<PAGE>
FILED PURSUANT TO RULE 424(B)(2)
REGISTRATION NO. 333-20813
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 3, 1997)
[LOGO]
3,500,000 SHARES
MID-ATLANTIC REALTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
Mid-Atlantic Realty Trust ("MART") is a fully integrated, self-administered
and self-managed real estate investment trust ("REIT") which owns, acquires,
develops, redevelops, leases and manages primarily neighborhood or community
shopping centers in the Middle Atlantic region of the United States. MART owns
and operates 26 neighborhood or community shopping centers, one enclosed
regional mall and five additional retail and commercial properties. MART also
owns seven undeveloped parcels of land aggregating approximately 140 acres. The
retail and commercial properties (collectively, the "Properties") have a gross
leasable area of approximately 3.9 million square feet and were 95% leased at
July 31, 1997.
All of the common shares of beneficial interest, par value $.01 per share
(the "Shares"), offered hereby are being sold by MART.
The Shares are listed on the New York Stock Exchange ("NYSE") under the
symbol "MRR." Prior to September 18, 1997, the Shares were listed on the
American Stock Exchange under the symbol "MRR." Since its inception, MART has
paid regular quarterly dividends on its Shares. See "Price Range of Shares and
Distribution Policy."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE SHARES.
---------------------
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 SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share....................................... $13.00 $.68 $12.32
Total (3)....................................... $45,500,000 $2,380,000 $43,120,000
</TABLE>
(1) MART has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by MART estimated at $390,000.
(3) MART has granted the Underwriters a 30-day option to purchase up to 525,000
additional Shares, solely to cover over-allotments, if any. If the option is
exercised in full, the total "Price to Public," "Underwriting Discounts and
Commissions" and "Proceeds to Company" will be $52,325,000, $2,737,000 and
$49,588,000, respectively. See "Underwriting."
------------------------
The Shares are offered by the several Underwriters when, as and if delivered
to and accepted by them and subject to various prior conditions, including their
right to reject orders, in whole or in part. It is expected that delivery of the
Shares will be made at the offices of Legg Mason Wood Walker, Incorporated,
Baltimore, Maryland on or about October 17, 1997.
LEGG MASON WOOD WALKER
INCORPORATED
SALOMON BROTHERS INC
WHEAT FIRST BUTCHER SINGER
October 14, 1997
<PAGE>
1. Bar Graph entitled "Funds From Operations & Dividends" depicting Dividends
per Share; FFO per Share Fully Diluted; FFO per Share Primary; for 1993 Pro
Forma, 1994 Actual, 1995 Actual, 1996 Actual and Six Months Ended June 30,
1997.
2. Bar Graph entitled "Percentage of Operating Properties Leased," depicting at
12/31/92 through 7/31/97.
3. Line Graph entitled "Five Year Cumulative Total Return" for the period ended
8/31/92, years 1993 through 1996, and the period ended 8/31/97.
4. Line Graph entitled "One Year Cumulative Total Return" for the fourth
quarter of 1996 and each of the first three quarters of 1997.
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES PRIOR TO THE PRICING OF THE
OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE SHARES, THE PURCHASE OF
SHARES FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION
IN THE SHARES OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE SHARES AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
(List and map showing locations of the following shopping centers and
commercial properties, and pictures of some shopping centers:)
MARYLAND
1. Harford Mall/Bel Air
2. Rolling Road Plaza/Baltimore
3. York Road Plaza/Baltimore
4. Patriot Plaza/Pasadena
5. Wilkens Beltway Plaza/Baltimore
6. Rosedale Plaza/Baltimore
7. Lutherville Station/Baltimore
8. New Town Village/Owings Mills
9. Shoppes at Easton/Easton
10. Orchard Square Medical Office/Towson
11. Club Center/Baltimore
12. Enchanted Forest Shopping Center/Ellicott City
13. Glen Burnie and Little Glen/Glen Burnie
14. Ingleside Shopping Center/Baltimore
15. Perry Hall Square/Baltimore
16. Timonium Crossing/Baltimore
17. Timonium Shopping Center/Baltimore
18. Southwest Development Business Park
19. Waldorf Retail Development/Waldorf
20. Clinton Retail Development/Clinton
21. Radcliffe Center/Towson
22. Shawan Plaza/Hunt Valley
VIRGINIA
23. Burke Town Plaza/Burke
24. Skyline Village/Harrisonburg
25. Sudley Towne Plaza/Manassas
26. Spotsylvania Crossing/Fredericksburg
27. Smoketown Plaza/Woodbridge
DELAWARE
28. Brandywine Commons/Wilmington
NEW YORK
29. Colonie Plaza/Colonie
30. Columbia Plaza/East Greenbush
OTHER
31. Gateway Park Shopping Center/Page, AZ
32. One Freestanding Retail Facility/Chicago, IL
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT, IN THE ACCOMPANYING
PROSPECTUS AND IN THE INFORMATION INCORPORATED HEREIN OR THEREIN BY REFERENCE.
UNLESS OTHERWISE SPECIFIED, THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. ALL
REFERENCES TO "MART" IN THIS PROSPECTUS SUPPLEMENT AND ALL REFERENCES TO THE
"COMPANY" IN THE ACCOMPANYING PROSPECTUS INCLUDE MART AND THOSE ENTITIES OWNED
OR CONTROLLED BY MART, INCLUDING THE OPERATING PARTNERSHIP (AS HEREINAFTER
DEFINED), UNLESS THE CONTEXT INDICATES OTHERWISE.
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSIONS
IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS CONTAIN CERTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, SUCH AS
STATEMENTS OF PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN
AND IN THE ACCOMPANYING PROSPECTUS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE THOSE DISCUSSED UNDER THE CAPTION "RISK FACTORS"
BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS, AS WELL AS THOSE DISCUSSED
ELSEWHERE HEREIN AND IN THE ACCOMPANYING PROSPECTUS. THE RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION HEREIN AND IN THE
ACCOMPANYING PROSPECTUS BEFORE PURCHASING THE SHARES.
THE COMPANY
MART is a fully integrated, self-administered and self-managed REIT which
owns, acquires, develops, redevelops, leases and manages primarily neighborhood
or community shopping centers in the Middle Atlantic region of the United
States. MART owns and operates 26 neighborhood or community shopping centers,
one enclosed regional mall and five additional retail and commercial properties.
MART also owns seven undeveloped parcels of land aggregating approximately 140
acres. The Properties have a gross leasable area of approximately 3.9 million
square feet and were 95% leased at July 31, 1997.
All of MART's interests in the Properties are held directly or indirectly
by, and substantially all of its operations relating to the Properties are
conducted through, MART Limited Partnership (the "Operating Partnership"). Units
of partnership interest in the Operating Partnership ("Units") may be exchanged
by the limited partners for cash or Shares on a one-for-one basis. MART controls
the Operating Partnership as the sole general partner, and owns approximately
72% of the Units. MART's Trustees and senior management and their related
entities own an aggregate of approximately 14% of MART's outstanding Shares and
Units.
MART's primary objectives are to increase funds from operations ("FFO") per
Share and to maximize shareholder value. To achieve its objectives, MART seeks
to operate its Properties for long-term FFO growth. MART also acquires, develops
and redevelops anchored neighborhood or community shopping centers in the Middle
Atlantic region that provide daily necessities, consumer products or value-
oriented merchandise through tenants such as supermarkets, drugstores, discount
retailers, restaurants and vendors of consumer goods and services.
S-1
<PAGE>
RECENT DEVELOPMENTS
PORTFOLIO ACQUISITION. On July 1, 1997, MART completed the acquisition of a
portfolio of nine shopping centers and one medical office building (the
"Acquired Properties") in the Baltimore metropolitan area from partnerships
associated with Jack H. Pechter (the "Pechter Group"). The Acquired Properties
total approximately 1.06 million gross leasable square feet. The consideration
for the Acquired Properties was the issuance by the Operating Partnership to the
Pechter Group of 3,175,770 Units and the assumption of mortgage indebtedness of
approximately $84,000,000. The following table reflects certain data regarding
the Acquired Properties as of July 31, 1997:
<TABLE>
<CAPTION>
AVERAGE
TOTAL MINIMUM
ANNUALIZED RENT PER
YEAR BUILT/ GROSS LEASABLE MINIMUM LEASED PERCENT
REDEVELOPED AREA (SQ. FT.) RENT SQ. FT. LEASED MAJOR TENANTS
----------- -------------- ---------- ----------- ----------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Timonium Shopping Center... 1962 207,000 $1,760,200 $ 9.49 90% Ames, Sony Theatres,
Blockbuster
Perry Hall Shopping
Center................... 1965/1996 195,000 1,239,300 6.77 94 Metro Food Market (on own
pad), Rite Aid, Frank's
Nursery & Crafts, Outback
Steakhouse, Radio Shack
Enchanted Forest Shopping
Center................... 1992 140,000 2,091,400 15.86 94 Safeway, Petco
Ingleside Shopping
Center................... 1963/1996 115,000 1,547,500 13.54 99 Safeway, Rite Aid, First
National Bank,
Blockbuster
Shawan Plaza Shopping
Center................... 1991 95,000 1,607,800 16.94 100 Giant Food, NationsBank,
Provident Bank
Glen Burnie Village
Shopping Center.......... 1972 94,000 865,000 10.16 90 Rite Aid, Firestone, First
National Bank, West
Marine
Radcliffe Shopping Center
at Towson................ 1988/1993 86,000 1,797,600 20.83 100 CVS Drug, CompUSA, Linens
N' Things, Signet Bank
Timonium Crossing Shopping
Center................... 1986/1996 60,000 894,600 16.85 89 Bibelot, Cosmetic Center
Club Centre at Pikesville
Shopping Center.......... 1990 44,000 669,600 16.53 92 Blockbuster
Orchard Square Medical
Office................... 1988 28,000 430,100 16.42 94 N.A.
-------------- ---------- -----------
TOTAL................ 1,064,000 $12,903,100 $ 12.89
-------------- ---------- -----------
-------------- ---------- -----------
</TABLE>
DEVELOPMENT PROJECTS. MART has the following projects under development:
<TABLE>
<CAPTION>
GROSS ANTICIPATED
LEASABLE DEVELOPMENT ESTIMATED
PERCENT AREA (SQ. COST TO PERCENT MAJOR COMPLETION
PROJECT OWNED FT.) MART LEASED TENANTS DATE
- --------------------------------- ----------- ------------- ------------ ----------- ----------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lutherville Station Shopping 100% 284,000 $13,000,000 100% Metro Food Market, April 1998
Center Caldor, Circuit City
(Lutherville, Maryland)
(redevelopment)................
North East, Maryland, Shopping 100 75,000 5,500,000 67 Food Lion, Happy May 1998
Center (Phase 1) (new Harry's Discount Drug
development)...................
Columbia Plaza Shopping Center 100 15,000 2,400,000 94 Price Chopper, Ben May 1998
(East Greenbush, New York) Franklin
(anchor expansion).............
Burke Town Plaza Shopping Center 100 22,000 1,600,000 99 Safeway, CVS Drug September
(Burke, Virginia) (anchor 1998
expansion).....................
------------- ------------
TOTAL...................... 396,000 $22,500,000
------------- ------------
------------- ------------
</TABLE>
S-2
<PAGE>
FORMATION OF UPREIT. At the closing of the acquisition of the Acquired
Properties, MART formed the Operating Partnership and assigned to the Operating
Partnership its interest in the Properties. As a result of this transaction,
MART converted into an "umbrella partnership real estate investment trust" or
"UPREIT" structure, which will permit MART to use Units as consideration in
property acquisitions, thereby providing certain tax deferral benefits to
sellers. See "Recent Developments" and "The Properties--Acquired Properties."
The following diagram depicts the ownership structure of MART and the
Operating Partnership:
[GRAPH]
MART, as sole general partner of the Operating Partnership, has the
exclusive power to manage and conduct the business of the Operating Partnership,
subject to certain exceptions. MART owns an approximate 72% interest in the
Operating Partnership. MART anticipates that the Operating Partnership will
acquire additional properties in exchange for Units, in which case persons that
own such properties will become limited partners of the Operating Partnership.
SALE OF GATEWAY. In furtherance of its strategy to concentrate its
investments on anchored neighborhood or community shopping centers, MART sold
its Gateway International Office property ("Gateway") on September 15, 1997.
This class A office property with gross leasable area of approximately 203,000
square feet was sold for $22,584,070, generating a gain on the sale of
approximately $700,000. The net proceeds from the sale of approximately
$21,400,000 were used to pay down the balance under MART's line of credit. See
"Recent Developments."
INCREASED UNSECURED LINE OF CREDIT. MART currently has a $40,000,000
secured line of credit. In September 1997, MART reached agreement in principle
with its primary bank, The First National Bank of Maryland, for an increase in
its line of credit from $40,000,000 to $75,000,000. The proposed new credit
facility would be unsecured. The new credit facility is subject to the
completion of this offering and agreement on other terms.
S-3
<PAGE>
ACHIEVEMENTS SINCE FORMATION
MART was formed in 1993 to acquire and expand the business and operations of
BTR Realty, Inc., a Maryland based public real estate company. Since its
formation, MART has:
- Acquired 13 commercial properties, including 12 neighborhood or community
shopping centers in the Middle Atlantic region totaling approximately 1.6
million gross leasable square feet at a cost of approximately
$154,000,000;
- Redeveloped four shopping centers, at a cost to MART of approximately
$17,000,000;
- Developed a new supermarket-anchored shopping center at a cost to MART of
approximately $14,000,000;
- Divested in excess of $50,000,000 of non-core commercial projects and
undeveloped land, and redeployed the proceeds into MART's core business;
- Maintained leasing of the Properties at approximately 95%;
- Increased dividends each year while decreasing its FFO payout ratio; and
- Converted to an UPREIT structure.
BUSINESS STRATEGIES
MART's primary objectives are to increase long-term FFO per Share and to
maximize shareholder value. To achieve its objectives, MART seeks to:
- Operate its Properties for long-term FFO growth;
- Acquire neighborhood or community shopping centers that either have
dominant anchor tenants or contain a mix of tenants which reflects the
shopping needs of the communities they serve or acquire for redevelopement
underperforming neighborhood or community shopping centers that could
benefit from MART's financial strength or expertise;
- Develop and redevelop neighborhood or community shopping centers on a
tenant-driven basis, leveraging either existing tenant relationships or
geographic and demographic knowledge while seeking to minimize exposure to
risk associated with long-term land development; and
- Execute its operating and growth strategies by utilizing a blend of
internally generated funds, issuance of Units, proceeds from divestitures,
institutional borrowings and issuance of corporate equity or debt, as
appropriate.
THE PROPERTIES
MART owns and operates 26 neighborhood or community shopping centers, one
enclosed regional mall and five additional retail and commercial properties.
MART also owns seven undeveloped parcels of land aggregating approximately 140
acres. The neighborhood or community centers typically provide daily
necessities, consumer products or value-oriented merchandise through tenants
such as supermarkets, drugstores, discount retailers, restaurants and vendors of
consumer goods and services. Anchors of MART's centers include Giant Food,
Safeway, Price Chopper, ShopRite, CVS Drug, Rite Aid Drug, RichFood, Valu Food,
Kmart, Wal-Mart, and Toys "R" Us. The mall property is anchored by Hecht's (a
division of May Department Stores) and Montgomery Ward and contains a number of
national and regional retailers.
MART believes that the Middle Atlantic region of the United States,
particularly the Baltimore-Washington standard metropolitan statistical area
(SMSA), offers a relatively stable and strong economy due to its location along
the Interstate 95 corridor, which links the major population and job centers of
the
S-4
<PAGE>
east coast of the United States. Management believes that MART's Properties are
located in strong retail markets with good investment potential.
At July 31, 1997, national or regional tenants, which occupied approximately
76% of gross leasable area, accounted for approximately 70% of annualized rental
revenue, with only two tenants representing more than 2% of annualized rental
revenues. The two tenants, Giant Food of Maryland and Safeway, represented
approximately 9.7% and 3.5% of annualized rental revenues, respectively, at July
31, 1997.
At July 31, 1997, the Properties were 95% leased, had an average base rent
of $9.70 per leased square foot, and were subject to mortgage indebtedness of
approximately $149,400,000. The net proceeds of the offering will be used to
reduce or repay up to $39,500,000 of indebtedness related to the Properties. See
"The Properties" and "Use of Proceeds."
THE OFFERING
<TABLE>
<S> <C>
Shares offered.................... 3,500,000
Shares to be outstanding after the
offering........................ 18,399,908(1)
Use of proceeds................... To reduce or repay debt on the Properties; the balance,
if any, will be used for acquisition, development or
redevelopment of additional or existing shopping center
properties and general corporate purposes. See "Use of
Proceeds"
NYSE symbol....................... "MRR"
</TABLE>
- ------------------------
(1) Includes 3,175,770 Shares issuable upon exchange for a like number of
outstanding Units, and 3,049,905 Shares (based on a conversion price of
$10.50 per Share) issuable upon conversion of $32,024,000 aggregate
principal amount of MART's Convertible Subordinated Debentures due 2003 (the
"Debentures") outstanding as of September 19, 1997. Excludes shares reserved
for issuance under MART's Omnibus Share Plan and 1995 Stock Option Plan.
RISK FACTORS
An investment in MART involves various risks. Prospective investors should
consider the matters described under "Risk Factors" beginning on page 4 of the
accompanying Prospectus.
S-5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS HISTORICAL AS OF OR FOR
OF OR FOR THE AS OF OR FOR THE THE YEAR HISTORICAL
SIX MONTHS(4) SIX MONTHS ENDED(4) AS OF OR FOR THE YEARS
ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31, ENDED DECEMBER 31,
-------------------- -------------------- ------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996(5) 1997 1996(5) 1996(5) 1996(5) 1995(5) 1994(5)
--------- --------- --------- --------- ------------ --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............................ $ 21,879 $ 20,576 $ 16,397 $ 15,760 $ 41,921 $ 32,406 $ 29,593 $ 27,213
Net earnings........................ $ 3,732 $ 2,803 $ 2,881 $ 1,911 $ 4,112 $ 3,509 $ 3,777 $ 2,916
Net earnings per share.............. $ 0.48 $ 0.46 $ 0.37 $ 0.32 $ 0.66 $ 0.56 $ 0.61 $ 0.46
BALANCE SHEET DATA:
Total assets........................ $ 273,220 $ 271,961 $ 173,173 $ 171,929 $ 273,316 $ 173,278 $ 182,521 $ 162,843
Total long-term debt................ $ 187,323 $ 207,299 $ 124,800 $ 144,776 $ 196,328 $ 133,805 $ 154,021 $ 133,391
Total shareholders' equity.......... $ 41,334 $ 21,376 $ 40,634 $ 20,676 $ 31,511 $ 30,811 $ 20,938 $ 24,856
Total common shares outstanding..... 8,278 6,076 8,278 6,076 7,225 7,225 6,016 6,291
OTHER FINANCIAL DATA:
Dividends per share................. $-- (3) -- (3) $ 0.48 $ 0.46 $ -- (3) $ 0.93 $ 0.89 $ 0.85
Funds from operations (FFO) (1)(2).. $ 9,238 $ 7,864 $ 7,148 $ 6,305 $ 15,939 $ 13,178 $ 12,307 $ 11,173
Weighted average number of shares
outstanding(2).................... 14,868 14,793 11,756 11,681 14,868 11,756 11,889 12,005
SELECTED CASH FLOW DATA:
Net cash flow:
- provided by operating
activities...................... -- (3) -- (3) $ 6,653 $ 4,294 -- (3) $ 9,342 $ 10,612 $ 7,232
- (used in) provided by investing
activities...................... -- (3) -- (3) $ (3,593) $ 7,517 -- (3) $ 4,232 $ (23,584) $ (19,630)
- (used in) provided by financing
activities...................... -- (3) -- (3) $ (1,510) $ (11,333) -- (3) $ (13,074) $ (13,142) $ 12,055
</TABLE>
- ------------------------
(1) Funds from operations (FFO), as defined by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT"), means net income (computed in
accordance with generally accepted accounting principles ("GAAP")) excluding
cumulative effects of changes in accounting principles, extraordinary or
unusual items, and gains or losses from debt restructuring and sales of
property, plus depreciation of real property (including furniture and
equipment) and amortization, and after adjustments for unconsolidated
partnership and joint ventures. MART believes FFO is helpful to investors as
a measure of the performance of an equity REIT. MART computes FFO in
accordance with standards established by the White Paper on Funds from
Operations approved by the NAREIT Board of Governors. FFO should not be
considered as an alternative to net earnings (computed in accordance with
GAAP) as an indication of MART's financial performance or to cash flows from
operating activities (computed in accordance with GAAP) as a measure of
MART's liquidity, nor is it indicative of funds available to fund MART's
cash needs, including its ability to make distributions. FFO does not
represent cash flows from operations as defined by GAAP. The presentation of
FFO is not normally included in financial statements prepared in accordance
with GAAP.
(2) FFO is presented on a fully diluted basis, which adds back Debenture
interest expense to FFO on a primary basis. The fully diluted weighted
average number of Shares consists of the primary weighted average number of
Shares plus the number of Shares issuable upon conversion of the Debentures.
(3) Dividends and net cash flows cannot be reasonably estimated on a pro forma
basis.
(4) The pro forma operating data assumes that the acquisition of Acquired
Properties and the sale of Gateway occurred at the beginning of each period.
The pro forma revenues and earnings are not necessarily indicative of the
results that would have occurred if the acquisition and sale had been
consummated at the beginning of each period or of future results of
operations.
(5) Certain amounts for prior periods have been reclassified to conform to the
1997 presentation.
S-6
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering are estimated to be approximately
$42,730,000 ($49,180,000 if the Underwriters' over-allotment option is exercised
in full). Approximately $25,600,000 of the net proceeds will be used to reduce
current debt on the Acquired Properties, $13,900,000 will be used to reduce debt
on MART's existing properties, and the balance of the proceeds, if any, will be
used by MART for the acquisition, development or redevelopment of additional or
existing shopping centers and general corporate purposes.
The debt to be repaid consists of four mortgage loans. The interest rates on
the indebtedness range from 8.125% to 10.375%, with a weighted average interest
rate of approximately 8.8% as of September 23, 1997.
PRICE RANGE OF SHARES AND DISTRIBUTION POLICY
The Shares began trading on the New York Stock Exchange on September 18,
1997, under the symbol "MRR." The Shares were formerly traded on the American
Stock Exchange under the symbol "MRR." At July 31, 1997, MART had approximately
4,000 shareholders, with approximately 1,100 holders of record. Continental
Stock Transfer and Trust Company, New York, New York, is the registrar and
transfer agent for the Shares.
The following table sets forth, for the quarters indicated, the high and low
sale prices of MART Shares on the AMEX or NYSE, as the case may be, and cash
distributions paid per Share for the indicated period.
<TABLE>
<CAPTION>
CLOSING PRICES
PER SHARE
--------------------
<S> <C> <C> <C>
HIGH LOW DISTRIBUTIONS
--------- --------- ---------------
1995
1st quarter................................................................. $ 8.375 $ 7.875 $ .22
2nd quarter................................................................. 9.375 7.625 .22
3rd quarter................................................................. 9.125 8.250 .22
4th quarter................................................................. 8.938 8.250 .23
1996
1st quarter................................................................. 10.375 8.750 .23
2nd quarter................................................................. 10.000 9.250 .23
3rd quarter................................................................. 10.125 9.500 .23
4th quarter................................................................. 11.375 9.625 .24
1997
1st quarter................................................................. 11.750 10.500 .24
2nd quarter................................................................. 11.875 11.000 .24
3rd quarter................................................................. 13.375 11.500 .24
4th quarter (through October 13)............................................ 13.500 12.813
</TABLE>
DIVIDEND REINVESTMENT PLAN
MART has in effect a dividend reinvestment plan (the "Plan") which allows
shareholders to acquire additional Shares by automatically reinvesting their
cash dividends. Shares are acquired pursuant to the Plan at a price equal to the
prevailing market price, without payment of brokerage commissions or service
charges. The Plan also allows shareholders enrolled in the Plan to make
voluntary cash payments to purchase Shares at a price equal to the prevailing
market price (without any discount but without payment of any brokerage
commissions or service charges) in the same manner as cash dividends are
invested in amounts of not less than $100 or more than $15,000 per quarter.
Shareholders who do not participate in the Plan continue to receive cash
dividends as declared. Continental Stock Transfer and Trust Company from time to
time purchases Shares in the open market or in private transactions for the
purpose of fulfilling its obligations under the Plan.
S-7
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of MART as of June 30,
1997, (i) on a historical basis, (ii) on a pro forma basis to give effect to the
acquisition of the Acquired Properties and the sale of Gateway, and (iii) on a
pro forma as adjusted to give effect to the consummation of this offering and
the application of the net proceeds therefrom to reduce debt, as described under
the caption "Use of Proceeds," and in the accompanying footnotes.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------
PRO FORMA AS
HISTORICAL PRO FORMA(1) ADJUSTED(1)(2)
---------- ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Debt:
Convertible subordinated debentures due 2003.................... $ 36,186 $ 36,186 $ 36,186(4)
Mortgages, notes and construction loans payable(3).............. 88,614 151,137 111,637(3)
---------- ------------- -------------
124,800 187,323 147,823
---------- ------------- -------------
Minority interest in consolidated joint ventures.................. 2,731 38,796 38,796(5)
Shareholders' equity:
Preferred shares of beneficial interest, $.01 par value,
authorized 2,000,000 shares, issued and outstanding, none..... - - -
Common shares of beneficial interest, $.01 par value, authorized
100,000,000 shares, issued and outstanding, 8,277,867 on a
historical basis; 11,777,867 on a pro forma as adjusted
basis......................................................... 83 83 118
Additional paid-in capital...................................... 63,313 63,313 106,008
Distributions in excess of accumulated earnings................. (22,762) (22,062) (22,062)
---------- ------------- -------------
Total shareholders' equity.................................... 40,634 41,334 84,064
---------- ------------- -------------
Total capitalization........................................ $ 168,165 $ 267,453 $ 270,683
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
- ------------------------
(1) Assumes that the acquisition of the Acquired Properties and the sale of
Gateway occurred on June 30, 1997. Reflects the repayment of debt of
approximately $21,400,000 from the net proceeds of the sale of Gateway, and
the gain on the sale of Gateway of approximately $700,000.
(2) Reflects the issuance of 3,500,000 Shares at $13.00 per Share pursuant to
this offering, and the application of the net proceeds therefrom for the
repayment or reduction of real estate debt in the amount of approximately
$39,500,000. Also reflects the deduction of estimated underwriting discounts
and commissions and expenses of the offering in the amount of $2,770,000.
(3) Historical debt includes mortgages, notes and construction loans payable,
all of which are secured by mortgages on real property or secured by the
real property as collateral.
(4) At June 30, 1997, the outstanding principal balance of the Debentures was
convertible into 3,446,286 Shares at $10.50 per share. At September 19,
1997, the outstanding principal balance of the Debentures was $32,024,000,
convertible into 3,049,905 Shares.
(5) Includes limited partners' interest in the Operating Partnership of
$36,065,000. The limited partners hold 3,175,770 Units which may be
exchanged for cash or a like number of Shares, subject to certain terms and
conditions. See "Recent Developments--Formation of UPREIT."
S-8
<PAGE>
THE COMPANY
MART is a fully integrated, self-administered and self-managed REIT which
owns, acquires, develops, redevelops, leases and manages primarily neighborhood
and community shopping centers in the Middle Atlantic region of the United
States. MART owns and operates 26 neighborhood or community shopping centers,
one enclosed regional mall and five additional retail and commercial properties.
MART also owns seven undeveloped parcels of land aggregating approximately 140
acres. The Properties have a gross leasable area of approximately 3.9 million
square feet and were 95% leased at July 31, 1997.
MART's primary objectives are to increase FFO per Share and to maximize
shareholder value. To achieve its objectives, MART seeks to operate its
Properties for long-term FFO growth. MART also seeks to acquire, develop and
redevelop anchored neighborhood or community shopping centers in the Middle
Atlantic region that provide daily necessities, consumer products or
value-oriented merchandise through tenants such as supermarkets, drugstores,
discount retailers, restaurants and vendors of consumer goods and services.
MART was formed as a Maryland real estate investment trust in June, 1993.
Its principal executive offices are located at 170 W. Ridgely Road, Suite 300,
Lutherville, Maryland 21093, and its telephone number is (410) 684-2000.
RECENT DEVELOPMENTS
PORTFOLIO ACQUISITION. Effective July 1, 1997, MART acquired a portfolio of
nine shopping centers and one medical office building in the Baltimore
metropolitan area from the Pechter Group. The following Acquired Properties
total approximately 1.06 million gross leasable square feet: Enchanted Forest
Shopping Center; Shawan Plaza Shopping Center; Glen Burnie Village Shopping
Center; Ingleside Shopping Center; Radcliffe Shopping Center at Towson; Timonium
Shopping Center; Timonium Crossing Shopping Center; Club Centre at Pikesville;
Perry Hall Shopping Center; and Orchard Square Medical Office. The consideration
for the Acquired Properties was the issuance by the Operating Partnership of
3,175,770 Units and the assumption of mortgage indebtedness of approximately
$84,000,000. At closing, Jack H. Pechter was elected Deputy Chairman and a
Trustee of MART.
DEVELOPMENT PROJECTS. MART has the following projects under development: a
284,000 square foot redevelopment and expansion of the Lutherville Station
Shopping Center located in Lutherville, Maryland, which includes construction of
a new Metro food store, expansion of Caldor, relocation and expansion of
Loehmann's and leasing of 50,000 square feet to the State of Maryland and to
MART as corporate offices. MART has begun construction of a new, approximately
75,000 square foot, shopping center located in North East, Maryland, anchored by
a Food Lion grocery store and a Happy Harry's discount drug store. The
redevelopment of the Columbia Plaza Shopping Center located in East Greenbush,
New York encompasses the expansion of the Price Chopper supermarket by 15,000
square feet to a 65,000 square foot store. Price Chopper has entered into a new
20-year lease. A letter of intent has been signed for the expansion of the
Safeway store in the Burke Town Shopping Center located in Burke, Virginia,
which will increase the size of the store from 33,000 to 55,000 square feet, and
for a new 20-year lease. The estimated total cost of these projects to MART is
approximately $22,500,000.
FORMATION OF UPREIT. At the closing of the acquisition of the Acquired
Properties, MART formed the Operating Partnership and assigned to the Operating
Partnership its interest in the Properties. As a result of this transaction,
MART converted into an "umbrella partnership real estate investment trust" or
"UPREIT" structure, which will permit MART to use Units as consideration in
property acquisitions, thereby providing certain tax deferral benefits to
sellers.
MART, as sole general partner of the Operating Partnership, has the
exclusive power to manage and conduct the business of the Operating Partnership,
subject to certain exceptions (including the lock-out provisions described
below). MART owns an approximate 72% interest in the Operating Partnership.
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MART anticipates that the Operating Partnership will acquire additional
properties in exchange for Units, in which case persons that own such properties
will become limited partners of the Operating Partnership.
The Partnership Agreement of the Operating Partnership (the "Partnership
Agreement") provides that limited partners may have their Units redeemed for
cash beginning two years after issuance of the Units. In connection with the
acquisition of the Acquired Properties, the members of the Pechter Group were
given the right to redeem their Units at anytime after one year following the
closing of the acquisition. Redemptions are subject to certain limitations in
the Partnership Agreement and compliance with the ownership limits under MART's
organizational documents. At its option, MART may assume the payment obligation
at any time and pay it in cash or, in its discretion, may substitute Shares of
MART in redemption of the Units on a one-for-one basis. MART has granted
registration rights to the Pechter Group pursuant to which MART will register
Shares acquired by the Pechter Group upon redemption of Units.
The agreement relating to the acquisition of the Acquired Properties
contains "lock-out provisions" pursuant to which MART may not sell the Acquired
Properties for seven years or prepay certain amounts of debt for specified
properties (except for normal amortizations and certain events including
transactions that would not result in the recognition of any gain for tax
purposes). The lock-out provisions may materially restrict MART from selling or
otherwise disposing of, or repaying all of the debt on, such Acquired
Properties.
MART also anticipates that, in connection with future acquisitions of
properties in exchange for Units, MART may agree to limitations on the Operating
Partnership's ability to sell, exchange for Units or reduce the amount of
mortgage indebtedness on such acquired properties, which may increase MART's
leverage. Such limitations may impair MART's ability to take certain actions
and, therefore, may have an adverse impact on the value of the Shares relative
to the value that could result if such limitations did not exist.
SALE OF GATEWAY. In furtherance of its strategy to concentrate its
investments on anchored neighborhood or community shopping centers, MART sold
its Gateway property on September 15, 1997. This class A office property with
gross leasable area of approximately 203,000 square feet was sold for
$22,584,070, generating a gain on the sale of approximately $700,000. The net
proceeds from the sale of approximately $21,400,000 were used to pay down the
existing line of credit.
INCREASED UNSECURED LINE OF CREDIT. MART currently has a $40,000,000
secured line of credit. In September 1997, MART reached agreement in principle
with its primary bank, The First National Bank of Maryland, for an increase in
its line of credit from $40,000,000 to $75,000,000. The proposed new credit
facility would be unsecured. The new credit facility is subject to the
completion of this offering and agreement on all other terms. It is anticipated
that the proceeds of the credit facility will be used for short-term operating
needs, letters of credit, and interim financing of property acquisitions and
development.
BUSINESS STRATEGIES
MART's primary objectives are to increase long-term FFO per Share and to
maximize shareholder value. To achieve its objectives, MART utilizes the
following strategies:
OPERATING STRATEGIES. MART operates its Properties for long-term FFO growth
by (i) proactively leasing and managing the Properties to maintain occcupancy
and rental rates at high levels, (ii) continuously monitoring tenant performance
and retenanting when appropriate, (iii) maintaining strict expense controls,
(iv) optimizing tenant mix, and (v) maintaining safe, clean and well lit
environments for the shopping centers' customers.
ACQUISITIONS. MART's acquisition activities focus on neighborhood or
community shopping centers that contain dominant anchor tenants or that contain
a mix of tenants which reflect the shopping needs of
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<PAGE>
the communities they serve. These shopping centers typically provide daily
necessities, consumer products or value-oriented merchandise through tenants
such as supermarkets, drug stores, discount retailers, restaurants and vendors
of consumer goods and services. Management believes that shopping centers of
this type, relying upon repeat weekly visits by consumers, are less vulnerable
to shifts in traffic patterns and population and less affected by the impact of
economic recessions than other shopping centers. MART also acquires for
redevelopment, neighborhood or community shopping centers that could benefit
from renovation or expansion, that suffer from lack of proper management, or
that are in need of financial assistance. MART believes that its experience and
financial strength can increase cash flows and improve values at these types of
properties. MART's focus on neighborhood or community shopping centers in the
Middle Atlantic region enables it to capitalize on the benefits provided by
concentration of ownership and local knowledge and expertise.
DEVELOPMENT AND REDEVELOPMENT. MART develops and redevelops shopping
centers on a tenant-driven basis, leveraging either existing tenant
relationships or geographic and demographic knowledge. MART seeks to avoid
long-term land development projects in an effort to minimize exposure to risk.
Development is restricted to projects where the tenants mirror the
characteristics of MART's existing portfolio of preferred tenant mix. An
essential element in MART's redevelopment policy is to evaluate tenants to
ensure that they are, or will be, either in the appropriately sized retail space
or in a format which maximizes the tenant's sales.
FINANCING. MART seeks to execute its operating and growth strategies by
utilizing a selective blend of resources, including internally generated funds,
such as FFO over and above required dividend distributions; normal recurring
mortgage principal paydowns and non-revenue generating capital expenditures; the
issuance of Units for property acquisitions; utilizing proceeds from
divestitures, bank or other institutional borrowings; and issuance of corporate
equity or debt securities, as appropriate. As part of this strategy, MART has
reached agreement in principle with its primary lender to change its existing
$40,000,000 secured line of credit to a $75,000,000 unsecured line, subject to
completion of this offering and agreement on the terms. MART's policy is to
limit the ratio of secured debt to the fair market value of its properties to at
or below 50%.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and operating
information for MART. The information was derived from the Company's
consolidated financial statements, which are incorporated by reference in the
accompanying Prospectus. The following selected financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for MART and the consolidated financial
statements incorporated by reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA HISTORICAL AS OF OR FOR
AS OF OR FOR THE AS OF OR FOR THE THE
SIX MONTHS(4) SIX MONTHS YEAR ENDED(4) HISTORICAL AS OF OR FOR THE
(IN THOUSANDS, EXCEPT PER SHARE DATA) ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31, YEARS ENDED DECEMBER 31,
-------------------- -------------------- -------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996(5) 1997 1996(5) 1996 1996(5) 1995(5) 1994(5)
--------- --------- --------- --------- -------------- --------- --------- ---------
OPERATING DATA:
Revenues:
Rentals............................ $ 18,381 $ 16,961 $ 13,761 $ 12,907 $ 34,529 $ 26,562 $ 23,914 $ 21,890
Tenant recoveries.................. 3,369 3,142 2,489 2,356 6,709 5,135 4,652 4,446
Other.............................. 129 473 147 497 683 709 1,027 877
--------- --------- --------- --------- -------------- --------- --------- ---------
21,879 20,576 16,397 15,760 41,921 32,406 29,593 27,213
--------- --------- --------- --------- -------------- --------- --------- ---------
Costs and expenses:
Interest........................... 8,159 8,998 5,363 6,298 17,850 12,354 11,928 10,876
Depreciation and amortization of
property and improvements........ 3,549 3,496 2,749 2,671 7,067 5,414 4,983 4,550
Operating.......................... 4,742 4,737 4,223 4,228 9,704 8,818 7,740 7,782
General and administrative......... 1,212 1,023 1,135 975 2,470 2,098 1,780 1,751
--------- --------- --------- --------- -------------- --------- --------- ---------
17,662 18,254 13,470 14,172 37,091 28,684 26,431 24,959
--------- --------- --------- --------- -------------- --------- --------- ---------
EARNINGS FROM OPERATIONS BEFORE
MINORITY INTEREST.................. 4,217 2,322 2,927 1,588 4,830 3,722 3,162 2,254
Minority interest expense............ (1,276) (919) (137) (377) (1,719) (514) (718) (541)
--------- --------- --------- --------- -------------- --------- --------- ---------
EARNINGS FROM OPERATIONS............. 2,941 1,403 2,790 1,211 3,111 3,208 2,444 1,713
Gain on life insurance proceeds...... -- -- -- -- -- -- 1,001 --
Gain (loss) on properties............ 791 1,400 91 700 1,001 301 (280) 1,203
--------- --------- --------- --------- -------------- --------- --------- ---------
EARNINGS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE..... 3,732 2,803 2,881 1,911 4,112 3,509 3,165 2,916
Cumulative effect of change in
accounting for percentage rents.... -- -- -- -- -- -- 612 --
--------- --------- --------- --------- -------------- --------- --------- ---------
NET EARNINGS......................... $ 3,732 $ 2,803 $ 2,881 $ 1,911 $ 4,112 $ 3,509 $ 3,777 $ 2,916
--------- --------- --------- --------- -------------- --------- --------- ---------
--------- --------- --------- --------- -------------- --------- --------- ---------
BALANCE SHEET DATA:
Operating properties................. $ 292,904 $ 292,830 $ 196,781 $ 195,900 $ 297,328 $ 200,563 $ 204,132 $ 176,512
Accumulated depreciation............. (38,874) (35,823) (44,246) (40,377) (37,746) (42,702) (39,430) (36,449)
--------- --------- --------- --------- -------------- --------- --------- ---------
254,030 257,007 152,535 155,523 259,582 157,861 164,702 140,063
Development operations............... 8,509 1,808 8,638 1,933 2,676 2,867 1,511 6,355
Property held for development or
sale............................... 5,543 5,881 6,753 7,091 5,618 6,828 8,179 8,630
--------- --------- --------- --------- -------------- --------- --------- ---------
Total properties............... 268,082 264,696 167,926 164,547 267,876 167,556 174,392 155,048
Cash................................. 1,904 332 2,564 992 354 1,014 514 345
Other assets......................... 3,234 6,933 2,683 6,390 5,086 4,708 7,615 7,450
--------- --------- --------- --------- -------------- --------- --------- ---------
Total assets................... $ 273,220 $ 271,961 $ 173,173 $ 171,929 $ 273,316 $ 173,278 $ 182,521 $ 162,843
--------- --------- --------- --------- -------------- --------- --------- ---------
--------- --------- --------- --------- -------------- --------- --------- ---------
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA HISTORICAL AS OF OR FOR
AS OF OR FOR THE AS OF OR FOR THE THE
SIX MONTHS(4) SIX MONTHS YEAR ENDED(4) HISTORICAL AS OF OR FOR THE
(IN THOUSANDS, EXCEPT PER SHARE DATA) ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31, YEARS ENDED DECEMBER 31,
-------------------- -------------------- -------------- -------------------------------
1997 1996(5) 1997 1996(5) 1996 1996(5) 1995(5) 1994(5)
--------- --------- --------- --------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (CONTINUED)
Notes payable........................ $ -- $ -- $ 16,000 $ 10,000 $ -- $ 16,400 $ 21,530 $ 20,140
Construction loan payable............ 2,829 -- 2,829 -- -- -- 10,100 --
Mortgages payable.................... 148,308 148,036 69,785 75,513 149,133 70,210 62,411 53,251
Convertible subordinated
debentures......................... 36,186 59,263 36,186 59,263 47,195 47,195 59,980 60,000
Other liabilities.................... 5,767 5,394 5,008 4,650 6,253 5,503 5,827 4,265
--------- --------- --------- --------- -------------- --------- --------- ---------
Total liabilities.............. 193,090 212,693 129,808 149,426 202,581 139,308 159,848 137,656
Minority interest.................... 38,796 37,892 2,731 1,827 39,224 3,159 1,735 331
Shareholders' equity................. 41,334 21,376 40,634 20,676 31,511 30,811 20,938 24,856
--------- --------- --------- --------- -------------- --------- --------- ---------
Total liabilities and
shareholders' equity......... $ 273,220 $ 271,961 $ 173,173 $ 171,929 $ 273,316 $ 173,278 $ 182,521 $ 162,843
--------- --------- --------- --------- -------------- --------- --------- ---------
--------- --------- --------- --------- -------------- --------- --------- ---------
OTHER FINANCIAL DATA:
Dividends per share.................. --(3) --(3) $ 0.48 $ 0.46 --(3) $ 0.93 $ 0.89 $ 0.85
Funds from operations (FFO): (1)
- primary.......................... $ 6,490 $ 4,899 $ 5,539 $ 3,882 $ 10,178 $ 8,622 $ 7,427 $ 6,263
- fully diluted (2)................ $ 9,238 $ 7,864 $ 7,148 $ 6,305 $ 15,939 $ 13,178 $ 12,307 $ 11,173
Weighted average number of shares
outstanding:
- primary.......................... 7,818 6,037 7,818 6,037 6,216 6,216 6,177 6,291
- fully diluted (2)................ 14,868 14,793 11,756 11,681 14,868 11,756 11,889 12,005
SELECTED CASH FLOW DATA:
Net cash flow:
provided by operating activities... --(3) --(3) $ 6,653 $ 4,294 --(3) $ 9,342 $ 10,612 $ 7,232
(used in) provided by investing
activities....................... --(3) --(3) $ (3,593) $ 7,517 --(3) $ 4,232 $ (23,584) $ (19,630)
(used in) provided by financing
activities....................... --(3) --(3) $ (1,510) $ (11,333) --(3) $ (13,074) $ (13,142) $ 12,055
RECONCILIATION OF NET EARNINGS TO
FFO-PRIMARY:
Net earnings......................... $ 3,732 $ 2,803 $ 2,881 $ 1,911 $ 4,112 $ 3,509 $ 3,777 $ 2,916
Less: Nonrecurring items........... -- -- -- -- -- -- (1,613) --
Add: Depreciation & amortization... 3,549 3,496 2,749 2,671 7,067 5,414 4,983 4,550
Less: (Gain) loss on properties.... (791) (1,400) (91) (700) (1,001) (301) 280 (1,203)
--------- --------- --------- --------- -------------- --------- --------- ---------
FFO - primary........................ $ 6,490 $ 4,899 $ 5,539 $ 3,882 $ 10,178 $ 8,622 $ 7,427 $ 6,263
--------- --------- --------- --------- -------------- --------- --------- ---------
--------- --------- --------- --------- -------------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Funds from operations (FFO), as defined by the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT"), means net income (computed in
accordance with generally accepted accounting principles ("GAAP")) excluding
cumulative effects of changes in accounting principles, extraordinary or
unusual items, and gains or losses from debt restructuring and sales of
property, plus depreciation of real property (including furniture and
equipment) and amortization, and after adjustments for unconsolidated
partnership and joint ventures. MART believes FFO is helpful to investors as
a measure of the performance of an equity REIT. MART computes FFO in
accordance with standards established by the White Paper on Funds from
Operations approved by the NAREIT Board of Governors. FFO should not be
considered as an alternative to net earnings (computed in accordance with
GAAP) as an indication of MART's financial performance or to cash flows from
operating activities (computed in accordance with GAAP) as a measure of
MART's liquidity, nor is it indicative of funds available to fund MART's
cash needs, including its ability to make distributions. FFO does not
represent cash flows from operations as defined by GAAP. The presentation of
FFO is not normally included in financial statements prepared in accordance
with GAAP.
(2) FFO is presented on a fully diluted basis, which adds back Debenture
interest expense to FFO on a primary basis. The fully diluted weighted
average number of Shares consists of the primary weighted average number of
Shares plus the number of Shares issuable upon conversion of the Debentures.
(3) Dividends and net cash flows cannot be reasonably estimated on a pro forma
basis.
(4) The pro forma operating data assumes that the acquisition of Acquired
Properties and the sale of Gateway occurred at the beginning of each period.
The pro forma revenues and earnings are not necessarily indicative of the
results that would have occurred if the acquisition and sale had been
consummated at the beginning of each period or of future results of
operations.
(5) Certain amounts for prior periods have been reclassified to conform to the
1997 presentation.
S-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the results of operations for the six
month period ended June 30, 1997, with the results for the six month period
ended June 30, 1996, and should be read in conjunction with the "Selected
Consolidated Financial Data" and MART's historical consolidated financial
statements and the notes thereto, which are incorporated by reference in the
accompanying Prospectus.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996
Rental revenues increased by $854,000 or 7% to $13,761,000 for the six
months ended June 30, 1997 from $12,907,000 for the six months ended June 30,
1996. Owings Mills New Town shopping center and the redevelopment of Harford
Mall Annex and York Road Plaza contributed $700,000 in additional revenues for
the period. Occupancy and rental increases contributed approximately $404,000.
The increases were partly offset by $151,000 in rental revenue decreases
attributable to the sales in January, 1996 of the Dolton bowling center and the
Park Sedona shopping center, the sale in May, 1996 of the Dobson-Guadalupe
shopping center, the sale in September, 1996 of the Chandler shopping center,
the sale in March, 1997 of the Union Hills shopping center and the sale in May,
1997 of the Plaza Del Rio shopping center. In addition, $99,000 in rental
decreases were primarily related to vacancies and lower percentage rents.
Tenant recovery revenues increased by $133,000 to $2,489,000 from
$2,356,000. The increased tenant recoveries were primarily due to occupancy
increases from the redevelopment of Harford Mall Annex and York Road Plaza and
higher tenant reserves in 1996.
Other revenues decreased by $350,000 to $147,000 from $497,000 primarily due
to lower interest income on partner notes receivable exchanged in July, 1996 for
additional partnership interests in several properties.
As a result of the above changes, total revenues increased by $637,000 to
$16,397,000 from $15,760,000.
Interest expense decreased by $936,000 to $5,362,000 from $6,298,000
primarily due to the conversion of debentures, $813,000, and lower interest
rates on loans for Columbia and Colonie shopping centers.
Depreciation and amortization increased by $78,000 to $2,749,000 from
$2,671,000 primarily due to depreciation related to the redevelopment of the
Harford Mall Annex.
Operating expenses decreased by $5,000 to $4,223,000 from $4,228,000
primarily due to reduced operating expenses related to property sales partly
offset by increased operating expenses for the redevelopment projects of Harford
Mall Annex and York Road Plaza.
General and administrative expenses increased by $160,000 to $1,135,000 from
$975,000 due primarily to increased incentive compensation.
Minority interest expense decreased by $238,000 to $138,000 from $376,000
due primarily to the acquisition of minority partnership interests in 1996.
For the six months ended June 30, 1997, earnings from operations increased
by $1,578,000 to $2,790,000 from $1,212,000. MART also recognized a gain on
properties of $91,000, (net of minority interest of $75,000). The gain on
properties, when combined with earnings from operations, resulted in net
earnings of $2,881,000 for the period. For the six months ended June 30, 1996,
MART had a gain on properties of $699,000, which when combined with earnings
from operations, resulted in net earnings of $1,911,000 for the period.
S-14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities was $6,653,000 and $4,294,000
in the six months ended 1997 and 1996, respectively. The change in cash provided
by operating activities was due primarily to the factors discussed above in the
comparison of operating results. The level of net cash provided by operating
activities is also affected by the timing of receipt of revenues and the payment
of operating and interest expenses.
Net cash flow from investing activities decreased by $11,110,000, to a net
cash flow used in investing activities of $3,593,000 in 1997 from a net cash
flow provided by investing activities of $7,517,000 in 1996. The decrease was
primarily a result of increased levels of acquisitions and additions to
properties in 1997 (primarily due to the Lutherville Station Shopping Center
redevelopment project) and a decrease in proceeds from sales of properties.
Net cash flow used in financing activities decreased by $9,823,000, to
$1,510,000 in 1997 from $11,333,000 in 1996. The decrease was primarily a result
of higher levels of net principal paydowns in 1996 of $10,532,000, partly offset
by an increase in dividends paid of $964,000 in 1997.
In order to qualify as a REIT for Federal income tax purposes, MART is
required to pay dividends to its shareholders of at least 95% of its REIT
taxable income. MART intends to pay these dividends from operating cash flows.
While MART intends to distribute to its shareholders a substantial portion of
its cash flows from operating activities, MART also intends to retain or reserve
such amounts as it considers necessary from time to time for the acquisition or
development of new properties as suitable opportunities arise and for the
expansion and renovation of its shopping centers. Also, MART currently has a
line of credit of at least $40,000,000 from a commercial bank. In September
1997, MART reached agreement in principle with its primary bank for an increase
in its line of credit to $75,000,000. The projected new credit facility would be
unsecured. The new credit facility is subject to completion of this offering and
agreement on other terms.
MART anticipates material commitments for capital expenditures to include,
in the next two years, the development or redevelopment of four projects at an
estimated cost of $22,500,000. MART expects to fund the development or
redevelopment of projects and other capital expenditures with available net cash
flows from operating activities and if necessary with construction loan
financing, long term mortgage financing on unencumbered operating properties or
the use of its line of credit.
It is management's intention that MART continually have access to the
capital resources necessary to expand and develop its business. Management
cannot practically quantify MART's 1997 and 1998 cash requirements, but expects
to meet its short-term liquidity requirements generally through available net
cash flow provided by operations and short-term borrowings. To meet its
long-term liquidity requirements, MART intends to obtain funds through
additional equity offerings or long-term debt financing in a manner consistent
with its intention to operate with a conservative debt capitalization policy.
MART anticipates that the cash flow available from operations, together with
cash from borrowings and equity offerings, will be sufficient to meet the
capital and liquidity needs in both the short and long term.
S-15
<PAGE>
THE PROPERTIES
GENERAL
MART owns and operates 26 neighborhood or community shopping centers, one
enclosed regional mall and five additional retail and commercial properties.
MART also owns seven undeveloped parcels of land aggregating approximately 140
acres. The Properties have a gross leasable area of approximately 3.9 million
square feet and were 95% leased at July 31, 1997.
The neighborhood or community shopping centers are designed to attract local
area customers and typically provide daily necessities, consumer products or
value-oriented merchandise through tenants such as supermarkets, drugstores,
discount retailers, restaurants and vendors of consumer goods and services.
Anchors of MART's centers include Giant Food, Safeway, Price Chopper, ShopRite,
CVS Drug, Rite Aid Drug, RichFood, Valu Food, Kmart, Wal-Mart, and Toys "R" Us.
Management believes that shopping centers of this type, relying upon repeat
weekly visits by consumers, are less vulnerable to shifts in traffic patterns
and population and less affected by the impact of economic recessions than other
shopping centers.
MART believes that the Middle Atlantic region of the United States,
particularly the Baltimore-Washington standard metropolitan statistical area
(SMSA), offers a relatively stable and strong economy due to its location along
the Interstate 95 corridor, which links the major population and job centers of
the east coast of the United States. Management believes that MART's Properties
are located in strong retail markets with good investment potential.
At July 31, 1997, national and regional tenants which occupied approximately
76% of gross leasable area, generated base rentals which comprise approximately
70% of total base rentals. In most cases, tenants are responsible for either
their proportionate share of property operating expenses or increases in
property operating expenses over the base year of occupancy. The Properties are
all adequately covered by insurance.
As of July 31, 1997, MART's undeveloped land in Maryland and North Carolina
totalled approximately 140 acres zoned for commercial use. One parcel is owned
by a partnership of which MART owns a 67% interest. These properties are
unencumbered and are expected to be sold or exchanged for appropriate real
estate investments or developed as shopping centers in accordance with MART's
investment strategy.
S-16
<PAGE>
The following table describes MART's Properties as of July 31, 1997:
<TABLE>
<CAPTION>
AVERAGE
GROSS TOTAL MINIMUM
YEAR(S) LEASABLE ANNUALIZED RENT PER
PERCENT YEAR BUILT/ AREA MINIMUM LEASED PERCENT
OWNERSHIP ACQUIRED REDEVELOPED (SQ. FT.) RENT SQ. FT. LEASED
--------------- ----------- -------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTER PROPERTIES
MARYLAND:
BALTIMORE METROPOLITAN AREA:
Harford Mall and Business
Center......................... 100% 1972* 1972/1984-96 615,000 $4,317,800 $ 7.17 98%
Lutherville Station Shopping
Center(1)...................... 100 1993 1969/1997 284,000 1,381,100 6.18 100
Timonium Shopping Center......... 100 1997 1962/- 207,000 1,760,200 9.49 90
Perry Hall Shopping Center....... 100 1997 1965/1996 195,000 1,239,300 6.77 94
Enchanted Forest Shopping
Center......................... 100 1997 1992/- 140,000 2,091,400 15.86 94
Wilkens Beltway Plaza Shopping
Center......................... 93 1981* 1985-87/ 132,000 1,810,200 13.90 98
1991/1995
New Town Village Shopping
Center......................... 100 1995* 1995/- 118,000 1,986,300 17.23 98
Ingleside Shopping Center........ 100 1997 1963/1996 115,000 1,547,500 13.54 99
Shawan Plaza Shopping Center..... 100 1997 1991/- 95,000 1,607,800 16.94 100
Glen Burnie Village Shopping
Center......................... 100 1997 1972/- 94,000 865,000 10.16 90
York Road Plaza Shopping Center.. 100 1967* 1967/1996 91,000 1,264,600 14.07 99
Radcliffe Shopping Center at
Towson......................... 100 1997 1988/1993 86,000 1,797,600 20.83 100
Rosedale Plaza Shopping Center... 100 1989 1972/- 73,000 399,500 6.77 81
Patriots Plaza Shopping
Center(1)...................... 50 1984* 1984/- 67,000 354,000 9.92 53
Rolling Road Plaza Shopping
Center......................... 100 1973* 1973/1994 63,000 391,600 6.80 92
Timonium Crossing Shopping
Center......................... 100 1997 1986/1996 60,000 894,600 16.85 89
Club Centre at Pikesville
Shopping Center................ 100 1997 1990/- 44,000 669,600 16.53 92
EASTON:
Shoppes at Easton Shopping
Center......................... 100 1994 1994/- 113,000 1,310,500 11.90 97
DELAWARE:
WILMINGTON:
Brandywine Commons Shopping
Center(1)...................... 100 1995 1992/- 164,000 1,819,400 11.09 100
NEW YORK:
COLONIE:
Colonie Plaza Shopping Center.... 100 1987* 1987/- 140,000 1,034,300 7.61 97
EAST GREENBUSH:
Columbia Plaza Shopping Center... 100 1988* 1988/1997 117,000 858,800 7.83 94
VIRGINIA:
BURKE:
Burke Town Plaza Shopping
Center(1)...................... 100 1979* 1979-1982/1997 116,000 1,283,700 11.24 99
FREDERICKSBURG:
Spotsylvania Crossing Shopping
Center......................... 93 1987* 1987/1991 142,000 1,206,100 8.65 98
HARRISONBURG:
Skyline Village Shopping
Center......................... 100 1988* 1988/1992 127,000 876,200 7.16 97
MANASSAS:
Sudley Towne Plaza Shopping
Center......................... 100 1984* 1984/- 108,000 696,200 6.46 100
PRINCE WILLIAM COUNTY:
Smoketown Plaza Shopping Center.. 93 1987* 1987/1994 176,000 1,428.700 8.12 100
ARIZONA:
PAGE:
Gateway Park Shopping Center..... 100 1991 1991/- 82,000 497,000 7.94 77
<CAPTION>
MAJOR TENANTS
---------------------------------
<S> <C>
MARYLAND:
BALTIMORE METROPOLITAN AREA:
Harford Mall and Business
Center......................... Hecht's, Montgomery Ward, Best
Buy
Lutherville Station Shopping
Center(1)...................... Metro Food Market, Caldor,
Circuit City
Timonium Shopping Center......... Ames, Sony Theatres, Blockbuster
Perry Hall Shopping Center....... Metro Food Market (on own pad),
Rite Aid, Frank's Nursery &
Crafts, Outback Steakhouse,
Radio Shack
Enchanted Forest Shopping
Center......................... Safeway, Petco
Wilkens Beltway Plaza Shopping
Center......................... Giant Food, Provident Bank, Radio
Shack
New Town Village Shopping
Center......................... Giant Food, Blockbuster,
Starbucks
Ingleside Shopping Center........ Safeway, Rite Aid, First National
Bank, Blockbuster
Shawan Plaza Shopping Center..... Giant Food, Nationsbank,
Provident Bank
Glen Burnie Village Shopping
Center......................... Rite Aid, Firestone, First
National Bank, West Marine
York Road Plaza Shopping Center.. Giant Food, Firestone, Starbucks,
Boston Market, Bruegger's
Radcliffe Shopping Center at
Towson......................... CVS Drug, CompUSA, Linens N'
Things
Rosedale Plaza Shopping Center... Valu Food, Rite Aid
Patriots Plaza Shopping
Center(1)...................... Denny's, Dunkin Donuts'
Rolling Road Plaza Shopping
Center......................... AMF, Firestone
Timonium Crossing Shopping
Center......................... Bibelot, Cosmetic Center
Club Centre at Pikesville
Shopping Center................ Blockbuster
EASTON:
Shoppes at Easton Shopping
Center......................... Giant Food, Wal-Mart (on own pad)
DELAWARE:
WILMINGTON:
Brandywine Commons Shopping
Center(1)...................... ShopRite, Computer City, Sports
Authority
NEW YORK:
COLONIE:
Colonie Plaza Shopping Center.... Price Chopper, Pharmhouse
EAST GREENBUSH:
Columbia Plaza Shopping Center... Price Chopper, Ben Franklin
VIRGINIA:
BURKE:
Burke Town Plaza Shopping
Center(1)...................... Safeway, CVS Drug
FREDERICKSBURG:
Spotsylvania Crossing Shopping
Center......................... Giant Food (on own pad), Kmart,
CVS Drug
HARRISONBURG:
Skyline Village Shopping
Center......................... Richfood, Toys "R" Us
MANASSAS:
Sudley Towne Plaza Shopping
Center......................... Burlington Coat Factory
PRINCE WILLIAM COUNTY:
Smoketown Plaza Shopping Center.. Hub Furniture, Frank's Nursery &
Crafts
ARIZONA:
PAGE:
Gateway Park Shopping Center..... Bashas' Grocery and Drug Store,
Wal-Mart (on own pad)
</TABLE>
- ----------------------------------
* Developed by MART or its predecessor.
S-17
<PAGE>
<TABLE>
<CAPTION>
AVERAGE
GROSS TOTAL MINIMUM
YEAR(S) LEASABLE ANNUALIZED RENT PER
PERCENT YEAR BUILT/ AREA MINIMUM LEASED PERCENT
OWNERSHIP ACQUIRED REDEVELOPED (SQ. FT.) RENT SQ. FT. LEASED
--------------- ----------- -------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
MAJOR TENANTS
---------------------------------
<S> <C>
</TABLE>
OTHER RETAIL AND COMMERCIAL PROPERTIES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
MARYLAND:
BALTIMORE METROPOLITAN AREA:
Orchard Square Medical Office.... 100% 1997 1988/- 28,000 $ 430,100 $ 16.42 94%
Southwest Mixed Use Property..... 100 1968* 1968/1984 25,000 139,600 5.63 100
OTHER:
Waldorf Property................. 100 1979* 1979/- 31,000 106,000 3.46 100
Clinton Property(1).............. 100 1971* 1971/- 29,000 92,600 3.20 100
ILLINOIS:
Chicago Property................. 100 1978 1963/- 37,000 108,100 2.91 100
<CAPTION>
MARYLAND:
BALTIMORE METROPOLITAN AREA:
Orchard Square Medical Office.... NA
Southwest Mixed Use Property..... Shell Oil, Carrier/Otis, Potomac
Air Gas
OTHER:
Waldorf Property................. AMF, Firestone
Clinton Property(1).............. AMF, Suburban Bank
ILLINOIS:
Chicago Property................. AMF
</TABLE>
UNDEVELOPED LAND
<TABLE>
<CAPTION>
PERCENT AREA IN
OWNERSHIP ACRES
--------------- -----------
<S> <C> <C>
MARYLAND:
BALTIMORE METROPOLITAN AREA:
Dorsey Property................................................................................... 100% 19.4
Harford Property (Adjacent to Harford Mall)....................................................... 100 3.0
Pulaski Property.................................................................................. 100 3.0
NORTH EAST:
North East Property............................................................................... 100 41.0
SALISBURY:
Northwood Industrial Park......................................................................... 67 24.5
NORTH CAROLINA:
BURLINGTON:
Burlington Commerce Park.......................................................................... 100 41.0
HILLSBOROUGH:
Hillsborough Crossing............................................................................. 100 8.0
<CAPTION>
ZONING
---------------------
<S> <C>
MARYLAND:
BALTIMORE METROPOLITAN AREA:
Dorsey Property................................................................................... Commercial
Harford Property (Adjacent to Harford Mall)....................................................... Light Industrial
Pulaski Property.................................................................................. Industrial
NORTH EAST:
North East Property............................................................................... Commercial/Residential
SALISBURY:
Northwood Industrial Park......................................................................... Industrial
NORTH CAROLINA:
BURLINGTON:
Burlington Commerce Park.......................................................................... Commercial
HILLSBOROUGH:
Hillsborough Crossing............................................................................. Commercial
</TABLE>
- ------------------------
(1) These properties are subject to ground leases; all of the land relating to
the other properties listed above is owned in fee simple. The ground leases
are subject to the following terms:
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY ANNUAL RENT
- ------------------------------------------------------------- ------------
<S> <C> <C>
Lutherville Station Shopping Center........................ $ 60,000
Patriots Plaza Shopping Center............................. 59,700
Brandywine Commons Shopping Center......................... 392,600
Burke Town Plaza Shopping Center........................... 80,000
Clinton Property........................................... 33,000
<CAPTION>
PROPERTY REMAINING LEASE TERM
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
Lutherville Station Shopping Center........................ 19 years plus six 10 year options.
Patriots Plaza Shopping Center............................. 10 years plus two 10 year options.
Brandywine Commons Shopping Center......................... 55 years plus two 10 year options.
Burke Town Plaza Shopping Center........................... 34 years plus three 15 year renewal options.
Clinton Property........................................... 29 years plus one 45 year renewal option.
</TABLE>
S-18
<PAGE>
LEASE EXPIRATIONS. The following tables show lease expirations at the
Properties for anchor and non-anchor tenants as of July 31, 1997, assuming that
none of the tenants exercise their renewal options:
ANCHOR TENANTS(1)
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT OF TOTAL AVERAGE
APPROXIMATE LEASABLE SQUARE APPROXIMATE ANNUAL BASE RENT
LEASE NUMBER EXPIRING FOOTAGE (7/31/97) ANNUALIZED BASE PER SQUARE FOOT
EXPIRATION OF LEASES LEASED AREA IN REPRESENTED BY RENT UNDER UNDER EXPIRING
YEAR EXPIRING SQUARE FEET EXPIRING LEASES EXPIRING LEASES LEASES
----------- ------------- -------------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
1997................. 2 87,300 2.3% $ 208,300 $ 2.39
1998................. 1 24,000 0.7 70,200 2.93
1999................. 4 67,500 1.8 480,200 7.11
2000................. 1 40,500 1.1 63,800 1.58
2001................. 5 103,300 2.8 442,000 4.28
2002................. 6 258,100 6.9 554,400 2.15
2003................. 4 232,000 6.2 487,800 2.10
2004................. -- -- -- -- --
2005................. 3 51,300 1.4 462,500 9.02
2006................. 3 79,400 2.1 811,400 10.22
Thereafter............. 29 1,420,900 38.0 12,505,100 8.80
--
-------------- --- --------------- -----
TOTAL.............. 58 2,364,300 63.3% $ 16,085,700 $ 6.80
--
--
-------------- --- --------------- -----
-------------- --- --------------- -----
<CAPTION>
PERCENT OF TOTAL
ANNUALIZED BASE
LEASE RENT REPRESENTED
EXPIRATION BY EXPIRING
YEAR LEASES
----------- -------------------
<S> <C>
1997................. 0.6%
1998................. 0.2
1999................. 1.3
2000................. 0.2
2001................. 1.2
2002................. 1.5
2003................. 1.4
2004................. --
2005................. 1.3
2006................. 2.2
Thereafter............. 34.5
---
TOTAL.............. 44.4%
---
---
</TABLE>
- ------------------------
(1) Management defines anchor tenants as supermarkets, drug stores, national
retailers or department store type tenants typically having a gross leasable
area exceeding 10,000 square feet or, in management's opinion, having
qualities necessary to be considered an anchor.
NON-ANCHOR TENANTS
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT OF TOTAL AVERAGE PERCENT OF TOTAL
APPROXIMATE LEASABLE SQUARE APPROXIMATE ANNUAL BASE RENT ANNUALIZED BASE
LEASE NUMBER EXPIRING FOOTAGE (7/31/97) ANNUALIZED BASE PER SQUARE FOOT RENT REPRESENTED
EXPIRATION OF LEASES LEASED AREA IN REPRESENTED BY RENT UNDER UNDER EXPIRING BY EXPIRING
YEAR EXPIRING SQUARE FEET EXPIRING LEASES EXPIRING LEASES LEASES LEASES
----------- ------------- -------------- ------------------- --------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
1997................. 77 151,900 4.1% $ 1,575,500 $ 10.37 4.3%
1998................. 85 237,100 6.3 3,108,800 13.11 8.6
1999................. 92 202,700 5.4 3,316,800 16.36 9.1
2000................. 79 191,500 5.1 2,714,000 14.17 7.5
2001................. 83 188,500 5.0 2,868,000 15.21 7.9
2002................. 44 127,800 3.4 1,896,900 14.84 5.2
2003................. 14 76,800 2.1 1,188,500 15.48 3.3
2004................. 16 43,500 1.2 772,300 17.75 2.1
2005................. 8 25,600 0.7 454,700 17.76 1.3
2006................. 19 59,500 1.6 1,076,800 18.10 3.0
Thereafter............. 25 68,500 1.8 1,207,400 17.63 3.3
--- -------------- --- --------------- ------ ---
TOTAL.............. 542 1,373,400 36.7% $ 20,179,700 $ 14.69 55.6%
--- -------------- --- --------------- ------ ---
--- -------------- --- --------------- ------ ---
</TABLE>
MART's largest property is Harford Mall, an enclosed regional mall located
in Harford County, a fast growing suburban county near Baltimore, Maryland. This
property constitutes approximately 16% (as a percent of revenues as of July 31,
1997) of MART's property portfolio, and is comprised of the Mall, the Annex and
an adjacent Business Center. The Mall is the largest shopping center facility in
Harford County.
S-19
<PAGE>
This facility was opened in 1972, expanded in 1977, renovated and remarketed in
1987, expanded in 1994 and redeveloped in 1996.
The following table breaks out certain operating data with respect to
Harford Mall, the Annex and Business Center (which data is included in the
information set forth above as to all Properties):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
Occupancy rate (at end of period)................................... 97% 94%(1) 99% 96% 97%
Base rent per square foot........................................... $ 6.27 $ 6.07 $ 6.13 $ 6.30 $ 5.98
Total rent per square foot.......................................... $ 7.07 $ 7.38 $ 6.97 $ 7.34 $ 6.89
</TABLE>
- ------------------------
(1) The occupancy rate for 1995 was lower due to redevelopment of the Annex at
the end of that year.
In 1994 Hecht's expanded its store from approximately 90,000 to 140,000
square feet at a total cost of approximately $9,000,000, of which MART's
contribution was approximately $2,000,000. Hecht's and Montgomery Ward are the
only two tenants in Harford Mall that occupy more than 10% of the gross leasable
square footage. The base rent per year for Hecht's is $233,695; that lease
expires on January 31, 2003, subject to five 5-year renewal options at fixed
rents plus a percentage of sales. The base rent per year for Montgomery Ward is
$56,232; that lease expires on February 28, 2002, subject to two 10-year renewal
options with CPI increases.
The following table breaks out lease and lease expiration data (which data
is included in the information presented above for all Properties), for the
Mall, Annex and adjacent Business Center as of July 31, 1997, assuming that none
of the tenants exercise their renewal options:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT OF TOTAL AVERAGE PERCENT OF TOTAL
APPROXIMATE LEASABLE SQUARE APPROXIMATE ANNUAL BASE RENT ANNUALIZED BASE
LEASE NUMBER EXPIRING FOOTAGE (7/31/97) ANNUALIZED BASE PER SQUARE FOOT RENT REPRESENTED
EXPIRATION OF LEASES LEASED AREA IN REPRESENTED BY RENT UNDER UNDER EXPIRING BY EXPIRING
YEAR EXPIRING SQUARE FEET EXPIRING LEASES EXPIRING LEASES LEASES LEASES
----------- ------------- -------------- ----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1997................. 6 9,100 1.5% $ 127,900 $ 14.05 3.0%
1998................. 19 52,000 8.6 712,700 13.71 16.5
1999................. 12 11,800 2.0 313,000 26.53 7.2
2000................. 12 17,900 3.0 422,600 23.61 9.8
2001................. 3 6,400 1.1 124,200 19.41 2.9
2002................. 8 213,300 35.4 480,600 2.25 11.1
2003................. 4 146,400 24.3 334,200 2.28 7.7
2004................. 6 16,900 2.8 296,900 17.57 6.9
2005................. 2 8,300 1.4 170,900 20.59 4.0
2006................. 3 11,900 2.0 189,800 15.95 4.4
Thereafter............. 7 107,900 17.9 1,145,000 10.61 26.5
--
------- ----- --------------- ------ -----
TOTAL.............. 82 601,900 100.0% $ 4,317,800 $ 7.17 100.0%
--
--
------- ----- --------------- ------ -----
------- ----- --------------- ------ -----
</TABLE>
Realty taxes for the tax year ended June 30, 1997 were $377,768, based on a
rate of $2.55 per $100 of assessed value for Harford County and $1.10 per $100
of assessed value for the town of Bel Air.
S-20
<PAGE>
ACQUIRED PROPERTIES
The following table sets forth certain operating data with respect to the
Acquired Properties made available to MART by the Pechter Group. Information
prior to 1994 was unavailable.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Occupancy rate (at end of period).................................................... 97% 93% 91%
Base rent per square foot............................................................ $ 10.93 $ 11.14 $ 10.47
Total rent per square foot........................................................... $ 11.11 $ 11.44 $ 10.84
</TABLE>
The following table breaks out lease and lease expiration data (which data
is included in the information presented above for all Properties) for the
Acquired Properties as of July 31, 1997, assuming that none of the tenants
exercise their renewal options:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT OF TOTAL AVERAGE PERCENT OF TOTAL
APPROXIMATE LEASABLE SQUARE APPROXIMATE ANNUAL BASE RENT ANNUALIZED BASE
LEASE NUMBER EXPIRING FOOTAGE (7/31/97) ANNUALIZED BASE PER SQUARE FOOT RENT REPRESENTED
EXPIRATION OF LEASES LEASED AREA IN REPRESENTED BY RENT UNDER UNDER EXPIRING BY EXPIRING
YEAR EXPIRING SQUARE FEET EXPIRING LEASES EXPIRING LEASES LEASES LEASES
----------- ------------- -------------- ----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1997................. 19 43,400 4.3% $ 564,700 $ 13.01 4.4%
1998................. 28 84,500 8.5 1,372,200 16.24 10.6
1999................. 27 81,400 8.1 1,619,500 19.90 12.6
2000................. 26 116,100 11.6 1,025,500 8.83 8.0
2001................. 38 118,100 11.8 1,728,900 14.64 13.4
2002................. 21 75,700 7.6 1,194,000 15.77 9.3
2003................. 6 55,900 5.6 393,300 7.04 3.0
2004................. 5 13,300 1.3 298,500 22.44 2.3
2005................. 2 26,100 2.6 249,000 9.54 1.9
2006................. 8 47,800 4.8 787,800 16.48 6.1
Thereafter............. 11 338,400 33.8 3,669,700 10.84 28.4
--- -------------- ----- --------------- ------ -----
TOTAL.............. 191 1,000,700 100.0% $ 12,903,100 $ 12.89 100.0%
--- -------------- ----- --------------- ------ -----
--- -------------- ----- --------------- ------ -----
</TABLE>
Realty taxes for the tax year ended June 30, 1997 amounted to approximately
$980,400, based on a rate of $3.065 per $100 of assessed value for Baltimore
County and $3.04 per $100 of assessed value for Howard County and $2.59 per $100
of assessed value for Anne Arundel County.
TENANTS
MART benefits from a diversity of national and regional, financially strong
tenants as anchors and other tenants in its properties. Tenants or anchors
include Giant Food, Safeway, Price Chopper, ShopRite, CVS Drug, Rite Aid Drug,
RichFood, Valu Food, Kmart, Hecht's (a division of May Department Stores), Toys
"R" Us, Radio Shack and others. At July 31, 1997, no single tenant accounted for
more than 2% of rentals, except Giant Food of Maryland, which represented
approximately 9.7%, and Safeway, which represented approximately 3.5%.
RENTAL REVENUES
A substantial portion of MART's income consists of rent received under
long-term leases. In addition, MART receives payments from tenants of a pro-rata
share of common area maintenance, real estate taxes and other operating costs or
payments for increases of such expenses over and above various base year
operating expenses. Most of the leases of retail properties contain provisions
which entitle MART to receive percentage rents based on the tenants' gross sales
or annual inflation adjustments, or both. As
S-21
<PAGE>
existing tenant leases expire or are renewed, MART seeks to increase rental
rates as permitted by market conditions. MART believes that, as economic
conditions in its operating areas improve, its ability to raise rental rates may
be enhanced.
MANAGEMENT
The following table sets forth certain information regarding the Trustees
and officers of MART:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ---------------------------------------------------------------------------------
<S> <C> <C>
F. Patrick Hughes 49 Trustee; President and Chief Executive Officer
Paul F. Robinson 43 Executive Vice President, Secretary and General Counsel
Paul G. Bollinger 37 Vice President, Controller and Principal Financial Officer
Eugene T. Grady 49 Treasurer
Kimberly E. Foster 34 Assistant Controller
LeRoy E. Hoffberger 72 Trustee; Chairman of the Board
Jack H. Pechter 62 Trustee; Deputy Chairman
David F. Benson 48 Trustee
Marc P. Blum 55 Trustee
Robert A. Frank 47 Trustee
M. Ronald Lipman 58 Trustee
Daniel S. Stone 52 Trustee
Bruce H. Preston 45 Vice President-Acquisitions and Development
Michael C. Trenery 40 Vice President-Acquisitions and Development
M. J. Brooke Webster 48 Vice President-Management
Scott D. Sellman 32 Vice President-Leasing
Wilbur E. Simmons 30 Assistant Director, Acquisitions and Development
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
MART has elected to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"). In the opinion of Gordon, Feinblatt, Rothman,
Hoffberger & Hollander, LLC, MART has been organized in conformity with the
requirements for qualification as a REIT under the Code, and its method of
operation has met and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion, however, is
based on various assumptions and is conditioned upon representations made by
MART as to factual matters and the continuation of such factual matters.
Investors should be aware, however, that opinions of counsel are not binding
upon the Internal Revenue Service or any court. Moreover, such qualification and
taxation as a REIT in any tax year depends upon MART's ability to meet in its
actual results for that tax year the various source of income, ownership of
assets, distribution and diversity of ownership requirements of the Code for
qualification as a REIT, which results will not be reviewed by Gordon,
Feinblatt, Rothman, Hoffberger & Hollander, LLC. Accordingly, no assurance can
be given that the actual results of MART for any particular tax year will in
fact satisfy the requirements for qualification. Likewise, although MART
believes that it has operated in a manner which satisfies the REIT qualification
requirements under the Code since its organization in 1993, no assurance
S-22
<PAGE>
can be given that MART's qualification as a REIT will not be challenged by the
Internal Revenue Service for taxable years still subject to audit.
For a discussion of material federal income tax consequences applicable to
distributions to shareholders and MART's election to be taxed as a REIT, see
"Federal Income Tax Considerations" in this Prospectus Supplement and the
accompanying Prospectus.
Prospective purchasers should be aware that the recently enacted Taxpayer
Relief Act of 1997 (the "1997 Act") made numerous changes to the Code, including
reducing the maximum tax imposed on net capital gains from the sale of assets
held for more than 18 months by individuals, trusts and estates. The 1997 Act
also makes certain changes to the requirements to qualify as a REIT and to the
taxation of REITs and their shareholders.
The 1997 Act provides that, subject to certain exceptions, the maximum rate
of tax on net capital gains of individuals, trusts and estates realized after
July 28, 1997, from the sale or exchange of assets held for more than 18 months
is reduced to 20%, and the maximum rate is further reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
taxpayers who would be subject to a maximum tax rate of 15%, the rate on net
capital gains is reduced to 10%, and effective for taxable years commencing
after December 31, 2000, the rate is reduced to 8% for assets held for more than
five years. The maximum rate for net capital gains attributable to the sale of
depreciable real property held for more than 18 months is 25% to the extent of
the deductions for depreciation with respect to such property. However, under
the depreciation recapture rules where real property has been depreciated using
an accelerated method, gain on the sale of such property equal to the difference
between the accelerated depreciation allowable and the amount of depreciation
which would have been claimed if the straight line method were utilized, is
taxed as ordinary income. Long-term capital gain allocated to a shareholder by
MART will be subject to the 25% rate to the extent that the gain does not exceed
depreciation on real property sold by MART. The maximum rate of capital gains
tax for capital assets held more than one year but not more than 18 months
remains at 28%. The taxation of capital gains of corporations was not changed by
the 1997 Act.
The 1997 Act also includes several provisions that are intended to simplify
the taxation of REITs. These provisions are effective for taxable years
beginning after the date of enactment of the 1997 Act which, as to MART, is its
taxable year commencing January 1, 1998. First, in determining whether a REIT
satisfies the income tests, a REIT's rental income from a property will not
cease to qualify as "rents from real property" merely because the REIT performs
services for a tenant other than permitted customary services if the amount that
the REIT is deemed to have received as a result of performing impermissible
services does not exceed 1% of all amounts received directly or indirectly by
the REIT with respect to such property. The amount that a REIT will be deemed to
have received for performing impermissible services will be at least 150% of the
direct cost to the REIT of providing those services. Second, certain non-cash
income, including income from cancellation of indebtedness and original issue
discount will be excluded from income in determining the amount of dividends
that a REIT is required to distribute. Third, a REIT may elect to retain and pay
income tax on any net long-term capital gains and require its shareholders to
include such undistributed net capital gains in their income. If a REIT makes
such an election, the REIT's shareholders would receive a tax credit
attributable to their share of capital gains tax paid by a REIT on the
undistributed net capital gains that were included in the shareholders' income,
and such shareholders will receive an increase in the basis of their Shares in
the amount of undistributed net capital gain included in their income reduced by
the amount of the credit. Fourth, the 1997 Act repeals the requirement that a
REIT receive less than 30% of its gross income from the sale or disposition of
stock or securities held for less than one year, gain from prohibited
transactions, and gain from certain sales of real property held less than four
years. Finally, the 1997 Act contains a number of technical provisions that
reduce the risk that a REIT will inadvertently cease to qualify as a REIT.
S-23
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), for whom Legg Mason Wood Walker,
Incorporated, Salomon Brothers Inc and Wheat First Butcher Singer are acting as
representatives (the "Representatives"), have severally agreed to purchase from
MART the following respective numbers of the Shares at the public offering price
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus Supplement:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Legg Mason Wood Walker, Incorporated....................................... 760,000
Salomon Brothers Inc....................................................... 760,000
Wheat First Butcher Singer................................................. 760,000
BT Alex. Brown Incorporated................................................ 60,000
Credit Lyonnais Securities (USA), Inc. .................................... 60,000
A.G. Edwards & Sons, Inc. ................................................. 60,000
Goldman, Sachs & Co. ...................................................... 60,000
Lehman Brothers Inc. ...................................................... 60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated......................... 60,000
Morgan Stanley & Co. Incorporated.......................................... 60,000
NatWest Securities Corporation............................................. 60,000
Oppenheimer & Co., Inc. ................................................... 60,000
PaineWebber Incorporated................................................... 60,000
Smith Barney Inc. ......................................................... 60,000
Advest, Inc. .............................................................. 40,000
J.C. Bradford & Co. ....................................................... 40,000
Branch, Cabell & Company................................................... 40,000
EVEREN Securities, Inc. ................................................... 40,000
Ferris, Baker Watts, Inc................................................... 40,000
Interstate/Johnson Lane Corporation........................................ 40,000
Janney Montgomery Scott Inc. .............................................. 40,000
Johnston, Lemon & Co. Incorporated......................................... 40,000
McDonald & Company Securities, Inc. ....................................... 40,000
Morgan Keegan & Company, Inc. ............................................. 40,000
Piper Jaffrey Inc. ........................................................ 40,000
Raymond James & Associates, Inc. .......................................... 40,000
The Robinson-Humphrey Company, LLC......................................... 40,000
Scott & Stringfellow, Inc. ................................................ 40,000
-----------------
Total.................................................................... 3,500,000
-----------------
-----------------
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the Shares
offered hereby if any such Shares are purchased. In the event of a default by an
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
such commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Representatives have advised MART that the Underwriters propose to offer
the Shares offered hereby to the public initially at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain dealers
at such price less a concession not in excess of $0.40 per Share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $0.10 per Share to certain other dealers. After the public offering, the
offering price and other selling terms may be changed by the Underwriters.
S-24
<PAGE>
MART has granted the Underwriters an option, which may be exercised within
30 days after the date of this Prospectus Supplement, to purchase up to an
additional 525,000 Shares to cover over-allotments, if any, at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus Supplement. To the extent that the Underwriters
exercise the option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of Shares to
be purchased by it shown on the foregoing table bears to 3,500,000, and MART
will be obligated, pursuant to the option, to sell such Shares to the
Underwriters. If purchased, the Underwriters will sell such additional Shares on
the same terms as those on which the 3,500,000 Shares are being offered.
MART has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
In addition, MART and each of its executive officers and Trustees have
agreed with the Underwriters not to offer, sell, contract to sell or otherwise
issue or dispose of Shares for the 90-day period following the offering, except
that MART may issue new Shares pursuant to the exchange or conversion of
outstanding securities, pursuant to employee benefit plans and in connection
with future acquisitions.
Until the distribution of the Shares is completed, rules of the Securities
and Exchange Commission (the "Commission") may limit the ability of the
Underwriters and certain selling group members to bid for and purchase Shares.
As an exception to these rules, in connection with the offering, certain
Underwriters and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Shares. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M promulgated by the
Commission pursuant to which such persons may bid for or purchase Shares for the
purpose of pegging, fixing or maintaining the market price of the Shares. The
Underwriters may also create a short position for the account of the
Underwriters by selling more Shares in connection with the offering than they
are committed to purchase from MART, and in such case may purchase Shares in the
open market following completion of the offering to cover all or a portion of
such short position. The Underwriters also may elect to reduce any short
position by exercising all or part of the over-allotment option described
herein. In addition, the Representatives, on behalf of the Underwriters, also
may impose "penalty bids" under contractual arrangements with the Underwriters
whereby it may reclaim from an Underwriter (or any selling group member
participating in the offering) for the account of the other Underwriters, the
selling concession with respect to Shares that are distributed in the offering
but subsequently purchased for the account of the Underwriters in the open
market. In general, purchases of a security for the purpose of stabilization or
to reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a "penalty bid" might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering. Neither MART nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Shares. In addition,
neither MART nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment banking
services for MART, for which customary compensation has been and will be
received. In addition, Robert A. Frank, an officer of Legg Mason Wood Walker,
Incorporated, serves as a member of the Board of Trustees of MART.
S-25
<PAGE>
EXPERTS
The consolidated financial statements and schedules of MART, as of December
31, 1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996, have been incorporated by reference herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of that firm as experts
in accounting and auditing.
The combined financial statements of JHP Commercial Properties as of
December 31, 1996, 1995 and 1994 and for the years then ended, have been
incorporated by reference herein in reliance upon the report of Scheiner, Mister
& Grandizio, P.A., independent certified public accountants, incorporated by
reference herein, and upon the authority of that firm as experts in accounting
and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for MART by Gordon, Feinblatt,
Rothman, Hoffberger & Hollander, LLC, Baltimore, Maryland. In addition, the
description of the federal income tax consequences contained in the accompanying
Prospectus and this Prospectus Supplement under the caption "Federal Income Tax
Considerations" is based upon the opinion of Gordon, Feinblatt, Rothman,
Hoffberger & Hollander, LLC. Certain legal matters related to the offering will
be passed upon for the Underwriters by Wilmer, Cutler & Pickering, Washington,
D.C.
S-26
<PAGE>
PROSPECTUS
[LOGO]
$150,000,000
MID-ATLANTIC REALTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST AND DEBT SECURITIES
Mid-Atlantic Realty Trust (the "Company") may from time to time offer and
sell common shares of beneficial interest, par value $.01 per share (the "Common
Shares"), and debt securities (the "Debt Securities"), with an aggregate public
offering price not to exceed $150,000,000. The Common Shares and Debt Securities
(collectively, the "Offered Securities") may be offered, separately or together,
at prices and terms to be set forth in an accompanying supplement to this
Prospectus (the "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 Common Shares,
the specific number of shares and issuance price per share; and (ii) in the case
of Debt Securities, the specific title, aggregate principal amount, currency of
denomination and payment, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner of
calculation thereof) and time of payment of interest, terms for redemption at
the option of the Company or repayment at the option of the holder, terms for
sinking fund payments, terms for conversion into Common Shares or preferred
shares of beneficial interest, par value $.01 per share (the "Preferred
Shares"), and any initial public offering price. 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 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 by the Company directly to one or more
purchasers, 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 an
accompanying Prospectus Supplement. See "Plan of Distribution." None of the
Offered Securities may be sold by the Company through agents, underwriters or
dealers without delivery of a Prospectus Supplement describing the method and
terms of the offering of such Offered Securities.
------------------------
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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 DATE OF THIS PROSPECTUS IS FEBRUARY 3, 1997
<PAGE>
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"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may
be obtained at the prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission also maintains a web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http:\\www.sec.gov. The Company's Common
Shares are listed on the New York Stock Exchange (the "NYSE") under the symbol
"MRR" and such reports, proxy statements and other information concerning the
Company can be inspected at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered by this
Prospectus. This Prospectus, which constitutes part of the Registration
Statement, omits certain of the information contained in the Registration
Statement and the exhibits thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. For
further information with respect to the Company and the Offered Securities,
reference is made to the Registration Statement. The material provisions of any
contract or other document referred to herein are described in this Prospectus;
statements concerning the contents of such contracts and documents, however, are
not necessarily complete, and in each such instance reference is made to the
copy of such contract or other document filed as an exhibit to such Registration
Statement, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company (File No. 1-12286)
with the Commission are incorporated herein by reference:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(b) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1996;
(c) the description of the Common Shares included in the Company's
Registration Statement on Form 8-A, dated August 24, 1993, and the information
thereby incorporated by reference contained in the Company's Registration
Statement on Form S-11, dated July 22, 1993 are hereby incorporated by reference
into this Prospectus; and
All documents filed by the Company pursuant to Sections 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 into this Prospectus and to be part hereof from the date of filing
such documents. Any statement contained in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained in the Registration
Statement, this Prospectus, or any other subsequently filed document that is
also incorporated by reference herein modifies or supersedes that statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
2
<PAGE>
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a Prospectus is delivered, upon written
or oral request of that person, a copy of any document incorporated herein by
reference (other than exhibits to those documents unless the exhibits are
specifically incorporated by reference into the documents that this Prospectus
incorporates by reference). Requests should be directed to the Secretary, 1302
Concourse Drive, Suite 204, Linthicum, Maryland 21090, telephone number (410)
684-2000.
THE COMPANY
Mid-Atlantic Realty Trust (the "Company"), is a fully integrated,
self-administered, self-managed real estate investment trust ("REIT") which
owns, leases, develops, redevelops and manages its retail shopping center
facilities and commercial properties, primarily in the Middle Atlantic region of
the United States. The Company owns and operates 25 commercial projects
consisting of 19 neighborhood or community shopping centers, one enclosed large
regional mall, one office complex and other commercial facilities, and eight
undeveloped parcels (collectively, the "Properties"). The developed properties
total approximately 3,126,000 square feet of gross leasable area, of which
approximately 94% are in the states of Maryland, New York, Virginia and Delaware
(the Middle Atlantic area), and 6% are in Arizona and Illinois. At December 31,
1996, approximately 96% of the developed properties were leased.
The Company's primary objective is to manage its properties for long term
cash flow growth. The Company's principal strategies are to grow the portfolio
through the selective acquisition of additional properties in the Middle
Atlantic region, redeveloping or developing retail properties on a selective
basis, and when appropriate, divesting through the sale or exchange of
non-strategic properties, primarily those located outside the Middle Atlantic
region.
The Company was incorporated in Maryland in June, 1993. The Company's
executive offices are located at 1302 Concourse Drive, Suite 204, Linthicum,
Maryland 21090, and its telephone number is (410) 684-2000.
3
<PAGE>
RISK FACTORS
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSIONS
IN THIS PROSPECTUS AND IN ANY PROSPECTUS SUPPLEMENT CONTAIN CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS AND IN ANY PROSPECTUS SUPPLEMENT
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS AND IN ANY PROSPECTUS SUPPLEMENT. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN AND
IN ANY PROSPECTUS SUPPLEMENT. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE
HEREIN AND IN ANY PROSPECTUS SUPPLEMENT. THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS AND
IN ANY PROSPECTUS SUPPLEMENT BEFORE PURCHASING THE OFFERED SECURITIES.
REAL ESTATE INVESTMENT RISKS
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend on the amount
of income and capital appreciation generated by the related properties. If the
properties do not generate sufficient income to meet operating expenses,
including debt service, lease payments, capital expenditures and tenant
improvements, the Company's income and ability to make distributions to its
shareholders will be adversely affected. Income from properties may be adversely
affected by the general economic climate, local conditions, such as oversupply
of space or a reduction in demand for rental space in the area, the
attractiveness of the properties to tenants, competition from other available
space, the ability of the owner to provide adequate maintenance and insurance,
increased operating costs (including real estate taxes) and the inability of a
significant number of tenants to pay rent. Income from properties and real
estate values are also affected by such factors as applicable laws, including
tax laws, interest rate levels and the availability of financing. In addition,
real estate investments are relatively illiquid and, therefore, will tend to
limit the ability of the Company to vary its portfolio promptly in response to
changes in economic or other conditions.
ABILITY TO RENT UNLEASED SPACE. The ability of the Company to rent unleased
space is affected by many factors, including certain covenants typically found
in leases with tenants in shopping center properties which restrict the use of
other space at a property. In addition, in the event of a default by a lessee or
sublessee in its obligations, the Company may experience delays in enforcing its
rights as lessor or sublessor and may incur substantial costs and experience
significant delays associated with protecting its investment, including costs
incurred in acquiring and making substantial improvements or repairs to a
property.
RISK OF BANKRUPTCY OF TENANTS. At any time, a tenant of the Company's
properties may seek the protection of the bankruptcy laws, which could result in
the termination of such tenant's lease and cause a downturn in distributable
cash flow of the Company. In addition, a tenant from time to time may experience
a downturn in its business which may weaken its financial condition and result
in the failure to make rental payments when due.
CASUALTY. The Company carries comprehensive liability, fire, flood,
extended coverage and rental loss insurance with policy specifications, limits
and deductibles customarily carried for similar properties. There are, however,
certain types of extraordinary losses, which may be either uninsurable or not
economically insurable. Should an uninsured loss occur, the Company could lose
its investment, anticipated profits and cash flows from a property.
DEBT FINANCING AND EXISTING DEBT MATURITIES. The Company is subject to the
risks normally associated with debt financing, including the risks that the
Company's funds from operations will be insufficient to meet required payments
of principal and interest, that existing indebtedness on the properties (which
will not necessarily have been fully amortized at maturity) will not be able to
be refinanced or that the terms of
4
<PAGE>
such refinancing will not be as favorable as the terms of existing indebtedness.
If prevailing interest rates or other factors at the time of refinancing result
in higher interest rates on refinancings, the Company's interest expenses would
increase, which would adversely affect the Company's funds from operations and
its ability to make distributions to shareholders. In addition, in the event the
Company were unable to secure refinancing of such indebtedness on acceptable
terms, the Company might be forced to dispose of its properties upon
disadvantageous terms, which might result in losses to the Company and might
adversely affect the cash flow available for distribution of the Company.
COMPETITION. There are numerous developers and real estate companies which
compete with the Company in seeking properties for acquisition and tenants for
vacant space, some of which may have greater financial resources than the
Company. There can be no assurance that the Company will continue to compete
favorably with such other companies.
ENVIRONMENTAL MATTERS. Under various federal, state and local environmental
laws, ordinances and regulations, an owner of real property may be held liable
for costs of removal or remediation of certain conditions relating to the
presence of hazardous or toxic substances at, under or disposed of in connection
with such property, as well as certain other potential costs relating to
hazardous or toxic substances (including government fines and injuries to
persons and adjacent property). These laws often impose such liability without
regard to whether the owner knew of, or was responsible for, the presence of
such hazardous or toxic substances. The cost of any required remediation,
removal, fines or personal or property damages and the owner's liability
therefor could exceed the value of the property. In addition, the presence of
such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral which, in turn, would
reduce the owner's revenues.
AMERICANS WITH DISABILITIES ACT. The properties and any newly developed or
acquired properties must comply with Title III of the Americans with
Disabilities Act (the "ADA") to the extent that such properties are "public
accommodations" and/or "commercial facilities" as defined by the ADA. Compliance
with the ADA requirements could require removal of structural barriers to
handicapped access in certain public areas of the Company's properties, where
such removal is readily achievable. The Company believes that the properties
comply with all present requirements under the ADA and applicable state laws.
Noncompliance with the ADA could result in imposition of fines or an award of
damages to private litigants. If required changes involve a greater expenditure
than the Company currently anticipates, or if the changes must be made on a more
accelerated basis than it anticipates, the Company's ability to make expected
distributions could be adversely affected. The Company believes that its
competitors face similar costs to comply with the requirements of the ADA.
DEPENDENCE ON THE MIDDLE ATLANTIC AREA
Approximately 94% of the properties' gross leasable area is located in the
Middle Atlantic area. As a result, the Company will be affected more by any
adverse economic conditions in the Middle Atlantic area than would a real estate
company with properties in a number of different geographic areas.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The Board of Trustees of the Company currently has adopted a policy of
limiting its secured indebtedness to 50% of the estimated value of its
properties, but its Declaration of Trust does not contain any limitation on the
amount or percentage of indebtedness, funded or otherwise, the Company might
incur. Accordingly, the Board of Trustees could alter or eliminate its current
policy on borrowing. If this policy were to change, the Company could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's funds from operations and ability to make
expected distributions to its shareholders and in an increased risk of default
on its obligations.
5
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly F. Patrick Hughes, President and Chief Executive Officer of the
Company. The loss of Mr. Hughes' services could have an adverse effect on the
operations of the Company. The Company has key man insurance covering the life
of Mr. Hughes in the amount of $1,000,000.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
TAX LIABILITIES OF FAILURE TO QUALIFY AS A REIT. The Company is treated as
a REIT for federal income tax purposes under the Internal Revenue Code of 1986,
as amended (the "Code"). No assurance can be given that the Company will
continue to operate in a manner enabling it to remain so qualified.
Qualification as a REIT involves the application of highly technical and complex
Code provisions for which there are only limited judicial or administrative
interpretations and the determinations of various factual matters and
circumstances not entirely within the Company's control. Furthermore, no
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. The Company is not currently aware of any pending legislation
which would affect its qualification as a REIT.
If in any taxable year the Company fails to qualify as a REIT, it will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at corporate rates. In addition, unless entitled to relief
under certain statutory provisions, the Company will also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the
Company available for investment or distribution to shareholders because of the
additional tax liability to the Company for the year or years involved. In
addition, the Company would no longer be required by the Code to make any
distributions.
ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMITATIONS
In order to maintain its qualification as a REIT, not more than 50% of the
Company's Common Shares may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities). To ensure that
this rule is not violated and to safeguard the Company's qualification as a
REIT, shareholders are subject to the Beneficial Ownership Limitations which
restrict the ownership of more than 9.9% of the outstanding Common Shares,
either in the aggregate or of any class, unless waived by the Trustees. In
addition, the Constructive Ownership Limitations restrict the ownership, under
the applicable attribution rules of the Code (which are different from those
applicable with respect to the Beneficial Ownership Limitations), of more than
9.9% of the outstanding Common Shares either in the aggregate or of any class.
These ownership restrictions have the collateral effect of deterring
non-negotiated acquisitions of, and proxy fights for, the Company by a third
party. Limiting the ownership of the Common Shares may discourage a change of
control of the Company and may also (i) deter tender offers for the Common
Shares, which offers may be attractive to the shareholders, (ii) limit the
opportunity for shareholders to receive a premium for their Common Shares that
might otherwise exist if an investor attempted to assemble a block of Common
Shares in excess of 9.9% of the Common Shares, or (iii) limit the opportunity
for shareholders to effect a change of control of the Company.
RISKS INHERENT IN DEVELOPMENT AND ACQUISITION ACTIVITIES
The Company intends to continue development of its Properties and may
acquire additional properties in the future. While the Company's policies with
respect to development and acquisition activities are intended to limit some of
the risks otherwise associated with those activities, the Company nevertheless
will incur certain risks related to delays in construction and lease-up, costs
of materials, financing availability, volatility in interest rates, labor
availability, failure to achieve anticipated occupancy levels, and the failure
of its Properties to perform as expected.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company and its predecessor BTR Realty, Inc. (the "Predecessor"), for the
periods indicated. The Predecessor was a publicly-held company and not a REIT.
For purposes of calculating such ratio, "earnings" represent earnings (losses)
from operations adjusted for sales of residential property net of the cost of
residential property sold, plus fixed charges. "Fixed charges" represent
interest expense on all indebtedness (including amortization of deferred debt
issuance costs) and the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one-third of operating lease
rentals). There were no Preferred Shares outstanding during any of the periods
below indicated and therefore the ratio of earnings to combined fixed charges
and Preferred Shares dividend requirements would have been the same as the ratio
of earnings to fixed charges for each period indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEARS ENDED DECEMBER 31,
-------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
--------- --------- --------- --------- -----
Ratio of earnings to fixed charges(1):.......................... 1.20 1.16 1.15 1.15 --
<CAPTION>
<S> <C> <C>
1992 1991
----- -----
Ratio of earnings to fixed charges(1):.......................... -- --
</TABLE>
- ------------------------
(1) The Company is the successor to the operations of BTR Realty, Inc., the
predecessor company. The computations above use the Consolidated Financial
Statements of Mid-Atlantic Realty Trust for the nine months ended September
30, 1996 and 1995, the years ended December 31, 1995, and 1994 and the
period September 11, 1993 (commencement of operations) through December 31,
1993, and also include the Consolidated Financial Statements of BTR Realty,
Inc. for the periods January 1, 1993 through September 10, 1993, and for the
years ended December 31, 1992 and 1991. For the years ended December 31,
1993, 1992 and 1991, the ratio of earnings to fixed charges was less than
one-to-one coverage. The approximate dollar amounts necessary to cover the
deficiency in those periods are as follows: 1993--$2,054,000;
1992--$2,873,000; and 1991--$6,637,000.
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 acquiring additional properties
as suitable opportunities arise, making improvements to properties, repaying
certain then-outstanding secured or unsecured indebtedness and for working
capital.
DESCRIPTION OF THE DEBT SECURITIES
GENERAL
The Debt Securities will be unsecured general obligations of the Company,
subject to the rights of holders of mortgages and other secured indebtedness of
the Company. The Debt Securities may be issued under one or more indentures,
each dated as of a date before the issuance of the Debt Securities to which it
relates and in the form that has been filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, subject to such amendments or
supplements as may be adopted from time to time. Each such indenture
(collectively, the "Indenture") will be entered into between the Company and a
trustee (the "Trustee"), which may be the same Trustee. The Indenture will be
subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
statements made hereunder relating to the Indenture and the Debt Securities are
summaries of the provisions thereof, do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all provisions
of the Indenture and such Debt Securities. Capitalized terms used but not
defined herein shall have the respective meanings set forth in the Indenture.
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<PAGE>
TERMS
The particular terms of the Debt Securities offered by a Prospectus
Supplement will be described in the particular Prospectus Supplement, along with
any applicable modifications of or additions to the general terms of the Debt
Securities as described herein and in the applicable Indenture and any
applicable federal income tax considerations. Accordingly, for a description of
the terms of any series of Debt Securities, reference must be made to both the
Prospectus Supplement relating thereto and the description of the Debt
Securities set forth in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may be
issued without limits as to aggregate principal amount, in one or more series,
in each case as established from time to time by the Company's Board of Trustees
or as set forth in the applicable Indenture or one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuance of additional Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor trustee may be
appointed to act with respect to such series. If two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a Trustee of a trust under the applicable Indenture separate
and apart from the trust administered by any other Trustee and, except as
otherwise indicated herein, any action described herein to be taken by a Trustee
may be taken by each such Trustee with respect to, and only with respect to, the
one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indenture and the Debt Securities. The Prospectus Supplement relating to the
series of Debt Securities being offered will contain further terms of such Debt
Securities, including the following specific terms:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(3) if other than the principal amount thereof, the portion of the principal
amount thereof payable upon declaration of acceleration of the maturity thereof,
or (if applicable) the portion of the principal amount of such Debt Securities
which is convertible into Common Shares or Preferred Shares, or the method by
which any such portion shall be determined;
(4) if convertible, any applicable limitations on the ownership or
transferability of the Common Shares or Preferred Shares into which such Debt
Securities are convertible;
(5) the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities will
bear interest, if any;
(7) the date or dates, or the method for determining such date or dates,
from which any interest will accrue, the interest payment dates on which any
such interest will be payable, the regular record dates for such interest
payment dates, or the method by which any such date shall be determined, the
person to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(8) the place or places where the principal of (and premium, if any), and
interest, if any, on such Debt Securities will be payable, such Debt Securities
may be surrendered for conversion, or registration of transfer or exchange and
notices or demands to or upon the Company in respect of such Debt Securities and
the applicable Indenture may be served;
8
<PAGE>
(9) the period or periods within which, the price or prices at which and
the terms and conditions upon which such Debt Securities may be redeemed, as a
whole or in part, at the option of the Company, if the Company is to have such
an option;
(10) the obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or at
the option of a holder thereof, and the period or periods within which, the
price or prices at which and the terms and conditions upon which such Debt
Securities will be redeemed, repaid or purchased, as a whole or in part,
pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or currencies,
and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any),
and interest, if any, on such Debt Securities, may be determined with reference
to an index, formula or other method (which index, formula or method may, but
need not be, based on a currency, currencies, currency unit or units or
composite currency or currencies) and the manner in which such amounts shall be
determined;
(13) any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to the events of default or covenants set forth in
the Indenture;
(14) provisions, if any, for collateral security for repayment of such Debt
Securities;
(15) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(16) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof and
terms and conditions relating thereto;
(17) the applicability, if any, of defeasance and covenant defeasance
provisions of the applicable Indenture;
(18) the terms, if any, upon which such Debt Securities may be convertible
into Common Shares or Preferred Shares of the Company and the terms and
conditions upon which such conversion will be effected, including, without
limitation, the initial conversion price or rate and conversion period;
(19) whether and under what circumstances the Company will pay additional
amounts as contemplated in the Indenture on such Debt Securities in respect of
any tax, assessment or governmental charge and, if so, whether the Company will
have the option to redeem such Debt Securities in lieu of making such payment;
and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture, the Debt Securities will
contain provisions which would limit the ability of the Company to incur
indebtedness. These provisions afford holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company or
in the event of a change of control. Restrictions on ownership and transfers of
the Company's Common Shares and Preferred Shares are designed to preserve its
status as a REIT and, therefore, may act to prevent or hinder a change in
control. See "Description of Capital Stock--Restrictions on Ownership and
Transfer." Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of, or additions
to the events of default or covenants of the Company that are described below,
including any addition of a covenant or other provision providing event risk or
similar protection.
9
<PAGE>
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of any series may be issued, in whole or in part, in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Global Depositary") or its
nominee identified in the applicable Prospectus Supplement. In such a case, one
or more Global Securities will be issued in a denomination or aggregate
denomination equal to the portion of the aggregate principal amount of
outstanding Debt Securities of the series to be represented by such Global
Security or Securities. Unless and until it is exchanged, in whole or in part,
for Debt Securities in registered form, a Global Security may not be registered
for transfer or exchange, except as a whole by the Global Depositary for such
Global Security to a nominee of such Global Depositary or by a nominee of such
Global Depositary to such Global Depositary or another nominee of such Global
Depositary or by such Global Depositary or any nominee to a successor Global
Depositary or a nominee of such successor Global Depositary and except in the
circumstances described in the applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security will be
described in the applicable Prospectus Supplement. The Company expects that the
following provisions will apply to depositary arrangements, although no
assurance can be given that such will be the case.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities, which are to be represented by a Global Security, to be deposited
with or on behalf of a Global Depositary, will be represented by a Global
Security registered in the name of such Global Depositary or its nominee. Upon
the issuance of such Global Security, and the deposit of such Global Security
with, or on behalf of, the Global Depositary for such Global Security, the
Global Depositary will credit, on its book-entry registration and transfer
system, the respective principal amounts of the Debt Securities represented by
such Global Security to the accounts of institutions that have accounts with
such Global Depositary or its nominee ("participants"). The accounts to be
credited will be designated by the underwriters or agents for the sale of such
Debt Securities or by the Company, if such Debt Securities are offered and sold
directly by the Company. Ownership of beneficial interests in such Global
Security will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Security will be shown on, and the transfer of that ownership interest
will be effected only through, records maintained by the Global Depositary or
its nominee for such Global Security. Ownership of beneficial interests in such
Global Security by persons that hold through participants will be shown on, and
the transfer of such ownership interests within such participant will be
effected only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Global Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Global Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as set forth below, unless otherwise specified in
the applicable Prospectus Supplement, owners of beneficial interests in such
Global Security will not be entitled to have Debt Securities of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities of such series in
certificated form and will not be considered the holders thereof for any
purposes under the applicable Indenture. Accordingly, each person owning a
beneficial interest in such Global Security must rely on the procedures of the
Global Depositary and, if such person is not a participant, on the procedures of
the participant through which such person owns its interest, to exercise any
rights of a holder under the applicable Indenture. The Company understands that
under existing industry practices, if the Company requests any action of holders
or an owner of a beneficial interest in such Global Security desires to give any
notice or take any action that a holder is entitled to give or take under the
applicable Indenture, the Global Depositary would authorize the participants to
give such notice or take such action, and participants would authorize
beneficial owners owning through such
10
<PAGE>
participants to give such notice or take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
If the Global Depositary for Debt Securities of a series is at any time
unwilling, unable or ineligible to continue as Global Depositary and a successor
Global Depositary is not appointed by the Company within 90 days or an Event of
Default under the applicable Indenture has occurred and is continuing, the
Company will issue Debt Securities of such series in definitive form in exchange
for the Global Security or Securities representing the Debt Securities of such
series. In addition, the Company may at any time and in its sole discretion,
subject to any limitations described in the applicable Prospectus Supplement,
determine not to have any Debt Securities of a series represented by one or more
Global Securities and, in such event, will issue Debt Securities of such series
in definitive form in exchange for the Global Security or Securities
representing such Debt Securities. Further, if the Company so specifies with
respect to the Debt Securities of a series, an owner of a beneficial interest in
a Global Security representing Debt Securities of such series may, on terms
acceptable to the Company and the Global Depositary for such Global Security,
receive Debt Securities of such series in definitive form in exchange for such
beneficial interest, subject to any limitations described in the applicable
Prospectus Supplement relating to such Debt Securities. In any such instance, an
owner of a beneficial interest in a Global Security will be entitled to physical
delivery in definitive form of Debt Securities of the series represented by such
Global Security equal in principal amount to such beneficial interest and to
have such Debt Securities registered in its name (if the Debt Securities of such
series are issuable as registered securities).
Principal of, and any premium and interest on, a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
CONVERSION RIGHTS
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, such series will be convertible into
Common Shares or other securities on the terms and conditions set forth therein.
Such terms shall include provisions as to whether conversion is mandatory, at
the option of the holder or at the option of the Company, and may include
provisions pursuant to which the number of Common Shares or other securities of
the Company to be received by the holders of Debt Securities would be calculated
according to the market price of the Common Shares or other securities of the
Company as of a time stated in the Prospectus Supplement. Certain restrictions
on ownership apply to the beneficial ownership and conversion of such
Convertible Debt Securities (as hereinafter defined). See "Description of
Capital Stock--Restrictions on Ownership and Transfer."
If the Debt Securities of a particular series are to be convertible
("Convertible Debt Securities") then, unless otherwise provided in the
applicable Prospectus Supplement, the following general terms will apply with
respect to such series of Convertible Debt Securities: The holders of the
Convertible Debt Securities will be entitled at any time prior to maturity,
subject to prior redemption, to convert the Convertible Debt Securities or
portions thereof (which will be $1,000 or multiples thereof) into Common Shares
at the conversion price set forth in the appropriate accompanying Prospectus
Supplement (subject to adjustments as described below). No payment or adjustment
will be made for accrued interest on converted Convertible Debt Securities. If
any Convertible Debt Securities not called for redemption are converted between
a record date for the payment of interest and the next succeeding interest
payment date, such Convertible Debt Securities must be accompanied by funds
equal to the interest payable to the registered holder on such interest payment
date on the principal amount so converted. The Company will not issue fractional
Common Shares upon conversion of Convertible Debt Securities and, instead will
pay cash for the fractional Common Share based upon the current market price of
the Common Shares on the last trading day prior to the conversion date. If the
Convertible Debt Securities are called for redemption, conversion rights will
expire at the close of business on the redemption date, unless the Company
defaults in payment due upon such redemption.
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<PAGE>
The conversion price will be subject to adjustment under certain conditions
including: (i) the payment of dividends (and other distributions) in Common
Shares; (ii) subdivisions, combinations and reclassifications of the Common
Shares, (iii) the issuance to all or substantially all shareholders of rights or
warrants entitling them to subscribe for or purchase Common Shares at a price
per share (or having a conversion price per share) less than the conversion
price or the then current market; and (iv) distributions to all or substantially
all holders of any shares of any class other than the Common Shares of evidences
of indebtedness or assets (including securities, but excluding rights, warrants,
dividends and distributions specified in the Indenture) of the Company. The
foregoing is subject to the limitation that all adjustments by reason of any of
the foregoing would not be made until they result in a cumulative change in the
conversion rate of at least 1%. Notwithstanding the foregoing, no adjustment
will be required if holders of the Convertible Debt Securities receive notice
of, and are allowed to participate in, such transactions, and no adjustment will
be required for rights to purchase Common Shares pursuant to a Company plan for
reinvestment of dividends or interest, or for a change in the par value of the
Common Shares. To the extent that Convertible Debt Securities become convertible
into cash, no adjustment will be required thereafter as to cash. In the event
the Company shall effect any capital reorganization or reclassification of its
shares or shall consolidate or merge with or into any other entity (other than a
consolidation or merger in which the Company is the surviving entity) or shall
sell or transfer substantially all its assets to any other entity, the
registered owners of the Convertible Debt Securities shall, if entitled to
convert such Convertible Debt Securities at any time after such transaction,
receive upon conversion thereof, in lieu of each Common Share into which the
Convertible Debt Securities would have been convertible prior to such
transaction, the same kind and amount of securities, cash or property as shall
have been issuable or distributable had the Convertible Debt Securities been
converted immediately prior to such transaction.
A conversion price adjustment made pursuant to the provisions of the
Convertible Debt Securities might result in a constructive distribution to the
holders of Common Shares that would be subject to taxation as a dividend. The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Trustees deems advisable to
avoid or diminish any income tax to holders of Common Shares resulting from any
dividend or distribution of Common Shares (or rights to acquire Common Shares)
or from any event treated as such for income tax purposes. The Board of Trustees
also has the authority to resolve any ambiguity or correct any error relating to
adjustment of the conversion price of the Convertible Debt Securities, and its
actions in so doing shall be final and conclusive.
Fractional Common Shares will not be issued upon conversion; the Company
will pay cash in lieu of fractional Common Shares based upon the then current
market price of the Common Shares.
The holders of Convertible Debt Securities at the close of business on an
interest payment record date shall be entitled to receive the interest payable
on such Convertible Debt Securities on the corresponding interest payment date
notwithstanding the conversion thereof. However, Convertible Debt Securities
surrendered for conversion during the period from the close of business on any
record date to the opening of business on the corresponding interest payment
date must be accompanied by payment of an amount equal to the interest payable
on such interest payment date. Holders of Convertible Debt Securities who
convert Convertible Debt Securities on an interest payment date will receive the
interest payable by the Company on such date and need not include payment in the
amount of such interest upon surrender of Convertible Debt Securities for
conversion. Except as aforesaid, no payment or adjustment is to be made on
conversion for interest accrued on the Convertible Debt Securities or for
dividends on the Common Shares.
Notwithstanding the foregoing, a Convertible Debt Securities Holder may not
convert any Convertible Debt Securities into Common Shares if as a result of
such conversion the Convertible Debt Securities Holder or any other person
having an interest in his Convertible Debt Securities would or, in the
determination of the Board of Trustees, might then be deemed to, own Excess
Shares. See "Description of Capital Stock--General--Excess Shares."
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<PAGE>
SUBORDINATION OF CONVERTIBLE DEBT SECURITIES
The indebtedness evidenced by the Debt Securities will be subordinated and
junior in right of payment to the extent set forth in the Indenture to the prior
payment in full of all amounts then due on all Senior Indebtedness (as defined
in the Indenture). No payment shall be made by the Company on account of
principal of (or premium, if any) or interest on the Debt Securities or on
account of the purchase or other acquisition of Debt Securities, if there shall
have occurred and be continuing a default with respect to any Senior
Indebtedness permitting the holders to accelerate the maturity thereof, or with
respect to the payment of any Senior Indebtedness and such default shall be the
subject of a judicial proceeding or the Company shall have received notice of
such default from any holder of Senior Indebtedness, unless and until such
default or event of default shall have been cured or waived or shall have ceased
to exist. By reason of these provisions, in the event of default on any Senior
Indebtedness, whether now outstanding or hereafter issued, payments of principal
of (and premium, if any) and interest on the Debt Securities may not be
permitted to be made until such Senior Indebtedness is paid in full, or the
event of default on such Senior Indebtedness is cured or waived.
Upon any acceleration of the principal of the Debt Securities or any
distribution of assets of the Company upon any receivership, dissolution,
winding-up, liquidation, reorganization, or similar proceedings of the Company,
whether voluntary or involuntary, or in bankruptcy or insolvency, all amounts
due or to become due upon all Senior Indebtedness must be paid in full before
the holders of the Debt Securities or the Trustee are entitled to receive or
retain any assets so distributed in respect of the Debt Securities. By reason of
this provision, in the event of insolvency, holders of the Debt Securities may
recover less, ratably, than holders of Senior Indebtedness.
"Senior Indebtedness" will be defined to mean the principal, premium, if
any, unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post-filing interest is allowed in such proceeding), fees,
charges, expenses, reimbursement and indemnification obligations, and all other
amounts payable under or in respect of secured Indebtedness (as defined) or
Indebtedness for money borrowed, whether any such Indebtedness exists as of the
date of the Indenture or is created, incurred, assumed or guaranteed after such
date. There is no limit on the amount of Senior Indebtedness that the Company
may incur.
"Indebtedness" with respect to any Person will be defined to mean:
(i) any debt (a) for money borrowed, (b) evidenced by a bond, note,
debenture or similar instrument (including purchase money obligations) given in
connection with the acquisition of any business, property or assets, whether by
purchase, merger, consolidation or otherwise, but shall not include any account
payable or other obligation created or assumed by a Person in the ordinary
course of business in connection with the obtaining of materials or services, or
(c) which is a direct or indirect obligation, which arises as a result of
banker's acceptances or bank letters of credit issued to secure obligations of
such Person, or to secure the payment of revenue bonds issued for the benefit of
such Person, whether contingent or otherwise;
(ii) any debt of others described in the preceding clause (i) which such
Person has guaranteed or for which it is otherwise liable;
(iii) the obligation of such Person as lessee under any lease of property
which is reflected on such Person's balance sheet as a capitalized lease; and
(iv) any deferral, amendment, renewal, extension, supplement or refunding of
any liability of the kind described in any of the preceding clauses (i), (ii)
and (iii), provided, however, that, in computing the "Indebtedness" of any
Person, there shall be excluded any particular indebtedness if, upon or prior to
the maturity thereof, there shall have been deposited with a depository in trust
money (or evidences of indebtedness if permitted by the instrument creating such
indebtedness) in the necessary amount to pay, redeem or satisfy such
indebtedness as it becomes due, and the amount so deposited shall not be
included in any computation of the assets of such Person.
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OPTIONAL REDEMPTION
Unless otherwise provided in the applicable Prospectus Supplement, the Debt
Securities will be subject to redemption, as a whole or in part, at any time and
from time to time, at the option of the Company upon at least 30 days' prior
notice by mail at a redemption price equal to 100% of the principal amount
thereof, plus interest accrued to the date of redemption. The Debt Securities
will not be redeemable prior to the date, if any, specified in the applicable
Prospectus Supplement; provided, however, the Debt Securities will be subject to
redemption, in whole or in part, at any time at the option of the Company, if in
the opinion of the Company, such redemption is reasonably prudent to protect the
Company's status as a REIT, at a redemption price equal to 100% of the principal
amount, plus interest accrued to the date of redemption. The Company may
exercise this redemption power solely with respect to the securities of the
security holder or holders which pose a threat to the Company's REIT status to
the extent deemed necessary by the Company's Board of Trustees to preserve such
status. The Company may at any time buy Debt Securities on the open market at
prices which may be greater or less than the optional redemption price listed
above.
DIVIDENDS, DISTRIBUTIONS AND ACQUISITIONS OF CAPITAL SHARES
Other than as the Company determines is required to maintain its status as a
REIT, the Company may not (i) declare or pay any dividend, or make any
distribution on its Common Shares to its shareholders (other than dividends) or
(ii) purchase, redeem or otherwise acquire or retire for value any of its Common
Shares or any warrants, rights or options to purchase or acquire any Common
Shares (other than the Debt Securities or any other convertible indebtedness of
the Company that is neither secured nor subordinated to the Debt Securities), if
at the time of such action an Event of Default has occurred and is continuing or
would exist immediately after such action.
MODIFICATION OF THE INDENTURE
The Company and the Indenture Trustee may amend the Indenture or the Debt
Securities with the written consent of the holders of at least 66 2/3% in
principal amount of the outstanding Debt Securities. However, without the
consent of each Debt Securities Holder affected, an amendment may not: (i)
reduce the amount of Debt Securities whose holders must consent to an amendment;
(ii) reduce the rate or extend the time for payment of interest on any Debt
Securities; (iii) reduce the principal or redemption price of or extend the
fixed maturity of any Debt Securities; (iv) waive a default in the payment of
the principal of (and premium, if any, on), interest on or redemption amounts
with respect to any Debt Securities; (v) make any Debt Securities payable in
money other than that stated in the Debt Securities; (vi) change the provisions
of the Indenture regarding the right of a majority of Debt Securities Holders to
waive defaults under the Indenture, impair the right of any Debt Securities
Holder to institute suit for the enforcement of any payment of principal of and
interest on the Debt Securities on and after their respective due dates, or
modify any provisions of the Indenture relating to the modification, supplement
and amendment of the Indenture or waivers of past defaults, except as otherwise
specified; (vii) make any change that adversely affects the right to convert any
Debt Security; or (viii) make any change regarding the subordination of the Debt
Securities.
No consent of Debt Securities Holders will be required for the Company to
consolidate with or merge into or transfer or lease substantially all of its
assets to another corporation or trust which assumes the obligations of the
Company under the Indenture and Debt Securities or for any reorganization within
the meaning of Section 368(a) of the Code; nor shall any such consent of Debt
Securities Holders be required for any amendment of the Indenture or the Debt
Securities by the Company and the Indenture Trustee to cure any ambiguity,
defect or inconsistency, or to provide for uncertificated Debt Securities in
addition to certificated Debt Securities, or to make any change that does not
adversely affect the right of any Debt Securities Holder.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture will provide that the following events will constitute "Events
of Default": (i) default in the payment of interest on the Debt Securities when
due and payable, which default continues for 30 days; (ii) default in the
payment of principal (and premium, if any) when due, at maturity, upon
redemption or otherwise, which default continues for 15 business days; (iii)
failure to perform any other covenant of the Company contained in the Indenture
or the Debt Securities which continues for 60 days after written notice as
provided in the Indenture; and (iv) certain events of bankruptcy, insolvency or
reorganization relating to the Company. If an Event of Default shall occur and
be continuing, the Indenture Trustee or the holders of a majority in aggregate
principal amount of the outstanding Debt Securities may declare the Debt
Securities due and payable.
The Indenture will provide that the Indenture Trustee may require indemnity
satisfactory to it before it enforces the Indenture. Subject to certain
limitations, holders of a majority in principal amount of the Debt Securities
may direct the Indenture Trustee in its exercise of any trust or power. The
Indenture will provide that the Indenture Trustee shall, within 90 days after it
receives notice of an Event of Default, give to the Debt Securities Holders
notice of all uncured defaults known to it, but the Indenture Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of such holders, except in the
case of a default in the payment of the principal of (or premium, if any), or
interest on, any of the Debt Securities.
The Indenture will provide that the holders of a majority in principal
amount of the outstanding Debt Securities may direct the time, method and place
of conducting any proceedings for any remedy available to the Indenture Trustee
or exercising any trust or power conferred on the Trustee. The right of a holder
to institute a proceeding with respect to the Indenture will be subject to
certain conditions precedent including notice and indemnity to the Trustee, but
the holder has an absolute right to receipt of principal of (and premium, if
any), and interest on, such holder's Debt Securities on or after the respective
due dates expressed in the Debt Securities, and to institute suit for the
enforcement of any such payments.
The holders of a majority in principal amount of the outstanding Debt
Securities may, on behalf of the holders of all Debt Securities, waive certain
past defaults except a default in payment of the principal of (or premium, if
any), or interest on, any Debt Securities or in respect of certain provisions of
the Indenture which cannot be modified or amended without the consent of the
holder of each outstanding Debenture affected thereby.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company may merge or consolidate with, or sell, transfer or lease all or
substantially all of its assets to any other entity, provided that (i) either
the Company shall be the continuing entity, or the successor entity (if other
than the Company) shall be a corporation or trust organized and existing under
the laws of the United States or a state or territory thereof (although it may,
in turn, be owned by a foreign entity) and such entity shall expressly assume by
supplemental indenture all the obligations of the Company under the Debt
Securities and the Indenture; (ii) immediately after giving effect to such
transaction no Event of Default shall have occurred and be continuing; and (iii)
the Company shall have delivered to the Indenture Trustee an officer's
certificate and opinion of counsel, stating that the transaction and
supplemental indenture comply with the Indenture.
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DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the capital stock set forth below does not
purport to be complete and is subject to, and qualified in its entirety by,
reference to the Company's Declaration of Trust and the Company's Bylaws.
GENERAL
The Company's Declaration of Trust authorizes it to issue up to 102,000,000
shares, consisting of 100,000,000 of Common Shares and 2,000,000 of Preferred
Shares, and such other types or classes of shares of beneficial interest as the
Trustees may create and authorize from time to time. No Preferred Shares are
outstanding and the Company has no present plans to issue any Preferred Shares.
The Declaration of Trust also provides that, subject to the provisions of
any class or series of the Common Shares other than Common Shares then
outstanding, the shareholders of the Company shall be entitled to vote only on
the following matters: (a) election or removal of Trustees; (b) amendment of the
Declaration of Trust; (c) termination of the Company; and (d) merger,
consolidation or share exchange of the Company or the sale or disposition of all
or substantially all of the Company's assets. Except for the election or removal
of Trustees, which requires the approval of holders of a majority of the Common
Shares present at a meeting at which a quorum is present, each of the other
matters requires the affirmative approval of holders of two-thirds of the Common
Shares issued and outstanding and entitled to vote upon the matter. Except with
respect to the foregoing matters, no action taken by the shareholders at any
meeting shall in any way bind the Trustees.
Both Maryland statutory law governing REITs and the Declaration of Trust
provide that no shareholder will be personally liable for any obligation of the
Company. Pursuant to the Declaration of Trust, the Company's Bylaws further
provide that the Company shall indemnify each shareholder against any claim or
liability to which the shareholder may become subject by reason of his being or
having been a shareholder, and that the Company shall reimburse each shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. In addition, it will be the Company's policy to
include a clause in its contracts which provides that shareholders assume no
personal liability for obligations entered into on behalf of the Company.
However, with respect to tort claims, contractual claims where shareholder
liability is not so negated, claims for taxes and certain statutory liability,
the shareholder may, in some jurisdictions, be personally liable to the extent
that such claims are not satisfied by the Company. Inasmuch as the Company will
carry public liability insurance which it considers adequate, any risk of
personal liability to shareholders is limited to situations in which the
Company's assets plus its insurance coverage would be insufficient to satisfy
the claims against the Company and its shareholders.
The transfer agent and registrar for the Common Shares is the Continental
Stock Transfer and Trust Company, located in New York, New York.
COMMON SHARES. Each outstanding Common Share entitles the holder to one
vote on all matters submitted to a vote of shareholders, including the election
of Trustees. There is no cumulative voting in the election of Trustees, which
means that the holders of a majority of the outstanding Shares can elect all of
the Trustees then standing for election. Holders of Common Shares are entitled
to such distributions as may be declared, from time to time, by the Trustees out
of funds legally available therefor.
Holders of Common Shares have no conversion, redemption or preemptive rights
to subscribe for any securities of the Company. All outstanding Common Shares
will be fully paid and nonassessable. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, holders of Common
Shares will be entitled to share ratably in the assets of the Company remaining
after provision for payment of liabilities to creditors and preferential rights
of the Preferred Shares, if any.
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Common Shares shall have equal dividend, distribution, liquidation and other
rights, and shall have no preference, preemptive, appraisal, conversion or
exchange rights.
PREFERRED SHARES. The Preferred Shares authorized by the Company's
Declaration of Trust may be issued, from time to time, in one or more series in
such amounts and with such preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption as may be fixed by the Trustees. Under certain
circumstances, the issuance of Preferred Shares could have the effect of
delaying, deferring or preventing a change of control of the Company and may
adversely affect the voting and other rights of the holders of the Common
Shares. No Preferred Shares are outstanding and the Company has no present plans
to issue any Preferred Shares.
CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED
SHARES. The Declaration of Trust authorizes the Trustees to classify or
reclassify any unissued Shares, including Common Shares or Preferred Shares, by
setting or changing the designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions, qualifications or
terms or conditions of redemption of any such Shares.
EXCESS SHARES. The Declaration of Trust provides that no holder may own, or
be deemed to own under the applicable attribution rules of the Code, Common
Shares in excess of the Beneficial Ownership Limitations or the Constructive
Ownership Limitations (the "Ownership Limit"), and that no purported transfer of
Common Shares may be given effect if it results in ownership of all of the
outstanding Common Shares by fewer than 100 persons or results in the Company
being "closely held" within the meaning of Section 856(h) of the Code (a
"Prohibited Transfer"). In the event of a purported transfer or other event that
would, if effective, result in Common Share ownership in violation of the
Ownership Limit, the number of Common Shares in excess of the Ownership Limit
would automatically be converted into "Excess Shares." Excess Shares are Common
Shares automatically transferred to a special trust to be maintained by the
Company in respect of each such transfer to the extent necessary to ensure that
the purported transfer or other event does not result in Common Share ownership
in violation of the Ownership Limit.
A purported transferee of Common Shares converted into Excess Shares is not
entitled to voting rights, except to the extent required by law, or to any
dividends, distributions or other rights as a shareholder. If, after the
purported transfer or other event resulting in a conversion of Common Shares
into Excess Shares and prior to the discovery thereof by the Company, dividends
or distributions are paid with respect to such Common Shares, then such
dividends or distributions are to be repaid to the Company upon demand. Excess
Shares will be held in trust by the Company for the benefit of the ultimate
transferee of an interest in such trust. While Excess Shares are held in trust,
an interest in that trust may be transferred by the purported transferee or
other purported holder with respect to such Excess Shares only to a person whose
ownership of the Common Shares will not violate the Ownership Limit and to whom
such transfer will not constitute a Prohibited Transfer, at which time the
Excess Shares will be automatically converted into Common Shares of the same
type and class as the Common Shares for which the Excess Shares were originally
converted. The Declaration of Trust contains provisions that are designed to
ensure that the purported transferee or other purported holder of the Excess
Shares may not receive in return for such a transfer an amount that reflects any
appreciation in the Common Shares for which such Excess Shares were converted
during the period that such Excess Shares were outstanding. Any amount received
by a purported transferee or other purported holder in excess of the amount
permitted to be received must be turned over to the Company.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% of
its outstanding Common Shares may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year; the Common Shares must be beneficially
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owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year; and certain
percentages of the Company's gross income must be from particular activities
(see "Federal Income Tax Considerations--Federal Income Taxation of the
Company"). Because the Trustees believe it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust contains provisions that
restrict the ownership and transfer of Common Shares. The Declaration of Trust
contains a number of provisions which restrict the ownership and transfer of
Common Shares and which are designed to safeguard the Company against an
inadvertent loss of REIT status. In order to prevent any shareholder from owning
Common Shares in an amount which would cause more than 50% in number or value of
the outstanding Common Shares of the Trust to be held by five or fewer
individuals after the offering, the Declaration of Trust contains Beneficial
Ownership Limitations that, with certain exceptions, restrict shareholders from
owning, under the applicable attribution rules of the Code, more than 9.9% of
the outstanding Common Shares, in number or value, either in the aggregate or of
any class.
Shareholders who own, under the attribution rules of the Code that apply for
purposes of the Beneficial Ownership Limitations, more than 9.9% of the
outstanding Common Shares, in number or value, either in the aggregate or of any
class shall be required to provide the Company with information concerning their
ownership of Common Shares. In the event that such a shareholder does not
provide the Company with such information and, as a result, five or fewer
persons would, but for the exchange described below, own, under the attribution
rules of the Code that apply for purposes of the Beneficial Ownership
Limitations, more than 49.9% of the Common Shares, then, to the extent necessary
to prevent such ownership from exceeding 49.9%, Common Shares owned by such
shareholder in excess of 9.9% under the applicable attribution rules will be
automatically converted into Excess Shares on the day prior to the date that
such ownership would otherwise have risen above 49.9%, with the result that such
shareholder will not be entitled to the benefits associated with the ownership
of the Common Shares exchanged for any period following the automatic exchange.
See "Description of Capital Stock--General--Excess Shares" above.
Shareholders should be aware that events other than a purchase or other
transfer of Common Shares can result in ownership, under the applicable
attribution rules of the Code, of Common Shares in excess of the Beneficial
Ownership Limitations. For instance, if two shareholders, each of whom own,
under the applicable attribution rules of the Code, 5% of the outstanding Common
Shares, were to marry, then after their marriage both shareholders would own,
under the applicable attribution rules of the Code, 10% of the outstanding
Common Shares, which is in excess of the Beneficial Ownership Limitation for
Common Shares. Similarly, if a shareholder who owns 9% of the Common Shares also
owns 50% of a corporation which owns 8% of the Common Shares, then the
shareholder would own, under the applicable attribution rules of the Code, 13%
of the outstanding Common Shares (one-half of the 8% owned by the corporation,
plus the 9% owned by the shareholder). Shareholders should consult their own tax
advisers concerning the application of the attribution rules of the Code in
their particular circumstances.
Under the Code, rental income received by a REIT from persons in which the
REIT is treated, under the applicable attribution rules of the Code, as owning a
10% or greater interest does not constitute qualifying income for purposes of
the income requirements that REITs must satisfy. See "Federal Income Tax
Considerations--Federal Income Taxation of the Company--Income Tests." For these
purposes, a REIT is treated as owning any stock owned, under the applicable
attribution rules of the Code, by a person that owns 10% or more of the value of
the outstanding shares of the REIT. Therefore, in order to ensure that rental
income of the Company will not be treated as nonqualifying income under the rule
described above, and thus to ensure that there will not be an inadvertent loss
of REIT status as a result of the ownership of Common Shares by a tenant, or a
person that holds an interest in a tenant, the Declaration of Trust also
contains Constructive Ownership Limitations that restrict, with certain
exceptions, shareholders from owning, under the applicable attribution rules of
the Code (which are different from those applicable with respect to the
Beneficial Ownership Limitations), more than 9.9% of the outstanding Common
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Shares, in number or value, either in the aggregate or of any class. Subject to
certain exceptions, the Declaration of Trust also contains restrictions that are
designed to ensure that the shareholders who own, under the applicable
attribution rules of the Code, Common Shares in excess of the Constructive
Ownership Limitations will not, in the aggregate, own an interest in a tenant or
subtenant of the REIT of sufficient magnitude to cause rental income received,
directly or indirectly, by the REIT from such tenant or subtenant to be treated
as nonqualifying income for purposes of the income requirements that REITs must
satisfy.
Shareholders should be aware that events other than a purchase or other
transfer of Common Shares can result in ownership, under the applicable
attribution rules of the Code, of Common Shares in excess of the Constructive
Ownership Limitation. As the attribution rules that apply with respect to the
Constructive Ownership Limitations differ from those that apply with respect to
the Beneficial Ownership Limitations, the events other than a purchase or other
transfer of Common Shares which can result in Common Share ownership in excess
of the Constructive Ownership Limitations can differ from those which can result
in Common Share ownership in excess of the Beneficial Ownership Limitations.
Shareholders should consult their own tax advisers concerning the application of
the attribution rules of the Code in their particular circumstances.
For purposes of calculating the Common Shares owned by a shareholder to
determine the applicability of the Beneficial Ownership Limitations and the
Constructive Ownership Limitations, the beneficial ownership rules contained in
Regulation 13D promulgated under the Securities Exchange Act of 1934, as
amended, will be applied. Accordingly, all rights to acquire Common Shares and
all securities convertible into Common Shares will be deemed to have been
exercised or converted, as the case may be.
The Trustees may waive the Beneficial Ownership Limitations or the
Constructive Ownership Limitations, including the limitations applicable to
holders who own in excess of 9.9% either in the aggregate or of the Common
Shares of any class, if evidence satisfactory to the Trustees and the Company's
tax counsel is presented showing that such waiver will not jeopardize the
Company's status as a REIT under the Code and will not otherwise adversely
affect the Company. As a condition of such waiver, an intended transferee must
give written notice to the Company and must furnish such opinions of counsel,
affidavits, undertakings, agreements and information as may be required by the
Trustees. If, in the opinion of management, the requested waiver raises
significant issues which could adversely affect the status of the Company as a
REIT for federal income tax purposes, then the Trustees will require an opinion
of counsel with respect to such issues prior to granting the waiver. The
foregoing restrictions on transferability and ownership will not apply if the
Trustees determine that it is no longer in the best interests of the Company to
attempt to qualify, or to continue to qualify, as a REIT. Any transfer of Common
Shares or any security convertible into Common Shares that would (i) create a
direct or indirect ownership of Common Shares in excess of the Beneficial
Ownership Limitations or the Constructive Ownership Limitations, (ii) result in
the Common Shares 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 Shares.
The Declaration of Trust provides that the Company, by notice to the holder
thereof, may purchase any or all Excess Shares resulting from any transfer or
other event. The price at which the Company may purchase such Excess Shares
shall be equal to the lesser of (i) in the case of Excess Shares resulting from
a purported transfer for value, the price per share in the purported transfer
that caused the automatic exchange for such Excess Shares or, in the case of
Excess Shares resulting from some other event, the market price of such Common
Shares on the date of the automatic conversion into Excess Shares, or (ii) the
market price of such Common Shares on the date the Company accepts the offer to
purchase such Excess Shares. Any dividend or distribution paid to a proposed
transferee on Excess Shares prior to the discovery by the Company that such
Common Shares have been transferred in violation of the provisions of the
Company's Declaration of Trust shall be repaid to the Company upon demand. If
the foregoing transfer restrictions are determined to be void or invalid by
virtue of any legal decision, statute, rule or
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regulation, then the intended transferee or holder of any Excess Shares may be
deemed, at the option of the Company, to have acted as an agent on behalf of the
Company in acquiring such Excess Shares and to hold such Excess Shares on behalf
of the Company.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 9.9% in number or value either in the aggregate or of any
class of the outstanding Common Shares must give a written notice to the Company
containing the information specified in the Declaration of Trust by January 30
of each year. In addition, each shareholder shall upon demand be required to
disclose to the Company in writing such information with respect to the direct,
indirect and constructive ownership of beneficial interests as the Trustees deem
necessary to comply with the provisions of the Code applicable to a REIT, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
To maintain its qualification as a REIT for federal income tax purposes, the
outstanding shares of a REIT may not be held by fewer than 100 persons. In
addition, the REIT must not be "closely held" within the meaning of Section
856(h) of the Code. In order to ensure compliance with these conditions, the
Declaration of Trust provides that any purported Prohibited Transfer which would
result in the Common Shares being held by less than 100 persons, or would result
in the Company being "closely held," will be void and have no force or effect.
Consequently, the transferor will retain all rights to such Common Shares
notwithstanding any purported assignment or transfer on the books of the
Company. As a result, the original transferor will be entitled to receive from
any purported transferee dividends and distributions paid by the Company in
respect of such Common Shares.
The Ownership Restrictions may have the effect of precluding acquisition of
control of the Company unless the Trustees determine that maintenance of REIT
status is no longer in the best interests of the Company.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION
OF TRUST AND BYLAWS
The following discussion summarizes certain provisions of Maryland law and
the Company's Declaration of Trust and Bylaws. This summary does not purport to
be complete and reference is made to Maryland law and the Company's Declaration
of Trust and Bylaws for complete information.
BOARD OF TRUSTEES
The Company's Declaration of Trust provides that the number of trustees of
the Company cannot be less than three nor more than 15. The Declaration of Trust
and Bylaws provide that an annual meeting of shareholders be held to elect the
Trustees who will serve for the ensuing year and until their successors are duly
elected and qualify. Any vacancy (including a vacancy created by an increase in
the number of trustees) will be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the Trustees. The Trustees
will each serve for a term of one year (except that an individual who has been
elected to fill a vacancy will hold office only for the unexpired term of the
trustee he is replacing); provided, however, under the terms of the Company's
Declaration of Trust, the Trustees may, at any time and from time to time,
provide that in any subsequent election the Board of Trustees shall be divided
into classes, so long as the term of office of a Trustee shall be not more than
three years and the term of office of at least one class shall expire each year.
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law ("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 its stock (an "Interested Shareholder") must
be (a) recommended by the directors of such corporation, 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 Shareholder with whom the business
combination is to be effected, unless, among other things, the corporation's
common shareholders receive a minimum price (as defined in the statute) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for his shares. In addition, an
Interested Shareholder or any affiliate thereof may not engage in a "business
combination" with the corporation for a period of five years following the date
he becomes an Interested Shareholder. These provisions of Maryland law do not
apply, however, to business combinations that are approved or exempted by the
board of directors of the corporation prior to the time that the Interested
Shareholder becomes an Interested Shareholder. The foregoing provisions of the
Maryland General Corporation Law apply to Maryland REITs.
AMENDMENT TO THE DECLARATION OF TRUST
The Trustees, by a two-thirds vote, may amend the provisions of the
Company's Declaration of Trust from time to time to qualify the Company as a
REIT. Except as set forth in the preceding sentence, the Company's Declaration
of Trust, other than provisions therein relating to (i) removal of Trustees,
(ii) restrictions on transfers, and (iii) certain reorganization transactions of
the Company, may be amended only by the affirmative vote or written consent of
the holders of not less than a majority of the Common Shares then outstanding
and entitled to vote thereon. The provisions described in clauses (i) through
(iii) in the preceding sentence may be amended only by the affirmative vote or
written consent of the holders of not less than two-thirds of the Common Shares
then outstanding.
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DISSOLUTION OF THE COMPANY AND TERMINATION OF REIT STATUS
The Company's Declaration of Trust permits the termination of the Company
and the discontinuance of the operations of the Company by (i) the affirmative
vote of the holders of not less than a majority of the outstanding Common Shares
at a meeting of shareholders called for that purpose, or (ii) the Trustees,
without any vote, action or consent by the shareholders, if they determine that
such action is in the best interests of the Company and its shareholders. In
addition, the Company's Declaration of Trust permits the Trustees to terminate
the status of the Company as a REIT at any time.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
such person, or in respect of which such person is able to exercise or direct
the exercise of voting power, would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting power:
(i) one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority. Control shares do not include shares the
acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel a board of directors to call a special meeting of shareholders to be
held within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made, the corporation may itself present the question
at any shareholders meeting.
Unless the Declaration of Trust or Bylaws provide otherwise, if voting
rights are not approved at the meeting or if the acquiring person does not
deliver an acquiring person statement within 10 days following a control share
acquisition, then, subject to certain conditions and limitations, the Company
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined, without regard
to the absence of voting rights for control shares, as of the date of the last
control share acquisition or of any meeting of shareholders at which the voting
rights of such shares are considered and not approved. Moreover, unless the
Declaration of Trust or Bylaws provide otherwise, if voting rights for control
shares are approved at a shareholders' meeting and the acquiror becomes entitled
to vote a majority of the shares entitled to vote, all other shareholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquiring person in the control share acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a control share acquisition.
FEDERAL INCOME TAX CONSIDERATIONS
The Company believes that it has qualified and intends to remain qualified
to be taxed as a REIT for federal income tax purposes under Sections 856 through
860 of the Code, commencing with the Company's taxable year ended December 31,
1993. The following discussion addresses the material tax considerations
relevant to the taxation of the Company and summarizes certain federal income
tax consequences that may be relevant to certain shareholders. However, the
actual tax consequences of holding particular securities being issued by the
Company may vary in light of a prospective securities holder's particular facts
and circumstances. Certain holders, such as tax-exempt entities, insurance
companies and financial institutions, are generally subject to special rules. In
addition, the following discussion does not discuss issues under any
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foreign, state or local tax laws. The tax treatment of a holder of any of the
securities offered by Prospectus Supplements will vary depending upon the terms
of the specific securities acquired by such holder, as well as his particular
situation, and this discussion does not attempt to address aspects of federal
income taxation relating to holders of particular securities. Certain federal
income tax considerations relevant to holders of the particular securities will
be provided in the applicable Prospectus Supplement relating thereto. Gordon,
Feinblatt, Rothman, Hoffberger & Hollander, LLC has acted as tax counsel to the
Company in connection with the filing of this Prospectus. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. No rulings have been obtained or are expected to be
obtained from the IRS concerning any of the matters discussed herein. It should
be noted that the Code, rules, regulations, and administrative and judicial
interpretations are all subject to change (possibly on a retroactive basis).
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS WITH HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OF THE
ACQUISITION, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
It is the opinion of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
that the Company is organized and is operating in conformity with the
requirements for qualification and taxation as a REIT commencing with the
Company's taxable year ended December 31, 1993, and its method of operation will
enable it to continue to meet the requirements for qualification and taxation as
a REIT under the Code. It must be emphasized that this opinion is based on
various assumptions and is conditioned upon certain representations made by the
Company as to factual matters including, but not limited to, those set forth
below in this discussion of "Federal Income Tax Considerations" and those
concerning its business and properties as set forth in this Prospectus and in
any Prospectus Supplement. Moreover, such qualification and taxation as a REIT
depends upon the Company's ability to meet, through actual annual (and with
respect to certain tests quarterly) operating results, the various income,
asset, distribution, stock ownership and other tests discussed below, the
results of which will not be reviewed by Gordon, Feinblatt, Rothman, Hoffberger
& Hollander, LLC. Accordingly, no assurance can be given that the actual results
of the Company's operations for any one taxable year (or quarter) will satisfy
such requirements.
If the Company initially failed to elect or qualify for taxation as a REIT
or ceases to qualify as a REIT, and the relief provisions do not apply, the
Company's income that is distributed to shareholders would be subject to the
"double taxation" on earnings (once at the corporate level and again at the
shareholder level) that generally results from investment in a corporation.
Failure to qualify and to maintain qualification as a REIT would force the
Company to reduce significantly its distributions and possibly incur substantial
indebtedness or liquidate substantial investments in order to pay the resulting
corporate taxes. In addition, the Company, once having obtained REIT status and
having lost such status, would not be eligible to elect REIT status for the four
subsequent taxable years, unless its failure to maintain its qualification was
due to reasonable cause and not willful neglect, and certain other requirements
were satisfied. In order to elect to again be taxed as a REIT, just as with the
original election, the Company would be required to distribute all of its
earnings and profits accumulated in any non-REIT taxable year.
FEDERAL INCOME TAXATION OF THE COMPANY
GENERAL. If the Company qualifies for tax treatment as a REIT pursuant to
Code Sections 856 through 860, it will generally not be subject to Federal
corporate taxation on its net income to the extent currently distributed to its
shareholders. This substantially eliminates the "double taxation" that typically
results from the use of corporate investment vehicles.
The Company will be subject to Federal income tax, however, as follows:
First, the Company will be taxed at regular corporate rates on its undistributed
REIT taxable income, including undistributed net
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capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference to the extent
that tax exceeds its regular tax. Third, if the Company has net income from the
sale or other disposition of "foreclosure property" that is held primarily for
sale to customers in the ordinary course of business or other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, any net income that the Company has from
prohibited transactions (which are, in general, certain sales or other
dispositions of property other than foreclosure property held primarily for sale
to customers in the ordinary course of business) will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy either the 75% or 95% gross income
tests (as discussed below), and has nonetheless maintained its qualification as
a REIT because certain other requirements have been met, it will be subject to a
100% tax on the net income attributable to the greater of the amount by which
the Company fails the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each 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 preceding periods, the Company will be
subject to a nondeductible 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if (a) during the
10-year period commencing on the first day of the first taxable year that the
Company qualifies as a REIT, the Company recognizes a gain from the disposition
of an asset held by the Company at the beginning of such period, or (b) during
the 10-year period commencing on the date the Company acquires appreciated
property from a Subchapter C corporation in a transaction in which the Company
inherits the tax basis in such asset from the Subchapter C corporation and the
Company recognizes a gain from the disposition of such asset, then the Company
will be subject to tax at the highest regular corporate rate on the lesser of
(i) the recognized gain or (ii) the excess, if any, of the fair market value
over the adjusted basis of any such asset as of the beginning of such 10-year
period (the "Built-In-Gain"). Moreover, the aggregate Built-In-Gain during the
10-year period cannot exceed the total net Built-In-Gain of all assets at the
beginning of the 10-year period. Subject to certain limitations, the Company
may, to the extent available, utilize any pre-REIT net operating loss (NOL)
carryforwards to offset recognized gains.
Code Section 856(a) defines a Real Estate Investment Trust as a corporation,
trust or association: (i) managed by one or more trustees or directors; (ii) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (iii) which (except for the
provisions of Sections 856 through 860 of the Code) would be taxable as a
domestic corporation; (iv) is neither a financial institution nor an insurance
company pursuant to certain provisions of the Code; (v) the beneficial ownership
of which is held by 100 or more persons; (vi) during the last half of each
taxable year, not more than 50% in number or value of the outstanding shares are
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities); and (vii) meets certain other tests,
described below, regarding its income and assets. The requirements and
conditions set forth in (i) through (iv), inclusive, must be met during each day
of the taxable year. The requirements set forth in (v) must be met during at
least 335 days of a taxable year of 12 months, or during the proportionate part
of a taxable year of less than 12 months.
The Company is owned by more than 100 persons and management has represented
that not more than 50% in number or value of the outstanding stock of the
Company is owned by five or fewer individuals. Moreover, the Declaration of
Trust provides for restrictions regarding ownership of the Common Shares, which
will assist the Company in continuing to satisfy the beneficial ownership
requirements described above. See "Description of Capital Stock--Restrictions on
Ownership and Transfer."
The Company owns and operates a number of properties through wholly-owned
subsidiaries. Code Section 856(i) provides that a corporation which is a
"qualified REIT subsidiary" shall not be treated as a separate corporation, and
all assets, liabilities and items of income, deduction and credit of a qualified
REIT subsidiary shall be treated as assets, liabilities, and such items (as the
case may be) of the REIT. Thus, in applying the requirements described herein,
the Company's qualified REIT subsidiaries will be
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ignored, and all assets, liabilities and items of income, deduction and credit
of its wholly-owned subsidiaries will be treated as assets, liabilities and
items of the Company. In addition, the Company will be deemed to own its
proportionate share of the assets and liabilities of any partnership in which it
is a partner.
INCOME TESTS. There are three percentage tests relating to the sources of
the Company's gross income. First, at least 75% of the Company's gross income
(excluding gross income from prohibited transactions) must be directly or
indirectly derived each taxable year from investments relating to real property
or mortgages on real property or certain temporary investments. Second, at least
95% of the Company's gross income (excluding gross income from prohibited
transactions) must be directly or indirectly derived each taxable year from any
of the sources qualifying for the 75% test or from dividends, interest, and gain
from the sale or disposition of stock or securities. Third, in each taxable year
short-term gains from sales of stock or securities, gains from prohibited
transactions and gains from the sale or other taxable disposition of real
property held for less than four years (other than from involuntary conversions
and foreclosure property) must represent less than 30% of the Company's gross
income. In applying these tests, if the Company invests in a partnership, the
Company will be treated as realizing its share of the gross income of the
partnership, and the character of such income, as well as other partnership
items, will be determined at the partnership level.
The term "prohibited transaction" means a sale or other distribution of
property which would constitute stock in trade of the taxpayer, property which
would properly be included in inventory of the taxpayer or property held by the
taxpayer primarily for sale to customers in the ordinary course of his trade or
business, which is not foreclosure property. However, a prohibited transaction
does not include a sale of property which is a real estate asset as defined
below if all of the following conditions are satisfied: (i) the REIT has held
the property for at least four years; (ii) aggregate expenditures made by the
REIT, or any partner of the REIT, during the four year period preceding the date
of sale which are includable in the basis of the property do not exceed 30% of
the net selling price of the property; (iii) (I) during a taxable year the REIT
does not make more than seven sales of property (other than foreclosure
property), or (II) the aggregate adjusted basis (as determined for purposes of
computing earnings and profits) of properties (other than foreclosure property)
sold during the taxable year does not exceed 10% of the aggregate basis (as so
determined) of all of the assets of the REIT as of the beginning of the taxable
year; (iv) in the case of property, which consists of land or improvements, not
acquired through foreclosure or deed in lieu of foreclosure, or lease
termination, the REIT has held the property for not less than four years for
production of rental income; and (v) if the requirement of clause (iii)(I) is
not satisfied, substantially all of the marketing and development expenditures
with respect to the property were made through an independent contractor (as
defined in Code section 856(b)(3)) from whom the REIT itself does not derive or
receive any income.
Rents received by the Company qualify as "rents from real property" for
purposes of satisfying the gross income tests for a REIT only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person, although rents generally will not
be excluded merely because they are based on a fixed percentage of receipts or
sales. Second, rents received from a tenant will not qualify as "rents from real
property" if the REIT, or an owner of 10% or more of the REIT, also directly or
constructively owns 10% or more of such tenant. Third, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Fourth, for rents to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to the tenants of such property, other than through an independent contractor
from whom the REIT derives no income; provided, however, the Company may
directly perform certain services other than services which are considered
rendered to the occupant of the Property. The Company has represented that it
does not charge rent for any property that is based in whole or in part on the
income or profits of any person other than rent based on a percentage of
receipts or sales, as described above, and that it does not rent any property to
a related
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party tenant as described above. The Constructive Ownership restrictions
described above will assist the Company in satisfying this requirement. See
"Description of Capital Stock--Restrictions on Ownership and Transfer." Finally,
the Company directly performs services under certain of its leases.
The term "interest" generally does not include any amount if the
determination of such amount depends in whole or in part on the income or
profits of any person, although an amount generally will not be excluded from
the term "interest" solely by reason of being based on a fixed percentage of
receipts or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect. If the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax, it is not now possible to determine the circumstances under which the
Company may be entitled to the benefit of these relief provisions. If these
relief provisions apply, a special tax is imposed on the greater of the amount
by which the Company failed the 75% test or the 95% test.
ASSET TESTS. At the close of each quarter of its taxable year, the Company
must also satisfy several tests relating to the nature and diversification of
its assets. First, at least 75% of the value of the Company's total assets must
be represented by real estate assets, cash, cash items (including receivables
arising in the ordinary course of the Company's operation) and government
securities. For these purposes, a REIT's assets include its allocable share of
assets held by partnerships in which the REIT owns an interest and is held by
qualified REIT subsidiaries of the REIT. It also includes stock or debt
instruments held for not more than one year which were purchased with the
proceeds of a stock offering or long-term (at least five years) debt offering of
the REIT. In addition, not more than 25% of the Company's total assets may be
represented by securities other than those includable in the 75% asset class.
Moreover, of the investments included in the 25% asset class, the value of any
one issuer's securities owned by the Company may not exceed 5% of the Company's
total assets. Finally, of the investments included in the 25% asset class, the
Company may not own more than 10% of any one issuer's outstanding voting
securities.
If the Company inadvertently fails to satisfy one or more of the asset tests
at the end of the calendar quarter, the Company would still not lose its REIT
status, provided that (i) it satisfied all of the asset tests at the close of
the preceding quarter, and (ii) the discrepancy between the value of the
Company's assets and the standards imposed by the asset tests either did not
exist immediately after the acquisition of any particular asset or was not
wholly or partly caused by such an acquisition. Even if the provisions of clause
(ii) are not met, the Company could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which such
discrepancy arose.
The Company has numerous wholly owned subsidiaries. All of the Company's
current subsidiaries should be treated as "qualified REIT subsidiaries." As
noted above, such subsidiaries will not be treated as separate corporations for
United States federal income tax purposes pursuant to the provisions of Code
Section 856(i). Thus, for these purposes, the Company will not own more than 10%
of the outstanding securities of any one issuer as a result of the ownership of
its subsidiaries.
DIVIDEND REQUIREMENTS
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to make distributions (other than capital gain dividends) to
its shareholders 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 after tax net
income, if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. In addition, the Company will be required to distribute at
least 95% of any Built-in Gain (after tax ) it may recognize during the 10-year
period commencing on the date it acquires assets with a built-in gain from a
Subchapter C
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corporation in a carryover basis transaction. 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 distribution 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 thereon at regular corporate tax rates.
Finally, as discussed above, the Company may be subjected to an excise tax if it
fails to meet certain other distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, the Company may find it necessary to arrange for
borrowings or pay taxable stock dividends in order to meet the 95% requirement.
Under certain circumstances the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Company's deduction
for distributions paid for the earlier year. Thus, although the Company may be
able to avoid being taxed on amounts distributed as deficiency distributions, it
will be required to pay interest based upon the amount of any deduction taken
for deficiency distributions.
FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
The Company's election to be treated as a REIT will be automatically
terminated if the Company fails to meet the requirements described above. In
that event, the Company will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates, and
distributions to shareholders will not be deductible by the Company. All
distributions to shareholders will be taxable as ordinary income to the extent
of current and accumulated earnings and profits and will be eligible for the 70%
dividends received deduction for corporations. The Company will not be eligible
again to elect REIT status until the fifth taxable year which begins after the
year for which the Company's election was terminated unless the Company did not
willfully fail to file a timely return with respect to the termination taxable
year, inclusion of incorrect information in such return was not due to fraud
with intent to evade tax, and the Company establishes that failure to meet the
requirement was due to reasonable cause and not willful neglect. Failure to
qualify for even one year could result in the Company incurring substantial
indebtedness (to the extent borrowings are feasible) or liquidating substantial
investments in order to pay the resulting taxes.
FEDERAL INCOME TAXATION OF SHAREHOLDERS
GENERAL. As long as the Company qualifies for taxation as a REIT,
distributions made to the Company's shareholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
includable by the shareholders as ordinary income for federal income tax
purposes. None of these distributions will be eligible for the dividends
received deduction for corporate shareholders. 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 shareholder has held his
shares. Corporate shareholders, however, may be required to treat up to 20% of
certain capital gain dividends as ordinary income.
Distributions in excess of current or accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common Shares. Shareholders will be required
to reduce the tax basis of their Common Shares by the amount of such
distributions until such basis has been reduced to zero, after which such
distributions will be taxable at capital gain rates (except with respect to a
shareholder who holds his Common Shares as a dealer). The tax
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basis as so reduced will be used in computing the capital gain or loss, if any,
realized upon the sale of the Common Shares. Shareholders may not include in
their individual federal income tax returns any net operating losses or capital
losses of the Company. In addition, any distribution declared by the REIT in
October, November or December of any year payable to a shareholder of record on
a specified date in any such month shall be treated as both paid by the REIT and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the REIT no later than January 31 of the following
year. The REIT may be required to withhold a portion of capital gain
distributions to any shareholders who fail to certify their non-foreign status
to the REIT.
FOREIGN SHAREHOLDERS. In general, each foreign corporation, partnership and
nonresident alien individual that does not hold its, his or her REIT shares in
connection with the conduct of a United States trade or business, will be
subject to a 30% tax (or lesser amount, as provided by an applicable income tax
treaty) on all ordinary dividends paid with respect to such REIT shares. The
REIT itself will be required to withhold and pay over such tax. If a foreign
shareholder holds such shareholder's REIT shares in connection with the conduct
of a Untied States trade or business, and provides the REIT with a properly
executed Form 4224, such shareholder will be subject to tax on ordinary
dividends in the same manner as a United States person and the REIT will not
withhold any distributions to such shareholder. Distributions in excess of
current and accumulated earnings and profits of the Company will not be taxable
to a non-U.S. shareholder to the extent they do not exceed the adjusted basis of
the shareholder's Common Shares. Rather, such distributions will reduce the
adjusted basis of such Common Shares, but not below zero. To the extent that
such distributions exceed the adjusted basis of a non-U.S. shareholder's Common
Shares, they will give rise to tax liability if the non-US shareholder would
otherwise be subject to tax on any gain from the sale or disposition of the
Common Shares in the Company as described below. If, at the time the
distribution was made, it cannot be determined whether the distribution will be
in excess of current and accumulated earnings and profits, the distributions
will be subject to withholding at the same rate as a dividend. However, such
amounts would be refundable if it is subsequently determined that such
distribution was in excess of current and accumulated earnings and profits of
the Company.
To the extent a foreign shareholder receives REIT distributions attributable
to the sale or exchange of United States real property interests held by the
REIT, each foreign shareholder will be treated as having engaged in a United
States trade or business and, therefore, will be subject to United States
federal income tax in the same manner as a United States person on such
distributions. The REIT (or the United States nominees of a foreign shareholder)
must withhold 34% of all distributions to a foreign shareholder attributable to
the disposition of United States real property interests which are designated as
capital gain dividends, unless the foreign shareholder has provided the REIT (or
its United States nominee) with a statement claiming a withholding exemption
from the Internal Revenue Service. A foreign shareholder will be entitled to a
credit against his United States income tax equal to the amount so withheld.
Generally, a foreign person will not be subject to United States income tax
on any gain recognized upon a sale or exchange of such person's REIT shares.
However, if the REIT does not qualify as a "domestically controlled REIT", a
non-U.S. shareholder will be subject to tax on gain recognized upon the sale of
the shares. A domestically controlled REIT is defined as a REIT in which at all
times during a specified testing period less than 50% in number or value of the
shares are held directly or indirectly by foreign persons. It is anticipated
that the Company will qualify as a domestically controlled REIT. Non-U.S.
shareholders will also be taxed on gain recognized from the sale of their shares
in the REIT if (i) the investment in such shares is effectively connected with
the non-U.S. shareholder's United States trade or business, in which case a
shareholder will be subject to the same treatment as U.S. shareholders with
respect to such gain, or (ii) the non-U.S. shareholder is a non-resident alien
who is present in the United States for 183 days or more during the taxable year
and has a tax home in the United States, in which case the non-resident alien
will be subject to a 30% tax on the individual's capital gain.
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Foreign persons contemplating an investment in REIT shares should consult
their home country tax advisors concerning the tax treatment of such investment
under their home country laws, including their ability, if any, to obtain a tax
credit for any United States taxes paid.
BACKUP WITHHOLDING. The REIT will report to its shareholders and the IRS
the amount of distributions paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 20%, which rate will increase to
31% for amounts paid after December 31, 1993, with respect to distributions paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) has provided a
correct 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 shareholder that does not provide the REIT with
a correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability.
TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts distributed as
distributions by a REIT to a certain tax exempt pension trust did not constitute
unrelated business taxable income ("UBTI"). Although rulings are merely
interpretations of law by the IRS and may be revoked or modified, based on this
analysis, indebtedness incurred by the REIT in connection with the acquisition
of an investment should not cause any income derived from the investment to be
treated as UBTI to a Tax Exempt Entity. A Tax Exempt Entity that incurs
indebtedness to finance its purchase of shares, however, will have UBTI by
virtue of the acquisition indebtedness rules.
Tax exempt organizations contemplating an investment in REIT shares should
consult their individual tax advisors concerning the tax treatment of such
investment.
STATE AND LOCAL TAXATION
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
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. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices which may be changed at prices related to the prevailing market prices at
the time of sale or at negotiated 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 the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of the 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 the Offered Securities for whom they may
act as agent. Underwriters may sell the 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 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
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<PAGE>
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. Underwriters,
dealers and agents may engage in transactions with, or perform services for, or
be customers of, the Company in the ordinary course of business.
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 the 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 amount of the 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 amount of the Offered Securities less
the amount thereof covered by the 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.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Gordon,
Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore, Maryland. Marc P.
Blum, a trustee of the Company, and LeRoy E. Hoffberger, Chairman of the Board
of Trustees of the Company, are of counsel to such firm.
EXPERTS
The consolidated financial statements of the Company and its Predecessor,
respectively, incorporated herein by reference, are incorporated by reference in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated herein by reference and the authority of that firm as
experts in accounting and auditing.
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(Pictures of the following Shopping Centers:)
Brandywine Commons/Wilmington, DE
Shoppes at Easton/Easton, MD
Shawan Plaza/Hunt Valley, MD
New Town Village/Owings Mills, MD
Timonium Crossing/Timonium, MD
Enchanted Forest Shopping Center/Ellicott City, MD
Wilkens Beltway Plaza/Baltimore, MD
Ingleside Shopping Center/Baltimore, MD
York Road Plaza/Baltimore, MD
[PICTURES]
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN CONNECTION WITH THIS OFFERING, AND,
IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY MART OR ANY OTHER PERSON. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY,
TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER AT ANY TIME IMPLIES THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, MART WILL
SUPPLEMENT OR AMEND THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO REFLECT ANY
FACTS OR EVENTS ARISING AFTER THE DATE HEREOF AND PRIOR TO ITS SALE OF THE
SECURITIES IN THIS OFFERING WHICH REPRESENTS A FUNDAMENTAL CHANGE IN THE
INFORMATION HEREIN.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
PAGE
----
Prospectus Supplement Summary............................................. S-1
<S> <C>
Use of Proceeds S-7
Price Range of Shares and Distribution Policy............................. S-7
Capitalization............................................................ S-8
The Company............................................................... S-9
Recent Developments....................................................... S-9
Business Strategies....................................................... S-10
Selected Consolidated Financial Data...................................... S-12
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. S-14
The Properties............................................................ S-16
Management................................................................ S-22
Certain Federal Income Tax Considerations................................. S-22
Underwriting.............................................................. S-24
Experts................................................................... S-26
Legal Matters............................................................. S-26
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Risk Factors.............................................................. 4
Ratio of Earnings to Fixed Charges........................................ 7
Use of Proceeds........................................................... 7
Description of the Debt Securities........................................ 7
Description of Capital Stock.............................................. 16
Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws........................................................ 21
Federal Income Tax Considerations......................................... 22
Plan of Distribution...................................................... 29
Legal Matters............................................................. 30
Experts................................................................... 30
</TABLE>
3,500,000 SHARES
[LOGO]
MID-ATLANTIC REALTY TRUST
COMMON SHARES
OF BENEFICIAL INTEREST
---------------------
PROSPECTUS SUPPLEMENT
---------------------
OCTOBER 14, 1997
LEGG MASON WOOD WALKER
INCORPORATED
SALOMON BROTHERS INC
WHEAT FIRST BUTCHER SINGER
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