or paid or set aside for payment
or other distribution shall be declared or made upon the Common
Stock or any other stock of the Company ranking junior to or on a
parity with such series of Preferred Stock as to dividends or
upon liquidation, nor shall any Common Stock or any other stock
of the Company ranking junior to or on a parity with such series
of Preferred Stock as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund
for the redemption of any such stock) by the Company (except by
conversion into or exchange for other stock of the Company
ranking junior to such series of Preferred Stock as to dividends
and upon liquidation).
Any dividend payment made on a series of Preferred Stock
shall first be credited against the earliest accrued but unpaid
dividend due with respect to Preferred Stock of such series which
remains payable.
Redemption
If so provided in the applicable Prospectus Supplement, the
Preferred Stock of a series will be subject to mandatory
redemption or redemption at the option of the Company, as a whole
or in part, in each case upon the terms, at the times and at the
redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred
Stock that is subject to mandatory redemption will specify the
number of shares of such series of Preferred Stock that shall be
redeemed by the Company in each year commencing after a date to
be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends
thereon (which shall not, if such series of Preferred Stock does
not have a cumulative dividend, include any cumulation in respect
of unpaid dividends for prior dividend periods) to the date of
redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Stock of any series is
payable only from the net proceeds of the issuance of stock of
the Company, the terms of such series of Preferred Stock may
provide that, if no such stock shall have been issued or to the
extent the net proceeds from any issuance are insufficient to pay
in full the aggregate redemption price then due, shares of
Preferred Stock of such series shall automatically and
mandatorily be converted into shares of the applicable stock of
the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative
dividends on all Preferred Stock of any series shall have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all
past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on all Preferred Stock of any series
shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart
for payment for the then current dividend period, no Preferred
Stock of any series shall be redeemed unless all outstanding
Preferred Stock of such series is simultaneously redeemed;
provided, however, that the foregoing shall not prevent the
purchase or acquisition of Preferred Stock of such series
pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Stock of such series,
and, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all Preferred
Stock of any series shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend
periods and the then current dividend period or (ii) if such
series of Preferred Stock does not have a cumulative dividend,
full dividends on all Preferred Stock of any series shall have
been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for
the then current dividend period, the Company shall not purchase
or otherwise acquire directly or indirectly any Preferred Stock
of such series (except by conversion into or exchange for stock
of the Company ranking junior to such series of Preferred Stock
as to dividends and upon liquidation).
If fewer than all of the outstanding shares of Preferred
Stock of any series are to be redeemed, the number of shares to
be redeemed will be determined by the Company and such shares may
be redeemed pro rata from the holders of record of Preferred
Stock of such series in proportion to the number of shares of
Preferred Stock of such series held by such holders (with
adjustments to avoid redemption of fractional shares), by lot in
a manner determined by the Company or by any other method as may
be determined by the Company in its sole discretion to be
equitable.
Notice of redemption will be mailed at least 30 days but not
more than 90 days before the redemption date to each holder of
record of Preferred Stock of any series to be redeemed at the
address shown on the stock transfer books of the Company. Each
notice shall state: (i) the redemption date; (ii) the number of
shares and series of Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for
such Preferred Stock are to be surrendered for payment of the
redemption price; (v) that dividends on the Preferred Stock to be
redeemed will cease to accrue on such redemption date; and (vi)
the date upon which the holder's conversion rights, if any, as to
such Preferred Stock shall terminate. If fewer than all the
shares of Preferred Stock of any series are to be redeemed, the
notice mailed to each such holder thereof shall also specify the
number of shares of Preferred Stock to be redeemed from each such
holder. If notice of redemption of any shares of Preferred Stock
has been given and if the funds necessary for such redemption
have been set aside by the Company in trust for the benefit of
the holders of any shares of Preferred Stock so called for
redemption, then from and after the redemption date dividends
will cease to accrue on such shares of Preferred Stock, and all
rights of the holders of such shares will terminate, except the
right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any
Common Stock or any other class or series of stock of the Company
ranking junior to such series of Preferred Stock in the
distribution of assets upon any liquidation, dissolution or
winding up of the Company, the holders of each series of
Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders,
liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and
unpaid thereon (which shall not include any cumulation in respect
of unpaid dividends for prior dividend periods if such series of
Preferred Stock does not have a cumulative dividend). After
payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Stock of such
series will have no right or claim to any of the remaining assets
of the Company. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available
assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of Preferred
Stock of such series and the corresponding amounts payable on all
shares of other classes or series of stock of the Company ranking
on a parity with such series of Preferred Stock in the
distribution of assets, then the holders of Preferred Stock of
such series and all other such classes or series of stock shall
share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise
be respectively entitled.
If liquidating distributions shall have been made in full to
all holders of Preferred Stock of a series, the remaining assets
of the Company shall be distributed among the holders of any
other classes or series of stock ranking junior to such series of
Preferred Stock upon liquidation, dissolution or winding up of
the Company, according to their respective rights and preferences
and in each case according to their respective number of shares.
For such purposes, the consolidation or merger of the Company
with or into any other entity, or the sale, lease or conveyance
of all or substantially all of the property or business of the
Company, shall not be deemed to constitute a liquidation,
dissolution or winding up of the Company.
Voting Rights
Holders of Preferred Stock of each series will not have any
voting rights, except as set forth below or in the applicable
Prospectus Supplement or as otherwise required by applicable law.
The following is a summary of the voting rights that, unless
provided otherwise in the applicable Prospectus Supplement, will
apply to each series of Preferred Stock.
If six quarterly dividends (whether or not consecutive)
payable on Preferred Stock of such series, or any other series of
Preferred Stock ranking on a parity with such series of Preferred
Stock with respect in each case to the payment of dividends,
amounts upon liquidation, dissolution and winding up ("Parity
Stock"), are in arrears, whether or not earned or declared, the
number of directors then constituting the Board of Directors will
be increased by two, and the holders of Preferred Stock of such
series, voting together as a class with the holders of Parity
Stock of any other series (any such other series, the "Voting
Preferred Stock"), will have the right to elect two additional
directors to serve on the Board of Directors at any annual
meeting of stockholders or a properly called special meeting of
the holders of Preferred Stock of such series and such Voting
Preferred Stock and at each subsequent annual meeting of
stockholders until all such dividends and dividends for the
current quarterly period on Preferred Stock of such series and
such other Voting Preferred Stock have been declared and paid or
set aside for payment. Such voting rights will terminate when all
such accrued and unpaid dividends have been declared and paid or
set aside for payment. The term of office of all directors so
elected will terminate with the termination of such voting
rights. For so long as JMB Realty and its affiliates beneficially
own in excess of 10% of the outstanding Common Stock, in any such
vote by holders of Preferred Stock of such series, JMB Realty and
its affiliates shall vote their Preferred Stock of such series,
if any, in the same percentages as Preferred Stock of such series
and Voting Preferred Stock that is not held by JMB Realty and its
affiliates.
The approval of two-thirds of the outstanding Preferred
Stock of such series and all other series of Voting Preferred
Stock similarly affected, voting as a single class, is required
in order to (i) amend the Company's Articles of Incorporation to
affect materially and adversely the rights, preferences or voting
power of the holders of Preferred Stock of such series or Voting
Preferred Stock, (ii) enter into a share exchange that affects
the Preferred Stock of such series, consolidate with or merge
into another entity, or permit another entity to consolidate with
or merge into the Company, unless in each such case each share of
Preferred Stock of such series remains outstanding without a
material and adverse change to its terms and rights or is
converted into or exchanged for preferred stock of the surviving
entity having preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption thereof identical to that
of a share of Preferred Stock of such series (except for changes
that do not materially and adversely affect the holders of
Preferred Stock of such series) or (iii) authorize, reclassify,
create, or increase the authorized amount of any class of stock
having rights senior to such series of Preferred Stock with
respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up. However, the Company may create
additional classes of Parity Stock and other series of Preferred
Stock ranking junior to such series of Preferred Stock with
respect in each case to the payment of dividends, amounts upon
liquidation, dissolution and winding up ("Junior Stock"),
increase the authorized number of shares of Parity Stock and
Junior Stock and issue additional series of Parity Stock and
Junior Stock without the consent of any holder of Preferred Stock
of such series.
Except as provided above and as required by law, the holders
of Preferred Stock of each series will not be entitled to vote on
any merger or consolidation involving the Company or a sale of
all or substantially all of the assets of the Company.
With respect to any matter as to which any series of
Preferred Stock is entitled to vote, holders of Preferred Stock
of such series and any Voting Preferred Stock will be entitled to
cast the number of votes set forth in the applicable Prospectus
Supplement with respect to such series of Preferred Stock and the
Voting Preferred Stock. As a result of the provisions requiring
the holders of a series of Preferred Stock to vote together as a
class with the holders of one or more series of Parity Stock, it
is possible that the holders of such series of Parity Stock could
approve action that would adversely affect such series of
Preferred Stock, including the creation of a class of stock
ranking prior to such series of Preferred Stock as to dividends,
voting or distributions of assets.
Conversion Rights
The terms and conditions, if any, upon which Preferred Stock
of any series is convertible into Common Stock will be set forth
in the applicable Prospectus Supplement. Such terms will include
the number of shares of Common Stock into which each share of
such Preferred Stock is convertible, the conversion price (or
manner of calculation thereof), the conversion period, provisions
as to whether conversion will be at the option of the holders of
such Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such Preferred
Stock.
Restrictions on Transfer
See "Description of Common Stock-Restrictions on Transfer"
for a discussion of the restrictions on the transfer of stock of
the Company. In order to enable the Company to continue to
qualify as a REIT, the Articles Supplementary for each series of
Preferred Stock may contain certain provisions restricting the
ownership and transfer of the Preferred Stock. Any such
restrictions will be described in the applicable Prospectus
Supplement.
DESCRIPTION OF DEPOSITARY SHARES
General
The Company may, at its option, elect to offer fractional
shares of Preferred Stock, rather than full shares of Preferred
Stock. In such event, the Company will issue to the public
receipts for Depositary Shares, each of which will represent a
fraction (to be set forth in the Prospectus Supplement relating
to a particular series of Preferred Stock) of a share of a
particular series of Preferred Stock as described below.
The shares of any series of Preferred Stock represented by
Depositary Shares will be deposited under a Deposit Agreement
(the "Deposit Agreement") to be entered into between the Company
and a depositary specified in the applicable Prospectus
Supplement (the "Depositary"). Subject to the terms of the
Deposit Agreement, each owner of a Depositary Share will be
entitled, in proportion to the applicable fraction of a share of
Preferred Stock represented by such Depositary Share, to all the
rights and preferences of the Preferred Stock represented thereby
(including dividend, voting, redemption and liquidation rights).
The Depositary Shares will be evidenced by depositary
receipts issued pursuant to the Deposit Agreement ("Depositary
Receipts"). Depositary Receipts will be distributed to those
persons purchasing the fractional shares of Preferred Stock in
accordance with the terms of the offering. The statements made
hereunder relating to the Deposit Agreement and the Depositary
Receipts are summaries of certain provisions thereof, do not
purport to be complete and are subject to, and are qualified in
their entirety by reference to, all the provisions of the Deposit
Agreement and the Depositary Receipts, which will be filed as
exhibits to a document incorporated by reference in this
Prospectus, are hereby incorporated herein by reference from the
date of such filing and will be available from such date as
described above under "Available Information."
Dividends and Other Distributions
The Depositary will distribute all cash dividends received
in respect of the Preferred Stock to the record holders of
Depositary Shares relating to such Preferred Stock in proportion
to the number of Depositary Shares owned by such holders. The
Depositary shall distribute only such amount, however, as can be
distributed without attributing to any holder of Depositary
Shares a fraction of one cent, and the balance not so distributed
shall be added to and treated as part of the next sum received by
the Depositary for distribution to record holders of Depositary
Shares.
In the event of a distribution other than in cash, the
Depositary will distribute property received by it to the record
holders of Depositary Shares entitled thereto, unless the
Depositary determines that it is not feasible to make such
distribution, in which case the Depositary may, with the approval
of the Company, sell such property and distribute the net
proceeds from such sale to such holder.
The Deposit Agreement will also contain provisions relating
to the manner in which any subscription or similar rights offered
by the Company to holders of the Preferred Stock shall be made
available to the holders of the Depositary Shares.
Redemption
If a series of Preferred Stock represented by Depositary
Shares is subject to redemption, the Depositary Shares will be
redeemed from the proceeds received by the Depositary resulting
from the redemption, in whole or in part, of the Preferred Stock
held by the Depositary. The redemption price per Depositary
Share will be equal to the applicable fraction of the redemption
price per share payable with respect to such Preferred Stock.
Whenever the Company redeems shares of Preferred Stock held by
the Depositary, the Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the
shares of Preferred Stock so redeemed. If fewer than all the
Depositary Shares are to be redeemed, the Depositary Shares to be
redeemed will be selected pro rata, by lot or by any other method
as may be determined by the Depositary.
After the date fixed for redemption, all rights of the
holders of the Depositary Shares so called for redemption will
cease, except the right to receive the redemption price upon
surrender to the Depositary of the Depositary Receipts evidencing
such Depositary Shares.
Voting Rights
Upon receipt of notice of any meeting at which the holders
of Preferred Stock are entitled to vote, the Depositary will mail
the information contained in such notice of meeting to the record
holders of the Depositary Shares relating to such Preferred
Stock. Each record holder of such Depositary Shares on the
record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Depositary
as to the exercise of the voting rights pertaining to the amount
of Preferred Stock represented by such holder's Depositary
Shares. The Depositary will endeavor, insofar as practicable, to
vote the amount of Preferred Stock represented by such Depositary
Shares in accordance with such instructions, and the Company will
agree to take all action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The
Depositary may abstain from voting shares of Preferred Stock to
the extent it does not receive specific instructions from the
holders of Depositary Shares representing such Preferred Stock.
Amendment and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary
Shares and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Depositary.
However, any amendment that materially and adversely alters the
rights of the holders of Depositary Shares will not be effective
unless such amendment has been approved by the holders of at
least a majority of the Depositary Shares then outstanding. The
Deposit Agreement may be terminated by the Company or the
Depositary only if (i) all outstanding Depositary Shares have
been redeemed or (ii) there has been a final distribution in
respect of the Preferred Stock in connection with any
liquidation, dissolution or winding up of the Company and such
distribution has been distributed to the holders of Depositary
Receipts.
Charges of Depositary
The Company will pay all transfer and other taxes and
governmental charges arising solely from the existence of the
depositary arrangements. The Company will pay charges of the
Depositary in connection with the initial deposit of the
Preferred Stock and any redemption of the Preferred Stock.
Holders of Depositary Receipts will pay other transfer and other
taxes and governmental charges and such other charges, including
a fee for the withdrawal of shares of Preferred Stock upon
surrender of Depositary Receipts, as are expressly provided in
the Deposit Agreement to be for their accounts.
Miscellaneous
The Depositary will forward to holders of Depositary
Receipts all reports and communications from the Company that are
delivered to the Depositary and that the Company is required to
furnish to holders of Preferred Stock.
Neither the Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its
control in performing its obligations under the Deposit
Agreement. The obligations of the Company and the Depositary
under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and they will not be
obligated to prosecute or defend any legal proceeding in respect
of any Depositary Shares or Preferred Stock unless satisfactory
indemnity is furnished. They may rely upon written advice of
counsel or accountants, or upon information provided by persons
presenting Preferred Stock for deposit, holders of Depositary
Receipts or other persons believed to be competent and on
documents believed to be genuine.
Resignation and Removal of Depositary
The Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at
any time remove the Depositary, any such resignation or removal
to take effect upon the appointment of a successor Depositary and
its acceptance of such appointment. Such successor Depositary
must be appointed within 60 days after delivery of the notice of
resignation or removal.
Restrictions on Ownership
In order to enable the Company to continue to qualify as a
REIT, the Deposit Agreement may contain certain provisions
restricting the ownership and transfer of Depositary Shares. Any
such restrictions will be described in the applicable Prospectus
Supplement and will be referenced on the applicable Depositary
Receipts.
DESCRIPTION OF STOCK WARRANTS
The Company may issue Stock Warrants for the purchase of
Preferred Stock or Common Stock. Stock Warrants may be issued
independently or together with any other Offered Securities
offered by any Prospectus Supplement and may be attached to or
separate from such Offered Securities. Each series of Stock
Warrants will be issued under a separate warrant agreement (each,
a "Warrant Agreement") to be entered into between the Company and
a warrant agent specified in the applicable Prospectus Supplement
(the "Warrant Agent"). The Warrant Agent will act solely as an
agent of the Company in connection with the Stock Warrants of
such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of
Stock Warrants. The statements made hereunder relating to the
Stock Warrant Agreement and the Stock Warrants are summaries of
certain provisions thereof, do not purport to be complete and are
subject to, and are qualified in their entirety by reference to,
all the provisions of the Stock Warrant Agreement and the
certificates relating to each series of Stock Warrants, which
will be filed as exhibits to a document incorporated by reference
in this Prospectus, are hereby incorporated herein by reference
from the date of such filing and will be available from such date
as described above under "Available Information."
If Stock Warrants are offered, the applicable Prospectus
Supplement will describe the terms of such Stock Warrants,
including the following where applicable: (i) the offering price;
(ii) the aggregate number of shares purchasable upon exercise of
such Stock Warrants, the exercise price, and in the case of Stock
Warrants for Preferred Stock, the designation, aggregate number
and terms of the series of Preferred Stock purchasable upon
exercise of such Stock Warrants; (iii) the designation and terms
of any series of Preferred Stock with which such Stock Warrants
are being offered and the number of such Stock Warrants being
offered with such Preferred Stock; (iv) the date, if any, on and
after which such Stock Warrants and the related Preferred Stock
or Common Stock will be transferable separately; (v) the date on
which the right to exercise such Stock Warrants shall commence
and the Expiration Date; (vi) any special United States Federal
income tax consequences; and (vii) any other material terms of
such Stock Warrants.
Stock Warrant certificates may be exchanged for new Stock
Warrant certificates of different denominations, may (if in
registered form) be presented for registration of transfer, and
may be exercised at the corporate trust office of the Stock
Warrant Agent or any other office indicated in the applicable
Prospectus Supplement. Prior to the exercise of any Stock
Warrants, holders of such Stock Warrants will not have any rights
of holders of Preferred Stock or Common Stock, including the
right to receive payments of dividends, if any, on Preferred
Stock or Common Stock, or to exercise any applicable right to
vote.
To protect the Company's status as a REIT, restrictions on
ownership of Stock Warrants similar to the restrictions on
ownership of Common Stock and Preferred Stock will be imposed and
enforced. See "Description of Common Stock-Restrictions on
Transfer" and "Description of Preferred Stock-Restrictions on
Transfer."
Exercise of Stock Warrants
Each Stock Warrant will entitle the holder thereof to
purchase such number of shares of Preferred Stock or Common
Stock, as the case may be, at such exercise price as shall in
each case be set forth in, or calculable from, the applicable
Prospectus Supplement. After the close of business on the
Expiration Date (or such later date to which such Expiration Date
may be extended by the Company), unexercised Stock Warrants will
become void.
Stock Warrants may be exercised by delivering to the Warrant
Agent payment as provided in the applicable Prospectus Supplement
of the amount required to purchase the Preferred Stock or Common
Stock, as the case may be, purchasable upon such exercise
together with certain information set forth on the reverse side
of the Stock Warrant certificate. Stock Warrants will be deemed
to have been exercised upon receipt of payment of the exercise
price, subject to the receipt within five business days of the
certificate evidencing such Stock Warrants. Upon receipt of such
payment and the certificate properly completed and duly executed
at the corporate trust office of the Warrant Agent or any other
office indicated in the applicable Prospectus Supplement, the
Company will, as soon as practicable, issue and deliver the
Preferred Stock or Common Stock, as the case may be, purchasable
upon such exercise. If fewer than all of the Stock Warrants
represented by such certificate are exercised, a new certificate
will be issued for the remaining amount of Stock Warrants.
Amendments and Supplements to Warrant Agreement
The Warrant Agreements may be amended or supplemented
without the consent of the holders of the Stock Warrants issued
thereunder to effect changes that are not inconsistent with the
provisions of the Stock Warrants and that do not adversely affect
the interests of the holders of the Stock Warrants.
Adjustments
Unless otherwise indicated in the applicable Prospectus
Supplement, the exercise price of, and the number of shares of
Common Stock covered by, a Common Stock Warrant are subject to
adjustment in certain events, including (i) payment of a dividend
on the Common Stock payable in stock and stock splits,
combinations or reclassifications of the Common Stock; (ii)
issuance to all holders of Common Stock of rights or warrants to
subscribe for or purchase shares of Common Stock at less than
their current market price (as defined in the Warrant Agreement
for such series of Common Stock Warrants); and (iii) certain
distributions of evidences of indebtedness or assets (including
securities but excluding cash dividends or distributions paid out
of consolidated earnings or retained earnings or dividends
payable in Common Stock) or of subscription rights and warrants
(excluding those referred to above).
No adjustment in the exercise price of, or the number of
shares of Common Stock covered by, a Common Stock Warrant will be
made for regular quarterly or other periodic or recurring cash
dividends or distributions or for cash dividends or distributions
to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment
would require a change of at least 1% in the exercise price then
in effect. Except as stated above, the exercise price of, and the
number of shares of Common Stock covered by, a Common Stock
Warrant will not be adjusted for the issuance of Common Stock or
any securities convertible into or exchangeable for Common Stock,
or carrying the right or option to purchase or otherwise acquire
the foregoing, in exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the
Company with or into any entity (other than a consolidation or a
merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding Common Stock); (ii) sale,
transfer, lease or conveyance of all or substantially all of the
assets of the Company; or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely a
change in par value or from par value to no par value), then any
holder of a Common Stock Warrant will be entitled, on or after
the occurrence of any such event, to receive on exercise of such
Common Stock Warrant the kind and amount of stock or other
securities, cash or other property (or any combination thereof)
that the holder would have received had such holder exercised
such holder's Common Stock Warrant immediately prior to the
occurrence of such event. If the consideration to be received
upon exercise of the Common Stock Warrant following any such
event consists of common stock of the surviving entity, then from
and after the occurrence of such event, the exercise price of
such Common Stock Warrant will be subject to the same anti-
dilution and other adjustments described in the second preceding
paragraph, applied as if such common stock were Common Stock.
DESCRIPTION OF RIGHTS
As set forth under "Plan of Distribution" below, the Company
may sell the Offered Securities to investors directly through
Rights. If Offered Securities are to be sold through Rights,
such Rights will be distributed as a dividend to the Company's
stockholders for which such stockholders will pay no separate
consideration. The Prospectus Supplement with respect to the
offer of Offered Securities pursuant to Rights will set forth the
relevant terms of the Rights, including (i) the kind and number
of Offered Securities which will be offered pursuant to the
Rights, (ii) the period during which and the price at which the
Rights will be exercisable, (iii) the number of Rights then
outstanding, (iv) any provisions for changes to or adjustments in
the exercise price of the Rights and (v) any other material terms
of the Rights. See "Plan of Distribution."
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize certain provisions of
Maryland law and the Company's Articles of Incorporation and
Bylaws. The summary does not purport to be complete and reference
is made to Maryland law and the Company's Articles of
Incorporation and Bylaws for complete information.
Board of Directors
The Company's Bylaws provide that the number of directors of
the Company may be established by the Board of Directors but may
not be fewer than three nor more than fifteen. Any vacancy will
be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the remaining
directors, except that a vacancy resulting from an increase in
the number of directors will be filled by a majority of the
entire Board of Directors. The Company's Articles of
Incorporation require that the Board of Directors consist of a
majority of directors who are not affiliated with JMB Realty or
its affiliates. Directors are elected at each annual meeting of
stockholders to serve a one-year term or until their successors
are duly elected and qualified. Holders of Common Stock have no
right to cumulative voting for the election of directors.
Consequently, at each annual meeting of stockholders, the holders
of a majority of Common Stock and Unit Voting Stock voting
together as a single class are able to elect all of the
successors of the directors. Directors may be removed only for
cause and only with the affirmative vote of the holders of a
majority of the shares of Common Stock and Unit Voting Stock
voting together as a single class.
Business Combinations
Under the MGCL, certain "business combinations" (including a
merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification
of equity securities) between a Maryland corporation and any
person who beneficially owns 10% or more of the voting power of
the company's stock (an "Interested Stockholder") must be (a)
recommended by the directors of such company and (b) approved by
the affirmative vote of at least (i) 80% of the votes entitled to
be cast by holders of outstanding shares of voting stock of the
corporation and (ii) two-thirds of the votes entitled to be cast
by holders of outstanding shares of voting stock other than stock
held by the Interested Stockholder with whom the business
combination is to be effected, unless, among other things, the
company's common stockholders receive a minimum price (as defined
in the statute) for their stock and the consideration is received
in cash or in the same form as previously paid by the Interested
Stockholder for his stock. In addition, an Interested Stockholder
or any affiliate thereof may not engage in a "business
combination" with the company for a period of five years
following the date he becomes an Interested Stockholder. These
provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the Board of
Directors of the Company prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Company's
Articles of Incorporation exempt JMB Realty and its affiliates
from the foregoing restrictions.
Control Share Acquisitions
The MGCL imposes limitations on the voting rights of shares
acquired in a "control share acquisition." The MGCL defines a
"control share acquisition" at the 20%, 33-1/3%, and 50%
acquisition levels, and requires a two-thirds stockholder vote
(excluding stock owned by the acquiring person and certain
members of management) to accord voting rights to stock acquired
in a control share acquisition. The MGCL also requires Maryland
corporations to hold a special meeting at the request of an
actual or proposed control share acquiror generally within 50
days after a request is made with the submission of an "acquiring
person statement," but only if the acquiring person (a) posts a
bond of the cost of the meeting and (b) submits a definitive
financing agreement to the extent that financing is not provided
by the acquiring person. In addition, unless the articles of
incorporation or bylaws provide otherwise, the MGCL gives the
Maryland corporation, within certain time limitations, various
redemption rights if there is a stockholder vote on the issue and
the grant of voting rights is not approved, or if an "acquiring
person statement" is not delivered to the target company within
10 days following a control share acquisition. Moreover, unless
the articles of incorporation or bylaws provide otherwise, the
MGCL provides that if, before a control share acquisition occurs,
voting rights are accorded to the control shares which result in
the acquiring person having a majority of voting power, then
minority stockholders are entitled to appraisal rights. The
Company's Articles of Incorporation contain a provision exempting
an acquisition of Common Stock by JMB Realty or its affiliates
from the foregoing provisions.
Amendment to the Company's Articles of Incorporation
The Company's Articles of Incorporation, including the
provisions relating to the removal of directors, may be amended
only by the affirmative vote of the holders of not less than a
majority of all of the votes entitled to be cast on the matter.
Termination of the Company
The Company's Articles of Incorporation permit the
termination of the Company and the discontinuation of the
operations of the Company only upon the adoption of a resolution
of dissolution by the Board of Directors and (i) the affirmative
vote, at a meeting of stockholders called for that purpose, of a
majority of the voting power of the Company entitled to vote or
(ii) the unanimous consent of the voting power of the Company
entitled to vote.
Advance Notice of Director Nominations and New Business
The Company's Bylaws provide that (a) with respect to an
annual meeting of stockholders, nominations of persons for
election to the Board of Directors and the proposal of business
to be considered by stockholders may be made only (i) pursuant to
the Company's notice of the meeting, (ii) by the Board of
Directors or (iii) by a stockholder who is entitled to vote at
the meeting and has complied with the advance notice procedures
set forth in the Bylaws, and (b) with respect to special meetings
of stockholders, only the business specified in the Company's
notice of meeting may be brought before the meeting of
stockholders, and nominations of persons for election to the
Board of Directors may be made only on terms similar to those for
annual meetings.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of the material Federal
income tax consequences to the Company and its stockholders of
the treatment of the Company as a REIT. The discussion is general
in nature and not exhaustive of all possible tax considerations,
nor does the discussion give a detailed description of any state,
local, or foreign tax considerations. The discussion does not
discuss all aspects of Federal income tax law that may be
relevant to a prospective stockholder in light of his particular
circumstances or to certain types of stockholders (including
insurance companies, financial institutions or broker-dealers,
tax exempt organizations, foreign corporations and persons who
are not citizens or residents of the United States) subject to
special treatment under the Federal income tax laws nor does the
discussion address special considerations, if any, which may
relate to the purchase of Preferred Stock or Stock Warrants.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL
TAX PLANNING, AND EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT
WITH ITS TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO
IT OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
If certain detailed conditions imposed by the REIT
provisions of the Code are met, entities, such as the Company,
that invest primarily in real estate and that otherwise would be
treated for Federal income tax purposes as corporations, are
generally not taxed at the corporate level on their "REIT taxable
income" that is currently distributed to stockholders. This
treatment substantially eliminates the "double taxation" (i.e.,
at both the corporate and stockholder levels) that generally
results from the use of corporations.
If the Company fails to qualify as a REIT in any year,
however, it will be subject to Federal income taxation as if it
were a domestic corporation, and its stockholders will be taxed
in the same manner as stockholders of ordinary corporations. In
this event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash
available for distribution to its stockholders would be reduced
or eliminated.
The Company has elected REIT status effective for the
taxable years ended December 31, 1993 and December 31, 1994, and
the Board of Directors of the Company believes that the Company
has operated and expects that the Company will continue to
operate in a manner that will permit the Company to elect REIT
status in each taxable year thereafter. There can be no
assurance, however, that this belief or expectation will be
fulfilled, since qualification as a REIT depends on the Company
continuing to satisfy numerous asset, income and distribution
tests described below, which in turn will be dependent in part on
the Company's operating results.
Taxation of the Company
General. In any year in which the Company qualifies as a
REIT it will not, in general, be subject to Federal income tax on
that portion of its REIT taxable income or capital gain which is
distributed to stockholders. The Company may, however, be subject
to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
Notwithstanding its qualification as a REIT, the Company may
also be subject to taxation in certain other circumstances. If
the Company should fail to satisfy either the 75% or the 95%
gross income test (as discussed below), and nonetheless maintains
its qualification as a REIT because certain other requirements
are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% test,
multiplied by a fraction intended to reflect the Company's
profitability. The Company will also be subject to a tax of 100%
on net income from any "prohibited transaction" as described
below, and if the Company has (i) net income from the sale or
other disposition of "foreclosure property" which is held
primarily for sale to customers in the ordinary course of
business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition,
if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain net income for such
year, and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually
distributed. The Company may also be subject to the corporate
alternative minimum tax, as well as tax in certain situations not
presently contemplated. The Management Company will be taxed on
its income at regular corporate rates. The Company will use the
calendar year both for Federal income tax purposes and for
financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among
others, the following requirements:
Stock Ownership Tests. The Company's stock must be held by a
minimum of 100 persons for at least 335 days in each taxable year
(or a proportional number of days in any short taxable year). In
addition, at all times during the second half of each taxable
year, no more than 50% in value of the outstanding stock of the
Company may be owned, directly or indirectly and by applying
certain constructive ownership rules, by five or fewer
individuals, which for this purpose includes certain tax-exempt
entities. However, for purposes of this test, any stock held by a
qualified domestic pension or other retirement trust will be
treated as held directly by its beneficiaries in proportion to
their actuarial interest in such trust rather than by such trust.
These share ownership requirements need not be met until the
second taxable year of the Company for which a REIT election is
made.
In order to attempt to ensure compliance with the foregoing
stock ownership tests, the Company has placed certain
restrictions on the transfer of its stock to prevent additional
concentration of stock ownership. Moreover, to evidence
compliance with these requirements, under Treasury regulations
the Company must maintain records which disclose the actual
ownership of its outstanding stock. In fulfilling its obligations
to maintain records, the Company must and will demand written
statements each year from the record holders of designated
percentages of its stock disclosing the actual owners of such
stock (as prescribed by Treasury regulations). A list of those
persons failing or refusing to comply with such demand must be
maintained as a part of the Company's records. A stockholder
failing or refusing to comply with the Company's written demand
must submit with his tax return a similar statement disclosing
the actual ownership of Company stock and certain other
information. In addition, the Company's Articles of Incorporation
contain restrictions regarding the transfer of its stock that are
intended to assist the Company in continuing to satisfy the stock
ownership requirements. See "Description of Common Stock-
Restrictions on Transfer" and "Description of Preferred Stock-
Restrictions on Transfer."
Asset Tests. At the close of each quarter of the Company's
taxable year, the Company must satisfy two tests relating to the
nature of its assets (with "assets" being determined in
accordance with generally accepted accounting principles). First,
at least 75% of the value of the Company's total assets must be
represented by interests in real property, interests in mortgages
on real property, stock in other REITs, cash, cash items,
government securities and qualified temporary investments.
Second, although the remaining 25% of the Company's assets
generally may be invested without restriction, securities in this
class may not exceed, in the case of securities of any one
non-government issuer, (i) 5% of the value of the Company's total
assets or (ii) 10% of the outstanding voting securities of any
one such issuer. Where the Company invests in a partnership (such
as the Operating Partnership), it will be deemed to own a
proportionate share of the partnership's assets. See "-Tax
Aspects of the Company's Investments in Partnerships-General."
Accordingly, the Company's investment in the Properties through
its interest in the Operating Partnership is intended to
constitute an investment in qualified assets for purposes of the
75% asset test.
The Operating Partnership owns a 99% limited partnership
interest in Penn Square Mall Limited Partnership ("PSMLP"), which
owns 100% of the non-voting preferred stock of the Management
Company and none of the voting common stock of the Management
Company. See "The Company." By virtue of its partnership interest
in the Operating Partnership and the Operating Partnership's
interest in PSMLP, the Company is deemed to own its pro rata
share of the assets of the Operating Partnership, including the
securities of the Management Company described above. Because
PSMLP does not own any of the voting securities of the Management
Company and the preferred stock's approval right is limited to
certain fundamental corporate actions that could adversely affect
the preferred stock as a class, the 10% limitation on holdings of
voting securities of any one issuer should not be exceeded.
Based upon its analysis of the total estimated value of the
Management Company securities owned by the Operating Partnership
through PSMLP relative to the estimated value of the total assets
owned by the Operating Partnership and the other assets of the
Company, the Company believes that the Company's pro rata share
of the non-voting preferred stock of the Management Company and a
$10 million subordinated note (the "Subordinated Note") of the
Management Company owned by the Operating Partnership does not
exceed, on the date of this Prospectus, 5% of the value of the
Company's total assets. This 5% limitation must be satisfied not
only as of the date that the Company (directly or through the
Operating Partnership or PSMLP) acquired securities of the
Management Company, but also at the end of any quarter in which
the Company increases its interest in the Management Company or
so acquires other property. In this respect, if the holder of a
right to exchange Units for Common Stock exercises such rights,
the Company will thereby increase its proportionate (indirect)
ownership interest in the Management Company, thus requiring the
Company to meet the 5% test in any quarter in which such exchange
option is exercised. Although the Company plans to take steps to
ensure that it satisfies the 5% value test for any quarter with
respect to which retesting is to occur, there can be no assurance
that such steps will always be successful or will not require a
reduction in the Operating Partnership's overall interest in the
Management Company.
Gross Income Tests. There are three separate percentage
tests relating to the sources of the Company's gross income which
must be satisfied for each taxable year. For purposes of these
tests, where the Company invests in a partnership, the Company
will be treated as receiving its share of the income and loss of
the partnership, and the gross income of the partnership will
retain the same character in the hands of the Company as it has
in the hands of the partnership. See "-Tax Aspects of the
Company's Investments in Partnerships-General" below. The three
tests are as follows:
The 75% Test. At least 75% of the Company's gross income for
the taxable year must be "qualifying income." Qualifying income
generally includes (i) rents from real property (except as
modified below); (ii) interest on obligations secured by
mortgages on, or interests in, real property; (iii) gains from
the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the
Company's trade or business ("dealer property"); (iv) dividends
or other distributions on stock in other REITs, as well as gain
from the sale of such stock; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the
sale, of property acquired at or in lieu of a foreclosure of the
mortgage secured by such property ("foreclosure property");
(vii) commitment fees received for agreeing to make loans secured
by mortgages on real property or to purchase or lease real
property; and (viii) certain qualified temporary investment
income attributable to the investment of new capital received by
the Company in exchange for its stock during the one-year period
following the receipt of such capital.
Rents received from a tenant will not, however, qualify as
rents from real property in satisfying the 75% test (or the 95%
gross income test described below) if the Company, or an owner of
10% or more of the Company, directly or constructively owns 10%
or more of such tenant. In addition, 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. Moreover,
an amount received or accrued will not qualify as rents from real
property (or as interest income) for purposes of the 75% and 95%
gross income tests if it is based in whole or in part on the
income or profits of any person, although an amount received or
accrued generally will not be excluded from "rents from real
property" solely by reason of being based on a fixed percentage
or percentages of receipts or sales. Finally, for rents received
to qualify as rents from real property for purposes of the 75%
and 95% gross income tests, the Company generally must not
operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor" from whom
the Company derives no income, except that the "independent
contractor" requirement does not apply to the extent that the
services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy
only, or are not otherwise considered "rendered to the occupant
for his convenience."
The Company believes for purposes of the 75% and 95% gross
income tests, that any services provided on the Operating
Partnership's properties and any other services and amenities
provided by the Operating Partnership or its agents with respect
to such properties are and will continue to be of the type
usually or customarily rendered in connection with the rental of
space for occupancy only. The Company intends to monitor the
services and amenities provided on the properties of the
Operating Partnership. The Company intends that services that
cannot be provided directly by the Operating Partnership, the
Management Company or other agents will be performed by
independent contractors.
The 95% Test. In addition to deriving 75% of its gross
income from the sources listed above, at least 95% of the
Company's gross income for the taxable year must be derived from
the above-described qualifying income, or from dividends,
interest, or gains from the sale or other disposition of stock or
other securities that are not dealer property. Dividends and
interest on any obligations not collateralized by an interest in
real property are included for purposes of the 95% test, but not
for purposes of the 75% test.
For purposes of determining whether the Company complies
with the 75% and the 95% gross income tests, gross income does
not include income from prohibited transactions. A "prohibited
transaction" is a sale of dealer property (excluding foreclosure
property); however, it does not include a sale of property if
such property is held by the Company for at least four years and
certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements
made thereto) are satisfied. See "-Taxation of the Company-
General" and "-Tax Aspects of the Company's Investments in
Partnerships-Sale of the Properties."
The Company believes that, for purposes of both the 75% and
the 95% gross income tests, its investment in the Properties
through the Operating Partnership will in major part give rise to
qualifying income in the form of rents, and that gains on sales
of the Properties, or of the Company's interest in the Operating
Partnership, generally will also constitute qualifying income.
However, with respect to certain Properties as to which the
Operating Partnership does not have decision making control, it
may not be possible to assure that gross income continues to
qualify under these tests.
The Management Company receives and anticipates continuing
to receive fee income in consideration of the performance of
property management and other services with respect to properties
not owned by the Company or the Operating Partnership; however,
substantially all income derived by the Company from the
Management Company will be in the form of dividends on the
preferred stock owned by the Operating Partnership through PSMLP
and interest on the Subordinated Note. Such dividends and
interest income will satisfy the 95%, but not the 75%, gross
income test (as discussed above). In addition, the Company's
share of any income realized on interest rate swap or cap
agreements, including income received at the time of entering
into such agreements, will satisfy the 95%, but not the 75%,
gross income test. The Company intends to closely monitor its
non-qualifying income and anticipates that non-qualifying income
on its other investments and activities, including such dividend
income, interest income and interest rate swap or cap income (if
any), will not result in the Company failing either the 75% or
95% gross income test.
Even if the Company fails to satisfy one or both of the 75%
or 95% gross income tests for any taxable year, it may still
qualify as a REIT for such year if it is entitled to relief under
certain provisions of the Code. These relief provisions will
generally be available if: (i) the Company's failure to comply
was due to reasonable cause and not to willful neglect; (ii) the
Company reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return;
and (iii) any incorrect information on this schedule is not due
to fraud with intent to evade tax. If these relief provisions
apply, however, the Company will nonetheless be subject to a 100%
tax on the greater of the amount by which it fails either the 75%
or 95% gross income test, multiplied by a fraction intended to
reflect the Company's profitability.
The 30% Test. The Company must derive less than 30% of its
gross income for each taxable year from the sale or other
disposition of (i) real property held for less than four years
(other than foreclosure property and involuntary conversions);
(ii) stock or securities (including an interest rate swap or cap
agreement) held for less than one year; and (iii) property in a
prohibited transaction. The Company does not anticipate that it
will have difficulty in complying with this test. However, if
extraordinary circumstances were to occur that give rise to
dispositions of Properties held for less than four years (for
example, on account of the inability to obtain refinancing), the
30% test could become an issue.
Annual Distribution Requirements. In order to qualify as a
REIT, the Company is required to make distributions (other than
capital gain dividends) to its stockholders each year in an
amount at least equal to (A) the sum of (i) 95% of the Company's
REIT taxable income (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property,
minus (B) the sum of certain items of non-cash income. Such
distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on
or before the first regular dividend payment after such
declaration. To the extent that the Company does not distribute
all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be
subject to tax on the undistributed amount at regular capital
gains or ordinary corporate tax rates, as the case may be.
The Company intends to make timely distributions sufficient
to satisfy the annual distribution requirements described in the
first sentence of the preceding paragraph. In this regard, the
Partnership Agreement authorizes the Company, as general partner,
to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to
permit the Company to meet these distribution requirements. It is
possible that the Company may not have sufficient cash or other
liquid assets to meet the 95% distribution requirement, due to
timing differences between the actual receipt of income and
actual payment of expenses on the one hand, and the inclusion of
such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand; due to the
Operating Partnership's inability to control cash distributions
with respect to those Properties as to which it does not have
decision making control; or for other reasons. To avoid a problem
with the 95% distribution requirement, the Company will closely
monitor the relationship between its REIT taxable income and cash
flow and, if necessary, intends to borrow funds (or cause the
Operating Partnership or other affiliates to borrow funds) in
order to satisfy the distribution requirement. However, there can
be no assurance that such borrowing would be available at such
time.
If the Company fails to meet the 95% distribution
requirement as a result of an adjustment to the Company's tax
return by the Service, the Company may retroactively cure the
failure by paying a "deficiency dividend" (plus applicable
penalties and interest) within a specified period.
Failure to Qualify. If the Company fails to qualify for
taxation as a REIT in any taxable year and the relief provisions
do not apply, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any
year in which the Company fails to qualify as a REIT will not be
deductible by the Company, nor generally will they be required to
be made under the Code. In such event, to the extent of current
and accumulated earnings and profits, all distributions to
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. Unless entitled to
relief under specific statutory provisions, the Company also will
be disqualified from re-electing taxation as a REIT for the four
taxable years following the year during which qualification was
lost.
Tax Aspects of the Company's Investments in Partnerships
General. The Company holds a partnership interest in the
Operating Partnership. See "The Company." In general, a
partnership is a "pass-through" entity which is not subject to
Federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company will
include its proportionate share of the foregoing partnership
items for purposes of the various REIT gross income tests and in
the computation of its REIT taxable income. See "-Taxation of the
Company-General" and "-Gross Income Tests."
Accordingly, any resultant increase in the Company's REIT
taxable income from its interest in the Operating Partnership
(whether or not a corresponding cash distribution is also
received from the Operating Partnership) will increase its
distribution requirements (see "-Taxation of the Company-Annual
Distribution Requirements"), but will not be subject to Federal
income tax in the hands of the Company provided that an amount
equal to such income is distributed by the Company to its
stockholders. Moreover, for purposes of the REIT asset tests (see
"-Taxation of the Company-Asset Tests"), the Company will include
its proportionate share of assets held by the Operating
Partnership.
Entity Classification. The Company's interest in the
Operating Partnership involves special tax considerations,
including the possibility of a challenge by the Service of the
status of the Operating Partnership as a partnership (as opposed
to an association taxable as a corporation for Federal income tax
purposes). If the Operating Partnership were to be treated as an
association, it would be taxable as a corporation and therefore
subject to an entity-level tax on its income. In such a
situation, the character of the Company's assets and items of
gross income would change, which would preclude the Company from
satisfying the REIT asset tests and the REIT gross income tests
(see "-Taxation of the Company-Asset Tests" and "-Gross Income
Tests"), which in turn would prevent the Company from qualifying
as a REIT. (See "-Taxation of the Company-Failure to Qualify"
above, for a discussion of the effect of the Company's failure to
meet such tests.)
Tax Allocations with Respect to the Properties. Pursuant to
Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the
partnership (such as certain of the Properties), must be
allocated in a manner such that the contributing partner is
charged with, or benefits from, respectively, the unrealized gain
or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the
fair market value of the contributed property at the time of
contribution, and the adjusted tax basis of such property at the
time of contribution (a "Book-Tax Difference"). Such allocations
are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic arrangements among the
partners. The formation of the Operating Partnership included
contributions of appreciated property (including certain
Properties or interests therein). Consequently, the Partnership
Agreement requires certain allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, certain contributors of certain of the
Properties or interests therein will be allocated lower amounts
of depreciation deductions for tax purposes and increased taxable
income and gain on sale by the Operating Partnership on the
contributed assets (including certain of the Properties). This
will tend to eliminate the Book-Tax Difference over the life of
the Operating Partnership. However, the special allocation rules
of Section 704(c) do not always entirely rectify the Book-Tax
Difference on an annual basis or with respect to a specific
taxable transaction such as a sale or a deemed sale, and
accordingly variations from normal Section 704(c) principles may
arise, which could result in the allocation of additional taxable
income to the Company in excess of corresponding cash proceeds in
certain circumstances.
Treasury regulations issued under Section 704(c) of the Code
provide partnerships with a choice of several methods of
accounting for Book-Tax Differences, including retention of the
method under current law. The Operating Partnership and the
Company will use the remedial method for making allocations under
Section 704(c) with respect to the existing Properties.
With respect to any property purchased by the Operating
Partnership subsequent to the admission of the Company to the
Operating Partnership, in general, such property will initially
have a tax basis equal to its fair market value and Section
704(c) of the Code will not apply.
Sale of the Properties. The Company's share of any gain
realized by the Operating Partnership on the sale of any dealer
property generally will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See "Taxation
of the Company-General" and "Gross Income Tests-The 95% Test."
Under existing law, whether property is dealer property is a
question of fact that depends on all the facts and circumstances
with respect to the particular transaction. The Operating
Partnership intends to hold the Properties for investment with a
view to long-term appreciation, to engage in the business of
acquiring, owning, operating and developing the Properties and
other retail properties, and to make such occasional sales of the
Properties and other properties acquired subsequent to the date
hereof as are consistent with the Company's investment
objectives. The Operating Partnership (or partnerships in which
the Operating Partnership holds an interest) may sell certain
parcels of land incidental to the Properties, and while the
Company does not currently anticipate that a material portion of
such parcels would result in sales of dealer properties subject
to the tax on prohibited transactions, it might be asserted,
particularly in the case of partnerships in which the Operating
Partnership holds an indirect interest and is not a managing
partner, that the Company's share of gain realized on the sale is
subject to such tax. However, based upon the Company's investment
objectives, the Company believes that overall the Properties
should not be considered dealer property and that the amount of
income from prohibited transactions, if any, will not be
material.
Taxation of Stockholders
Taxation of Taxable Domestic Stockholders. As long as the
Company qualifies as a REIT, distributions made to the Company's
taxable domestic stockholders out of current or accumulated
earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income
and will not be eligible for the dividends received deduction for
corporations. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent
they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the
stockholder has held its stock of the Company. However, corporate
stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the
Company makes distributions in excess of current and accumulated
earnings and profits, these distributions are treated first as a
tax-free return of capital to the stockholder, reducing the tax
basis of a stockholder's Common Stock by the amount of such
excess distribution (but not below zero), with distributions in
excess of the stockholder's tax basis being taxed as capital
gains (if the Common Stock is held as a capital asset). In
addition, any dividend declared by the Company 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 the Company and received by the stockholder on
December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar
year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the
Company. Federal income tax rules may also require that certain
minimum tax adjustments and preferences be apportioned to Company
stockholders.
In general, any 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 the Company required to be treated by such
stockholder as long-term capital gains.
Backup Withholding. The Company will report to its domestic
stockholders and to the Service the amount of dividends paid for
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 stockholder (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 from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A
stockholder that does not provide the Company with its correct
taxpayer identification number may also be subject to penalties
imposed by the Service. Any amount paid as backup withholding is
available as a credit against the stockholder's income tax
liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any stockholders
who fail to certify their non-foreign status to the Company. See
"Certain United States Tax Considerations for Non-U.S.
Stockholders-Distributions from the Company-Capital Gain
Dividends" below.
Taxation of Tax-Exempt Stockholders. The Service has issued
a revenue ruling in which it held that amounts distributed by a
REIT to a tax-exempt employees' pension trust do not constitute
unrelated business taxable income ("UBTI"). Subject to the
discussion below regarding a "pension-held REIT," based upon such
ruling and the statutory framework of the Code, distributions by
the Company to a stockholder that is a tax-exempt entity should
not constitute UBTI, provided that the tax-exempt entity has not
financed the acquisition of its stock with "acquisition
indebtedness" within the meaning of the Code, that the stock is
not otherwise used in an unrelated trade or business of the
tax-exempt entity, and that the Company, consistent with its
present intent, does not hold a residual interest in a REMIC.
However, if any pension or other retirement trust that
qualifies under Section 401(a) of the Code ("qualified pension
trust") holds more than 10% by value of the interests in a
"pension-held REIT" at any time during a taxable year, a portion
of the dividends paid to the qualified pension trust by such REIT
may constitute UBTI. For these purposes, a "pension-held REIT" is
defined as a REIT if (i) such REIT would not have qualified as a
REIT but for the provisions of the Code which look through such a
qualified pension trust in determining ownership of stock of the
REIT and (ii) at least one qualified pension trust holds more
than 25% by value of the interests of such REIT or one or more
qualified pension trusts (each owning more than a 10% interest by
value in the REIT) hold in the aggregate more than 50% by value
of the interests in such REIT.
Other Tax Considerations
The Management Company. A portion of the cash to be used by
the Operating Partnership to fund distributions to partners,
including the Company, is expected to come from the Management
Company through dividends on the preferred stock of the
Management Company held by the Operating Partnership through
PSMLP and from interest on the Subordinated Note. In addition,
the Management Company will receive income from the Company, the
Operating Partnership and unrelated third parties. Because the
Company, the Operating Partnership and the Management Company are
related through stock or partnership ownership, income of the
Management Company from services performed for the Company and
the Operating Partnership may be subject to certain rules under
which additional income may be allocated to the Management
Company. On account of such ownership relationships, the
allocation of certain expenses and reimbursements thereof among
the Company, the Management Company and the Operating Partnership
could be subject to additional scrutiny by the Service. Further,
such ownership relationships may preclude the recognition of loss
(if any) on the sale of land parcels by the Management Company to
the Operating Partnership or the Company, and to the extent that
tax-exempt entities and foreign persons hold Company stock, a
portion of the interest expense deduction on the Subordinated
Note could be reduced.
The Management Company will pay Federal and state income
taxes at the full applicable corporate rates on its income prior
to payment of any dividends. Such income could arise from the
Management Company's operations as well as from the sale or
distribution in kind of land parcels by the Management Company.
The Management Company will attempt to minimize the amount of
such taxes, but there can be no assurance whether or the extent
to which measures taken to minimize taxes will be successful. To
the extent that the Management Company is required to pay
Federal, state, or local taxes, the cash available for
distribution by the Company to stockholders will be reduced
accordingly.
Possible Legislative or Other Actions Affecting Tax
Consequences. Prospective stockholders should recognize that the
present Federal income tax treatment of investment in the Company
may be modified by legislative, judicial or administrative action
at any time and that any such action may affect investments and
commitments previously made. The rules dealing with Federal
income taxation are constantly under review by persons involved
in the legislative process and by the Service and the Treasury
Department, resulting in revisions of regulations and revised
interpretations of established concepts as well as statutory
changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax
legislation which may be enacted. Revisions in Federal tax laws
and interpretations thereof could adversely affect the tax
consequences of investment in the Company.
State and Local Taxes. The Company and its stockholders may
be subject to state or local taxation, and the Company and the
Operating Partnership may be subject to state or local tax
withholding requirements, in various jurisdictions, including
those in which it or they transact business or reside. The state
and local tax treatment of the Company and its stockholders may
not conform to the Federal income tax consequences discussed
above. Consequently, prospective stockholders should consult
their own tax advisors regarding the effect of state and local
tax laws on an investment in Common Stock.
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. STOCKHOLDERS
The following is a discussion of certain anticipated U.S.
Federal income and U.S. Federal estate tax consequences of the
ownership and disposition of stock applicable to Non-U.S.
Stockholders of such stock. A "Non-U.S. Stockholder" is (i) any
individual who is neither a citizen nor resident of the United
States, (ii) any corporation or partnership other than a
corporation or partnership created or organized in the United
States or under the laws of the United States or any state
thereof or under the laws of the District of Columbia or (iii)
any estate or trust that is not "resident" in the United States.
The discussion is based on current law and is for general
information only. The discussion does not address other aspects
of U.S. Federal taxation other than income and estate taxation or
all aspects of U.S. Federal income and estate taxation. The
discussion does not consider any specific facts or circumstances
that may apply to a particular Non-U.S. Stockholder.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S.
INCOME, ESTATE AND OTHER TAX CONSEQUENCES OF HOLDING AND
DISPOSING OF STOCK.
Distributions from the Company
Ordinary Dividends. The portion of dividends received by Non-
U.S. Stockholders payable out of the Company's earnings and
profits that are not attributable to capital gains of the Company
and that are not effectively connected with a U.S. trade or
business of the Non-U.S. Stockholder will be subject to U.S.
withholding tax at the rate of 30% (unless reduced by treaty or
the Non-U.S. Stockholder files an Internal Revenue Service Form
4224 with the Company certifying that the investment to which the
distribution relates is effectively connected to a United States
trade or business of such Non-U.S. Stockholder). Under certain
limited circumstances, the amount of tax withheld may be
refundable, in whole or in part, because of the tax status of
certain partners or beneficiaries of Non-U.S. Stockholders that
are either foreign partnerships or foreign estates or trusts. In
general, Non-U.S. Stockholders will not be considered engaged in
a U.S. trade or business solely as a result of their ownership of
stock. In cases where the dividend income from a Non-U.S.
Stockholder's investment in stock is (or is treated as)
effectively connected with the Non-U.S. Stockholder's conduct of
a U.S. trade or business, the Non-U.S. Stockholder generally will
be subject to U.S. tax at graduated rates, in the same manner as
U.S. stockholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax (unless reduced
by treaty) in the case of a Non-U.S. Stockholder that is a
foreign corporation).
Under currently applicable Treasury regulations, withholding
agents are required to determine the applicable withholding rate
pursuant to the appropriate tax treaty, and withhold the
appropriate amount. Treasury regulations proposed in 1984, which
have not been adopted, and are, therefore, not currently
effective, would, if and when they become effective, require Non-
U.S. Stockholders to file certain forms to obtain the benefit of
any applicable tax treaty providing for a lower rate of
withholding tax on dividends. Such forms would contain the
holder's name and address and other pertinent information, to be
certified by such holder under penalties of perjury, and an
official statement by the competent authority (as defined in the
applicable treaty) in the foreign country attesting to the
holder's status as a resident thereof.
Capital Gain Dividends. Under the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"), any distribution made by the
Company to a Non-U.S. Stockholder, to the extent attributable to
gains from dispositions of United States Real Property Interests
("USRPIs") by the Company ("USRPI Capital Gains"), will be
considered effectively connected with a U.S. trade or business of
the Non-U.S. Stockholder and subject to U.S. income tax at the
rates applicable to U.S. individuals or corporations, without
regard to whether such distribution is designated as a capital
gain dividend. In addition, the Company will be required to
withhold tax equal to 35% of the amount of such distribution to
the extent it constitutes USRPI Capital Gains. Such distribution
may also be subject to the 30% branch profits tax (unless reduced
by treaty) in the case of a Non-U.S. Stockholder that is a
foreign corporation.
Non-Dividend Distributions. Any distributions by the Company
that exceed both current and accumulated earnings and profits of
the Company will not be taxed as either ordinary dividends or
capital gain dividends. See "Federal Income Tax Considerations-
Taxation of Stockholders-Taxation of Taxable Domestic
Stockholders." However, if it cannot be determined at the time a
distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the
distribution will be subject to withholding. Should this occur,
the Non-U.S. Stockholder may seek a refund of over withholding
from the Service once it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated
earnings and profits of the Company.
Dispositions of Stock
Unless the stock constitute USRPIs, a sale or exchange of
stock by a Non-U.S. Stockholder generally will not be subject to
U.S. taxation under FIRPTA. The stock will not constitute USRPIs
if the Company is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which, at all times
during a specified testing period, less than 50% in value of its
stock is held directly or indirectly by Non-U.S. Stockholders. It
is currently anticipated that the Company will be a domestically
controlled REIT and, therefore, that the sale of stock will not
be subject to taxation under FIRPTA. No assurance can be given
that the Company will continue to be a domestically controlled
REIT.
If the Company does not constitute a domestically controlled
REIT, a Non-U.S. Stockholder's sale or exchange of stock
generally will still not be subject to tax under FIRPTA as a sale
of USRPIs provided that (i) the Company's stock are "regularly
traded" (as defined by applicable Treasury regulations) on an
established securities market (e.g., the NYSE, on which the
Common Stock is listed) and (ii) the selling Non-U.S. Stockholder
held 5% or less of the Company's outstanding stock at all times
during a specified testing period.
If gain on the sale or exchange of stock were subject to
taxation under FIRPTA, the Non-U.S. Stockholder would be subject
to U.S. income tax at the rates applicable to U.S. individuals or
corporations, and the purchaser of stock could be required to
withhold 10% of the purchase price and remit such amount to the
Service. The branch profits tax would not apply to such sales or
exchanges.
Capital gains not subject to FIRPTA will nonetheless be
taxable in the United States to a Non-U.S. Stockholder in two
cases: (i) if the Non-U.S. Stockholder's investment in stock is
effectively connected with a U.S. trade or business conducted by
such Non-U.S. Stockholder, the Non-U.S. Stockholder will be
subject to the same treatment as U.S. stockholders with respect
to such gain or (ii) if the Non-U.S. Stockholder is a nonresident
alien individual who was present in the United States for 183
days or more during the taxable year and has a "tax home" in the
United States, the nonresident alien individual will be subject
to 30% tax on the individual's capital gain (unless reduced or
eliminated by treaty).
Federal Estate Tax
Stock owned or treated as owned by an individual who is not
a citizen or "resident" (as specifically defined for U.S. Federal
estate tax purposes) of the United States at the time of death
will be includable in the individual's gross estate for U.S.
Federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Such individual's estate may be
subject to U.S. Federal estate tax on the property includable in
the estate for U.S. Federal estate tax purposes.
Information Reporting and Backup Withholding
The Company must report annually to the Service and to each
Non-U.S. Stockholder the amount of dividends (including any
capital gain dividends) paid to, and the tax withheld with
respect to, each Non-U.S. Stockholder. These reporting
requirements apply regardless of whether withholding was reduced
or eliminated by an applicable tax treaty. Copies of these
returns may also be made available under the provisions of a
specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Stockholder resides.
U.S. backup withholding (which generally is imposed at the
rate of 31% on certain payments to persons that fail to furnish
the information required under the U.S. information reporting
requirements) and information reporting will generally not apply
to dividends (including any capital gain dividends) paid on stock
to a Non-U.S. Stockholder at an address outside the United
States.
The payment of the proceeds from the disposition of stock to
or through a U.S. office of a broker will be subject to
information reporting and backup withholding unless the owner,
under penalties of perjury, certifies, among other things, its
status as a Non-U.S. Stockholder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of
stock to or through a non-U.S. office of a non-U.S. broker
generally will not be subject to backup withholding and
information reporting, except as noted below. In the case of a
payment of proceeds from the disposition of stock to or through a
non-U.S. office of a broker which is (i) a U.S. person, (ii) a
"controlled foreign corporation" for U.S. Federal income tax
purposes or (iii) a foreign person 50% or more of whose gross
income for certain periods is derived from a U.S. trade or
business, information reporting (but not backup withholding) will
apply unless the broker has documentary evidence in its files
that the holder is a Non-U.S. Stockholder (and the broker has no
actual knowledge to the contrary) and certain other conditions
are met, or the holder otherwise establishes an exemption. Under
proposed Treasury regulations, a payment of the proceeds from the
disposition of stock to or through such broker will be subject to
backup withholding if such broker has actual knowledge that the
holder is a U.S. person.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules will be refunded or
credited against the Non-U.S. Stockholder's U.S. Federal income
tax liability, provided that required information is furnished to
the Service.
These backup withholding and information reporting rules are
currently under review by the Treasury Department, and their
application to stock is subject to change.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more
underwriters for public offering and sale by them or may sell the
Offered Securities to investors directly or through agents.
Direct sales to investors may be accomplished through
subscription offerings or through Rights distributed to the
Company's stockholders. In connection with subscription offerings
or the distribution of Rights to stockholders, if all of the
underlying Offered Securities are not subscribed for, the Company
may sell such unsubscribed Offered Securities to third parties
directly or through underwriters or agents and, in addition,
whether or not all of the underlying Offered Securities are
subscribed for, the Company may concurrently offer additional
Offered Securities to third parties directly or through
underwriters or agents. Any such underwriter or agent involved in
the offer and sale of the Offered Securities will be named in the
applicable Prospectus Supplement.
The distribution of the Offered Securities may be effected
from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at prices related to the
prevailing market prices at the time of sale or at negotiated
prices (any of which may represent a discount from the prevailing
market prices). The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer
and sell the Offered Securities upon such terms and conditions as
are set forth in the applicable Prospectus Supplement. In
connection with the sale of Offered Securities, underwriters may
be deemed to have received compensation from the Company in the
form of underwriting discounts or commissions and may also
receive commissions from purchasers of Offered Securities for
whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to
underwriters or agents in connection with the offering of Offered
Securities, and any discounts, concessions or commissions allowed
by underwriters to participating dealers, will be set forth in
the applicable Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Offered
Securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them
on resale of the Offered Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the
Company will authorize dealers acting as the Company's agents to
solicit offers by certain institutions to purchase Offered
Securities from the Company at the public offering price set
forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the
date or dates stated in such Prospectus Supplement. Each Contract
will be for an amount not less than, and the aggregate principal
amount of Offered Securities sold pursuant to Contracts shall be
not less nor more than, the respective amounts stated in the
applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and
savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other
institutions but will in all cases be subject to the approval of
the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered
Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject and (ii) if
the Offered Securities are being sold to underwriters, the
Company shall have sold to such underwriters the total principal
amount of the Offered Securities less the principal amount
thereof covered by Contracts.
Certain of the underwriters and their affiliates may be
customers of, engage in transactions with and perform services
for the Company and its subsidiaries in the ordinary course of
business.
EXPERTS
The consolidated financial statements and schedule of Urban
Shopping Centers, Inc. and consolidated partnerships as of
December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, have been incorporated
by reference herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, which report is incorporated by reference
herein, and upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the
Offered Securities will be passed upon for the Company by Mayer,
Brown & Platt. Mayer, Brown & Platt has in the past represented
and is currently representing the Company and certain of its
affiliates.
No dealer, salesperson or other individual has been au
thorized to give any information or to make any representations
other than those contained or incorporated by reference in this
Prospectus Supplement or the Prospectus in connection with the
offer made by this Prospectus Supplement and the Prospectus and,
if given or made, such information or representations must not be
relied upon as having been authorized by the Company or any
agent, dealer or underwriter. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made
hereunder or thereunder shall under any circumstances create an
implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus Supplement and
the Prospectus do not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation.
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TABLE OF CONTENTS
Page
Prospectus Supplement
The Company S-3
The Properties S-3
Recent Developments S-6
Use of Proceeds S-7
Price Range of Common Stock and Distribution S-7
Underwriting S-8
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995 S-9
Legal Matters S-9
Experts S-9
Index to Financial Statements F-1
Prospectus
Available Information 2
Incorporation by Reference 2
The Company 3
Use of Proceeds 3
Capital Stock of the Company 3
Description of Common Stock 3
Description of Preferred Stock 5
Description of Depositary Shares 10
Description of Stock Warrants 12
Description of Rights 14
Certain Provisions of Maryland Law and of The Company's Articles
of Incorporation and Bylaws 14
Federal Income Tax Considerations 16
Certain United States Tax Considerations for Non-U.S.
Stockholders 24
Plan of Distribution 26
Experts 27
Legal Matters 27
3,000,000 Shares
URBAN SHOPPING CENTERS, INC.
Common Stock
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PROSPECTUS SUPPLEMENT
November 21, 1996
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Lehman Brothers
