<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
COMMISSION FILE NO. 333-22211
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN DECLARED +
+EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 415 OF +
+THE SECURITIES ACT OF 1933. A FINAL PROSPECTUS SUPPLEMENT AND PROSPECTUS WILL +
+BE DELIVERED TO PURCHASERS OF THESE SECURITIES. THIS PROSPECTUS SUPPLEMENT +
+AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL NOR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated August 4, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 12, 1997)
4,000,000 SHARES
[LOGO OF LIBERTY PROPERTY TRUST APPEARS HERE]
% SERIES A CUMULATIVE REDEEMABLE
PREFERRED SHARES OF BENEFICIAL INTEREST
LIQUIDATION PREFERENCE $25.00 PER SHARE
----------
Dividends on the % Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $0.001 per share (the "Series A Preferred
Shares"), of Liberty Property Trust (the "Company") are cumulative from the
date of original issue and are payable quarterly on or about the 30th day of
January, April, July and October of each year, commencing on October 30, 1997
at the rate of % per annum of the $25.00 liquidation preference (equivalent
to $ per share). See "Description of Series A Preferred Shares--Dividends."
Except in certain circumstances relating to the Company's qualification as a
real estate investment trust, the Series A Preferred Shares are not redeemable
prior to , 2002. On and after , 2002, the Series A 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 dividends, if
any, thereon to the redemption date. The redemption price (other than the
portion thereof consisting of accrued and unpaid dividends) shall be payable
solely from amounts derived from the sale proceeds of other shares of
beneficial interest of the Company, which may include other series of the
Company's preferred shares of beneficial interest, par value $0.001 per share
(the "Preferred Shares"). The Series A Preferred Shares have no stated maturity
and will not be subject to any sinking fund or mandatory redemption and will
not be convertible into any other securities of the Company. See "Description
of Series A Preferred Shares--Redemption."
Application has been made to list the Series A Preferred Shares on the New
York Stock Exchange (the "NYSE"), subject to official notice of issuance. If
approved for listing, trading of the Series A Preferred Shares on the NYSE is
expected to commence within a 30-day period after the initial delivery of the
Series A Preferred Shares. While the Underwriters have advised the Company that
they intend to make a market in the Series A 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 A Preferred Shares will
exist prior to commencement of trading. See "Underwriting."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT FOR A
DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SERIES A PREFERRED SHARES OFFERED HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE 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>
Price to Underwriting Proceeds to
Public(1) Discount(2) Company(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
- --------------------------------------------------------------------------------
Total(4).................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued dividends, 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, estimated at $494,000, which are payable by the
Company.
(4) The Company has granted the Underwriters an option to purchase up to an
additional 600,000 Series A Preferred Shares to cover over-allotments, if
any. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------
The Series A Preferred Shares offered hereby are offered by the Underwriters,
subject to prior sale, to withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to
certain further conditions. It is expected that delivery of the certificates
for the Series A Preferred Shares offered hereby will be made at the offices of
Lehman Brothers Inc., New York, New York on or about , 1997.
----------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
, 1997
<PAGE>
[LOGO OF LIBERTY PROPERTY TRUST APPEARS HERE]
================================================================================
[MAP OF EASTERN UNITED STATES APPEARS HERE]
================================================================================
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A
PREFERRED SHARES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN THE SERIES A PREFERRED SHARES, AND MAY BID FOR AND PURCHASE THE
SERIES A PREFERRED SHARES IN THE OPEN MARKET, IN CONNECTION WITH THIS OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION" IN THE
ACCOMPANYING PROSPECTUS.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus or
incorporated therein by reference. Except as otherwise indicated, the cross-
references in this Prospectus Supplement are to sections hereof. Liberty
Property Trust, a Maryland REIT (the "Company"), conducts substantially all of
its operations through Liberty Property Limited Partnership, a Pennsylvania
limited partnership (the "Operating Partnership"). Unless the context otherwise
requires, (i) as used in this Prospectus Supplement, the term "Company"
includes Liberty Property Trust, Liberty Property Limited Partnership and their
subsidiaries (and, where the context indicates, their predecessor entities,
Rouse & Associates, a Pennsylvania general partnership, and certain affiliated
entities (collectively, the "Predecessor")), and (ii) the information contained
in this Prospectus Supplement does not give effect to the consummation of the
offering of the Company's senior notes (the "Senior Notes") (see "Concurrent
Offerings") and assumes that the Underwriters' over-allotment option is not
exercised. This Prospectus Supplement contains and the accompanying Prospectus
contains or incorporates by reference 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"). The Company's actual results could differ
materially from those set forth in the forward-looking statements. See "Risk
Factors" for a discussion of certain factors that might cause such a
difference.
THE COMPANY
The Series A Preferred Shares offered hereby (the "Offering") are being
issued by the Company, a self-administered and self-managed Maryland real
estate investment trust (a "REIT") formed in 1994 whose common shares of
beneficial interest, par value $0.001 per share (the "Common Shares"), are
listed on the NYSE under the symbol "LRY." The Company is the sole general
partner and also a limited partner of the Operating Partnership. As of June 30,
1997, the Trust had a combined equity interest in the Operating Partnership of
89.76%.
The Company is one of the largest owners and operators of suburban industrial
and office real estate in the United States. The Company provides leasing,
property management, acquisition, development, construction management, design
management and other related services for a portfolio which, as of June 30,
1997, consisted of 216 industrial and 110 office properties totaling
approximately 26.4 million leasable square feet (collectively, the "Operating
Properties"). The Operating Properties were approximately 93.2% leased to over
1,100 tenants as of June 30, 1997. As of the same date, the Company also had 28
properties under development (the "Development Properties"), which are expected
to generate approximately 3.2 million leasable square feet. As of June 30,
1997, the Company also owned 943 acres of land, which the Company anticipates
is capable of supporting, as and when developed, approximately nine million
leasable square feet. The Operating Properties and the Development Properties
(collectively, the "Properties") and such land are located principally within
the Southeastern, Mid-Atlantic and Mid-Western United States.
BUSINESS OBJECTIVES AND STRATEGIES
The Company's business objective is to maximize long-term profitability for
its shareholders and the Operating Partnership's partners by (i) maintaining
and increasing property occupancy and rental rates through the effective
management of the Properties, (ii) developing and acquiring high quality new
properties in existing and select new markets and (iii) providing a full line
of real estate services to the Company's tenants. In addition, it is the
Company's strategy to maintain a conservative and flexible capital structure.
The Company's senior management team consists of 19 senior executives, who
collectively have developed and managed over 35 million square feet of
commercial real estate during the past 25 years and who, on average, have been
affiliated with the Company for 13 years. As of June 30, 1997, the 19 senior
executives beneficially owned 4.7% of the outstanding Common Shares on a fully
diluted basis.
S-3
<PAGE>
RECENT FINANCING ACTIVITIES
On March 24, 1997, the Company consummated a public offering of 7,500,000
Common Shares at a price of $24.50 per share. Pursuant to the exercise of the
over-allotment option by the underwriters of such offering, on April 1, 1997,
the Company consummated the sale of an additional 750,000 Common Shares at the
same price per share. The aggregate net proceeds to the Company from such
offering, including the proceeds from the exercise of such option, was
approximately $191.7 million.
In May 1997, the Company closed a $325 million unsecured credit facility (the
"Credit Facility"). The interest rate on borrowings under the Credit Facility
adjusts, based on the Company's leverage levels and senior debt ratings from
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group
("Standard & Poor's"). The current interest rate on the Credit Facility is 110
basis points over the London Interbank Offered Rate ("LIBOR").
THE OPERATING PROPERTIES
The Operating Properties, as of June 30, 1997, consisted of 216 industrial
and 110 office properties. The Company's industrial properties are located
principally in suburban mixed-use developments or business parks and include
warehouse/distribution facilities, as well as flex facilities which accommodate
both industrial and office use. The industrial activities in the Company's flex
facilities typically include service, assembly, light manufacturing and
research and development. The Company's office properties are mid-rise and
single story office buildings, located principally in suburban mixed-use
developments or office parks.
S-4
<PAGE>
The following table sets forth certain information, as of June 30, 1997, with
respect to the Company's industrial and office properties:
<TABLE>
<CAPTION>
INDUSTRIAL
--------------------
DISTRIBUTION FLEX OFFICE TOTAL
------------ ------- ------- --------
(LEASABLE SQUARE FEET AND
ANNUAL BASE RENT IN THOUSANDS)
<S> <C> <C> <C> <C>
Southeastern Pennsylvania
Number.......................... 19 18 40 77
Leasable square feet............ 2,065 1,153 2,488 5,706
Annual base rent................ $ 9,703 $ 9,576 $25,947 $ 45,226
Percent leased.................. 88.0% 95.3% 88.9% 89.8%
New Jersey/Delaware
Number.......................... 20 21 9 50
Leasable square feet............ 1,441 1,092 632 3,165
Annual base rent................ $ 6,186 $ 7,552 $ 5,881 $ 19,619
Percent leased.................. 100.0% 89.4% 84.2% 93.2%
Lehigh Valley, Pennsylvania
Number.......................... 16 21 10 47
Leasable square feet............ 3,640 967 359 4,966
Annual base rent................ $13,815 $ 6,420 $ 3,754 $ 23,989
Percent leased.................. 97.5% 93.8% 89.4% 96.2%
Maryland
Number.......................... 3 4 9 16
Leasable square feet............ 249 412 398 1,059
Annual base rent................ $ 1,163 $ 3,807 $ 4,278 $ 9,248
Percent leased.................. 100.0% 87.9% 94.5% 93.2%
Virginia
Number.......................... 28 6 10 44
Leasable square feet............ 4,078 230 151 4,459
Annual base rent................ $14,451 $ 1,747 $ 1,859 $ 18,057
Percent leased.................. 98.8% 97.5% 97.1% 98.6%
The Carolinas
Number.......................... 11 5 7 23
Leasable square feet............ 1,404 258 377 2,039
Annual base rent................ $ 5,770 $ 1,307 $ 3,523 $ 10,600
Percent leased.................. 87.4% 91.2% 88.0% 88.0%
Jacksonville, Florida
Number.......................... 6 11 12 29
Leasable square feet............ 381 660 1,026 2,067
Annual base rent................ $ 1,133 $ 3,508 $12,421 $ 17,062
Percent leased.................. 86.9% 80.2% 94.3% 88.5%
Tampa, Florida
Number.......................... 3 9 1 13
Leasable square feet............ 197 675 39 911
Annual base rent................ $ 537 $ 4,882 $ 262 $ 5,681
Percent leased.................. 100.0% 95.4% 100.0% 96.6%
Minneapolis, Minnesota
Number.......................... -- 14 2 16
Leasable square feet............ -- 803 219 1,022
Annual base rent................ -- $ 4,848 $ 1,576 $ 6,424
Percent leased.................. -- 95.8% 69.4% 90.1%
Detroit, Michigan
Number.......................... -- -- 7 7
Leasable square feet............ -- -- 915 915
Annual base rent................ -- -- $ 8,448 $ 8,448
Percent leased.................. -- -- 92.6% 92.6%
United Kingdom
Number.......................... -- 1 3 4
Leasable square feet............ -- 35 103 138
Annual base rent................ -- $ 494 $ 2,707 $ 3,201
Percent leased.................. -- 79.5% 97.9% 93.3%
Total
Number.......................... 106 110 110 326
Leasable square feet............ 13,455 6,285 6,707 26,447
Annual base rent................ $52,758 $44,141 $70,656 $167,555
Percent leased.................. 95.4% 91.9% 89.8% 93.2%
</TABLE>
S-5
<PAGE>
THE OFFERING
Securities Offered.......... 4,000,000 % Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest (the
"Series A Preferred Shares"). Application has
been made to list the Series A Preferred Shares
on the NYSE, subject to official notice of
issuance, with trading expected to commence
within a 30-day period after the initial delivery
of the Series A Preferred Shares. See
"Underwriting."
Ranking..................... With respect to the payment of dividends and
amounts upon liquidation, the Series A Preferred
Shares will rank senior to the Common Shares,
which are the only shares of beneficial interest
of the Company currently outstanding. See
"Description of Series A Preferred Shares--
Dividends" and "--Liquidation Preference."
Use of Proceeds............. The Company intends to use the net proceeds of
the Offering to repay outstanding indebtedness
under the Company's $325 million unsecured
revolving Credit Facility and for general
corporate purposes. See "Use of Proceeds."
Dividends................... Dividends on the Series A Preferred Shares are
cumulative from the date of original issue and
are payable quarterly on or about the 30th day of
January, April, July and October of each year,
commencing on October 30, 1997 at the rate of %
per annum of the $25.00 liquidation preference
(equivalent to $ per share). See "Description
of Series A Preferred Shares--Dividends."
Liquidation Rights.......... Equivalent to $25.00 per Series A Preferred
Share, plus an amount equal to accrued and unpaid
dividends (whether or not declared). See
"Description of Series A Preferred Shares--
Liquidation Preference."
Redemption.................. Except in certain circumstances relating to the
preservation of the Company's qualification as a
REIT (see "Federal Income Tax Considerations with
Respect to the Trust and the Operating
Partnership--Annual Distribution Requirements" in
the accompanying Prospectus), the Series A
Preferred Shares are not redeemable prior to
, 2002. On and after , 2002, the Series
A Preferred Shares will be redeemable for cash at
the option of the Company, in whole or in part,
at a redemption price of $25.00 per share, plus
dividends accrued and unpaid to the redemption
date. The redemption price (other than the
portion thereof consisting of accrued and unpaid
dividends) shall be payable from any source of
proceeds, but only in an amount which does not
exceed the amount of net proceeds from the sale
of other shares of beneficial interest of the
Company, which may include other series of
Preferred Shares of Beneficial Interest, issued
during the 30 day period preceding the date of
such redemption. See "Description of Series A
Preferred Shares--Redemption."
S-6
<PAGE>
Voting Rights............... Holders of Series A Preferred Shares will
generally have no voting rights except as
required by law. However, whenever dividends on
any Series A Preferred Shares shall be in arrears
for six or more quarterly periods, the holders of
such shares (voting separately as a class with
all other series of parity preferred shares of
beneficial interest 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
dividends accumulated on such Series A 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 A Preferred Shares that would
be materially adverse to the rights of holders of
the Series A Preferred Shares cannot be made
without the affirmative vote of holders of two-
thirds of the outstanding Series A Preferred
Shares. See "Description of Series A Preferred
Shares--Voting Rights."
Conversion.................. The Series A Preferred Shares are not convertible
or exchangeable for any other property or
securities of the Company.
Ownership Limits............ The Series A Preferred Shares will be subject to
certain restrictions on ownership intended to
preserve the Company's status as a REIT for
federal income tax purposes. See "Description of
Series A Preferred Shares--Restrictions on
Ownership."
S-7
<PAGE>
SUMMARY FINANCIAL DATA
The following tables set forth certain summary operating, balance sheet and
other data for the Company and should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the financial statements of the Company and
related notes thereto incorporated by reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
LIBERTY
PROPERTY
TRUST AND
PREDECESSOR
LIBERTY PROPERTY TRUST COMBINED
-------------------------------------- -----------
HISTORICAL
---------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------------
JUNE 30, 1997 1996 1995 1994
---------------- ---------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
OPERATING DATA
Total revenue........... $ 97,673 $ 154,265 $ 117,041 $ 83,022
Rental and real estate
tax expense............ 25,397 40,853 29,314 21,750
General and
administrative
expenses............... 4,782 8,023 5,212 4,712
Depreciation and
amortization........... 17,288 28,203 22,518 14,732
---------- ---------- --------- ---------
Operating income........ 50,206 77,186 59,997 41,828
Premium on debenture
conversions............ -- 1,027 -- --
Write off of deferred
financing costs........ 2,566 -- -- --
Interest expense........ 23,911 38,528 37,688 34,243
---------- ---------- --------- ---------
Income before minority
interest and
extraordinary item..... 23,729 37,631 22,309 7,585
Minority Interest....... 2,225 3,891 2,843 7,664
Extraordinary item--
Gain on extinguishment
of debt................ -- -- -- 55,761
---------- ---------- --------- ---------
Net income.............. $ 21,504 $ 33,740 $ 19,466 $ 55,682
========== ========== ========= =========
Dividends paid.......... $ 32,368 $ 52,569 $ 38,863 $ 10,219(4)
========== ========== ========= =========
OTHER DATA
Cash provided by
operating activities... $ 48,451 $ 59,817 $ 50,452 $ 38,832
Cash used by investing
activities............. (340,149) (265,427) (281,862) (156,282)
Cash provided by
financing activities... 297,136 214,593 216,870 142,381
Funds from
Operations(1).......... 44,506 65,944 44,606 22,517
EBITDA(2)............... 67,494 105,389 82,515 56,560
Ratio of EBITDA to
interest expense....... 2.82 2.74 2.19 1.65
Long-term debt
(including current
maturities) to
Adjusted Total
Assets(3).............. 49.5% 53.4% 47.8% 47.4%
<CAPTION>
LIBERTY PROPERTY TRUST
---------------------------------------------------
HISTORICAL
---------------------------------------------------
DECEMBER 31,
----------------------------------
JUNE 30, 1997 1996 1995 1994
---------------- ---------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Net real estate......... $1,441,977 $1,059,562 $ 826,047 $ 512,281
Total assets............ 1,548,743 1,152,612 898,102 602,981
Long-term indebtedness
(including current
maturities)............ 830,960 678,709 473,909 320,857
Other liabilities....... 69,396 56,876 47,519 22,625
Shareholders' equity.... 581,992 375,532 335,521 229,667
</TABLE>
S-8
<PAGE>
- --------
(1) "Funds from Operations" is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as net income or loss (computed in
accordance with generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate-related depreciation and amortization and excluding
significant non-recurring events that materially distort the comparative
measurement of Company performance over time. Funds from Operations does
not represent cash generated from operating activities in accordance with
GAAP and is not necessarily indicative of cash available to fund cash
needs.
(2) EBITDA means operating income before interest, income taxes, depreciation
and amortization. EBITDA does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to operating income or net income as an indicator of
performance or as an alternative to cash flows from operating activities as
an indicator of liquidity. The Company has included information with
respect to EBITDA because it understands that such information is used by
certain investors as one measure of operating performance.
(3) Adjusted Total Assets equals total assets (as determined in accordance with
GAAP) plus accumulated depreciation.
(4) Dividends paid for 1994 relate to the period from June 23, 1994 (inception
of the Company) through December 31, 1994.
S-9
<PAGE>
RISK FACTORS
An investment in the Series A Preferred Shares offered hereby involves
various risks. In addition to general investment risks and those factors set
forth elsewhere in this Prospectus Supplement or incorporated by reference in
the accompanying Prospectus, prospective investors should consider, among
other things, the following factors:
GENERAL REAL ESTATE INVESTMENT RISKS
Dependence on Tenants; Renewal of Leases and Reletting of Space. The
Company's cash flow from operations will depend upon its ability to lease
space in the Properties on economically favorable terms. Upon the expiration
of leases, such leases may not be renewed, the space may not be relet or the
terms of renewal or reletting (including rental rates, the cost of leasing
commissions, required renovations and concessions to tenants) may be less
favorable than current lease terms. If any of these events should occur, the
Company's cash flow from operations and ability to satisfy its obligations
with respect to indebtedness and to make expected distributions to
shareholders, including dividends on the Series A Preferred Shares, could be
adversely affected. The Company's cash flow from operations also would be
adversely affected if tenants leasing a significant amount of space fail to
pay rent or become bankrupt, or if for any other reason such rents could not
be collected. See "The Properties--Tenants." Further, the Company may be
adversely affected by various facts and events over which the Company will
have no control, such as a change in the demand in the markets in which the
Properties are located, the possible unavailability of prospective tenants and
the possibility of economic or physical decline of the areas in which the
Properties are located or physical damage to the Properties that would make
them less attractive to tenants.
Risks of Acquisition, Development and Construction Activities. The Company
intends to continue acquisition and development of industrial and office
properties. See "Business Objectives and Strategies." Acquisitions of
additional properties and development activities entail risks that investments
will fail to perform in accordance with expectations. With respect to the
Company's development activities, such development opportunities may be
abandoned, construction costs of any property may exceed original or budgeted
estimates (possibly making the property uneconomical) and construction and
lease-up may not be completed on schedule, resulting in increased debt service
expense and construction costs. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations.
The Company anticipates that future acquisitions and developments will be
financed, in whole or in part, under the Credit Facility, through other forms
of secured or unsecured financing or through utilization of access to capital
markets. Such financings may result in the risk that, upon completion of
construction, permanent financing for newly developed commercial properties
may not be available or may be available only on disadvantageous terms. If
financing is not available on acceptable terms for new acquisitions or
developments undertaken without permanent financing, further acquisitions and
development might be curtailed, cash available for distribution, including
cash available to fund the payment of dividends on the Series A Preferred
Shares, might be adversely affected and foreclosures on newly developed or
acquired properties could occur. Further, if any particular property is not
successful, the Company's losses could exceed its investment in the property.
Competition. There are numerous developers and real estate companies that
compete with the Company in seeking land for development, properties for
acquisition and tenants for properties. The Company may be adversely affected
by the fact that the availability of land for development within the Company's
markets continues to diminish, as does the availability of high quality
properties for acquisition within the Company's markets and elsewhere.
S-10
<PAGE>
Possible Environmental Liabilities. Under various federal, state and local
laws, ordinances and regulations relating to the protection of the environment
(collectively, "Environmental Laws"), a current or previous owner or operator
of real estate may be liable for the cost of removal or remediation of certain
hazardous or toxic substances disposed, stored, released, generated,
manufactured or discharged from, on, at, onto, under or in such property.
Environmental Laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence or release of
such hazardous or toxic substances. In addition, the presence of any such
substances, or the failure to properly remediate such substances when present,
released or discharged, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. The cost of
any required remediation and the liability of the owner or operator therefor
as to any property is generally not limited under such Environmental Laws and
could exceed the value of the property and/or the aggregate assets of the
owner or operator. In addition to any action required by federal, state or
local authorities, the presence of hazardous or toxic substances on any of the
Properties, or on any properties or land acquired or properties developed
hereafter, could result in private plaintiffs bringing claims for personal
injury or other causes of action. In connection with the ownership and
operation of the Properties, and of any properties or land acquired hereafter,
the Company may be potentially liable for remediation, release or injury.
Further, various Environmental Laws impose on owners or operators the
requirement of on-going compliance with rules and regulations regarding
business-related activities that may affect the environment. Failure to comply
with such requirements could result in difficulty in the lease or sale of any
affected Property or the imposition of monetary penalties and fines in
addition to the costs required to attain compliance. For additional
information, see the Annual Report on Form 10-K for the year ended December
31, 1996 of the Company and the Operating Partnership, incorporated by
reference in the accompanying Prospectus.
INDEBTEDNESS
The amount of indebtedness that the Company may incur is not limited by its
Declaration of Trust or By-Laws and, subject to restrictions contained in the
instruments governing certain of the Company's indebtedness, including the
Credit Facility and the Senior Notes (if issued), is solely within the
discretion of its Trustees. There can be no assurance that the Company will
not become more highly leveraged, resulting in an increased risk of default on
its obligations and a related increase in the amount of required debt service
payments, which could adversely affect the financial condition and results of
operations of the Company and the Company's ability to satisfy its obligations
with respect to indebtedness, including the Senior Notes (if issued), and to
make distributions to shareholders, including dividends on the Series A
Preferred Shares.
Required payments on mortgages and other indebtedness generally are not
reduced if the economic performance of any property declines. If such a
decline occurs, the Company's income, Funds from Operations and cash available
for distribution to shareholders, including cash available to fund the payment
of dividends on the Series A Preferred Shares, will be adversely affected. As
of June 30, 1997, the Company had outstanding indebtedness in the aggregate
principal amount of $831.0 million, including $296.0 million principal amount
of unsecured indebtedness under the Credit Facility. After giving effect to
the Offering and the anticipated application of the estimated net proceeds
therefrom, as of such date, the Company would have had outstanding
approximately $734.6 million aggregate principal amount of indebtedness,
including approximately $199.6 million of unsecured indebtedness under the
Credit Facility. See "Use of Proceeds." If the Company should be unable to pay
its indebtedness as it becomes due, it could sustain a loss, which may include
foreclosures by or judgments against the Company in favor of mortgagees.
Instruments evidencing certain of the Company's indebtedness, including the
Company's Exchangeable Subordinated Debentures due 2001 (the "Debentures"),
the Credit Facility and the Senior Notes (if issued), contain cross-default
and/or cross-acceleration provisions. Depending on the principal amount of the
Debentures that are exchanged for Common Shares, if any, the Company may not
have accumulated sufficient cash to repay the principal due on the Debentures
upon their maturity and may therefore be required to meet its obligations
through refinancings. There can be no assurance that the Company will be able
to refinance this or any other indebtedness. Additionally, certain of the
Company's indebtedness, including indebtedness under the Credit Facility,
bears interest at variable rates and, therefore, exposes the Company to the
risk of increasing interest rates.
S-11
<PAGE>
RISK OF ENTRY INTO NEW MARKETS
The Company's business strategy contemplates expanding its operations into
additional new markets. In determining whether to enter a new market,
management considers various factors, including demographics, job growth,
employment, real estate fundamentals and competition. There can be no
assurance that the Company will be successful in its effort to identify new
markets that will afford it the opportunity for favorable results or that the
Company will be able to achieve such results in those markets.
DEPENDENCE ON PRIMARY MARKETS
The Properties are located principally in the Southeastern, Mid-Atlantic and
Mid-Western United States. The Company's performance is, therefore, dependent
upon economic conditions in these geographic areas. Like much of the country,
the Southeastern, Mid-Atlantic and Mid-Western United States, have been
subject to periods of economic decline.
TAX RISKS
Adverse Consequences of the Failure to Qualify as a REIT. The Company and
the Operating Partnership intend to operate in a manner so as to permit the
Company to remain qualified as a REIT under the Internal Revenue Code of 1986,
as amended (the "Code"). So long as the Company meets the requirements under
the Code for qualification as a REIT, the Company is entitled to a deduction
when calculating taxable income for dividends paid to its shareholders.
Qualification as a REIT, however, involves the application of highly technical
and complex provisions of the Code, for which there are only limited judicial
or administrative interpretations. The complexity of these provisions and of
the applicable income tax regulations that have been promulgated under the
Code (the "Treasury Regulations") is greater in the case of a REIT that holds
its assets in partnership form. Moreover, no assurance can be given that new
legislation, regulations, administrative interpretations or court decisions
will not significantly alter the tax laws regarding qualification as a REIT or
the federal income tax consequences of such qualification. At the present time
however, the Company has no reason to expect a change in such tax laws that
would significantly and adversely affect the Company's ability to qualify and
operate as a REIT.
Risks Associated with Potential Borrowings Necessary to Make Distributions
to Qualify as a REIT. The Company has made, and intends to continue to make,
distributions to shareholders to comply with the distribution provisions of
the Code in order to maintain qualification as a REIT and to avoid income
taxes and the non-deductible excise tax. The Company's income and cash flow
will consist primarily of its share of distributions from the Operating
Partnership. Timing of and fluctuations in the receipt of income and the
payment of expenses and the effect of required debt amortization payments, if
any, may require the Company, through the Operating Partnership, to borrow
funds to meet the distribution requirements necessary to achieve the tax
benefits associated with qualifying as a REIT or to fund the payment of
dividends on the Series A Preferred Shares, even if the Company's management
believes that then prevailing market conditions are not generally favorable
for such borrowings or that such borrowings would not be advisable in the
absence of such tax considerations. See "Federal Income Tax Considerations"
and "Federal Income Tax Considerations with Respect to the Trust and the
Operating Partnership" in the accompanying Prospectus.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Prospectus Supplement, the
accompanying Prospectus and other materials filed or to be filed by the
Company with the Securities and Exchange Commission (the "Commission") and
incorporated by reference in the accompanying Prospectus contain or will
contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such statements include
information relating to acquisitions and other business development
activities, future capital expenditures, financing sources
S-12
<PAGE>
and availability and the effects of regulations (including environmental
regulation) and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements contained in this Prospectus
Supplement or the accompanying Prospectus incorporated by reference in such
Prospectus. These risks and uncertainties include, but are not limited to,
uncertainties affecting real estate businesses generally (such as entry into
new leases, renewals of leases and dependence on tenants' business
operations), risks relating to acquisition, construction and development
activities, possible environmental liabilities, risks relating to leverage,
debt service and obligations with respect to the payment of dividends
(including availability of financing terms acceptable to the Company and
sensitivity of the Company's operations to fluctuations in interest rates),
the potential for the need to use borrowings to make distributions necessary
for the Company to qualify as a REIT or to fund the payment of dividends on
the Series A Preferred Shares, dependence on the primary markets in which the
Properties are located, the existence of complex regulations relating to the
Company's status as a REIT and the adverse consequences of the failure of the
Company to qualify as a REIT and the potential adverse impact of market
interest rates on the market price for the Company's securities.
S-13
<PAGE>
THE COMPANY
The Company is one of the largest owners and operators of suburban
industrial and office real estate in the United States. The Company provides
leasing, property management, acquisition, development, construction
management, design management and other related services for a portfolio
which, as of June 30, 1997, consisted of the Operating Properties totaling
approximately 26.4 million leasable square feet. As of June 30, 1997, the
Company was developing 28 properties and held 943 acres of land for future
development. The Development Properties are expected to generate approximately
3.2 million leasable square feet. The land is zoned for commercial use and is
anticipated by the Company to be capable of supporting, as and when developed,
approximately 9.0 million leasable square feet. The Properties and such land
are located principally within the Southeastern, Mid-Atlantic and Mid-Western
United States. As of June 30, 1997, the Operating Properties were
approximately 93.2% leased to over 1,100 tenants.
During the six months ended June 30, 1997, through Total Investments (as
defined below) aggregating $418.4 million, the Company increased its total
leasable square footage of industrial and office space by approximately 12.3%
through the acquisition of 63 properties containing approximately 4.4 million
leasable square feet, by the development of nine properties containing
approximately 1.8 million leasable square feet and through the sale of five
properties containing approximately 520,000 leasable square feet.
As of June 30, 1997, the Operating Properties consisted of 216 industrial
and 110 office properties. The Company's industrial properties are located
principally in suburban mixed-use developments or business parks and include
warehouse/distribution facilities, as well as flex facilities which
accommodate both industrial and office use. The industrial activities in the
Company's flex facilities typically include service, assembly, light
manufacturing and research and development. The Company's office properties
are mid-rise and single story office buildings, located principally in
suburban mixed-use developments or office parks.
The Company is the sole general partner and also a limited partner of the
Operating Partnership, with a combined equity interest in the Operating
Partnership of 89.76% at June 30, 1997. The units of limited partnership
interest in the Operating Partnership (the "Units") are exchangeable on a one-
for-one basis (subject to antidilution protections) for Common Shares,
typically after the first anniversary of the issuance of any such Units. The
only limited partners of the Operating Partnership other than the Company are
persons or entities that contributed assets to the Operating Partnership,
principally senior executives of the Company and their affiliates. The Units
held by such limited partners were exchangeable for approximately 4.7 million
Common Shares as of June 30, 1997.
The Company's 216 employees (as of July 25, 1997) are under the direction of
19 senior executives, who collectively have developed and managed over 35
million square feet of commercial real estate during the past 25 years and
who, on average, have been affiliated with the Company for 13 years. As of
June 30, 1997, the 19 senior executives beneficially owned 4.7% of the
outstanding Common Shares on a fully diluted basis. The Company's in-house
leasing, marketing and property management staff operates in ten full-service
local offices in the United States. This structure enables the Company to
better understand the particular characteristics of the local markets in which
it operates, to respond quickly and directly to tenant needs and to better
identify local acquisition and development opportunities.
The Company's international operations include four Operating Properties in
the County of Kent, England. In addition, the Company provides management
services with respect to a joint venture between Rouse Kent Limited, which is
owned by certain senior executives of the Company, and the County of Kent,
England to develop a 650-acre, mixed-use park approximately 25 miles southeast
of London. The Company has an option to purchase Rouse Kent Limited for
nominal consideration. The Company committed to loans in 1996 to two
affiliates for development projects. As of June 30, 1997, the balance of these
notes receivable was $7.7 million.
The Company's executive offices are located at 65 Valley Stream Parkway,
Malvern, Pennsylvania 19355. The telephone number is (610) 648-1700.
S-14
<PAGE>
BUSINESS OBJECTIVES AND STRATEGIES
The Company's business objective is to maximize long-term profitability for
its shareholders and the Operating Partnership's partners by (i) maintaining
and increasing property occupancy and rental rates through the effective
management of the Properties, (ii) developing and acquiring high quality new
properties in existing and select new markets and (iii) providing a full line
of real estate services to the Company's tenants. In addition, it is the
Company's strategy to maintain a conservative and flexible capital structure.
While implementing these strategies, the Company has increased its Funds from
Operations per Common Share by 12.8% based on a comparison of the six months
ended June 30, 1997 with the comparable period in 1996. No assurance can be
given that this level of growth will continue. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Calculation of
Funds from Operations."
INTERNAL GROWTH STRATEGIES
Management believes that the Properties offer significant opportunities for
the Company to increase its rental revenues and cash flow. The Company seeks
to increase cash flow by continuing its practice of negotiating for
contractual rental increases that take effect during the terms of its leases.
In addition, the Company seeks to increase rental revenues through the renewal
or replacement of expiring leases at higher rental rates and by improving the
occupancy rates of its portfolio. As a result of these activities, property-
level operating income for "Same Store" properties increased by 5.2% for the
six months ended June 30, 1997 as compared to the six months ended June 30,
1996. "Same Store" properties are those owned as of January 1, 1996.
New Leases and Lease Renewals. In the early 1990s, rental rates in the
markets in which the Properties are located were flat or decreased as a result
of recessionary market conditions and an oversupply of commercial real estate
in such markets. As these leases expire, the Company expects, although no
assurance can be given, that replacement leases will reflect higher rental
rates as economic conditions continue to improve and the oversupply of
commercial real estate is mitigated by the decreased commercial construction
starts in recent years. During the first six months of 1997 the Company
achieved a 14.4% increase in the straight-line rents for the 1.8 million
square feet of replacement and renewal leases executed in 1997. See "The
Properties--Occupancy and Rental Rates," "--Leasing for Six Months Ended June
30, 1997" and "--Lease Expirations."
Contractual Increases. The Company seeks to generate increased cash flow
from the Operating Properties through contractual increases in rental rates
under its leases. The leases in effect with respect to the Operating
Properties as of June 30, 1997 provide for contractual rental increases that
are expected to contribute an additional $3.4 million to the Company's cash
flow for the year ending December 31, 1998. The Company intends to continue
seeking to negotiate contractual rent increases that take effect during the
terms of its leases.
Improving Occupancies. The Company believes that the quality and diversity
of its tenant base has contributed, and will continue to contribute, to the
success of its strategy for increasing rental and occupancy rates. The Company
targets financially stable tenants in an effort to minimize uncertainty
relating to the ability of its tenants to meet their lease obligations. The
Company's success in maintaining its occupancy rates and attracting and
retaining tenants is demonstrated in part by its renewal rate which was 67%
(based on square footage) for the six months ended June 30, 1997.
Cost Controls. The Company seeks to monitor and control its operating and
administrative costs by performing many functions in-house rather than by
engaging outside third parties. For example, the Company relies primarily on
its locally based leasing and marketing staff, thereby reducing commissions to
third parties. Similarly, although construction and design services typically
are provided by third parties (including, in certain instances, entities
affiliated with one or more of the Company's senior executives), the Company's
in-house construction and design management staff closely supervises
construction and design activities in an effort to control costs, minimize
cost overruns, ensure timely delivery of tenant space and maximize
productivity and efficiencies. The Company also employs an annual capital
improvement and preventive maintenance program designed to reduce the
operating costs of the Properties and maintain their long-term value.
S-15
<PAGE>
ACQUIRING OFFICE AND INDUSTRIAL PROPERTIES
Strategy. The Company seeks to acquire properties consistent with its
business objectives and strategies. The Company has identified the following
categories of acquisitions:
Single-Asset Acquisitions:
. Stabilized Acquisitions--Individual properties generally located within
the Company's existing markets, which are typically at high occupancy
levels upon acquisition.
. Entrepreneurial Acquisitions--Individual properties generally located
within the Company's existing markets which are typically either vacant
or at low occupancy levels and can be purchased substantially below
replacement cost, thereby offering the opportunity for above-average
returns when fully leased.
Portfolio Acquisitions:
. Groups of properties or existing real estate companies that may include
both stabilized and entrepreneurial acquisitions within existing markets
or select new markets, as well as development properties, which offer
opportunities for enhanced operating performance as a result of the
Company's management expertise and financial strength.
Acquisitions Completed During Six Months Ended June 30, 1997. During the six
months ended June 30, 1997, the Company acquired 63 Properties containing
approximately 4.4 million leasable square feet for a Total Investment of
$344.0 million. The "Total Investment" for a property is defined as the
property's purchase price plus closing costs and management's estimate, as
determined at the time of acquisition, of the cost of necessary building
improvements in the case of acquisitions, or land costs and land and building
improvement costs in the case of development projects, and where appropriate,
other development costs and carrying costs required to reach rent
commencement.
Portfolio Acquisitions. The Company's acquisitions during the six months
ended June 30, 1997 included three portfolio acquisitions: a portfolio of 16
office and industrial properties located in the Minneapolis, Minnesota
metropolitan area totaling approximately one million leasable square feet for
a Total Investment of $63.3 million; a portfolio of 14 properties in South
Carolina, Florida and North Carolina totaling approximately 1.1 million
leasable square feet (exclusive of development properties included in the
portfolio) for a Total Investment of $57.6 million; and a portfolio of seven
properties in the Detroit, Michigan metropolitan area totaling 915,000
leasable square feet for a Total Investment of $110.4 million.
Individual Acquisitions. The Company's individual acquisitions during the
six months ended June 30, 1997 included 26 properties totaling approximately
1.4 million leasable square feet for a Total Investment of $112.7 million.
S-16
<PAGE>
The following table sets forth certain information, as of June 30, 1997,
regarding the Properties acquired in 1997:
ACQUISITIONS COMPLETED THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
TOTAL
TOTAL LEASABLE PERCENT INVESTMENT
SQUARE FEET LEASED (IN THOUSANDS)
-------------- ------- --------------
<S> <C> <C> <C>
Stabilized Acquisitions
Industrial--Distributions............... 384,568 100.0% $ 14,050
Industrial--Flex........................ 1,693,235 94.8 98,217
Office.................................. 1,650,256 91.2 174,947
--------- ----- --------
Total Stabilized Acquisitions......... 3,728,059 93.7 287,214
Entrepreneurial Acquisitions
Industrial--Distribution................ 169,042 0.0 6,730
Industrial--Flex........................ 54,032 66.3 2,313
Office.................................. 468,543 43.0 47,730
--------- ----- --------
Total Entrepreneurial Acquisitions.... 691,617 34.3 56,773
--------- ----- --------
Total 1997 Acquisitions................... 4,419,676 84.4% $343,987
========= ===== ========
</TABLE>
Acquisitions Completed After June 30, 1997. Since June 30, 1997 and through
July 25, 1997, the Company has completed single-asset acquisitions consisting
of eight stabilized properties, aggregating approximately 320,000 leasable
square feet for a Total Investment of $24.3 million.
Pending Acquisitions. As of July 25, 1997, the Company had entered into
contracts to purchase six additional suburban industrial and office properties
(the "Pending Acquisitions") which the Company considered probable of closing
as of the date of this Prospectus Supplement. The Pending Acquisitions
aggregate approximately 629,000 leasable square feet, for an estimated Total
Investment of approximately $51.2 million.
The purchase of all of the Pending Acquisitions is subject to various
contingencies, including, among others, completion of due diligence and other
customary conditions. Accordingly, there can be no assurance that the Company
will acquire any or all of the Pending Acquisitions or that the acquisitions
will be consummated for the estimated Total Investment.
DEVELOPMENT ACTIVITIES
Strategy. The Company pursues selective development opportunities focusing
on high quality suburban industrial and office properties typically within its
existing markets. The Company's development activities fall into two
categories: build-to-suit projects and projects built for inventory. The
Company develops build-to-suit projects for existing and new tenants. The
buildings in these projects typically are substantially pre-leased to one or
more tenants prior to construction. The Company also builds properties for
inventory in high-occupancy markets in which the Company has identified
sufficient demand at market rental rates to justify such construction.
Developments Completed During Six Months Ended June 30, 1997. During the six
months ended June 30, 1997, the Company completed six build-to-suit and three
inventory development properties. These properties contain approximately 1.8
million leasable square feet representing a Total Investment of $74.4 million.
As of June 30, 1997, these properties were 100.0% leased.
S-17
<PAGE>
The following table lists certain information, as of June 30, 1997, for all
of the Development Properties completed in the first and second quarters of
1997:
COMPLETED DEVELOPMENT PROPERTIES
<TABLE>
<CAPTION>
TOTAL TOTAL
INVESTMENT NUMBER OF LEASABLE PERCENT
(IN THOUSANDS) PROPERTIES SQUARE FEET LEASED
-------------- ---------- ----------- -------
<S> <C> <C> <C> <C>
1st Quarter, 1997
Build-to-Suit.................. $36,131 1 1,190,000 100.0%
Inventory...................... 7,694 2 222,000 100.0
------- --- --------- -----
Total........................ 43,825 3 1,412,000 100.0
------- --- --------- -----
2nd Quarter, 1997
Build-to-Suit.................. 29,173 5 399,600 100.0
Inventory...................... 1,409 1 32,400 100.0
------- --- --------- -----
Total........................ 30,582 6 432,000 100.0
------- --- --------- -----
All Development Properties....... $74,407 9 1,844,000 100.0%
======= === ========= =====
</TABLE>
Current Development Properties. As of June 30, 1997, the Company was
developing 28 properties, which upon completion are expected to generate
approximately 3.2 million leasable square feet. Approximately 58% of such
space was pre-leased as of June 30, 1997. The properties under development as
of June 30, 1997 represent a Total Investment of $206.7 million.
Land. As of June 30, 1997, the Company owned 943 acres of land for future
development, all zoned for commercial use. Substantially all of the land is
located adjacent to or within existing industrial or business parks with site
improvements, such as public sewers, water and utilities available for
service, and the Company anticipates that the land is capable of supporting,
as and when developed, approximately 9.0 million leasable square feet. The
Company's investment (as determined in accordance with GAAP) in land held for
development as of June 30, 1997 was $48.9 million. The Company believes that,
because it is a fully integrated real estate firm, its base of commercially
zoned land in existing industrial and business parks provides a competitive
advantage for future development activities, particularly as the availability
of land within the Company's geographic markets continues to diminish.
FINANCING ACTIVITIES
On March 24, 1997, the Company consummated the public offering of 7,500,000
Common Shares at a price of $24.50 per share. Pursuant to the exercise of the
over-allotment option by the underwriters of such offering, on April 1, 1997,
the Company consummated the sale of an additional 750,000 Common Shares at the
same price per share. The aggregate net proceeds to the Company from such
offering, including the proceeds from the exercise of such option, was
approximately $191.7 million.
In May 1997, the Company closed on the $325 million unsecured Credit
Facility. The interest rate on borrowings under the Credit Facility adjusts,
based on the Company's leverage levels and senior debt ratings from Moody's
and Standard & Poor's. The current interest rate for the Credit Facility is
110 basis points over LIBOR.
CONCURRENT OFFERINGS
Following this Offering of the Series A Preferred Shares by the Company
being made pursuant to this Prospectus Supplement and the accompanying
Prospectus, the Operating Partnership intends to offer its Senior Notes
pursuant to a separate prospectus supplement and accompanying Prospectus.
Neither the Operating Partnership's offering of the Senior Notes nor this
Offering of the Series A Preferred Shares is conditioned on the consummation
of the other and either offering may be consummated alone or together with the
other. Accordingly, if this Offering of the Series A Preferred Shares is
consummated, there is no assurance that the Operating Partnership will
consummate an offering of the Senior Notes.
S-18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Series A Preferred
Shares, after deduction of the estimated expenses of the Offering, are
estimated to be approximately $96.4 million ($110.9 million if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the net proceeds from the Offering to repay indebtedness under the
Credit Facility and for general corporate purposes. As of June 30, 1997, the
Company had outstanding indebtedness under the Credit Facility of $296.0
million, bearing interest at a rate of approximately 6.9% per annum. The
indebtedness outstanding under the Credit Facility was incurred principally in
connection with the Company's acquisition activity and the refinancing of
previously incurred indebtedness.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The ratios of earnings to fixed charges of the Company for the six months
ended June 30, 1997, for the years ended December 31, 1996 and 1995 and for
the period from June 23, 1994 (inception of the Company) to December 31, 1994
were 1.92, 1.83, 1.65 and 2.04, respectively. The ratios of earnings to fixed
charges were computed by dividing earnings by fixed charges. For this purpose,
earnings have been calculated by adding fixed charges (excluding capitalized
interest) to income (loss) before minority interest and extraordinary items.
Fixed charges consist of interest costs, whether expensed or capitalized, and
amortization of deferred financing costs. The ratio of earnings to combined
fixed charges and preferred stock dividends is the same as the Company's ratio
of earnings to fixed charges because there was no outstanding preferred stock
during the periods for which ratios are reported.
S-19
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company,
on a consolidated basis, as of June 30, 1997, and as of such date, as
adjusted, to give effect to the sale of the Series A Preferred Shares hereby
and the application of the estimated net proceeds from the Offering. See "Use
of Proceeds." The information set forth in the following table should be read
in conjunction with the summary and selected financial information presented
elsewhere in this Prospectus Supplement, the consolidated financial statements
and notes thereto incorporated by reference in the accompanying Prospectus and
the discussion set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Senior Debt:
Credit Facility...................................... $ 296,000 $ 199,644
Mortgage loans....................................... 388,030 388,030
---------- ----------
Total senior debt.................................. 684,030 587,674
Convertable subordinated debentures.................... 146,930 146,930
Minority interest...................................... 66,395 66,022
Shareholders' Equity:
Preferred Shares, % Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest (liquidation
preference $25.00 per share), none issued and
outstanding (4,000,000 as adjusted)(1).............. 100,000
Common Shares, 40,909,953 issued and
outstanding(1)(2)................................... 40 40
Additional paid-in capital........................... 583,149 579,878
Unearned compensation................................ (1,197) (1,197)
Retained earnings.................................... -- --
---------- ----------
Total shareholders' equity......................... 581,992 678,721
---------- ----------
Total capitalization............................... $1,479,347 $1,479,347
========== ==========
</TABLE>
- --------
(1) The Company's Declaration of Trust authorizes 200,000,000 shares of
beneficial interest, par value $0.001 per share (the "Shares"), which may
be designated and issued by the Company in any combination of Common
Shares or one or more series of Preferred Shares.
(2) Excludes 4,668,700 Common Shares issuable upon the conversion of Units,
including 120,117 Units that will be issued in December 1997 in exchange
for the remaining interests in partnerships in which controlling interests
were acquired by the Company at the time of its initial public offering.
Excludes 7,346,500 Common Shares issuable upon exchange of the $146.9
million principal amount of the Debentures outstanding as of June 30,
1997, subject to adjustment upon the occurrence of certain events. Also
excludes 4,033,535 Common Shares that may be issued from time to time
under the Company's Share Incentive Plan, including 1,909,055 Common
Shares issuable upon the exercise of options that were outstanding as of
June 30, 1997.
S-20
<PAGE>
THE PROPERTIES
The Operating Properties, as of June 30, 1997, consisted of 216 industrial
and 110 office properties. Single tenants occupy 116 Operating Properties. The
Company provides a reduced level of service in connection with the operation
or maintenance of these Properties. The remaining 210 of the Company's
Operating Properties are occupied by multiple tenants for which the Company
renders a range of building, operating and maintenance services.
The Company's industrial properties consist of a variety of warehouse,
distribution, service, assembly, light manufacturing and research and
development facilities. Substantially all of the Company's industrial
properties are located in suburban, mixed-use developments or business parks.
They include both single-tenant and multi-tenant facilities, with most
designed flexibly to accommodate various types of tenants, space requirements
and industrial uses to increase re-leasing opportunities and control re-
leasing costs. As of June 30, 1997, the Company's industrial properties were
approximately 94.3% leased.
The Company's office properties are mid-rise and single story office
buildings principally located in suburban, mixed-use developments or office
parks. Substantially all are located in prime business locations within
established business communities offering excellent access to interstate
highway systems. As of June 30, 1997, the office properties were approximately
89.8% leased.
Set forth as Appendix "A" to this Prospectus Supplement is a table which
provides certain information with respect to the Properties as of June 30,
1997.
OCCUPANCY AND RENTAL RATES
Property level operating income for "Same Store" properties increased by
5.2% for the six months ended June 30, 1997 compared to the six months ended
June 30, 1996. "Same Store" figures include results for the 203 (net of five
properties exchanged in connection with acquisitions) properties owned as of
January 1, 1996.
LEASING FOR SIX MONTHS ENDED JUNE 30, 1997
The Company achieved a 14.4% increase in the straight-line rents for the 1.8
million square feet of replacement and renewal leases executed in the first
six months of 1997. However, these results should not be viewed as necessarily
reflecting a trend in actual short-term rental rate fluctuations because the
properties leased during the period are not necessarily representative of the
balance of the Company's portfolio and the leases entered into during the
period reflect an uneven rate of expirations and signings of leases of varying
sizes and terms.
S-21
<PAGE>
LEASE EXPIRATIONS
The following table shows scheduled lease expirations and certain other
information, as of June 30, 1997, for leases in place for the Operating
Properties as of such date, assuming none of the tenants exercises renewal
options or termination rights, if any:
<TABLE>
<CAPTION>
AVERAGE
RENT PER PERCENT OF
NUMBER LEASABLE SQUARE ANNUALIZED BASE SQUARE ANNUAL BASE PERCENT OF
YEAR OF OF FEET SUBJECT RENT UNDER FOOT UNDER RENT SQUARE FEET
LEASE LEASES TO EXPIRING EXPIRING LEASES EXPIRING REPRESENTED BY REPRESENTED BY
EXPIRATION EXPIRING LEASES (IN THOUSANDS) LEASES EXPIRING LEASES EXPIRING LEASES
---------- -------- --------------- --------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ALL PROPERTIES
1997(1)................ 186 1,525,808 $ 9,749 $6.39 5.4% 6.2%
1998................... 277 3,542,976 20,079 5.67 11.1 14.4
1999................... 253 3,895,526 27,480 7.05 15.2 15.8
2000................... 247 3,922,095 36,316 9.26 20.0 15.9
2001................... 174 3,671,188 24,219 6.60 13.4 14.9
2002................... 98 1,345,700 10,423 7.75 5.8 5.5
Thereafter............. 134 6,733,012 52,698 7.83 29.1 27.3
----- ---------- -------- ----- ----- -----
Total................. 1,369 24,636,305 $180,964 $7.35 100.0% 100.0%
===== ========== ======== ===== ===== =====
</TABLE>
- --------
(1) From July 1, 1997 through December 31, 1997.
TENANTS
The Operating Properties are leased to over 1,100 tenants, which engage in a
wide variety of businesses including pharmaceuticals, telecommunications,
finance, insurance and electronics. As of June 30, 1997, the Company's largest
tenant, AT&T Resource Management Corp., accounted for approximately 4.5% of
the Company's total annual base rent. Leases accounting for approximately 88%
of this tenant's annual base rent do not expire until 2000 or later. Other
than AT&T Resource Management Corp., only eight tenants accounted for more
than 1% each of total annual base rent as of June 30, 1997.
The following table sets forth the Company's 10 largest tenants, based on
annual base rent as of June 30, 1997:
<TABLE>
<CAPTION>
NUMBER ANNUAL BASE RENT PERCENTAGE OF TOTAL
TENANT OF LEASES (IN THOUSANDS) ANNUAL BASE RENT
------ --------- ---------------- -------------------
<S> <C> <C> <C>
1.AT&T Resource Management
Corp.......................... 14 $ 7,561 4.5
2.DSC Logistics............... 2 4,693 2.8
3.Vanguard Group.............. 3 3,811 2.3
4.Prudential Insurance
Company....................... 8 2,993 1.8
5.Sanofi Winthrop............. 6 2,916 1.7
6.United States of America.... 7 2,217 1.3
7.Fluor Daniel, Inc........... 7 2,202 1.3
8.RL Polk..................... 2 1,773 1.1
9.Hewlett-Packard Company..... 3 1,766 1.1
10.GMAC........................ 2 1,366 0.8
--- ------- ----
Total...................... 54 $31,298 18.7%
=== ======= ====
</TABLE>
PRINCIPAL MARKETS
The Company operates primarily in 10 markets in the Southeastern, Mid-
Atlantic and Mid-Western United States. For a more detailed presentation of
the industrial and office properties owned by the Company in each of
S-22
<PAGE>
these markets, see "Summary--The Operating Properties." The material presented
below is a brief description of these markets. The following market data has
been compiled from sources which the Company believes to be reliable, but no
assurance can be given as to the accuracy of such market data:
Southeastern Pennsylvania. Southeastern Pennsylvania's suburban market
covers the four counties that immediately surround Philadelphia, namely,
Bucks, Chester, Delaware, and Montgomery Counties. Of the various submarkets
comprising the Southeastern Pennsylvania suburban market, the Company's
operations have focused on two particular submarkets: the Route 202 Corridor
in Chester and Montgomery Counties (King of Prussia/Conshohocken to West
Chester), and the Horsham submarket in Montgomery and Bucks Counties. As of
December 1996 suburban industrial vacancy for the Southeastern Pennsylvania
market was estimated to be approximately 10.6% and suburban Class A office
vacancy for the Route 202 and Horsham submarkets was approximately 7.4% and
9.1%, respectively.
New Jersey/Delaware. The Company operates in the Southern New Jersey market,
which encompasses the three counties of New Jersey that border Philadelphia:
Burlington, Camden, and Gloucester. The Gloucester County distribution
submarket and the Route 73/Burlington/Camden Counties office submarket are the
focal points for the Company's New Jersey activity. As of December 1996
suburban industrial vacancy for the Southern New Jersey market was estimated
to be approximately 4.0% and suburban Class A office vacancy was estimated to
be approximately 12.8%.
The Company's operations in Delaware are located principally in the New
Castle County market. This market has, in addition to its strong industrial
base, both a large office market, serving Wilmington's financial services
industry, and a very active distribution market located at the convergence of
the major north-south arteries of I-95 and I-295, which convergence creates a
natural distribution center. As of December 1996 suburban industrial vacancy
for the Wilmington market was estimated to be approximately 10% and suburban
Class A office vacancy was estimated to be approximately 5.3%.
Lehigh Valley, Pennsylvania. The Lehigh Valley market includes the cities of
Allentown and Bethlehem and is centrally located on major transportation
routes I-78 and the Northeast Extension of the Pennsylvania Turnpike,
convenient to both New York and Philadelphia. This superior location has
created strength in the office and industrial markets. Located within a 250-
mile radius of 25% of the nation's population, the Lehigh Valley has become a
major distribution hub for the Northeastern United States, increasing the
demand for industrial warehouse space. As of December 1996 suburban industrial
vacancy for the Lehigh Valley market was estimated to be approximately 12.8%
and suburban Class A office vacancy was estimated to be approximately 6.7%.
Richmond, Virginia. Richmond, the capital of Virginia, is supported by a
diverse and growing economy. The Richmond metropolitan statistical area
("MSA") has a population of nearly one million, and serves as the headquarters
for eight Fortune 500 companies. The past three years have seen significant
growth in the region's economy, based on the following factors: improvement in
the national economy and increasing exports, a well educated work force, low
housing costs, wages and taxes and minimal governmental regulation. As of
December 1996 suburban industrial vacancy for the Richmond market was
estimated to be approximately 5.1% and suburban Class A office vacancy was
estimated to be approximately 4.0%.
Baltimore/Washington Corridor. The Baltimore/Washington corridor is a
vibrant market, where the Company operates in several submarkets, including
the "new city" of Columbia, Maryland, located on I-95 and convenient to both
Baltimore and Washington, and the Annapolis submarket, which due to the
opening of Route 50 and the completion of I-97 has benefited from improved
access to the Capitol Beltway, Baltimore, BWI Airport and Columbia. As of
December 1996 suburban industrial vacancy for the Howard County market was
estimated to be approximately 8.3% for the flex industrial and 11% for bulk
industrial and suburban Class A office vacancy was estimated to be
approximately 5.4%.
The Carolinas. The Company operates in the Piedmont Triad area of North
Carolina. Including the Greensboro, Winston-Salem and High Point regions, this
area reflects low unemployment and strong population
S-23
<PAGE>
and job growth. As of December 1996 suburban industrial vacancy for the
Piedmont Triad market was estimated to be approximately 6.7% and suburban
Class A office vacancy was estimated to be approximately 6.4%.
The Company operates in the Greenville, Columbia and Charleston markets in
South Carolina. Each of these markets has experienced economic growth in
recent years. As of December 1996 suburban industrial vacancy for the
Greenville market was estimated to be approximately 5.0% and suburban Class A
office vacancy was estimated to be approximately 5.0%. As of December 1996
suburban industrial vacancy for the Columbia market was estimated to be
approximately 7.2% and suburban Class A office vacancy was estimated to be
approximately 7.0%. As of December 1996 suburban Class A office vacancy for
the Charleston market was estimated to be approximately 12.4%.
Jacksonville, Florida. Jacksonville is an expanding market in an area with a
strong population growth rate and a relatively low cost of living. The
population of Jacksonville is now over one million, an increase of over 35%
since 1980. Fueled by corporate expansions and relocations, Jacksonville's
suburban office and industrial markets have continued to experience favorably
low vacancy rates. The Company's operations are concentrated in the two sub-
markets, the Southside, which includes both office and a new industrial
market, and the Westside industrial markets. As of December 1996 suburban
industrial vacancy for the Jacksonville market was estimated to be
approximately 6.1% and suburban Class A office vacancy was estimated to be
approximately 2.1%.
Tampa, Florida. The Tampa area includes the cities of Tampa, St. Petersburg
and Clearwater and is currently experiencing significant growth in population
and employment. The area has 2.2 million people, and is the fourteenth fastest
growing metropolitan area in the United States based upon employment growth.
The Tampa Bay area is projected to lead the state in the number of jobs by the
year 2005, surpassing the Miami MSA. As of December 1996 suburban industrial
vacancy in the Tampa market was estimated to be approximately 6.7% and
suburban Class A office vacancy was estimated to be approximately 8.5%.
Minneapolis Metropolitan Area. The Minneapolis/St. Paul market is the
twelfth largest MSA in the country with approximately 2.7 million people.
Minneapolis has enjoyed solid demographic growth in recent years, especially
compared to other Midwestern cities. This growth can be attributed to a number
of factors, including state employment, higher education and medical services.
As of December 1996 suburban industrial vacancy for the Minneapolis/St. Paul
market was estimated to be approximately 6.0% and suburban Class A office
vacancy was estimated to be approximately 6.0%.
Detroit Metropolitan Area. The Company operates in the submarkets of Troy,
Southfield and Farmington Hills, all of which are suburbs of Detroit located
in Oakland County. According to U.S. Census Bureau Statistics, Oakland County
has a population of over 1.2 million and this population is expected to grow
over the next five years. Vacancy rates in each of Detroit's submarkets have
been improving in the last four years, and such improvements have led to
increased rental rates in each of these submarkets. As of December 1996
suburban industrial vacancy for the Southern Michigan market place was
estimated to be approximately 6.2% and suburban Class A office vacancy was
estimated to be approximately 9.8%.
S-24
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain operating, balance sheet and other
financial data for the Company and certain historical selected consolidated
financial data for the Company and the Predecessor. The following data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of the
Company and related notes thereto incorporated by reference in the
accompanying Prospectus. Certain amounts from prior periods have been restated
to conform to current year presentations. The Company's historical
consolidated operating data for, and balance sheet data as of the end of, the
six months ended June 30, 1997 have been derived from the Company's unaudited
interim financial statements. In the opinion of management, the financial data
as of, and for the six months ended, June 30, 1997 include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein.
<TABLE>
<CAPTION>
LIBERTY
PROPERTY
TRUST AND
PREDECESSOR
LIBERTY PROPERTY TRUST COMBINED
-------------------------------------- -----------
HISTORICAL
---------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------------
JUNE 30, 1997 1996 1995 1994
---------------- ---------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
OPERATING DATA
Total revenue........... $ 97,673 $ 154,265 $ 117,041 $ 83,022
Rental and real estate
tax expense............ 25,397 40,853 29,314 21,750
General and
administrative
expenses............... 4,782 8,023 5,212 4,712
Depreciation and
amortization........... 17,288 28,203 22,518 14,732
---------- ---------- --------- ---------
Operating income........ 50,206 77,186 59,997 41,828
Premium on debenture
conversions............ -- 1,027 -- --
Write off of deferred
financing costs........ 2,566 -- -- --
Interest expense........ 23,911 38,528 37,688 34,243
---------- ---------- --------- ---------
Income before minority
interest and
extraordinary item..... 23,729 37,631 22,309 7,585
Minority Interest....... 2,225 3,891 2,843 7,664
Extraordinary item--
Gain on extinguishment
of debt................ -- -- -- 55,761
---------- ---------- --------- ---------
Net income.............. $ 21,504 $ 33,740 $ 19,466 $ 55,682
========== ========== ========= =========
Dividends paid.......... $ 32,368 $ 52,569 $ 38,863 $ 10,219(4)
========== ========== ========= =========
OTHER DATA
Cash provided by
operating activities... $ 48,451 $ 59,817 $ 50,452 $ 38,832
Cash used by investing
activities............. (340,149) (265,427) (281,862) (156,282)
Cash provided by
financing activities... 297,136 214,593 216,870 142,381
Funds from
Operations(1).......... 44,506 65,944 44,606 22,517
EBITDA(2)............... 67,494 105,389 82,515 56,560
Ratio of EBITDA to
interest expense....... 2.82 2.74 2.19 1.65
Long-term debt
(including current
maturities) to
Adjusted Total
Assets(3).............. 49.5% 53.4% 47.8% 47.4%
<CAPTION>
LIBERTY PROPERTY TRUST
---------------------------------------------------
HISTORICAL
---------------------------------------------------
DECEMBER 31,
----------------------------------
JUNE 30, 1997 1996 1995 1994
---------------- ---------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Net real estate......... $1,441,977 $1,059,562 $ 826,047 $ 512,281
Total assets............ 1,548,743 1,152,612 898,102 602,981
Long-term indebtedness
(including current
maturities)............ 830,960 678,709 473,909 320,857
Other liabilities ...... 69,396 56,876 47,519 22,625
Shareholders' equity.... 581,992 375,532 335,521 229,667
</TABLE>
S-25
<PAGE>
- --------
(1) "Funds from Operations" is defined by NAREIT as net income or loss
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate-related depreciation
and amortization and excluding significant non-recurring events that
materially distort the comparative measurement of Company performance over
time. Funds from Operations does not represent cash generated from
operating activities in accordance with GAAP and is not necessarily
indicative of cash available to fund cash needs.
(2) EBITDA means operating income before interest, income taxes, depreciation
and amortization. EBITDA does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to operating income or net income as an indicator of
performance or as an alternative to cash flows from operating activities
as an indicator of liquidity. The Company has included information with
respect to EBITDA because it understands that such information is used by
certain investors as one measure of operating performance.
(3) Adjusted Total Assets equals total assets (as determined in accordance
with GAAP) plus accumulated depreciation.
(4) Dividends paid for 1994 relate to the period from June 23, 1994 (inception
of the Company) through December 31, 1994.
S-26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion compares the activities of the Company for the
three and six months ended June 30, 1997 (unaudited) with the activities of
the Company for the three and six months ended June 30, 1996 (unaudited).
RESULTS OF OPERATIONS
For the three and six months ended June 30, 1997 compared to the three and
six months ended June 30, 1996.
Rental revenues increased from $27.1 million to $39.3 million, or by 45%,
for the three months ended June 30, 1996 to 1997 and increased from $53.1
million to $74.0 million, or by 39%, for the six months ended June 30, 1996 to
1997. These increases are primarily due to the increase in the number of
Operating Properties during the respective periods. As of June 30, 1996, the
Company had 230 Operating Properties and as of June 30, 1997, the Company had
326 Operating Properties. From January 1, 1996 through March 31, 1996 and from
April 1, 1996 through June 30, 1996, the Company acquired or completed the
development on five properties and 17 properties, respectively, for a Total
Investment of approximately $18.4 million and $61.6 million, respectively.
From January 1, 1997 through March 31, 1997 and April 1, 1997 through June 30,
1997, the Company acquired or completed the development on 26 properties and
46 properties, respectively, for a Total Investment of approximately $158.9
million and $259.5 million, respectively.
Operating expense reimbursement increased from $8.2 million to $11.9 million
for the three months ended June 30, 1996 to 1997 and from $17.l million to
$22.8 million for the six months ended June 30, 1996 to 1997. This increase is
a result of the reimbursement from tenants for increases in rental property
expenses and real estate taxes. The operating expense recovery percentage (the
ratio of operating expense reimbursement to rental property expenses and real
estate taxes) increased from 87.2% for the three months ended June 30, 1996 to
88.6% for the three months ended June 30, 1997 and from 86.5% for the six
months ended June 30, 1996 to 89.7% for the six months ended June 30, 1997,
due to the increase in occupancy.
Rental property and real estate tax expenses increased from $9.4 million to
$13.5 million for the three months ended June 30, 1996 to 1997 and from $19.8
million to $25.4 million for the six months ended June 30, 1996 to 1997. These
increases are due to the increase in the number of properties owned during the
respective periods, partly offset by a reduction in snow removal and other
seasonal operating costs during the mild 1997 winter compared to the severe
1996 winter.
Property level operating income for the "Same Store" properties (properties
owned as of January 1, 1996) increased from $46.8 million to $49.2 million for
the six months ended June 30, 1996 to 1997, an increase of 5.2%. This increase
is due principally to increases in the rental rates for the properties and
increases in occupancy.
S-27
<PAGE>
Set forth below is a schedule comparing the property level operating income
for the Same Store properties for the six months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
---------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Rental revenue............................................ $51,110 $49,058
Operating expense reimbursement........................... 14,901 15,373
------- -------
66,011 64,431
Rental property expenses.................................. 12,103 12,985
Real estate taxes......................................... 4,662 4,630
------- -------
Property level operating income........................... $49,246 $46,816
======= =======
</TABLE>
General and administrative expenses increased by $345,000 from the three
months ended June 30, 1996 to the comparable period in 1997, and by $1.2
million from the six months ended June 30, 1996 to the comparable period in
1997, due to the increase in personnel and other related overhead costs
necessitated by the increase in the number of properties owned during the
respective periods.
Depreciation and amortization expense increased from $6.7 million for the
three months ended June 30, 1996 to $9.3 million for the three months ended
June 30, 1997 and by $13.2 million for the six months ended June 30, 1996 to
$17.3 million for the six months ended June 30, 1997. This increase is due to
an increase in the number of properties owned during the respective periods.
Interest expense increased from $9.4 million for the three months ended June
30, 1996 to $11.3 million for the three months ended June 30, 1997 and from
$18.6 million for the six months ended June 30, 1996 to $23.9 million for the
six months ended June 30, 1997. This increase is due to an increase in the
average debt outstanding for the second quarter of 1996 compared to the second
quarter of 1997, which equalled $522.9 million and $723.8 million,
respectively, partially offset by reduced interest as a result of the
Debenture conversions. Further, approximately $2.6 million in deferred
financing costs were written off as a result of the termination of certain
secured lines of credit (the "Lines of Credit").
As a result of the foregoing, the Company's operating income increased from
$18.6 million for the three months ended June 30, 1996 to $26.1 million for
the three months ended June 30, 1997 and increased from $36.6 million for the
six months ended June 30, 1996 to $50.2 million for the six months ended June
30, 1997. In addition, income before minority interest for the three months
increased by 40%, from $8.7 million for the three months ended June 30, 1996
to $12.2 million for the three months ended June 30, 1997 and by 34% from
$17.7 million for the six months ended June 30, 1996 to $23.7 million for the
six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash and cash equivalents of $25.1
million. Working capital at June 30, 1997 was $5.9 million.
Net cash flow provided by operating activities increased from $29.8 million
for the six months ended June 30, 1996, to $48.5 million for the six months
ended June 30, 1997. This $18.7 million increase was primarily due to the cash
provided by the additional Operating Properties in service during the latter
period.
Net cash used in investing activities increased from $80.4 million for the
six months ended June 30, 1996, to $340.1 million for the six months ended
June 30, 1997. This increase primarily resulted from increased acquisition
activity in the first six months of 1997, including the acquisition of a
portfolio of 16 properties in the
S-28
<PAGE>
Minneapolis, Minnesota marketplace, a portfolio of 14 properties in the South
Carolina marketplace and a portfolio of seven properties in the Detroit,
Michigan marketplace.
Net cash provided by financing activities increased from $53.6 million for
the six months ended June 30, 1996, to $297.1 million for the six months ended
June 30, 1997. This increase was primarily attributable to the Follow-On
Offering (as defined below) and the exercise of the over-allotment option
which were completed on March 24, 1997 and April 1, 1997, respectively, and
which resulted in the issuance of 8,250,000 Common Shares. The net proceeds of
the offering were approximately $191.7 million.
The Company believes that its undistributed cash flow from operations is
adequate to fund its short-term liquidity requirements.
The Company has funded its long-term liquidity requirements such as property
acquisition and development activities primarily through the Lines of Credit.
During the second quarter of 1997, the Company replaced these secured
facilities with a $325.0 million unsecured Credit Facility.
The interest rate on borrowings under the Credit Facility fluctuates based
upon the Company's leverage levels and ratings from Moody's and Standard &
Poor's. The initial interest rate for borrowings under the Credit Facility was
125 basis points over LIBOR. On June 23, 1997, Moody's raised its prospective
senior debt rating of the Company to Baa3 from Ba2 and on July 22, 1997,
Standard & Poor's assigned a BBB- prospective senior debt rating to the
Company. At these ratings, the interest rate for borrowings under the Credit
Facility is 110 basis points over LIBOR.
Periodically, the Company pays down borrowings on line of credit facilities
with funds from long- term capital sources. In 1997, the Company used $170.0
million of the proceeds from the Follow-On Offering to pay down the Lines of
Credit.
As of June 30, 1997, $388.0 million in mortgage loans were outstanding with
maturities ranging from 1997 to 2013. The interest rates on $353.3 million of
mortgage loans are fixed and range from 6% to 9%. Interest rates on $34.7
million of mortgage loans float with LIBOR or prime, of which $19.3 million is
subject to certain caps. The weighted average interest rate for the mortgage
loans is 7.7%, and the weighted average life is 8.2 years.
General
The Company expects to incur variable rate debt, including borrowings under
the Credit Facility, from time to time. The Company has entered into a swap
agreement, with a notional amount of $119.0 million, to hedge against possible
fluctuations in interest rates in anticipation of a debt issuance in 1997 for
a five- to seven- year term. The Company believes that its existing sources of
capital will provide sufficient funds to finance its continued acquisition and
development activities. In this regard, the Company continues to evaluate its
long-term capital sources which generally include the availability of debt
financing and access to equity.
In July 1995, the Company filed a shelf registration with the Securities and
Exchange Commission that enabled the Company to offer up to an aggregate of
$350.0 million of securities, including common stock, preferred stock and debt
(the "Initial Shelf Registration"). On November 27, 1995, the Company
completed a follow-on public offering of 7,200,000 Common Shares resulting in
proceeds of $140.4 million.
On October 15, 1996, the Company filed a Registration Statement of 1,000,000
shares to be issued through a Dividend Reinvestment and Share Purchase Plan.
On February 21, 1997, the Company filed a shelf registration with the
Securities and Exchange Commission that enables the Company to offer up to an
aggregate of $850.0 million of securities, including common stock,
S-29
<PAGE>
preferred stock and debt (the "Second Shelf Registration"). On March 24, 1997,
the Company completed a public offering (the "Follow-On Offering") which
resulted in the issuance of an additional 7,500,000 Common Shares, and on
April 1, 1997, the over allotment option was exercised, resulting in the
issuance of an additional 750,000 Common Shares. The issuance of these Common
Shares resulted in net proceeds of $191.7 million. Collectively, the Initial
Shelf Registration and the Second Shelf Registration are referred to as the
"Shelf Registration."
The Shelf Registration currently provides Liberty Property Trust and Liberty
Property Limited Partnership with the ability to offer up to $479.4 million
and $400.0 million of securities, respectively.
CALCULATION OF FUNDS FROM OPERATIONS
Management considers Funds from Operations an appropriate measure of the
performance of an equity REIT. Funds from Operations is defined by NAREIT as
net income or loss (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of property, plus real-estate
related depreciation and amortization and excluding significant non-recurring
events that materially distort the comparative measurement of Company
performance over time. Funds from Operations should not be considered as an
alternative to net income or as an alternative to cash flow as a measure of
liquidity. Funds from Operations for the three and six months ended June 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- -----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Income............................... $ 10,955 $ 7,809 $21,504 $15,798
Add Back:
Minority interest...................... 1,250 925 2,225 1,890
Depreciation and amortization.......... 9,209 6,639 17,068 13,027
(Gain) loss on sale.................... 1,143 -- 1,143 (377)
Premium on debenture conversion........ -- 390 -- 390
Write-off of deferred financing costs.. 2,566 -- 2,566 --
--------- --------- ------- -------
Funds from Operations.................... $ 25,123 $ 15,763 $44,506 $30,728
========= ========= ======= =======
</TABLE>
INFLATION
Inflation has remained relatively low during the last three years, and as a
result, it has not had a significant impact an the Company during this period.
The Credit Facility bears interest at a variable rate; therefore, the amount
of interest payable under the Credit Facility will be influenced by changes in
short-term interest rates, which tend to be sensitive to inflation. To the
extent an increase in inflation would result in increased operating costs,
such as in insurance, real estate taxes and utilities, substantially all of
the tenants' leases require the tenants to absorb these costs as part of their
rental obligations. In addition, inflation also may have the effect of
increasing market rental rates.
S-30
<PAGE>
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The Company's Board of Trustees consists of nine members, six of whom are
not employed by or otherwise affiliated with the Company (the "Independent
Trustees"). The following table sets forth certain information with respect to
the trustees and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Willard G. Rouse III............. 55 Chairman of the Board of Trustees and
Chief Executive Officer
Joseph P. Denny.................. 50 President, Chief Operating Officer and
Trustee
George J. Alburger, Jr. ......... 50 Chief Financial Officer and Treasurer
George F. Congdon................ 54 Executive Vice President and Trustee
Robert E. Fenza.................. 40 Executive Vice President
David C. Hammers................. 59 Executive Vice President
James J. Bowes................... 44 Secretary and General Counsel
Frederick F. Buchholz............ 51 Independent Trustee; Executive Vice
President of Equitable Real Estate
J. Anthony Hayden................ 53 Independent Trustee; President of
Hayden Real Estate, Inc.; former
Executive Director and a member of the
Board of Directors of Cushman &
Wakefield, Inc.
M. Leanne Lachman................ 54 Independent Trustee; Managing Director,
Schroder Real Estate Associates and a
director of Lincoln National
Corporation and Chicago Title & Trust
Company
David L. Lingerfelt.............. 44 Independent Trustee; former Director of
Property Administration and Counsel for
Best Products Co., Inc.
John A. Miller, CLU.............. 70 Independent Trustee; Retired Chairman
and Chief Executive Officer of
Provident Mutual Life Insurance Company
of Philadelphia
Stephen B. Siegel................ 52 Independent Trustee; President of the
Insignia/Edward S. Gordon Co., Inc.;
former Chief Executive Officer of
Cushman & Wakefield, Inc.
</TABLE>
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DESCRIPTION OF SERIES A PREFERRED SHARES
This description of the particular terms of the Series A Preferred Shares
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 terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, in each case, if any, as
are permitted by Maryland law and as the Board of Trustees of the Company may
determine by adoption of articles supplementary to the Company's Declaration
of Trust, as amended (the "Declaration of Trust"), without any further vote or
action by the Company's shareholders. See "Description of Preferred Shares" in
the accompanying Prospectus. The Series A Preferred Shares are a series of the
Company's Preferred Shares.
The following summary of the terms and provisions of the Series A 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 creating the Series A Preferred Shares (the
"Designating Amendment"), each of which is available from the Company.
Application has been made to list the Series A Preferred Shares on the NYSE,
subject to official notice of issuance. If so approved for listing, trading of
the Series A Preferred Shares on the NYSE is expected to commence within a 30-
day period after the initial delivery of the Series A Preferred Shares.
The Maryland Real Estate Investment Trust Law and the Company's Declaration
of Trust provide that no shareholder shall be personally liable for any
obligation of the Company. The Company's Declaration of Trust and By-laws
further provide that the Company shall indemnify each shareholder against any
claim or liability to which such holder may become subject by reason of such
person being or having been a shareholder, and that the Company shall
reimburse each shareholder for all legal or other expenses reasonably incurred
by such person in connection with any such claim or liability. It should be
noted, however, that with respect to tort claims, claims for taxes and certain
statutory liabilities, shareholders may, in some jurisdictions, be personally
liable to the extent that such claims are not satisfied by the Company.
Because the Company will carry public liability insurance in amounts that it
considers adequate, any risk of personal liability to shareholders will be
limited to situations in which the Company's assets, together with its
insurance coverage, would be insufficient to satisfy the claims against the
Company and the shareholders, or in which the claim is not covered by the
Company's liability insurance policies.
RANK
The Series A Preferred Shares will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the Company, rank (a)
senior to all classes or series of Common Shares, and to all equity securities
ranking junior to such Series A 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 A
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 A Preferred Shares. The term "equity securities"
does not include convertible debt securities for this purpose.
DIVIDENDS
Holders of Series A Preferred Shares shall be entitled to receive, when and
as authorized by the Board of Trustees, out of funds legally available for the
payment of dividends, cumulative preferential cash dividends at the rate of %
per annum of the $25.00 liquidation preference (equivalent to $ per share).
Such dividends shall be cumulative from the date of original issue and shall
be payable quarterly in arrears on or before
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the 30th day of each January, April, July and October of each year or, if not
a business day, the next succeeding business day (each, a "Dividend Payment
Date"). The first dividend, which will be paid on October 30, 1997, will be
for less than a full quarter. Such dividend and any dividend payable on the
Series A Preferred Shares for any partial dividend period will be computed on
the basis of a 360-day year consisting of twelve 30-day months. Dividends will
be payable to holders of record as they appear in the shareholder records of
the Company at the close of business on the applicable record date, which
shall be the 15th day of the calendar month in which the applicable Dividend
Payment Date falls or on such other date designated by the Board of Trustees
of the Company for the payment of dividends that is not more than 30 nor less
than 10 days prior to such Dividend Payment Date (each, a "Dividend Record
Date").
No dividends on the Series A 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.
Notwithstanding the foregoing, dividends on the Series A Preferred Shares
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends, whether or not any
agreement of the Company prohibits payment of such dividends, and whether or
not such dividends are authorized. Accrued but unpaid dividends on the Series
A Preferred Shares will accumulate as of the Dividend Payment Date on which
they first become payable. Except as set forth in the next sentence, no
dividends will be authorized or paid or set apart for payment on any shares of
beneficial interest of the Company or any other series of Preferred Shares
ranking, as to dividends, on a parity with or junior to the Series A Preferred
Shares (other than a dividend paid in the Common Shares or in shares of any
other class of shares of beneficial interest ranking junior to the Series A
Preferred Shares as to dividends and upon liquidation) for any period unless
full cumulative dividends for all past dividend periods and the then current
dividend period have been or contemporaneously are (i) authorized and paid or
(ii) authorized and a sum sufficient for the payment thereof is set apart for
such payment on the Series A Preferred Shares. When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
Series A Preferred Shares and the shares of any other series of Preferred
Shares ranking on a parity as to dividends with the Series A Preferred Shares,
all dividends authorized upon the Series A Preferred Shares and any other
series of Preferred Shares ranking on a parity as to dividends with the Series
A Preferred Shares shall be authorized pro rata so that the amount of
dividends authorized per share of Series A Preferred Shares and such other
series of Preferred Shares shall in all cases bear to each other the same
ratio that accrued dividends per share on the Series A Preferred Shares and
such other series of Preferred Shares (which shall not include any accrual in
respect of unpaid dividends on such other series of Preferred Shares for prior
dividend periods if such other series of Preferred Shares do not have a
cumulative dividend) bear to each other. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment or payments
on the Series A Preferred Shares which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Shares have been or
contemporaneously are authorized and paid or declared and a sum sufficient for
the payment thereof is set apart for payment for all past dividend periods and
the then current dividend period, no dividends (other than in Common Shares or
other shares of beneficial interest ranking junior to the Series A Preferred
Shares as to dividends and upon liquidation) shall be authorized or paid or
set aside for payment nor shall any other distribution be authorized or made
upon the Common Shares, or any other shares of beneficial interest of the
Company ranking junior to or on a parity with the Series A Preferred Shares as
to dividends or upon liquidation, nor shall any Common Shares, or any other
shares of beneficial interest of the Company ranking junior to or on a parity
with the Series A Preferred Shares as to dividends or upon liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any such
shares) by the Company (except by conversion into or exchange for other shares
of beneficial interest of the Company ranking junior to the Series A Preferred
Shares
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as to dividends and upon liquidation and except for the acquisition of Excess
Shares (as defined below). See "Restrictions on Ownership"). Holders of Series
A Preferred Shares shall not be entitled to any dividend, whether payable in
cash, property or shares of beneficial interest, in excess of full cumulative
dividends on the Series A Preferred Shares as provided above. Any dividend
payment made on the Series A Preferred Shares shall first be credited against
the earliest accrued but unpaid dividend 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 Dividends"), then the portion of the
Capital Gains Amount that will be allocable to the holders of the Series A
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 A Preferred Shares
for the year and the denominator of which shall be the Total Dividends.
The Company will contribute or otherwise transfer the net proceeds of the
sale of the Series A Preferred Shares to the Operating Partnership in exchange
for preferred partnership interests in the Operating Partnership, the economic
terms of which will be substantially identical to the Series A Preferred
Shares. The Operating Partnership will be required to make all required
distributions on such preferred partnership interests (which will mirror the
payments of distributions, including accrued and unpaid distributions upon
redemption, and of the liquidation preference amount on the Series A Preferred
Shares) prior to any distribution of cash or assets to the holders of Units or
to the holders of any other equity interest in the Operating Partnership (debt
securities convertible into or exchangeable for equity securities shall not be
deemed to constitute equity interests for such purpose), except for any other
series of preference interests ranking on a parity with such preferred
partnership interests as to distributions and/or liquidation rights and except
for distributions required to enable the Company to maintain its
qualifications as a REIT.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of Series A Preferred Shares are
entitled to be paid out of the assets of the Company legally available for
distribution to its shareholders a liquidation preference of $25.00 per share,
plus an amount equal to any accrued and unpaid dividends to the date of
payment (whether or not declared), before any distribution of assets is made
to holders of Common Shares or any other class or series of shares of
beneficial interest of the Company that ranks junior to the Series A Preferred
Shares as to liquidation rights. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of
the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding Series A Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of
shares of beneficial interest of the Company ranking on a parity with the
Series A Preferred Shares in the distribution of assets, then the holders of
the Series A Preferred Shares and all other such classes or series of shares
of beneficial interest shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled. Holders of Series A Preferred Shares will
be entitled to written notice of any such liquidation. After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of Series A Preferred Shares will have no right or claim to any of the
remaining assets of the Company. The consolidation or merger of the Company
with or into any other corporation, trust or entity or of any other
corporation, trust or other entity with or into the Company, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
REDEMPTION
The Series A Preferred Shares are not redeemable prior to , 2002.
However, in order to ensure that the Company remains a qualified REIT for
federal income tax purposes, Series A Preferred Shares will be subject to the
Declaration of Trust, pursuant to which Series A Preferred Shares owned by a
shareholder in excess
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<PAGE>
of the Ownership Limit (as defined below) will automatically be exchanged for
Excess Shares, and the Company will have the right to purchase Excess Shares
from the holder. See "Restrictions on Ownership." On and after , 2002, the
Company, at its option upon not less than 30 nor more than 60 days' written
notice, may redeem the Series A 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 dividends thereon to the date fixed for redemption
(except as provided below), without interest. If less than all of the
outstanding Series A Preferred Shares are to be redeemed, the Series A
Preferred Shares to be redeemed shall be redeemed pro rata (as nearly as may
be practicable without creating fractional shares) or by any other equitable
method determined by the Company. The redemption price of the Series A
Preferred Shares (other than the portion thereof consisting of accrued and
unpaid dividends) is payable from any source of proceeds, but only in an
amount which does not exceed the amount of net proceeds from the sale of other
shares of beneficial interest of the Company, which may include other series
of Preferred Shares, issued during the 30-day period preceding the date of
such redemption. For purposes of the preceding sentence, "shares of beneficial
interest" means any equity securities (including Common Shares and Preferred
Shares), shares, interests, participations 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 A Preferred Shares to be redeemed shall surrender
such Series A Preferred Shares at the place designated in such notice and
shall be entitled to the redemption price and any accrued and unpaid dividends
payable upon such redemption following such surrender. If notice of redemption
of any Series A 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 A Preferred Shares so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Series A Preferred Shares, such shares of Series A 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 dividends payable upon such redemption. If less than all of the
outstanding Series A Preferred Shares is to be redeemed, the Series A
Preferred Shares to be redeemed shall be selected pro rata (as nearly as may
be practicable without creating fractional shares) or by any other equitable
method determined by the Company.
Unless full cumulative dividends on all Series A 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 dividend
periods and the then current dividend period, no Series A Preferred Shares
shall be redeemed unless all outstanding Series A Preferred Shares are
simultaneously redeemed and the Company shall not purchase or otherwise
acquire directly or indirectly any Series A Preferred Shares (except by
exchange for shares of beneficial interest of the Company ranking junior to
the Series A Preferred Shares as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase by the Company of
Excess Shares in order to ensure that the Company remains qualified as a REIT
for federal income tax purposes, as described under "Restrictions on
Ownership," or the purchase or acquisition of Series A Preferred Shares
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Series A 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 the Series A
Preferred Shares to be redeemed at their respective addresses as they appear
on the share transfer records 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 A Preferred Shares except as
to a 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 A Preferred Shares to be redeemed; (iv) the place or places where the
Series A Preferred Shares are to be surrendered for payment of the redemption
price; and (v) that dividends on the Series A Preferred Shares to be redeemed
will cease to accrue on such redemption date. If less than all of the Series A
Preferred Shares held by any holder is to be redeemed, the notice mailed to
such holder shall also specify the number of Series A Preferred Shares held by
such holder to be redeemed.
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Immediately prior to any redemption of Series A Preferred Shares, the
Company shall pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a Dividend Record Date
and prior to the corresponding Dividend Payment Date, in which case each
holder of Series A Preferred Shares at the close of business on such Dividend
Record Date shall be entitled to the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the redemption of such
shares before such Dividend Payment Date. Except as provided above, the
Company will make no payment or allowance for unpaid dividends, whether or not
in arrears, on Series A Preferred Shares for which a notice of redemption has
been given.
The Series A Preferred Shares will have no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to
ensure that the Company remains a qualified REIT for federal income tax
purposes, Series A Preferred Shares owned by a shareholder in excess of the
Ownership Limit will automatically be exchanged for Excess Shares, and the
Company will have the right to purchase Excess Shares from the holder. Excess
Shares into which Series A Preferred Shares have been exchanged may be
redeemed, in whole or in part, and, if in part, 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 by any
other equitable method determined by the Company, at any time when outstanding
Series A Preferred Shares are being redeemed.
VOTING RIGHTS
Holders of the Series A Preferred Shares will not have any voting rights,
except as set forth below.
Whenever dividends on any Series A Preferred Shares shall be in arrears for
six or more consecutive or non-consecutive quarterly periods (a "Preferred
Dividend Default"), the holders of such Series A Preferred Shares (voting
separately as a class with all other series of Preferred Shares ranking on a
parity with the Series A Preferred Shares as to dividends or upon liquidation
("Parity Preferred") upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of a total of two
additional trustees of the Company (the "Preferred Shares Trustees") at a
special meeting called by the holders of record of at least 20% of the
outstanding Series A Preferred Shares or the holders of shares of any series
of Parity Preferred 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 annual meeting until all dividends accumulated on such Series A
Preferred Shares for the past dividend periods and the accrued dividend for
the then current dividend period shall have been fully paid or authorized and
a sum sufficient for the payment thereof set aside for payment in full. If and
when all accumulated dividends and the accrued dividend for the then current
dividend period on the Series A Preferred Shares shall have been paid in full
or set aside for payment in full, the holders thereof shall be divested of the
foregoing voting rights (subject to revesting in the event of each and every
subsequent Preferred Dividend Default) and, if all accumulated dividends and
the accrued dividend for the current dividend period have been paid on all
series of Parity Preferred upon which like voting rights have been conferred
and are exercisable, the term of office of each Preferred Shares Trustee so
elected shall terminate. Any Preferred Shares Trustee may be removed at any
time with or without cause by, and shall not be removed otherwise than by the
vote of, the holders of record of a majority of the outstanding Series A
Preferred Shares (voting separately as a class with all series of Parity
Preferred upon which like voting rights have been conferred and are
exercisable). So long as a Preferred Dividend Default shall continue, any
vacancy in the office of a Preferred Shares Trustee may be filled by written
consent of the Preferred Shares Trustee remaining in office, or if none
remains in office, by a vote of the holders of record of a majority of the
outstanding Series A Preferred Shares when they have the voting rights
described above (voting separately as a class with all series of Parity
Preferred upon which like voting rights have been conferred and are
exercisable). Each of the Preferred Shares Trustees shall be entitled to one
vote on any matter.
So long as any Series A Preferred Shares remain outstanding, the Company
shall not, without the affirmative vote or consent of the holders of at least
two-thirds of the Series A 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),
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(a) authorize or create, or increase the authorized or issued amount of, any
class or series of shares of beneficial interest ranking prior to the Series A
Preferred Shares with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up or reclassify any
authorized shares of beneficial interest of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (b) amend, alter or
repeal the provisions of the Designating Amendment, whether by merger,
consolidation or otherwise, so as to materially and adversely affect any
right, preference, privilege or voting power of the Series A Preferred Shares
or the holders thereof or (c) enter into a consolidation or merger in which
another entity is the surviving entity, unless the holders of the Series A
Preferred Shares receive a preference security the rights, preferences,
privileges and voting power of which do not differ from those of the Series A
Preferred Shares in any manner which is material and adverse to the holder of
the Series A Preferred Shares; provided, however, that with respect to the
occurrence of any event set forth in (b) or (c) above, so long as the Series A
Preferred Shares remain outstanding with the terms thereof materially
unchanged, or the terms of the securities issued in exchange for the Series A
Preferred Shares in the consolidation or merger are not materially different
from those of the Series A Preferred Shares, the occurrence of any such event
shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers of the holders of the Series A
Preferred Shares and provided further that any increase in the amount of the
authorized Preferred Shares or the creation or issuance of any other series of
Preferred Shares, or any increase in the amount of authorized shares of such
series, in each case ranking on a parity with or junior to the Series A
Preferred Shares with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
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 effected, all outstanding Series A 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
The Series A Preferred Shares are not convertible into or exchangeable for
any other property or securities of the Company, except that the Series A
Preferred Shares are exchangeable for Excess Shares, in accordance with the
Declaration of Trust. See "Restrictions on Ownership."
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, the Shares must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. In addition, not more than 50%
of the value of the issued and outstanding Shares may be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include as
one individual certain entities) during the last half of a taxable year (other
than the first year) or during a proportionate part of a shorter taxable year.
Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions, provides that no holder may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 5.0% (the "Ownership Limit")
of the number or value of the issued and outstanding Shares. The Company's
Board of Trustees, upon receipt of a ruling from the Internal Revenue Service
(the "IRS"), an opinion of counsel, or other evidence satisfactory to the
Board of Trustees, and upon such other conditions as the Board of Trustees may
direct, may also exempt a proposed transferee from the Ownership Limit. As a
condition of such exemption, the intended transferee must give written notice
to the Company of the proposed transfer no later than the fifteenth day prior
to any transfer which, if consummated, would result in the intended transferee
owning Shares in excess of the Ownership Limit. The Board of Trustees of the
Company may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to determine or
ensure the Company's status as a REIT. Any transfer of Shares that would (i)
create a direct or indirect ownership of Shares in excess of the Ownership
Limit, (ii) result in the Shares being owned by fewer than 100 persons or
(iii) result in the Company being "closely
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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
foregoing restrictions on transferability and ownership will not apply if the
Board of Trustees determines that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT.
Any purported transfer of Shares that would (i) result in a person owning
Shares in excess of the Ownership Limit, (ii) cause the Company to become
"closely held" under Section 856(h) of the Code or (iii) cause the Shares to
be owned by fewer than 100 persons and is not otherwise permitted as provided
above will result in those of the transferred Shares which cause any of the
events in clauses (i) through (iii) above to occur to become excess shares
("Excess Shares"), which will be transferred by operation of law to the
Company as trustee for the exclusive benefit of one or more organizations
described in Sections 170(b)(1)(A) and 170(c) of the Code ("Charitable
Beneficiary"). While these Excess Shares are held in trust, the trustee of the
trust will be deemed to have an irrevocable proxy to vote the Excess Shares
for the benefit of the Charitable Beneficiary and will hold any dividends
payable with respect to the Excess Shares in trust for the Charitable
Beneficiary. Subject to the Ownership Limit, the Excess Shares may be
retransferred by the trustee of the trust to any person (if the Excess Shares
would not be Excess Shares in the hands of such person). If such a transfer is
made, the interest of the Charitable Beneficiary would terminate and proceeds
of the sale would be payable to the intended transferee and to the Charitable
Beneficiary. The intended transferee would receive the lesser of (1) the price
paid by the intended transferee or, if the intended transferee did not give
value for such Excess Shares (e.g., a transfer by gift or devise), the fair
market value (as described below) at the time of the purported transfer that
resulted in the Excess Shares and (2) the price per share received by the
trustee from the sale or other disposition of the Excess Shares held in trust.
Any proceeds in excess of the amount payable to the intended transferee will
be payable to the Charitable Beneficiary. In addition, such Excess Shares held
in trust are subject to purchase by the Company at a purchase price equal to
the lesser of the price paid for the Shares by the intended transferee (or, in
the case of a devise or gift, the fair market value at the time of such devise
or gift) and the fair market value of the Shares on the date the Company
exercises its right to purchase. Fair market value shall be the last reported
sales price reported on the NYSE on the trading day immediately preceding the
relevant date, or if not then traded on the NYSE, the last reported sales
price of such Shares on the trading day immediately preceding the relevant
date as reported on any exchange or quotation system over which such Shares
may be traded, or if not then traded over any exchange or quotation system,
then the fair market value of such Shares on the relevant date as determined
in good faith by the Board of Trustees of the Company. The Company's right to
purchase may be exercised during the 90 day period beginning immediately after
the later of the date of the purported transfer which resulted in the Excess
Shares and the date the Board of Trustees determines in good faith that such a
transfer has occurred. From and after the intended transfer to the intended
transferee of the Excess Shares, the intended transferee 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
on the retransfer of Shares as provided above and except for certain
distributions upon liquidation. Any dividends or distribution paid to a
proposed transferee on Excess Shares prior to the discovery by the Company
that such Shares have been transferred in violation of the provisions of the
Company's Declaration of Trust shall be repaid to the Company upon demand. Any
dividends so disgorged will then be paid over to the trustee and held in trust
for the Charitable Beneficiary. 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 may be
deemed, at the option of the Company, to have acted as an agent on behalf of
the Company in acquiring such Excess Shares and to hold such Excess Shares on
behalf of the Company.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5.0% (or such other percentage between 0.5% and 5.0%, as
provided in the rules and regulations promulgated under the Code) of the
number or value of the outstanding Shares must give a written notice to the
Company by January 31 of each year. In addition, each shareholder shall be
required upon demand 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 deems reasonably necessary to comply with the provisions
of the Code applicable to a REIT, to
S-38
<PAGE>
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
TRANSFER AGENT
The transfer agent, registrar and dividend disbursing agent for the Series A
Preferred Shares will be Boston EquiServe.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations to the
shareholders is based on current law, is for general information only and is
not tax advice. This discussion does not purport to deal with all aspects of
taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or, except to the extent discussed
under the headings "Taxation of Tax-Exempt Shareholders" and "Taxation of
Foreign Shareholders," to certain types of shareholders (including insurance
companies, financial institutions or broker-dealers) subject to special
treatment under the federal income tax law.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE PREFERRED SHARES OFFERED HEREBY, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
For a summary of the material federal income tax considerations to the
Company or the impact on the Company of its election to be taxed as a REIT,
see "Federal Income Tax Considerations with Respect to the Trust and the
Operating Partnership" in the accompanying Prospectus.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
Distributions. As long as the Company qualifies as a REIT, distributions
made to the Company's taxable U.S. shareholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by such U.S. shareholders as ordinary income and will not
be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the shareholder has held its shares. The portion of the Company's dividend
payable with respect to the Series A Preferred Shares that will be treated as
a capital gain dividend, assuming the appropriate designation is made by the
Company, will be as described in "Description of Series A Preferred Shares--
Dividends." Corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
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
shareholder's shares, they will be included in income as long-term capital
gain (or short-term capital gain if the shares have been held for one year or
less) assuming the shares are a capital asset in the hands of the shareholder.
In addition, any dividend 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 during January of the following calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. If the dividend
distributions by the Company (not designated as capital gains dividends)
exceed the earnings and profits of the Company for the current year and its
accumulated earnings and profits, the earnings and profits of the Company will
first be applied to the dividend distribution for the Series A Preferred
Shares and thereafter, to distributions on the Common Shares.
S-39
<PAGE>
Shareholders may not include in their individual federal income tax returns
any net operating losses or capital losses of the Company.
Sale or Exchange of Series A Preferred Shares. Upon the sale or exchange of
Series A Preferred Shares to or with a person other than the Company, a
shareholder generally will recognize gain or loss equal to the difference
between (i) the amount of cash and the fair market value of any property
received (less any portion thereof attributable to accumulated and declared
but unpaid dividends, which will be taxable as a dividend to the extent of the
Company's current and accumulated earnings and profits) and (ii) the
shareholder's adjusted tax basis in such shares. Such gain or loss will be
capital gain or loss if the Series A Preferred Shares have been held as a
capital asset, and will be long-term gain or loss if such shares have been
held for more than one year. Any loss upon a sale or exchange of Series A
Preferred Shares by a shareholder who held such Series A Preferred Shares for
six months or less (after applying certain holding period rules) generally
will be treated as a long-term capital loss to the extent such shareholder
previously received capital gain distributions with respect to such Series A
Preferred Shares.
Redemption of Series A Preferred Shares. A redemption of Series A Preferred
Shares will be treated under Section 302 of the Code as a distribution taxable
as a dividend (to the extent of the Company's current and accumulated earnings
and profits) at ordinary income rates unless the redemption satisfies one of
the tests set forth in Section 302(b) of the Code and is therefore treated as
a sale or exchange of the redeemed shares. The redemption will be treated as a
sale or exchange if it (i) results in a "complete termination" of the
shareholder's share interest in the Company or (ii) is "not essentially
equivalent to a dividend" with respect to the shareholder, all within the
meaning of Section 302(b) of the Code. In determining whether any of these
tests have been met, Series A Preferred Shares considered to be owned by a
shareholder by reason of certain constructive ownership rules set forth in the
Code, as well as Series A Preferred Shares actually owned by such shareholder,
must generally be taken into account. If a particular holder of Series A
Preferred Shares owns (actually or constructively) no Common Shares, or an
insubstantial percentage of the outstanding Common Shares, a redemption of
Series A Preferred Shares of such shareholder is likely to qualify for sale or
exchange treatment because the redemption would not be "essentially equivalent
to a dividend." However, because the determination as to whether any of the
alternative tests of Section 302(b) of the Code will be satisfied with respect
to any particular shareholder of Series A Preferred Shares depends upon the
facts and circumstances at the time that the determination must be made,
prospective shareholders of Series A Preferred Shares are advised to consult
their own tax advisors to determine such tax treatment.
If a redemption of Series A Preferred Shares is not treated as a
distribution taxable as a dividend to a particular shareholder, it will be
treated as to that shareholder as a taxable sale or exchange. (See "Sale or
Exchange of Series A Preferred Shares" above.)
If a redemption of Series A Preferred Shares is treated as a distribution
taxable as a dividend, the amount of the distribution will be measured by the
amount of cash and the fair market value of any property received by such
shareholders. The shareholder's adjusted basis in the redeemed Series A
Preferred Shares for tax purposes will be transferred to such shareholder's
remaining shares of the Company. If the shareholder owns no other shares of
the Company, such basis may, under certain circumstances, be transferred to a
related person or it may be lost entirely.
BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld,
if any. Under the backup withholding rules, a shareholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid
unless such shareholder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder that does not provide the Company with
his correct taxpayer identification number may also be subject to penalties
imposed
S-40
<PAGE>
by the IRS. Any amount paid as backup withholding will be creditable against
the shareholder's income tax liability. In addition, 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. See
"Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Generally, distributions to a tax-exempt entity from a REIT do not
constitute unrelated business taxable income, as defined in Section 512(a) of
the Code ("UBTI"), provided that the tax-exempt entity has not financed its
acquisition of its shares with "acquisition indebtedness" within the meaning
of the Code and the shares are not otherwise used in an unrelated trade or
business of the tax-exempt entity. Thus, distributions by the Company to
shareholders that are tax-exempt should not be taxable as UBTI, provided that
no acquisition indebtedness was incurred with respect to such shares.
Some or all of the distributions by a REIT to a tax-exempt employee's
pension fund that owns more than 10 percent in value of the REIT are treated
as UBTI if the REIT constitutes a "pension-held REIT" and if other conditions
are met. In order to constitute a "pension-held REIT" the REIT must meet the
test for classification as a REIT only because tax-exempt pension funds are
not treated as a single individual for purposes of the "five-or-fewer" rule
and either (A) one pension fund owns more than 25 percent in value of the REIT
or (B) one or more pension funds (each owning more than 10 percent in value of
the REIT each) own, in the aggregate, more than 50 percent of the value of the
REIT. In addition, the gross income of the REIT derived from activities that
would constitute unrelated trades or businesses, computed as if the REIT was a
"qualified trust," must be at least five percent of the gross income of the
REIT in the taxable year in which the distributions are made. The ownership
limitations in the Company's Declaration of Trust (assuming no waiver by the
Board of Trustees) should prevent the Company from being classified as a
"pension-held REIT."
TAXATION OF 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 the 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 the Series A Preferred Shares offered hereby,
including any reporting requirements. If income from the investment in the
Series A Preferred Shares offered hereby 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 the
dividends (and may also be subject to the 30% "branch profits" tax in the case
of a shareholder that is a foreign corporation). The remainder of this
discussion assumes that the distributions do not constitute "effectively
connected" income.
Distributions by the Company that are not attributable to gain from sales or
exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current
or accumulated earnings and profits of the Company. Such distributions,
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. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Shareholder to the extent that such distributions do not exceed the adjusted
basis of such Non-U.S. Shareholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's shares, such distributions 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. The Company expects to withhold United States income tax at the rate of
30% on the gross amount of any distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and the Non-U.S. Shareholder files all
necessary forms
S-41
<PAGE>
required to establish eligibility for the lower rate and provides
certification as to such eligibility, if necessary, or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Company certifying that the
investment to which the distribution relates is "effectively connected" to a
United States trade or business of such Non-U.S. Shareholder. Lower treaty
rates generally applicable to dividend income may not necessarily apply to
distributions from a REIT, such as the Company. 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. Pursuant to recently
enacted legislation, effective for distributions made after August 20, 1996,
the Company is obligated to withhold 10% of the amount of any distribution in
excess of the Company's current and accumulated earnings and profits. However,
amounts withheld are refundable if it is subsequently determined that the
distribution was in excess of current and accumulated earnings and profits of
the Company and the amount withheld exceeded the Non-U.S. Shareholders' United
States tax liability, if any.
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 the gain were "effectively connected" with a United States
business. Non-U.S. Shareholders would 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 by applicable Treasury
Regulations to withhold 35% of any distribution that could be designated by
the Company as a capital gains 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 shares was held directly or
indirectly by foreign persons. The Company currently is a "domestically
controlled REIT," and anticipates continuing to be so classified, and
therefore the sale of the Common Shares offered hereby should 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 the gain (a Non-U.S. Shareholder that is a
foreign corporation may also be subject to the 30% "branch profits" tax), 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 the gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals and, in the case of foreign corporations, subject to the
possible application of the 30% "branch profits" tax).
If the proceeds of a disposition of Series A Preferred Shares are paid by or
through a United States office of a broker, the payment is subject to
information reporting requirements and to backup withholding unless the
disposing Non-U.S. Shareholder certifies as to his name, address, and non-
United States status or otherwise establishes an exemption. Generally, United
States information reporting and backup withholding will not apply to the
payment of disposition proceeds if the payment is made outside the United
States through a non-United States broker. United States information reporting
(but not backup withholding) will apply, however, to a payment of disposition
proceeds outside the United States if (i) the payment is made through an
office outside the United States that is either (a) a United States person,
(b) a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States or (c) a
"controlled foreign corporation" for United States federal income tax
purposes, and (ii) the broker fails to obtain documentary evidence that the
shareholder is a Non-U.S. Shareholder and that certain conditions are met or
that
S-42
<PAGE>
the Non-U.S. Shareholder is otherwise entitled to an exemption. In 1996, the
IRS proposed changes to the rules applicable to payments to foreign persons.
Generally, these changes are proposed to be effective for payments made after
December 31, 1997, although special transitional rules will be applicable in
the case of certain dividend distributions. Among the changes in the
regulations are new intermediary certification options designed to simplify
compliance by withholding agents.
OTHER TAX CONSEQUENCES
The Company's shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which they transact
business or reside. The state and local tax treatment of the Company's
shareholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Company.
S-43
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters") for whom Lehman Brothers Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, A.G. Edwards & Sons,
Inc., PaineWebber Incorporated and Smith Barney Inc. are acting as
representatives (the "Representatives"), and each of the Underwriters has
severally agreed to purchase from the Company, the number of Series A
Preferred Shares set forth below opposite its respective name.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SERIES A PREFERRED SHARES
------------ -------------------------
<S> <C>
Lehman Brothers Inc. .........................
Donaldson, Lufkin & Jenrette Securities
Corporation .................................
A.G. Edwards & Sons, Inc. ....................
PaineWebber Incorporated......................
Smith Barney Inc. ...........................
-----------
Total.....................................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Series A Preferred Shares are subject to the
conditions contained therein, and that if any of the Series A Preferred Shares
are purchased by the Underwriters pursuant to the Underwriting Agreement, all
the Series A Preferred Shares agreed to be purchased by the Underwriters must
be so purchased.
The Company has been advised by the Underwriters that they propose to offer
the Series A Preferred Shares directly to the public at the initial public
offering price set forth on the cover page of this Prospectus Supplement and
to certain dealers at such public offering price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
underwriters or to certain other brokers or dealers. After the initial public
offering, the public offering price, the concession to selected dealers and
the reallowance to the other dealers may be changed by the Representatives.
The Company has granted to the Underwriters an option to purchase up to an
additional 600,000 Series A Preferred Shares at the initial public offering
price less underwriting discounts and commissions, solely to cover
overallotments, if any. The Underwriters may exercise this option at any time
up to 30 days after the date of this Prospectus Supplement. To the extent that
the Underwriters exercise this option, each of the Underwriters will be
obligated, subject to certain conditions, to purchase a number of additional
Series A Preferred Shares proportionate to such Underwriter's initial
commitment reflected in the foregoing table.
The Company has 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.
Application has been made to list the Series A Preferred Shares on the NYSE,
subject to official notice of issuance. If so approved for listing, trading of
the Series A Preferred Shares on the NYSE is expected to commence within a 30-
day period after the initial delivery of the Series A Preferred Shares. The
Company has been advised by the Underwriters that they presently intend to
make a market in the Series A Preferred Shares prior to the commencement of
trading on the NYSE, as permitted by applicable law and regulations. The
Underwriters are not obligated, however, to make a market in the Series A
Preferred Shares and any such market making may be discontinued at any time at
the sole discretion of the Underwriters. Accordingly, no assurance can be
given as to the liquidity of, or the existence of trading markets for, the
Series A Preferred Shares.
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment
banking services for the Company, for which customary compensation has been
received.
S-44
<PAGE>
LEGAL MATTERS
Weinberg & Green LLC, Baltimore, Maryland, will render an opinion that the
Series A Preferred Shares offered hereby, when issued and paid for by the
purchasers thereof, will be validly issued, fully paid and non-assessable. The
statements in this Prospectus Supplement under the caption "Federal Income Tax
Considerations" will be passed upon for the Company by Wolf, Block, Schorr and
Solis-Cohen LLP, Philadelphia, Pennsylvania, although Wolf, Block, Schorr and
Solis-Cohen LLP has rendered no opinion on matters involving the imposition of
non-U.S. taxes on the operations of, and distributions or payments from, the
Company's United Kingdom affiliates. Rogers & Wells, New York, New York, will
pass upon certain legal matters for the Underwriters. Wolf, Block, Schorr and
Solis-Cohen LLP and Rogers & Wells will rely on Weinberg & Green LLC as to
matters of Maryland law. Michael M. Dean, a partner in Wolf, Block, Schorr and
Solis-Cohen LLP, is the sole trustee of irrevocable trusts established by
three of the Company's senior executives for the benefit of such executives'
children. Each of such trusts received Units in the transactions consummated
at the time of the Company's initial public offering in exchange for interests
in the Predecessor owned by such trusts.
S-45
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX "A"
PROPERTY LIST
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE JUNE 30, NO. OF
PROJECT NAME TYPE DEVEL. SQ. FT.(1) 1997(2) LEASES MAJOR TENANT
- ------------ -------- ------ ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
SOUTHEASTERN PENNSYLVA-
NIA
10, 20 Liberty Boule- Great Valley Health
vard................... Ofc. 1985 62,237 90.3% 24 Club, Inc.
Ind.-
420 Lapp Road........... Flex 1989 92,250 99.6 9 Akzo Coatings, Inc.
Ind.-
1 Chelsea Parkway....... Flex 1989 43,267 99.0 6 Valtek Incorporated
Ind.- United Engineers &
3 Chelsea Parkway....... Flex 1989 43,240 43.6 2 Constructors
Axon Communications,
747 Dresher Road........ Ofc. 1988 53,200 100.0 2 Inc.
45-67 Great Valley Park- Ind.-
way.................... Dist. 1974 128,001 100.0 7 Taylor Publishing Co.
Ind.- Safeguard Business
1180 Church Road........ Dist. 1986 452,323 56.3 3 Systems, Inc.
40 Valley Stream Park- Sanchez Computer
way.................... Ofc. 1987 31,092 100.0 1 Associates
50 Valley Stream Park- Fisher Scientific
way.................... Ofc. 1987 31,000 100.0 3 Company
20 Valley Stream Park-
way.................... Ofc. 1987 58,837 100.0 11 Shared Medical Systems
Ind.-
800 Town Center Drive... Flex 1987 141,714 91.3 15 ICT Group, Inc.
Employers Mutual
1610 Medical Drive...... Ofc. 1986 38,100 54.4 5 Casualty Co.
11, 15 Great Valley
Parkway................ Ofc. 1986 156,800 100.0 2 Sanofi Winthrop, Inc.
257-275 Great Valley Ind.- Business Mail Express,
Parkway................ Flex 1983 71,285 100.0 7 Inc.
Ind.-
300 Technology Drive.... Dist. 1985 22,500 100.0 1 Nilfisk of America, Inc.
277-293 Great Valley Ind.- Alpha Scientific
Parkway................ Flex 1984 28,800 100.0 7 Corporation
311 Technology Drive.... Ofc. 1984 29,350 100.0 3 Sherwin-Williams Co.
325 Technology Drive.... Ofc. 1984 25,000 100.0 1 Premier Solutions Ltd.
7 Great Valley Parkway.. Ofc. 1985 59,021 97.8 13 Executive Office Link
55 Valley Stream Park- Meridian Asset
way.................... Ofc. 1983 40,057 100.0 2 Management, Inc.
65 Valley Stream Park- Liberty Property Limited
way.................... Ofc. 1983 58,219 92.2 8 Ptsp.
Ind.-
508 Lapp Road........... Dist. 1984 50,200 100.0 1 Numar Corporation
10 Valley Stream Park- West Chester
way.................... Ofc. 1984 33,027 100.0 8 Administrative
Ind.- Veterans Life Insurance
333 Phoenixville Pike... Dist. 1985 84,000 100.0 1 Co.
General Physics
1566 Medical Drive...... Ofc. 1985 28,540 88.1 5 Corporation
30 Great Valley Park- Ind.-
way.................... Dist. 1975 12,000 100.0 1 Sanofi Winthrop, Inc.
75 Great Valley Park- Ind.-
way.................... Dist. 1977 11,600 100.0 1 York International Corp.
27-43 Great Valley Park- Ind.-
way.................... Flex 1977 60,623 100.0 5 Sanofi Winthrop, Inc.
77-123 Great Valley Ind.-
Parkway................ Flex 1978 104,095 99.3 19 Durant Medical, Inc.
260 Great Valley Park- Ind.-
way.................... Dist. 1979 50,000 100.0 1 American Parts Systems
256 Great Valley Park- Ind.-
way.................... Dist. 1980 56,160 100.0 1 Centocor, Inc.
205 Great Valley Park- Ind.-
way.................... Dist. 1981 184,500 100.0 4 General Electric Company
12, 14, 16 Great Valley
Parkway................ Ofc. 1982 20,546 100.0 3 Sanofi Winthrop, Inc.
155 Great Valley Park- Ind.-
way.................... Dist. 1981 71,200 100.0 1 Ensoniq Corporation
333 Technology Drive.... Ofc. 1987 39,769 100.0 1 Premier Solutions, Ltd.
Ind.-
510 Lapp Road........... Dist. 1983 27,167 100.0 1 Trugreen
Ind.- Silgan Plastics
181 Wheeler Court....... Dist. 1979 100,000 49.7 2 Corporation
Ind.- National Business
1100 Wheeler Way........ Dist. 1979 40,915 100.0 1 Services, Inc.
60 Morehall Road........ Ofc. 1989 114,430 100.0 3 Vanguard Group
Ind.-
905 Airport Road........ Dist. 1988 128,588 100.0 6 Arco Chemical Company
Ind.- White Consolidated
16 Cabot Boulevard...... Dist. 1972 299,192 100.0 1 Industries
Systems & Computer
1 Country View Road..... Ofc. 1982 48,900 100.0 1 Technology
Ind.-
2151 Cabot Boulevard.... Dist. 1982 114,760 100.0 1 Schwarz Paper Company
AT&T Resource Management
170 S Warner Road....... Ofc. 1980 87,685 100.0 6 Corp.
Electronic Data Systems
190 S Warner Road....... Ofc. 1980 87,500 100.0 1 Corp.
Ind.- Prudential Insurance
507 Prudential Road..... Flex 1988 105,500 100.0 1 Company
GMAC Mortgage
100 Witmer Road......... Ofc. 1995 139,546 100.0 1 Corporation
Ind.-
3100 Horizon Boulevard.. Flex 1995 41,000 100.0 1 Vtel Corporation
Ind.- Central National-
3300 Horizon Boulevard.. Dist. 1996 92,000 100.0 1 Gottesman, Inc.
Ind.- SmithKline Beecham
3500 Horizon Boulevard.. Flex 1996 65,579 100.0 1 Clinical
200 Chester Field Park-
way.................... Ofc. 1989 28,919 100.0 3 Waverly, Inc.
Ind.- Diversified
767 Electronic Drive.... Flex 1996 45,000 100.0 1 Pharmaceutical Svc.
5 Country View Road..... Ofc. 1985 63,170 100.0 2 HBO & Company of Georgia
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE JUNE 30, NO. OF
PROJECT NAME TYPE DEVEL. SQ. FT.(1) 1997(2) LEASES MAJOR TENANT
- ------------ -------- ------ ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ind.-
3200 Horizon Boulevard.. Flex 1996 60,000 100.0 1 Fund/Plan Services, Inc.
Kulicke & Soffa
111-195 Witmer Road..... Ofc. 1996 55,354 76.1 11 Industries, Inc.
2460 General Armistead Ind.- Midlantic Distribution
Avenue................. Flex 1985 36,831 93.0 8 Co.
2490 General Armistead Ind.- Barefoot Grass Lawn
Avenue................. Flex 1985 20,811 82.7 6 Service
Delta Information
300 Welsh Road.......... Ofc. 1983 23,461 100.0 4 Systems Inc.
National Fraud
400 Welsh Road.......... Ofc. 1983 36,723 96.7 5 Investigations
440 E. Swedesford Road.. Ofc. 1988 75,842 95.4 9 Genex Services Inc.
Johnson-Matthey
460 E. Swedesford Road.. Ofc. 1988 73,105 97.7 8 Investments
Toyota Motor Credit
2 Walnut Grove Drive.... Ofc. 1989 81,846 76.7 12 Corp.
Great West Life
200 Gibralter Road...... Ofc. 1990 64,452 87.3 10 Assurance
Prudential Insurance
220 Gibralter Road...... Ofc. 1990 63,587 100.0 1 Company
Prudential Insurance
240 Gibralter Road...... Ofc. 1990 63,587 100.0 1 Company
Paging Network of
151 S Warner Road....... Ofc. 1980 84,066 97.7 10 Philadelphia
1 Walnut Grove Drive.... Ofc. 1986 66,372 100.0 1 Merck & Company
First Benefits Agency,
650 Swedesford Road..... Ofc. 1971 100,410 4.9 2 Inc.
680 Swedesford Road..... Ofc. 1971 100,352 0.0 --
931 South Matlack Ind.- Electronics Boutique,
Street................. Dist. 1985 139,500 100.0 1 Inc.
Ind.-
14 Lee Boulevard........ Flex 1988 89,026 92.4 4 Vanguard Group
500 Chester Field Park- Becket, Watkins and
way.................... Ofc. 1988 30,815 100.0 2 Associates
300-400 Chester Field
Parkway................ Ofc. 1988 50,383 100.0 3 Amerisource Corporation
Ind.-
3000 Horizon Boulevard.. Flex 1997 43,200 100.0 1 Nanosystems, L.L.C.
50 Morehall Road........ Ofc. 1997 117,000 100.0 1 Vanguard Group
Ind.-
1 Great Valley Parkway.. Flex 1982 60,880 95.2 4 Apollon, Inc.
5 Great Valley Parkway.. Ofc. 1983 65,161 100.0 14 Our Freedom, Inc.
--------- -----
Total Southeastern
Pennsylvania.......... 5,705,168 89.8%
========= =====
NEW JERSEY/DELAWARE
1805 Underwood Boule- Ind.-
vard................... Dist. 1973 14,383 100.0% 1 Uniscore, Inc.
150 Mid-Atlantic Park- Ind.- Amerimark Building
way.................... Dist. 1973 30,873 100.0 1 Products
Ind.- Custom Computer
18 Boulden Circle....... Flex 1989 76,000 98.6 12 Services, Inc.
Ind.- Gandalf Systems
501 Delran Parkway...... Dist. 1988 49,500 99.2 3 Corporation
Ind.- Computer & Comm Info
600 Delran Parkway...... Dist. 1988 119,290 100.0 2 (Datapro)
Ind.-
1607 Imperial Way....... Dist. 1973 80,000 100.0 1 Dunkin' Donuts
Ind.-
1 Boulden Circle........ Dist. 1986 43,200 100.0 1 Norel Paper Corporation
Ind.-
31-55 Read's Way........ Flex 1986 78,009 100.0 2 Cigna Corporation
Ind.- Livingston Healthcare
3 Boulden Circle........ Dist. 1987 60,812 100.0 1 Services
Ind.- Brundage Distribution
5 Boulden Circle........ Dist. 1987 119,653 100.0 1 Corp.
Ind.-
601 Delran Parkway...... Dist. 1988 57,930 100.0 1 Keymar Warehouse, Inc.
51 Haddonfield Road..... Ofc. 1986 93,000 97.3 22 Lehigh Press, Inc.
Ind.-
57 Read's Way........... Flex 1985 53,600 81.4 1 Wachovia Bank of Georgia
Ind.- National Distribution
1370 Imperial Way....... Dist. 1978 179,785 100.0 1 Centers
Ind.- AT&T Resource Management
8 Stow Road............. Flex 1988 34,911 84.1 4 Corp.
Ind.- Trans World Airlines,
10 Stow Road............ Flex 1988 29,722 68.5 1 Inc.
Ind.-
12 Stow Road............ Flex 1988 21,200 83.0 4 Future Electronics Corp.
Ind.- Wiltel Communications
14 Stow Road............ Flex 1988 18,821 100.0 2 Sys, Inc.
1300 Metropolitan Ave- Ind.- Phoenix Display &
nue.................... Dist. 1972 76,196 100.0 1 Packaging
701A Route 73 South..... Ofc. 1987 94,521 68.1 8 Fluor Daniel, Inc.
Prudential Property &
701C Route 73 South..... Ofc. 1987 27,813 80.9 4 Casualty
Ind.-
1008 Astoria Boulevard.. Flex 1973 37,400 99.6 7 ACSIS, Inc.
Ind.-
1475 Imperial Way....... Dist. 1976 60,000 100.0 1 Knauf Fiberglass, Inc.
Atrium Executive Center,
3000 Atrium Way......... Ofc. 1987 110,115 74.6 12 Inc.
Ind.-
750 Cardinal Drive...... Dist. 1989 81,348 100.0 1 Leslie's Poolmart
11000, 15000, 17000 Ind.- PHH Mortgage Services
Commerce Parkway....... Flex 1985 100,170 86.4 6 Corp.
12000, 14000 Commerce Ind.-
Parkway................ Flex 1985 68,000 87.8 6 Simirex, Inc.
16000, 18000 Commerce Ind.- Cooper
Parkway................ Flex 1985 52,000 51.7 4 Hospital/University
406 Lippincott Drive.... Ofc. 1990 40,000 63.0 4 Sweatband II, Inc.
Ind.- Skyway Freight Systems,
234 High Hill Road...... Dist. 1987 60,000 100.0 1 Inc.
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE JUNE 30, NO. OF
PROJECT NAME TYPE DEVEL. SQ. FT.(1) 1997(2) LEASES MAJOR TENANT
- ------------ -------- ------ ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
101 Arlington Boule- Ind.-
vard................... Dist. 1996 154,675 100.0 2 Heinz Bakery Products
Ind.-
100 Berkeley Drive...... Dist. 1990 67,000 100.0 1 MCR Direct Mail, Inc.
301 Lippincott Drive.... Ofc. 1988 82,482 100.0 4 Fluor Daniel, Inc.
303 Lippincott Drive.... Ofc. 1988 82,541 99.8 4 Fluor Daniel, Inc.
Ind.-
510 Sharptown Road...... Dist. 1984 40,156 100.0 1 Day Products, Inc.
901 Route 73............ Ofc. 1985 39,434 99.3 4 Teknion, Inc.
Prudential Securities,
1500 Route 73 North..... Ofc. 1988 62,069 70.2 10 Inc.
Ind.-
512 Sharptown Road...... Dist. 1984 58,000 100.0 1 Trek Bicycle Corporation
Ind.- Lamont Television
263 Quigley Boulevard... Dist. 1987 42,891 100.0 8 Systems, Inc.
Ind.-
34 Blevins Drive........ Flex 1987 50,022 100.0 7 Panelmatic, Inc.
Ind.-
104 Gaither Drive....... Dist. 1975 45,390 100.0 1 Eptech Corporation
Ind.-
2 Lukens Drive.......... Flex 1988 43,175 88.7 2 Ameristar Technologies
Ind.-
402 Lippincott Drive.... Flex 1997 26,000 100.0 1 First Trenton Indemnity
Ind.-
3000 Lincoln Drive...... Flex 1983 65,547 81.1 1 Test Technology
Ind.-
6000 Commerce Parkway... Flex 1985 54,032 66.3 4 Information Access Co.
Ind.-
7000 Commerce Parkway... Flex 1984 60,000 100.0 3 Pioneer Inc.
Ind.-
8000 Commerce Parkway... Flex 1983 54,185 100.0 4 Simirex, Inc.
Ind.-
9000 Commerce Parkway... Flex 1983 66,132 95.5 4 AW Computer Systems
Ind.-
1000 Briggs Road........ Flex 1986 42,064 97.3 2 Bluestone Consulting
Ind.- Dale, Gesek, McWilliams
1025 Briggs Road........ Flex 1987 61,109 100.0 7 & Sherman
--------- -----
Total New
Jersey/Delaware....... 3,165,066 93.2%
========= =====
LEHIGH VALLEY, PENNSYL-
VANIA
1655 Valley Center Park- Allstate Insurance
way.................... Ofc. 1993 28,300 100.0% 2 Company
Ind.-
6560 Stonegate Drive.... Dist. 1989 80,000 100.0 2 Vitra Seating, Inc.
Ind.- Caterpillar Logistics
6370 Hedgewood Drive.... Dist. 1990 110,000 100.0 2 Services, Inc.
Ind.- Behr Processing
6390 Hedgewood Drive.... Dist. 1990 69,000 100.0 2 Corporation
1495 Valley Center Park-
way.................... Ofc. 1990 43,770 100.0 2 Ingersoll-Rand Company
Ind.-
6350 Hedgewood Drive.... Dist. 1989 121,000 100.0 2 Organon, Inc.
Ind.-
6330 Hedgewood Drive.... Flex 1988 89,700 100.0 7 Submicron Systems, Inc.
1550 Valley Center Park- Ind.- Employee Benefit Plans,
way.................... Flex 1988 43,400 100.0 7 Inc.
1560 Valley Center Park- Ind.-
way.................... Flex 1988 51,400 100.0 1 TIG Insurance Company
Ind.-
6580 Snowdrift Road..... Dist. 1988 104,000 100.0 1 Dana Corporation
1510 Valley Center Park- Ind.- Visiting Nurses
way.................... Flex 1988 48,208 90.9 6 Association
1530 Valley Center Park- Ind.-
way.................... Flex 1988 46,400 100.0 1 SKF USA, Inc.
Ind.-
6540 Stonegate Drive.... Dist. 1988 120,000 100.0 1 SKF USA, Inc.
Ind.-
974 Marcon Boulevard.... Flex 1987 39,200 64.0 4 Inter-Media Marketing
Ind.-
964 Marcon Boulevard.... Flex 1985 39,200 100.0 6 Health Spectrum Medical
Ind.-
764 Roble Road.......... Flex 1985 21,860 100.0 2 ChemLawn Corporation
Ind.-
3174 Airport Road....... Flex 1979 42,000 64.3 1 Allentech, Inc.
Ind.-
2196 Avenue C........... Flex 1980 31,140 100.0 1 Lehigh University
Ind.-
2202 Hangar Place....... Flex 1981 66,495 78.3 3 Lofts Seed, Inc.
Ind.- Pacesetter Enterprises,
2201 Hangar Place....... Flex 1987 52,300 100.0 6 Inc.
Ind.-
954 Marcon Boulevard.... Dist. 1981 24,000 100.0 1 Merck & Co., Inc.
Ind.-
57 South Commerce Way... Flex 1986 76,400 100.0 7 SKF USA, Inc.
Ind.-
754 Roble Road.......... Flex 1986 46,800 100.0 6 Computer Designs, Inc.
Ind.-
894 Marcon Boulevard.... Flex 1986 28,800 100.0 11 Spalding Company, Inc.
Ind.-
744 Roble Road.......... Flex 1986 46,800 100.0 9 Flouro-Seal
Ind.- Integrated Solutions,
944 Marcon Boulevard.... Flex 1986 38,400 93.0 12 Inc.
1685 Valley Center Park- General Accident
way.................... Ofc. 1996 27,200 100.0 2 Insurance Co.
Ind.-
6520 Stonegate Drive.... Flex 1996 43,200 77.8 4 Submicron Systems Inc.
7437 Industrial Boule- Ind.-
vard................... Dist. 1976 191,330 100.0 2 Stuart Medical, Inc.
Ind.-
2041 Avenue C........... Flex 1990 30,400 100.0 3 Dorst America, Inc.
Ind.- Graybar Electric Co.,
2124 Avenue C........... Dist. 1990 36,000 100.0 1 Inc.
7339 Industrial Boule- Ind.-
vard................... Dist. 1996 215,000 100.0 1 Cott Beverages USA, Inc.
Ind.-
7384 Penn Drive......... Dist. 1988 112,000 17.9 1 Penske Logistics
Ind.-
7144 Daniels Drive...... Dist. 1975 300,312 100.0 2 Simpson Paper Company
Ind.-
7620 Cetronia Road...... Dist. 1990 155,060 100.0 3 Lehigh Group
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE JUNE 30, NO. OF
PROJECT NAME TYPE DEVEL. SQ. FT.(1) 1997(2) LEASES MAJOR TENANT
- ------------ -------- ------ ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ind.- Fieldcrest Cannon Sure
939 Marcon Boulevard.... Dist. 1980 315,000 100.0 1 Fit, Inc.
100 Brodhead Road....... Ofc. 1990 47,765 81.9 7 First Valley Bank
1640 Valley Center Park-
way.................... Ofc. 1996 30,850 100.0 1 Pennsylvania Cellular
Ind.-
400 Nestle Way.......... Dist. 1997 1,190,000 100.0 1 DSC Logistics, Inc.
Omnipoint
95 Highland Avenue...... Ofc. 1985 73,000 67.0 6 Communications, Inc.
236 Brodhead Road....... Ofc. 1994 45,097 100.0 1 Fireman's Fund Insurance
83 South Commerce Way... Ofc. 1989 18,983 72.5 3 Nationwide Insurance
85 South Commerce Way... Ofc. 1989 21,119 100.0 2 Penn Del Directory Co.
87 South Commerce Way... Ofc. 1989 22,653 100.0 4 Versyss, Inc.
7248 Industrial Boule- Ind.-
vard................... Dist. 1988 497,000 100.0 3 S.D. Warren Company
1455 Valley Center Park- Ind.- 1997 55,000 100.0 2 Life Insurance Company
Way.................... Flex of North America
Ind.- Submicron Systems
6620 Grant Way.......... Flex 1989 30,204 100.0 1 Corporation
--------- -----
Total Lehigh Valley.... 4,965,746 96.2%
========= =====
MARYLAND
180 Admiral Cochrane Columbia Medical Plan,
Drive.................. Ofc. 1989 128,236 96.0% 9 Inc.
12000, 001, 040 Indian Ind.-
Creek Court............ Flex 1986 185,776 95.8 6 Biospherics, Inc.
190 Admiral Cochrane
Drive.................. Ofc. 1988 72,085 88.1 9 Telespectrum
8280 Patuxent Range Ind.-
Drive.................. Dist. 1978 60,079 100.0 2 Alcore, Inc.
7178-7180 Columbia Ind.-
Gteway................. Flex 1987 88,895 99.9 5 Nationsbank, N.A.
Ind.-
8730 Bollman Place...... Dist. 1984 98,745 100.0 1 Kraft Foodservice, Inc.
9101, 9111, 9115 Ind.-
Guilford Road.......... Flex 1984 52,004 100.0 5 Sienna Biotech, Inc.
9125, 9135, 9145 Ind.- Federal Express
Guilford Road.......... Flex 1983 85,804 50.9 4 Corporation
9770 Patuxent Woods
Drive.................. Ofc. 1986 35,520 100.0 1 Delaware Coca-Cola
9780 Patuxent Woods
Drive.................. Ofc. 1986 22,720 67.7 1 BBN Corporation
9790 Patuxent Woods
Drive.................. Ofc. 1986 25,345 100.0 2 GTE Government Systems
9810 Patuxent Woods
Drive.................. Ofc. 1986 27,725 100.0 2 Bolt, Baranek, & Newman
9800 Patuxent Woods
Drive.................. Ofc. 1988 31,095 100.0 3 Coca-Cola Corporation
9820 Patuxent Woods
Drive.................. Ofc. 1988 24,720 100.0 1 Kraft Foods
9830 Patuxent Woods
Drive.................. Ofc. 1986 30,800 100.0 1 JP Foodservice, Inc.
Ind.-
9050 Red Branch Road.... Dist. 1972 89,898 100.0 8 Kemi Laboratories
--------- -----
Total Maryland......... 1,059,447 93.2%
========= =====
VIRGINIA
Scribner, Messer, Brady
10 South Third Street... Ofc. 1930 4,900 100.0% 1 & Wade
Ind.-
1751 Bluehills Drive.... Dist. 1991 265,082 100.0 1 Conopco, Inc.
Ind.-
4300 Carolina Avenue.... Dist. 1985 218,554 100.0 1 United States of America
301 Hill Carter Park- Ind.- Philip Morris
way.................... Dist. 1989 80,000 100.0 1 Incorporated
Ind.-
4001 Carolina Avenue.... Dist. 1935 35,200 100.0 7 Shelcore
5600-5626 Eastport Bou- Ind.-
levard................. Flex 1989 71,227 100.0 5 Western Roto Engravers
5650-5674 Eastport Bou- Ind.- Sterilization Services
levard................. Dist. 1990 150,867 100.0 4 of VA
5700 Eastport Boule- Ind.-
vard................... Dist. 1990 100,336 100.0 1 Merisel, Inc.
Patient First
11020 Hull Street Road.. Ofc. 1987 5,172 100.0 1 Corporation
Patient First
3432 Holland Road....... Ofc. 1989 5,688 100.0 1 Corporation
3001 Hungary Springs
Road................... Ofc. 1984 11,235 100.0 2 Broughton Systems, Inc.
7760 Shrader Road....... Ofc. 1987 18,247 100.0 2 Signet Bank
7740 Shrader Road....... Ofc. 1989 10,167 56.2 3 Rector & Visitors of UVA
4880 Cox Road........... Ofc. 1995 59,948 100.0 2 Saxon Mortgage, Inc.
5162 Valleypointe Park-
way.................... Ofc. 1993 25,000 100.0 1 United States of America
4101-4127 Carolina Ave- Ind.-
nue.................... Dist. 1973 126,000 100.0 1 Hamilton Hybar, Inc.
4201-4261 Carolina Ave- Ind.-
nue.................... Dist. 1975 288,000 100.0 9 Crestar Bank
4263-4299 Carolina Ave- Ind.-
nue.................... Dist. 1976 180,000 100.0 1 Open Plan Systems, Inc.
4301-4335 Carolina Ave- Ind.- Stone Container
nue.................... Dist. 1978 162,000 100.0 1 Corporation
4337-4379 Carolina Ave- Ind.- The Goldberg Company,
nue.................... Dist. 1979 198,000 100.0 2 Inc.
4501-4549 Carolina Ave- Ind.-
nue.................... Dist. 1981 150,000 100.0 2 Foxmeyer Drug Company
4551-4593 Carolina Ave- Ind.- A.H. Robins Company,
nue.................... Dist. 1982 151,800 100.0 3 Inc.
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE JUNE 30, NO. OF
PROJECT NAME TYPE DEVEL. SQ. FT.(1) 1997(2) LEASES MAJOR TENANT
- ------------ -------- ------ ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
4601-4643 Carolina Ave- Ind.-
nue.................... Dist. 1985 151,800 100.0 2 T.E.U. Incorporated
4545-4583 Carolina Ave- Ind.- Owens & Minor Medical,
nue.................... Dist. 1985 120,000 100.0 1 Inc.
4447-4491 Carolina Ave- Ind.-
nue.................... Dist. 1987 158,700 100.0 1 Shelcore, Inc.
4401-4445 Carolina Ave- Ind.-
nue.................... Dist. 1988 158,700 100.0 2 Media Post Marketing
Liberty Property Limited
12 S. Third Street...... Ofc. 1900 5,735 100.0 1 Ptnsp.
Ind.-
9601 Cosner Drive....... Dist. 1995 128,500 100.0 1 Simmons Company
315 Cardiff Valley Ind.-
Road................... Dist. 1994 151,200 100.0 1 Caterpillar Inc.
Patient First
2300 East Parham Road... Ofc. 1988 5,172 100.0 1 Corporation
1347 Diamond Springs Ind.-
Road................... Dist. 1980 99,260 49.2 1 Wetsel Seed Company
5221 Valleypark Drive- Ind.-
Bldg A................. Flex 1988 17,007 100.0 1 RBX Holdings, Inc.
5228 Valleypointe Park- Ind.-
way-Bldg B............. Flex 1988 14,477 61.4 3 Allen-Bradley Company
5238 Valleypark Drive- Ind.-
Bldg C................. Flex 1989 17,062 98.5 6 MCI Telecommunications
5601-5609 Eastport Bou- Ind.- General Medical
levard................. Dist. 1996 150,000 100.0 2 Corporation
Ind.-
4717-4729 Eubank Road... Dist. 1978 141,313 100.0 3 Whitehall-Robins
Ind.- Heflebower Transfer &
4263F Carolina Avenue... Dist. 1975 57,600 100.0 3 Storage
Ind.-
4200 Oakleys Court...... Dist. 1990 80,000 100.0 1 Multiton Mic Corp.
1821 Battery Dantzler Ind.-
Road................... Dist. 1990 129,600 100.0 3 Flare Corporation
Ind.- Patient First
5000 Cox Road........... Flex 1990 58,367 100.0 7 Corporation
Ind.-
510 Eastpark Court...... Flex 1989 51,874 100.0 5 Power Distribution, Inc.
Ind.-
520 Eastpark Court...... Dist. 1989 144,228 100.0 5 Bunzl-Richmond, Inc.
5900 Eastport Boule- Ind.-
vard................... Dist. 1997 142,800 100.0 1 Hewlett-Packard Company
Ind.-
600 Liberty Way......... Dist. 1997 158,400 100.0 1 Hewlett-Packard Company
--------- -----
Total Virginia......... 4,459,218 98.6%
========= =====
CAROLINAS
Ind.-
4523 Green Point Drive.. Dist. 1988 85,830 100.0% 1 Dry Storage Corporation
Ind.- New Breed Leasing
4501 Green Point Drive.. Dist. 1989 90,049 91.6 3 Corporation
Ind.- Corporate Express of the
4500 Green Point Drive.. Dist. 1989 71,040 100.0 6 South, Inc.
Ind.-
2427 Penny Road......... Dist. 1990 270,000 100.0 1 Masco Corporation
Ind.-
4524 Green Point Drive.. Dist. 1989 74,587 100.0 4 Standard Register Co.
4328, 4336 Federal Ind.- United Parcel Service,
Drive.................. Dist. 1995 177,600 100.0 2 Inc.
MCI Telecommunications
200 Centreport Drive.... Ofc. 1986 47,190 96.8 16 Corp.
Ind.-
4344 Federal Drive...... Dist. 1996 92,425 100.0 4 MAC Papers, Inc.
Key Risk Management
202 Centreport Drive.... Ofc. 1990 62,664 100.0 5 Services
New Breed Leasing
4000 Piedmont Parkway... Ofc. 1997 60,383 98.5 22 Corporation
Ind.-
4380 Federal Drive...... Dist. 1997 79,200 100.0 3 Triad Health Alliance
Ind.- Abacon
4388 Federal Drive...... Flex 1997 32,400 100.0 1 Telecommunications
1208 Eastchester Drive.. Ofc. 1988 56,937 59.0 13 L.M. Berry & Company
Ind.- Scientific Research
3860 Faber Place........ Flex 1995 42,500 88.2% 2 Corp.
4055 Faber Place........ Ofc. 1989 53,304 97.6 11 Allstate Company
Ind.- Executone Information
3820 Faber Place........ Flex 1993 39,422 83.6 6 Systems
440 Knox Abbott Drive... Ofc. 1989 50,248 94.2 16 SCE&G Company
150 Ridgeview Center Ind.-
Drive.................. Dist. 1984 222,670 100.0 1 Alcoa Fujikura
Ind.-
1320 Garlington Road.... Dist. 1986 72,000 100.0 1 Perrigo Company
9800 Twin Lakes Park- Ind.-
way.................... Flex 1994 40,000 72.0 3 Time Warner
420 Park Avenue......... Ofc. 1986 46,127 66.5 1 Geraghty & Miller, Inc.
Ind.-
111 Southchase Blvd..... Dist. 1980 169,042 0.0 --
300 Intercontinental Ind.-
Blvd. ................. Flex 1995 103,684 100.0 1 Ronald and Carolyn Jones
--------- -----
Total The Carolinas.... 2,039,302 88.0%
========= =====
JACKSONVILLE, FLORIDA
Ind.-
1730 Stebbins Drive..... Dist. 1973 40,000 100.0% 1 Atlas Bag, Inc.
5911-5925 Richard Ind.- Vistakon Div.--Johnson &
Street................. Flex 1977 40,000 100.0 1 Johnson
8383-8385 Baycenter Ind.-
Road................... Dist. 1973 40,000 100.0 1 Parts House, Inc.
AT&T Resource Management
8775 Baypine Road....... Ofc. 1989 50,000 100.0 1 Corp.
Ind.-
8539 Western Way........ Flex 1987 72,030 0.0 --
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE JUNE 30, NO. OF
PROJECT NAME TYPE DEVEL. SQ. FT.(1) 1997(2) LEASES MAJOR TENANT
- ------------ -------- ------ ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
6255 Lake Grey Boule- Ind.- U.S. Telecom, Inc.--
vard................... Flex 1987 94,174 96.5 6 Sprint Serv.
Ind.-
6600-6660 Suemac Place.. Dist. 1987 103,404 100.0 5 American Flat Glass
Ind.- R&G Sloane Manufacturing
6800-6850 Suemac Place.. Dist. 1973 60,000 100.0 1 Co.
8665, 8667, 8669 Baypine Blue Cross and Blue
Road................... Ofc. 1987 63,118 100.0 5 Shield
Ind.-
8540 Baycenter Road..... Flex 1984 30,028 100.0 1 Reichhold Chemicals
1200 Gulf Life Drive.... Ofc. 1985 179,274 93.4 21 Stein Mart, Inc.
8400 Baymeadows Way..... Ind.- 1987 43,547 100.0 6 Respiflow, Inc. and M.K.
Flex Diabetics, Inc.
Allstate Insurance
8614 Baymeadows Way..... Ofc. 1986 16,000 100.0 1 Company
5941-5975 Richard Ind.- Vistakon Div.--Johnson &
Street................. Flex 1978 86,660 100.0 1 Johnson
Ind.-
7970 Bayberry Road...... Flex 1978 55,000 0.0 --
6000-6030 Bowdendale Av- Ind.- Vistakon Div.--Johnson &
enue................... Flex 1979 83,330 100.0 6 Johnson
American Transtech, Inc.
7898 Baymeadows Way..... Ofc. 1978 42,149 100.0 2 (AT&T)
5977-6607 Richard Ind.- Vistakon Div.--Johnson &
Street................. Flex 1980 73,333 100.0 1 Johnson
7910 & 7948 Baymeadows American Transtech, Inc.
Way.................... Ofc. 1981 52,505 100.0 3 (AT&T)
7954 & 7960 Baymeadows American Transtech, Inc.
Way.................... Ofc. 1982 52,608 100.0 2 (AT&T)
AT&T Resource Management
8787 Baypine Road....... Ofc. 1990 220,000 100.0 1 Corp.
Florida Windstorm
7077 Bonneval Road...... Ofc. 1988 102,942 92.9 24 Underwriting
Enterprise National Bank
4190 Belfort Road....... Ofc. 1986 105,664 95.2 24 of Florida
8011, 8021, 8031 Phil- Southwest Signal
lips Highway........... Ofc. 1987 81,962 65.2 8 Engineering
7020 AC Skinner Park- Ind.- Intermedia
way.................... Flex 1996 42,184 100.0 6 Communications, Inc.
7022 AC Skinner Park- Ind.-
way.................... Dist. 1996 88,200 100.0 2 Microtek Medical, Inc.
Ind.-
11777 Central Highway... Dist. 1985 50,000 0.0 --
7016 AC Skinner Park- Ind.- Georgia-Pacific
way.................... Flex 1996 39,350 100.0 1 Corporation
6620 Southpoint Drive... Ofc. 1984 59,762 90.6 17 LC Footwear, LLC
--------- -----
Total Jacksonville,
Florida............... 2,067,224 88.5%
========= =====
TAMPA, FLORIDA
4001, 4051, 4101 Fowler Ind.- Musculoskeletal
Avenue................. Flex 1988 101,198 96.2% 15 Institute
5501 Pioneer Park Boule- Ind.-
vard................... Dist. 1981 61,416 100.0 5 Premdor Corporation
5502 Pioneer Park Boule- Ind.-
vard................... Dist. 1981 48,375 100.0 3 Premdor Corporation
5690-5694 Crenshaw Ind.- Florida Flooring
Street................. Dist. 1979 87,095 100.0 3 Products, Inc.
3102, 3104, 3110 Cherry Ind.- Groundwater Technology,
Palm Drive............. Flex 1986 74,339 100.0 12 Inc.
8401-8408 Benjamin Ind.- National RX Services,
Road................... Flex 1986 127,566 100.0 17 Inc.
Ind.- Customer Communications
3501 Riga Boulevard..... Flex 1983 57,220 100.0 2 Center
Ind.- Westinghouse Electric
111 Kelsey Lane......... Flex 1990 60,200 75.0 2 Corp.
7930, 8010-20 Woodland Ind.-
Center................. Flex 1990 89,758 92.6 10 Intertel Communications
8154-8198 Woodland Cen- Ind.- Williams
ter.................... Flex 1988 45,382 88.4 12 Telecommunications
8112-14 Woodland Cen- Ind.-
ter.................... Flex 1995 39,155 100.0 2 American Express Travel
Metropolitan Fiber
8212 Woodland Center.... Ofc. 1996 39,155 100.0 1 System
Ind.-
1701 Clint Moore Blvd... Flex 1985 80,060 100.0 2 Amitek Corporation
--------- -----
Total Tampa, Florida.. 910,919 96.6%
========= =====
MINNESOTA
2905 Northwest Boule- Ind.-
vard................... Flex 1983 84,765 82.1% 8 Deltak Corporation
Ind.-
2800 Campus Drive....... Flex 1985 64,852 99.7 6 Ciprico, Inc.
Ind.-
2955 Xenium Lane........ Flex 1985 24,800 100.0 2 Norstan, Inc.
9401-9443 Science Center Ind.-
Drive.................. Flex 1989 73,898 80.7 7 Ameridata
Ind.- Ontrack Computer
6321-6325 Bury Drive.... Flex 1988 72,965 100.0 5 Systems, Inc.
7115-7173 Shady Oak Ind.-
Road................... Flex 1984 77,925 96.2 16 Teddy Bear Child Care
7660-7716 Golden Trian- Ind.-
gle Drive.............. Flex 1988 89,672 98.5 8 Sick Optical-Electronik
7400 Flying Cloud Ind.-
Drive.................. Flex 1987 32,137 100.0 1 Mamac Systems, Inc.
Office of Hearings and
330 Second Avenue....... Ofc. 1980 197,100 66.0 44 Appeals
10301-10305 West 70th Ind.-
Street................. Flex 1984 23,547 100.0 3 Sci-Com Data Services
10321 West 70th Ind.-
Street................. Flex 1984 28,372 100.0 1 Pattern Processing, Inc.
10333 West 70th
Street................. Ofc. 1984 21,640 100.0 1 Olympic Financial
10349-10357 West 70th Ind.-
Street................. Flex 1985 53,912 100.0 5 Regis Corporation
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE JUNE 30, NO. OF
PROJECT NAME TYPE DEVEL. SQ. FT.(1) 1997(2) LEASES MAJOR TENANT
- ------------ -------- ------ ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
10365-10375 West 70th Ind.-
Street................. Flex 1985 56,877 100.0 2 Viking Press
10393-10394 West 70th Ind.-
Street................. Flex 1985 52,684 100.0 2 Augustine Medical, Inc.
Ind.-
7078 Shady Oak Road..... Flex 1985 67,041 100.0 1 Laser Master Corp.
---------- -----
Total Minnesota........ 1,022,187 90.1%
========== =====
MICHIGAN
26911-26957 Northwest-
ern.................... Ofc. 1985 634,359 90.6% 31 R.L. Polk
1650 Research Drive..... Ofc. 1985 70,562 100.0 6 Hughes Aircraft
1775 Research Drive..... Ofc. 1986 30,450 100.0 1 New Venture Gear
Avery Dennison
1875 Research Drive..... Ofc. 1986 30,305 100.0 3 Corporation
1850 Research Drive..... Ofc. 1986 72,229 88.3 3 The Budd Company
Porsche Engineering
1965 Research Drive..... Ofc. 1987 38,600 100.0 3 Services
1960 Research Drive..... Ofc. 1987 38,600 100.0 2 Square D Corporation
---------- -----
Total Michigan......... 915,105 92.6%
========== =====
UNITED KINGDOM
50 Gibson Drive......... Ofc. 1996 18,000 100.0% 1 Genzyme Biochemicals
25 Kings Hill Avenue.... Ofc. 1996 35,000 93.9 2 Charities Aid Foundation
Ind.- Broadcast Surveillance
2 Kings Hill Avenue..... Flex 1996 34,600 79.5 4 Systems
50 Kings Hill Avenue.... Ofc. 1996 50,000 100.0 1 Rhone-Poulenc Rorer
---------- -----
Total United Kingdom... 137,600 93.3%
---------- -----
TOTAL COMPANY.......... 26,446,982 93.2%
========== =====
</TABLE>
- --------
(1) Based on current net leasable building area. Some buildings have been
expanded since their original acquisition or development.
(2) Percent leased is based on rent commencement date.
A-7
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
[LOGO OF LIBERTY PROPERTY APPEARS HERE]
$479,395,000
LIBERTY PROPERTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
DEPOSITARY SHARES
WARRANTS
GUARANTIES
$400,000,000
LIBERTY PROPERTY LIMITED PARTNERSHIP
DEBT SECURITIES
Liberty Property Trust, a Maryland real estate investment trust (the
"Trust"), may offer from time to time in one or more series hereunder,
together or separately, at prices and on terms to be determined at the time of
offering: (a) its Preferred Shares of Beneficial Interest, $0.001 par value
("Preferred Shares"), which may be issued in the form of depositary shares
evidenced by depositary receipts ("Depositary Shares") and which may be
convertible into or exchangeable for Common Shares (as defined below) or other
Securities (as defined below); (b) its Common Shares of Beneficial Interest,
$0.001 par value ("Common Shares"); and (c) warrants to purchase Preferred
Shares ("Preferred Shares Warrants") or Common Shares ("Common Shares
Warrants"). The Preferred Shares Warrants and Common Shares Warrants are
herein referred to collectively as "Warrants" and, together with Trust
Guaranties (as defined below), Preferred Shares, Depositary Shares and Common
Shares, as "Trust Securities." No Debt Securities (as defined below) will be
offered hereby by the Trust.
Liberty Property Limited Partnership, a Pennsylvania limited partnership
(the "Operating Partnership" and, together with the Trust, the "Company"), may
offer from time to time in one or more series hereunder, together or
separately, at prices and on terms to be determined at the time of offering,
its debt securities ("Debt Securities"), consisting of debentures, notes
and/or other evidences of indebtedness, representing secured or unsecured
obligations of the Operating Partnership, which may be either senior or
subordinated, which may have the benefit of conditional or unconditional
guaranties of the Trust ("Guaranties") and which may be convertible into or
exchangeable for Common Shares, Preferred Shares, units of limited partnership
interest of the Operating Partnership ("Units") and other Securities. The Debt
Securities and Units are herein referred to as "Partnership Securities" and,
together with Trust Securities, as "Securities."
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying Prospectus Supplement
(the "Prospectus Supplement") which will describe, without limitation and to
the extent applicable, terms for such Securities, including: (a) in the case
of Debt Securities, the specific title, aggregate principal amount, currency,
denomination, maturity, priority, rate of interest (which may be fixed or
variable), time and place of payment of interest, terms for optional
redemption or repayment by the issuer thereof or any holder thereof or for
sinking fund payments, terms for conversion into or exchange for other
Securities, if any, including terms of any Securities into or for which they
are convertible or exchangeable, the initial public offering price, any
securities exchange listings, any special provisions related to denomination
in a foreign currency or issuance as medium term notes, original issue
discount or other special terms, the designation
(cover page continues)
<PAGE>
of the Trustee (as defined below), Security Registrar (as defined below) and
Paying Agent (as defined below), and the terms of any applicable Guaranty; (b)
in the case of Preferred Shares, the specific designation and stated value,
number of shares or fractional interests therein, any dividend, liquidation
preference, redemption, sinking fund, voting or other rights, the terms for
conversion into or exchange for other Securities, if any, including terms of
any Securities into or for which they are convertible or exchangeable, the
initial public offering price and any securities exchange listings; (c) in the
case of Depositary Shares, the fraction of a Preferred Share represented by
one Depositary Share and terms of the Preferred Shares; (d) in the case of
Common Shares, the aggregate number of shares offered, public offering price
and other terms thereof; and (e) in the case of Warrants, to the extent
applicable, the duration, offering price, exercise price, terms of the
Securities for which they are exercisable, any securities exchange listings
and detachability and other terms thereof. The Prospectus Supplement will also
contain information, where applicable, with regard to certain U.S. federal
income tax, accounting or other considerations relating to the Securities
offered thereby.
The offering price to the public of the Securities to be issued by the Trust
and the Operating Partnership will be limited to US $479,395,000 and US
$400,000,000, respectively (or the equivalent based on the applicable exchange
rate at the time of issue, if Securities offered are denominated in one or
more foreign currencies or currency units). The Debt Securities may be
denominated in United States dollars or, at the option of the Operating
Partnership, if so specified in the applicable Prospectus Supplement, in one
or more foreign currencies or currency units. Such Debt Securities may be
issued in registered form or bearer form, or both. If so specified in the
applicable Prospectus Supplement, Debt Securities of a series may be issued in
whole or in part in the form of one or more temporary or permanent global
securities.
The Securities may be sold to or through dealers or underwriters, directly
to other purchasers or through agents. If an agent of the Trust or the
Operating Partnership or a dealer or an underwriter is involved in the sale of
the Securities with respect to which this Prospectus is being delivered, such
agent's commission or dealer's purchase price or underwriter's discount will
be set forth in, or may be calculated from, the Prospectus Supplement. Any
underwriters, dealers or agents participating in the offering of Securities
may be deemed "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"). See "Plan of Distribution" for possible
indemnification arrangements for any agents, dealers or underwriters.
The Securities may be used as all or part of the consideration to be paid by
the Trust or the Operating Partnership for the acquisition of non-operating
assets, for which financial statements would not be required to be filed with
the Securities and Exchange Commission (the "Commission"), or in exchange for
units of limited partnership interest of the Operating Partnership. In
addition, Common Shares may be offered hereby in exchange for certain debt
securities of the Operating Partnership that are exchangeable for such Common
Shares. This Prospectus may not be used to consummate sales of Securities
unless accompanied by a Prospectus Supplement.
The Common Shares are traded on the New York Stock Exchange (the "NYSE")
under the symbol "LRY." On June 11, 1997, the last reported sale price, as
reported on the NYSE Composite Tape, was $25 per Common Share.
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 OR ANY SUPPLEMENT HERETO. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 12, 1997.
<PAGE>
AVAILABLE INFORMATION
The Trust and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports and other information with
the Commission, including proxy statements in the case of the Trust. Such
reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's regional offices at
Seven World Trade Center, Suite 1300, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed
rates. Electronic filings made through the Electronic Data Gathering, Analysis
and Retrieval System ("EDGAR") are publicly available through the Commission's
Web site (http://www.sec.gov). Reports, proxy statements and other information
regarding the Trust and the Operating Partnership may also be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005.
The Trust and the Operating Partnership have filed with the Commission a
registration statement on Form S-3 (together with any amendments thereto, the
"Registration Statement") under the Securities Act with respect to the
Securities offered hereby. This Prospectus constitutes a part of such
Registration Statement. As permitted by the rules and regulations of the
Commission, this Prospectus and the Prospectus Supplement do not contain all
of the information set forth in the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus, the Prospectus Supplement or
in any document incorporated by reference in this Prospectus or the Prospectus
Supplement as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance where
such contract or document has been filed as an exhibit to the Registration
Statement or other document incorporated by reference, reference is made to
the copy of such contract or other document, each such statement being
qualified in all respects by such reference. The Registration Statement,
together with exhibits thereto, may be inspected at the Commission's public
reference facilities in Washington, D.C., and copies of all or any part
thereof may be obtained from the Commission upon the payment of prescribed
fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission under the Exchange Act,
are hereby incorporated herein by reference as of their respective dates:
(a) The Annual Report on Form 10-K of the Trust and the Operating
Partnership for the fiscal year ended December 31, 1996;
(b) The Quarterly Report on Form 10-Q of the Trust and the Operating
Partnership for the fiscal quarter ended March 31, 1996;
(c) The Current Reports on Form 8-K of the Trust and the Operating
Partnership filed February 13, 1997, March 5, 1997 and March 21, 1997;
and
(d) The description of the Common Shares contained in the Registration
Statement on Form 8-A filed by the Trust to register such securities
under Section 12 of the Exchange Act.
All documents and reports filed by the Trust or the Operating Partnership
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to termination of the offering described
herein shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the respective dates of filing of such documents or
reports, except as to any portion of any future annual or quarterly report to
the holders of securities of the Trust or the Operating Partnership or any
proxy or information statement which is not deemed to be filed under such
provisions.
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 the Registration Statement, this Prospectus
3
<PAGE>
and the Prospectus Supplement to the extent that a statement contained herein,
in the Prospectus Supplement or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in the Registration
Statement or this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded,
shall not be deemed to constitute a part of this Prospectus or the Prospectus
Supplement.
The Company will provide without charge to each person to whom a copy of
this Prospectus or the Prospectus Supplement has been delivered, upon written
or oral request of such person, a copy of any or all of the documents
incorporated herein by reference, other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents.
Requests for such copies should be directed to: Investor Relations, Liberty
Property Trust, 65 Valley Stream Parkway, Malvern, Pennsylvania 19355;
telephone (610) 648-1700.
THE COMPANY
Liberty Property Trust is one of the largest owners and operators of
suburban industrial and office real estate in the United States. The Trust is
a self-administered and self-managed Maryland real estate investment trust
("REIT") that was formed to continue and expand the commercial real estate
business of Rouse & Associates, a developer and manager of commercial real
estate in the Mid-Atlantic and Southeastern states, founded in 1972. The Trust
provides leasing, property management, acquisition, development, construction
and design management and other related services to a portfolio which, as of
March 31, 1997, consisted of 285 industrial and office properties.
On a consolidated basis, substantially all of the Trust's assets are owned
directly or indirectly by, and all of the Trust's operations are conducted
directly or indirectly by, Liberty Property Limited Partnership, a
Pennsylvania limited partnership. As used herein, unless the context otherwise
requires, such partnership, together with its direct and indirect
subsidiaries, is referred to as the "Operating Partnership" and the Operating
Partnership, together with the Trust (and, where the context requires, the
predecessor entity), is referred to as the "Company." The Trust is the sole
general partner and also is a limited partner of the Operating Partnership,
with a combined equity interest in the Operating Partnership of 91.54% at
March 31, 1997.
The Company's primary objective is to increase funds from operations per
share. See "Selected Financial Data" in the Prospectus Supplement for the
definition of this term. The strategies for achieving this goal are to deliver
outstanding tenant service, emphasize marketing to attract new tenants and
enhance the Company's portfolio through the acquisition and development of
high quality projects in markets affording opportunities for attractive
yields. In pursuing these strategies, the Company seeks to manage its capital
structure to fund growth while maintaining the strength of its balance sheet.
The Company owned 285 properties as of March 31, 1997, including 190
industrial and 110 office properties, which at that date were approximately
92.9% leased to over 1,000 tenants. As of March 31, 1997, the Company also had
24 properties under development and held 999 acres of land for future
development.
The Company's executive offices are located at 65 Valley Stream Parkway,
Malvern, Pennsylvania 19355. The telephone number is (610) 648-1700. The
Company maintains offices in each of its primary markets.
USE OF PROCEEDS
Unless otherwise provided in the Prospectus Supplement, the net proceeds, if
any, from the sale of the Securities offered hereby will be used for general
business purposes, including the acquisition of properties or other assets. At
the date hereof, no specific material proposed purchases have been identified
as probable. The amount of Securities offered from time to time pursuant to
this Prospectus and any Prospectus Supplement, and the precise amounts and
timing of the application of net proceeds from the sale of such Securities,
will depend
4
<PAGE>
upon funding requirements of the Company. If the Company elects at the time of
an issuance of Securities to make different or more specific use of proceeds
than set forth herein, such use will be described in the Prospectus
Supplement.
RATIOS OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges of the Company for the quarter ended
March 31, 1997, for the years ended December 31, 1996 and 1995 and for the
period from June 23, 1994 to December 31, 1994 were 1.81, 1.83, 1.65 and 2.04,
respectively. The ratios of earnings to fixed charges were computed by
dividing earnings by fixed charges. For this purpose, earnings have been
calculated by adding fixed charges (excluding capitalized interest) to income
(loss) before minority interest and extraordinary items. Fixed charges consist
of interest costs, whether expensed or capitalized, and amortization of
deferred financing costs.
Prior to the completion of the initial public offering of its Common Shares
on June 23, 1994, the operations of the Company were conducted through its
predecessor, Rouse & Associates and certain of its affiliates (collectively,
the "Rouse Group"). In connection with completion of the initial public
offering, the Company reorganized the Rouse Group and substantially
deleveraged such predecessor's asset base. As a result of these factors, the
Company does not consider information relating to the ratio of earnings to
fixed charges for the periods prior to the completion of the public offering
to be meaningful.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities may be issued in one or more series under a senior
indenture (the "Senior Indenture") or a subordinated indenture (the
"Subordinated Indenture" and, together with the Senior Indenture, the
"Indenture"), between the Operating Partnership and a Trustee (a "Trustee"),
and in the forms that have been filed as exhibits to the Registration
Statement, subject to the terms of such amendments or supplements thereto as
may be entered into from time to time and filed with the Commission as
exhibits to or incorporated by reference in the Registration Statement. The
following summaries of certain provisions of the Indentures do not purport to
be complete and are subject to, and qualified in their entirety by reference
to, all provisions of the Indentures, including the definitions therein of
certain terms. Wherever particular sections or defined terms of the Indentures
are summarized herein or in a Prospectus Supplement, it is intended that such
sections or defined terms (including, unless otherwise indicated herein,
definitions of terms capitalized in such summaries) shall be incorporated
herein or therein by reference. The following sets forth certain general terms
and provisions of the Debt Securities to which any Prospectus Supplement may
relate. The particular terms of the Debt Securities offered by any Prospectus
Supplement and the extent, if any, to which such general provisions may apply
to the Debt Securities so offered, will be described in the Prospectus
Supplement relating to such Debt Securities. The Operating Partnership is
referred to as the "Issuer" for purposes of the following summary.
The Issuer's rights and the rights of its creditors, including the holders
of the Debt Securities offered hereby, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject
to the prior claims of the subsidiary's creditors except, subject to certain
limitations, to the extent that the Issuer may itself be a creditor with
recognized claims against the subsidiary.
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may
be issued from time to time in one or more series. The Debt Securities will be
direct obligations, secured or unsecured, of the Issuer. The Debt Securities
issued under the Senior Indenture ("Senior Debt Securities") will rank on a
parity with all other unsubordinated indebtedness of the Issuer. The Debt
Securities issued under the Subordinated Indenture ("Subordinated Debt
Securities") will be subordinate and junior in right of payment to all Senior
Indebtedness of the Issuer, to the extent and in the manner set forth in the
Subordinated Indenture. To the extent applicable to any particular series of
Debt Securities, the terms that are capitalized herein, but are not defined
herein, shall have the respective meanings ascribed to them in the
5
<PAGE>
Indenture applicable to such Debt Securities. Whenever defined terms of the
Indenture are summarized herein or in a Prospectus Supplement, it is intended
that such defined terms shall be incorporated herein or therein by reference.
See "Special Terms Relating to Subordinated Debt Securities."
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for the following terms, to the
extent applicable: (a) the title and series of such Debt Securities; (b) any
limit on the aggregate principal amount of such Debt Securities; (c) the price
or prices (expressed as a percentage of the aggregate principal amount
thereof) at which such Debt Securities will be issued; (d) the date or dates
on which such Debt Securities will mature, or the method or methods, if any,
by which such date or dates shall be determined; (e) the rate or rates (which
may be fixed or variable) per annum at which such Debt Securities will bear
interest, if any, or the method or methods, if any, by which such rate or
rates are to be determined; (f) the date or dates from which such interest, if
any, on such Debt Securities will accrue or the method or methods, if any, by
which such date or dates are to be determined, the dates on which such
interest, if any, will be payable, the date on which payment of such interest,
if any, will commence and the Regular Record Dates for such Interest Payment
Dates, if any; (g) the dates, if any, on which, and the price or prices at
which the Debt Securities will, pursuant to any mandatory sinking fund
provisions, or may, pursuant to any optional sinking fund or purchase fund
provisions, be redeemed by the Issuer or otherwise, and the other detailed
terms and provisions of any such sinking fund or purchase fund; (h) the date,
if any, after which, and the price or prices at which the Debt Securities may,
pursuant to any optional redemption provisions, be redeemed at the option of
the Issuer, the holder thereof or otherwise and the other detailed terms and
provisions of such optional redemption; (i) the extent to which any of the
Debt Securities will be issuable in temporary or permanent global form and, if
so, the identity of the depositary for such global Debt Security, and the
manner in which any interest payable on a temporary or permanent global Debt
Security will be paid; (j) the denomination or denominations in which such
Debt Securities are authorized to be issued; (k) whether any of the Debt
Securities will be issued in bearer form and, if so, any limitations on the
issuance or conversion of such bearer Debt Securities (including exchange for
registered Debt Securities of the same series); (l) information with respect
to book-entry procedures; (m) whether any of the Debt Securities will be
issued as Original Issue Discount Securities (as defined below); (n) each
office or agency where, subject to the terms of the related Indenture, such
Debt Securities may be presented for registration of transfer or exchange; (o)
the currencies or currency units in which such Debt Securities are issued and
in which the principal of, interest on and additional amounts, if any, in
respect of such Debt Securities will be payable; (p) whether the amount of
payments of principal of, and interest and additional amounts, if any, on such
Debt Securities may be determined with reference to an index, formula or other
method (which index, formula or method may, but need not be, based on one or
more currencies, currency units or composite currencies, commodities, equity
indices or other indices) and the manner in which such amounts shall be
determined; (q) whether the Issuer or a holder may elect payment of the
principal of or interest on such Debt Securities in a currency, currencies,
currency unit or units or composite currency or currencies other than that in
which such Debt Securities are denominated or stated to be payable, the period
or periods within which, and the terms and conditions upon which, such
election may be made, and the time and manner of determining the exchange rate
between the currency, currencies, currency unit or units or composite currency
or currencies in which such Debt Securities are denominated or stated to be
payable and the currency, currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are to be so payable; (r)
the identity of the Trustee, and if other than the applicable Trustee, the
identity of each Security Registrar, Paying Agent and Authenticating Agent and
the designation of the initial Exchange Rate Agent, if any; (s) if applicable,
the defeasance of certain obligations by the Issuer pertaining to Debt
Securities of the series; (t) the person to whom any interest on any
registered Debt Security of the series shall be payable, if other than the
person in whose name that Debt Security (or one or more predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest, the manner in which, or the person to whom, any interest on
any bearer Debt Security of the series shall be payable, if otherwise than
upon presentation and surrender of the coupons appertaining thereto as they
severally mature, and the extent to which, or the manner in which, any
interest payable on a temporary global Debt Security on an Interest Payment
Date will be paid if other than in the manner provided in the related
Indenture; (u) whether and under what circumstances the Issuer will pay
6
<PAGE>
additional amounts (the term "interest," as used in this Prospectus, shall
include such additional amounts) on such Debt Securities to any holder who is
not a United States person (including any modification to the definition of
such term as contained in the related Indenture as originally executed) in
respect of any tax, assessment or governmental charge and, if so, whether the
Issuer will have the option to redeem such Debt Securities rather than pay
such additional amounts (and the terms of any such option); (v) any deletions
from, modifications of or additions to the Events of Default or covenants of
the Issuer with respect to any of such Debt Securities; (w) whether such Debt
Securities shall be convertible into or exchangeable for other Securities and,
if so, the terms of any such conversion or exchange and the terms of such
other Securities; (x) any other terms of the series (which will not be
inconsistent with the provisions of the applicable Indenture); and (y) the
terms of any guaranties, which may be conditional. The Prospectus Supplement
relating to any particular guaranty offered thereby will include any
additional terms of such guaranty, including the rank in priority and any
covenants applicable to such guaranty.
Debt Securities may be issued as "Original Issue Discount Securities" to be
sold at a discount below their principal amount, which discount may be
substantial. In the event of an acceleration of the maturity of any Original
Issue Discount Security, the amount payable to the holder of such Original
Issue Discount Security upon such acceleration will be determined in
accordance with the applicable Prospectus Supplement, the terms of such Debt
Security and the applicable Indenture, but will be an amount less than the
amount payable at the maturity of such Original Issue Discount Security. All
material federal income tax, accounting and other considerations applicable
thereto will be described in the Prospectus Supplement relating thereto.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the applicable Prospectus Supplement, each
series of Debt Securities will be issued in registered form only, without
coupons. The Indentures, however, provide that the Issuer may also issue Debt
Securities in bearer form only, or in both registered and bearer form. Debt
Securities issued in bearer form shall have interest coupons attached, unless
issued as Original Issue Discount Securities. Debt Securities in bearer form
shall not be offered, sold, resold or delivered in connection with their
original issuance in the United States or to any United States person (as
defined below) other than through offices located outside the United States of
certain United States financial institutions. As used herein, "United States
person" means any citizen or resident of the United States, any corporation,
partnership or other entity created or organized in or under the laws of the
United States, or any estate or trust, the income of which is subject to
United States federal income taxation regardless of its source, and "United
States" means the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction. Purchasers of Debt Securities in bearer form will
be subject to certification procedures and may be affected by certain
limitations under United States tax laws. Such procedures and limitations will
be described in the Prospectus Supplement relating to the offering of the Debt
Securities in bearer form.
Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities will be issued in denominations of $1,000 or any integral multiple
thereof. No service charge will be made for any transfer, exchange or
conversion of the Debt Securities but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Unless otherwise described in the Prospectus Supplement relating thereto,
the principal, premium, if any, and interest, if any, of or on the Debt
Securities will be payable, transfer of the Debt Securities will be
registerable, and, if applicable, any Convertible Debt Securities (as defined
below) will be convertible, at the office or agency of the Issuer maintained
for that purpose, as the Issuer may designate from time to time, provided that
payments of interest may be made at the option of the Issuer by check mailed
to the address appearing in the Security Register of the person in whose name
such registered Debt Security is registered at the close of business on the
applicable Regular Record Date(s).
7
<PAGE>
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest, if any, on, Debt Securities in
bearer form will be made payable, subject to any applicable laws and
regulations, at such office outside the United States as specified in the
Prospectus Supplement and as the Issuer may designate from time to time, at
the option of the holder, by check or by transfer to an account maintained by
the payee with a bank located outside the United States. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of interest and
certain additional amounts on Debt Securities in bearer form will be made only
against surrender of the coupon relating to the applicable Interest Payment
Date. No payment with respect to any Debt Security in bearer form will be made
at any office or agency of the Issuer in the United States or by check mailed
to any address in the United States or by transfer to an account maintained
with a bank located in the United States.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Debt Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Global Debt Securities may
be issued in either registered or bearer form and in either temporary or
permanent form. Unless and until it is exchanged in whole or in part for
individual certificates evidencing Debt Securities in definitive form
represented thereby, a Global Debt Security may not be transferred except as a
whole by the Depositary for such Global Debt Security to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Global Debt Securities, and certain limitations and restrictions relating to a
series of bearer Global Debt Securities, will be described in the Prospectus
Supplement relating to such series.
RESTRICTIVE COVENANTS
The Indentures do not contain restrictive covenants, but the indenture
supplement or amendment entered into at the time of the issuance of any Debt
Securities may contain such restrictions on the Issuer and its operations. The
applicable Prospectus Supplement will describe any restrictive covenants
applicable to the Debt Securities that are issued thereunder.
OUTSTANDING DEBT SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, in
determining whether the holders of the requisite principal amount of
Outstanding Debt Securities have given any request, demand, authorization,
direction, notice, consent or waiver under the Indentures: (a) the portion of
the principal amount of an Original Issue Discount Security that shall be
deemed to be Outstanding for such purposes shall be that portion of the
principal amount thereof that could be declared to be due and payable pursuant
to the terms of such Original Issue Discount Security as of the date of such
determination; (b) the principal amount of any Indexed Security shall be the
principal face amount of such Indexed Security determined on the date of its
original issuance; and (c) any Debt Security owned by the Issuer or any
obligor on such Debt Security, or any Affiliate of the Issuer or such other
obligor, shall be deemed not to be outstanding.
MODIFICATION AND WAIVER
The Issuer may amend the Indentures with the written consent of the holders
of a majority in principal amount of the respective Debt Securities
outstanding thereunder. However, without the consent of each Holder affected,
an amendment may not: (a) reduce the amount of Debt Securities whose holders
must consent to an amendment; (b) reduce the rate or change the time of
payment of interest on any Debt Securities; (c) reduce the principal of or
change the fixed maturity of Debt Securities; (d) make any Debt Securities
payable in money
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other than that stated in the definitive notes representing such Debt
Securities; (e) change the provisions of the respective Indenture regarding
the right of a majority of the Holders to waive defaults under such Indenture
or impair the right of any Holder to institute suit for the enforcement of any
payment of principal and interest on the Debt Securities on and after their
respective due dates; (f) make any change that adversely affects the right to
convert or exchange any Convertible Debt Securities; or (g) make any change to
the provisions of the respective Indenture regarding subordination and
seniority of the Debt Securities that adversely affects the rights of any
Holders.
SPECIAL TERMS RELATING TO SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Issuer resulting from any
dissolution, winding up, liquidation or reorganization, payments on
Subordinated Debt Securities are to be subordinated, to the extent provided in
the Subordinated Indenture, in right of payment to the prior payment in full
of all Senior Indebtedness, but the obligation of the Issuer to make payments
on the Subordinated Debt Securities will not otherwise be affected. No payment
on Subordinated Debt Securities may be made at any time when there is a
default in the payment of any principal, premium, interest, Additional Amounts
or sinking fund of or on any Senior Indebtedness. Holders of Subordinated Debt
Securities will be subrogated to the rights of holders of Senior Indebtedness
to the extent of payments made on Senior Indebtedness upon any distribution of
assets in any such proceedings out of the distributive shares of Subordinated
Debt Securities. By reason of such subordination, in the event of a
distribution of assets upon insolvency, certain creditors of the Issuer may
recover more, ratably, than holders of Subordinated Debt Securities.
The Prospectus Supplement relating to any Subordinated Debt Securities will
set forth the aggregate amount of Senior Indebtedness outstanding as of the
most recent date practicable and any limitations on the issuance of additional
Senior Indebtedness. As of the date of this Prospectus, there is no limitation
on the amount of Senior Indebtedness that may be issued by the Trust or the
Operating Partnership.
CONVERSION OR EXCHANGE
The holders of Debt Securities of a specified series that are convertible
into or exchangeable for other Securities ("Convertible Debt Securities") will
be entitled at certain times specified in the Prospectus Supplement relating
to such Convertible Debt Securities, subject to prior redemption, exchange,
repayment or repurchase, to convert or exchange any Convertible Debt
Securities of such series into such other Securities, at the conversion price
set forth in such Prospectus Supplement, subject to adjustment and to such
other terms as are set forth in such Prospectus Supplement. Any such
conversion or exchange of Convertible Debt Securities will be further subject
to the applicable terms and conditions set forth in the Indentures, as
supplemented or amended from time to time.
DESCRIPTION OF PREFERRED SHARES
GENERAL
The rights, preferences, privileges and restrictions of the Preferred Shares
in respect of which this Prospectus is delivered shall be described in the
Prospectus Supplement relating to such Preferred Shares. Among the terms of
the Preferred Shares which may be specified in the related Prospectus
Supplement are the following: (a) the annual dividend rate, if any, or the
means by which such dividend rate may be calculated (including without
limitation the possibility that the rate of such dividends may bear an inverse
relationship to some index or standard) and the date or dates from which such
dividends shall accrue and the date or dates on which such dividends shall be
paid and whether such dividends shall be cumulative; (b) the price at which
and the terms and conditions on which the shares of such series of Preferred
Shares may be redeemed, including the period of time during which such shares
may be redeemed, any premium to be paid over and above the par value of such
Preferred Shares, whether and to what extent accumulated dividends on such
Preferred Shares will be paid upon the redemption of such shares; (c) the
liquidation preference, if any, over and above the par value of such
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Preferred Shares and whether and to what extent the holders of such shares
shall be entitled to accumulated dividends in the event of the voluntary or
involuntary liquidation, dissolution or winding-up of the affairs of the
Company; (d) whether the Preferred Shares shall be subject to the operation of
a retirement or sinking fund and, if so, a description of the operation of
such retirement or sinking fund; (e) the terms and conditions, if any, on
which the Preferred Shares may be convertible into, or exchangeable for,
shares of any other class or classes of equity interests in the Trust,
including the price or rate of conversion or exchange and the method for
effecting such conversion or exchange, provided that no Preferred Shares will
be convertible into shares of a class that has superior rights or preferences
as to dividends or distribution of assets of the Company upon the voluntary or
involuntary dissolution or liquidation of the Company; (f) a description of
the voting rights, if any, of the Preferred Shares; and (g) other preferences,
rights, qualifications or restrictions or material terms of such Preferred
Shares.
The description of the foregoing provisions of the Preferred Shares as set
forth in the related Prospectus Supplement is only a summary, does not purport
to be complete and is subject to, and is qualified in its entirety by,
reference to the definitive Certificate of Amendment to the Trust's
Declaration of Trust relating to such series of Preferred Shares. In
connection with any offering of Preferred Shares, such Certificate of
Amendment will be filed with the Commission as an exhibit to or incorporated
by reference in the Registration Statement.
DEPOSITARY SHARES
The Trust may, at its option, elect to offer fractional Preferred Shares,
rather than full Preferred Shares. In the event such option is exercised, the
Trust will issue receipts for Depositary Shares, each of which will represent
a fraction (to be set forth in the Prospectus Supplement relating to the
Preferred Shares) of a share of such Preferred Shares.
The Preferred Shares represented by Depositary Shares will be deposited
under a Deposit Agreement (the "Deposit Agreement") between the Trust and a
bank or trust company selected by the Trust having its principal office in the
United States and having a combined capital and surplus of at least
$50,000,000 (the "Depositary Shares Depositary"). Subject to the terms of the
Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a Preferred Share represented by such
Depositary Share, to all the rights and preferences of the Preferred Share,
represented thereby (including dividend, voting, redemption, conversion and
liquidation rights).
The above description of the Depositary Shares is only a summary, is not
complete and is subject to, and is qualified in its entirety by, the
description in the related Prospectus Supplement and the provisions of the
Deposit Agreement (which will contain the form of Depositary Receipt), a copy
of which will be filed with the Commission as an exhibit to or incorporated by
reference in the Registration Statement.
DESCRIPTION OF WARRANTS
The Trust may issue separately, or together with any Preferred Shares or
Common Shares offered by any Prospectus Supplement, Warrants for the purchase
of other Preferred Shares or Common Shares (collectively, "Warrants"). The
Warrants may be issued under warrant agreements (each, a "Warrant Agreement")
to be entered into between the Trust and a bank or trust company, as warrant
agent (the "Warrant Agent"), or may be represented by certificates evidencing
the Warrants (the "Warrant Certificates"), all as set forth in the Prospectus
Supplement relating to the particular series of Warrants. The following
summaries of certain provisions of the Warrants do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of any related Warrant Agreement and Warrant Certificate,
respectively, including the definitions therein of certain terms. Wherever
defined terms of the Warrant Agreement are summarized herein or in a
Prospectus Supplement, it is intended that such defined terms shall be
incorporated herein or therein by reference. In connection with any offering
of Warrants, any such Warrant Agreement or a form of any such Warrant
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Certificate will be filed with the Commission as an exhibit to or incorporated
by reference in the Registration Statement.
GENERAL
The Prospectus Supplement relating to the particular series of Warrants
offered thereby will describe the terms of the offered Warrants, any related
Warrant Agreement and Warrant Certificate, including the following, to the
extent applicable: (a) if the Warrants are offered for separate consideration,
the offering price and the currency for which Warrants may be purchased; (b)
if applicable, the designation, number, stated value and terms (including,
without limitation, liquidation, dividend, conversion and voting rights) of
the Preferred Shares purchasable upon exercise of Preferred Shares Warrants
and the price at which such number of Preferred Shares may be purchased upon
such exercise; (c) if applicable, the number of shares of Common Shares
purchasable upon exercise of Common Shares Warrants and the price at which
such number of Common Shares may be purchased upon such exercise; (d) the
date, if any, on and after which the offered Warrants and the related
Preferred Shares and/or Common Shares will be separately transferable; (e) the
date on which the right to exercise the offered Warrants shall commence and
the date on which such right shall expire ("Expiration Date"); (f) a
discussion of the specific U.S. federal income tax, accounting and other
considerations applicable to the Warrants or to any Securities purchasable
upon the exercise of such Warrants; (g) whether the offered Warrants
represented by Warrant Certificates will be issued in registered or bearer
form, and if registered, where they may be transferred and registered; (h) any
applicable anti-dilution provisions; (i) any applicable redemption or call
provisions; (j) any applicable book-entry provisions; and (k) any other terms
of the offered Warrants.
Warrant Certificates will be exchangeable on the terms specified in the
related Prospectus Supplement for new Warrant Certificates of different
denominations and Warrants may be exercised at the corporate trust office of
the Warrant Agent or any other office indicated in the Prospectus Supplement
relating thereto. Prior to the exercise of their Warrants, holders of Warrants
will not have any of the rights of holders of the Preferred Shares or Common
Shares purchasable upon such exercise, including the right to receive payments
of dividends or distributions of any kind, if any, on the Preferred Shares or
Common Shares, respectively, purchasable upon exercise or to exercise any
applicable right to vote.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder thereof to purchase such number of
Preferred Shares or Common Shares, as the case may be, at such exercise price
as shall in each case be set forth in, or be determinable from, the Prospectus
Supplement relating to such Warrant, by payment of such exercise price in full
in the currency and in the manner specified in such Prospectus Supplement.
Warrants may be exercised at any time up to the close of business on the
Expiration Date (or such later date to which such Expiration Date may be
extended by the Trust); unexercised Warrants will become null and void.
Upon receipt at the corporate trust office of the Warrant Agent or any other
office indicated in the related Prospectus Supplement of (a) payment of the
exercise price and (b) the Warrant Certificate properly completed and duly
executed, the Trust will, as soon as practicable, forward the Preferred Shares
or Common Shares purchasable upon such exercise to the holder of such Warrant.
If less than all of the Warrants represented by such Warrant Certificate are
exercised, a new Warrant Certificate will be issued for the remaining number
of Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
WITH RESPECT TO THE TRUST AND THE OPERATING PARTNERSHIP
The following summary of the material federal income tax considerations with
respect to the Trust and the Operating Partnership regarding the offering of
Securities is based on current law, is for general information only and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending on the terms of
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the specific Securities acquired or held by such holder as well as such
holder's particular situation, and this summary does not attempt to address
any aspects of federal income taxation relating to holders of the Securities.
Certain federal income tax consideration relevant to holders of Securities
will be provided on the applicable Prospectus Supplement relating thereto.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF THE SECURITIES AND OF THE TRUST'S ELECTION TO
BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE
AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE TRUST
The Trust believes that, commencing with the Trust's taxable year ended
December 31, 1994, the Trust has been organized and operated in such a manner
as to qualify as a REIT under Sections 856 through 860 of the Code. The Trust
intends to continue to operate in such a manner as to qualify for taxation as
a REIT in the future, but no assurance can be given that is has or will remain
qualified.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material
aspects of the Code sections that govern the federal income taxation of a
REIT. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative
and judicial interpretations thereof.
Wolf, Block, Schorr and Solis-Cohen has opined that, commencing with the
Trust's taxable year ended December 31, 1994, the Trust has been organized and
operated in conformity with the requirements for qualification and taxation as
a REIT under the Code, and its proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT
under the Code for future taxable periods. It must be emphasized that the
opinion of Wolf, Block, Schorr and Solis-Cohen is based on certain assumptions
and representations made by the Trust and the Operating Partnership as to
factual matters. Moreover, such qualification and taxation as a REIT depend
upon the Trust's future ability to meet, through actual annual operating
results, certain distribution levels, the diversity of stock ownership
requirements and the various other qualification tests imposed under the Code
discussed below, the results of which may not be reviewed by Wolf, Block,
Schorr and Solis-Cohen. Accordingly, no assurance can be given that the actual
results of the Trust's operation for any particular taxable year will satisfy
such requirements. For a discussion of the tax consequences of failure to
qualify as a REIT, see "--Failure to Qualify."
As a REIT, the Trust generally is not subject to federal corporate income
taxes on its net income that it currently distributes to shareholders. This
treatment substantially eliminates the "double taxation" (at the corporate and
shareholder levels) that generally results from investment in a corporation.
However, the Trust will be subject to federal income tax as follows. First,
the Trust will be taxed at regular corporate rates on any undistributed real
estate investment trust taxable income, including undistributed net capital
gains. Second, under certain circumstances, the Trust may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the Trust
has (i) net income from the sale or other disposition of "foreclosure
property" (generally property acquired by a REIT upon the default by a debtor
with respect to indebtedness secured by the property or upon the default by a
lessee where the REIT was the lessor) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate tax rate on such income. Fourth, if the Trust has net income from
"prohibited transactions" (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be
subject to a 100% tax. Fifth, if the Trust should fail to satisfy the 75%
gross income test or the 95% gross income test (discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by
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which the Trust fails the 75% test or the 95% test in the taxable year,
multiplied by a fraction generally intended to reflect the Trust's
profitability. Sixth, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior periods, the Trust would be
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if the Trust 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 Trust's
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and the Trust recognizes gain on
the disposition of such asset during the 10-year period following acquisition
of the asset, then, pursuant to guidelines issued by the Internal Revenue
Service (the "IRS"), to the extent of the "built-in gain," the excess of the
fair market value of the asset on the date acquired over its adjusted tax
basis at that date, such gain will be subject to tax at the highest regular
corporate rate. The result described above with respect to the recognition of
built-in gain assumes the Trust is eligible to make, and makes, an election
pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) that 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) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (4) that is neither a financial
institution nor an insurance company subject to certain provisions of the
Code; (5) the beneficial ownership of which is held by 100 or more persons;
(6) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities as
"individuals" for these purposes); and (7) which meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (1) to (4), inclusive, must be met during the entire
taxable year and that condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Conditions (5) and (6) do not apply until after the first
taxable year for which an election is made by the Trust to be taxed as a REIT.
For purposes of determining stock ownership under the rule limiting ownership
by five or fewer individuals, REIT shares held by a pension fund generally are
treated as held proportionately by its beneficiaries.
The Trust has satisfied conditions (5) and (6) above. In making the "five or
fewer individual" determination, if treating interests in the Operating
Partnership that can be converted into shares of the Trust as converted into
outstanding shares would cause the Trust to fail that test, the interests are
deemed to have been converted. In addition, the Trust's Declaration of Trust
provides for restrictions regarding transfer of its shares, in order to assist
the Trust in continuing to satisfy the share ownership requirements described
in (5) and (6) above. Such transfer restrictions are included in the Trust's
Registration Statement on Form 8-A, which is incorporated by reference herein.
See "Incorporation of Certain Documents by Reference."
Code Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" is not to be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" are treated as assets, liabilities, and such items (as the case
may be) of the REIT. A qualified REIT subsidiary is a corporation 100% of the
stock of which is held by the REIT at all times during the existence of the
corporation. Thus, in applying the requirements described herein, the Trust's
"qualified REIT subsidiaries" are ignored, and all assets, liabilities, and
items of income, deduction, and credit of such subsidiaries will be treated as
assets, liabilities and items of the Trust.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and the asset tests described
below. The Trust's proportionate share of the assets, liabilities and items of
income of the Operating Partnership and the other partnerships through
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which the Trust's properties are owned (the "Property Partnerships") will be
treated as assets, liabilities and items of income of the Trust for purposes
of applying the requirements described herein. The references to the gross
income or assets of the Trust, as discussed immediately below in "Income
Tests" and "Assets Tests," include the Trust's proportionate share of the
gross income or assets, as the case may be, of the Operating Partnership and
the Property Partnerships.
INCOME TESTS
For the Trust to maintain its qualification as a REIT, the Trust must
satisfy three separate tests based on the nature of the underlying gross
income. These requirements must be satisfied annually. First, at least 75% of
the Trust's gross income (excluding gross income from prohibited transactions)
for each taxable year must consist of income derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or certain types of "qualified temporary investment income." Second, at least
95% of the Trust's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments, and from dividends, other types of interest, and gain from the
sale or disposition of stock or securities or from any combination of the
foregoing. Third, short-term gain from the sale or other disposition of stock
or securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Trust's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Trust will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above provided
that several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person. An amount received
or accrued generally is not excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales. Special rules apply where the tenant is a sublessor with
respect to property which permits a REIT to receive rent determined by
reference to the income or profits of the tenant in some cases. Second, the
Code provides that rents received from a tenant do not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or a direct
or indirect owner of 10% or more of the REIT, directly or constructively, owns
10% or more of such tenant (a "Related Party Tenant"). Although the Trust may
lease portions of its properties to tenants that may constitute Related Party
Tenants, the Trust does not believe that the rents attributable to such leases
would cause the Trust to fail to satisfy the 75% or 95% gross income tests.
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, the portion of rent attributable to such personal property will not
qualify as "rents from real property." The Trust does not anticipate that the
rent attributable to the personal property leased in connection with the real
property will be greater than 15% of the total rent received under the lease
or, if it was as to any particular lease or group of leases, that the rent
attributable to the personal property would cause the Trust to fail to satisfy
the 75% or 95% gross income tests. Finally, in order for rents received to
qualify as "rents from real property," the REIT generally must not operate or
manage the property or furnish or render services to the tenants of such
property, other than through an independent contractor that is adequately
compensated and from whom the REIT derives no revenue; provided, however, that
the Trust may directly perform services "usually and customarily" rendered in
connection with the rental of space for occupancy only and that are not
otherwise considered "rendered to the occupant" of the property. The Trust has
represented that it does not and will not knowingly (i) charge rent for any
property that is based in whole or in part on the income or profits of any
person or (ii) directly perform services considered to be rendered to the
occupant of property.
The Trust is a self-managed REIT; i.e., the Operating Partnership performs
all of the management and leasing functions with respect to the properties it
owns; provided that the services called for do not cause the rents received
with respect to those leases to fail to qualify as "rents from real property."
To the extent that the services provided are not "usual and customary" under
the foregoing rules, the Trust will employ a qualifying independent contractor
to render the services. The Trust may provide property management and leasing
services to third parties and will provide services to an affiliated entity
for a fee. Although such income will not be
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qualifying income under the 75% and 95% gross income tests, the Trust does not
expect that the revenue derived from such services would cause it to fail to
qualify as a REIT.
For purposes of the gross income test, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will
not be excluded from the term "interest" solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
Any gross income derived from a prohibited transaction is taken into account
in applying the 30% income test necessary to maintain the Trust's
qualification as a REIT (and the net income from that transaction is subject
to a 100% tax). The Operating Partnership and the Trust believe that no asset
owned by the Operating Partnership, the Property Partnerships or the Trust is
inventory property or property held for sale to customers or in the ordinary
course of business of the Operating Partnership, the relevant Property
Partnership or the Trust. Whether property is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those
related to a particular property. The Trust, Operating Partnership and the
Property Partnerships will attempt to comply with the terms of safe-harbor
provisions in the Code prescribing when asset sales will not be characterized
as prohibited transactions. Complete assurance cannot be given, however, that
the Trust can comply with the safe-harbor provisions of the Code or avoid
owning property that may be characterized as property held "primarily for sale
to customers in the ordinary course of business." Assets owned by Liberty
Development may constitute property held for sale, although the Trust owns an
interest solely as a shareholder in such entity.
Generally, the failure to satisfy either or both of the 75% and 95% gross
income tests will cause the REIT status of the Trust to terminate with the
taxable year in which the failure occurs. Relief from the adverse consequences
of such failure is available if the Trust's failure to meet such tests was due
to reasonable cause and not willful neglect, the Trust attaches a schedule of
the nature and the sources of its gross income to its income tax return, and
any incorrect information set forth on the schedule is not due to fraud with
intent to evade tax. It is not possible to state whether, in all
circumstances, the Trust would be entitled to the benefit of these relief
provisions. As discussed above in "Taxation of the Trust," even if these
relief provisions apply, a tax would be imposed with respect to the excess of
75% or 95% of the Trust's gross income over the Trust's qualifying income in
the relevant category, whichever is greater. This statutory relief is
available only for failures to satisfy the 75% and 95% gross income tests and
no such relief is available for a failure to satisfy the 30% gross income
test. In such case, the Trust would cease to qualify as a REIT.
ASSET TESTS
The Trust, at the close of each quarter of its taxable year, must also
satisfy three tests relating to the nature of its assets. First, at least 75%
of the value of the Trust's total assets must be represented by real estate
assets (including (i) its allocable share of real estate assets held by
partnerships in which the Trust owns an interest or held by "qualified REIT
subsidiaries" of the Trust and (ii) stock or debt instruments held for not
more than one year purchased with the proceeds of a stock offering or long-
term (at least five years) debt offering of the Trust), cash, cash items and
governmental securities. Second, not more than 25% of the Trust's total assets
may be represented by securities other than those in the 75% asset class.
Third, of the investments included in the 25% asset class, the value of any
one issuer's securities owned by the Trust may not exceed 5% of the value of
the Trust's total assets and the Trust may not own more than 10% of any one
issuer's outstanding voting securities (excluding the stock of a qualified
REIT subsidiary, of which the REIT is required to own all of the stock, or of
another real estate investment trust).
The Operating Partnership owns 8.0% of the voting common stock and 100% of
the non-voting common stock of Liberty Development. By virtue of its ownership
of partnership interests in the Operating Partnership, the Trust owns its pro
rata share of the common stock of Liberty Development. The Operating
Partnership does not own more than 10% of the voting securities of Liberty
Development and, therefore, the Trust will not own more than 10% of the voting
securities of Liberty Development. The IRS could contend that the Trust,
through
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its interest in the Operating Partnership, should be viewed as owning more
than 10% of the voting securities of Liberty Development because of its
substantial economic position in Liberty Development and the close business
relationship between the two entities. If such contention were sustained, the
Trust would not qualify as a REIT. The Operating Partnership does not possess
the requisite power to elect or designate a member of the Board of Directors
of Liberty Development, and there is no understanding or arrangement
permitting the Trust to exercise voting power or control over the voting
common stock of Liberty Development not owned by it. Accordingly, Wolf, Block,
Schorr and Solis-Cohen and the Trust do not believe that the Trust will be
viewed as owning in excess of 10% of the voting securities of Liberty
Development. Based on its analysis of the estimated value of the securities of
the subsidiaries to be owned by the Operating Partnership relative to the
estimated value of the other assets to be owned by the Operating Partnership,
the Trust has determined that its pro rata share of the securities of Liberty
Development held by the Operating Partnership does not exceed 5% of the total
value of the Trust's assets. No independent appraisals will be obtained to
support this conclusion and Wolf, Block, Schorr and Solis-Cohen, in rendering
its opinion as to the qualification of the Trust as a REIT, is relying solely
on the representations of the Trust regarding the value of Liberty
Development. The 5%-of-value requirement must be satisfied each time the Trust
increases its ownership of securities of Liberty Development (including as a
result of increasing its interest in the Operating Partnership as its limited
partners exercise their conversion rights). Although the Trust plans to take
steps to insure that it satisfies the 5% value test for any quarter with
respect to which retesting is to occur, there can be no assurance that such
steps will always be successful or will not require a reduction in the
Operating Partnership's overall interest in Liberty Development.
After initially meeting the asset tests at the close of any quarter, the
Trust will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of any quarter as may be required to cure any non-compliance.
ANNUAL DISTRIBUTION REQUIREMENTS
The Trust, to qualify as a REIT is required to distribute dividends (other
than capital gain dividends) to its stockholders in an amount at least equal
to (A) the sum of (i) 95% of the "REIT taxable income" of the Trust (computed
without regard to the dividends paid deduction and the Trust's net capital
gain) and (ii) 95% of the net taxable income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or
in the following taxable year if declared before the Trust timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent the Trust does not distribute
all of the net capital gain or distributes at least 95%, but less than 100%,
of its "REIT taxable income," as adjusted, it will be subject to tax on the
undistributed amount at the regular corporate tax rates applicable to such
income. Furthermore, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Trust would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.
The Trust has made, and intends to make, timely distributions to its
shareholders in amounts sufficient to satisfy the annual distribution
requirements. The Operating Partnership, as the general partner of each
Property Partnership, is authorized under the various partnership agreements
to cause distributions to be made to their respective partners of all
available cash to permit the Trust to meet the annual distribution
requirement. It is possible that, from time to time, the Trust may experience
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 REIT taxable income. Further, it is possible
that, from time to time, the Trust may be allocated a share of net capital
gain attributable to the sale of depreciable property which exceeds its
allocable share of cash attributable to that sale. In such cases, the Trust
may have less cash available for distribution than is necessary to meet the
annual 95% distribution requirement or to avoid tax with respect to the
capital gain or the excise tax imposed on certain undistributed income. To
meet the 95% distribution requirement necessary to
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qualify as a real estate investment trust or to avoid tax with respect to
capital gain or the excise tax imposed on certain undistributed income, the
Trust may find it appropriate to arrange for short-term (or possibly long-
term) borrowings or to pay distributions in the form of taxable stock
dividends. Any such borrowings for the purpose of making distributions to
shareholders of the Trust are required to be arranged through the Operating
Partnership.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Trust's
deduction for dividends paid for the earlier year. Thus, the Trust may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Trust will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Pursuant to applicable Treasury Regulations, in order to qualify as a REIT,
the Trust must maintain certain records and timely request certain information
from its shareholders designed to disclose the actual ownership of its stock.
The Trust believes it has complied, and intends to continue to comply, with
such requirements.
FAILURE TO QUALIFY
If the Trust fails to qualify for taxation as a REIT in any taxable year and
the relief provisions do not apply, the Trust would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders of the Trust in any
year in which the Trust failed to qualify would not be deductible by the Trust
nor would there be a requirement to make distributions. In such event, to the
extent of current and accumulated earnings and profits, all distributions to
shareholders of the Trust would be taxable as ordinary income, and, subject to
certain limitations of the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Trust would also be disqualified from taxation as a
REIT for the four taxable years following the year in which qualification was
lost. It is not possible to state whether in all circumstances the Trust would
be entitled to such statutory relief.
OTHER TAX CONSIDERATIONS
The Trust may be subject to state or local taxation in various state or
local jurisdictions, including those in which it transacts business. The state
and local tax treatment of the Trust may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should
consult their own tax advisors regarding the effect of state and local tax
laws on an investment in the Trust.
To the extent that the Trust engages in real estate development activities
in foreign countries or invests in real estate located in foreign countries,
the Trust's profits from such activities or investments will generally be
subject to tax in the countries where such activities are conducted or such
properties are located. The precise nature and amount of such taxation will
depend on the laws of the countries where the activities are conducted or the
properties are located. Although the Trust will attempt to minimize the amount
of such foreign taxation, there can be no assurance as to whether or the
extent to which measures taken to minimize such taxes will be successful. If
the Trust satisfies the annual distribution requirements for qualification as
a REIT and is, therefore, not subject to federal corporate income tax on that
portion of its ordinary income and capital gain that is currently distributed
to its shareholders, the Trust will generally not be able to recover the cost
of any foreign tax imposed on such profits from its foreign activities or
investments by claiming foreign tax credits against its federal income tax
liability on such profits. Moreover, the Trust will not be able to pass
foreign tax credits through to its shareholders. As a result, to the extent
that the Trust is required to pay taxes in foreign countries, the cash
available for distribution to its shareholders will be reduced accordingly.
The Operating Partnership will receive fees from an affiliated entity as
consideration for services that the Operating Partnership will provide to such
entity in connection with the development and management of the Kings Hill
project in the United Kingdom ("U.K."). The amount of this fee income will not
be qualifying
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income for purposes of the 75% or 95% gross income tests, although the Trust
does not expect that the revenue derived from such services would cause it to
fail the 75% or 95% gross income tests. The Trust may be subject to
Corporation Tax in the U.K. at the rate of 33% on its share of such fee income
if the Trust is deemed to have a branch or agency in the U.K. as a result of
services that may be performed for such entity in the U.K. In addition, rental
income received by the Trust with respect to leases of real property in the
U.K. would be subject to U.K. withholding tax at the rate of 25%. It is
possible that such rental income (together with any gain arising from the sale
or other disposition of such properties) could instead be subject to
Corporation Tax in the U.K. at the rate of 33% if the U.K. Inland Revenue did
not regard the Trust as holding the properties for purposes of long term
investment or if such income or gain were deemed attributable to a branch or
agency of the Trust in the U.K. Such U.K. taxes will reduce the amount of cash
available for distribution by the Trust to its shareholders out of such
income.
TAX ASPECTS OF THE TRUST'S INVESTMENTS IN PARTNERSHIPS
The following discussion summarizes certain federal income tax
considerations applicable solely to the Trust's investment in the Operating
Partnership and the Property Partnerships (collectively, the "Partnerships").
CLASSIFICATION AS A PARTNERSHIP
The Trust will be required to include in its income its distributive share
of the Operating Partnership's income and to deduct its distributive share of
the Operating Partnership's losses, and the Trust and the Operating
Partnership will be required to include in computing their income their
respective distributive shares of the income and losses of the Property
Partnerships only if the Operating Partnership and each of the Property
Partnerships is classified, for federal income tax purposes, as a partnership
rather than as an association taxable as a corporation.
For taxable periods prior to January 1, 1997, an organization formed as a
partnership was treated as a partnership rather than as a corporation for
federal income tax purposes only if it possessed no more than two of the four
corporate characteristics that the Treasury Regulations used to distinguish a
partnership from a corporation. These four characteristics were continuity of
life, centralization of management, limited liability, and free
transferability of interests. Although neither the Operating Partnership nor
the Property Partnerships requested a ruling from the IRS that they would be
classified as partnerships for Federal income tax purposes, rather than as
associations taxable as corporations, Wolf, Block, Schorr and Solis-Cohen had
opined that, based on the provisions of the respective Partnership Agreements
of the Operating Partnership and each Property Partnership, and certain
factual assumptions and representations as to each of them, the Operating
Partnership and each Property Partnership will be treated as partnerships for
federal income tax purposes and not as associations taxable as corporations.
Effective January 1, 1997, newly promulgated Treasury Regulations eliminated
the four-factor test described above and, instead, permit partnerships and
other non-corporate entities to be taxed as partnerships for federal income
tax purposes without regard to the number of corporate characteristics
possessed by such entity. Under those Regulations, both the Operating
Partnership and each of the Property Partnerships will be classified as
partnerships for federal income tax purposes unless an affirmative election is
made by the entity to be taxed as a corporation. The Trust has represented
that no such election has been made, or is anticipated to be made, on behalf
of the Operating Partnership or any of the Property Partnerships. Under a
special transitional rule in the Regulations, the IRS will not challenge the
classification of an existing entity such as the Operating Partnership or a
Property Partnership for periods prior to January 1, 1997 if: (i) the entity
has a "reasonable basis" for its classification; (ii) the entity and each of
its members recognized the federal income tax consequences of any change in
classification of the entity made within the 60 months prior to January 1,
1997; and (iii) neither the entity nor any of its members had been notified in
writing on or before May 8, 1996 that its classification was under examination
by the IRS. Neither the Partnership nor any of the Property Partnerships
changed their classification within the 60 month period preceding May 8, 1996,
nor was any one of them notified that their classification as a partnership
for federal income tax purposes was under examination by the IRS. Therefore,
in reliance on the opinion previously rendered by Wolf, Block, Schorr and
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Solis-Cohen, the Operating Partnership and each of the Property Partnerships
should continue to be taxed as partnerships for federal tax purposes.
If for any reason the Operating Partnership or a Property Partnership were
taxable as a corporation rather than as a partnership for federal income tax
purposes, the Trust would not be able to satisfy the income and asset
requirements for status as a REIT. In addition, any change in the Operating
Partnership's status or that of a Property Partnership for tax purposes might
be treated as a taxable event, in which case the Trust might incur a tax
liability without any related cash distribution. See "--Taxation of the
Trust," above. Further, items of income and deduction for the Operating
Partnership or a Property Partnership would not pass through to the respective
partners, and the partners would be treated as stockholders for tax purposes.
Each Partnership would be required to pay income tax at regular corporate tax
rates on its net income and distributions to partners would constitute
dividends that would not be deductible in computing the Partnership's taxable
income.
INCOME TAXATION OF THE PARTNERSHIPS
Partners, Not the Operating Partnership or Property Partnerships, Subject to
Tax
A partnership is not a taxable entity for federal income tax purposes.
Rather, the Trust will be required to take into account its allocable share of
the income, gains, losses, deductions and credits of each of the Operating
Partnership and the Property Partnerships for any taxable year of such
Partnerships ending within or with the taxable year of the Trust, without
regard to whether the Trust has received or will receive any cash
distributions. The same will be true for the Operating Partnership with
respect to its allocable share of the income, gains, losses, deductions and
credits of each of the Property Partnerships.
Partnership Allocations
Although a partnership agreement generally will determine the allocation of
income and losses among partners, the allocations provided in the partnership
agreement will be disregarded for tax purposes 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 partners'
interests 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 Operating Partnership and the Property Partnerships 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 Pre-Contribution Gain
Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction
attributable to appreciated 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 the
unrealized gain associated with the property at the time of the contribution.
The amount of such unrealized gain is generally equal to the difference
between the fair market value of the contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution (the "Book-Tax Difference"). In general, the fair market value of
the properties owned (directly or indirectly) by the Trust and interests in
Property Partnerships contributed to the Operating Partnership has been
substantially in excess of their respective adjusted tax bases. The
Partnership Agreements of each of the Operating Partnership and the Property
Partnerships require that allocations attributable to each item of contributed
property be made so as to allocate the tax depreciation available with respect
to such property first to the partners other than the partner that contributed
the property, to the extent of, and in proportion to, their book depreciation,
and then, if any tax depreciation remains, to the partner that contributed the
property. Upon the disposition of any item of contributed property, any gain
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attributable to the "built-in" gain of the property at the time of
contribution would be allocated for tax purposes to the contributing partner.
These allocations are intended to be consistent with the Treasury Regulations
under Section 704(c) of the Code.
In general, participants in the formation of the Trust (and the
Partnerships) have been allocated disproportionately lower amounts of
depreciation deductions for tax purposes relative to their percentage
interests in the Operating Partnership, and disproportionately greater shares
relative to their percentage interests in the Operating Partnership of the
gain on the sale by the Partnerships of one or more of the contributed
properties. These tax allocations will tend to reduce or eliminate the Book-
Tax Difference over the life of the Partnerships. Because the Partnership
Agreements of the Partnerships adopt the "traditional method" in obtaining
items allocable under Section 704(c) of the Code, the amounts of the special
allocations of depreciation and gain under the special allocation rules of
Section 704(c) of the Code may be limited by the so-called "ceiling rule" and
may not always eliminate the Book-Tax Difference on an annual basis or with
respect to a specific transaction such as a sale. Thus, the carryover basis of
the contributed assets in the hands of the Partnerships may cause the Trust to
be allocated less depreciation than would be available for newly purchased
properties.
The foregoing principles also apply in determining the earnings and profits
of the Trust. The application of these rules may result in a larger share of
the distributions from the Trust being taxable to shareholders as dividends.
Basis in Operating Partnership Interest
The Trust's adjusted tax basis in its partnership interest in the Operating
Partnership generally (i) will be equal to the amount of cash and the basis of
any other property contributed to the Operating Partnership by the Trust plus
the fair market value of the Shares it issues or cash it pays upon conversion
of interests in the Operating Partnership, (ii) has been, and will be,
increased by (a) its allocable share of the Operating Partnership's income and
(b) its allocable share of indebtedness of the Operating Partnership and of
the Property Partnerships and (iii) has been, and will be, reduced (but not
below zero) by the Trust's allocable share of (a) the Operating Partnership's
loss and (b) the amount of cash distributed to the Trust, and by constructive
distributions resulting from a reduction in the Trust's share of indebtedness
of the Operating Partnership and the Property Partnerships.
If the allocation of the Trust's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Trust's
partnership interest in the Operating Partnership below zero, the loss is
deferred until such time as the recognition of such loss would not reduce the
Trust's adjusted tax basis below zero. To the extent that the Operating
Partnership's distributions, or any decrease in the Trust's share of the
indebtedness of the Operating Partnership or a Property Partnership (each such
decrease being considered a constructive cash distribution to the partners),
would reduce the Trust's adjusted tax basis below zero, such distributions
(including such constructive distributions) would be includible as taxable
income to the Trust in the amount of such excess. Such distributions and
constructive distributions would normally be characterized as capital gain,
and if the Trust's partnership interest in the Operating Partnership has been
held for longer than the long-term capital gain holding period (currently, one
year), the distributions and constructive distributions would constitute long-
term capital gain. Based on certain undertakings by limited partners of the
Operating Partnership, the Subordinated Debentures issued by the Operating
Partnership are allocated for purposes of Section 752 of the Code
disproportionately in favor of certain limited partners.
SALE OF THE PARTNERSHIPS' PROPERTY
Generally, any gain realized by the Operating Partnership or a Property
Partnership on the sale of property held by the Operating Partnership or a
Property Partnership, or on the sale of partnership interests in the Property
Partnerships, if the property or partnership interests are held 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.
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The Trust's share of any gain realized on the sale of any property held by
the Operating Partnership or a Property Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
trade or business of any of the Operating Partnership or the Property
Partnerships will, however, be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. See "--Requirements for Qualification"
and "--Income Tests." Such prohibited transaction income may also have an
adverse effect upon the Trust's ability to satisfy the income tests for REIT
status. See "--Requirements For Qualification" and "--Income Tests," above.
Under existing law, whether property is held as inventory or primarily 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. The Operating Partnership and the Property
Partnerships intend to hold their properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning and operating their properties and to make such occasional sales of
such properties, including peripheral land, as are consistent with the
investment objectives of the Trust and the Operating Partnership.
PLAN OF DISTRIBUTION
The Trust and/or the Operating Partnership, as the case may be, may sell the
Securities being offered hereby: (a) directly to purchasers; (b) through
agents; (c) through underwriters; (d) through dealers; or (e) through a
combination of any such methods of sale. The Securities may also be used as
all or part of the consideration to be paid by the Trust or the Operating
Partnership for the acquisition of non-operating assets for which financial
statements would not be required to be filed with the Commission, or in
exchange for units of limited partnership interest of the Operating
Partnership. In addition, Common Shares may be offered hereby in exchange for
certain debt securities of the Operating Partnership that are exchangeable for
such Common Shares.
The distribution of the Securities may be effected from time to time in one
or more transactions: (a) at a fixed price or at final prices, which may be
changed; (b) at market prices prevailing at the time of sale; (c) at prices
related to such prevailing market prices; or (d) at negotiated prices. Offers
to purchase Securities may be solicited directly by the Trust or the Operating
Partnership, as the case may be, or by agents designated by the Trust or the
Operating Partnership, as the case may be, from time to time. Any such agent,
which may be deemed to be an underwriter as that term is defined in the
Securities Act, involved in the offer or sale of the Securities in respect of
which this Prospectus is delivered will be named, and any commissions payable
by the Trust or the Operating Partnership, as the case may be, to such agent
will be set forth, in the applicable Prospectus Supplement.
If an underwriter is, or underwriters are, utilized in the offer and sale of
Securities in respect of which this Prospectus and the accompanying Prospectus
Supplement are delivered, the Trust and/or the Operating Partnership will
execute an underwriting agreement with such underwriter(s) for the sale to it
or them and the name(s) of the underwriter(s) and the terms of the transaction
will be set forth in such Prospectus Supplement, which will be used by the
underwriter(s) to make resales of the Securities in respect of which this
Prospectus and such Prospectus Supplement are delivered to the public.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Trust and/or the Operating Partnership will
sell such Securities to the dealer, as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such
dealer at the time of resale.
Certain of the underwriters, dealers or agents utilized by the Trust and/or
the Operating Partnership in any offering hereby may be customers of,
including borrowers from, engage in transactions with, and perform services
for, the Trust and/or the Operating Partnership or one or more of their
respective affiliates in the ordinary course of business. Underwriters,
dealers, agents and other persons may be entitled, under agreements which may
be entered into with the Trust or the Operating Partnership, as the case may
be, to indemnification against certain civil liabilities, including
liabilities under the Securities Act.
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Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members, if any, to bid for and purchase the Securities. As an exception to
these rules, the representatives of the underwriters, if any, are permitted to
engage in certain transactions that stabilize the price of the Securities.
Such transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities.
If underwriters create a short position in the Securities in connection with
the offering thereof, (i.e., if they sell more Securities than are set forth
on the cover page of the applicable Prospectus Supplement), the
representatives of such underwriters may reduce that short position by
purchasing Securities in the open market. Any such representatives also may
elect to reduce any short position by exercising all or part of the over-
allotment option described in the applicable Prospectus Supplement.
Any such representatives also may impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase Securities in the open market to reduce the underwriters' short
position or to stabilize the price of the Securities, they may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those shares as part of the offering thereof.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
Neither the Company nor any of the underwriters, if any, makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Securities.
In addition, neither the Company nor any of the underwriters, if any, makes
any representation that the representatives of the underwriters, if any, will
engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
LEGAL OPINIONS
Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pennsylvania, has
rendered an opinion with respect to the legality of the Securities to be
issued by the Operating Partnership. Weinberg & Green LLC, Baltimore,
Maryland, has rendered an opinion with respect to the legality of the
Securities to be issued by the Trust. The statements in this Prospectus under
the caption "Federal Income Tax Considerations with Respect to the Trust and
the Operating Partnership" and the other statements herein relating to the
Trust's qualification as a real estate investment trust will be passed upon
for the Trust by Wolf, Block, Schorr and Solis-Cohen, although such firm has
rendered no opinion as to matters involving the imposition of non-U.S. taxes
on the operations of, and distributions of payments from, its United Kingdom
affiliate. Michael M. Dean, a partner of Wolf, Block, Schorr and Solis-Cohen,
is the sole trustee of irrevocable trusts established by three of the Trust's
senior executives for the benefit of their respective children. Each of such
trusts received limited partnership interests in the Operating Partnership in
connection with the Company's formation in exchange for interests in the Rouse
Group owned by such trusts.
EXPERTS
The consolidated financial statements of the Trust and the Operating
Partnership for the years ended December 31, 1996 and 1995 and the period from
June 23, 1994 through December 31, 1994 and the combined financial statements
of the Rouse Group for the period January 1, 1994 through June 22, 1994,
appearing in the Annual Reports (Form 10-K) of the Trust and the Operating
Partnership for the year ended December 31, 1996, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by
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reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The statement of operating revenues and certain operating expenses of 650-
660 E. Swedesford Road for the years ended December 31, 1996 and 1995
appearing in the Current Reports (Form 8-K) of the Trust and the Operating
Partnership, filed February 13, 1997, have been audited by Fegley &
Associates, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such statement of
operating revenues and certain operating expenses is incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The statement of operating revenues and certain operating expenses of the
Minnesota Properties for the year ended December 31, 1996 appearing in the
Current Reports (Form 8-K) of the Trust and the Operating Partnership, filed
March 5, 1997, have been audited by Fegley & Associates, independent auditors,
as set forth in their report thereon included therein and incorporated herein
by reference. Such statement of operating revenues and certain operating
expenses is incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The statement of operating revenues and certain operating expenses of the
South Carolina Properties for the year ended December 31, 1996 appearing in
the Current Reports (Form 8-K) of the Trust and the Operating Partnership
filed March 5, 1997 have been audited by Fegley & Associates, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such statement of operating revenues and
certain operating expenses is incorporated herein by reference in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
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NO DEALER, SALES PERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE SERIES A PREFERRED SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
-----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary.................................................................. S-3
Risk Factors............................................................. S-10
The Company.............................................................. S-14
Business Objectives and Strategies....................................... S-15
Concurrent Offerings..................................................... S-18
Use of Proceeds.......................................................... S-19
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends............................................................... S-19
Capitalization........................................................... S-20
The Properties........................................................... S-21
Selected Financial Data.................................................. S-25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-27
Management............................................................... S-31
Description of Series A Preferred Shares................................. S-32
Federal Income Tax Considerations ....................................... S-39
Underwriting............................................................. S-44
Legal Matters............................................................ S-45
Appendix "A"............................................................. A-1
PROSPECTUS
Available Information.................................................... 3
Incorporation of Certain Documents by Reference.......................... 3
The Company.............................................................. 4
Use of Proceeds.......................................................... 4
Ratios of Earnings to Fixed Charges...................................... 5
Description of Debt Securities........................................... 5
Description of Preferred Shares.......................................... 9
Description of Warrants.................................................. 10
Federal Income Tax Considerations with Respect to the Trust and the
Operating Partnership................................................... 11
Plan of Distribution..................................................... 21
Legal Opinions........................................................... 22
Experts.................................................................. 22
</TABLE>
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4,000,000 SHARES
[LOGO OF LIBERTY PROPERTY TRUST APPEARS HERE]
% SERIES A CUMULATIVE REDEEMABLE
PREFERRED SHARES OF BENEFICIAL INTEREST
LIQUIDATION PREFERENCE $25.00 PER SHARE
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PROSPECTUS SUPPLEMENT
, 1997
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LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
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