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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 12, 1998)
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1,052,650 SHARES
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COMMON STOCK
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The Macerich Company, a Maryland corporation (the "Company"), is a
self-administered and self-managed real estate investment trust ("REIT") that
acquires, owns, redevelops, manages and leases regional and community shopping
centers located throughout the United States. The Company's portfolio currently
consists of interests in 26 regional shopping centers and four community
shopping centers located in twelve states aggregating approximately 22.3 million
square feet of gross leasable area. See "The Company" in the accompanying
Prospectus.
All the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by the Company. The Common Stock is
listed on the New York Stock Exchange (the "NYSE") under the symbol "MAC." On
February 12, 1998, the last reported sale price of the Common Stock on the NYSE
was $28.125 per share. The purchasers of the shares of Common Stock offered
hereby will NOT receive the dividend with respect to the Common Stock payable on
March 5, 1998 to stockholders of record as of February 9, 1998.
The shares of Common Stock are subject to certain restrictions on ownership
in order, among other things, to enhance compliance with the REIT provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), for federal income
tax purposes. See "Description of Common Stock" in the accompanying Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE SHARES OF COMMON STOCK.
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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 ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The Underwriter has agreed to purchase the shares of Common Stock from the
Company at a price of $26.71875 per share in cash, resulting in aggregate
proceeds to the Company of $28,125,492 before payment of expenses by the Company
estimated at approximately $25,000, subject to the terms and conditions in the
Underwriting Agreement. The Underwriter intends to deposit the shares of Common
Stock with the trustee of The Equity Focus Trusts--REIT Portfolio Series, 1998-A
(the "Trust") in exchange for units in the Trust. If all of the shares of Common
Stock so deposited with the trustee of the Trust are valued at their reported
last sale price on February 12, 1998, the aggregate underwriting commission to
the Underwriter would be $1,480,289. See "Underwriting."
The shares of Common Stock offered hereby are being offered by the
Underwriter, subject to prior sale, when, as and if issued by the Company and
delivered to and accepted by the Underwriter, subject to approval of certain
legal matters by counsel for the Underwriter and certain other conditions. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about February 18, 1998.
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SALOMON SMITH BARNEY
February 12, 1998.
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THE OFFERING
The shares of Common Stock offered hereby are being sold by the Company.
None of the Company's stockholders is selling any shares of Common Stock in this
offering (the "Offering"). The number of shares of Common Stock outstanding
after the Offering will be 27,072,397.
USE OF PROCEEDS
The net proceeds to the Company from the Offering (after deducting estimated
offering expenses) are estimated to be approximately $28.1 million and are
intended to be used for the acquisition, through a joint venture with Simon
DeBartolo Group, Inc., of a portfolio of twelve regional malls for an aggregate
purchase price of $974.5 million from the Equitable Life Assurance Company of
the United States (the "Equitable Transaction"). The Equitable Transaction is
subject to customary closing conditions and is expected to be completed in
February 1998.
RECENT DEVELOPMENTS
The Company has entered into a Purchase Agreement dated as of January 19,
1998 with Security Capital Preferred Growth Incorporated ("SCPGI") with respect
to the purchase by SCPGI of 3,627,131 shares of the Company's Series A
Cumulative Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Shares"). The Series A Preferred Shares are convertible into shares of
Common Stock on a one-for-one basis and will pay a dividend equal to the greater
of $.46 per share per quarter or the quarterly dividend then payable on a share
of Common Stock. The transaction is subject to customary closing conditions and
is expected to be completed in February 1998. The proceeds of approximately $100
million are intended to be used for the Equitable Transaction.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
by and between the Company and Smith Barney Inc. (the "Underwriting Agreement"),
the Company has agreed to sell to Smith Barney Inc. (the "Underwriter"), and the
Underwriter has agreed, subject to the terms and conditions set forth therein,
to purchase, 1,052,650 shares of Common Stock. The Underwriting Agreement
provides that the Underwriter is committed to purchase all such shares of Common
Stock if any are purchased.
The Underwriter intends to deposit the shares of Common Stock with the
trustee of the Trust, a registered unit investment trust under the Investment
Company Act of 1940, as amended, in exchange for units in the Trust. If all of
the shares of Common Stock so deposited with the trustee of the Trust are valued
at their reported last sale price on February 11, 1998, the aggregate
underwriting commission to the Underwriter would be $1,480,289. The Underwriter
is acting as sponsor and depositor of the Trust and is therefore considered an
affiliate of the Trust.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the Underwriter
may be required to make in respect thereof.
LEGAL MATTERS
The legality of the shares of Common Stock to be issued in connection with
this Offering is being passed upon for the Company by the law firm of O'Melveny
& Myers LLP, Los Angeles, California. Certain legal matters relating to this
Offering are being passed upon for the Underwriter by the law firm of Mayer,
Brown & Platt. O'Melveny & Myers LLP and Mayer, Brown & Platt will rely as to
certain matters of Maryland law on the opinion of Ballard Spahr Andrews &
Ingersoll, LLP.
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PROSPECTUS
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$500,000,000
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SECURITIES
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The Macerich Company, a Maryland corporation ("Macerich," the "Company," or
the "Issuer"), may offer from time to time, in one or more series, shares of its
Common Stock, $.01 par value per share (the "Common Stock"), warrants to
purchase Common Stock (the "Securities Warrants") and rights to purchase shares
of Common Stock (the "Rights"). The Common Stock, the Securities Warrants and
the Rights are collectively referred to herein as the "Securities." Securities
will have a maximum aggregate offering price of $500,000,000 and will be offered
on terms to be determined at the time of the offering.
In the case of Common Stock, the specific number of shares and issuance
price per share will be set forth in the accompanying Prospectus Supplement. In
the case of Securities Warrants, the duration, offering price, exercise price
and detachability, if applicable, will be set forth in the accompanying
Prospectus Supplement. In the case of the Rights, the duration, exercise price
and transferability, if applicable, will be set forth in the accompanying
Prospectus Supplement. In addition, the specific terms of the Securities may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Securities, in order, among other things, to enhance compliance
with the real estate investment trust ("REIT") provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), for federal income tax purposes.
Such limitations and restrictions may delay, defer or prevent a third party from
making an acquisition proposal for the Issuer. The Prospectus Supplement will
also disclose whether the Securities will be listed on a national securities
exchange and if they are not to be listed, the possible effects thereof on their
marketability.
Securities may be sold by the Issuer from time to time directly, through
agents or through underwriters and/or dealers. If any agent of the Issuer or any
underwriter is involved in the sale of the Securities, the name of such agent or
underwriter and any applicable commission or discount will be set forth in the
accompanying Prospectus Supplement. No Securities may be sold without delivery
of the applicable Prospectus Supplement describing the method and terms of the
offering of such Securities. See "Plan of Distribution." The applicable
Prospectus Supplement will also contain information, when applicable, about
certain United States federal income tax considerations relating to the
Securities covered by such Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS BEFORE MAKING AN INVESTMENT
IN THE SECURITIES.
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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.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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February 12, 1998
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AVAILABLE INFORMATION
The Issuer has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a registration statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933 with respect to the
Securities. This Prospectus, which is part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. For further information with respect to the Issuer and the
Securities, reference is hereby made to the Registration Statement and the
exhibits thereto, which may be inspected without charge at the public reference
facilities maintained at the principal office of 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, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be
obtained upon written request from the public reference section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains a Website (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Statements contained
in this Prospectus as to the contents of any contract or other document referred
to herein are not necessarily complete and in each instance reference is made to
the copy of such contract or other document filed (or incorporated by reference)
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
The Issuer 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
Commission. Such reports, proxy statements and other information filed by the
Issuer may be inspected and copied at the public reference facilities maintained
by the Commission at the addresses shown above. Copies of such material can be
obtained from the Public Reference Section of the Commission at the address
shown above at prescribed rates or through the Commission's Website. In
addition, reports, proxy statements and other information concerning the Issuer
can be inspected and copied at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005, on which the Common Stock is listed.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents of the
Issuer filed with the Commission: (1) the Issuer's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996; (2) the Issuer's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September
30, 1997; (3) the Proxy Statement for the Issuer's 1997 Annual Meeting of
Shareholders held on May 28, 1997; (4) the Issuer's Current Report on Form 8-K,
event date November 30, 1996, as amended by Form 8-K/A, filed February 4, 1997;
(5) the Issuer's Current Report on Form 8-K, event date December 30, 1996, as
amended by Form 8-K/A, filed February 27, 1997; (6) the Issuer's Current Report
on Form 8-K, event date June 20, 1997; (7) the Issuer's Current Report on Form
8-K, event date August 6, 1997, as amended by Form 8-K/A, filed October 16,
1997; (8) the Issuer's Current Report on Form 8-K, event date December 19, 1997,
as amended by Form 8-K/A, filed January 6, 1998; (9) the Issuer's Current Report
on Form 8-K, event date December 29, 1997; (10) the description of the Issuer's
Common Stock contained in the Issuer's registration statement filed under the
Exchange Act and any amendments or reports filed for the purpose of updating
such description; and (11) all documents filed by the Issuer 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 of the Securities.
Any statement contained herein, in a Prospectus Supplement or in a document
incorporated or deemed to be incorporated by reference herein or in a Prospectus
Supplement shall be deemed to be modified or superseded for purposes of this
Prospectus or any Prospectus Supplement to the extent that a statement contained
herein, in a Prospectus Supplement or in any subsequently filed document which
is
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incorporated by reference herein or in a Prospectus Supplement modifies or
supersedes such statements. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any Prospectus Supplement.
The Issuer will provide without charge to each person, including any
beneficial holder, to whom a copy of this Prospectus or any Prospectus
Supplement is delivered, upon the written or oral request of any such person, a
copy of any and all the foregoing documents incorporated by reference herein,
including exhibits specifically incorporated by reference in such documents but
excluding all other exhibits to such documents. Requests should be made to the
Corporate Secretary of the Company at 233 Wilshire Boulevard, No. 700, Santa
Monica, California 90401, telephone number (310) 394-6911. As of March 1, 1998,
the Company's principal executive offices will be moved to 401 Wilshire
Boulevard, No. 700, Santa Monica, California 90401. Copies of all documents
filed by the Issuer with the Commission can be reviewed on or obtained from the
Commission's Website at http://www.sec.gov.
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UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO THE "COMPANY" IN
THIS PROSPECTUS INCLUDE THE ISSUER AND THOSE ENTITIES OWNED OR CONTROLLED BY THE
ISSUER, WHICH ENTITIES INCLUDE, WITHOUT LIMITATION, THE OPERATING PARTNERSHIP
AND THE PROPERTY PARTNERSHIPS, OTHER THAN THE PROPERTY PARTNERSHIPS WHICH OWN
THE JOINT VENTURE CENTERS.
THE COMPANY
The Issuer was formed in 1993 to continue and expand the business of The
Macerich Group, which since 1972 has focused on the acquisition, ownership,
redevelopment, management and leasing of regional shopping centers and community
shopping centers located throughout the United States. The Company currently
owns or has ownership interests in 26 regional shopping centers and four
community shopping centers located in twelve states, containing approximately
22.3 million square feet of gross leaseable area ("GLA") (the 30 regional and
community shopping centers described above and any shopping centers acquired
after the date of this Prospectus are referred to hereinafter as the "Centers").
The Issuer was organized as a Maryland corporation in September 1993 to
continue and expand the business of The Macerich Group, which has been engaged
in the shopping center business since 1965. The Macerich Group consists of Mace
Siegel, Arthur M. Coppola, Dana K. Anderson and Edward C. Coppola (the
"Principals") and certain business associates and members of management of the
Company. The Principals are directors and executive officers of the Issuer and
have a combined total of over 100 years of experience in the shopping center
business.
The Issuer operates through The Macerich Partnership L.P., a Delaware
limited partnership (the "Operating Partnership"). The Issuer has a majority
ownership interest in the Operating Partnership and, as the sole general
partner, has exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions. The Issuer conducts all of
its operations through the Operating Partnership, two management companies,
Macerich Property Management Company and Macerich Management Company, both
California corporations (the "Management Companies"), and certain single purpose
entities (the "Property Partnerships") jointly owned by the Issuer and the
Operating Partnership and, in the case of the entities which own the Centers
which are not wholly-owned by the Company (the "Joint Venture Centers"),
third-party joint venture partners. The Operating Partnership owns all of the
non-voting preferred stock (generally entitled to dividends equal to 95% of cash
flow) of each of the Management Companies. All of the outstanding voting common
stock of each of the Management Companies is owned by the Principals.
The Company's primary objective is to enhance stockholder value by
increasing its Funds from Operations ("FFO") per share, primarily by focusing on
the acquisition of potentially dominant franchise regional malls that have
internal growth characteristics. The Company's strategy is to increase the net
operating income of each acquired property by rolling below-market rents up to
market levels as leases expire, expanding the Centers, adding department stores,
changing the tenant mix and increasing occupancy levels. In addition to its
acquisition strategy, the Company also seeks to improve the financial
performance of the Centers that it already owns by rolling below-market rents up
to market levels as leases expire, increasing occupancy levels, and
redeveloping, expanding and renovating the properties.
Prior to March 1, 1998, the Company's principal executive offices are
located at 233 Wilshire Boulevard, No. 700, Santa Monica, California 90401 and
its telephone number is (310) 394-6911. From March 1, 1998, the Company's
principal executive offices will be located at 401 Wilshire Boulevard, No. 700,
Santa Monica, California 90401.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any Securities offered hereby. Any
additional risk factors regarding an investment in the
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Securities will be set forth in the applicable Prospectus Supplement. See also
"Description of Securities Warrants--Certain Risk Considerations."
RISKS OF REAL ESTATE INVESTMENTS
GENERAL FACTORS AFFECTING INVESTMENTS IN SHOPPING CENTERS; COMPETITION
Real property investments are subject to varying degrees of risk that may
affect the ability of the Centers to generate sufficient revenues to meet
operating and other expenses, including debt service, lease payments, capital
expenditures and tenant improvements, and to make distributions to their owners
and the Issuer's stockholders. Income from shopping center properties may be
adversely affected by a number of factors, including: the national economic
climate; the regional and local economy (which may be adversely impacted by
plant closings, industry slowdowns, adverse weather conditions, natural
disasters and other factors); local real estate conditions (such as an
oversupply of, or a reduction in demand for, retail space); perceptions by
retailers or shoppers of the safety, convenience and attractiveness of the
shopping center; and increased costs of maintenance, insurance and operations
(including real estate taxes). In addition, investments in shopping centers and
other real estate are relatively illiquid. If the Centers were liquidated in the
current real estate market, the proceeds to the Company might be less than the
Company's total investment in the Centers. There are numerous shopping
facilities that compete with the Centers in attracting tenants to lease space,
and an increasing number of new retail formats other than retail shopping
centers that compete with the Centers for retail sales. Increased competition
could adversely affect the Company's revenues. Income from shopping center
properties and shopping center values are also affected by such factors as
applicable laws and regulations, including tax and zoning laws, interest rate
levels and the availability of financing.
DEPENDENCE ON TENANTS
The Company's revenues and funds available for distribution would be
adversely affected if a significant number of the Company's lessees were unable
(due to poor operating results, bankruptcy or other reasons) to meet their
obligations, if the Company were unable to lease a significant amount of space
in the Centers on economically favorable terms, or if for any other reason, the
Company were unable to collect a significant amount of rental payments. A
decision by a department store or other large retail store tenant (an "Anchor"),
or other significant tenant, to cease operations at a Center could also have an
adverse effect on the Company. The closing of an Anchor could, under certain
circumstances, allow certain other Anchors, or other tenants, to terminate their
leases or cease operating their stores at the Center. In addition, mergers,
acquisitions, consolidations, dispositions or bankruptcies in the retail
industry could result in the loss of tenants at one or more Centers. The
bankruptcy and subsequent closure of retail stores could reduce occupancy levels
and rental income, or otherwise adversely affect the Company's performance.
Furthermore, if the store sales of retailers operating in the Centers were to
decline sufficiently, tenants might be unable to pay their minimum rents or
expense recovery charges. In the event of a default by a lessee, the Center may
experience delays and costs in enforcing its rights as lessor. See "--Bankruptcy
of Retail Stores."
RISKS OF MANAGEMENT AND LEASING BUSINESS
Each of the Management Companies is subject to the risks associated with the
property management and leasing business. These risks include the risks that
management and leasing contracts with third-party owners will be lost to
competitors, that contracts will not be renewed on terms consistent with current
terms, and that leasing activity generally may decline. Most of the third-party
management contracts can be terminated on 30 to 60 days notice by third parties.
Additionally, the compensation of the Management Companies is tied to various
revenues under virtually all of the property management agreements with
third-party owners.
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ACQUISITION AND REDEVELOPMENT STRATEGY
The Company's historical growth in revenues, net income and Funds From
Operations have been closely tied to the acquisition and redevelopment of
shopping centers. Many factors, including the availability and cost of capital,
overall debt to market capitalization ratio, interest rates and the availability
of attractive acquisition targets, among others, will affect the Company's
ability to acquire and redevelop additional properties in the future.
CONFLICTS OF INTEREST
MANAGEMENT COMPANIES
The management, leasing and redevelopment business of the Company is carried
on through the Management Companies. The Principals own 100% of the outstanding
shares of voting common stock of each of the Management Companies, and the
Operating Partnership owns 100% of the outstanding shares of non-voting
preferred stock of each of such entities. As the holder of 100% of the preferred
stock, the Operating Partnership has the right to receive 95% of the net cash
flow of each of the Management Companies. However, since each of the Management
Companies is an operating company and not a passive entity, the Company's
investment in the Management Companies, through non-voting preferred stock, is
subject to the risk that the Principals might have interests that are
inconsistent with the interests of the Company.
The Management Companies have entered into management agreements
("Management Agreements") with the Operating Partnership and each of the
Property Partnerships (other than the Property Partnership that owns West Acres
Center) providing for the day-to-day property management of the Centers. The
terms of certain of the Management Agreements have not been negotiated on an
arm's-length basis. However, the Company believes the terms of the Management
Agreements are fair to the Company and are similar to the terms of Management
Agreements that the Management Companies have recently entered into with
unaffiliated owners of shopping centers. The Principals have a conflict of
interest with respect to their obligations as executive officers and directors
of the Company, which through the Operating Partnership will be required to
enforce the terms of the Management Agreements with the Management Companies.
The failure to enforce the material terms of those agreements could have an
adverse effect on the Company.
The Management Companies also provide management, leasing, construction and
redevelopment services for shopping centers owned by third parties who are
unaffiliated with the Company. In addition, the Management Companies may from
time to time agree to manage additional shopping centers that might compete with
the Centers. These arrangements may also create conflicts of interest for the
Principals.
TAX CONSEQUENCES OF SALE OF CERTAIN CENTERS
The sale of certain of the Centers will cause adverse tax consequences to
the Principals. As a result, the Principals might not favor a sale of these
Centers even though such a sale could be beneficial to other stockholders of the
Issuer. See "Federal Income Tax Considerations--Tax Aspects of the Company's
Investments in Partnerships."
REQUIRED CONSENT OF LIMITED PARTNERS OF OPERATING PARTNERSHIP FOR CERTAIN
TRANSACTIONS
The partnership agreement of the Operating Partnership (the "Partnership
Agreement") provides that a decision to merge the Operating Partnership, sell
all or substantially all of its assets or liquidate must be approved by the
holders of 75% of the limited partnership interests in the Operating Partnership
("OP Units"). Since the Issuer currently owns only approximately 68% of the OP
Units, the concurrence
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of at least some of the other holders of OP Units (the "Participants") would be
required to approve any such transaction.
PRINCIPAL GUARANTEES
The Principals have guaranteed mortgage loans encumbering the Centers. As of
the date of this Prospectus, the aggregate principal amount of such loans is
$23.8 million, and the aggregate principal amount guaranteed by the Principals
is approximately $15.0 million. The existence of such guarantees could result in
the Principals having interests that are inconsistent with the interests of the
Company.
NO LIMITATION ON DEBT
Since the Issuer's initial public offering of Common Stock in March 1994,
the Company has had a debt level of less than 55% of the Company's Total Market
Capitalization. "Total Market Capitalization" means the sum of (i) the aggregate
market value of the outstanding equity shares, assuming full redemption of OP
Units for shares of Common Stock, plus (ii) the total debt of the Operating
Partnership including a pro rata share of the debt of the Joint Venture Centers.
The organizational documents of the Company, however, do not limit the amount or
percentage of indebtedness that it may incur. Accordingly, the Board of
Directors of the Issuer (the "Board of Directors") could alter or eliminate this
current practice with respect to borrowing. If this practice were changed, the
Company could become more highly leveraged, resulting in an increased risk of
default on its obligations and an increase in debt service requirements, either
of which could adversely affect the financial condition and results of
operations of the Company.
ABILITY TO CHANGE POLICIES OF THE COMPANY
The investment and financing policies of the Company and its policies with
respect to certain other activities, including its growth, debt capitalization,
distributions, REIT status and operating policies, are determined by the Board
of Directors. The Board of Directors has no present intention to amend or revise
these policies. However, the Board of Directors may do so at any time without a
vote of the Issuer's stockholders. A change in these policies could adversely
affect the Company's financial condition or results of operations. See "--No
Limitation on Debt."
INABILITY TO QUALIFY AS A REIT
The Company believes that it has operated so as to qualify the Issuer as a
REIT under the Code and intends to operate so that the Issuer may remain so
qualified. No assurance, however, can be given that the Issuer has qualified or
will be able to remain qualified as a REIT. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations. The complexity of these
provisions and of the applicable income tax regulations that have been
promulgated under the Code (the "Treasury Regulations") is greater in the case
of a REIT that holds its assets in partnership form. The determination of
various factual matters and circumstances not entirely within the Company's
control may affect the Issuer's ability to qualify as a REIT. See "--Outside
Partners in Joint Venture Centers." In addition, no assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to the Issuer's
qualification as a REIT or the federal income tax consequences of such
qualification. See "Federal Income Tax Considerations."
If in any taxable year the Issuer were to fail to qualify as a REIT, the
Issuer would not be allowed a deduction for distributions to stockholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Issuer would be disqualified from treatment as
a REIT for the four taxable years following the year during which qualification
was lost. As a result, net income and the funds available for distribution to
the Issuer's stockholders would be reduced for each of the years involved.
Although the Company
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currently intends to operate in a manner designed to qualify the Issuer as a
REIT, it is possible that future economic, market, legal, tax or other
considerations may cause the Board of Directors to revoke the REIT election. See
"Federal Income Tax Considerations."
RISKS OF DEBT FINANCING
The Company is subject to the risks associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest. Other than the Issuer's 7 1/4%
Convertible Subordinated Debentures due 2002 (the "Debentures"), the Company's
outstanding indebtedness represents obligations of the Operating Partnership and
certain Property Partnerships that hold the Centers and most of which is
nonrecourse to the applicable obligor. A majority of the Centers are mortgaged
to secure payment of this indebtedness, and if the mortgage payments cannot be
made, a loss could be sustained as a result of foreclosure by the mortgagee. Any
outstanding indebtedness under the Company's working capital credit facility is
the obligation of the Operating Partnership and certain Property Partnerships.
The Company's current indebtedness bears interest at both fixed rates and
floating rates. For future financings, the Company intends to seek the most
attractive financing arrangements available at the time, which may involve
either fixed or floating interest rates. With respect to floating rate
indebtedness, increases in interest rates could adversely affect the Company's
Funds from Operations, funds available for distribution and its ability to meet
its debt service obligations. In connection with $65.1 million of the Company's
floating rate indebtedness, as of the date of this Prospectus, the Company has
entered into interest rate protection agreements that limit the Company's
exposure to increases in interest rates. Consideration will be given to
acquiring interest rate caps or entering into other interest rate protection
agreements if appropriate with respect to future floating rate indebtedness to
reduce exposure to interest rate increases on such debt.
The Company is obligated to make balloon payments of principal under
mortgages on certain of the Centers. Although the Company anticipates that it
will be able to refinance such indebtedness by the time the balloon payments
become due, or otherwise obtain funds by selling assets or by raising equity,
there can be no assurance that it will be able to do so. In addition, interest
rates on, and other terms of, any debt issued to refinance such mortgage debt
may be less favorable than the terms of the current mortgage debt.
To qualify as a REIT under the Code, the Issuer generally is required each
year to distribute to its stockholders at least 95% of its net taxable income
determined without regard to net capital gains and the dividends paid deduction.
See "Federal Income Tax Considerations--Taxation of the Company." The Company
could be required to borrow funds on a short-term basis or liquidate investments
to meet the distribution requirements that are necessary to qualify the Issuer
as a REIT, even if management believed that then prevailing market conditions
did not favor such actions.
OUTSIDE PARTNERS IN JOINT VENTURE CENTERS
The Company owns partial interests in Property Partnerships which own the
four Joint Venture Centers. The Company owns a 50% managing general partnership
interest in Property Partnerships that own two of the Joint Venture Centers
(Panorama Mall and Broadway Plaza) a 19% non-managing general partnership
interest in the Property Partnership that holds one of the Joint Venture Centers
(West Acres Center) and a managing member interest of 10% in the limited
liability company which holds the remaining Joint Venture Center (Manhattan
Village Shopping Center). Such investments involve risks not otherwise present
with respect to wholly-owned Centers.
The Company may have certain fiduciary responsibilities to its partners
which it will need to consider when making decisions that affect the Joint
Venture Centers. The Company does not have sole control of certain major
decisions relating to the Joint Venture Centers, including certain decisions
with respect to sales, refinancings and the timing and amount of additional
capital contributions thereto. Under certain
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circumstances, such as the Operating Partnership's failure to contribute its
share of additional capital needed by the Property Partnerships, or defaults by
the Operating Partnership under a partnership agreement for a Property
Partnership or other agreements relating to the Property Partnerships or the
Joint Venture Centers, the Company may lose its management rights relating to
the Joint Venture Centers. In addition, with respect to one Joint Venture Center
(West Acres Center), the Company does not have day-to-day operational control,
nor is it able to control cash distributions therefrom that may jeopardize the
Issuer's ability to maintain its qualification as a REIT. These limitations may
result in decisions by third parties with respect to such Joint Venture Centers
that do not fully reflect the interests of the Company at such time, including
decisions relating to the standards that the Company is required to satisfy in
order to maintain the Issuer's status as a REIT under the Code.
HOLDING COMPANY STRUCTURE
Because the Issuer conducts its operations through the Operating
Partnership, the Issuer's ability to service its debt obligations and its
ability to pay dividends on the Common Stock are strictly dependent upon the
earnings and cash flows of the Operating Partnership and the ability of the
Operating Partnership to make funds available to the Issuer for such purpose in
the form of intercompany distributions. Under the Delaware Revised Uniform
Limited Partnership Act, the Operating Partnership would be prohibited from
making any distribution to the Issuer to the extent that at the time of the
distribution, after giving effect to the distribution, all liabilities of the
Operating Partnership (other than certain nonrecourse liabilities and certain
liabilities to the partners) exceed the fair value of the assets of the
Operating Partnership.
BANKRUPTCY OF RETAIL STORES
Over the past seven years, three department store companies operating a
total of twenty of the current Anchors at the Centers have filed for bankruptcy
under the United States Bankruptcy Code of 1978, as amended. As of the date of
this Prospectus, seventeen of these stores are still operating and are meeting
their current economic obligations to the Centers, one store has been acquired
by another department store, one store has been acquired by the Company which is
negotiating with potential replacement tenants and one store is being demolished
to make space available for a theater complex and adjacent restaurants and
shops. The bankruptcy of an Anchor, if followed by its closing or by its sale to
a less desirable retailer, could adversely affect customer traffic in a Center
and thereby reduce the income generated by that Center. Furthermore, the closing
of an Anchor could, under certain circumstances, allow certain other Anchors to
terminate their leases or cease operating their stores at the Center or
otherwise adversely affect occupancy at the Center. Retail stores at the Centers
other than Anchors may also seek the protection of the bankruptcy laws, which
could result in the termination of such tenants' leases and thus cause a
reduction in the cash flow generated by the Centers.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of hazardous or toxic
substances, or the failure to properly remedy environmental hazards, may
adversely affect the owner's or operator's ability to sell such property or to
borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is owned or operated by such person. Certain laws impose liability for release
of asbestos-containing materials into the air and third parties may seek
recovery from owners or operators of real
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property for personal injury associated with exposure to such materials. In
connection with its ownership and operation of the Centers, the Company may be
potentially liable under such laws and may incur costs in responding to such
liabilities. See "Item 1. Business--Environmental Matters" and Note 10 to the
Financial Statements contained in the Issuer's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 for a description of known environmental
liabilities.
OWNERSHIP AND GOVERNANCE OF THE COMPANY AND THE OPERATING PARTNERSHIP
Under the Partnership Agreement of the Operating Partnership, the Issuer, as
the sole general partner of the Operating Partnership, is responsible for the
management of the Operating Partnership's business and affairs. Moreover, each
of the Principals serves as an executive officer of the Issuer and as a member
of the Issuer's Board of Directors on a staggered basis. Accordingly, the
Principals have substantial influence over the management of the Issuer and the
Operating Partnership. See also "--Conflicts of Interest."
The Partnership Agreement provides that a decision to merge the Operating
Partnership, sell all or substantially all of its assets or liquidate the
Operating Partnership must be approved by the holders of at least 75% of the
limited partnership interests in the Operating Partnership (the "OP Units"). The
Issuer owns less than 75% of the OP Units. Accordingly, the concurrence of at
least some of the other holders of OP Units would be required to approve any
such transaction.
OWNERSHIP LIMIT; CERTAIN ANTI-TAKEOVER PROVISIONS
In order for the Issuer to maintain its qualification as a REIT, not more
than 50% in value of its outstanding stock may (after taking into account
options to acquire stock) be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities). The Issuer's
charter (the "Charter") restricts ownership of more than 5% (the "Ownership
Limit") of the number or value of the outstanding shares of stock by any single
stockholder (with limited exceptions for certain Participants (and their
respective families and affiliated entities), including all four Principals). In
addition to preserving the Issuer's status as a REIT, the Ownership Limit may
(i) have the effect of delaying, deferring or preventing a change in control or
other transaction of the Issuer without the approval of the Board of Directors
even if a change in control were in the interest of stockholders and (ii) limit
the opportunity for stockholders to receive a premium for their Common Stock
that might otherwise exist if an investor were attempting to assemble a block of
Common Stock in excess of the Ownership Limit or otherwise effect a change in
control of the Issuer. The Board of Directors, in its sole discretion, may waive
or (subject to certain limitations) modify the Ownership Limit with respect to
other stockholders if it is satisfied that ownership in excess of this limit
will not jeopardize the Issuer's status as a REIT. See "Description of Common
Stock--Restrictions on Transfer" for additional information regarding the
Ownership Limit.
Certain other provisions of the Issuer's Charter and Bylaws may have the
effect of delaying, deferring or preventing a third party from making an
acquisition proposal for the Issuer and may thereby inhibit a change in control
of the Issuer that some, or a majority, of the holders of Common Stock might
believe to be in their best interest or that could give the stockholders the
opportunity to realize a premium over the then-prevailing market prices. The
provisions include a staggered board of directors, advance notice requirements
for stockholder nominations of directors and stockholder proposals, the
authority of the directors to consider a variety of factors (other than
maximizing stockholder value) with respect to a proposed business combination or
other transaction, the authority of the directors to issue one or more series of
preferred stock and the authority to create and issue rights entitling the
holders thereof to purchase from the Company shares of stock or other securities
or property.
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UNINSURED LOSS
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance covering all of the Centers (except West Acres Center and
Manhattan Village Shopping Center), with policy specifications and insured
limits customarily carried for similar properties. There are, however, certain
types of losses (such as from wars) that are not generally insured because they
are either uninsurable or not economically insurable. In addition, while the
Company carries earthquake insurance on the Centers located in California, such
policies are subject to a deductible equal to 5% of the total insured value of
each Center, a $500,000 per occurrence minimum and a combined annual aggregate
loss limit of $100 million on these Centers. Furthermore, the Company has
elected to carry title insurance on many of the Centers for less than their full
value. Should an uninsured loss or a loss in excess of insured limits occur, the
Operating Partnership or the Property Partnership, as the case may be, which
owns the Center could lose its capital invested in the Center, as well as the
anticipated future revenue from the Center, while remaining obligated for any
mortgage indebtedness or other financial obligations related to the Center. Any
such loss would adversely affect the Company. Moreover, as the general partner
of the Operating Partnership and each of the Property Partnerships, the Issuer
will generally be liable for any of their unsatisfied obligations other than
non-recourse obligations. The Company's management believes that the Centers are
adequately insured in accordance with industry standards.
USE OF PROCEEDS
The Company is required by the terms of the Partnership Agreement to invest,
contribute or otherwise transfer the net proceeds of any sale of Securities to
the Operating Partnership in exchange for securities of the Operating
Partnership equivalent to the Securities offered hereby. Except as otherwise
provided in the applicable Prospectus Supplement, the Operating Partnership
intends to use any such net proceeds for working capital and general business
purposes, which may include the reduction of outstanding indebtedness, future
acquisitions and the improvement of certain properties in the Operating
Partnership's portfolio. Pending the use thereof, the Operating Partnership
intends to invest any net proceeds in short-term, interest-bearing securities.
DESCRIPTION OF COMMON STOCK
The following summary of the terms of the Common Stock does not purport to
be complete and is subject to and qualified in its entirety by reference to the
Issuer's Charter and Bylaws, copies of which are exhibits to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
GENERAL
The total number of shares of all classes of stock that the Issuer has
authority to issue is 220,000,000, initially consisting of 10,000,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock"), 100,000,000
shares of Common Stock, par value $.01 per share, and 110,000,000 shares of
excess stock, par value $.01 per share (the "Excess Shares"). The Charter
provides that the Board of Directors of the Issuer (as used herein the term
"Board of Directors of the Issuer" includes any duly authorized committee
thereof) may classify or reclassify any unissued shares of stock by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock. The terms of any
stock classified or reclassified by the Board of Directors pursuant to the
Articles shall be set forth in Articles Supplementary filed with the State
Department of Assessments and Taxation of Maryland prior to the issuance of any
such stock.
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RIGHTS OF HOLDERS OF COMMON STOCK
Subject to the provisions of the Charter regarding Excess Shares (as defined
below), the holders of the outstanding shares of Common Stock have full voting
rights, one vote for each share held of record. Subject to the provisions of the
Charter regarding Excess Shares and the rights of holders of preferred stock of
the Issuer, holders of Common Stock are entitled to receive such dividends as
may be authorized by the Board of Directors out of funds legally available
therefor. Upon liquidation, dissolution, or winding up of the Issuer (but
subject to the provisions of the Charter and the rights of holders of preferred
stock of the Issuer), the assets legally available for distribution to holders
of Common Stock shall be distributed ratably among such holders. Holders of
Common Stock have no preemptive or other subscription or conversion rights, and
no liability for further calls upon shares. The Common Stock is not subject to
assessment.
The Transfer Agent and Registrar for the Common Stock is First Chicago Trust
Company of New York.
Pursuant to the Issuer's Charter and By-laws, shareholders of the Issuer are
entitled to receive advance notice of annual and special meetings of
shareholders of the Issuer. Notice is given to a shareholder when it is
personally delivered to him, left at his residence or usual place of business,
or mailed to him at his address as it appears on the Issuer's records.
Under the Maryland General Corporation Law (the "MGCL"), a Maryland
corporation generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or engage in similar
transactions outside the ordinary course of business unless approved by the
affirmative vote of stockholders holding at least two thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the corporation's charter. The Charter does not provide for a lesser percentage
in such situations.
RESTRICTIONS ON TRANSFER
For the Issuer to maintain its qualification as a REIT under the Code, (i)
not more than 50% in value of its outstanding stock (after taking into account
options to acquire stock) may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year, (ii) stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year and (iii) certain percentages of
the Issuer's gross income must be from particular activities (see "Federal
Income Tax Considerations--Taxation of the Company" and "--Requirements for
Qualification"). The Charter restricts the ownership and transfer of shares of
the Issuer's stock.
Subject to certain exceptions specified in the Charter, no stockholder may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 5% of the number or value of the issued and outstanding capital stock
of the Issuer. The attribution of ownership provisions are complex and may cause
capital stock owned directly or indirectly by a group of related individuals or
entities to be deemed to be owned by one individual or entity. As a result, the
acquisition of less than 5% in value or in number of capital stock (or the
acquisition of an interest in an entity which owns capital stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to be deemed to own in excess of 5% in value or in number
of the outstanding capital stock of the Issuer, and thus subject such capital
stock to the Ownership Limit. The Board of Directors, in its sole discretion,
may waive or, subject to certain limitations, modify the Ownership Limit with
respect to stockholders, but is under no obligation to do so. As a condition of
such waiver, the Board of Directors may require a ruling from the Internal
Revenue Service or opinions of counsel satisfactory to it or an undertaking from
the applicant with respect to preserving the REIT status of the Issuer. The
Charter excludes from the Ownership Limit certain persons and their respective
families and affiliates ("Excluded Participants") but provide that no Excluded
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Participant may own (directly or indirectly) more than a specified percentage of
Common Stock as determined in accordance with the Charter (such Excluded
Participant's "Percentage Limitation").
The Charter provides that any purported transfer or issuance of shares, or
other event, that would (i) result in a person owning capital stock in excess of
the Ownership Limit or the Percentage Limitation, as appropriate, (ii) result in
the shares of Common Stock and preferred stock being owned by fewer than 100
persons (determined without reference to any rules of attribution), (iii) cause
the Issuer to become "closely held" under Section 856(h) of the Code (determined
without regard to Code Section 856(h)(2) and by deleting the words "the last
half of" in the first sentence of Code Section 542(a)(2) in applying Code
Section 856(h)) or (iv) result in the disqualification of the Issuer as a REIT
(collectively, the "Prohibited Events"), that is not otherwise permitted as
provided above, will be null and void AB INITIO as to the intended transferee or
purported owner and the intended transferee or purported owner will acquire or
retain no rights to, or economic interest in, those shares of stock.
ISSUANCE OF EXCESS SHARES
The Charter provides that in the event of a purported transfer of capital
stock or other event that would, if effective, result in a Prohibited Event,
such stock will automatically be exchanged for Excess Shares, to the extent
necessary to ensure that the purported transfer or other event does not result
in the Prohibited Event. Outstanding Excess Shares will be held in trust. The
trustee of such trust shall be appointed by the Issuer and shall be independent
of the Issuer, any purported record or beneficial transferee and any beneficiary
of such trust (the "Beneficiary"). The Beneficiary shall be one or more
charitable organizations selected by the trustee.
The Charter further provides that Excess Shares shall be entitled to the
same dividends as the shares of stock exchanged for Excess Shares (the "Original
Shares"). The trustee, as record holder of the Excess Shares, shall be entitled
to receive all dividends and distributions in respect of such Excess Shares as
may be authorized and declared by the Board of Directors and shall hold such
dividends or distributions in trust for the benefit of the Beneficiary. The
trustee shall also be entitled to cast all votes that holders of the Excess
Shares are entitled to cast. Excess Shares in the hands of the trustee shall
have the same voting rights as Original Shares. Upon the liquidation,
dissolution or winding up of the Issuer, each Excess Share shall be entitled to
receive ratably with each other share of capital stock of the same class or
series as the Original Shares, the assets of the Issuer distributed to the
holders of such class or series of capital stock. The trustee shall distribute
to the purported transferee the amounts received upon such liquidation,
dissolution, or winding up of the Issuer, but only up to the amount paid by such
purported transferee, or the market price for the Original Shares on the date of
the purported transfer, if no consideration was paid by such transferee, and
subject to additional limitations and offsets set forth in the Charter.
If, after the purported transfer or other event resulting in an exchange of
stock for Excess Shares, dividends or distributions are paid with respect to the
Original Shares, then such dividends or distributions are to be repaid to the
trustee for the benefit of the Beneficiary. While Excess Shares are held in
trust, Excess Shares may be transferred by the trustee only to a person whose
ownership of the Original Shares will not result in a Prohibited Event. At the
time of any permitted transfer, the Excess Shares will be automatically
exchanged for the same number of shares of the same type and class as the
Original Shares. The Charter contains provisions that prohibit the purported
transferee of the Excess Shares from receiving in return for such transfer an
amount that reflects any appreciation in the Original Shares during the period
that such Excess Shares were outstanding. The Charter requires any amount
received by a purported transferee in excess of the amount permitted to be
received to be paid to the Beneficiary.
The Charter further provides that the Issuer may purchase, for a period of
90 days during the time the Excess Shares are held in trust, all or any portion
of the Excess Shares at the lesser of the price paid for the stock by the
purported transferee (or if no consideration was paid, fair market value at the
time of such transaction) or the market price of such shares as determined in
accordance with the Charter. The 90-day
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period begins on the date of the prohibited transfer if the purported transferee
gives notice to the Board of Directors of the transfer or, if no such notice is
given, the date the Board of Directors determines in good faith that a
prohibited transfer has been made.
The aforementioned provisions of the Charter will not be automatically
removed even if the REIT provisions of the Code are changed so as to no longer
contain any ownership concentration limitation or if the ownership concentration
limitation is increased. Amendments to the Charter requires the affirmative vote
of at least 66 2/3% of the shares entitled to vote. In addition to preserving
the Issuer's status as a REIT, the Ownership Limit may have the effect of
precluding an acquisition of control of the Issuer without the approval of the
Board of Directors.
All certificates representing shares of Common Stock bear a legend referring
to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% of the outstanding capital stock must file an affidavit
with the Issuer containing the information specified in the Charter within 30
days after January 1 of each year. In addition, certain significant stockholders
shall upon demand be required to disclose to the Issuer in writing such
information with respect to the direct, indirect and constructive ownership of
shares as the Board of Directors deems necessary to comply with the provisions
of the Code applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency or to determine any such compliance.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Charter includes provisions which limit the liability of directors and
officers for money damages to the Company and its stockholders to the fullest
extent permitted under Maryland law. The Charter also requires the Company to
indemnify and to advance expenses to its directors and officers to the full
extent required or permitted by Maryland law. In addition, the Issuer has
entered into indemnification agreements with each of the Issuer's officers and
directors.
POWER TO RECLASSIFY AND ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED
STOCK
The Issuer believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock and
to classify or reclassify unissued shares of Common or Preferred Stock and
thereafter to cause the Issuer to issue such classified or reclassified shares
of stock will provide the Issuer with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. The additional classes or series, as well as the Common Stock, will
be available for issuance without further action by the Issuer's stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Issuer's securities may be
listed or traded. Although the Board of Directors has no intention at the
present time of doing so, it could authorize the Issuer to issue a class or
series that could, depending upon the terms of such class or series, delay,
defer or prevent a transaction or a change in control of the Issuer that might
involve a premium price for holders of Common Stock or otherwise be in their
best interest.
DESCRIPTION OF SECURITIES WARRANTS
The Issuer may issue Securities Warrants for the purchase of Common Stock.
Securities Warrants may be issued independently or together with Common Stock
offered by any Prospectus Supplement and may be attached to or separate from
such Common Stock. Each series of Securities Warrants will be issued under a
separate warrant agreement (a "Securities Warrant Agreement") to be entered into
between the Issuer and a bank or trust company, as Securities Warrant agent, all
as set forth in the Prospectus Supplement relating to the particular issue of
offered Securities Warrants. The Securities Warrant agent will act solely as an
agent of the Issuer in connection with the Securities Warrant certificates
relating to the
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Securities Warrants and will not assume any obligation or relationship of agency
or trust for or with any holders of Securities Warrant certificates or
beneficial owners of Securities Warrants. The following summaries of certain
provisions of the Securities Warrant Agreements and Securities Warrants do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Securities Warrant Agreement and the
Securities Warrant certificates relating to each series of Security Warrants
which will be filed with the Commission and incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part at or
prior to the time of the issuance of such series of Security Warrants.
GENERAL
The applicable Prospectus Supplement will describe the terms of such
Securities Warrants, including as applicable: (i) the offering price; (ii) the
aggregate number of shares purchasable upon exercise of such Securities Warrants
and the exercise price; (iii) the number of such Securities Warrants being
offered; (iv) the date, if any, on and after which such Securities Warrants and
the Common Stock will be transferable separately; (v) the date on which the
right to exercise such Securities Warrants shall commence and the date on which
such right shall expire (the "Expiration Date"); (vi) any material United States
federal income tax consequences; (vii) the terms, if any, on which the Issuer
may accelerate the date by which the Securities Warrants must be exercised;
(viii) the number of Securities Warrants issued; and (ix) any other terms of
such Securities Warrants, including terms, procedures and limitations relating
to the exchange and exercise of such Securities Warrants. Securities Warrants
for the purchase of Common Stock will be offered and exercisable for United
States dollars only and will be in registered form only.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may be presented for registration of
transfer, and may be exercised at the corporate trust office of the Securities
Warrant agent or any other office indicated in the applicable Prospectus
Supplement. Prior to the exercise of any Securities Warrants, holders of such
Securities Warrants will not have any rights of holders of such Common Stock,
including the right to receive payments of dividends, if any, on such Common
Stock, or to exercise any applicable right to vote.
CERTAIN RISK CONSIDERATIONS
Any Securities Warrants issued by the Issuer will involve a certain degree
of risk, including risks arising from fluctuations in the price of the
underlying securities and general risks applicable to the securities market (or
markets) on which the underlying securities are traded.
Prospective purchasers of the Securities Warrants should recognize that the
Securities Warrants may expire worthless and, thus, purchasers should be
prepared to sustain a total loss of the purchase price of their Securities
Warrants. This risk reflects the nature of a Securities Warrant as an asset
which, other factors held constant, tends to decline in value over time and
which may, depending on the price of the underlying Securities, become worthless
when it expires. The trading price of a Securities Warrant at any time is
expected to increase if the price of or, if applicable, dividend rate on the
underlying Securities, increases. Conversely, the trading price of a Securities
Warrant is expected to decrease as the time remaining to expiration of the
Securities Warrant decreases and as the price of or, if applicable, dividend
rate on the underlying Securities, decreases. Assuming all other factors are
held constant, the more a Securities Warrant is "out-of-the-money" (i.e., the
more the exercise price exceeds the price of the underlying Securities and the
shorter its remaining term to expiration), the greater the risk that a purchaser
of the Securities Warrant will lose all or part of his or her investment. If the
price of the underlying Securities does not rise before the Securities Warrant
expires to an extent sufficient to cover a purchaser's cost of the Securities
Warrant, the purchaser will lose all or part of his or her investment in such
Securities Warrant upon expiration.
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In addition, prospective purchasers of the Securities Warrants should be
experienced with respect to options and option transactions and understand the
risks associated with options and should reach an investment decision only after
careful consideration, with their financial advisers, of the suitability of the
Securities Warrants in light of their particular financial circumstances and the
information discussed herein and, if applicable, the Prospectus Supplement.
Before purchasing, exercising or selling any Securities Warrants, prospective
purchasers and holders of Securities Warrants should carefully consider, among
other things, (i) the trading price of the Securities Warrants, (ii) the price
of the underlying Securities at such time, (iii) the time remaining to
expiration and (iv) any related transaction costs. Some of the factors referred
to above are in turn influenced by various political, economic and other factors
that can affect the trading price of the underlying Securities and should be
carefully considered prior to making any investment decisions.
Purchasers of the Securities Warrants should further consider that the
initial offering price of the Securities Warrants may be in excess of the price
that a purchaser of options might pay for a comparable option in a private, less
liquid transaction. In addition, it is not possible to predict the price at
which the Securities Warrants will trade in the secondary market or whether any
such market will be liquid. The Issuer may, but is not obligated to, file an
application to list any Securities Warrants issued on a United States national
securities exchange. To the extent that any Securities Warrants are exercised,
the number of Securities Warrants outstanding will decrease, which may result in
a lessening of the liquidity of the Securities Warrants. Finally, the Securities
Warrants will constitute direct, unconditional and unsecured obligations of the
Issuer and as such will be subject to any changes in the perceived
creditworthiness of the Issuer.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
number of shares of Common Stock, as the case may be, at such exercise price as
shall in each case be set forth in, or calculable from, the Prospectus
Supplement relating to the offered Securities Warrants. After the close of
business on the Expiration Date (or such later date to which such Expiration
Date may be extended by the Issuer), unexercised Securities Warrants will become
void.
Securities Warrants may be exercised by delivering to the Securities Warrant
agent payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Common Stock purchasable upon such exercise together
with certain information set forth on the reverse side of the Securities Warrant
certificate. Securities Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within five
business days, of the Securities Warrant certificate evidencing such Securities
Warrants. Upon receipt of such payment and the Securities Warrant certificate
properly completed and duly executed at the corporate trust office of the
Securities Warrant agent or any other office indicated in the applicable
Prospectus Supplement, the Issuer will, as soon as practicable, issue and
deliver the Common Stock, as the case may be, purchasable upon such exercise. If
fewer than all of the Securities Warrants represented by such Securities Warrant
certificate are exercised, a new Securities Warrant certificate will be issued
for the remaining amount of Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO SECURITIES WARRANT AGREEMENTS
The Securities Warrant Agreements may be amended or supplemented without the
consent of the holders of the Securities Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Securities Warrants
and that do not adversely affect the interests of the holders of the Securities
Warrants.
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COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise specified in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant are subject to adjustment in certain events, including (i) payment
of a dividend on the Common Stock payable in stock and stock splits,
combinations or reclassifications of the Common Stock, (ii) issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
shares of Common Stock at less than their current market price (as defined in
the Securities Warrant Agreement for such series of Common Stock Warrants), and
(iii) certain distributions of evidences of indebtedness or assets (including
securities but excluding cash dividends or distributions paid out of
consolidated earnings or retained earnings or dividends payable in Common Stock)
or of subscription rights and warrants (excluding those referred to above).
No adjustment will be required unless such adjustment would require a change
of at least 1% in the exercise price then in effect. Except as stated above, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant will not be adjusted for the issuance of Common Stock or any
securities convertible into or exchangeable for Common Stock, or carrying the
right or option to purchase or otherwise acquire the foregoing, in exchange for
cash, other property or services.
Unless otherwise specified in the applicable Prospectus Supplement, in the
event of any (i) consolidation or merger of the Issuer with or into any entity
(other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock), (ii) sale, transfer, lease or conveyance of the assets of the
Issuer substantially as an entirety or (iii) reclassification, capital
reorganization or change of the Common Stock, then any holder of a Securities
Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Securities Warrant the kind and amount of shares of
stock or other securities, cash or other property (or any combination thereof)
that the holder would have received had such holder exercised such holder's
Securities Warrant immediately prior to the occurrence of such event. If the
consideration to be received upon exercise of the Securities Warrant following
any such event consists of common stock of the surviving entity, then from and
after the occurrence of such event, the exercise price of such Securities
Warrant will be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if such common stock
were Common Stock.
DESCRIPTION OF RIGHTS
The Issuer may issue Rights to its stockholders for the purchase of Common
Stock. Each series of Rights will be issued under a separate rights agreement (a
"Rights Agreement") to be entered into between the Issuer and a bank or trust
company, as Rights agent, all as set forth in the Prospectus Supplement relating
to the particular issue of Rights. The Rights agent will act solely as an agent
of the Issuer in connection with the certificates relating to the Rights and
will not assume any obligation or relationship of agency or trust for or with
any holders of Rights certificates or beneficial owners of Rights. The Rights
Agreement and the Rights certificates relating to each series of Rights will be
filed with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or to the time of
the issuance of such series of Rights.
The applicable Prospectus Supplement will describe the terms of the Rights
to be issued, including as applicable: (i) the date for determining the
stockholders entitled to the Rights distribution; (ii) the aggregate number of
shares of Common Stock purchasable upon exercise of such Rights and the exercise
price; (iii) the aggregate number of Rights being issued; (iv) the date, if any,
on and after which such Rights may be transferable separately; (v) the date on
which the right to exercise such Rights shall commence and the date on which
such right shall expire; (vi) any material United States federal income tax
consequences; (vii) the number of Rights issued; and (viii) any other terms of
such Rights, including terms, procedures and limitations relating to the
distribution, exchange and exercise of such Rights. Rights will be exercisable
for United States dollars only and will be in registered form only.
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PLAN OF DISTRIBUTION
The Issuer may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
Securities will be named in the applicable Prospectus Supplement. The Issuer has
reserved the right to sell Securities directly to investors on its own behalf in
those jurisdictions where and in such manner as it is authorized to do so.
Underwriters may offer and sell Securities at a fixed price or prices, which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Issuer
also may offer and sell Securities in exchange for one or more of its
outstanding issues of the Securities or other securities. The Issuer also may,
from time to time, authorize dealers, acting as the Issuer's agents, to offer
and sell Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Securities,
underwriters may receive compensation from the Issuer in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell 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 Issuer to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Dealers and agents participating in the
distribution of 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 Securities may be deemed to be underwriting discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Issuer, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
Securities may also be offered and sold, if so indicated in the Prospectus
Supplement, in connection with a remarketing upon their purchase, in accordance
with a redemption or repayment pursuant to their terms, or otherwise, by one or
more firms ("remarketing firms"), acting as principals for their own accounts or
as agents for the Issuer. Any remarketing firm will be identified and the terms
of its agreement, if any, with the Issuer and its compensation will be described
in the applicable Prospectus Supplement. Remarketing firms may be deemed to be
underwriters in connection with the Securities remarketed thereby. Remarketing
firms may be entitled under agreements which may be entered into with the Issuer
to indemnification by the Issuer against and contribution toward certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
and may be customers of, engage in transactions with or perform services for the
Issuer in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Issuer will authorize
dealers acting as the Issuer's agents to solicit offers by certain institutions
to purchase the Securities from the Issuer at the public offering price set
forth in the applicable Prospectus Supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of the 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 Securities covered by its Contract
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 Securities are being sold
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to underwriters, the Issuer shall have sold to such underwriters the total
principal amount of such Securities less the principal amount thereof covered by
Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for, the Issuer in the ordinary course
of business.
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FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSIDERATIONS IS BASED
ON CURRENT LAW AND DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF TAXATION THAT
MAY BE RELEVANT TO PARTICULAR HOLDERS OF SECURITIES IN LIGHT OF THEIR PERSONAL
INVESTMENT OR TAX CIRCUMSTANCES, OR TO CERTAIN TYPES OF SECURITIES HOLDERS
(INCLUDING INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, FINANCIAL INSTITUTIONS
OR BROKER-DEALERS, FOREIGN CORPORATIONS AND PERSONS WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES) SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL
INCOME TAX LAWS. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELEVANT TO HOLDERS
OF THE SECURITIES WILL BE PROVIDED IN THE APPLICABLE PROSPECTUS SUPPLEMENT
RELATING THERETO.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND SALE OF SECURITIES IN AN
ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Issuer has made an election to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ending December 31,
1994. The Company believes that it is organized and has operated in such a
manner as to qualify the Issuer for taxation as a REIT under the Code and its
proposed future method of operation will enable the Issuer to continue to so
qualify. No assurances, however, can be given that the Company has operated in a
manner so as to qualify the Issuer as a REIT or that the Company will continue
to operate in such a manner in the future. Qualification and taxation as a REIT
depends on the Issuer's ability to meet on a continuing basis, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Code on REITs, some of which
are summarized below. While the Company intends to operate so that Issuer
qualifies as a REIT, given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changes in circumstances of the Company, no assurance can be given that
the Company or the Issuer satisfies the REIT tests or will continue to do so.
See "Failure to Qualify" below.
The sections of the Code relating to qualification and operation as a REIT,
and the federal income tax treatment of a REIT and its securityholders, are
highly technical and complex. The following discussion sets forth only the
material aspects of those sections. This summary is qualified in its entirety by
the applicable Code provisions, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof.
TAXATION OF THE COMPANY
In any year in which the Issuer qualifies as a REIT, in general, it will not
be subject to federal income tax on that portion of its taxable income or
capital gain which is distributed to stockholders. The Issuer will, however, be
subject to tax at normal corporate rates upon any taxable income or capital gain
not distributed.
Notwithstanding its qualification as a REIT, the Issuer may also be subject
to taxation in certain other circumstances. If the Issuer should fail to satisfy
the 75% or the 95% gross income test (as discussed below), and nonetheless
maintains its qualification as a REIT because certain other requirements are
met, it will be subject to a 100% tax on the greater of the amount by which the
Issuer fails either the 75% or the
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95% test, multiplied by a fraction intended to reflect the Issuer's
profitability. The Issuer will also be subject to a tax of 100% on net income
from "prohibited transactions" (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, other than foreclosure property) and, if the Issuer has (i)
net income from the sale or other disposition of "foreclosure property"
(generally, property acquired by reason of a default on indebtedness or a lease)
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax on such income from foreclosure property at the highest corporate
rate. In addition, if the Issuer should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior years, the Issuer would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. The Issuer may also be subject to the corporate
"alternative minimum tax," on its items of tax preference, as well as tax in
certain situations not presently contemplated. Each of the Management Companies
is taxed on its income at regular corporate rates. The Company uses the calendar
year for federal income tax purposes and for financial reporting purposes.
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Issuer must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets, and distributions of income to
stockholders.
ORGANIZATIONAL REQUIREMENTS. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code); and (7) which meets certain
other tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (1) to (4), inclusive, must be met during the
entire taxable year and that condition (5) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. For taxable years of the Issuer beginning on or after
January 1, 1998, the Issuer will be treated as having satisfied condition (6) if
it complies with the regulatory requirements to request information from its
shareholders regarding their actual ownership of the Issuer's stock, and does
not know, or exercising reasonable diligence would not have known, that it
failed to satisfy such condition. If the Issuer fails to comply with these
regulatory requirements for any such taxable year it will be subject to a
penalty of $25,000, or $50,000 if such failure was intentional. However, if the
Issuer's failure to comply was due to reasonable cause and not willful neglect,
no penalties will be imposed. The Articles provide for restrictions regarding
transfer of the Issuer's capital stock, in order to assist the Issuer in
continuing to satisfy the share ownership requirements described in (5) and (6)
above. Such transfer restrictions are described in "Description of Common
Stock--Restrictions on Transfer."
GROSS INCOME TESTS. In order for the Issuer to maintain its qualification
as a REIT, there are three requirements relating to the Issuer's gross income
that must be satisfied annually. First, at least 75% of the Issuer's gross
income (excluding gross income from prohibited transactions) for each taxable
year must consist of defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or temporary
investment income. Second, at least 95% of the Issuer's gross income (excluding
gross income from prohibited transactions) for each taxable year must be derived
from such real property and from dividends, other types of interest and gain
from the sale or disposition of stock or securities or from
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any combination of the foregoing. Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must have
represented less than 30% of the Issuer's gross income (including gross income
from prohibited transactions) for each taxable year beginning before January 1,
1998.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the REIT for federal income tax purposes. Thus, the Issuer's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership and the Property Partnerships will be treated as assets,
liabilities and items of income of the Issuer for purposes of applying the REIT
requirements described herein.
Rents received by the Issuer will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. An amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests if
the REIT, or an owner of 10% or more of the REIT, 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." Finally, for rents received 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 revenue, except that the Company may
directly perform certain services other than services which are not "usually or
customarily rendered" in connection with the rental space for occupancy only and
are considered "rendered to the occupant" of the property. For taxable years of
the Issuer beginning on or after January 1, 1998, a de minimus amount of up to
1% of the gross income received by the Company from each property is permitted
to be from the provision of non-customary services without disqualifying all
other amounts received form such property as "rents from real property."
However, such de minimus amount itself will not qualify as "rents from real
property" for purposes of the 75% and 95% gross income tests.
The Management Companies (which will not satisfy the independent contractor
standard) as manager for the Operating Partnership and Property Partnerships,
will provide certain services with respect to the Centers (other than West Acres
Center) and any newly-acquired property of the Operating Partnership or a
Property Partnership. The Company believes that all services provided by the
Management Companies to the Operating Partnership or Property Partnerships will
be of the type usually or customarily rendered in connection with the rental of
space for occupancy only, and therefore, that the provision of such services
will not cause the rents received with respect to the Centers or newly-acquired
centers to fail to qualify as rents from real property for purposes of the 75%
and 95% gross income tests. If the Operating Partnership or a Property
Partnership contemplates providing services in the future that reasonably might
be expected not to meet the "usual or customary" standard, it will arrange to
have such services provided by an independent contractor from which neither the
Operating Partnership nor the Property Partnership receives any income.
Any gross income derived from a prohibited transaction is taken into account
in applying the 30% income test necessary to qualify as a REIT (and the net
income from that transaction is subject to a 100% tax). The term "prohibited
transaction" generally includes a sale or other disposition of property (other
than foreclosure property) that is held primarily for sale to customers in the
ordinary course of a trade or business. The Operating Partnership and the Issuer
believe that no asset owned by the Operating
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Partnership, the Property Partnerships or the Issuer is held for sale to
customers and that sale of any Center and associated property will not be in the
ordinary course of business of the Operating Partnership, the relevant Property
Partnership or the Issuer. Whether property is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those related
to a particular property. Nevertheless, the Issuer and the Operating Partnership
will attempt to comply with the terms of safe-harbor provisions in the Code
prescribing when asset sales will not be characterized as prohibited
transactions. Complete assurance cannot be given, however, that the Company can
comply with the safe-harbor provisions of the Code or avoid owning property that
may be characterized as property held "primarily for sale to customers in the
ordinary course of business."
It is anticipated that, for purposes of the gross income tests, the Issuer's
investment in the Centers through the Operating Partnership and Property
Partnerships will in major part give rise to qualifying income in the form of
rents and gains on the sales of Centers. Moreover, substantially all income
derived by the Issuer from the Management Companies will be in the form of
dividends on the stock of such entities owned by the Operating Partnership.
Although such dividends will satisfy the 95%, but not the 75% gross income test
(as discussed above), the Issuer anticipates that non-qualifying income on its
investments (including such dividend income) will not result in the Issuer's
failing any of the three gross income tests.
Even if the Issuer 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 entitled to relief under certain provisions of the Code.
These relief provisions will be generally available if the Issuer's failure to
meet such tests is due to reasonable cause and not due to willful neglect, the
Issuer 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 possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in "Federal Income Tax Consideration-- Taxation of the Company,"
even if these relief provisions apply, a tax would be imposed with respect to
the excess of 75% or 95% of the Issuer's gross income over the Issuer's
qualifying income in the relevant category, whichever is greater, reduced by
approximated expenses. There is no comparable relief provision which could
mitigate the consequences of a failure to satisfy the 30% gross income
limitation.
ASSET TESTS. The Issuer, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Issuer's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Issuer owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Issuer),
cash, cash items and government securities. Second, not more than 25% of the
Issuer's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Issuer may not exceed 5% of
the value of the Issuer's total assets and the Issuer may not own more than 10%
of any one issuer's outstanding voting securities. The Issuer's investment in
the Centers through its interests in the Operating Partnership and Property
Partnerships will constitute qualified assets for purposes of the 75% asset
test.
The Operating Partnership owns 100% of the non-voting preferred stock of
each of the Management Companies. By virtue of its partnership interest in the
Operating Partnership, the Issuer will be deemed to own its pro rata share of
the assets of the Operating Partnership, including the securities of such
entities.
Because the Operating Partnership will not own any of the voting securities
of the entities that constitute the Management Companies, the 10% limitation on
holdings of the voting securities of any one issuer will not be violated. In
addition, based upon a comparison of the total estimated value of the securities
of such entities to be owned by the Operating Partnership to the estimated value
of the total assets to be owned by the Operating Partnership and the Issuer, the
Issuer has represented that the Issuer's
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pro rata share of the value of the securities of each such entity has not
exceeded, and is not expected to exceed in the future, 5% by value of the total
assets owned by the Issuer. This 5% limitation must be satisfied not only on the
date that the Issuer (directly or through the Operating Partnership) acquires
securities of such entities, but also at the end of any quarter in which the
Issuer so increases its interest in such entities or so acquires other property.
In this respect, if any limited partner of the Operating Partnership exercises
its rights to redeem OP Units and the Issuer satisfies the Operating
Partnership's obligation upon such exercise with shares of Common Stock, the
Issuer will thereby increase its proportionate (indirect) ownership interest in
such entities, thus requiring the Issuer to meet the 5% test in any quarter in
which such rights are exercised. Although the Issuer plans to take steps to
ensure that it satisfies the 5% value test for any quarter with respect to which
retesting is to occur, there can be no assurance that such steps will always be
successful or will not require a reduction in the Operating Partnership's
overall interest in the Management Companies.
ANNUAL DISTRIBUTION REQUIREMENTS. The Issuer, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Issuer's REIT taxable income (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the
Issuer timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Issuer does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its REIT taxable income, as adjusted, it will be
subject to tax on the undistributed amount at regular ordinary and capital gains
corporate tax rates, as applicable. For taxable years of the Issuer beginning on
or after January 1, 1998, the Issuer may designate all or a portion of its
undistributed net capital gains as being includable in the income of its
stockholders as gain from the sale or exchange of a capital asset, which
stockholders would receive an increase in the basis of their stock in the Issuer
in the amount of such income recognized. Such stockholders would also be treated
as having paid their proportionate share of the capital gains tax imposed on the
Issuer on such undistributed amounts and would receive a corresponding decrease
in the basis of their stock in the Issuer. Furthermore, if the Issuer should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the Issuer would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Issuer has made and
intends to make timely distributions sufficient to satisfy all annual
distribution requirements.
It is possible that, from time to time, the Issuer may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of such
expenses in arriving at the Issuer's taxable income. Further, it is possible
that, from time to time, the Issuer may be allocated a share of net capital gain
attributable to the sale of depreciated property which exceeds its allocable
share of cash attributable to that sale. Additionally, the Company may incur
cash expenditures that are not currently deductible for tax purposes. As such,
the Issuer may have less cash available for distribution than is necessary to
meet its annual 95% distribution requirement or to avoid tax with respect to
capital gain or the excise tax imposed on certain undistributed income. To meet
the 95% distribution requirement necessary to qualify as a REIT or to avoid tax
with respect to capital gain or the excise tax imposed on certain undistributed
income, the Issuer may find it appropriate to arrange for short-term (or
possibly long-term) borrowings or to pay distributions in the form of taxable
stock dividends. Any such borrowings for the purpose of making distributions to
stockholders are required to be arranged through the Operating Partnership.
Under certain circumstances relating to any IRS audit adjustments that
increase income, the Issuer may be able to rectify a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Issuer's deduction
for dividends
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paid for the earlier year. Thus, the Issuer may be able to avoid being taxed on
amounts distributed as deficiency dividends; however, the Issuer will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Pursuant to applicable Treasury Regulations, in order to be able to elect to
be taxed as a REIT, the Issuer must maintain certain records and request certain
information from its stockholders designed to disclose the actual ownership of
its stock. The Issuer has complied and intends to continue to comply with such
requirements.
FAILURE TO QUALIFY
If the Issuer fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Issuer will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Issuer fails to qualify will not be deductible by the Issuer nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Issuer will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which the Issuer ceased to qualify as a REIT. It is not possible to
state whether in all circumstances the Issuer would be entitled to such
statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as the Issuer qualifies
as a REIT, distributions made to the Issuer's taxable U.S. stockholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by such U.S. stockholders as ordinary
income and will not be eligible for the dividends received deduction for
corporations. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
Issuer's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares, but rather
will reduce the adjusted basis of such shares. To the extent that distributions
in excess of current and accumulated earnings and profits exceed the adjusted
basis of a stockholder's shares, such distributions will be included in income
as long-term capital gain (or short-term capital gain if the shares have been
held for one year or less) assuming the shares are a capital asset in the hands
of the stockholder. In addition, any distribution declared by the Issuer in
October, November or December of any year payable to a stockholder of record on
a specified date in any such month shall be treated as both paid by the Issuer
and received by the stockholder on December 31 of such year, provided that the
distribution is actually paid by the Issuer during January of the following
calendar year. Stockholders may not include in their individual income tax
returns any net operating losses or capital losses of the Issuer.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from the Issuer required to be treated by such stockholder as
long-term capital gain.
BACKUP WITHHOLDING. The Issuer will report to its U.S. stockholders 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 stockholder may
be subject to backup withholding at the rate of 31% with respect to
distributions paid unless such holder (a) is a corporation or comes within
certain other exempt categories
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and when required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A stockholder that does not provide the Issuer with his
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
stockholder's income tax liability. In addition, the Issuer may be required to
withhold a portion of capital gain distributions to any stockholders who fail to
certify their nonforeign status to the Issuer. See "Federal Income Tax
Consideration--Taxation of Stockholders-- Taxation of Foreign Stockholders."
TREATMENT OF TAX-EXEMPT STOCKHOLDERS. Distributions from the Issuer to a
tax-exempt employee pension trust or other domestic tax-exempt stockholder
generally will not constitute "unrelated business taxable income" ("UBTI")
unless the stockholder has borrowed to acquire or carry the Common Stock. For
taxable years beginning after December 31, 1993, however, qualified trusts that
hold more than 10% (by value) of certain REITs may be required to treat a
certain percentage of such a REIT's distributions as UBTI. This requirement will
apply only if (i) the REIT would not qualify for federal income tax purposes but
for the application of a "look-through" exception to the "five or fewer"
requirement applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held if either
(i) a single qualified trust holds more than 25% by value of the REIT interests
or (ii) one or more qualified trusts, each owning more than 10% by value of the
REIT interests, hold in the aggregate more than 50% of the REIT interests. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of (a) the
UBTI earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (b) the total gross income (less certain
associated expenses) of the REIT. A de minimis exception applies where the ratio
set forth in the preceding sentence is less than 5% for any year. For those
purposes, a qualified trust is any trust described in section 401(a) of the Code
and exempt from tax under section 501(a) of the Code. The provisions requiring
qualified trusts to treat a portion of REIT distributions as UBTI will not apply
if the REIT is able to satisfy the "five or fewer" requirement without relying
upon the "look-through" exception. The restrictions on ownership of the Common
Stock in the Articles will prevent application of the provisions treating a
portion of REIT distributions as UBTI to tax-exempt entities purchasing the
Common Stock, absent approval by the Board of Directors.
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing United States federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should consult
with their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions will ordinarily be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless a
applicable tax treaty reduces or eliminates that tax. However, if income from
the investment in the shares is treated as effectively connected with the
Non-U.S. Stockholder's conduct of a United States trade or business, the
Non-U.S. Stockholder generally will be subject to a tax at graduated rates, in
the same manner as U.S. stockholders are taxed with respect to such
distributions (and may also be subject to the 30% branch profits tax in the case
of a stockholder that is a foreign corporation). The Issuer expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Stockholder unless (i) a lower treaty rate
applies or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with the Issuer
claiming that the distribution is effectively connected income. Distributions in
excess of current and accumulated earnings and profits of the Issuer will not be
taxable to a stockholder to the extent that such distributions do not
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exceed the adjusted basis of a stockholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that distributions in excess of
current accumulated earnings and profits exceed the adjusted basis of a Non-U.S.
Stockholder's shares, such distributions will give rise to tax liability if the
Non-U.S. Stockholder would otherwise be subject to tax on any gain from the sale
or disposition of his shares in the Issuer, as described below. If it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of current and accumulated earnings and profits, the
distributions will be subject to withholding at the same rate as dividends.
However, amounts thus withheld are refundable if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of the Issuer.
For any year in which the Issuer qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
United States real property interests are taxed to a Non-U.S. Stockholder as if
such gain were effectively connected with a United States business. Non-U.S.
Stockholders would thus be taxed at the normal capital gain rates applicable to
U.S. stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
The Issuer is required by applicable Treasury Regulations to withhold 35% of any
distribution that could be designated by the Issuer as a capital gains dividend.
This amount is creditable against the Non-U.S. Stockholder FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Issuer is a "domestically controlled REIT"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the stock was held directly or indirectly by
foreign persons. It is currently anticipated that the Issuer will be a
"domestically controlled REIT," although there can be no assurance that it will
retain its status as such. If the Issuer is not "domestically controlled," gain
recognized by a Non-U.S. Stockholder will continue to be exempt under FIRPTA if
such person at no time owned more than five percent of the Common Stock of the
Issuer. However, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (i) investment in the shares is effectively connected with the
Non-U.S. Stockholder's United States trade or business, in which case the
Non-U.S. Stockholder will be subject to the same treatment as U.S. stockholders
with respect to such gain, or (ii) the Non-U.S. Stockholder is a nonresident
alien individual who was present in the United States for more than 182 days
during the taxable year and has a "tax home" in the United States, in which case
the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of shares were to be subject
to taxation under FIRPTA the Non-U.S. Stockholder will be subject to the same
treatment a U.S stockholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals).
If the proceeds of a sale of shares are paid by or through a U.S. office of
a broker, the payment is subject to information reporting and to backup
withholding unless the disposing Non-U.S. Stockholder certifies as to his name,
address and non-U.S. status or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the U.S. through a non-U.S.
office of a non-US. broker. U.S. information reporting requirements (but not
backup withholding) will apply, however, to a payment of disposition proceeds
outside the U.S. if: (i) the payment is made through an office outside the U.S.
of a broker that is: (a) a U.S. person; (b) a foreign person that derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the U.S.; or (c) a "controlled foreign corporation" for U.S. federal
income tax purposes; and (ii) the broker fails to initiate documentary evidence
that the shareholder is a Non-U.S. Stockholder and that certain conditions are
met or that the Non-U.S. Stockholder otherwise is entitled to a exemption.
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TAX ASPECTS OF THE ISSUER'S INVESTMENTS IN PARTNERSHIPS
GENERAL. The Issuer holds direct or indirect interests in the Operating
Partnership and the Property Partnerships (each individually a "Partnership"
and, collectively, the "Partnerships"). In general, partnerships are
"pass-through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Issuer will include its proportionate share of the foregoing
items of the Partnerships for purposes of the various REIT income tests and in
the computation of its REIT taxable income. See "Federal Income Tax
Consideration--Requirements for Qualification--Gross Income Tests." Any
resultant increase in the Issuer's REIT taxable income will increase its
distribution requirements (see "Federal Income Tax Consideration--Requirements
or Qualification--Annual Distribution Requirements"), but will not be subject to
federal income tax in the hands of the Issuer provided that such income is
distributed by the Issuer to its stockholders. Moreover, for purposes of the
REIT asset tests (see "Federal Income Tax Consideration--Requirements for
Qualification--Asset Tests"), the Issuer will include its proportionate share of
assets held by the Partnerships.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "Book-Tax Difference"). Such allocations
are solely for federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Operating Partnership was formed principally by way of contributions of
appreciated property. Consequently, the Partnership Agreement requires such
allocation to be made in a manner consistent with Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Partnerships of the contributed
assets. This will tend to eliminate the Book-Tax Difference over the life of the
Partnerships. However, the special allocation rules of Section 704(c) do not
always rectify the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Under the applicable Treasury
Regulations, such special allocations of income and gain and depreciation
deductions must be made on a property-by-property basis. Depreciation deductions
resulting from the carryover basis of a contributed property are used to
eliminate the Book-Tax Difference by allocating such deductions to the
non-contributing partners (i.e., the REIT and the other non-contributing
partners) up to the amount of their share of book depreciation. Any remaining
tax depreciation for the contributed property would be allocated to the partners
that contributed the property. The Operating Partnership intends to elect the
traditional method of rectifying the Book-Tax Difference under the applicable
Treasury Regulations, pursuant to which, if depreciation deductions are less
than the non-contributing partners' share of book depreciation, then the
non-contributing partners lose the benefit of these deductions ("ceiling rule").
When the property is sold, the resulting tax gain is used to the extent possible
to eliminate the Book-Tax Difference (reduced by any previous book
depreciation). Because of the application of the ceiling rule it is anticipated
that tax depreciation will be allocated substantially in accordance with the
percentages of OP Units held by the Issuer and the limited partners of the
Operating Partnership, notwithstanding Section 704(c) of the Code. Thus, the
carryover basis of the contributed assets in the hands of the Partnerships will
cause the Issuer to be allocated lower depreciation and other deductions, and
possibly greater amounts of taxable income in the event of a sale of such
contributed assets in excess of the economic or book depreciation allocated to
it, and possibly the economic and book income or gain allocated to it as a
result of such sale. This may cause the Issuer to recognize taxable income in
excess of
27
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cash proceeds, which might adversely affect the Issuer's ability to comply with
the REIT distribution requirements. See "Federal Income Tax
Consideration--Requirements for Qualification--Annual Distribution
Requirements."
OTHER TAX CONSIDERATIONS
THE MANAGEMENT COMPANIES. A portion of the cash to be used by the Operating
Partnership to fund distributions to partners, including the Issuer, is expected
to come from the Management Companies through dividends on the stock that will
be held by the Operating Partnership. The Management Companies will receive
income from the Operating Partnership, the Property Partnerships and unrelated
third parties. Because the Issuer, the Operating Partnership and the Management
Companies are related through stock ownership, income of the Management
Companies from services performed for the Issuer and the Operating Partnership
may be subject to certain rules under which additional income may be allocated
to the Management Companies. The Management Companies will pay federal and state
income tax at the full applicable corporate rates on its income prior to payment
of any dividends. The Management Companies will attempt to minimize the amount
of such taxes, but there can be no assurance whether or the extent to which
measures taken to minimize taxes will be successful. To the extent that the
Management Companies are required to pay federal, state, or local taxes, the
cash available for distribution by the Issuer to stockholders will be reduced
accordingly.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX
CONSEQUENCES. Prospective holders of Securities should recognize that the
present federal income tax treatment of investment in the Issuer may be modified
by legislative, judicial or administrative action at any time and that any such
action may affect investments and commitments previously made. The rules dealing
with federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. Revisions in federal tax laws and interpretations
thereof could adversely affect the tax consequences of investment in the Issuer.
In this connection, on February 2, 1998, the Clinton Administration released its
fiscal year 1999 budget plan. In this proposed budget, the Administration
proposes to prohibit REITs from owning more than 10% of the value of all classes
of stock of a corporation. This proposal would be effective with respect to
stock acquired on or after "the date of first committee action." In addition,
the "grandfathered" status of any existing subsidiary would terminate when it
engages in a new line of business or acquires substantial new assets (both
tested on the date of first committee action). It is difficult to predict what
form, if any, such legislation will finally take, and its impact, if any, on the
Management Companies' operations.
STATE AND LOCAL TAXES. The Company and its holders of Securities may be
subject to state or local taxation in various jurisdictions, including those in
which it or they transact business or reside. The state and local tax treatment
of the Company and its holders of Securities may not conform to the federal
income tax consequences discussed above. Consequently, prospective holders of
Securities should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in any Securities.
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LEGAL MATTERS
The validity of the Securities and certain tax matters will be passed upon
for the Company by O'Melveny & Myers LLP. O'Melveny & Myers LLP will rely as to
certain matters of Maryland law on the opinion of Ballard Spahr Andrews &
Ingersoll, LLP.
EXPERTS
The financial statements and financial statement schedule of the Issuer
incorporated in this Prospectus by reference to the Issuer's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, and the combined
statement of certain revenues and certain expenses of Vintage Faire Associates
and Billings Associates for the year ended December 31, 1995, incorporated in
this Prospectus by reference to the Issuer's Current Report on Form 8-K/A (event
date November 30, 1996), have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as indicated in each of its reports thereon included
therein and incorporated herein by reference.
The combined statement of certain revenues and certain expenses of
Buenaventura Mall, Fresno Fashion Fair and Huntington Beach Mall for the fiscal
year ended December 31, 1995, incorporated in this Prospectus by reference to
the Issuer's Current Report on Form 8-K/A (event date December 30, 1996), has
been audited by KPMG Peat Marwick LLP, independent accountants, as indicated in
its report thereon included therein and incorporated herein by reference.
The combined statement of certain revenues and certain expenses of South
Towne Center and South Towne Marketplace for the fiscal year ended December 31,
1996, incorporated in this Prospectus by reference to the Issuer's Current
Report on Form 8-K/A (event date August 6, 1997), has been audited by Ernst &
Young LLP, independent accountants, as indicated in its report thereon included
therein and incorporated herein by reference.
The combined statement of certain revenues and certain expenses of Stonewood
Mall for the fiscal year ended December 31, 1996, incorporated in this
Prospectus by reference to the Issuer's Current Report on Form 8-K, as amended
(event date December 19, 1997), has been audited by Coopers & Lybrand L.L.P.,
independent accountants, as indicated in its report thereon included therein and
incorporated herein by reference.
Each of the above-referenced financial statements, schedules and reports is
incorporated herein by reference in reliance upon the authority of the
respective firms as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY AGENT, DEALER OR UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
The Offering.................................. S-2
Use of Proceeds............................... S-2
Recent Developments........................... S-2
Underwriting.................................. S-2
Legal Matters................................. S-2
PROSPECTUS
Available Information......................... 2
Incorporation of Certain Documents by
Reference................................... 2
The Company................................... 4
Risk Factors.................................. 4
Use of Proceeds............................... 11
Description of Common Stock................... 11
Description of Securities Warrants............ 14
Description of Rights......................... 17
Plan of Distribution.......................... 17
Federal Income Tax Considerations............. 19
Legal Matters................................. 29
Experts....................................... 29
</TABLE>
1,052,650 Shares
[LOGO]
Common Stock
[LOGO]
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P R O S P E C T U S
S U P P L E M E N T
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Salomon Smith Barney
FEBRUARY 12, 1998
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