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As Filed Pursuant to Rule 424(b)(3)
Registration No. 033-91084
PROSPECTUS SUPPLEMENT
NOVEMBER 12, 1997
(TO PROSPECTUS DATED NOVEMBER 12, 1997)
4,800,000 SHARES
GLIMCHER REALTY TRUST
9 1/4% SERIES B CUMULATIVE REDEEMABLE
PREFERRED SHARES OF BENEFICIAL INTEREST
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
[GLIMCHER REALTY TRUST LOGO]
Distributions on the Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $0.01 per share (the "Series B Preferred
Shares"), of Glimcher Realty Trust (collectively, with all entities in which it
has a direct or indirect ownership interest, the "Company") are cumulative from
the date of original issue and are payable quarterly on or about the 15th day of
January, April, July and October of each year, commencing on January 15, 1998 at
the rate of 9 1/4% per annum of the $25.00 liquidation preference (equivalent to
$2.3125 per annum per share). See "Description of Series B Preferred
Shares--Distributions."
Except in certain circumstances relating to the preservation of the
Company's qualification as a real estate investment trust ("REIT") for federal
income tax purposes, the Series B Preferred Shares are not redeemable prior to
November 15, 2002. On and after November 15, 2002, the Series B Preferred Shares
may be redeemed for cash at the option of the Company, in whole or in part, at a
redemption price of $25.00 per share, plus accrued and unpaid distributions, if
any, thereon to the redemption date. The Series B Preferred Shares have no
stated maturity and will not be subject to any sinking fund or mandatory
redemption and will not be convertible or exchangeable for any other property or
securities of the Company. See "Description of Series B Preferred
Shares--Redemption."
The Series B Preferred Shares have been approved for listing on the New
York Stock Exchange (the "NYSE"), subject to official notice of issuance.
Trading of the Series B Preferred Shares on the NYSE is expected to commence
within the 30-day period after the initial delivery of the Series B Preferred
Shares. While the Underwriters (as defined herein) have advised the Company that
they intend to make a market in the Series B Preferred Shares prior to the
commencement of trading on the NYSE, they are under no obligation to do so and
no assurance can be given that a market for the Series B Preferred Shares will
exist prior to commencement of trading. See "Underwriting."
The Series B Preferred Shares are subject to certain restrictions on
ownership and transfer designed to preserve the Company's status as a REIT for
federal income tax purposes. See "Description of Shares of Beneficial
Interest--Restrictions on Ownership and Transfer" in the accompanying
Prospectus.
SEE "RISK FACTORS" COMMENCING ON PAGE S-6 OF THIS PROSPECTUS SUPPLEMENT FOR
A DISCUSSION OF CERTAIN MATERIAL FACTORS WHICH SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE SERIES B PREFERRED SHARES OFFERED HEREBY.
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.
<TABLE>
<CAPTION>
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PRICE PROCEEDS
TO THE TO THE
PUBLIC(1) UNDERWRITING COMPANY(3)
DISCOUNTS AND
COMMISSIONS(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $25.00 $0.875 $24.125
Total(4)..................................... $120,000,000 $4,200,000 $115,800,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued distributions, if any, from the date of original issue.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated to be $400,000.
(4) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 720,000 additional Series B Preferred Shares at the Price
to the Public, less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $138,000,000, $4,830,000 and $133,170,000, respectively.
See "Underwriting."
The Series B Preferred Shares are offered by the several Underwriters when,
as and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to reject orders in whole or in part. It
is expected that delivery of the Series B Preferred Shares will be made in New
York, New York on or about November 17, 1997.
DONALDSON, LUFKIN & JENRETTE PRUDENTIAL SECURITIES INCORPORATED
SECURITIES CORPORATION
BT ALEX. BROWN
PAINEWEBBER INCORPORATED
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SERIES B
PREFERRED SHARES. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION
WITH THE OFFERING AND MAY BID FOR AND PURCHASE THE SERIES B PREFERRED SHARES IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial information appearing elsewhere in this Prospectus
Supplement and the accompanying Prospectus, or incorporated herein or therein by
reference. Unless otherwise indicated, the information contained in this
Prospectus Supplement assumes that the Underwriters' over-allotment option will
not be exercised. In addition, unless the context otherwise requires, references
to the Company in this Prospectus Supplement and the accompanying Prospectus
shall be deemed to include Glimcher Realty Trust, a Maryland real estate
investment trust ("Glimcher Realty Trust"), and Glimcher Properties Limited
Partnership, a Delaware limited partnership (the "Operating Partnership"), as
well as all affiliated entities in which Glimcher Realty Trust has a direct or
indirect ownership interest. The term "Properties" refers to the 116 retail
properties in which the Company holds an interest as of the date of this
Prospectus Supplement, unless another date is specified, in which case the term
"Properties" shall refer to the retail properties in which the Company holds an
interest as of that date.
THE COMPANY
Glimcher Realty Trust is a fully-integrated, self-administered and
self-managed Maryland real estate investment trust ("REIT"), which owns, leases,
manages and develops a portfolio of retail properties consisting of regional and
super regional malls (including, most recently, value-oriented super regional
malls) ("Mall Properties") and community shopping centers (including single
tenant retail properties) ("Community Centers"). As of September 30, 1997, the
Company owned interests in and operated 115 Properties, consisting of 11 Mall
Properties and 104 Community Centers (including 17 single tenant retail
properties) (collectively, the "Properties") located in 24 states. As of
September 30, 1997, the Properties contained an aggregate of approximately 20.8
million square feet of gross leasable area ("GLA") and were approximately 93%
leased.
The Company is focused on achieving growth in multiple retail formats which
appeal to a wide range of consumers and to national and regional tenants in
selected markets throughout the United States. Through the application of
technology and the introduction of entertainment concepts, the Company has
developed new designs and formats for retail properties in an effort to forge
strong ties with a broad group of retailers and to appeal to a broad cross
section of consumers. The Company is committed to developing and acquiring
retail properties throughout the United States that individually, or in
combination with other properties owned by the Company, are capable of becoming
the dominant retail properties in their markets.
Consistent with its strategy, on July 2, 1997, the Company acquired,
through a joint venture, its tenth Mall Property which is located in Dayton,
Ohio ("The Dayton Mall") and which contains approximately 1.3 million square
feet of GLA. As of September 30, 1997, The Dayton Mall was approximately 92%
leased. On August 14, 1997 the Company opened its eleventh Mall Property, The
Great Mall of the Great Plains, located in Olathe, Kansas ("The Great Mall of
the Great Plains"), an approximately 782,000 square foot value-oriented regional
mall in the Kansas City metropolitan area. This Mall Property, which the Company
developed through a joint venture, was approximately 85% leased as of September
30, 1997. On October 1, 1997, the Company acquired, through a joint venture, its
twelfth Mall Property located in Harrisburg, Pennsylvania ("The Colonial Park
Mall") which contains approximately 744,000 square feet of GLA and as of October
1, 1997 was approximately 99% leased.
The Company is also in the process of developing, through joint ventures,
two additional value-oriented super regional malls located in Elizabeth, New
Jersey (the "Jersey Gardens") and Carson, California (the "LA Metro Mall"), each
of which is expected to include a unique combination of value-oriented tenant
retail space and a full service entertainment complex. The construction of the
Jersey Gardens is expected to commence during the fourth quarter of 1997 and the
construction of the LA Metro Mall is expected to commence during the second
quarter of 1998.
Herbert Glimcher, the Company's Chairman and Chief Executive Officer, and
David J. Glimcher, the Company's President and Chief Operating Officer, have
been involved in the acquisition, leasing, management
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and development of retail properties for approximately 37 and 23 years,
respectively. The Company has assembled a management team that together
possesses the skill and sophistication necessary to execute its strategy. New
senior management appointments include experienced professionals in development,
finance, human resources, leasing, legal and marketing. The Company believes
that its team approach to property management and its ability to develop high
quality and innovative retail properties on a cost effective basis combined with
its established relationships with national and regional tenants and its
extensive experience in understanding the needs of local tenants provide the
Company with strategic advantages over other retail property operators and
developers in the Company's market areas.
THE OFFERING
Securities Offered......... 4,800,000 shares of 9 1/4% Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest,
par value $0.01 per share (the "Series B Preferred
Shares"). The Series B Preferred Shares have been
approved for listing on the NYSE, subject to
official notice of issuance. Trading of the Series
B Preferred Shares on the NYSE is expected to
commence within the 30-day period after the initial
delivery of the Series B Preferred Shares. See
"Underwriting."
Use of Proceeds............ The net proceeds from the Offering will be
contributed by the Company to the Operating
Partnership in exchange for preferred units in the
Operating Partnership, the economic terms of which
will be substantially identical to the Series B
Preferred Shares. The Operating Partnership will be
required to make all required distributions on the
preferred units (which will mirror the payments of
distributions, including accrued and unpaid
distributions upon redemption, and the liquidation
preference amount on the Series B Preferred Shares)
prior to any distribution of cash or assets to the
holders of Units or to the holders of any other
equity interests in the Operating Partnership,
except for any other series of preferred units
having equal ranking as to distributions and/or
liquidation rights and except for distributions
required to enable the Company to maintain its
qualification as a REIT under the Code. The
Operating Partnership intends to use the net
proceeds to repay indebtedness of the Company. See
"Use of Proceeds."
Ranking.................... With respect to the payment of distributions and
amounts upon liquidation, dissolution or winding
up, the Series B Preferred Shares will rank senior
to the Company's common shares of beneficial
interest, par value $.01 per share (the "Common
Shares"), to the Company's Series A-1 Convertible
Preferred Shares (the "Series A-1 Preferred
Shares"), and to any other series of preferred
shares of beneficial interest ("Preferred Shares")
issued from time to time pursuant to a certain
Securities Purchase Agreement (the "Purchase
Agreement") dated as of November 26, 1996, as
amended, among the Company and an affiliate of
Nomura Asset Capital Corporation (the "Nomura
Affiliate") (the Series A-1 Preferred Shares
together with any other series of Preferred Shares
issued pursuant to the Purchase Agreement, the
"Nomura Preferred Shares"). See "Description of
Series A-1 Preferred Shares-- Redemption" and
"--Nomura Preferred Shares."
Notwithstanding the foregoing, the Company is
obligated to mandatorily redeem the Nomura
Preferred Shares under certain limited
circumstances, which redemption must be made
whether or not the Company is in arrears in payment
of distributions on the Series B Preferred Shares.
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Furthermore, so long as all distributions on the
Series B Preferred Shares for all past distribution
periods and the then current distribution period
have been paid, the Company may redeem, at its
option, from time to time, Nomura Preferred Shares
under certain circumstances. See "Description of
Series B Preferred Shares--Rank."
Distributions.............. Distributions on the Series B Preferred Shares are
cumulative from the date of original issue and are
payable quarterly on or about the 15th day of
January, April, July and October of each year,
commencing on January 15, 1998 at the rate of
9 1/4% per annum of the $25.00 liquidation
preference (equivalent to $2.3125 per annum per
share). See "Description of Series B Preferred
Shares--Distributions."
Liquidation Rights......... Equivalent to $25.00 per Series B Preferred Share,
plus an amount equal to accrued and unpaid
distributions (whether or not declared). See
"Description of Series B Preferred
Shares--Liquidation Preference."
Redemption................. Except in certain circumstances relating to the
preservation of the Company's qualification as a
REIT for federal income tax purposes (see "Federal
Income Tax Considerations--Federal Income Taxation
of the Company--Annual Distribution Requirements"
in the accompanying Prospectus), the Series B
Preferred Shares are not redeemable prior to
November 15, 2002. On any date as fixed by the
Board of Trustees of the Company on or after
November 15, 2002, the Company may redeem the
Series B Preferred Shares, in whole or in part, at
any time or from time to time, for cash at a
redemption price of $25.00 per share, plus
distributions accrued and unpaid, if any (whether
or not declared), to the redemption date. The
redemption price (other than the portion consisting
of accrued and unpaid dividends) is payable solely
out of the sale proceeds of other capital shares of
the Company, which may include other series of
Preferred Shares, and from no other source. See
"Description of Series B Preferred
Shares--Redemption."
Voting Rights.............. Holders of Series B Preferred Shares will generally
have no voting rights except as required by law.
However, when distributions on any Series B
Preferred Shares shall be in arrears for six or
more quarterly periods (whether or not
consecutive), the holders of such shares (voting
separately as a class with all other series of
Preferred Shares upon which like voting rights have
been conferred and are exercisable) will be
entitled to vote for the election of two additional
trustees of the Company until all distributions
accumulated on such Series B Preferred Shares have
been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment. In
addition, certain changes to the terms of the
Series B Preferred Shares that would be materially
adverse to the rights of holders of the Series B
Preferred Shares cannot be made without the
affirmative vote of holders of two-thirds of the
outstanding Series B Preferred Shares. See
"Description of Series B Preferred Shares-- Voting
Rights."
Conversion................. The Series B Preferred Shares are not convertible
into or exchangeable for any other property or
securities of the Company.
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RISK FACTORS
An investment in the Series B Preferred Shares offered hereby (the
"Offering") involves a high degree of risk. Prospective investors should
consider carefully the following factors, in addition to other information
contained in this Prospectus Supplement and incorporated herein by reference, in
connection with an investment in the Series B Preferred Shares offered hereby.
This Prospectus Supplement and the accompanying Prospectus include certain
statements that may be deemed to be "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements, other than statements of
historical facts, included in this Prospectus Supplement and the accompanying
Prospectus that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, distributions and acquisitions
(including the amount and nature thereof), the use of proceeds of the Offering,
expansion and other development trends of the real estate industry, business
strategies, expansion and growth of the Company's operations and other such
matters are forward-looking statements. Such statements are based on assumptions
and expectations which may not be realized and are inherently subject to risks
and uncertainties, many of which cannot be predicted with accuracy and some of
which might not even be anticipated. Prospective investors are cautioned that
any such statements are not guarantees of future performance and that actual
results or developments may differ materially from those anticipated in the
forward-looking statements. Risks and other factors that might cause
differences, some of which could be material, include, but are not limited to:
the effect of economic and market conditions; failure to consummate financing
and joint venture arrangements, including the failure of Nomura Asset Capital
Corporation ("Nomura"), the Company's co-participant in several joint ventures,
to acquire additional convertible preferred shares or to provide permanent
financing; development risks, including lack of satisfactory financing,
construction and lease-up delays and cost overruns; the level and volatility of
interest rates; the financial stability of tenants within the retail industry;
the rate of revenue increases versus expense increases; and the other risks set
forth below.
RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE COMPANY'S
PROPERTIES; LACK OF OPERATING HISTORY. The Company is currently experiencing a
period of rapid growth. Twenty-five of the Properties were acquired in 1996 and
1997 and the Company is in various stages of negotiations regarding the
acquisition of additional properties. These recently acquired or soon to be
acquired properties may have characteristics or deficiencies unknown to the
Company affecting their valuation or revenue potential, and it is also possible
that the operating performance of such properties may decline under the
Company's management. The Company's ability to manage its growth effectively
will require it to successfully integrate its new acquisitions into its existing
management structure. As the Company acquires additional properties, the Company
will be subject to risks associated with managing new properties, including
lease-up and tenant retention. No assurances can be given that the Company will
be able to succeed with such integration or effectively manage additional
properties or that newly acquired properties will perform as expected.
RISKS OF EQUITY REAL ESTATE INVESTMENTS.
General Real Estate and Local Economic Conditions. Real property
investments are subject to varying degrees of risk. If the Company's properties
do not generate sufficient income to meet operating expenses, including debt
service, lease payments, capital expenditure requirements and tenant
improvements, the Company's ability to make distributions to its shareholders
will be adversely affected. Income from the Properties may be adversely affected
by the general economic climate, local economic conditions, and other local
conditions such as oversupply of space or a reduction in demand for rental space
and newly developed properties, the attractiveness of the Properties to tenants,
competition from other available space, the ability of the Company to provide
adequate maintenance, and increased operating costs (including real estate taxes
and insurance). Income and real estate values may also be adversely affected by
such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing. In addition, real estate investments are
relatively illiquid and, therefore, will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions. In certain areas of the country there may be an
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oversupply of retail space. There can be no assurance that the Company will be
able to re-lease space as tenants move out or as to the new rents the Company
may be able to charge the new tenants at such space.
Bankruptcy and Financial Condition of Tenants; Tenant Termination
Rights. Since substantially all of the Company's income is derived from rental
payments, the Company's cash available for distribution will be adversely
affected if a significant number of the Properties' tenants were unable to meet
their obligations to the Company, or if the Company were unable to lease on
economically favorable terms vacant space in the Properties. At any time, a
tenant of the Properties may seek the protection of the bankruptcy laws, which
could result in the rejection and termination of such tenant's lease and thereby
cause a reduction in the cash available for distribution. If the tenant affirms
its lease with the Company, the tenant must cure all defaults under the lease
and provide the Company with adequate assurance of its future performance under
the lease. If the tenant rejects the lease, the Company's claim for breach of
the lease would (absent collateral securing the claim) be treated as a general
unsecured claim. The amount of the claim would be capped at the amount owed for
unpaid pre-petition lease payments unrelated to the rejection, plus the greater
of one year's lease payments or 15% of the remaining lease payments payable
under the lease (but not to exceed the amount of three years' lease payments).
In this regard Elder-Beerman, which accounted for approximately 2.1% of the
total revenues from the Properties for the year ended December 31, 1996, has
filed for bankruptcy under the United States Bankruptcy Code. As of the date of
this Prospectus Supplement, Elder-Beerman has not yet assumed or renegotiated
the leases and is paying rent on a current basis. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in a reduction in the percentage rent paid by
such tenant or in the failure to make rent payments when due. Furthermore,
certain of the Company's tenants, including anchor tenants, hold the right under
their leases to terminate their leases or reduce their rental rate if certain
occupancy conditions are not met, if certain anchor tenants are closed, if
certain sales levels or profit margins are not achieved or if an exclusive use
provision is violated, all of which may adversely affect the Company's cash
available for distribution.
Competition. There are numerous commercial developers, real estate
companies and major retailers that compete with the Company. In particular, some
of these entities are engaged in the development or ownership of value-oriented
retail properties that compete with the Company in seeking tenants. This results
in competition for acquisition of prime locations and for tenants who will lease
space in the value-oriented retail properties that the Company and its
competitors own or operate. The development of new super regional outlet malls
or other value-oriented retail shopping centers with more convenient locations
or better rents may attract the Company's tenants or cause them to seek more
favorable lease terms at or prior to renewal, and, accordingly, may adversely
affect the business, revenues or value of the Company's value-oriented retail
Properties. In addition, traditional retailers may increase their competition
with value-oriented retailers for the limited pool of consumers by engaging in
marketing and selling activities similar to those of value-oriented retailers,
thus blurring the distinction between traditional retailers and value-oriented
retailers. Furthermore, the Company may face competition from alternate forms of
retailing, including home shopping networks, mail order catalogues and on-line
based shopping services which may limit the number of retail tenants that desire
to seek space in shopping center or mall properties generally, all of which may
adversely affect the Company's cash available for distribution.
RELIANCE ON MAJOR TENANTS. At September 30, 1997, the Company's three
largest tenants were Wal-Mart, Kmart and Lowe's, which represented approximately
9.5%, 7.4% and 4.1%, respectively, of the Company's annualized minimum rents. No
other tenant represented more than 3% of the aggregate annualized minimum rents
of the Properties as of such date. The financial position of the Company and its
ability to make distributions may be adversely affected by financial
difficulties experienced by any of such tenants, or any other major tenant of
the Company, including a bankruptcy, insolvency or general downturn in the
business of any such tenant, or in the event any such tenant does not renew its
leases as they expire.
RISKS ASSOCIATED WITH BORROWING; THE MORTGAGE LOANS AND CREDIT FACILITY.
Balloon Payments. Of the approximately $470.6 million of mortgage
indebtedness of the Company outstanding as of September 30, 1997, approximately
$6.9 million is due in 1997, approximately $45.6 million is due in 1998,
approximately $151.2 million is due in 1999, approximately $140.7 million is due
in 2000,
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approximately $23.6 million is due in 2001, approximately $55.3 million is due
in 2002 and approximately $40.0 million is due in 2003. In addition, the
Company's $190 million secured credit facility (the "Credit Facility") matures
on July 31, 1998, which maturity date may be extended at the option of the
Company to July 31, 1999. Furthermore, the Company may finance future
investments with debt obligations that will provide for the repayment of
principal in a lump sum or "balloon" payment at maturity. The ability to repay
indebtedness at maturity or otherwise may depend on the ability of the Company
either to refinance such indebtedness or to sell properties. The Company has no
commitments with respect to refinancing any existing or future balloon payments.
There can be no assurance that such refinancing will be available on reasonable
terms and conditions, that such a sale will occur or that the amounts received
from such sale will be sufficient to make the required balloon payments. If the
Company is unable to repay any of its indebtedness on or before the respective
maturity dates thereof, the Company may have to borrow against properties that
are not encumbered or under the Credit Facility, to the extent the Company has
availability thereunder, to meet such repayments.
No Limitation on Debt. The Company's Board of Trustees determines the
financing policies of the Company. Although the Company intends to maintain a
ratio of debt to Total Market Capitalization (as defined in "Recent
Developments--Financing Strategies") of less than 60%, the organizational
documents of the Company do not contain any limitation on the amount of
indebtedness that the Company may incur or the ratio of debt to Total Market
Capitalization that the Company must maintain. Accordingly, the Company's Board
of Trustees can amend or revise the Company's policies with respect to the
amount of debt the Company will incur at any time without a vote of the
Company's shareholders. Although the trustees of the Company have no present
intention to change any of these policies, revisions to these policies could
result in a more highly leveraged company with an increased risk of default on
indebtedness and an increase in debt service charges. The Company may also,
without shareholder vote, continue to use leverage through borrowing under the
Credit Facility and on its unencumbered properties to increase the number and
size of its investments. Such use of leverage presents an additional element of
risk in the event that cash flow from the Properties is insufficient to meet
both debt payment obligations and the distribution requirements of the REIT
provisions of the Internal Revenue Code of 1986, as amended (the "Code").
Substantially all of the Properties are pledged as security for repayment of
mortgage indebtedness (the "Mortgage Loans") or indebtedness under the Credit
Facility.
Risk of Rising Interest Rates and Variable Rate Debt. Increases in
interest rates on variable rate indebtedness would increase the Company's
interest expense, which could adversely affect the Company's cash flow and its
ability to pay distributions to shareholders. The Credit Facility and
approximately $69.0 million of the Mortgage Loans bear interest at variable
rates, approximately $34.4 million of which will be repaid with the proceeds of
the Offering.
Certain Debt Covenants. The Mortgage Loans and the Credit Facility impose
certain financial and operating restrictions on the Company and the Properties
subject to such indebtedness and also impose restrictions on subordinated
financing secured by such Properties and financings of other assets and
properties of the Company. These restrictions include restrictions on
borrowings, prepayments and distributions. Additionally, the Credit Facility
requires the Company to meet certain financial tests and some of the Mortgage
Loans provide for certain prepayment penalties, each of which could restrict the
financial flexibility of the Company. The $181.0 million Mortgage Loan from
Nomura (the "IPO Loan") made in connection with the Company's initial public
offering (the "IPO"), among other things, permits the removal of the Company as
manager of the 56 Properties securing the IPO Loan if (a) there is an event of
default under the IPO Loan, including a breach of the financial covenants, and
the lender institutes proceedings to enforce its rights thereunder, or (b) the
sum of net operating income and interest on certain government obligations falls
below a certain level, subject to certain circumstances, for three consecutive
months.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various Federal, state and local
laws, ordinances and regulations, an owner or operator of real estate may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances (including asbestos-containing materials) on or in such property.
Such enactments often impose such liability without regard to whether the owner
or operator knew of or was responsible for the presence of such hazardous or
toxic substances. The cost of any required remediation and
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the owner's or operator's liability therefor as to any property is generally not
limited under such enactments and could exceed the value of the property and/or
the aggregate assets of the owner or operator. The presence of such substances,
or the failure to properly remediate such substances, may adversely affect the
owner's or operator's ability to sell or rent such property or to borrow using
such property as collateral. In addition, liability may be imposed for the
release of asbestos-containing materials into the air. The Company may be liable
for costs associated with environmental matters in connection with its ownership
and operation of the Properties.
The properties underlying the proposed Jersey Gardens and the LA Metro Mall
contain hazardous substances as a result of having previously been used as
landfills. Consent decrees have been entered into with respect to each site,
between, among others, governmental agencies, the current owner of each
respective property and, with respect to the Jersey Gardens site, the joint
venture. Pursuant to the consent decrees, the current owners of the Jersey
Gardens and the LA Metro Mall have agreed to take necessary action to remediate
their respective sites. Although the current owner of the Jersey Gardens site,
which the Company intends to acquire through a joint venture for approximately
$33.0 million, will remain responsible for completion of the remediation
thereof, such joint venture has committed, in accordance with the consent
decree, to deposit an additional $10.0 million in escrow, $9.0 million of which
will be used to reimburse the current owner of the site for remediation costs.
The remediation of the LA Metro Mall site, which the Company intends to acquire
through a joint venture for approximately $33.3 million, will be completed by
such joint venture at a cost to it currently estimated to be approximately $32.0
million, including operation and maintenance expenses. Upon completion of the
remediation at each site, such joint venture will not have any liability to
third parties or governmental agencies related to the environmental matters
covered by the consent decrees with respect to such site. No assurance can be
given as to the final aggregate cost to either joint venture of remediating
either of these sites or the time it will take to complete each remediation.
Such increases in cost or delays in remediation could adversely affect the
development of the related metro mall project.
RESTRICTIONS ON AND RISKS OF DEVELOPMENT ACTIVITIES. In addition to
completing its existing development activities, the Company intends to
selectively pursue development projects, including the development through joint
ventures of the LA Metro Mall and the Jersey Gardens. Such projects generally
require various governmental and other approvals, the receipt of which cannot be
assured. The Company will incur certain risks in connection with development
activities. These risks include the expenditure of funds on and devotion of
management's time to projects which may not come to fruition; the risk that
construction costs of a project may exceed original estimates, possibly making
the project uneconomical; the risk that the Company may not be able to obtain
construction financing and permanent financing and the risk that such
construction financing and permanent financing may contain terms which are not
favorable to the Company; and the risk that occupancy rates and rents at a
completed project will not be sufficient to make the project profitable. In case
of an unsuccessful development project, the Company's loss could exceed its
investment in the project.
The purchase and the commencement of development of the Jersey Gardens and
the LA Metro Mall are subject to a number of conditions, including the joint
venture obtaining local bond financing, which if not satisfied, could result in
the property not being acquired and developed by the Company. In addition, from
time to time the Company, in connection with a proposed acquisition or
development, will advance funds, which may be secured or unsecured, to the owner
of the property the Company contemplates acquiring in order to accelerate the
commencement and completion of certain renovations or improvements which the
Company believes will enhance the value of the property. As of September 30,
1997, approximately $9.9 million was advanced by the Company in connection with
the development of the Jersey Gardens and the LA Metro Mall. There can be no
assurance that if such contemplated acquisitions do not occur any funds advanced
will be repaid or when such repayment will occur.
CERTAIN LIMITATIONS ON PROPERTY SALES AND CONFLICTS OF INTEREST. The
Operating Partnership may not enter into certain transactions, including the
sale of all or substantially all of its assets, unless the holders of a majority
of the units of partnership interest ("Units") in the Operating Partnership
(other than the Company) consent to any such transaction. This majority vote
requirement effectively means that any such transaction must be approved by
Herbert Glimcher and David J. Glimcher because they own approximately
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<PAGE> 10
6.4% of the Units in the Operating Partnership (which constitutes more than a
majority of the Units in the Operating Partnership other than those owned by the
Company). This veto right may limit the ability of the Company to enter into a
liquidating transaction that may be in the shareholders' interest.
As a result of Herbert Glimcher's and David J. Glimcher's status as holders
of both Common Shares and Units, they have interests that conflict with
shareholders with respect to business decisions affecting Glimcher Realty Trust
and the Operating Partnership. In particular, as holders of Units, they may
suffer different and/or more adverse tax consequences than Glimcher Realty Trust
upon the sale or refinancing of some of the Properties as a result of unrealized
gains attributable to certain Properties. Herbert Glimcher and David J. Glimcher
and Glimcher Realty Trust, therefore, may have different objectives regarding
the appropriate pricing and timing of any sale or refinancing of certain of the
Properties. Although Glimcher Realty Trust (through a wholly owned subsidiary),
as the sole general partner of the Operating Partnership, has the exclusive
authority as to whether and on what terms to sell or refinance an individual
Property, Herbert Glimcher and David J. Glimcher might seek to influence
Glimcher Realty Trust not to sell or refinance certain of the Properties, even
though such sale might otherwise be financially advantageous to Glimcher Realty
Trust, or may seek to influence Glimcher Realty Trust to refinance a Property
with a higher level of debt than would be in the best interests of Glimcher
Realty Trust.
RISK OF GEOGRAPHIC CONCENTRATION. The Properties are located principally
in the midwestern and, to a lesser extent, eastern United States. The Company's
results of operations and distributions to shareholders therefore will be
subject generally to economic conditions in those regions.
THIRD PARTY INTERESTS IN CERTAIN PROPERTIES. The Company owns partial
interests in four Mall Properties (The Great Mall of the Great Plains, The Mall
at Johnson City, The Dayton Mall and The Colonial Park Mall). In addition, the
Company expects to own partial interests in the Jersey Gardens and the LA Metro
Mall, and may own partial interests in additional properties in the future.
Partnership or joint venture investments may, under certain circumstances,
involve risks not otherwise present with respect to wholly owned properties,
including the possibility that the Company's partners or co-venturers might
become bankrupt, that such partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company and that such partners or co-
venturers may be in a position to take action contrary to the Company's
instructions or requests or contrary to the Company's policies or objectives,
including the Company's policy with respect to maintaining its qualification as
a REIT. Additionally, where the Company serves as the managing member of a
property owning entity, it may have certain fiduciary responsibilities to the
other participants in such entity. The Company will seek to maintain sufficient
influence with respect to the management of such partnerships or joint ventures
to permit the Company's business objectives to be achieved. There is no
limitation under the Company's organizational documents as to the amount of
funds that may be invested in partnerships or joint ventures.
With respect to the entities that own The Great Mall of the Great Plains,
The Mall at Johnson City, The Dayton Mall and The Colonial Park Mall, the
approval or consent of the other partners is required for all major decisions,
including the sale or refinancing of such properties, certain capital
improvements and alterations, the borrowing of funds, revisions to such
properties' business plans and budgets after they have been approved by the
partners, certain modifications to leases, the making of any distributions other
than as provided in the operating agreements and certain other changes in the
operations of such properties or entities which own such properties. To the
extent such approvals or consents are not forthcoming or delayed, the Company
may experience difficulty in, or may be prevented from, implementing its plans
with respect to such properties or property owning entities. Furthermore, the
Company may, in certain circumstances, including the occurrence of a default
under the operating agreements of such entities or the management agreements
between such entities and the Company, be removed as the manager of such
properties. Additionally, the Company may be removed as the managing member of
the entity owning The Great Mall of the Great Plains upon an event of default
under the operating agreement of such entity. In the event the Company is
removed as either the manager or the managing member, the Company would lose day
to day control over the related property. Each of the operating agreements for
the entities which own The Great Mall of the Great Plains, The Mall at Johnson
City, The Dayton Mall and The Colonial Park Mall also contain provisions whereby
the
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<PAGE> 11
Company may be forced to sell all of its interest in, or buy all of its
partners' interest in, such entity or property. Such provisions may be triggered
at a time when it is not advantageous for the Company to either buy or sell its
interest in such entity or property. The agreements governing the property
owning entities of the proposed Jersey Gardens and the LA Metro Mall, as well as
agreements governing future ventures, are expected to contain similar
provisions.
ABSENCE OF PRIOR MARKET; TRADING PRICES. There has been no public market
for the Series B Preferred Shares prior to the Offering. Due to the absence of
any prior public market for the Series B Preferred Shares, there can be no
assurance that the initial public offering price will correspond to the price at
which the Series B Preferred Shares will trade in the public market subsequent
to the Offering. The Series B Preferred Shares have been approved for listing on
the NYSE, subject to official notice of issuance. Prices for the Series B
Preferred Shares will be determined in the marketplace and may be influenced by
many factors, including interest rates, the liquidity of the market for the
Series B Preferred Shares, investor perceptions of the Company, the market price
of the Common Shares, the market for similar securities, the volume of Series B
Preferred Shares available for sale and general industry and economic
conditions.
ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT AND LIMITS ON CHANGES IN CONTROL
RESULTING FROM A STAGGERED BOARD AND THE ABILITY OF THE COMPANY TO ISSUE
PREFERRED SHARES. In order to maintain its qualification as a REIT for federal
income tax purposes, not more than 50% in value of the outstanding shares of
beneficial interest of the Company may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) at any
time during the last half of the Company's taxable year.
To ensure that the Company will not fail to qualify as a REIT under this
test, the Declaration of Trust of the Company authorizes the trustees to take
such action as may be required to preserve its qualification as a REIT and to
limit any person, other than (i) Messrs. Herbert Glimcher and David J. Glimcher,
and (ii) any trustee, employee of the Company and any other person approved by
the trustees, to direct or indirect ownership of 8.0% of the lesser of the
number or value of the outstanding shares of beneficial interest of the Company;
provided, however, in no event may the trustees grant an exemption from the
foregoing ownership limitation to any trustee, employee or other person whose
ownership, direct or indirect, of in excess of 8.0% of the lesser of the number
or the value of the outstanding shares of beneficial interest of the Company
would result in the termination of the Company's status as a REIT for federal
income tax purposes. This limitation on ownership does not apply to the Common
Shares owned, directly or indirectly, by Messrs. Herbert Glimcher and David J.
Glimcher, who are limited to an aggregate 25% direct or indirect ownership
interest in the Company, or to Nomura which is excepted to the extent necessary
to permit it, or its affiliates, to acquire and maintain ownership of 34,000
Preferred Shares (as defined below) and any Common Shares issuable upon
conversion thereof to the extent it does not jeopardize the Company's
qualification as a REIT. In addition to the foregoing, the Articles
Supplementary (as defined herein) authorizes the Company's Board of Trustees to
take such action as may be required to preserve its qualification as a REIT for
federal income tax purposes and to limit any person, other than persons who may
be excepted by the Board of Trustees, to direct or indirect ownership of 9.9% of
the lesser of the number or the value of the total Series B Preferred Shares
outstanding. Notwithstanding the foregoing, there can be no assurance that there
will not be five or fewer individuals who will own more than 50% in value of the
outstanding shares of beneficial interest of the Company, thereby causing the
Company to fail to qualify as a REIT. The ownership limits may also discourage a
change of control of the Company.
The Company's Board of Trustees is divided into three classes of trustees.
The terms of Class I, Class II and Class III trustees currently expire in 1998,
1999 and 2000, respectively. Trustees for each class will be chosen for a three
year term upon the expiration of their current term, and each year one class of
trustees will be elected by the shareholders. The staggered terms for trustees
may affect the ability of shareholders to change control of the Company even if
a change of control were in the interests of shareholders.
The Company's Declaration of Trust authorizes the Board of Trustees to
establish one or more series of Preferred Shares and to determine, with respect
to any series of Preferred Shares, the preferences, rights and other terms of
such series. To date the Company has issued the Series A Convertible Preferred
Shares (the "Series A Preferred Shares") in connection with the Nomura
transactions (see "Recent Develop-
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<PAGE> 12
ments--Financing Strategies--Nomura Transactions") which will be exchanged for
Series A-1 Preferred Shares prior to the closing of the Offering. It is possible
that the Board of Trustees could authorize the Company to issue other series of
Preferred Shares that could, depending on the terms of such series, deter or
impede a merger, tender offer or other transaction that some, or a majority, of
the Company's shareholders might believe to be in their best interest or in
which shareholders might receive a premium for their shares over the then
current market price of such shares.
CONSEQUENCES OF THE FAILURE TO QUALIFY AS A REIT. The Company operates in
such fashion so as to enable it to qualify as a REIT under the Code. No
assurance can be given that the Company will remain so qualified. Qualification
as a REIT involves the application of highly technical and complex Code
provisions, of which there are only a limited number of judicial or
administrative interpretations, and the determination of various factual matters
and circumstances not entirely within the Company's control may impact its
ability to qualify as a REIT under the Code. 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
Company's qualification as a REIT or the federal income tax consequences of such
qualification. Congress has recently adopted legislation to modify certain tax
rules concerning REITs. The Company believes that none of such modifications
will significantly and adversely affect the Company's ability to operate as a
REIT.
If the Company fails to qualify as a REIT under the Code, the Company will
be subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. In addition, unless
entitled to relief under certain statutory provisions, the Company will also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. This treatment would reduce the net
earnings of the Company available for investment or distribution to shareholders
because of the additional tax liability to the Company for the year or years
involved. In addition, the Company would no longer be required by the Code to
make any distributions as a condition to REIT qualification. To the extent that
distributions to shareholders may have been made in anticipation of the
Company's qualifying as a REIT, the Company might be required to borrow funds or
to liquidate certain of its investments to pay the applicable tax.
TAX RISKS OF THE COMPANY'S OWNERSHIP INTERESTS IN CERTAIN PARTNERSHIPS AND
OTHER VENTURES. All of the Company's property interests and other investments
are made or held through the Operating Partnership or partnerships, limited
liability companies or other ventures in which the Operating Partnership has an
interest (the "Subsidiary Partnerships"). The ownership of these interests may
involve special tax risks for the Company. Such risks include possible challenge
by the IRS of allocations of income and expense items which could affect the
computation of taxable income of the Company, or a challenge to the status of
the Operating Partnership or the Subsidiary Partnerships as partnerships (as
opposed to associations taxable as corporations) for income tax purposes, as
well as the possibility of action being taken by the Company, Operating
Partnership or the Subsidiary Partnerships or the owners of the Subsidiary
Partnerships that could adversely affect the Company's qualification as a REIT,
for example, by requiring the sale of a property. The Company believes that the
Operating Partnership and each of the Subsidiary Partnerships will be treated
for tax purposes as partnerships (and not as associations taxable as
corporations). If the Operating Partnership or any Subsidiary Partnership were
treated as an association, such entity would be taxable as a corporation, with
the consequences, among others, that if the Company's ownership interest in any
such entity exceeded 10% of such entity's voting interests or the value of such
interest exceeded 5% of the value of the Company's assets, the Company would
cease to qualify as a REIT; distributions from any of such entities to the
Company would be treated as distributions; and the Company would not be able to
deduct its share of losses, if any, generated by such entity in computing its
taxable income.
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<PAGE> 13
RECENT DEVELOPMENTS
ACQUISITIONS
Completed Acquisitions. The Company's objective is to acquire retail
properties which appeal to a wide range of national and regional tenants. In
acquiring properties, the Company focuses primarily on those which, individually
or in combination with other properties owned by the Company, are capable of
becoming the dominant retail properties in their respective trade areas.
Additionally, the Company seeks accretive acquisitions which can achieve
increases in cash flow as a result of the Company's management and leasing
expertise. Consistent with this strategy, the Company, since October 1, 1996,
has (i) acquired from Retail Property Investors Inc. ("RPI") 22 Wal-Mart
anchored Community Centers (the "RPI Acquisition") for a total purchase price of
approximately $197.0 million and (ii) acquired interests in joint ventures which
purchased three Mall Properties totalling approximately 2.6 million square feet
of GLA for a total purchase price of approximately $183.0 million.
The recent acquisitions of The Dayton Mall, The Mall at Johnson City and
The Colonial Park Mall, as well as the RPI Acquisition, are recent examples of
management's implementation of the Company's acquisition strategy. The Dayton
Mall, located in Dayton, Ohio, was acquired in a joint venture with Nomura on
July 2, 1997 for a total purchase price of approximately $91.0 million. This
Mall Property is a super regional mall that contains approximately 1.3 million
square feet of GLA. Tenants include four anchors (JC Penney, Lazarus, McAlpin's
and Sears), 142 mall shops, an eight-screen theater and 14 food court tenants.
The Company also developed and currently owns The Mall at Fairfield Commons, an
approximately 1.0 million square foot super regional mall located in the Dayton,
Ohio metropolitan area which opened in 1993. With The Dayton Mall acquisition,
the Company believes it has secured its position as the dominant retailer within
the Dayton, Ohio market.
The Mall at Johnson City, located in Johnson City, Tennessee, was acquired
in a joint venture with Nomura in November 1996 for a total purchase price of
approximately $44.0 million. This Mall Property is a regional mall that contains
approximately 549,000 square feet of GLA. Tenants include five anchors (JC
Penney, Sears, Goody's, Proffitt's for Her and Proffitt's for Men, Kids & Home)
and 70 mall shops. The acquisition of this asset added to the portfolio a
regional mall property featuring a solid group of anchor tenants that is well
positioned in a strong market. This Mall Property has the potential for growth
through the addition of an anchor and mall shops.
The Colonial Park Mall, located in Harrisburg, Pennsylvania, was acquired
in a joint venture with Nomura on October 1, 1997 for a total purchase price of
approximately $48.0 million. This Mall Property is a regional mall that contains
approximately 744,000 square feet of GLA. Tenants include three anchors
(Boscov's, The Bon Ton and Sears), 89 mall shops and eleven kiosks. The
acquisition of this asset added to the portfolio a regional mall property that
is well positioned in a strong market and provided additional tenant
diversification.
In October 1996, the Company completed the RPI Acquisition, pursuant to
which it acquired 22 Wal-Mart anchored Community Centers containing an aggregate
of approximately 4.4 million square feet of GLA located in the states of Ohio,
Indiana, Kentucky, Wisconsin, Tennessee, South Carolina, North Carolina, Georgia
and Virginia, for approximately $197.0 million. As a result of the RPI
Acquisition, the Company acquired a significant number of Community Centers that
the Company believes are or can be dominant in their markets and at the same
time diversified the overall geographical and anchor tenant concentrations
across its portfolio.
Proposed Acquisitions. The Company is in various stages of negotiations
with respect to the acquisition of interests in additional retail properties.
The Company has entered into non-binding letters of intent with respect to
certain of these properties, however; no assurance can be given that the Company
will be successful in acquiring any or all of such properties.
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<PAGE> 14
The following table provides information on the Company's completed
acquisitions since October 1, 1996:
<TABLE>
<CAPTION>
PERCENT
PURCHASE LEASED AT
PRICE PERCENT GLA SEPTEMBER 30,
ACQUISITION DATE PROPERTY/LOCATION (MILLIONS) OWNED PROPERTY TYPE (APPROX.) 1997
- ---------------- ------------------------- ---------- ------- ------------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
4th Qtr 96 RPI Acquisition (22 $197.0 100% Community Centers 4,449,279(1) 97%
Properties) 9 States
4th Qtr 96 The Mall at Johnson City 44.0 33.3(2) Mall Property 548,823 94
Johnson City, TN
3rd Qtr 97 The Dayton Mall Dayton, 91.0 40.0(2) Mall Property 1,315,605 92
OH
4th Qtr 97 The Colonial Park Mall 48.0 40.0(2) Mall Property 744,000 N/A
Harrisburg, PA
</TABLE>
- ------------------------------
(1) Applewood Village located in Freemont, Ohio, containing approximately
140,000 square feet of GLA, was sold by the Company in April 1997. The
Company has also entered into a contract, subject to the satisfaction of
certain conditions, to sell a second property, Piedmont Plaza located in
Greenwood, South Carolina, containing approximately 249,000 square feet of
GLA. There can be no assurance that such sales transaction will be
consummated.
(2) After payment of preferred returns to each of the members of the joint
venture, the Company will receive 50% of all profits, losses and all
distributions of proceeds from sales, refinancings, other capital events or
liquidation.
DEVELOPMENT
One of the Company's objectives is to increase its portfolio by developing
new retail properties in stable markets. The Company's management team has
developed over 100 retail properties nationwide and has significant experience
in all phases of the development process, including site selection, zoning,
design, predevelopment leasing, construction financing and construction
management.
The Company has begun developing value-oriented super regional malls while
continuing to acquire and develop traditional regional mall and community
shopping center properties. These malls transcend the typical design and format
of the value-oriented mall by combining the amenities and comforts of a
contemporary regional mall with significant entertainment facilities and
diversified tenants. The Company has recently strengthened its management team
with the addition of senior executives with substantial experience in leasing
and developing properties of this type. On August 14, 1997, the Company opened
The Great Mall of the Great Plains, the first of its value-oriented and
entertainment super regional malls. The approximately 782,000 square foot
initial phase of the mall features 10 anchors and 130 mall shops. The Great Mall
of the Great Plains features a unique mix of tenants, including department
stores, manufacturers retail outlets, factory outlets, factory direct retailers
and specialty stores. The entertainment area includes a 16-screen state-
of-the-art cinema complex, a 12-restaurant food court and Jeepers, a 30,000
square foot family entertainment anchor. A planned second phase of the project,
not yet under construction, is expected to include themed restaurants and
additional entertainment venues.
The Company through a joint venture has entered into a contract to purchase
the land for the Jersey Gardens. The initial purchase option to acquire the land
for the LA Metro Mall expired September 30, 1997. The Company is currently
negotiating an extension with the seller, who is also expected to participate in
this joint venture. Purchase of the land and the commencement of development of
each of the Jersey Gardens and the LA Metro Mall are subject to a number of
conditions, including the joint venture obtaining local bond financing, which,
if not satisfied, could result in the property not being acquired and developed
by the joint venture. The Company expects to finance its value-oriented super
regional mall developments through
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<PAGE> 15
construction loan financing and by accessing available capital under its
preferred equity financing arrangement and permanent debt financing commitment
with Nomura. See "--Financing Activities."
The following chart describes the Mall Properties (all of which are
value-oriented super regional malls) the Company has completed since October 1,
1996 or is currently expecting to develop:
<TABLE>
<CAPTION>
ANTICIPATED
COMPLETION/ DEVELOPMENT
ANTICIPATED COST DEVELOPMENT
COMPLETION (MILLIONS) GLA
DATE PROPERTY/LOCATION (APPROX.) (APPROX.)
- ------------- ----------------------------- ----------- ----------
<S> <C> <C> <C>
3rd Qtr 97 The Great Mall $ 116.6 782,000
of the Great Plains(1)(2)
Olathe, KS
4th Qtr 99 Jersey Gardens(1)(3) 215.0 1,200,000
Elizabeth, NJ
2nd Qtr 2000 LA Metro Mall(1)(3) 190.0 1,200,000
Carson, CA
</TABLE>
- ------------------------------
(1) Developed or to be developed in a joint venture with Nomura.
(2) The Company has an approximately 45% interest in The Great Mall of the Great
Plains.
(3) The Company has entered into contracts to acquire the land for these
properties. The Company expects to have a 30% interest in each of the Jersey
Gardens and the LA Metro Mall.
The Company's recent development of Community Centers has been focused on
developments in strategic locations in markets where the Company believes that
the Properties either alone, or in combination with other properties owned by
the Company, are capable of becoming the market's dominant retail center. Since
October 1, 1996, the Company has completed development and has opened five
Community Centers which are expected to contain (upon completion of all phases)
an aggregate of approximately 860,000 square feet of GLA at an aggregate cost of
approximately $44.3 million. Typical of the Company's Community Center
developments is Georgesville Square, an approximately 232,000 square foot
development located in a rapidly growing area in Columbus, Ohio that was
developed at a cost of approximately $18.4 million. An anchor tenant, Lowe's,
opened in October 1996 while Kroger and the specialty shops opened during the
second quarter of 1997. There can be no assurance that future developments by
the Company will achieve comparable results.
The following chart describes the development of Community Centers the
Company has completed since October 1, 1996:
<TABLE>
<CAPTION>
DEVELOPMENT
COST DEVELOPMENT PERCENT
(MILLIONS) GLA LEASED AT
COMPLETION DATE PROPERTY/LOCATION (APPROX.) (APPROX.) SEPTEMBER 30, 1997
- --------------- ------------------------ ----------- ----------- ------------------
<S> <C> <C> <C> <C>
2nd Qtr 97... Georgesville Square $18.4 232,000 86%
Columbus, OH
2nd Qtr 97... Meadowview Square 11.1 151,000 85
Kent/Ravenna, OH
</TABLE>
REVENUE ENHANCING EXPANSIONS AND RENOVATIONS
The Company maintains a strategy of selective expansion and renovation of
its Properties in order to improve the operating performance and the competitive
position of its existing Properties. The Company also engages in an active
redevelopment program with the objective of attracting innovative retailers
which
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<PAGE> 16
management believes will enhance the operating performance of the Properties.
Certain examples of the Company's recent Property expansions and renovations are
described below.
During 1996, the Company completed the first phase of the renovation and
expansion of the Grand Central Mall in Parkersburg, West Virginia, pursuant to
which a total of approximately 36,400 square feet of GLA was added to this Mall
Property. The expansion focused on enhancing the entertainment component of the
Property, adding a food court and expanding the existing cinema into an
approximately 37,000 square foot 12-screen complex. The Company plans to make
certain additional revenue-enhancing expansions of this Property, including an
approximately 83,000 square foot Proffitt's which is expected to open in March
1998.
Currently, the Company is expanding the Indian Mound Mall, located in
Newark/Heath, Ohio, by approximately 122,000 square feet of GLA, which would
bring its total GLA to approximately 543,000 square feet. The Company believes
that this expansion will enable this Mall Property to continue to dominate its
market. The expansion is consistent with the Company's focus of combining strong
anchor tenants with an expanded entertainment component to provide a compelling
destination focus for shoppers. An approximately 93,000 square foot Sears store
opened in September 1997. The Company's plans also call for expanding the
current cinema from approximately 18,000 square feet to approximately 42,000
square feet, as well as adding approximately 5,000 square feet of mall shops.
This expansion is scheduled to be completed during the fourth quarter of 1997 at
an expected aggregate cost of approximately $3.9 million.
The following table provides information on the Company's
expansion/renovations since October 1, 1996:
<TABLE>
<CAPTION>
COST OF
COMPLETION/ EXPANSION/
ANTICIPATED RENOVATION GLA
COMPLETION (MILLIONS) EXPANSION
PROPERTY/LOCATION PROPERTY TYPE DATE (APPROX.) (APPROX.)
------------------------- ----------------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Completed:
Grand Central Mall,
Parkersburg, WV
Phase II;
Renovation/Expansion Mall Property 4th Qtr 96 $1.6 36,356
Phase III;
Renovation/Expansion Mall Property 1st Qtr 98 5.4 83,000
Mount Vernon Plaza
Mount Vernon, OH
Renovation/Expansion Community Center 1st Qtr 97 0.5 55,924
Under Development:
Indian Mound Mall(1) Mall Property 4th Qtr 97 3.9 122,000
Heath/Newark, OH
Springfield Commons West Community Center 4th Qtr 97 3.1 42,600
Springfield, OH
Georgesville Square Community Center 4th Qtr 97 6.2 70,000
Columbus, OH
</TABLE>
- ------------------------------
(1) Sears paid for the cost of construction for its own store.
FINANCING ACTIVITIES
Offering of Common Shares. On October 6, 1997 the Company consummated the
sale of 1,750,000 Common Shares in an underwritten public offering. The net
proceeds to the Company from the sale of the Common Shares were $37.9 million
and were applied to repay a portion of the Credit Facility.
RPI Bridge Facility. The Company has outstanding $34.4 million of the
indebtedness incurred in connection with the RPI Acquisition (the "RPI Bridge
Facility"). At September 30, 1997, borrowings under
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<PAGE> 17
the RPI Bridge Facility accrued interest at a rate of 7.438% per annum payable
monthly. The principal amount of the RPI Bridge Facility is due April 17, 1998.
The RPI Bridge Facility is secured by first mortgage liens on six of the
properties acquired in the RPI Acquisition.
Credit Facility. In May 1997, the Company amended the Credit Facility to
(i) increase the amount the Company can borrow thereunder from $175.0 million to
$190.0 million, (ii) extend the term of the Credit Facility from June 30, 1998
to July 31, 1998, which term may at the Company's option be extended to July 31,
1999, and (iii) reduce the variable tiered interest rate schedule. Borrowings
under the Credit Facility currently bear interest at a rate equal to LIBOR plus
170 basis points per annum (versus a rate of LIBOR plus 225 basis points at
March 31, 1997). In connection therewith, the Company granted first mortgage
liens on 11 of the Properties to secure borrowings under the Credit Facility,
which previously were unsecured. Payments due under the Credit Facility are
guaranteed by Glimcher Realty Trust and by Glimcher Properties Corporation, a
wholly owned subsidiary of the Company. As of October 31, 1997, the Company had
outstanding borrowings of approximately $131.6 million under the Credit
Facility.
Preferred Equity Financing With Nomura. Pursuant to the Purchase
Agreement, the Nomura Affiliate agreed to purchase, from time to time upon
request by the Company, one or more series of Preferred Shares of the Company,
for an aggregate purchase price of up to $135.0 million. The proceeds from the
initial sale of Preferred Shares were used for the acquisition, construction and
development of The Great Mall of the Great Plains and any future proceeds from
the sale of Preferred Shares are expected to be used by the Company for the
acquisition, construction and development of the Jersey Gardens and the LA Metro
Mall. Each of The Great Mall of the Great Plains, the Jersey Gardens and the LA
Metro Mall (each a "Metro Mall") is to be owned by a joint venture between the
Company, the Nomura Affiliate and one or more third parties. In this regard, the
Company has an approximately 45% interest in The Great Mall of the Great Plains
and is expected to have an approximately 30% interest in each of the Jersey
Gardens and the LA Metro Mall. To secure its obligations under a series of the
Preferred Shares, the Company will grant to the Nomura Affiliate a security
interest in the Company's interest in the related joint venture with the Nomura
Affiliate. In the event of a sale or refinancing of any Metro Mall, the proceeds
therefrom shall first be applied toward the purchase or redemption of all
outstanding Preferred Shares relating to such Metro Mall, with any excess
proceeds payable to the owners of the entity which owns such Metro Mall, in
accordance with their respective percentage interests.
On November 27, 1996, the Company issued and sold 34,000 Series A Preferred
Shares with an initial liquidation preference of $1,000 per share, to the Nomura
Affiliate for approximately $34.0 million. The proceeds of such sale were
applied to the acquisition, construction and development of The Great Mall of
the Great Plains. In connection with the issuance of the Series B Preferred
Shares, the holders of the Series A Preferred Shares will, concurrently with the
closing of the Offering, exchange all of their Series A Preferred Shares for an
equal number of Series A-1 Preferred Shares. See "Description of Series A-1
Preferred Shares." The Purchase Agreement provides that (i) up to an additional
6,000 Series A-1 Preferred Shares may be sold to the Nomura Affiliate, upon
request by the Company subject to certain conditions, on or prior to November
27, 1997 to use with respect to The Great Mall of the Great Plains and (ii) the
purchase and sale of the initial shares of any other series of Preferred Shares
be completed no later than November 26, 2006. The obligation of the Nomura
Affiliate to purchase additional Preferred Shares is subject to the satisfaction
of certain conditions. There can be no assurance that such conditions will be
satisfied or that the purchase of such additional Preferred Shares will occur.
Permanent Debt Financing With Nomura. Pursuant to a written commitment,
Nomura has agreed to provide permanent first mortgage financing for The Great
Mall of the Great Plains, the Jersey Gardens and the LA Metro Mall. The
principal amount of each loan would be based on the net operating income of the
Metro Mall, loan to value and debt service coverage ratios with respect to the
Metro Mall and a debt service coverage constant. Each loan would mature in 15
years and provide for level monthly payments of principal and interest based on
a 25 year amortization schedule. Nomura's obligation to fund a loan is subject
to, among other things, completion of each Metro Mall within a prescribed time
limit, procurement of certain minimum lease commitments and satisfactory
completion of due diligence.
S-17
<PAGE> 18
Interest on the loans will be equal to the yield on the U.S. Treasury
security with a maturity comparable to the maturity date of the loan plus a
spread of between 165 to 220 basis points depending on various factors. Nomura
will have the option to cross-collateralize and cross-default loans on the Metro
Malls if they have similar ownership structures. In the event the loans are
cross-collateralized and cross-defaulted, less than all of the Metro Malls may
be released provided that the remaining Metro Malls satisfy certain financial
covenants and, upon payment to Nomura of 125% of the original principal amount
of the loan allocated to the Metro Malls seeking release and a yield maintenance
payment. Subsequent to the date which is two years after the loans are sold into
securitization, all collateral will be released upon the prepayment by the
Company to Nomura of the then principal balance of the loans, all accrued
interest and a yield maintenance payment. No subordinate debt will be permitted
on any Metro Mall during the term of the loans. Under certain circumstances,
including a payment default, Nomura may replace the Company affiliated property
manager with a third party property manager. Nomura shall also have the right,
under certain limited circumstances, including a payment default for two or more
consecutive quarters, to appoint, only during the continuance of such
circumstances, two directors to the board of each borrower.
In October 1997 Nomura provided permanent first mortgage financing for The
Colonial Park Mall on terms substantially similar to those set forth above,
except that the loan (i) has a maturity of 30 years, (ii) bears interest at the
rate of 7.73% per annum for the first 10 years of its term and thereafter at the
per annum rate equal to the greater of 12.27% or 5.5% in excess of the 20 year
treasury rate at such time and (iii) provides for level monthly payments of
principal and interest based on a 30 year amortization schedule. The loan is
prepayable after 10 years without penalty.
Financing Policy. It is the Company's policy that Glimcher Realty Trust
will not incur indebtedness other than short-term trade, employee compensation,
dividends payable or similar indebtedness that will be paid in the ordinary
course of business, and that indebtedness will instead be incurred by the
Operating Partnership to the extent necessary to fund the business activities
conducted by the Operating Partnership.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Series B Preferred
Shares offered hereby, after deducting the Underwriters' discounts and
commissions and estimated expenses of the Offering, are estimated to be
approximately $115.4 million (approximately $132.8 million if the Underwriters'
over-allotment option is exercised in full). The net proceeds from the Offering
are to be applied as follows: (a) approximately $34.4 million to repay the
balance of the RPI Bridge Facility, which, at September 30, 1997, had an
interest rate of 7.438% per annum payable monthly and the principal of which is
due and payable on April 17, 1998 and (b) approximately $81.0 million to repay a
portion of the Credit Facility, which has a variable interest rate currently
equal to LIBOR plus 170 basis points per annum and which is currently due and
payable on July 31, 1998, which term may at the Company's option be extended to
July 31, 1999. Any amounts repaid under the Credit Facility may be reborrowed to
fund the Company's continuing development and acquisition activities and for
working capital purposes.
Pending such uses, the net proceeds may be invested in short-term
income-producing investments such as investment grade commercial paper,
government and government agency securities, money market funds that invest in
government securities, certificates of deposit and interest-bearing bank
accounts.
The Company will contribute the net proceeds from the Offering to the
Operating Partnership in exchange for 9 1/4% Series B Preferred Units (the
"Series B Preferred Units") in the Operating Partnership, the economic terms of
which will be substantially identical to the Series B Preferred Shares. The
Operating Partnership will be required to make all required distributions on the
Series B Preferred Units (which will mirror the payments of distributions,
including accrued and unpaid distributions upon redemption, and the liquidation
preference amount on the Series B Preferred Shares) prior to any distribution of
cash or assets to the holders of Units or to the holders of any other equity
interests in the Operating Partnership, except for any other series of
preference units ranking on a parity with the Series B Preferred Units as to
distributions and/or liquidation rights and except for distributions required to
enable the Company to maintain its qualification as a REIT under the Code.
S-18
<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of September 30, 1997, (ii) as adjusted to reflect the October 6,
1997 sale of 1,750,000 Common Shares and the application of net proceeds
therefrom of $37,885,000 and (iii) as further adjusted to give effect to the
issuance of the Series B Preferred Shares, the application of the net proceeds
therefrom and the exchange of the Series A Preferred Shares for Series A-1
Preferred Shares. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------
(IN THOUSANDS) AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
<S> <C> <C> <C>
Debt:
Notes payable(1).......................................... $152,064 $ 114,179 $ 39,613
Mortgage notes payable.................................... 470,550 470,550 429,716
-------- -------- --------
Total debt........................................ 622,614 584,729 469,329
-------- -------- --------
Minority interest in partnership............................ 30,884 32,574 32,574
Redeemable preferred stock:
Series A convertible preferred shares of beneficial
interest, 40,000 shares authorized, 34,000 shares
issued and outstanding (none issued and outstanding as
further adjusted)(2)................................... 34,000 34,000 --
Series A-1 convertible preferred shares of beneficial
interest, 40,000 shares authorized, none issued and
outstanding (34,000 shares issued and outstanding as
further adjusted)(2)................................... -- -- 34,000
Shareholders' equity:
Series B cumulative redeemable preferred shares of
beneficial interest, 5,520,000 shares authorized, none
issued and outstanding (4,800,000 shares issued and
outstanding as further adjusted)(2).................... -- -- 120,000
Common shares of beneficial interest, $0.01 par value per
share; 21,910,544 shares issued and outstanding;
23,660,544 shares issued and outstanding as
adjusted(2)(3)......................................... 219 237 237
Additional paid in capital.................................. 317,061 353,238 348,638
Distributions in excess of accumulated earnings............. (61,018) (61,018) (61,018)
-------- -------- --------
Total shareholders' equity........................ 256,262 292,457 407,857
-------- -------- --------
Total capitalization........................................ $943,760 $ 943,760 $ 943,760
======== ======== ========
</TABLE>
- ------------------------------
(1) At October 31, 1997, the Company's outstanding Notes Payable was $131.6
million.
(2) The Company's Declaration of Trust authorizes the Company to issue up to an
aggregate 100,000,000 shares of beneficial interest (the "Shares"), of the
Company, consisting of Common Shares or one or more series of preferred
shares of beneficial interest, which includes 40,000 Series A Preferred
Shares previously authorized, 40,000 Series A-1 Preferred Shares authorized
in connection with the exchange of the Series A Preferred Shares for Series
A-1 Preferred Shares and 5,520,000 Series B Preferred Shares authorized for
sale in this Offering.
(3) Common Shares issued and outstanding and as adjusted excludes (i) 2,603,841
Common Shares which may be issued upon redemption of Units, (ii) 917,205
Common Shares which may be issued upon exercise of currently outstanding
options granted under the Company's 1993 Employee Share Option Plan and 1993
Trustee Share Option Plan and (iii) up to 1,482,288 Common Shares which may
be issued in the future upon conversion of the Company's outstanding Series
A-1 Preferred Shares (based on a market price per share of $22.9375 on
September 30, 1997 and exclusive of any discount upon conversion which may
apply).
S-19
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT RATIO AND PROPERTY DATA)
The following is a summary of certain consolidated financial and other data
relating to the Company. The following Statements of Operations and Balance
Sheet data as of and for the years ended December 31, 1996 and 1995 are derived
from, and qualified by reference to, the audited financial statements of the
Company which are incorporated by reference herein. The following Statements of
Operations and Balance Sheet data as of and for the nine months ended September
30, 1997 and 1996 are derived from, and qualified by reference to, the unaudited
financial statements of the Company which are incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
---------------------- -----------------------
1997 1996 1996 1995
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues...................................... $103,512 $ 81,977 $ 117,678 $104,248
Operating expenses.................................. 21,535 19,294 27,212 22,706
Depreciation and other amortization................. 20,658 16,157 22,418 20,560
General and administrative expense.................. 6,255 6,583 9,371 6,409
Interest expense.................................... 31,850 19,477 29,297 26,215
Income (loss) from unconsolidated entities, net..... (951) -- 42 --
Interest income..................................... 507 332 506 649
Gain on sales of properties/outparcels.............. 155 1,501 1,506 --
Minority interest................................... 2,502 2,406 3,385 3,294
Net income.......................................... 20,423 19,893 28,049 25,713
Preferred share dividends........................... 2,169 -- 268 --
Net income available to common shareholders......... 18,254 19,893 27,781 25,713
BALANCE SHEET DATA:
Real estate, before accumulated depreciation........ $957,554 $778,798 $ 949,138 $696,898
Real estate, after accumulated depreciation......... 856,361 698,068 862,717 630,199
Total assets........................................ 978,290 766,610 949,402 669,003
Total debt.......................................... 622,614 422,797 575,247 324,779
Shareholders' equity................................ 256,262 273,126 269,211 284,691
OTHER DATA:
Cash provided by operating activities............... $ 40,921 $ 32,516 $ 53,742 $ 40,972
Cash (used in) investing activities................. (56,134) (87,342) (126,703) (49,195)
Cash provided by financing activities............... 13,590 54,990 76,097 7,013
Funds from operations(1)............................ 40,590 36,772 51,382 46,983
Ratio of earnings to combined fixed charges and
preferred share dividends......................... 1.47x 1.88x 1.81x 1.98x
Number of properties(2)............................. 115 89 113 88
Total GLA in sq. ft.(2)............................. 20,846 13,380 18,554 13,154
Occupancy rate %(2)................................. 93.3% 94.1% 95.4% 95.6%
</TABLE>
- ------------------------------
(1) Management considers FFO to be a supplemental measure of the Company's
operating performance. FFO, as modified in January 1996 by NAREIT is defined
as net income (computed in accordance with Generally Accepted Accounting
Principles ("GAAP")), less gains or losses from debt restructuring, plus
real estate depreciation and amortization and plus minority interest in
partnerships. FFO does not represent cash generated from operating
activities in accordance with GAAP and is not necessarily indicative of cash
available to fund cash needs. FFO should not be considered as an alternative
to net income as the primary indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.
(2) Number of Properties and occupancy are reflective of the Properties that
were open and/or paying rent at the end of the periods.
S-20
<PAGE> 21
MANAGEMENT
The trustees and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Herbert Glimcher....................... 68 Chairman, Chief Executive Officer and Trustee***
David J. Glimcher...................... 45 President, Chief Operating Officer and Trustee***
William R. Husted...................... 60 Senior Vice President of Construction and Trustee**
Michael P. Glimcher.................... 29 Senior Vice President of Leasing and Trustee**
Philip G. Barach....................... 67 Trustee*
Oliver Birckhead....................... 75 Trustee*
E. Gordon Gee.......................... 53 Trustee*
Alan R. Weiler......................... 64 Trustee**
Harvey Weinberg........................ 60 Trustee***
William G. Cornely..................... 48 Senior Vice President, Chief Financial Officer and
Treasurer
Timothy C. Getz........................ 40 Senior Vice President and Chief Investment Officer
George A. Schmidt...................... 49 Senior Vice President, General Counsel and Secretary
Alan S. Perlstein...................... 52 Senior Vice President of Development
</TABLE>
- ------------------------------
* Term expires 1998
** Term expires 1999
*** Term expires 2000
Herbert Glimcher, 68, has been a trustee and Chairman of the Company since
its inception in September 1993. He has been Chief Executive Officer of the
Company since May 1997. He served as Chairman of the Company's predecessor, The
Glimcher Company, since its inception in 1959. Mr. Glimcher is a nationally
recognized innovator in the field of shopping center development having been
instrumental in the management, acquisition and development of over 100 shopping
centers during his approximately 37-year career in real estate. Mr. Glimcher is
a member of the International Council of Shopping Centers ("ICSC") and is active
in several charitable and cultural organizations. Mr. Glimcher is a member of
the Executive Committee and Executive Compensation Committee of the Board of
Trustees.
David J. Glimcher, 45, has been a trustee and the President of the Company
since September 1993. He has been Chief Operating Officer of the Company since
May 1997 and, prior thereto, was Chief Executive Officer of the Company since
September 1993. He served as President of The Glimcher Company since 1987. From
1984 until 1987, he was Vice President of The Glimcher Company with
responsibilities for operations, leasing, acquisitions and development. Mr.
Glimcher is a member of ICSC and the National Association of Real Estate
Investment Trusts, Inc. ("NAREIT") and is active in several charitable and
cultural organizations. Mr. Glimcher is a member of the Executive Committee and
the Executive Compensation Committee of the Board of Trustees.
William R. Husted, 60, has been a trustee of the Company since May 1996. He
has been the Senior Vice President of Construction of the Company since
September 1996. Prior thereto, he served as Vice President of Development
Services of the Company from January 1996 to August 1996 and as Vice President
of Construction of the Company from September 1988 until December 1995. From
1985 to 1988, Mr. Husted served as Vice Director of Construction of The Glimcher
Company until he was promoted in 1988 to Director of Construction. Mr. Husted is
a member of the Executive Committee of the Board of Trustees.
Michael P. Glimcher, 29, has been a trustee of the Company since June 1997
and the Senior Vice President of Leasing since September 1996. Prior thereto, he
was Vice President of Leasing since April 1995 and Director of Leasing
Administration since the Company's inception in 1993. Mr. Glimcher served as the
Director of Leasing Administration of The Glimcher Company from the time he
joined that company in 1991. Mr. Glimcher attended Arizona State University and
graduated in 1990.
S-21
<PAGE> 22
Philip G. Barach, 67, has been a trustee of the Company since January 1994.
He is currently a private investor and was the chairman of the board of U.S.
Shoe Corporation, a national retailer, from 1990 until 1993. Prior thereto, he
was the chairman of the board, president and chief executive officer of U.S.
Shoe Corporation since 1968. He currently serves as a member of the Board of
Directors of Union Central Life Insurance Company, R.G. Barry Corporation, Syms,
Inc. and Bernard Chaus, Inc. He is also the Chairman of the Board of Advisors of
the College of Nursing & Health, a division of the University of Cincinnati. Mr.
Barach is a member of the Audit Committee and Executive Compensation Committee
of the Board of Trustees.
Oliver Birckhead, 75, has been a trustee of the Company since January 1994.
He has been a private investor since 1988 and was the president and chief
executive officer of The Central Bancorporation, a registered bank holding
company, from 1969 until his retirement in 1988. Mr. Birckhead is a trustee of
the Cincinnati Art Museum and is active in several other charitable and cultural
organizations. Mr. Birckhead is a member of the Audit Committee and Executive
Compensation Committee of the Board of Trustees.
E. Gordon Gee, 53, has been a trustee of the Company since January 1994. He
has been the president of Brown University since June 1997. Prior thereto, he
was president of Ohio State University since 1990 and President of the
University of Colorado from 1985 to 1990. He is a member of the Board of
Directors of Banc One Corporation, The Limited, Inc., Asarco, Inc., Abercrombie
& Fitch and Intimate Brands, Inc. He also serves on the Board of Advisors or
Directors of the American Council on Education, the Advisory Council of
Presidents to the Association of Governing Boards of Universities and Colleges
and the President's Commission of the National Collegiate Athletic Association.
Mr. Gee has received many honors in the fields of law and education and is
active in many charitable and cultural organizations. He is a member of the
Executive Compensation Committee of the Board of Trustees.
Alan R. Weiler, 64, has been a trustee of the Company since January 1994.
Mr. Weiler has been the president of Archer-Meek-Weiler Agency Inc., an
insurance agency, since 1970. He is presently a member of the Board of Directors
of Cincinnati Financial Corporation, an insurance holding company, and Commerce
National Bank of Columbus. Mr. Weiler is active in several charitable and
cultural organizations. Mr. Weiler is a member of the Audit Committee and
Executive Compensation Committee of the Board of Trustees.
Harvey Weinberg, 60, has been a trustee of the Company since July 1997. Mr.
Weinberg has over 35 years experience as a retailer and manufacturer in the
apparel industry, 25 years of which were spent at Hartmarx Corporation in
various executive positions, the last five of which he was Chairman and Chief
Executive Officer. In 1994, HSSI, Inc., of which Mr. Weinberg was President,
Chief Executive Officer and a director, filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Illinois, Eastern Division. Mr.
Weinberg is presently a member of the Board of Directors of Syms Corporation, a
publicly traded NYSE company which is a retailer of men's and women's apparel,
and Maurice Corporation, a venture capital backed retailer of men's sportswear.
He serves on the advisory boards of the J.L. Kellogg Graduate School of
Management at Northwestern University and the Frontenac Company, a Chicago based
venture capital firm, and is an active member of the Commercial Club of Chicago.
He is a former director of the American National Bank of Chicago and the
Lakewood Bank and Trust of Dallas, Texas.
William G. Cornely, 48, has been a Senior Vice President and Chief
Financial Officer of the Company since April 1997 and Treasurer of the Company
since May 1997. Prior thereto, and since 1986, he was a partner of the
international accounting firm of Coopers & Lybrand L.L.P., a firm he had been
associated with since 1977. Mr. Cornely has a B.S. degree from The Ohio State
University. Mr. Cornely is a member of both the American Institute of Certified
Public Accountants and the Ohio Society of Certified Public Accountants.
Timothy C. Getz, 40, has been a Senior Vice President and Chief Investment
Officer of the Company since September 1996. Prior thereto, he was Senior Vice
President of Finance and Investments since August 1995, and Treasurer of the
Company since January 1996. In addition, from January 1996 through March 1996
Mr. Getz temporarily served as Chief Financial Officer of the Company. Prior to
joining the Company, Mr. Getz was employed at Ohio Public Employees Retirement
System in Columbus, Ohio since 1981 where he held numerous positions, including
Assistant Investment Officer, the position he held for more than five
S-22
<PAGE> 23
years until immediately prior to leaving such company. As Assistant Investment
Officer of Ohio Public Employees Retirement System, Mr. Getz managed investments
in wholly owned properties, mortgages and investments in public real estate
companies. Mr. Getz is currently a council member of the Urban Land Institute,
serves on the Board of Governors of the National Association of Real Estate
Investors and is a member of the Editorial Board of Institutional Real Estate
Newsletter.
George A. Schmidt, 49, has been a Senior Vice President of the Company
since September 1996 and General Counsel and Secretary of the Company since May
1996. Mr. Schmidt has over 23 years of experience in the practice of commercial
real estate law, including six years as Assistant General Counsel of DeBartolo
Realty Corporation, a NYSE listed real estate investment trust, prior to joining
the Company in May 1996. Mr. Schmidt has a B.A. degree from Cornell University,
an M.B.A. degree from Ohio University, and a J.D. degree from Case Western
Reserve University. Mr. Schmidt is a member of the Ohio, Texas, Columbus, Ohio
and American Bar Associations.
Alan S. Perlstein, 52, has been the Senior Vice President of Development of
the Company since May 1997. Prior thereto, he was Senior Vice President of Real
Estate for New Market Development and Cousins Properties, a NYSE listed real
estate investment trust, from 1986 to 1997.
SEVERANCE AGREEMENTS
The Company has entered into Severance Benefit Agreements (the "Severance
Agreements") with Messrs. Herbert Glimcher, David J. Glimcher, William R.
Husted, George A. Schmidt, Timothy C. Getz, William G. Cornely and Michael P.
Glimcher, all executive officers of the Company (each, an "Executive"). If an
Executive is an employee of the Company immediately prior to a "Change in
Control of GRT" (as defined in the Severance Agreements), the Executive shall be
entitled to receive from the Operating Partnership a lump sum severance payment
equal to three times the Executive's annual compensation during the calendar
year preceding the calendar year in which the Change in Control of GRT occurs,
such annual compensation to include (i) all base salary and bonuses paid or
payable to the Executive, (ii) all grants of restricted Common Shares of the
Company and (iii) the fair market value of any other property or rights given or
awarded to the Executive by the Company. In addition, any restricted Common
Shares, or options to purchase Common Shares, granted to the Executive shall
vest on the day immediately prior to the date of a Change in Control of GRT.
For a period of 18 months following a Change in Control of GRT, the Company
shall maintain in full force and effect all life, accident, medical and dental
insurance benefit plans and programs or arrangements in which the Executive was
entitled to participate immediately prior to the date of the Change in Control
of GRT, subject to certain conditions and limitations as set forth in the
Severance Agreements.
Additionally, an Executive who receives any compensation or recognizes any
income for which the 20% excise tax on "golden parachutes" is payable, is
entitled to receive from the Operating Partnership an additional amount (the
"Additional Amount") equal to the sum of (i) all such excise taxes payable by
the Executive, plus (ii) all income taxes payable by the Executive with respect
to the Additional Amount.
S-23
<PAGE> 24
DESCRIPTION OF SERIES A-1 PREFERRED SHARES
On November 22, 1996, the Company's Board of Trustees classified and
designated 40,000 shares of beneficial interest as shares of Series A Preferred
Shares of which 34,000 were issued on November 27, 1996 pursuant to the Purchase
Agreement. In connection with the issuance of the Series B Preferred Shares, the
holders of the Series A Preferred Shares will, concurrently with the closing of
the Offering, exchange all of their Series A Preferred Shares for an equal
number of Series A-1 Preferred Shares. Set forth below is a summary of the
material terms of the Series A-1 Preferred Shares.
DISTRIBUTIONS
The holders of the Series A-1 Preferred Shares shall be entitled to
receive, after and subject to the payment in full to holders of the Series B
Preferred Shares and of any other series of preferred shares senior to the
Series A-1 Preferred Shares with respect to distributions, cumulative
distributions, payable quarterly on March 31, June 30, September 30 and December
31, at the annual rate per share equal to the product of $1,000, which amount is
subject to adjustment (the "Liquidation Preference"), and at the Company's
option either (a) a variable rate at the 90-day LIBOR plus 285 basis points
(8.57% at September 30, 1997) or (b) a four-year fixed rate equal to the yield
to maturity of the five-year U.S. Treasury Security with a remaining maturity of
four years plus 285 basis points (8.79% at September 30, 1997) (the
"Distribution Rate"). Currently, the Distribution Rate on the outstanding Series
A-1 Preferred Shares is as set forth in clause (a) above, however, the Company
may select the Distribution Rate set forth in clause (b) at any time prior to
the earliest to occur of (i) the final issuance of Series A-1 Preferred Shares
and (ii) November 27, 1997. In the event the Company selects the Distribution
Rate set forth in clause (b), upon the expiration of the four years, the
Distribution Rate will return to the variable rate set forth in clause (a).
In addition, the margin over LIBOR or applicable U.S. Treasury Security
used to determine the distribution rate of the Series A-1 Preferred Shares will
be increased under the following circumstances. If there are Nomura Preferred
Shares outstanding having an aggregate liquidation preference of less than or
equal to $100 million, the margin over LIBOR or applicable U.S. Treasury
Security used to determine the distribution rate on the Series A-1 Preferred
Shares will be increased from 285 basis points to the following based upon the
then percentage that Equity is of Total Market Capitalization (each as defined
below): (i) greater or equal to 42% but less than 47%, 310 basis points; (ii)
greater or equal to 37% but less than 42%, 405 basis points; (iii) greater or
equal to 32% but less than 37%, 485 basis points; and (iv) less than 32%, 605
basis points. If there are Nomura Preferred Shares outstanding having an
aggregate liquidation preference of greater than $100 million but less than or
equal to $200 million, the margin over LIBOR or applicable U.S. Treasury
Security used to determine the distribution rate on the Series A-1 Preferred
Shares will be increased from 285 basis points to the following based upon the
then percentage that Equity is of Total Market Capitalization: (i) greater or
equal to 42% but less than 47%, 335 basis points, (ii) greater or equal to 37%
but less than 42%, 455 basis points; (iii) greater or equal to 32% but less than
37%, 545 basis points; and (iv) less than 32%, 655 basis points. If there are
Nomura Preferred Shares outstanding having an aggregate liquidation preference
of greater than $200 million, the margin over LIBOR or applicable U.S. Treasury
Security used to determine the distribution rate on the Series A-1 Preferred
Shares will be increased from 285 basis points to the following based upon the
then percentage that Equity is of Total Market Capitalization: (i) greater or
equal to 42% but less than 47%, 360 basis points; (ii) greater or equal to 37%
but less than 42%, 485 basis points; (iii) greater or equal to 32% but less than
37%, 585 basis points; and (iv) less than 32%, 685 basis points. "Equity" means
the value (based upon the average closing price of such shares on the NYSE for
the 90 trading days immediately preceding the date of determination) of all
equity securities of the Company which are junior to the Series A-1 Preferred
Shares upon liquidation of the Company (including Common Shares and units of
partnership interest of the Operating Partnership). "Total Market
Capitalization" means the sum of the outstanding amount of all indebtedness, the
aggregate amount of the liquidation preference of all Preferred Shares and the
aggregate market value of the Common Shares and units of partnership interest of
the Operating partnership (based upon the average closing price of such shares
on the NYSE for the 90 trading days immediately preceding the date of
determination) of the Company and its consolidated entities.
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DEFAULTS
If the Company (a) fails to maintain certain debt to asset ratios as
described below, (b) refinances its approximately $181.0 million loan with
Nomura without Nomura's prior consent, or (c) permits distributions to be in
arrears for two or more quarters (each a "Default"), an additional distribution
of $40 per share per annum shall accrue on each Series A-1 Preferred Share. As
of the date of this Prospectus Supplement, no Defaults have occurred.
It is a Default if the Company's ratio of Consolidated Debt to Consolidated
Total Assets (the "Debt Ratio") is more than 0.60 to 1.00 and if its ratio of
Adjusted Consolidated Debt to Adjusted Consolidated Total Assets (the "Adjusted
Debt Ratio") is more than 0.70 to 1.00. As of September 30, 1997, the Company's
Debt Ratio and Adjusted Debt Ratio was 0.53 to 1.00 and 0.57 to 1.00,
respectively.
"Consolidated Debt" means the total consolidated indebtedness of the
Company and its consolidated entities, determined in accordance with GAAP.
"Consolidated Total Assets" means the sum of the cash and cash equivalents, the
cost of all recently developed or acquired real property and the aggregate value
of all other real property owned by the Company and its consolidated entities
determined by applying a 9.50% capitalization rate to the adjusted net income of
the Company and its consolidated entities. "Adjusted Consolidated Debt" means
Consolidated Debt of the Company and its consolidated entities plus the Company
and its consolidated entities' pro rata share of the Consolidated Debt of each
nonconsolidated entity (not to exceed the amount of the Company and its
consolidated entities' pro rata share of the consolidated assets of such
nonconsolidated entity). "Adjusted Consolidated Total Assets" means Consolidated
Total Assets of the Company and its consolidated entities plus the Company and
its consolidated entities' pro rata share of the consolidated assets of each
nonconsolidated entity using the method of computation set forth in the
definition of Consolidated Total Assets.
CONVERSION
Each Series A-1 Preferred Share is convertible at the option of the holder
at any time during the period (a) beginning on the earliest of (i) the date of a
Default and (ii) November 27, 2001, and (b) ending on the business day prior to
the date fixed for redemption or the payment of any amounts distributable on
liquidation to the holders of the Series A-1 Preferred Shares. Upon conversion,
the holder of each Series A-1 Preferred Share shall receive such number of
Common Shares equal to the quotient of (x) the Liquidation Preference divided by
(y) the product of (i) the average market price for the Common Shares for the 30
trading days prior to conversion times (ii) the Applicable Conversion
Percentage. Provided that no Default has occurred and is continuing, the
"Applicable Conversion Percentage" shall be (a) 90%, if conversion occurs prior
to November 27, 2002, (b) 85%, if conversion occurs between November 27, 2002
and November 26, 2003, (c) 80%, if conversion occurs between November 27, 2003
and November 26, 2004, and (d) 70%, if conversion occurs after November 27,
2005. Holders of the Series A-1 Preferred Shares are entitled to certain
customary anti-dilution protections in the event the Company issues any shares
of its Common Shares for a consideration less than the market price in effect on
the date of such issuance. Notwithstanding the foregoing, no holder of Series
A-1 Preferred Shares shall have the right to convert such Series A-1 Preferred
Shares into Common Shares if the Common Shares issued as a result of such
conversion would (i) have voting power equal to or in excess of 20% of the
voting power of the Common Shares outstanding or (ii) equal or exceed 20% of the
number of shares of Common Shares outstanding on the date of their issuance.
VOTING
In the event that (i) distributions on any shares of Series A-1 Preferred
shall be in arrears for two or more quarters or (ii) a Default shall have
occurred and be continuing, the holders of a majority of the Series A-1
Preferred Shares shall have the exclusive right, voting separately as a class
together with the holders of other shares of convertible preferred shares issued
pursuant to the Purchase Agreement (collectively, the "Pari Passu Shares"), to
elect two additional trustees for one-year terms. The term of office of each
trustee elected by the holders of Pari Passu Shares shall terminate when all
accumulated distributions on the Pari Passu Shares have been paid in full or set
aside for payment in full and no Default shall exist.
Other than as set forth above and as required by law, holders of Series A-1
Preferred Shares have no other voting rights except that the Company may not (i)
amend or repeal any provision of the Declaration or Bylaws which would have a
dilutive effect on the Series A-1 Preferred Shares, increase the number of
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members of the Board of Trustees, or otherwise materially adversely affect the
economic rights of the Series A-1 Preferred Shares, (ii) issue any shares of
preferred shares senior to the Series A-1 Preferred Shares unless all Series A-1
Preferred Shares are redeemed with the proceeds thereof, (iii) authorize the
sale of substantially all of its assets or any merger with and into another
entity, and (iv) enter into a transaction with certain of its employees and
shareholders on terms less favorable to the Company than those that could have
been obtained in a comparable arm's length transaction with a third party
without, in each such case, first obtaining the affirmative vote of the holders
of a majority of the then outstanding Series A-1 Preferred Shares. In addition,
the Company may not take any action which would adversely affect the Series A-1
Preferred Shares without the affirmative vote of the holders of at least
two-thirds of the then outstanding number of shares of such adversely affected
Series A-1 Preferred Shares.
REDEMPTION
In the event that The Great Mall of the Great Plains receives cash proceeds
from any capital transaction including a sale or refinancing of The Great Mall
of the Great Plains, whether or not such proceeds are made available to the
Company, the Company shall be obligated to redeem, at a price equal to the
Liquidation Preference plus an amount equal to any distributions accrued but
unpaid thereon (the "Redemption Price"), such maximum number of whole shares of
Series A-1 Preferred Shares as may be redeemed at the Redemption Price with such
proceeds. The Company is required to make the foregoing redemption even if it is
in arrears in payment of distributions on the Series B Preferred Shares.
Furthermore, so long as all distributions on the Series B Preferred Shares have
been or contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof set apart for payment for all past
distribution periods and the then current distribution period, the Company may
also redeem, at its option, at any time prior to conversion, such whole number
of Series A-1 Preferred Shares having an aggregate Redemption Price up to an
amount equal to the value (as determined below) of the equity securities issued
by the Company and the units of partnership interest issued by the Operating
Partnership (other than those units of partnership interest issued in connection
with the issuance by the Company of common equity securities) junior to the
Series B Preferred Shares as to distribution rights and rights upon liquidation,
dissolution or winding up ("Junior Equity") from and after the date of the
consummation of the Offering. The value of such Junior Equity will be equal to
the product of (A) the total number of shares or units of Junior Equity issued
and (B) in each case, as applicable, (i) with respect to issuances of Junior
Equity for cash, the amount of the purchase price therefore, (ii) with respect
to issuances of Junior Equity for property or other consideration, the closing
price per Common Share on the NYSE on the date immediately preceding issuance of
such Junior Equity, or (iii) with respect to issuances of Junior Equity which
are not traded on a national exchange or not convertible into equity securities
or units of partnership interest which are traded on a national exchange, as
determined by an investment banking firm.
LIQUIDATION
The holders of Series A-1 Preferred Shares shall, in the event of any
liquidation, dissolution or winding up of the Company, be entitled to receive
after and subject to the payment in full to holders of the Series B Preferred
Shares and of any other series of preferred shares senior to the Series A-1
Preferred Shares with respect to liquidation, but before any payment shall be
made to the holders of the Company's Common Shares, an amount equal to the
Liquidation Preference plus any accrued distributions thereon.
NOMURA PREFERRED SHARES
In addition to the Series A-1 Preferred Shares which were issued with
respect to The Great Mall of the Great Plains, the Nomura Affiliate agreed to
purchase pursuant to the Purchase Agreement, from to time upon request by the
Company, one or more series of convertible Preferred Shares of the Company the
proceeds of which are to be used in connection with the acquisition,
construction and development of the Jersey Gardens and the LA Metro Mall. It is
anticipated that each series of Nomura Preferred Shares issued pursuant to the
Purchase Agreement will have terms substantially similar to those of the Series
A-1 Preferred Shares, except that the mandatory redemption provisions of any
other series of Preferred Shares issued pursuant to the Purchase Agreement will
relate to either the Jersey Gardens or the LA Metro Mall, as the case may be.
Nomura Preferred Shares do not include any other Preferred Shares issued to
Nomura or any other person on any terms, whether or not substantially similar to
the terms of the Series A-1 Preferred Shares, for any reason, whether or not
such Preferred Shares are issued in connection with the properties contemplated
under the Purchase Agreement.
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DESCRIPTION OF SERIES B PREFERRED SHARES
The description of the particular terms of the Series B Preferred Shares
set forth in this Prospectus Supplement supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the Preferred Shares set forth in the accompanying Prospectus, to
which description reference is hereby made.
GENERAL
The Company is authorized to issue Preferred Shares in one or more series,
with such designations, terms, preferences, and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof, including such provisions as may be desired concerning voting,
redemption, distributions, dissolution or the distribution of assets, conversion
or exchange, in each case, if any, as are permitted by Maryland law and as the
Board of Trustees of the Company may determine by resolution. As of the date
hereof, 34,000 shares of Series A Preferred Shares are outstanding which will be
exchanged for Series A-1 Preferred Shares concurrently with the closing of the
Offering. See "Description of Series A-1 Preferred Shares."
On November 5, 1997, the Board of Trustees of the Company adopted
resolutions establishing the terms of a series of Preferred Shares consisting of
up to 5,520,000 shares, designated 9 1/4% Series B Cumulative Redeemable
Preferred Shares. The following summary of the terms and provisions of the
Series B Preferred Shares does not purport to be complete and is qualified in
its entirety by reference to the pertinent sections of the Declaration of Trust
and the articles supplementary supplementing the Declaration of Trust (the
"Articles Supplementary") establishing the Series B Preferred Shares, each of
which is available from the Company.
RANK
The Series B Preferred Shares will, with respect to distribution rights and
rights upon liquidation, dissolution or winding up of the Company, rank (a)
senior to (i) all classes or series of Common Shares, (ii) the Nomura Preferred
Shares and (iii) all equity securities ranking junior to such Series B Preferred
Shares; (b) on a parity with all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank on a parity
with the Series B Preferred Shares (the "Parity Preferred Shares"); and (c)
junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to the Series B
Preferred Shares. The term "equity securities" does not include convertible debt
securities for this purpose. Notwithstanding that the Series B Preferred Shares
rank senior to the Nomura Preferred Shares as to rights to receive distributions
and amounts payable upon liquidation, dissolution or winding up of the Company,
the Company is obligated (whether or not distributions on the Series B Preferred
Shares for all past Distribution Periods and the then current Distribution
Period have been paid) (i) to mandatorily redeem Series A-1 Preferred Shares in
accordance with its terms, and (ii) to mandatorily redeem any other Nomura
Preferred Shares issued from time to time in accordance with their terms set
forth in the articles supplementary classifying such series of Nomura Preferred
Shares. Furthermore, so long as full cumulative distributions on the Series B
Preferred Shares have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof set apart for payment,
the Company may redeem, at its option, from time to time, Nomura Preferred
Shares having an aggregate Redemption Price of up to an amount equal to the
value (as determined below) of Junior Equity issued from and after the date of
the consummation of the Offering. The value of such Junior Equity will be equal
to the product of (A) the total number of shares or units of Junior Equity
issued and (B) in each case, as applicable, (i) with respect to issuances of
Junior Equity for cash, the amount of the purchase price therefor, (ii) with
respect to issuances of Junior Equity for property or other consideration, the
closing price per Common Share on the NYSE on the date immediately preceding
issuance of such Junior Equity, or (iii) with respect to issuances of Junior
Equity which are not traded on a national exchange or not convertible into
equity securities or units of partnership interest which are traded on a
national exchange, as determined by an investment banking firm.
DISTRIBUTIONS
Holders of Series B Preferred Shares shall be entitled to receive, when, as
and if authorized and declared by the Board of Trustees, out of assets of the
Company legally available for payment, cash distributions payable quarterly at
the rate of 9 1/4% per annum of the $25.00 liquidation preference (equivalent to
$2.3125
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per annum per share). Such distributions shall be cumulative from the date of
original issue and shall be payable quarterly on the 15th day of each January,
April, July and October of each year or, if not a business day, the next
succeeding business day (each a "Distribution Payment Date"). The first
distribution, which will be paid on January 15, 1998, will be for less than a
full quarter. Such distribution and any distribution payable on the Series B
Preferred Shares for any partial distribution period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. Distributions will
be payable to holders of record as they appear on the stock transfer books of
the Company at the close of business on the applicable record date, which shall
be fixed by the Board of Trustees of the Company and which shall be not more
than 60 nor less than 10 days prior to such Distribution Payment Date (each a
"Distribution Record Date"). After full distributions on the Series B Preferred
Shares have been paid or declared and funds set aside for payment for all past
distribution periods and for the then current quarter, the holders of Series B
Preferred Shares will not be entitled to any further distributions with respect
to that quarter.
When distributions are not paid in full upon the Series B Preferred Shares
and any other series of Parity Preferred Shares, all distributions declared upon
the Series B Preferred Shares and any other Parity Preferred Shares shall be
declared pro rata so that the amount of distributions declared per share on such
Series B Preferred Shares and such other Parity Preferred Shares shall in all
cases bear to each other the same ratio that the accrued distributions per share
on the Series B Preferred Shares and such other Parity Preferred Shares bear to
each other. Except as set forth in the preceding sentence, unless full
distributions on the Series B Preferred Shares have been or contemporaneously
are authorized and paid or authorized and a sum sufficient for the payment
thereof set apart for payment for all past distribution periods and the then
current distribution period, no distributions (other than in Common Shares or
other shares of equity securities of the Company ranking junior to the Series B
Preferred Shares as to distributions and upon liquidation) shall be authorized
or paid or set aside for payment on the Common Shares or on any other shares of
equity securities of the Company ranking junior to or on a parity with the
Series B Preferred Shares as to distributions or upon liquidation. Unless full
distributions on the Series B Preferred Shares have been or contemporaneously
are authorized and paid or authorized and a sum sufficient for the payment
thereof set apart for payment for all past distribution periods and the then
current distribution period, no Common Shares or any other shares of equity
securities of the Company ranking junior to or on a parity with the Series B
Preferred Shares as to distributions or upon liquidation (including less than
all of the Series B Preferred Shares) shall be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid or made available for a
sinking fund for the redemption of any such shares) by the Company or any
subsidiary of the Company except by conversion into or exchange for shares of
equity securities of the Company ranking junior to the Series B Preferred Shares
as to distributions and upon liquidation. See "Description of Series B Preferred
Shares--Redemption" for similar restrictions on the redemption, purchase or
other acquisition of the Series B Preferred Shares. Notwithstanding that the
Series B Preferred Shares rank senior to the Nomura Preferred Shares as to
rights to receive distributions and amounts payable upon liquidation,
dissolution or winding up of the Company, the Company is obligated (whether or
not distributions on the Series B Preferred Shares for all past Distribution
Periods and the then current Distribution Period have been paid) (i) to
mandatorily redeem Series A-1 Preferred Shares in accordance with its terms, and
(ii) to mandatorily redeem any other Nomura Preferred Shares issued from time to
time in accordance with their terms set forth in the articles supplementary
classifying such series of Nomura Preferred Shares. See "Description of Series
A-1 Preferred Shares--Redemption" and "--Nomura Preferred Shares."
No distributions on the Series B Preferred Shares shall be authorized by
the Board of Trustees of the Company or paid or set apart for payment by the
Company at such time as the terms and provisions of any agreement of the
Company, including any agreement relating to its indebtedness, prohibits such
authorization, payment or setting apart for payment or provides that such
authorization, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such authorization or payment shall be
restricted or prohibited by law. The Credit Facility presently limits the
distributions payable by the Company on its Common Shares and Preferred Shares
to 100% of Funds from Operations (as defined below) for the Company on a
consolidated and cumulative basis over the prior four quarters. For the purposes
of the Credit Facility, "Funds from Operations" means net income less gains from
property sales, plus losses from
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property sales and debt restructurings, amortization and depreciation, noncash
expense and minority interest expense, less the sum of scheduled principal
payments, excluding balloon payments, and capital expenditures. For the purposes
of the preceding sentence, capital expenditures are assumed to be $0.15 per
square foot of GLA on the properties operated and maintained by the Company,
excluding ground leases, in excess of five years old. Cash flow from properties
that secure loans that are in default and as to which the indebtedness has been
accelerated are excluded from the calculation of Funds from Operations.
Notwithstanding the foregoing, distributions on the Series B Preferred
Shares will accrue whether or not the Company has earnings, whether or not there
are funds legally available for the payment of such distributions, whether or
not any agreement of the Company prohibits payment of such distributions, and
whether or not such distributions are authorized. Accrued but unpaid
distributions on the Series B Preferred Shares will not bear interest and
holders of Series B Preferred Shares shall not be entitled to any distribution,
whether payable in cash, property or shares of beneficial interest, in excess of
full cumulative distributions on the Series B Preferred Shares as provided
above. See "Description of Shares of Beneficial Interest-- Description of
Preferred Shares--Distributions" in the accompanying Prospectus.
Any distribution payment made on the Series B Preferred Shares shall first
be credited against the earliest accrued but unpaid distribution due with
respect to such shares which remains payable.
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of shares of beneficial
interest in the Company (the "Total Distributions"), then the portion of the
Capital Gains Amount that will be allocable to the holders of the Series B
Preferred Shares will be the Capital Gains Amount multiplied by a fraction, the
numerator of which will be the total dividends (within the meaning of the Code)
paid or made available to the holders of the Series B Preferred Shares for the
year and the denominator of which shall be the Total Distributions.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of shares
of beneficial interest of the Company ranking junior to the Series B Preferred
Shares in the distribution of assets upon any liquidation, dissolution or
winding up of the Company, the holders of Series B Preferred Shares shall be
entitled to receive, after payment or provision for payment of the Company's
debts and other liabilities, out of assets of the Company legally available for
distribution to shareholders, a liquidation preference of $25.00 per share, plus
an amount equal to any accrued and unpaid distributions to the date of such
liquidation, dissolution or winding up (whether or not declared). After payment
of the full amount of the liquidating distributions to which they are entitled,
the holders of Series B Preferred Shares will have no right or claim to any of
the remaining assets of the Company. Notwithstanding the foregoing, under
certain circumstances, in the event that The Great Mall of the Great Plains
receives cash proceeds from any capital transaction with respect to such mall,
pursuant to the terms of the agreements governing The Great Mall of the Great
Plains, it may be required to purchase Series A-1 Preferred Shares whether or
not the Company is in liquidation.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the legally available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Series B Preferred Shares and the corresponding amounts payable on
all shares of other classes or series of equity security of the Company ranking
on a parity with the Series B Preferred Shares in the distribution of assets
upon liquidation, dissolution or winding up, then the holders of the Series B
Preferred Shares and all other such classes or series of equity security shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled. If liquidating distributions shall have been made in full to all
holders of Series B Preferred Shares, the remaining assets of the Company shall
be distributed among the holders of any other classes or series of equity
security ranking junior to the Series B Preferred Shares upon liquidation,
dissolution or winding up, according to their respective rights and preferences
and in each case according to their respective number of shares.
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For purposes of this section, a distribution of assets in any dissolution,
winding up or liquidation will not include (i) any consolidation or merger of
the Company with or into any other entity, (ii) any dissolution, liquidation,
winding up, or reorganization of the Company immediately followed by
incorporation of another entity to which such assets are distributed or (iii) a
sale or other disposition of all or substantially all of the Company's assets to
another entity; provided that, in each case, effective provision is made in the
charter of the resulting and surviving entity or otherwise for the recognition,
preservation and protection of the rights of the holders of Series B Preferred
Shares.
REDEMPTION
Except in certain circumstances relating to the Company's maintenance of
its ability to qualify as a REIT under the Code as described under "Description
of Shares of Beneficial Interest--Restrictions on Ownership and Transfer" in the
accompanying Prospectus, the Series B Preferred Shares are not redeemable prior
to November 15, 2002. On any date as fixed by the Board of Trustees of the
Company on or after November 15, 2002, the Company, upon not less than 30 nor
more than 60 days' written notice, may redeem the Series B Preferred Shares, in
whole or in part, at any time or from time to time, for cash at a redemption
price of $25.00 per share, plus all accrued and unpaid distributions thereon, if
any (whether or not declared), to the date fixed for redemption (except as
provided below), without interest, to the extent the Company will have funds
legally available therefore. The redemption price of the Series B Preferred
Shares (other than any portion thereof consisting of accrued and unpaid
dividends) is payable solely out of the sale proceeds of other capital shares of
the Company or the Operating Partnership and not from any other source. For
purposes of the preceding sentence, "capital shares" means any common shares of
beneficial interest, preferred shares, depositary shares, interests,
participation or other ownership interests (however designated) and any rights
(other than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing. Holders of Series B
Preferred Shares to be redeemed shall surrender such Series B Preferred Shares
at the place designated in such notice and shall be entitled to the redemption
price and any accrued and unpaid distributions payable upon such redemption
following such surrender. If notice of redemption of any Series B Preferred
Shares has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders of any Series B
Preferred Shares so called for redemption, then from and after the redemption
date distributions will cease to accrue on such Series B Preferred Shares, such
shares of Series B Preferred Shares shall no longer be deemed outstanding and
all rights of the holders of such shares will terminate, except the right to
receive the redemption price plus any accrued and unpaid distributions payable
upon such redemption. If fewer than all of the outstanding Series B Preferred
Shares are to be redeemed, the number of shares to be redeemed will be
determined by the Board of Trustees of the Company and such shares shall be
redeemed pro rata from the holders of record thereof in proportion to the number
of such shares held by such holders (with adjustments to avoid redemption of
fractional shares) or by any other equitable method determined by the Company.
Notwithstanding the foregoing, unless full cumulative distributions on all
Series B Preferred Shares shall have been or contemporaneously are authorized
and paid or authorized and a sum sufficient for the payment thereof set apart
for payment for all past distribution periods, no Series B Preferred Shares
shall be redeemed unless all outstanding Series B Preferred Shares are
simultaneously redeemed and the Company shall not purchase or otherwise acquire
directly or indirectly any Series B Preferred Shares (except by exchange for
shares of beneficial interest of the Company ranking junior to the Series B
Preferred Shares as to distributions and upon liquidation); provided, however,
that the foregoing shall not prevent the purchase by the Company of Excess
Shares (as defined in "Restrictions on Ownership and Transfer" in the
accompanying Prospectus) in order to ensure that the Company remains qualified
as a REIT for federal income tax purposes, or the purchase or acquisition of
Series B Preferred Shares pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Series B Preferred Shares.
Notice of redemption will be given by publication in a newspaper of general
circulation in The City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days' prior to
the redemption date. A similar notice will be mailed by the Company, postage
prepaid, not less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of Series B Preferred Shares to be
redeemed at their respective addresses as shown on the
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stock transfer books of the Company. No failure to give such notice or any
defect thereto or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series B Preferred Shares except as to the
holder to whom notice was defective or not given. Each notice shall state: (i)
the redemption date; (ii) the redemption price; (iii) the number of Series B
Preferred Shares to be redeemed; (iv) the place or places where the Series B
Preferred Shares are to be surrendered for payment of the redemption price; and
(v) that distributions on the Series B Preferred Shares to be redeemed will
cease to accrue on such redemption date. If fewer than all the Series B
Preferred Shares held by any holder are to be redeemed, the notice mailed to
such holder shall also specify the number of Series B Preferred Shares to be
redeemed from such holder.
In order to facilitate the redemption of the Series B Preferred Shares, the
Board of Trustees may fix a record date for the determination of Series B
Preferred Shares to be redeemed, such record date to be not less than 30 or more
than 60 days prior to the date fixed for such redemption. Except as provided
above, the Company will make no payment or allowance for unpaid distributions,
whether or not in arrears, on Series B Preferred Shares for which a notice of
redemption has been given.
The Series B Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions (except as
provided under "Restrictions on Ownership").
Subject to applicable law and the limitation on purchases when
distributions on the Series B Preferred Shares are in arrears, the Company may,
at any time and from time to time, purchase any Series B Preferred Shares in the
open market, by tender or by private agreement.
VOTING RIGHTS
Holders of the Series B Preferred Shares will not have any voting rights,
except as set forth below or as otherwise expressly required by applicable law.
Whenever distributions on any Series B Preferred Shares shall be in arrears
for six or more quarterly periods (whether or not consecutive), the holders of
such Series B Preferred Shares (voting separately as a class with all other
series of Preferred Shares upon which like voting rights have been conferred and
are exercisable) will be entitled to vote for the election of two additional
trustees of the Company at a special meeting called by the holders of record of
at least 20% of the outstanding Series B Preferred Shares or the holders of
shares of any series of Preferred Shares so in arrears (unless such request is
received less than 90 days before the date fixed for the next annual or special
meeting of the shareholders) or at the next annual meeting of shareholders and
at each subsequent meeting until all distributions accumulated on such Series B
Preferred Shares for the past distribution periods and the then current
distribution period shall have been fully paid or authorized and declared and a
sum sufficient for the payment thereof set aside for payment in full. In such
case, the entire Board of Trustees will be increased by two trustees.
The affirmative vote or consent of the holders of at least two-thirds of
the outstanding Series B Preferred Shares and of any series of Parity Preferred
Shares, voting as a single class, will be required to authorize another class of
equity securities senior to the Series B Preferred Shares with respect to the
payment of distributions or the distribution of assets on liquidation. The
affirmative vote or consent of the holders of at least two-thirds of the
outstanding Series B Preferred Shares will be required to amend, alter or repeal
any provision of, or add any provision to, the Declaration of Trust, including
the Articles Supplementary, if such action would materially and adversely alter
or change the rights, preferences or privileges of the Series B Preferred
Shares. No such vote or consent is required in connection with (i) any increase
in the total number of authorized Common Shares; (ii) the authorization or
increase of any class or series of shares of beneficial interest ranking, as to
distribution rights and liquidation preference, on a parity with or junior to
the Series B Preferred Shares; (iii) any merger or consolidation in which the
Company is the surviving entity if, immediately after the merger or
consolidation, there are outstanding no shares of beneficial interest and no
securities convertible into shares of beneficial interest ranking as to
distribution rights or liquidation preference senior to the Series B Preferred
Shares other than the securities of the Company outstanding prior to such merger
or consolidation; (iv) any merger or consolidation in which the Company is not
the surviving entity if, as a result of the merger or consolidation, the holders
of Series B Preferred Shares receive shares of stock or
S-31
<PAGE> 32
beneficial interest or other equity securities with preferences, rights and
privileges substantially identical to the preferences, rights and privileges of
the Series B Preferred Shares and there are outstanding no shares of stock or
beneficial interest or other equity securities of the surviving entity ranking
as to distribution rights or liquidation preference senior to the Series B
Preferred Shares other than the securities of the Company outstanding prior to
such merger or consolidation; or (v) if, at or prior to the time when the
issuance of any such shares ranking senior to the Series B Preferred Shares is
to be made or any such change is to take effect, as the case may be, the Series
B Preferred Shares have been called for redemption upon proper notice and
sufficient funds have been irrevocably deposited in trust for the redemption of
all the then outstanding Series B Preferred Shares.
For further information regarding the voting rights of the holders of the
Series B Preferred Shares, see "Description of Shares of Beneficial
Interest--Description of Preferred Shares--Voting Rights" in the accompanying
Prospectus.
CONVERSION
The Series B Preferred Shares are not convertible into or exchangeable for
any other property or securities of the Company.
RESTRICTIONS ON OWNERSHIP
Ownership of Series B Preferred Shares by any person is limited, with
certain exceptions, to (i) 8.0% of the lesser of the number or value of the
Company's total outstanding shares of beneficial interest and (ii) 9.9% of the
lesser of the number or value of the total outstanding Series B Preferred
Shares. For information regarding additional restrictions on ownership and
transfer of the Series B Preferred Shares, see "Description of Shares of
Beneficial Interest--Restrictions on Ownership and Transfer" in the accompanying
Prospectus.
In addition to the restrictions on ownership and transfer set forth in the
Declaration of Trust, the Articles Supplementary provide, subject to certain
exceptions, that no holder (other than any person approved by the Board of
Trustees, at their option and in their discretion, provided such approval will
not result in the termination of the status of the Company as a REIT) may own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than 9.9% (the "Series B Ownership Limit") of the lesser of the number or value
(in either case as determined in good faith by the Board of Trustees) of the
total outstanding Series B Preferred Shares.
The Board of Trustees may waive the Series B Ownership Limit if evidence,
satisfactory to the Board of Trustees and the Company's tax counsel is
presented, that such ownership will not then or in the future jeopardize the
Company's status as a REIT. As a condition of such waiver, the intended
transferee must give written notice to the Company of the proposed transfer and
must furnish such opinions of counsel, affidavits, undertakings, agreements and
information as may be required by the Board of Trustees no later than the 15th
day prior to any transfer which, if consummated, would result in the intended
transferee owning Shares in excess of the Series B Ownership Limit.
Any transfer of Shares that would (i) create a direct or indirect ownership
of Shares in excess of the Series B Ownership Limit, (ii) result in the Series B
Preferred Shares being owned by fewer than 100 persons for purposes of the REIT
provisions of the Code, or (iii) result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, shall be null and void, and
the intended transferee will acquire no, rights to the Shares. The Articles
Supplementary provide that the Company, by notice to the holder thereof, may
purchase any or all Series B Preferred Shares (the "Series B Excess Preferred
Shares") that are proposed to be transferred pursuant to a transfer which, if
consummated, would result in the intended transferee owning Series B Preferred
Shares in excess of the Series B Ownership Limit or would otherwise jeopardize
the REIT status of the Company. From and after the date fixed for purchase by
the Board of Trustees, the holder of such shares to be purchased by the Company
shall cease to be entitled to distributions, voting rights and other benefits
with respect to such Shares except the right to payment of the purchase price
for the shares. The purchase price for any Series B Excess Preferred Shares
shall be equal to the fair market value of such Series B Preferred Shares. Any
distribution paid to a proposed transferee on Series B Excess Preferred Shares
S-32
<PAGE> 33
prior to the discovery by the Company that such shares have been transferred in
violation of the provisions of the Articles Supplementary shall be repaid to the
Company upon demand. If the foregoing transfer restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the intended transferee of any Series B Excess Preferred Shares may be
deemed, at the option of the Company, to have acted as an agent on behalf of the
Company in acquiring such Series B Excess Preferred Shares and to hold such
Series B Excess Preferred Shares on behalf of the Company.
All persons who own, directly or indirectly by virtue of the attribution
provisions of the Code, more than 5% in number or value of the outstanding
Series B Preferred Shares must give a written notice to the Company containing
the information specified in the Articles Supplementary by January 30 of each
year. In addition, each direct or indirect holder of Series B Preferred Shares
shall upon demand be required to disclose to the Company in writing such
information with respect to the direct or indirect ownership of Series B
Preferred Shares as the Board of Trustees deem necessary to comply with the
provisions of the Code applicable to a REIT, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
TRANSFER AGENT
The registrar, transfer agent and distribution disbursing agent for the
Series B Preferred Shares will be The Harris Trust and Savings Bank.
S-33
<PAGE> 34
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
November 12, 1997 (the "Underwriting Agreement"), each of the Underwriters named
below (each, an "Underwriter" and together, the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation, Prudential Securities
Incorporated, BT Alex. Brown Incorporated and PaineWebber Incorporated are
acting as Representatives (the "Representatives"), has severally agreed to
purchase from the Company the respective number of shares of Series B Preferred
Shares set forth opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation....................... 1,038,000
Prudential Securities Incorporated........................................ 1,038,000
BT Alex. Brown Incorporated............................................... 1,037,000
PaineWebber Incorporated.................................................. 1,037,000
CIBC Oppenheimer Corp..................................................... 50,000
A.G. Edwards & Sons, Inc. ................................................ 50,000
J.J.B. Hilliard, W.L. Lyons Inc. ......................................... 50,000
SBC Warburg Dillon Read Inc. ............................................. 50,000
Cowen & Company........................................................... 25,000
Dain Bosworth Incorporated................................................ 25,000
EVEREN Securities, Inc. .................................................. 25,000
Fahnestock & Co. Inc...................................................... 25,000
First Albany Corporation.................................................. 25,000
Gruntal & Co., L.L.C. .................................................... 25,000
Janney Montgomery Scott Inc. ............................................. 25,000
McDonald & Company Securites, Inc. ....................................... 25,000
McGinn, Smith & Co., Inc. ................................................ 25,000
Morgan Keegan & Company, Inc. ............................................ 25,000
The Ohio Company.......................................................... 25,000
Piper Jaffray Inc. ....................................................... 25,000
Rauscher Pierce Refsnes, Inc. ............................................ 25,000
Raymond James & Associates, Inc. ......................................... 25,000
The Robinson-Humphrey Company, Inc. ...................................... 25,000
Stephens Inc. ............................................................ 25,000
Sutro & Co. Incorporated.................................................. 25,000
Tucker Anthony Incorporated............................................... 25,000
----------
-
Total........................................................... 4,800,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the Series B Preferred Shares
are subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to purchase and accept delivery of
all of the Series B Preferred Shares offered hereby (other than those covered by
the over-allotment option described below) if any are purchased.
The Underwriters initially propose to offer part of the Series B Preferred
Shares directly to the public at the public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain dealers
(including the Underwriters) at such price less a concession not in excess of
$0.55 per share. The Underwriters may allow, and such dealers may re-allow, to
certain other dealers a concession not in excess of $0.45 per share. After the
public offering of the Series B Preferred Shares, the public offering price and
other selling terms may be changed by the Representatives at any time without
notice.
S-34
<PAGE> 35
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus Supplement, to purchase, from time to
time, in whole or in part, up to an aggregate of 720,000 additional Series B
Preferred Shares at the public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the Offering. To the extent
that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Series B Preferred Shares have been approved for listing on the NYSE,
subject to official notice of issuance.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Series B
Preferred Shares offered hereby in any jurisdiction where action for that
purpose is required. The shares of Series B Preferred Shares offered hereby may
not be offered or sold, directly or indirectly, nor may this Prospectus
Supplement or any other offering material or advertisements in connection with
the offer and sale of any such shares of Series B Preferred Shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons into whose possession this Prospectus Supplement comes are
advised to inform themselves about and to observe any restrictions relating to
the offering of the Series B Preferred Shares and the distribution of the
Prospectus Supplement. This Prospectus Supplement does not constitute an offer
to sell or a solicitation of an offer to buy any shares of Series B Preferred
Shares offered hereby in any jurisdiction in which such an offer or solicitation
is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Series B Preferred Shares. Specifically, the Underwriters may over-allot the
Offering, creating a syndicate short position. The Underwriters may bid for and
purchase shares of Series B Preferred Shares in the open market to cover such
syndicate short position or to stabilize the price of the Series B Preferred
Shares. These activities may stabilize or maintain the market price of the
Series B Preferred Shares above independent market level. The Underwriters are
not required to engage in these activities, and may end any of these activities
at any time.
Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, is a
lender under the Credit Facility and will receive its proportionate share of the
contemplated repayment of indebtedness under the Credit Facility. See "Use of
Proceeds." Bankers Trust Company may also act as agent under a construction loan
facility to be provided in connection with the Jersey Gardens.
In the ordinary course of their respective businesses, the Underwriters
and/or affiliates of the Underwriters have engaged, and may in the future
engage, in investment banking, investment or financial advisory and/or
commercial banking transactions with the Company and its affiliates for which
customary compensation has been, and will be, received.
LEGAL MATTERS
The validity of the Series B Preferred Shares offered hereby will be passed
upon for the Company by Robinson Silverman Pearce Aronsohn & Berman LLP, New
York, New York and for the Underwriters by Weil, Gotshal & Manges LLP, New York,
New York. Certain matters of Maryland law will be passed upon for the Company by
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
S-35
<PAGE> 36
PROSPECTUS
NOVEMBER 12, 1997
$138,315,000
GLIMCHER REALTY TRUST
PREFERRED SHARES OF BENEFICIAL INTEREST,
COMMON SHARES OF BENEFICIAL INTEREST AND WARRANTS
Glimcher Realty Trust (the "Company") may from time to time offer in one or
more series its (i) preferred shares of beneficial interest, $.01 par value per
share ("Preferred Shares"), (ii) common shares of beneficial interest, $.01 par
value per share ("Common Shares"), and (iii) warrants to purchase Preferred
Shares or Common Shares (collectively, "Warrants"), with an aggregate public
offering price of up to $138,315,000 (or its equivalent based on the exchange
rate at the time of sale) in
amounts, at prices and on terms to be determined at the time of offering. The
Preferred Shares, Common Shares and Warrants (collectively, the "Offered
Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Preferred
Shares, the specific title and stated value, any distribution, liquidation,
redemption, conversion, voting and other rights, and any initial public offering
price; (ii) in the case of Common Shares, any initial public offering price; and
(iii) in the case of Warrants, the number and terms thereof, the designation and
the number of securities issuable upon their exercise, the exercise price, the
terms of the offering and sale thereof and, where applicable, the duration and
detachability thereof. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of certain types
of the Offered Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust ("REIT") for Federal
income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 37
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission in
accordance with the Exchange Act can be inspected and copied at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Common Shares are listed on the New
York Stock Exchange and similar information concerning the Company can be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Offered Securities. This Prospectus,
which is a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission. The Securities and Exchange Commission
maintains a world wide web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of this site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
5. The Company's Form 8-K dated February 5, 1997.
6. The Company's Form 8-K dated June 17, 1997.
7. The Company's Form 8-K dated November 4, 1997.
8. The description of the Common Shares contained in the Company's
Registration Statement on Form 8-A, filed October 21, 1993, and the
information thereby incorporated by reference contained in the Company's
Registration Statement on Form S-11 (No. 33-69740), as amended by
Amendments No. 1, 2, 3, 4 and 5, filed September 30, 1993, November 5,
1993, November 22, 1993, November 30, 1993, January 10, 1994 and January
19, 1994, respectively, under the heading "Description of Shares of
Beneficial Interest."
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing such documents.
2
<PAGE> 38
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Requests should be
directed to Glimcher Realty Trust, Attention: William G. Cornely, 20 South Third
Street, Columbus, Ohio 43215; (614) 621-9000.
3
<PAGE> 39
THE COMPANY
Glimcher Realty Trust is a fully integrated, self-administered and
self-managed Maryland real estate investment trust ("REIT"), which owns, leases,
manages and develops a portfolio of retail properties consisting of regional and
super regional malls (including, most recently, value-oriented super regional
malls) ("Mall Properties") and community shopping centers (including single
tenant retail properties) ("Community Centers"). As of September 30, 1997, the
Company owned interests in and operated 115 properties, consisting of 11 Mall
Properties and 104 Community Centers (including 17 single tenant retail
properties (collectively, the "Properties") located in 24 states. As of
September 30, 1997, the Properties contained an aggregate of approximately 20.8
million square feet of gross leasable area ("GLA") and were approximately 93%
leased.
The Company is focused on achieving growth in multiple retail formats which
appeal to a wide range of consumers and to national and regional tenants in
selected markets throughout the United States. Through the application of
technology and the introduction of entertainment concepts, the Company has
developed new designs and formats for retail properties in order to forge strong
ties with a broad group of retailers and to appeal to a broad cross section of
consumers. The Company is committed to developing and acquiring retail
properties throughout the United States that individually, or in combination
with other properties owned by the Company, are capable of becoming the dominant
retail properties in their markets.
Herbert Glimcher, the Company's Chairman and Chief Executive Officer, and
David J. Glimcher, the Company's President and Chief Operating Officer, have
been involved in the acquisition, leasing, management and development of retail
properties for approximately 37 and 23 years, respectively. The Company has
assembled a management team that together possesses the skill and sophistication
necessary to execute its strategy. New senior management appointments include
experienced professionals in development, finance, human resources, leasing,
legal and marketing. The Company believes that its team approach to property
management and its ability to develop high quality and innovative retail
properties on a cost effective basis combined with its established relationships
with national and regional tenants and its extensive experience in understanding
the needs of local tenants provide the Company with strategic advantages over
other retail property operators and developers in the Company's market areas.
All of the Company's interests in the Properties are held by, and its
operations are conducted through, Glimcher Properties Limited Partnership, a
Delaware limited partnership (the "Operating Partnership"), or by entities in
which the Operating Partnership has a direct or indirect interest ("Subsidiary
Partnerships"). As of the date hereof, the Company owns approximately 90.1% of
the Operating Partnership's outstanding units of partnership interest, and is,
through its wholly owned subsidiary, Glimcher Properties Corporation ("GPC"),
the sole general partner of the Operating Partnership.
The Company, which was formed on September 1, 1993, completed its initial
public offering in January 1994 (the "Initial Offering"). The Company's
executive offices are located at 20 South Third Street, Columbus, Ohio 43215,
and its telephone number is (614) 621-9000.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth the historical ratios of earnings to
combined fixed charges and preferred share dividends of the Company for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------
SEPTEMBER 30, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
1.47.............................................. 1.81 1.98 1.70 0.97 0.90
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges
and preferred share dividends, earnings have been calculated by adding fixed
charges (excluding capitalized interest) to income (loss) before extraordinary
items. Fixed charges consist of interest costs, whether expensed or capitalized,
the interest component of rental income, if any, amortization of deferred
financing costs (including amounts capitalized)
4
<PAGE> 40
and dividends payable on outstanding preferred shares. The Company's earnings
were inadequate to cover fixed charges by $755,000 and $2,120,000 for the years
ended December 31, 1993 and December 31, 1992, respectively, all of which were
prior to the Company's Initial Offering.
USE OF PROCEEDS
The Company is required by the terms of the partnership agreement for the
Operating Partnership to invest the net proceeds of any sale of Common Shares,
Preferred Shares or any securities convertible into Common Shares or Preferred
Shares in the Operating Partnership in exchange for a similar economic interest
in the Operating Partnership. Unless otherwise described in the applicable
Prospectus Supplement, the Company intends for the net proceeds from the sale of
the Offered Securities to be used for general trust purposes, which may include
the acquisition of properties as suitable opportunities arise, the expansion and
improvement of certain properties owned or to be owned by the Company, the
financing of future new development and the repayment of certain indebtedness
outstanding at such time, and for working capital purposes.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
GENERAL
The Company's Amended and Restated Declaration of Trust, as amended (the
"Declaration of Trust"), authorizes the Company to issue up to 100,000,000
shares of beneficial interest ("Shares"), of the Company, consisting of common
shares of beneficial interest and such other types or classes of shares of
beneficial interest as the Board of Trustees may create and authorize from time
to time and designate as representing a beneficial interest in the Company. The
Board of Trustees is granted the power to authorize the issuance of one or more
series of preferred shares of beneficial interest. As of September 30, 1997,
21,910,544 Common Shares were issued and outstanding and 34,000 shares of Series
A Preferred Shares of Beneficial Interest, the terms of which as described in
the Prospectus Supplement dated the date hereof, were issued or outstanding.
Both the Maryland statute governing real estate investment trusts organized
under the laws of that state (the "Maryland REIT Law") and the Declaration of
Trust provide that no shareholder of the Company will be personally liable for
any obligation of the Company by reason of being a shareholder. The Company's
Bylaws further provide that the Company shall indemnify each shareholder against
any claim or liability to which the shareholder may become subject by reason of
his being or having been a shareholder and that the Company shall reimburse each
shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability. In addition, it is the Company's
policy to include a clause in its contracts which provides that shareholders
assume no personal liability for obligations entered into on behalf of the
Company. However, with respect to tort claims, contractual claims where
shareholder liability is not so negated, claims for taxes and certain statutory
and other liabilities, a shareholder may, in some jurisdictions, be personally
liable to the extent that such claims are not satisfied by the Company. Inasmuch
as the Company carries public liability insurance which it considers adequate,
any risk of personal liability to shareholders is limited to situations in which
the Company's assets plus its insurance coverage would be insufficient to
satisfy the claims against the Company and its shareholders.
DESCRIPTION OF PREFERRED SHARES
The following description of the Preferred Shares sets forth certain
general terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate. The particular terms of the Preferred Shares being
offered and the extent to which such general provisions may apply will be
described in a Prospectus Supplement relating to such Preferred Shares. The
statements below describing the Preferred Shares are in all respects subject to
and qualified in their entirety by reference to the applicable provisions of the
Declaration of Trust (including the applicable Articles Supplementary) and
Bylaws.
5
<PAGE> 41
General
Subject to limitations prescribed by Maryland law and the Declaration of
Trust, the Board of Trustees is authorized to fix the number of shares
constituting each series of Preferred Shares and the designations and terms,
preferences, and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including such provisions
as may be desired concerning voting, redemption, distributions, dissolution or
the distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the Board of Trustees or a duly
authorized committee thereof. The Preferred Shares will, when issued, be fully
paid and nonassessable and will have no preemptive rights.
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The distribution rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Shares;
(4) The date from which distributions on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred
Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares, including the conversion
price (or manner of calculation thereof);
(10) A discussion of Federal income tax considerations applicable to
such Preferred Shares;
(11) The relative ranking and preferences of such Preferred Shares as
to distribution rights (including whether any liquidation preference as to
the Preferred Shares will be treated as a liability for purposes of
determining the availability of assets of the Company for distributions to
holders of Shares ranking junior to the Preferred Shares as to distribution
rights) and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
(12) Any limitations on issuance of any series of preferred shares
ranking senior to or on a parity with such series of Preferred Shares as to
distribution rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT for Federal income tax purposes; and
(14) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to distribution rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares, and to all equity securities ranking junior to such
Preferred Shares with respect to distribution rights or rights upon liquidation,
dissolution or winding up of the Company, (ii) on a
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parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Shares with respect to distribution rights or rights upon liquidation,
dissolution or winding up of the Company and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank senior to the Preferred Shares with respect to
distribution rights or rights upon liquidation, dissolution or winding up of the
Company. As used in the Declaration of Trust for these purposes, the term
"equity securities" does not include convertible debt securities.
Distributions
Holders of Preferred Shares shall be entitled to receive, when, as and if
authorized and declared by the Board of Trustees, out of assets of the Company
legally available for payment, cash distributions at such rates and on such
dates as will be set forth in the applicable Prospectus Supplement. Each such
distribution shall be payable to holders of record as they appear on the stock
transfer books of the Company on such record dates as shall be fixed by the
Board of Trustees.
Distributions on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement.
Distributions, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Board of Trustees fails to
authorize and declare a distribution payable on a distribution payment date on
any series of the Preferred Shares for which distributions are noncumulative,
then the holders of such series of the Preferred Shares will have no right to
receive a distribution in respect of the distribution period ending on such
distribution payment date, and the Company will have no obligation to pay the
distribution accrued for such period, whether or not distributions on such
series are authorized and declared payable on any future distribution payment
date.
If any Preferred Shares of any series are outstanding, no full
distributions shall be authorized, declared or paid or set apart for payment on
the preferred shares of the Company of any other series ranking, as to
distributions, on a parity with or junior to the Preferred Shares of such series
for any period unless (i) if such series of Preferred Shares has a cumulative
distribution, full cumulative distributions have been or contemporaneously are
authorized and declared and paid or authorized and declared and a sum sufficient
for the payment thereof set apart for such payment on the Preferred Shares of
such series for all past distribution periods and the then current distribution
period or (ii) if such series of Preferred Shares does not have a cumulative
distribution, full distributions for the then current distribution period have
been or contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for such payment
on the Preferred Shares of such series. When distributions are not paid in full
(or a sum sufficient for such full payment is not so set apart) upon the shares
of Preferred Shares of any series and the shares of any other series of
preferred shares ranking on a parity as to distributions with the Preferred
Shares of such series, all distributions authorized and declared upon shares of
Preferred Shares of such series and any other series of preferred shares ranking
on a parity as to distributions with such Preferred Shares shall be authorized
and declared pro rata so that the amount of distributions authorized and
declared per share on the Preferred Shares of such series and such other series
of preferred shares shall in all cases bear to each other the same ratio that
accrued distributions per share on the shares of Preferred Shares of such series
(which shall not include any accumulation in respect of unpaid distributions for
prior distribution periods if such Preferred Shares do not have a cumulative
distribution) and such other series of preferred shares bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on Preferred Shares of such series which
may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative distribution, full cumulative
distributions on the Preferred Shares of such series have been or
contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for payment for
all past distribution periods and the then current distribution period and (ii)
if such series of Preferred Shares does not have a cumulative distribution, full
distributions on the Preferred Shares of such series have been or
contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for payment for
the then current distribution period, no distributions (other than in Common
Shares or other Shares ranking junior to
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the Preferred Shares of such series as to distributions and upon liquidation)
shall be authorized and declared or paid or set aside for payment or other
distribution shall be authorized and declared or made upon the Common Shares or
any other Shares ranking junior to or on a parity with the Preferred Shares of
such series as to distributions or upon liquidation, nor shall any Common Shares
or any other Shares ranking junior to or on a parity with the Preferred Shares
of such series as to distributions or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
by the Company (except by conversion into or exchange for other Shares ranking
junior to the Preferred Shares of such series as to distributions and upon
liquidation).
Any distribution payment made on a series of Preferred Shares shall first
be credited against the earliest accrued but unpaid distribution due with
respect to shares of such series which remains payable.
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid distributions thereon (which shall not,
if such Preferred Shares does not have a cumulative distribution, include any
accumulation in respect of unpaid distributions for prior distribution periods)
to the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of an equity security of the Company, the terms of such
Preferred Shares may provide that, if no such equity security shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Shares shall
automatically and mandatorily be converted into shares of the applicable equity
security of the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative distribution, full cumulative distributions on all
shares of any series of Preferred Shares shall have been or contemporaneously
are authorized and declared and paid or authorized and declared and a sum
sufficient for the payment thereof set apart for payment for all past
distribution periods and the then current distribution period and (ii) if such
series of Preferred Shares does not have a cumulative distribution, full
distributions on the Preferred Shares of any series have been or
contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for payment for
the then current distribution period, no shares of any series of Preferred
Shares shall be redeemed unless all outstanding Preferred Shares of such series
are simultaneously redeemed; provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Shares of such series pursuant
to a purchase or exchange offer made on the same terms to holders of all
outstanding Preferred Shares of such series, and, unless (i) if such series of
Preferred Shares has a cumulative distribution, full cumulative distributions on
all outstanding shares of any series of Preferred Shares have been or
contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for payment for
all past distribution periods and the then current distribution period and (ii)
if such series of Preferred Shares does not have a cumulative distribution, full
distributions on the Preferred Shares of any series have been or
contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for payment for
the then current distribution period, the Company shall not purchase or
otherwise acquire directly or indirectly any Preferred Shares of such series
(except by conversion into or exchange for stock of the Company ranking junior
to the Preferred Shares of such series as to distributions and upon
liquidation).
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If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Shares are to be surrendered for payment of the redemption price; (v) that
distributions on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights, if
any, as to such shares shall terminate. If fewer than all the Preferred Shares
of any series are to be redeemed, the notice mailed to each such holder thereof
shall also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date distributions will cease to
accrue on such Preferred Shares, such Preferred Shares shall no longer be deemed
outstanding and all rights of the holders of such shares will terminate, except
the right to receive the redemption price. Any moneys so deposited which remain
unclaimed by the holders of the Preferred Shares at the end of two years after
the redemption date will be returned by such bank or trust company to the
Company.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of Shares
of the Company ranking junior to the Preferred Shares in the distribution of
assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Shares shall be entitled to receive, after
payment or provision for payment of the Company's debts and other liabilities,
out of assets of the Company legally available for distribution to shareholders,
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to all
distributions accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid distributions for prior distribution periods
if such Preferred Shares do not have a cumulative distribution). After payment
of the full amount of the liquidating distributions to which they are entitled,
the holders of Preferred Shares will have no right or claim to any of the
remaining assets of the Company. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the legally available assets
of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding Preferred Shares and the corresponding amounts
payable on all shares of other classes or series of equity security of the
Company ranking on a parity with the Preferred Shares in the distribution of
assets upon liquidation, dissolution or winding up, then the holders of the
Preferred Shares and all other such classes or series of equity security shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If the liquidating distributions shall have been made in full to all
holders of Preferred Shares, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of equity security
ranking junior to the Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For purposes of this section, a
distribution of assets in any dissolution, winding up or liquidation will not
include (i) any consolidation or merger of the Company with or into any other
entity, (ii) any dissolution, liquidation, winding up, or reorganization of the
Company immediately followed by incorporation of another corporation to which
such assets are distributed or (iii) a sale or other disposition of all or
substantially all of the Company's assets to another entity; provided that, in
each case, effective provision is made in the charter of the resulting or
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surviving entity or otherwise for the recognition, preservation and protection
of the rights of the holders of Preferred Shares.
Voting Rights
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as indicated in the applicable Prospectus Supplement.
Whenever distributions on any Preferred Shares shall be in arrears for any
six quarterly periods, the holders of such Preferred Shares (voting separately
as a class with all other series of Preferred Shares upon which like voting
rights have been conferred and are exercisable) will be entitled to vote for the
election of two additional trustees of the Company at the next annual meeting of
shareholders and at each subsequent meeting until (i) if such series of
Preferred Shares has a cumulative distribution, all distributions accumulated on
such Preferred Shares for the past distribution periods and the then current
distribution period shall have been fully paid or authorized and declared and a
sum sufficient for the payment thereof set aside for payment or (ii) if such
series of Preferred Shares does not have a cumulative distribution, six
consecutive quarterly distributions shall have been fully paid or authorized and
declared and a sum sufficient for the payment thereof set aside for payment. In
such case, the entire Board of Trustees will be increased by two trustees.
Unless provided otherwise for any series of Preferred Shares, so long as
any Preferred Shares remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of a majority of the shares of a
series of Preferred Shares outstanding at the time, given in person or by proxy,
either in writing or at a meeting (such series voting separately as a class),
(i) authorize or create or issue, or increase the authorized or issued amount
of, any class or series of equity security ranking prior to such series of
Preferred Shares with respect to payment of distributions or the distribution of
assets upon liquidation, dissolution or winding up or reclassify any authorized
equity security of the Company into any such shares, or create, authorize or
issue any obligation or security convertible into or evidencing the right to
purchase any such shares or (ii) amend, alter or repeal the provisions of the
Declaration of Trust, including the applicable Articles Supplementary for such
series of Preferred Shares, whether by merger, consolidation or otherwise, so as
to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Shares or the holders thereof. Except as may
otherwise be required by applicable law, such a class vote or consent is not
required (i) in connection with any increase of the total amount of the
authorized Common Shares or (ii) in connection with the authorization or
increase of any class or series of Shares ranking, as to distribution rights and
liquidation preference, on a parity with or junior to the Preferred Shares of
such series.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be affected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption upon proper notice and sufficient
funds shall have been deposited in trust to effect such redemption.
Conversion Rights
The terms and conditions, if any, upon which shares of any series of
Preferred Shares are convertible into Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Shares or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Shares.
DESCRIPTION OF COMMON SHARES
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Shares will be
issuable upon conversion of Preferred Shares or upon the exercise of Warrants
issued by the Company. The statements below describing the Common Shares are in
all respects
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subject to and qualified in their entirety by reference to the applicable
provisions of the Declaration of Trust and the Company's Bylaws.
Subject to the preferential rights of any Preferred Shares and to the
provisions of the Declaration of Trust relating to Excess Shares (as defined
below), holders of the Common Shares are entitled to receive distributions when,
as and if authorized and declared by the Board of Trustees of the Company, out
of assets legally available therefor. Payment and authorization of distributions
on the Common Shares and purchases of Common Shares by the Company will be
subject to certain restrictions if the Company fails to pay distributions on the
Preferred Shares. See "Description of Shares of Beneficial Interest--Description
of Preferred Shares". Upon any liquidation, dissolution or winding up of the
Company, holders of Common Shares will be entitled to share ratably in any
assets legally available for distribution to them, after payment or provision
for payment of the known debts and other liabilities of the Company and the
preferential amounts owing with respect to any outstanding Preferred Shares.
Subject to the provisions of the Declaration of Trust relating to Excess Shares,
each outstanding Common Share entitles the holder to one vote on all matters
submitted to a vote of shareholders, including the election of trustees. There
is no cumulative voting in the election of trustees, which means that the
holders of a majority of the outstanding Common Shares can elect all of the
trustees then standing for election. Holders of Common Shares will not have
preemptive rights, which means they have no right to acquire any additional
Common Shares that may be issued by the Company at a subsequent date. The Common
Shares will, when issued, be fully paid and nonassessable.
The Registrar and Transfer Agent for the Common Shares is The Harris Trust
and Savings Bank.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to continue to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), (i) not more than 50% of the value of its
outstanding Shares may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year and (ii) the Shares must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year and certain other requirements must
be satisfied.
To assure that five or fewer individuals do not own more than 50% of the
value of the Company's outstanding Shares, the Declaration of Trust, subject to
certain exceptions, provides that no holder (other than (i) Herbert Glimcher and
David J. Glimcher and (ii) any other person approved by the Board of Trustees,
at their option and in their discretion, provided that such approval will not
result in the termination of the status of the Company as a REIT (collectively,
"Excepted Persons")) may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 8% (the "Ownership Limit") of the lesser of
the number or value (in either case as determined in good faith by the Board of
Trustees) of the total outstanding Shares. The Articles Supplementary for any
series of Preferred Shares will provide, subject to certain exceptions, that no
holder (other than any Excepted Person) may own, or be deemed to own by virtue
of the attribution provisions of the attribution provisions of the Code, more
than 8% (the "Preferred Shares Ownership Limit", and together with the Ownership
Limit, the "Ownership Limits") of the lesser of the number or the value (in
either case as determined in good faith by the Board of Trustees) of the total
outstanding Preferred Shares. The Board of Trustees may also waive either of the
Ownership Limits if evidence satisfactory to the Board of Trustees and the
Company's tax counsel is presented, that such ownership will not then or in the
future jeopardize the Company's status as a REIT. As a condition of such waiver,
the intended transferee must give written notice to the Company of the proposed
transfer and must furnish such opinions of counsel, affidavits, undertakings,
agreements and information as may be required by the Board of Trustees no later
than the 15th day prior to any transfer which, if consummated, would result in
the intended transferee owning Shares in excess of either of the Ownership
Limits. The limitation on owner of Common Shares owned, directly or indirectly,
by Messrs. Herbert Glimcher and David J. Glimcher is an aggregate of 25% of the
lesser of the number or value of the outstanding Shares.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determine that it is no longer in the best interests of
the Company to attempt to qualify, or to continue to
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qualify, as a REIT. The Ownership Limits will not be automatically removed 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. In addition to preserving the Company's status as a REIT, the
Ownership Limits may delay, defer or prevent a change of control of the Company
that might involve a premium price for the Shares or otherwise be in the best
interest of the shareholders. Any change in the Ownership Limits would require
an amendment to the Declaration of Trust.
Any transfer or issuance of Shares or any security convertible into Shares
that would (i) create a direct or indirect ownership of Shares in excess of
either of the Ownership Limits, (ii) with respect to transfers only, result in
Shares being owned by fewer than 100 persons or (iii) result in the Company
being "closely held" within the meaning of Section 856(h) of the Code, shall be
null and void, and the intended transferee will acquire no rights to the Shares.
The Declaration of Trust provides that the Company, by notice to the holder
thereof, may purchase any or all Shares (the "Excess Shares") that are proposed
to be transferred pursuant to a transfer which, if consummated, would result in
the intended transferee owning Shares in excess of the Ownership Limit or would
otherwise jeopardize the REIT status of the Company. The Articles Supplementary
for any series of Preferred Shares will provide that the Company, by notice to
the holder thereof, may purchase any or all Preferred Shares (the "Excess
Preferred Shares") that are proposed to be transferred pursuant to a transfer
which, if consummated, would result in the intended transferee owning Preferred
Shares in excess of the Preferred Shares Ownership Limit or would otherwise
jeopardize the REIT status of the Company. The purchase price of any Excess
Shares or Excess Preferred Shares, as the case may be, shall be equal to the
fair market value of such Shares reflected in the closing sales price for the
Shares, if then listed on a national securities exchange, or such price for the
Shares on the principal exchange if then listed on more than one national
securities exchange, or, if the Shares are not then listed on a national
securities exchange, the latest bid quotation for the Shares if then traded
over-the-counter, or, if such quotation is not available, the fair market value
as determined by the Board of Trustees in good faith, on the last trading day
immediately preceding the day on which notice of such proposed purchase is sent
by the Company. From and after the date fixed for purchase by the Board of
Trustees, the holder of such Shares to be purchased by the Company shall cease
to be entitled to distributions, voting rights and other benefits with respect
to such Shares except the right to payment of the purchase price for the Shares.
Any distribution paid to a proposed transferee on Excess Shares or Excess
Preferred Shares prior to the discovery by the Company that such Shares have
been transferred in violation of the provisions of the Declaration of Trust or
Articles Supplementary shall be repaid to the Company upon demand. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulation, then the intended transferee
of any Excess Shares or Excess Preferred Shares shall be deemed, at the option
of the Company, to have acted as an agent on behalf of the Company in acquiring
such Excess Shares or Excess Preferred Shares and to hold such Excess Shares or
Excess Preferred Shares on behalf of the Company.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% in number or value of the outstanding (i) Shares or (ii)
Preferred Shares must give a written notice to the Company containing the
information specified in the Declaration of Trust or Articles Supplementary, as
the case may be, by January 30 of each year. In addition, each shareholder shall
upon demand be required to disclose to the Company in writing such information
with respect to the direct, indirect and constructive ownership of Shares as the
Board of Trustees deem necessary to comply with the provisions of the Code
applicable to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
These ownership limitations may have the effect of precluding acquisition
of control of the Company unless the Board of Trustees determine that
maintenance of REIT status is no longer in the best interests of the Company.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Preferred Shares or
Common Shares. Warrants may be issued independently or together with any Offered
Securities and may be attached to or separate from
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such securities. Each series of Warrants will be issued under a separate warrant
agreement (each a "Warrant Agreement") to be entered into between the Company
and a warrant agent ("Warrant Agent"). The Warrant Agent will act solely as an
agent of the Company in connection with the Warrants of such series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby. Further terms of the Warrants and
the applicable Warrant Agreement will be set forth in the applicable Prospectus
Supplement.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered:
(1) the title of such Warrants;
(2) the aggregate number of such Warrants;
(3) the price or prices at which such Warrants will be issued;
(4) the currencies in which the price of such Warrants may be payable;
(5) the designation, aggregate principal amount and terms of the
securities purchasable upon exercise of such Warrants;
(6) the designation and terms of the Offered Securities with which
such Warrants are issued and the number of such Warrants issued with each
such security;
(7) the currency or currencies, including composite currencies, in
which the principal of or any premium or interest on the securities
purchasable upon exercise of such Warrants will be payable;
(8) if applicable, the date on and after which such Warrants and the
related securities will be separately transferable;
(9) the price at which and currency or currencies, including composite
currencies, in which the securities purchasable upon exercise of such
Warrants may be purchased;
(10) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire;
(11) the minimum or maximum amount of such Warrants which may be
exercised at any one time;
(12) information with respect to book-entry procedures, if any;
(13) a discussion of certain Federal income tax considerations; and
(14) any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), governing the Federal income tax
treatment of a REIT and of certain Federal tax considerations relevant to the
purchase, ownership and disposition of Common Shares, Preferred Shares and
Warrants and is not tax advice. These provisions are highly technical and
complex, and this summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative and
judicial interpretations thereof. Moreover, this summary is directed to
prospective purchasers who will hold Common Shares, Preferred Shares and
Warrants as capital assets and does not deal with all tax aspects that might be
relevant to a particular prospective shareholder in light of his personal
circumstances; nor does it deal with particular types of shareholders that are
subject to special treatment under the Code, such as tax-exempt organizations,
insurance companies, financial institutions, foreign taxpayers and
broker-dealers.
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The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code, current administrative interpretations and practices of the IRS (including
its practices and policies as endorsed in private letter rulings, which are not
binding on the IRS except with respect to a taxpayer that receives such a
ruling), and court decisions, all as of the date hereof. The Taxpayer Relief Act
of 1997 (the "1997 Act") was enacted on August 5, 1997. The 1997 Act contains
many provisions which generally make it easier to operate and to continue to
qualify as a REIT for taxable years beginning after the date of enactment
(which, for the Company, would be applicable commencing with its taxable year
beginning January 1, 1998). No assurance can be given that future legislation,
Treasury Regulations, administrative interpretations and court decisions will
not significantly change the current law or adversely affect existing
interpretations of current law. Any such change could apply retroactively to
transactions preceding the date of the change.
EACH PROSPECTIVE PURCHASER OF THE COMMON SHARES, PREFERRED SHARES AND/OR
WARRANTS IS ADVISED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO HIS SPECIFIC
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND SALE OF COMMON SHARES, PREFERRED SHARES AND/OR WARRANTS AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
FEDERAL INCOME TAXATION OF THE COMPANY
General
The Company elected to be taxed as a REIT under Sections 856 and 860 of the
Code, commencing with its taxable year ended December 31, 1994. In the opinion
of Robinson Silverman Pearce Aronsohn & Berman LLP, commencing with the
Company's taxable year ended December 31, 1994, the Company was organized in
conformity with the requirements for qualification as a REIT, and its method of
operation enabled it to meet the requirements for qualification and taxation as
a REIT under the Code. The Company intends to continue to operate in a manner
that will enable it to qualify for taxation as a REIT, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified. It
must be emphasized that this opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters. In addition, this opinion is based upon the factual representations
made by the management of the Company concerning its business and properties.
Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet, through actual annual operating results, distribution levels,
diversity of stock ownership, and the various other qualification tests imposed
under the Code discussed below, the results of which have not and will not be
reviewed by Robinson Silverman Pearce Aronsohn & Berman LLP. Accordingly, no
assurance can be given that the actual results of the Company's operation for
any one taxable year will satisfy such requirements. See "Federal Income Tax
Considerations--Failure to Qualify as a Real Estate Investment Trust."
If the Company qualifies for tax treatment as a REIT, it will generally not
be subject to Federal corporate taxation on its net income to the extent
currently distributed to its shareholders. This substantially eliminates the
"double taxation" (at both the corporate and stockholder levels) that typically
results from the use of corporate investment vehicles.
The Company will be subject to Federal income tax, however, as follows:
First, the Company will be taxed at regular corporate rates on its undistributed
REIT taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference to the extent that tax exceeds its regular
tax. Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, any net income that the Company has from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business and, effective for the Company's taxable year ending December
31, 1998, other than dispositions of property that occur due to an involuntary
conversion) will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy either the
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75% or 95% gross income tests (as discussed below), and has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which the Company fails the
75% or 95% test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company fails to distribute during each year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from preceding periods, the Company will be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed. Seventh, if the Company acquires any asset from a C corporation
(i.e., generally a corporation subject to full corporate-level tax) in a
transaction in which the basis of the asset in the Company's hands is determined
by reference to the basis of the asset (or any other property) in the hands of
the C corporation (or if a REIT such as the Company holds such an asset
beginning on the first day of the first taxable year for which the Company
qualifies as a REIT), and the Company recognizes gain on the disposition of such
an asset during the 10-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company (or the date the Company
first qualified as REIT), then, pursuant to guidelines issued by the Internal
Revenue Service ("IRS"). The excess of the fair market value as of the beginning
of the applicable Recognition Period over the Company's adjusted basis in such
asset as of the beginning of such Recognition Period will be subject to tax at
the highest regular corporate rate.
Requirements for Qualification
A REIT is defined in the Code 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) not more than 50% in value of the outstanding stock of which is
owned during the last half of each taxable year, directly or indirectly, by or
for five or fewer individuals (as defined in the Code to include certain
entitles); and (7) which meets certain income and asset tests described below.
Conditions (1) to (4), inclusive, must be met during the entire taxable year and
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 then 12 months.
The Company has represented that it has satisfied the requirements set
forth above. In addition, the Declaration of Trust provides restrictions
regarding the transfer of the Company's shares which are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
(5) and (6) above. Such transfer restrictions are described in "Description of
Shares of Beneficial Interest--Restrictions on Transfer."
Pursuant to the 1997 Act, for the Company's taxable years commencing on and
after January 1, 1998, if the Company complies with regulatory rules pursuant to
which it is required to send annual letters to certain of its shareholders
requesting information regarding the actual ownership of its stock, but does not
know, or exercising reasonable diligence would not have known, whether it failed
to meet the requirement that it not be closely held, the Company will be treated
as having met the requirement described in (6) above. If the Company were to
fail to comply with these regulatory rules for any year, it would be subject to
a $25,000 penalty. If the Company's failure to comply was due to intentional
disregard of the requirements, the penalty is increased to $50,000. However, if
the Company's failure to comply was due to reasonable cause and not willful
neglect, no penalty would be imposed.
Ownership of a Partnership Interest
In the case of a REIT that is a partner in a partnership, treasury
regulations promulgated under the Code ("Treasury Regulations") provide that the
REIT is deemed to own its proportionate share of the assets of the partnership
and is 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 retain the same character in the hands of the REIT for purposes of
the REIT qualification tests, including satisfying the gross income tests and
the asset tests. Accordingly, the Company's proportionate share of the assets,
liabilities, and items of income of
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the Operating Partnership will be treated as assets, liabilities, and items of
income of the Company for purposes of applying the requirements described
herein, provided that such partnership is treated as a partnership for federal
income tax purposes and is not taxable as a corporation for federal income tax
purposes.
Income Tests
There are three percentage tests relating to the sources of the Company's
gross income that the Company must satisfy annually to maintain its
qualification as a REIT. First, at least 75% of the Company's gross income
(excluding gross income from certain sales of property held primarily for sale
and from discharge of indebtedness) must be directly or indirectly derived each
taxable year from investments relating to real property or mortgages on real
property or certain temporary investments. Second, at least 95% of the Company's
gross income (excluding gross income from certain sales of property held
primarily for sale and from discharge of indebtedness) must be directly or
indirectly derived each taxable year from any of the sources qualifying from the
75% test and from dividends, interest, and from the sale or disposition of stock
or securities. Third, in each taxable year short-term gains from sales of stock
or securities, gains from sales of property (other than foreclosure property)
held primarily for sale and gains from the sale or other taxable disposition of
real property held for less than four years (other than from involuntary
conversions and foreclosure property) must represent less than 30% of the
Company's gross income. However, the 1997 Act repeals the 30% gross income test
effective for the Company's taxable year beginning January 1, 1998. As discussed
earlier (see "Ownership of a Partnership Interest"), in applying these tests, if
the Company invests in a partnership, such as the Operating Partnership, the
Company will be treated as realizing its share of the income and bearing its
share of the loss of the partnership, and the character of such income or loss,
as well as other partnership items, will be determined at the partnership level.
With respect to the 30% of gross income limitation on gains from sales of
real properties, the Company has disposed of certain real properties in 1996 and
1997. However, the total amount of gain recognized on those dispositions was not
material and the 30% limitation was satisfied in 1996 (and is expected to be
satisfied in 1997). Furthermore, with respect to the tax on prohibited
transactions described above, the Company believes that none of those sales were
subject to such tax.
Rents received by the Company will qualify as "rents from real property"
for purposes of satisfying the gross income tests for a REIT only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person, although rents generally will not
be excluded merely because they are based on a fixed percentage of receipts or
sales. Second, rents received from a tenant will not qualify as "rents from real
property" if the REIT, or an owner of 10% or more of the REIT, also directly or
constructively owns 10% or more of such tenant. Third, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to the tenants of such property, other than through an independent contractor
from whom the REIT derives no income; provided, however, the Company may
directly perform certain services customarily furnished or rendered in
connection with the rental of real property in the geographic area in which the
property is located other than services which are considered rendered to the
occupant of the property. The Company will, in a timely manner, hire independent
contractors from whom it derives no revenue to perform such services. The
Company has represented that each of the above requirements has been satisfied.
In addition, for its 1998 taxable year and thereafter, the Company is permitted
to receive up to 1% of the gross income from each property from the provision of
non-customary services and still treat all other amounts received from such
property as "rents from real property."
The term "interest" generally does not include any amount if the
determination of such amount depends in whole or in part on the income or
profits of any person, although an amount generally will not be excluded from
the term "interest" solely by reason of being based on a fixed percentage of
receipts or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is eligible for relief under certain provisions of the Code.
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These relief provisions will be generally available if the Company's failure to
meet such tests was due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not now possible to determine the circumstances under which the
Company may be entitled to the benefit of these relief provisions. If these
relief provisions apply, a 100% tax is imposed on the net income attributable to
the greater of the amount by which the Company failed the 75% test or the 95%
test.
Asset Tests
At the close of each quarter of its taxable year, the Company, in order to
qualify as a REIT, must also satisfy several tests relating to the nature and
diversification of its assets. First, at least 75% of the value of the Company's
total assets must be represented by real estate assets, cash, cash items
(including receivables arising in the ordinary course of the Company's
operation) and government securities. In addition, not more than 25% of the
Company's total assets may be represented by securities other than those
includible in the 75% asset class. Moreover, of the investments included in the
25% asset class, the value of any one issuer's securities owned by the Company
may not exceed 5% of the Company's total assets. Finally, of the investments
included in the 25% asset class, the Company may not own more than 10% of any
one issuer's outstanding voting securities.
Annual Distribution Requirements
The Company, in order to qualify as a REIT, is required to make
distributions (other than capital gain dividends) to its shareholders in an
amount at least equal to (A) the sum of (i) 95% of the Company's "REIT taxable
income" (computed without regard to the dividends paid deduction and the
Company's net capital gain) and (ii) 95% of the after tax net income, if any,
from foreclosure property, minus (B) the sum of certain items of non-cash
income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
distribution payment after such declaration. To the extent that the Company does
not distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular corporate tax rates. Finally, as discussed above, the Company
may be subject to an excise tax if it fails to meet certain other distribution
requirements. The Company intends to make timely distributions sufficient to
satisfy these annual distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement, or to
distribute such greater amount as may be necessary to avoid income and excise
taxation, due to, among other things, (a) timing differences between (i) the
actual receipt of income and actual payment of deductible expenses and (ii) the
inclusion of such income and deduction of such expenses in arriving at taxable
income of the Company, or (b) the payment of severance benefits that may not be
deductible to the Company. In the event that such timing differences occur, the
Company may find it necessary to arrange for borrowings or, if possible, pay
taxable stock dividends in order to meet the distribution requirement.
In the event of a deficiency determined by the IRS, the Company may be able
to rectify a resulting failure to meet the distribution requirement for a year
by paying "deficiency dividends" to shareholders in a later year, which may be
included in the Company's deduction for distributions paid for the earlier year.
Thus, although the Company may be able to avoid being taxed on amounts
distributed as deficiency distributions, it will be required to pay interest
based upon the amount of any deduction taken for deficiency distributions.
FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
The Company's election to be treated as a REIT will be automatically
terminated if the Company fails to meet the requirements described above and is
ineligible for relief from such failure. In that event, the Company will be
subject to tax (including any applicable corporate alternative minimum tax) on
its taxable income at regular corporate rates, and distributions to shareholders
will not be deductible by the Company. Also, in that event, all distributions to
shareholders will be taxable as ordinary income to the extent of current
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and accumulated earnings and profits and, subject to certain limitations of the
Code, will be eligible for the 70% dividends received deduction for corporate
shareholders (although special rules apply in the case of any "extraordinary
dividend" as defined in Code Section 1059). The Company will not be eligible
again to elect REIT status until the fifth taxable year which begins after the
year for which the Company's election was terminated unless the Company did not
willfully fail to file a timely return with respect to the termination taxable
year, inclusion of incorrect information in such return was not due to fraud
with intent to evade tax, and the Company establishes that failure to meet the
requirement was due to reasonable cause and not willful neglect. Failure to
qualify for even one year could result in the Company incurring substantial
indebtedness (to the extent borrowings are feasible) or liquidating substantial
investments in order to pay the resulting taxes.
FEDERAL INCOME TAXATION OF SHAREHOLDERS
General
As long as the Company qualifies for taxation as a REIT, distributions with
respect to Common Shares, Preferred Shares or Common Shares acquired in
conversion of any convertible Preferred Shares (collectively "Shares") made out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be includible by the shareholders as ordinary income for
Federal income tax purposes. For this purpose, the current and accumulated
earnings and profits of the Company will be allocated first to distributions
with respect to Preferred Shares and then to distributions with respect to
Common Shares. None of these distributions will be eligible for the dividends
received deduction for corporate shareholders. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the shareholder has held his
shares. It is not clear under the 1997 Act whether, for a U.S. shareholder who
is an individual or an estate or trust, such amounts will be taxable at the rate
applicable to mid-term capital gain (i.e., gains from the sale of capital assets
held for more than one year but not more than 18 months) or at the rate
applicable to long-term capital gains (i.e., gains from the sale of capital
assets held for more than 18 months). This uncertainty may be clarified by
future legislation or regulation. Corporate shareholders may be required to
treat up to 20% of certain capital gain dividends as ordinary income.
The 1997 Act provides that, beginning with the Company's taxable year
ending December 31, 1998, if the Company elects to retain and pay income tax on
any net long term capital gain, domestic shareholders of the Company would
include in their income as long term capital gain their proportionate share of
such net long term capital gain. A domestic shareholder would also receive a
refundable tax credit for such shareholder's proportionate share of the tax paid
by the Company on such retained capital gains and an increase in its basis in
the shares of the Company in an amount equal to the shareholder's includible
capital gains less its share of the tax deemed paid.
Distributions in excess of current or accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Shares. Shareholders will be required to
reduce the tax basis of their Shares by the amount of such distributions until
such basis has been reduced to zero, after which such distributions will be
taxable as capital gain (ordinary income in the case of a shareholder who holds
his Shares as a dealer). The tax basis as so reduced will be used in computing
the capital gain or loss, if any, realized upon sale of the Shares. Any loss
upon a sale or exchange of Shares by a shareholder who held such Shares for six
months or less (after applying certain holding rules) will generally be treated
as a long-term capital loss to the extent such shareholder previously received
capital gain distributions with respect to such Shares.
Capital gain realized by the Company on the sale of its assets generally
will equal the difference between the sale price and the Company's tax basis in
the asset sold. This initial tax basis will be subsequently reduced by annual
depreciation deductions. Inasmuch as the initial contribution of certain
properties (the "Contributed Properties") was not fully taxable, the Operating
Partnership's initial basis in each of the Contributed Properties, as such basis
may be adjusted, is at least equal to the transferors' basis in the Contributed
Properties immediately prior to the transactions, which is a lower basis than
had such properties been
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purchased from the transferors thereof in a fully taxable transaction. However,
by reason of certain partnership allocation provisions, this lower initial tax
basis should not result in a greater taxable gain to the Company than would have
been the case if the Contributed Properties had been purchased by the Company in
a fully taxable transaction. See "Tax Aspects of the Operating Partnership and
the Subsidiary Partnerships--Income Taxation of the Operating Partnership and
Its Partners--Tax Allocations with Respect to Contributed Properties" and
"--Sale of the Operating Partnership's Property." Additionally, such lower
initial tax basis may result in lower aggregate depreciation deductions over the
lives of the Properties than if the Company had purchased the Contributed
Properties in a fully taxable transaction; however, by reason of certain
partnership allocation provisions, the Company may be entitled to greater
depreciation deductions in the initial years following the formation of the
Company. Depreciation deductions reduce taxable income and thus may effectively
increase the portion of distributions which would represent a non-taxable return
of capital.
Shareholders may not include in their individual Federal income tax returns
any net operating losses or capital losses of the Company. In addition, any
distribution declared by the Company in October, November or December of any
year payable to a shareholder of record on a specified date in any such month
shall be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company no later than January 31 of the following year. The Company may be
required to withhold a portion of capital gain distributions to any shareholders
who fail to certify their non-foreign status to the Company.
The IRS has ruled that if a REIT's dividend reinvestment plan allows
shareholders of the REIT to elect to have cash distributions reinvested
automatically in shares of the REIT at a purchase price equal to at least 95% of
fair market value on the distribution date, then such cash distributions qualify
under the 95% distribution test described above at "Federal Income Taxation of
the Company--Annual Distribution Requirements." Under the terms of the Company's
Distribution Reinvestment and Share Purchase Plan (the "Purchase Plan"), shares
are generally thereunder acquired at 100% of fair market value without a
discount. Thus, distributions reinvested under the Purchase Plan will count
towards satisfying the 95% distribution test. Shareholders should be aware that
amounts of dividends reinvested pursuant to the Purchase Plan will be taxable
income to them, regardless of the fact that such dividends have been reinvested
with the Company (i.e., the tax is not deferred until the shares received from
participation in the Purchase plan are sold or disposed of).
Conversion of Convertible Preferred Shares into Common Shares
No gain or loss will be recognized to a shareholder upon conversion of any
convertible Preferred Shares solely into shares of Common Shares. However, gain
realized upon the receipt of cash paid in lieu of fractional shares of Common
Shares will be taxed immediately to a converting shareholder. Except to the
extent of cash paid in lieu of fractional shares of Common Shares, the adjusted
tax basis for the shares of Common Shares received upon the conversion will be
equal to the adjusted tax basis of any convertible Preferred Shares converted,
and the holding period of the shares of Common Shares will include the holding
period of any convertible Preferred Shares converted. A holder of any
convertible Preferred Shares may recognize gain or dividend income to the extent
there are dividends in arrears on such shares at the time of conversion into
Common Shares.
Adjustment of Conversion Price
Section 305(c) of the Code and the Treasury Regulations thereunder treat as
a dividend certain constructive distributions of shares with respect to
Preferred Shares. The operation of the conversion price adjustment provisions of
any convertible Preferred Shares, or the failure to adjust fully the conversion
price for any convertible Preferred Shares to reflect a distribution of shares,
share warrants or share rights with respect to the Common Shares, or a reverse
share split, may result in the deemed receipt of a dividend by the holders of
any convertible Preferred Shares or the Common Shares if the effect is to
increase such holders' proportionate interests in the Company. However,
adjustments to reflect nontaxable share splits or distributions of shares, share
warrants or share rights will, generally, not be so treated. Any such
constructive
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dividends may constitute (and cause other dividends to constitute) extraordinary
dividends to corporate holders.
Redemption of Preferred Shares
If the redemption price of Preferred Shares that is subject to optional
redemption by the Company exceeds its issue price, and if such excess is not
considered "reasonable", the entire amount of the redemption premium will be
treated as being distributed to the holder of such shares, on an economic
accrual basis, over the period from issuance of such shares until the date the
shares is first redeemable. In this respect, the regulations provide as a safe
harbor that a redemption premium not in excess of ten percent of the issue price
of shares which is not redeemable for five years from the date of issue is
considered reasonable for this purpose. Even if the precise tests of the safe
harbor cannot be met, however, a call premium will be regarded as reasonable if
such premium is in the nature of a penalty for a premature redemption of the
Preferred Shares and such premium does not exceed the amount the issuer would be
required to pay for the right to make such premature redemption under the market
conditions existing at the time of issuance.
Gain or loss recognized by a holder on a redemption of Preferred Shares
will be treated as a gain or loss from the sale or exchange of the Preferred
Shares (see "Other Disposition" below), if, taking into account shares that are
actually or constructively owned under the rules of Code Section 318 by such
holder, either (i) the holder's interest in Common Shares and Preferred Shares
is completely terminated as a result of the redemption, (ii) the redemption is
"substantially disproportionate" with respect to the holder or (iii) the
redemption is "not essentially equivalent to a dividend". Whether a redemption
is not essentially equivalent to a dividend depends on each holder's facts and
circumstances, but in any event, requires a "meaningful reduction" in such
holder's interest in the Company.
If none of the above conditions is satisfied, the entire amount of the cash
received on a redemption of the Preferred Shares will be treated as a
distribution taxable as a dividend (to the extent of the Company's current and
accumulated earnings and profits). The holder's basis in the redeemed Preferred
Shares would, in such case, be transferred to the holder's remaining shares of
the Company (if any).
Other Disposition
Upon the sale or exchange of Shares to or with a person other than the
Company or a sale or exchange of Shares with the Company to the extent not
taxable as a dividend, a holder will recognize capital gain or loss equal to the
difference between the amount realized on such sale or exchange and the holder's
adjusted tax basis in such shares. Any capital gain or loss recognized will
generally be treated as long-term capital gain or loss if the holder held such
Shares for more than one year. For this purpose, the period for which any
convertible Preferred Shares was held would be included in the holding period of
any Common Shares received upon conversion thereof.
Warrants
A holder generally will not recognize income or loss upon the acquisition
of a Warrant. A holder who receives shares upon the exercise of a Warrant should
not recognize gain or loss except to extent of any cash received for fractional
shares. Such a holder would have a tax basis in the shares acquired pursuant to
a Warrant equal to the amount of the purchase price allocated to the Warrant
plus the amount paid for the shares pursuant to the Warrant. The holding period
for the shares acquired pursuant to a Warrant would begin on the date of
exercise. Upon the subsequent sale the shares acquired pursuant to a Warrant or
upon a sale of a Warrant, the holder thereof would generally recognize capital
gain or loss in an amount equal to the difference between the amount realized on
the sale and its tax basis in such shares or Warrant, as the case may be. Such
gain or loss would be long-term capital gain or loss if the holding period for
the shares or Warrant sold is more than one year on the date of sale. The
foregoing assumes that Warrants will not be held as a hedge, straddle or as a
similar offsetting position with respect to shares of the Company and that Code
Section 1092 will not apply.
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Backup Withholding and Information Reporting
A noncorporate holder of Shares who is not otherwise exempt from backup
withholding may be subject to backup withholding at the rate of 31% with respect
to dividends paid on, or the proceeds of a sale, exchange or redemption of, any
Shares. Generally, backup withholding applies only when the taxpayer (i) fails
to furnish or certify his correct taxpayer identification number to the payor in
the manner requested, (ii) is notified by the IRS that he has failed to report
payments of interest or dividends properly, or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that he
is subject to backup withholding for failure to report interest or dividend
payments. Any amounts withheld under the backup withholding rules from a payment
to a holder will be allowed as a credit against the holder's federal income tax
liability or as a refund, provided that the required information is furnished to
the IRS. Holders should consult their own tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining any applicable exemption.
Foreign Shareholders
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of Federal, state and local income tax laws with regard to an
investment in Shares, including any reporting requirements, as well as the tax
treatment of such an investment under their home country laws.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gain 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 ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
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. Shareholder's conduct of a United States trade or business, the
Non-U.S. Shareholder generally will be subject to a tax at graduated rates, in
the same manner as U.S. Shareholders are taxed with respect to such dividends
(and may also be subject to the 30% branch profits tax in the case of a
shareholder that is a foreign corporation). The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends paid to a Non-U.S. Shareholder unless (i) a lower treaty rate applies
or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is effectively connected income. Distributions in
excess of current and accumulated earnings and profits of the Company will not
be taxable to a shareholder to the extent that they do not exceed the adjusted
basis of the shareholder's Shares, but rather will reduce the adjusted basis of
such Shares. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Shareholder's Shares, they will give rise to tax liability if the
Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale
or disposition of his Shares in the Company, 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 Company.
For any year in which the Company 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. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a United States
business. Non-U.S. Shareholders would thus be taxed at the normal capital gain
rates applicable to U.S. shareholders (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 shareholder not entitled
to treaty exemption. The Company is required to withhold 35% of any distribution
that could be designated by the
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Company as a capital gain dividend. This amount is creditable against the
Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares generally
will not be taxed under FIRPTA if the Company 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 Company will
be a "domestically controlled REIT," and therefore the sale of Shares will not
be subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if (i) investment in the Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is
a nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, 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. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals) and the purchaser of the Shares would be required
to withhold and remit to the IRS 10% of the purchase price.
Tax-Exempt Shareholders
Dividends from the Company to a tax-exempt employee pension trust or other
domestic tax-exempt shareholder generally will not constitute "unrelated
business taxable income" ("UBTI") unless the shareholder has borrowed to acquire
or carry its Shares. Qualified trusts that hold more than 10% (by value) of the
shares of certain REITs, however, 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 as such 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 by
qualified trusts if either (i) a single qualified trust holds more than 25% by
value of the interests in the REIT or (ii) one or more qualified trusts, each
owning more than 10% by value of the interests in the REIT, hold in the
aggregate more than 50% of the interests in the REIT. 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 of the REIT. A de minimis exception
applies where the percentage is less than 5% for any year. For these 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.
TAX RISKS OF THE COMPANY'S OWNERSHIP INTEREST IN THE OPERATING PARTNERSHIP
All of the Company's investments are through the Operating Partnership,
which in turn will hold interests in the Subsidiary Partnerships. The ownership
of these partnership interests may involve special tax risks for the Company.
Such risks include possible challenge by the IRS of allocations of income and
expense items which could affect the computation of taxable income of the
Company, or a challenge to the status of the partnerships as partnerships (as
opposed to associations taxable as corporations) for income tax purposes, as
well as the possibility of action being taken by the Company's partners or by
the partnerships that could adversely affect the Company's qualification as a
REIT, for example, by requiring the sale of a property. If any of the Operating
Partnership or any other partnership (as similarly taxed entity) were treated as
an association, such partnership (or entity) would be taxable as a corporation,
with the consequences, among others, that if the Company's ownership interest in
any of such partnerships (or entities) exceeded 10% of such partnership's (or
entity's) voting interests or the value of such interest exceeded 5% of the
value of the Company's assets, the Company would cease to qualify as a REIT;
distributions from any of such partnerships (or entities) to the Company would
be treated as dividends and the Company would not be able to deduct its
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share of losses, if any, generated by any of such partnerships (or entities) in
computing its taxable income. See "Federal Income Tax Considerations."
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE SUBSIDIARY PARTNERSHIPS
The following discussion summarizes certain Federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership and the Subsidiary Partnerships and the Operating Partnership's
investment in the Subsidiary Partnerships. (The Operating Partnership and the
Subsidiary Partnerships are sometimes collectively referred to herein
individually as a "Partnership" and collectively as the "Partnerships".) The
discussion does not cover state or local tax laws or any Federal tax laws either
than income tax laws.
Classification
In general, a partner of a partnership is entitled to include in its income
its distributive share of the income and to deduct its distributive share of the
losses of the partnership only if the partnership is classified for Federal
income tax purposes as a partnership rather than as an association taxable as a
corporation.
An organization formed as a partnership will be treated as a partnership
for Federal income tax purposes rather than as a corporation if it (i) is an
association and is not described in Treasury Regulations Sections
301.7701-2(b)(1), (3), (4), (5), (6), (7) or (8), (ii) has two or more members,
and (iii) does not elect to be classified for Federal income tax purposes as a
corporation. In the opinion of Robinson Silverman Pearce Aronsohn & Berman LLP,
based on certain representations of the Company, each Partnership qualifies as a
partnership (as opposed to an association taxable as a corporation) for Federal
income tax purposes.
If any of the Operating Partnership or any other partnership (as similarly
taxed entity) were treated as an association taxable as a corporation, such
partnership (or entity) would be taxable as a corporation with the consequences,
among others, that if the Company's ownership interest in any of such
partnerships (or entities) exceeded 10% of such partnership's (or entity's)
voting interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT; distributions
from any of such partnerships (or entities) to the Company would be treated as
dividends, and the Company would not be able to deduct its share of losses, if
any, generated by any of such partnerships (or entities) in computing its
taxable income. See "Federal Income Taxation of the Company--General", and
"--Income Tests" and "--Asset Tests" above for a discussion of the effect of the
Company's failure to meet such tests for a taxable year.
Income Taxation of the Operating Partnership and Its Partners
A partnership is not a taxable entity for Federal income tax purposes.
Rather, the Company, in the case of each of the Partnerships (and the Operating
Partnership, in the case of the Subsidiary Partnerships), will be required to
take into account its allocable share of the income, gains, losses, deductions,
and credits for any taxable year of such Partnership ending within or with the
taxable year of such partner, without regard to whether such partner has
received or will receive any distribution from such Partnership.
Partnership Allocations
Although a partnership agreement will generally determine the allocation of
income and losses among partners, such allocations will be disregarded for tax
purposes under Section 704(b) of the Code if they do not comply with the
provisions of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
If an allocation is not recognized for Federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partner's interest in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss of each of the Partnerships generally are in
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accordance with its partners' respective percentage interests and are intended
to comply with the requirements of Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.
Tax Allocations with Respect to Contributed Properties
Pursuant to Section 704(c) of the Code, items of 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 for Federal income tax purposes in a manner such that the
contributor is charged with, or benefits from, 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. The partnership agreement of the Operating Partnership requires
allocations of income, gain, loss, and deduction attributable to such
contributed property to be made in a manner that is consistent with Section
704(c) of the Code using the equivalent of the "traditional method" described in
Treasury Regulations Section 1.704-3(b).
Depreciation
Section 704(c) of the Code requires that depreciation as well as gain and
loss be allocated in a manner so as to take into account the variation between
the fair market value and tax basis of the property contributed. Accordingly,
depreciation on any property contributed to the Operating Partnership will be
allocated to its partners in a manner designed to reduce the difference between
such property's fair market value and its tax basis, using methods that are
intended to be consistent with statutory intent under Section 704(c) of the
Code. On the other hand, depreciation with respect to any property purchased by
the Operating Partnership (or the Subsidiary Partnerships) will generally be
allocated among the partners in accordance with their respective percentage
interests in the Operating Partnership (or the Subsidiary Partnerships).
As of the closing of the Initial Offering, the Operating Partnership
revalued its assets and restated the capital account of the partners to fair
market value pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f). As a
result, depreciation as well as gain and loss will again be allocated in such
manner so as to take into account the variation between fair market value and
tax basis pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(4). The
method used to allocate depreciation is intended to comply with the statutory
intent under Section 704(c) of the Code, and will be made in accordance with a
permissible method under the Treasury Regulations under Section 704(c) of the
Code.
Sale of the Operating Partnership Property
Generally, any gain realized upon a sale of the property held by any of the
Partnerships for more than one year will be long-term capital gain, except for
any portion of such gain that is treated as depreciation or cost recovery
recapture. Under Section 704(c) of the Code and the Treasury Regulations
governing the revaluation of the Operating Partnership's assets and the
restatement of its capital accounts to fair market value, any unrealized gain
attributable to appreciation in its property prior to the closing of the Initial
Offering ("Built-in-Gain") must, when recognized, be allocated to the partner
who contributed such property. Such Built-in-Gain would generally be equal to
the difference between the fair market value of the property upon the closing of
the Initial Offering and the adjusted tax basis of the Operating Partnership in
such property upon the closing of the Initial Offering. However, the Company
will not be allocated any Built-in-Gains by the Operating Partnership. In
addition, as described above and pursuant to the Code, depreciation will be
allocated to reduce the disparity between fair market value and tax basis with
respect to appreciated property contributed to the Partnership.
The Company's share of any gain realized by any of the Partnerships on the
sale of any property held by a Partnership as inventory or other property held
primarily for sale to customers in the ordinary course of its trade or business
will, however, be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. Such prohibited transaction income will also have
an adverse effect upon the Company's ability to satisfy the income tests for
REIT status. Under existing law, whether property is held as inventory or
primarily
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for sale to customers in the ordinary course of a trade or business is a
question of fact that depends on all the facts and circumstances with respect to
the particular transaction. Each of the Partnerships intends to hold its
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning, and operating similar properties
and to make such occasional sales as are consistent with its investment
objectives.
Partnership Anti-Abuse Regulations
Under the "Partnership Anti-Abuse Rules" contained in Treasury Regulations
Section 1.702-2, the IRS is authorized to recharacterize transactions involving
partnerships where the partnership has a principal purpose of reducing federal
tax labilities in a manner inconsistent with the intent of the partnership rules
contained in the Code. In Treasury Regulation Section 1.702-2(d), Example 4, the
IRS concluded under the facts described therein, that the use of a partnership
structure by a REIT was consistent with the intent of the partnership rules;
accordingly, recharacterization in that case was not appropriate. Thus, the
Partnership Anti-Abuse Rules should not affect the Company's ability to qualify
as a REIT.
STATE AND LOCAL TAXATION
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. Such state or local taxation may differ from the
Federal income tax treatment described above. Consequently, prospective
purchasers should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in the Company.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by the Company or may sell the Offered Securities to
investors directly or through agents. Any such underwriter or agent involved in
the offer and sale of the Offered Securities will be named in the applicable
Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Offered Securities for whom they may act
as agent. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act.
If so indicated in a Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers by certain institutional
investors to purchase Offered Securities of the series to which such Prospectus
Supplement relates providing for payment and delivery on a future date specified
in such
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<PAGE> 61
Prospectus Supplement. There may be limitations on the minimum amount which may
be purchased by any such institutional investor or on the portion of the
aggregate principal amount of the particular Offered Securities which may be
sold pursuant to such arrangements. Institutional investors to which such offers
may be made, when authorized, include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and such other institutions as may be approved by the Company. The
obligations of any such purchasers pursuant to such delayed delivery and payment
arrangements will not be subject to any conditions except that (i) the purchase
by an institution of the particular Offered Securities 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 particular Offered
Securities are being sold to underwriters, the Company shall have sold to such
underwriters the total principal amount of such Offered Securities or number of
Warrants less the principal amount or number thereof, as the case may be,
covered by such arrangements. Underwriters will not have any responsibility in
respect of the validity of such arrangements or the performance of the Company
or such institutional investors thereunder.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
ERISA MATTERS
The Company may be considered a "party in interest" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and a
"disqualified person" under corresponding provisions of the Code with respect to
certain employee benefit plans. Certain transactions between an employee benefit
plan and a party in interest or a disqualified person may result in "prohibited
transactions" within the meaning of ERISA and the Code, unless such transactions
are effected pursuant to an applicable exemption. Any employee benefit plan or
other entity subject to such provisions of ERISA or the Code proposing to invest
in the Offered Securities should consult with its legal counsel.
LEGAL MATTERS
Certain legal matters, including those described under "Federal Income Tax
Considerations", will be passed upon for the Company by Robinson Silverman
Pearce Aronsohn & Berman LLP, New York, New York. Robinson Silverman Pearce
Aronsohn & Berman LLP will rely on Ballard Spahr Andrews & Ingersoll, Baltimore,
Maryland, as to certain matters of Maryland law, including the legality of the
Offered Securities.
EXPERTS
The audited financial statements and schedule incorporated by reference in
this Prospectus and elsewhere in this Registration Statement to the extent and
for the periods indicated in their reports have been audited by Coopers &
Lybrand L.L.P., independent accountants, and are incorporated by reference
herein in reliance upon the authority of said firm as experts in giving said
reports.
Future financial statements of the Company and the reports thereon of
Coopers & Lybrand L.L.P. also will be incorporated by reference in this
Prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent said firm has audited those financial statements and
consented to the use of their reports thereon.
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======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS
CONSTITUTES AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Supplement Summary......... S-3
Risk Factors.......................... S-6
Recent Developments................... S-13
Use of Proceeds....................... S-18
Capitalization........................ S-19
Selected Consolidated Financial and
Other Data.......................... S-20
Management............................ S-21
Description of Series A-1 Preferred
Shares.............................. S-24
Description of Series B Preferred
Shares.............................. S-27
Underwriting.......................... S-34
Legal Matters......................... S-35
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 4
Ratios of Earnings to Combined Fixed
Charges and Preferred Share
Dividends........................... 4
Use of Proceeds....................... 5
Description of Shares of Beneficial
Interest............................ 5
Description of Warrants............... 12
Federal Income Tax Considerations..... 13
Plan of Distribution.................. 25
ERISA Matters......................... 26
Legal Matters......................... 26
Experts............................... 26
</TABLE>
======================================================
======================================================
4,800,000 SHARES
[GLIMCHER REALTY TRUST LOGO]
GLIMCHER REALTY TRUST
9 1/4% SERIES B CUMULATIVE REDEEMABLE
PREFERRED SHARES
OF BENEFICIAL INTEREST
-------------------------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PRUDENTIAL SECURITIES INCORPORATED
BT ALEX. BROWN
PAINEWEBBER INCORPORATED
NOVEMBER 12, 1997
======================================================
