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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-39282
333-39282-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 27, 2000)
$200,000,000
LIBERTY PROPERTY
LIMITED PARTNERSHIP
8.50% SENIOR NOTES DUE 2010
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This is an offering of $200,000,000 of our 8.50% senior notes due 2010. We will
pay interest on the notes twice a year, on February 1 and August 1, beginning on
February 1, 2001. The notes will mature on August 1, 2010.
We may redeem all or part of the notes at any time at the redemption prices
described in this prospectus supplement. The notes are unsecured and
unsubordinated debt securities. We do not intend to list the notes on any
national securities exchange.
YOU SHOULD REVIEW THE RISKS OF INVESTING IN THE NOTES AS SET FORTH IN "RISK
FACTORS" BEGINNING ON PAGE 4 OF THE ATTACHED PROSPECTUS.
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PER NOTE TOTAL
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Public Offering Price.................................. 99.344% $198,688,000
Underwriting Discount.................................. 0.650% $ 1,300,000
Our Proceeds (before expenses)......................... 98.694% $197,388,000
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters for this offering expect to deliver the notes on July 31, 2000
through the book-entry facilities of The Depository Trust Company.
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LEHMAN BROTHERS
BANC ONE CAPITAL MARKETS, INC.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
July 26, 2000
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ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the attached prospectus contain information
about our company and about the notes. They also refer to information contained
in other documents that we file with the Securities and Exchange Commission.
References to this prospectus supplement or the prospectus also mean the
information contained in such other documents, including our Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 and our Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 2000. If this prospectus
supplement is inconsistent with the prospectus or the documents that are
incorporated by reference in the prospectus, rely on this prospectus supplement.
You should rely only on the information in this prospectus supplement or
the prospectus or in documents that are incorporated by reference in the
prospectus. Neither we nor the underwriters have authorized anyone to provide
any different or additional information. We are not making an offer of the notes
in any jurisdiction where the offer is not permitted. You should not assume that
information in these documents is correct or complete after the date of this
prospectus supplement.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
About this Prospectus Supplement............................ S-2
Use of Proceeds............................................. S-3
Description of Notes........................................ S-3
Certain Federal Income Tax Considerations................... S-8
Forward-Looking Statements May Prove Inaccurate............. S-12
Underwriting................................................ S-13
Legal Matters............................................... S-14
PROSPECTUS
About this Prospectus....................................... 2
Where to Find Additional Information........................ 2
Risk Factors................................................ 4
The Company................................................. 10
Securities Offered by this Prospectus....................... 10
Use of Proceeds............................................. 10
Certain Ratios.............................................. 11
Description of Debt Securities.............................. 11
Description of Preferred Shares............................. 25
Description of Warrants..................................... 31
Federal Income Tax Considerations with Respect to the Trust
and the Operating Partnership............................. 33
Plan of Distribution........................................ 48
Legal Opinions.............................................. 49
Experts..................................................... 50
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Liberty Property Limited Partnership is the "operating partnership" of
Liberty Property Trust, a self-administered and self-managed real estate
investment trust. The Trust conducts substantially all of its operations and
owns substantially all of its assets through us. The Trust is the sole general
partner and a limited partner of the Partnership. When we use the terms "we,"
"us," the "Company" and the "Partnership," we are referring to the Partnership
(but not the Trust) and its consolidated subsidiaries.
USE OF PROCEEDS
The net proceeds we will receive from the sale of the notes, after payment
of expenses related to this offering and underwriting discounts and commissions,
are estimated to be approximately $197.1 million. We intend to use the net
proceeds to repay indebtedness under our $450 million credit facility and for
other general corporate purposes. An affiliate of one of the underwriters for
this offering is a lender under the credit facility and will receive a portion
of the net proceeds of this offering. See "Underwriting," below. As of June 30,
2000, we had outstanding indebtedness under the credit facility of $225.0
million, bearing interest at a rate of approximately 7.9% per annum and maturing
on April 25, 2003. The indebtedness outstanding under the credit facility was
originally incurred principally in connection with our acquisition and
development activities.
DESCRIPTION OF NOTES
The following description of the notes and the Indenture (as defined below)
summarizes certain provisions of the Indenture and is therefore incomplete.
Accordingly, the following description of the notes and the Indenture is subject
to and qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Except as otherwise indicated,
section references are to sections of the Indenture. If anything described in
this section is inconsistent with the terms described in the attached
prospectus, you should rely on this prospectus supplement.
GENERAL
The notes will be issued under a Senior Indenture dated as of October 24,
1997 (the "Base Indenture") between the Partnership, as obligor, and Bank One
Trust Company, N.A. (as successor to The First National Bank of Chicago), as
trustee (the "Trustee"), and a Supplemental Indenture thereto to be dated as of
July 31, 2000, between the Partnership and the Trustee (the "Supplemental
Indenture" and, together with the Base Indenture, the "Indenture"). The notes
will initially be limited to the aggregate principal amount of $200.0 million.
The terms of the notes include those provisions contained in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The notes are subject to all of
those terms, and holders of notes should refer to the Indenture and the Trust
Indenture Act for a statement of those terms.
The notes are a series of securities issued under the Indenture. The
Indenture permits us to "reopen" this series, without the consent of the holders
of the securities of this series, in order to issue additional securities of
this series. Thus, we may in the future issue additional debt securities of the
same series as the notes without your consent. Any additional securities of this
series will have the same ranking, interest rate and maturity as the notes.
These additional securities will, together with the notes, constitute a single
series of securities under the Indenture.
The notes will be our direct, unsecured recourse obligations and will rank
pari passu with all of our other unsecured unsubordinated indebtedness from time
to time outstanding. As of June 30, 2000, we had outstanding $1.1 billion
aggregate principal amount of unsecured unsubordinated indebtedness, including
$225.0 million under the credit facility. The notes will be effectively
subordinated to the claims of mortgage lenders holding our secured indebtedness,
as to the specific property securing each lender's mortgage. As of June 30,
2000, we had outstanding $370.2 million aggregate principal amount of secured
indebtedness. The notes will be senior to our unsecured subordinated
indebtedness. As of June 30, 2000, we had outstanding $73.3 million aggregate
principal amount of unsecured subordinated indebtedness. The
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notes will be recourse to all of our assets, but will be nonrecourse with
respect to our partners, including the Trust, our sole general partner. Subject
to certain limitations set forth in the Indenture, and as described under
"Certain Covenants" below and in the attached prospectus under "Description of
Debt Securities -- Certain Covenants," the Indenture will permit us to incur
additional secured and unsecured indebtedness.
The notes are not convertible into or exchangeable for our partnership
interests or common shares of the Trust. We will not make any sinking fund
payments with respect to the notes. We do not intend to list the notes on any
national securities exchange.
The notes will mature on August 1, 2010 (the "Maturity Date").
PRINCIPAL AND INTEREST
The interest rate on the notes will be 8.50% per annum. We will pay
interest in arrears on February 1 and August 1, beginning February 1, 2001.
Interest will accrue from July 31, 2000, or from the most recent interest
payment date to which we have paid or provided for the payment of interest to
the next interest payment date or the scheduled maturity date, as the case may
be. We will pay interest computed on the basis of a 360-day year of twelve
30-day months. Interest on the notes will be paid to the persons in whose names
the notes are registered at the close of business on the January 15 or July 15
preceding the respective interest payment date. Unless we redeem the notes prior
to their maturity date, we will redeem the notes at their principal amount on
their maturity date. If an interest payment date is not a Business Day, we will
pay interest on the next succeeding Business Day. A "Business Day" means any day
other than a Saturday or Sunday that is neither a legal holiday nor a day on
which banking institutions in the City of New York or Chicago are authorized or
required by law, regulation or executive order to close.
Any interest not punctually paid or duly provided for on any interest
payment date with respect to the notes ("Defaulted Interest") will forthwith
cease to be payable to the holder of the note on the applicable regular record
date and may either be paid to the person in whose name such note is registered
at the close of business on a special record date (the "Special Record Date")
for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to the holder of such note not less than 10 days prior to
such Special Record Date, or may be paid at any time in any other lawful manner,
all as more completely described in the Indenture (Section 307).
The principal of each note payable on its Maturity Date will be paid
against presentation and surrender of such note at the corporate trust office of
the Trustee, located initially at One Bank One Plaza, Chicago, Illinois
60670-0126, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
CERTAIN COVENANTS
The Indenture contains various covenants including the following:
Limitations on Incurrence of Debt. The Partnership will not, and will not
permit any Subsidiary (as defined below) to, incur any Debt (as defined below),
other than Intercompany Debt (as defined below) that is subordinate in right of
payment to the notes, if, immediately after giving effect to the incurrence of
such Debt and the application of the proceeds thereof, the aggregate principal
amount of all outstanding Debt of the Partnership and its Subsidiaries on a
consolidated basis determined in accordance with GAAP is greater than 60% of the
sum of: (i) the Partnership's Adjusted Total Assets (as defined below) as of the
end of the most recent fiscal quarter prior to the incurrence of such additional
Debt; and (ii) the increase in Adjusted Total Assets since the end of such
quarter (including any increase resulting from the incurrence of additional
Debt) (Section 1004(a)).
In addition to the foregoing limitation on the incurrence of Debt, the
Partnership will not, and will not permit any Subsidiary to, incur any Debt if
the ratio of Consolidated Income Available for Debt Service (as defined below)
to Annual Service Charge (as defined below) on the date on which such
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additional Debt is to be incurred, on a pro forma basis, after giving effect to
the incurrence of such Debt and to the application of the proceeds thereof,
would have been less than 1.5 to 1 (Section 1004(b)).
Further, the Partnership will not, and will not permit any Subsidiary to,
incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of the properties of the Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such Secured Debt and the application of the proceeds thereof, the aggregate
principal amount of all outstanding Secured Debt of the Partnership and its
Subsidiaries on a consolidated basis is greater than 40% of the sum of: (i) the
Partnership's Adjusted Total Assets as of the end of the most recent fiscal
quarter prior to the incurrence of such additional Debt; and (ii) the increase
in Adjusted Total Assets since the end of such quarter (including any increase
resulting from the incurrence of additional Debt) (Section 1004(c)).
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Partnership or
a Subsidiary whenever the Partnership or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof.
Maintenance of Unencumbered Total Asset Value. The Partnership will at all
times maintain an Unencumbered Total Asset Value (as defined below) in an amount
not less than 150% of the aggregate principal amount of all outstanding
unsecured Debt of the Partnership and its Subsidiaries on a consolidated basis
(Section 1004(d)).
As used herein:
- "Adjusted Total Assets" as of any date means the total of all assets, as
determined in accordance with GAAP, plus accumulated depreciation.
- "Annual Service Charge" as of any date means the aggregate amount of any
interest expensed for the four consecutive fiscal quarters most recently
ended, as determined in accordance with GAAP.
- "Consolidated Income Available for Debt Service" as of any date means
Consolidated Net Income (as defined below) of the Partnership and its
Subsidiaries plus amounts that have been deducted for: (i) interest on
Debt of the Partnership and its Subsidiaries; (ii) provision for taxes of
the Partnership and its Subsidiaries based on income; (iii) amortization
of debt discount; (iv) depreciation and amortization; (v) the effect of
any noncash charge resulting from a change in accounting principles in
determining Consolidated Net Income; and (vi) amortization of deferred
charges, for the four consecutive fiscal quarters most recently ended,
all as determined in accordance with GAAP, and without taking into
account any provision for gains and losses on properties.
- "Consolidated Net Income" for any period means the amount of net income
(or loss) of the Partnership and its Subsidiaries for such period, as
determined on a consolidated basis in accordance with GAAP.
- "Debt" of the Partnership or any Subsidiary means any indebtedness of the
Partnership or any Subsidiary, whether or not contingent, in respect of:
(i) borrowed money evidenced by bonds, notes, debentures or similar
instruments; (ii) indebtedness secured by any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on property owned
by the Partnership or any Subsidiary; (iii) reimbursement obligations in
connection with any letters of credit actually issued or amounts
representing the balance deferred and unpaid of the purchase price of any
property except any such balance that constitutes an accrued expense or
trade payable; or (iv) any lease of property by the Partnership or any
Subsidiary as lessee which is reflected on the Partnership's consolidated
balance sheet as a capitalized lease in accordance with GAAP; but in the
case of items of indebtedness incurred under (i) through (iii) above only
to the extent that any such items (other than letters of credit) would
appear as a liability on the Partnership's consolidated balance sheet in
accordance with GAAP; and also includes, to the extent not otherwise
included, any obligation of the Partnership or any Subsidiary to be
liable for, or to pay, as obligor, guarantor or
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otherwise (other than for purposes of collection in the ordinary course
of business), indebtedness of another person (other than the Partnership
or any Subsidiary).
- "Intercompany Debt" means Debt to which the only parties are the Trust,
any of its subsidiaries, the Partnership and any Subsidiary, or Debt owed
to the Trust arising from routine cash management practices, but only so
long as such Debt is held solely by any of the Trust, any of its
subsidiaries, the Partnership and any Subsidiary.
- "Subsidiary" means a corporation, partnership or limited liability
company, a majority of the outstanding voting stock, partnership
interests or membership interests, as the case may be, of which is owned
or controlled, directly or indirectly, by the Partnership or by one or
more Subsidiaries of the Partnership. Liberty Property Development Corp.,
Liberty Property Development Corp.-II and Liberty Property Development
Corp.-III are each a Subsidiary for purposes of this definition. For the
purposes of this definition, "voting stock" means stock having the voting
power for the election of directors, general partners, managers or
trustees, as the case may be, whether at all times or only so long as no
senior class of stock has such voting power by reason of any contingency.
- "Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the
Partnership and its Subsidiaries on such date, before depreciation and
amortization, as determined on a consolidated basis in accordance with
GAAP.
- "Unencumbered Total Asset Value" as of any date means the sum of: (i) the
value of those Undepreciated Real Estate Assets not subject to an
encumbrance; and (ii) the value of all other assets of the Partnership
and its Subsidiaries on a consolidated basis not subject to an
encumbrance, as determined in accordance with GAAP (but excluding
accounts receivable and intangibles).
Compliance with the covenants described herein and with respect to the
notes generally may not be waived by the Partnership, or by the Trustee unless
the holders of at least a majority in principal amount of all outstanding notes
consent to such waiver; provided, however, that the defeasance and covenant
defeasance provisions of the Indenture described under "Description of Debt
Securities -- Discharge, Defeasance and Covenant Defeasance" in the attached
prospectus, will apply to the notes, including with respect to the covenants
described in this prospectus supplement.
OPTIONAL REDEMPTION
The notes may be redeemed at any time at our option, in whole or from time
to time in part, at a redemption price equal to the sum of: (i) the principal
amount of the notes being redeemed plus accrued interest thereon to the
redemption date; and (ii) the Make-Whole Amount, if any, with respect to such
notes (the "Redemption Price").
If notice of redemption has been given as provided in the Indenture and
funds for the redemption of any notes called for redemption shall have been made
available on the redemption date referred to in such notice, such notes will
cease to bear interest on the date fixed for such redemption specified in such
notice and the only right of the holders of the notes from and after the
redemption date will be to receive payment of the Redemption Price upon
surrender of such notes in accordance with such notice.
Notice of any optional redemption of any notes will be given to holders at
their addresses, as shown in the security register for the notes, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and principal
amount of the notes held by such holder to be redeemed.
If all or less than all of the notes of any series are to be redeemed at
our option, we will notify the trustee for the notes at least 45 days prior to
giving notice of redemption (or such shorter period as may be satisfactory to
the trustee) of the aggregate principal amount of notes to be redeemed, if less
than all of the notes are to be redeemed, and their redemption date. The trustee
shall select, in such manner as it
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shall deem fair and appropriate, no less than 60 days prior to the date of
redemption, the notes to be redeemed in whole or in part.
Neither we nor the trustee shall be required to: (i) issue, register the
transfer of or exchange notes during a period beginning at the opening of
business 15 days before any selection of notes to be redeemed and ending at the
close of business on the day of mailing of the relevant notice of redemption;
(ii) register the transfer of or exchange any note, or portion thereof, called
for redemption, except the unredeemed portion of any note being redeemed in
part; or (iii) issue, register the transfer of or exchange any note that has
been surrendered for repayment at the option of the holder, except the portion,
if any, of such note not to be so repaid (Section 305).
As used herein:
- "Make-Whole Amount" means, in connection with any optional redemption of
any notes, the excess, if any, of: (i) the aggregate present value as of
the date of such redemption of each dollar of principal being redeemed
and the amount of interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of each such dollar
if such redemption had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(as defined below) (determined on the third Business Day preceding the
date notice of such redemption is given) from the respective dates on
which such principal and interest would have been payable if such
redemption had not been made, to the date of redemption, over (ii) the
aggregate principal amount of the notes being redeemed.
- "Reinvestment Rate" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of
redemption, and rounded to the nearest month) to stated maturity of the
principal being redeemed (the "Treasury Yield"), plus 0.25%. For purposes
hereof, the Treasury Yield shall be equal to the arithmetic mean of the
yields published in the Statistical Release (as defined below) under the
heading "Week Ending" for "U.S. Government Securities -- Treasury
Constant Maturities" with a maturity equal to such remaining life;
provided, that if no published maturity exactly corresponds to such
remaining life, then the Treasury Yield shall be interpolated or
extrapolated on a straight-line basis from the arithmetic means of the
yields for the next shortest and next longest published maturities. For
purposes of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used. If the format or content of the
Statistical Release changes in a manner that precludes determination of
the Treasury Yield in the above manner, then the Treasury Yield shall be
determined in the manner that most closely approximates the above manner,
as reasonably determined by us.
- "Statistical Release" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which reports yields on actively traded United
States government securities adjusted to constant maturities, or, if such
statistical release is not published at the time of any determination
under the Indenture, then such other reasonably comparable index which
shall be designated by us.
THE TRUSTEE
Bank One Trust Company, N.A. (as successor to The First National Bank of
Chicago) is the Trustee under the Indenture. All payments of principal of, and
interest on, and all registration, transfer, exchange, authentication, and
delivery (including authentication and delivery on original issuance of the
notes) of, the notes will be effected by the Trustee in Chicago, Illinois, or at
an office designated by the Trustee in New York, New York.
The Indenture contains certain limitations on the right of the Trustee,
should it become our creditor, to obtain payment of claims in certain cases or
to realize on certain property received in respect of any such claim as security
or otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
or resign.
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The holders of not less than a majority in principal amount of the then
outstanding notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the notes, provided
that (i) such direction shall not be in conflict with any rule of law or with
the Indenture; (ii) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; (iii) such direction
would not be unduly prejudicial to the rights of another holder; and (iv) such
direction would not involve the Trustee in personal liability (Section 512). If
an Event of Default (as defined in the attached prospectus) with respect to the
notes occurs and is continuing, the Trustee shall exercise with respect to the
notes such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in their exercise, as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers vested in it by the Indenture at the request of any of the
holders, unless such holders shall have offered to the Trustee security or
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction (Section 602).
BOOK-ENTRY NOTES
The notes will be issued in book-entry form, as one or more notes
registered in the name of the nominee of The Depository Trust Company, which
will act as Depositary (as defined in the attached prospectus). See "Description
of Debt Securities -- Book-Entry System" in the attached prospectus.
SAME-DAY SETTLEMENT AND PAYMENT
The underwriters will make settlement for the notes in immediately
available funds. We will make all payments of principal and interest in respect
of the notes in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the notes
will trade in the Depository Trust Company's Same-Day Funds Settlement System
until maturity or until the notes are issued in certificated form. Therefore,
the Depository Trust Company will require secondary market trading activity in
the notes to settle in immediately available funds. No assurance can be given as
to the effect, if any, of settlement in immediately available funds on trading
activity in the notes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations to the
purchasers of the notes is based on current law, is for general information only
and is not tax advice. This discussion deals only with notes held as "capital
assets" within the meaning of the Code and does not purport to deal with all
aspects of taxation that may be relevant to particular purchasers in light of
their personal investment or tax circumstances or to certain types of purchasers
(including insurance companies, financial institutions or broker-dealers)
subject to special treatment under the federal income tax law.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND DISPOSITION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
For a summary of the material federal income tax considerations to the
Partnership, see "Federal Income Tax Considerations with Respect to the Trust
and the Operating Partnership" in the attached prospectus. The capitalized terms
used under "Certain Federal Income Tax Considerations" have been defined under
"Federal Income Tax Considerations with Respect to the Trust and the Operating
Partnership" in the attached prospectus.
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U.S. HOLDERS OF THE NOTES
Payments of Interest. The notes are not currently expected to be issued
with original issue discount ("OID"). Interest on a note without OID generally
will be included in the income of a holder as ordinary income at the time such
interest is received or accrued in accordance with the holder's regular method
of accounting.
Market Discount. Generally, if a U.S. Holder purchases a note other than
at original issue for an amount that is less than its issue price (or, in the
case of a subsequent purchaser, its stated redemption price at maturity), such
U.S. Holder will be treated as having purchased the note at a "market discount,"
unless the market discount is less than a de minimis amount (generally 1/4 of 1
percent of the stated redemption price of the note at maturity times the number
of complete years to maturity after the U.S. Holder acquires the note).
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment on a note, or any gain realized on the sale,
exchange, retirement or other disposition of a note, as ordinary income to the
extent of the lesser of: (i) the amount of such payment or realized gain, or
(ii) the market discount which has not previously been included in income and is
treated as having accrued on the note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the note, unless the
U.S. Holder elects to accrue market discount on a constant yield basis. Once
made such an election may be revoked only with the consent of the IRS.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the note or
certain earlier dispositions, because a current deduction is only allowed to the
extent that the interest expense exceeds the portion of market discount
allocable to the days during the taxable year in which the note was held by the
taxpayer. A U.S. Holder may elect to include market discount in income currently
as it accrues (on either a ratable or constant yield basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest income for
federal income tax purposes. Such an election will apply to all debt instruments
with market discount acquired by the U.S. Holder on or after the first day of
the taxable year to which such election applies and may be revoked only with the
consent of the IRS.
Amortizable Bond Premium. If a U.S. Holder purchases a debt instrument for
an amount that is greater than the sum of all amounts payable on the debt
instrument after the purchase date, other than payments of qualified stated
interest, such U.S. Holder will be considered to have purchased the debt
instrument with "amortizable bond premium," generally equal in amount to such
excess. In the case of a debt instrument that may be optionally redeemed prior
to maturity (such as the notes), recently issued Treasury Regulations (the "Bond
Premium Regulations") provide that the amount of amortizable bond premium is
determined by substituting the first date on which the debt instrument may be
redeemed (the "redemption date") for the maturity date and the applicable
redemption price on the redemption date for the amount payable at maturity, if
the result would increase the holder's yield to maturity (i.e., result in a
smaller amount of amortizable bond premium properly allocable to the period
before the redemption date). If the issuer does not in fact exercise its right
to redeem the debt instrument on the applicable redemption date, the debt
instrument will be treated (solely for purposes of the amortizable bond premium
rules) as having matured and then as having been reissued for the holder's
"adjusted acquisition price," which is an amount equal to the holder's basis in
the debt instrument (as determined under the Bond Premium Regulations), less the
sum of (i) any amortizable bond premium allocable to prior accrual periods, and
(ii) any payments previously made on the debt instrument (other than payments of
qualified stated interest). The debt instrument deemed to have been reissued
will again be subject to the amortizable bond premium rules with respect to the
remaining dates on which the debt instrument is redeemable.
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<PAGE> 10
A U.S. Holder may elect to amortize bond premium on a debt instrument. Once
made, the election applies to all taxable debt instruments then owned and
thereafter acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies, and may be revoked only with the consent of
the IRS. In general, a holder amortizes bond premium by offsetting the qualified
stated interest allocable to an accrual period with the bond premium allocable
to the accrual period, which is determined under a constant yield method
pursuant to the Bond Premium Regulations. If the bond premium allocable to an
accrual period exceeds the qualified stated interest allocable to such period,
the excess is treated by the holder as a bond premium deduction. The bond
premium deduction for each accrual period is limited to the amount by which the
holder's total interest inclusions on the debt instrument in prior accrual
periods exceed the total amount treated by such holder as a bond premium
deduction on the debt instrument in prior accrual periods. Any amounts not
deductible in an accrual period may be carried forward to the next accrual
period and treated as bond premium allocable to that period.
Disposition of the Notes. Upon the sale, exchange, redemption, retirement
or other disposition of a note, a U.S. Holder generally will recognize taxable
gain or loss equal to the difference between (i) the amount of cash proceeds and
the fair market value of any property received on the disposition (except to the
extent such amount is attributable to accrued but unpaid stated interest, which
is taxable as ordinary income), and (ii) such U.S. Holder's adjusted tax basis
in the note. For purposes of determining taxable gain or loss, a U.S. Holder's
adjusted tax basis in a note generally will equal the cost of the note to such
Holder increased by accrued market discount, if any, that the U.S. Holder has
included in income, and decreased by the amount of any payments other than
qualified stated interest payments received, and amortizable bond premium taken,
with respect to such note. A portion of the taxable gain may be treated as
ordinary income under the market discount rules described above. Gain or loss
recognized upon the disposition of a note will be a long-term capital gain or
loss if the note was a capital asset in the hands of the U.S. Holder and was
held for more than one year.
U.S. ALIEN HOLDERS OF THE NOTES
The rules governing the United States federal income taxation of a U.S.
Alien Holder are complex and no attempt will be made herein to provide more than
a summary of such rules. U.S. ALIEN HOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS,
AS WELL AS TAX TREATIES, WITH REGARD TO AN INVESTMENT IN THE NOTES.
Payment of Interest. Generally, payments of principal and interest on a
note to a U.S. Alien Holder will qualify for the "portfolio interest exemption"
and, therefore, will not be subject to United States federal income tax or
withholding, unless the U.S. Alien Holder is (i) a direct or indirect 10% or
greater partner (as defined in Section 871(h)(3) of the Code) in the
Partnership, (ii) a controlled foreign corporation related to the Partnership,
or (iii) a bank receiving interest described in Section 881(c)(3)(A) of the
Code. To qualify for the portfolio interest exemption, the last United States
payor in the chain of payment prior to payment to a U.S. Alien Holder (the
"Withholding Agent") must have received in the year in which a payment of
interest or principal occurs, or in either of the two preceding calendar years,
a statement that (i) is signed by the beneficial owner of the note under
penalties of perjury, (ii) certifies that such owner is a U.S. Alien Holder, and
(iii) provides the name and address of the beneficial owner. The statement may
be made on an IRS Form W-8 or a substantially similar form, and the beneficial
owner must inform the Withholding Agent of any change in the information on the
statement within 30 days of such change. If a note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent. In such
case, the signed statement must be accompanied by a copy of the IRS Form W-8 or
the substitute form provided by the beneficial owner to the organization or
institution.
Except to the extent that an applicable treaty otherwise provides, a U.S.
Alien Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest if the interest income is effectively connected with a
United States trade or business of the U.S. Alien Holder. Under certain
circumstances, effectively connected interest received by a corporate U.S. Alien
Holder may be subject to an additional "branch profits tax" at a 30% rate (or,
if applicable, a lower tax rate specified by a treaty). Even though
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<PAGE> 11
such effectively connected interest is subject to income tax, and may be subject
to the branch profits tax, it is not subject to withholding if the U.S. Alien
Holder delivers a properly executed IRS Form 4224 to the Withholding Agent.
Interest income of a U.S. Alien Holder that is not effectively connected
with a United States trade or business and that does not qualify for the
portfolio interest exemption described above generally is subject to a
withholding tax at a 30% rate (or, if applicable, a lower tax rate specified by
a treaty).
Disposition of the Notes. A U.S. Alien Holder of a note generally will not
be subject to United States federal income tax or withholding on any gain
realized on the sale, exchange, redemption, retirement or other disposition of a
note unless (i) the gain is effectively connected with a United States trade or
business of the U.S. Alien Holder, (ii) in the case of a U.S. Alien Holder who
is an individual, such U.S. Alien Holder is present in the United States for a
period or periods aggregating 183 days or more during the taxable year of the
disposition, and either such U.S. Alien Holder has a "tax home" in the United
States or the disposition is attributable to an office or other fixed place of
business maintained by such U.S. Alien Holder in the United States, or (iii) the
U.S. Alien Holder is subject to tax pursuant to the provisions of the Code
applicable to certain United States expatriates.
Certain United States Federal Estate Tax Considerations Applicable to a
U.S. Alien Holder. A note beneficially owned by an individual who is not a
citizen or resident of the United States at the time of death will not be
included in the decedent's gross estate for United States federal estate tax
purposes, unless the individual is a direct or indirect 10% or greater partner
of the Partnership, or, at the time of death, payments with respect to such note
would have been effectively connected with the conduct by such U.S. Alien Holder
of a trade or business within the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements and back-up withholding at a
31% rate will apply to payments on a note (including stated interest payments
and payments of the proceeds from the sale, exchange, redemption, retirement or
other disposition of a note), unless the holder of the note (i) is a corporation
or comes within certain other exempt categories and, when required, demonstrates
that fact, or (ii) provides a correct taxpayer identification number, certifies
as to its exemption from backup withholding and otherwise complies with the
applicable requirements of the backup withholding rules. Certain penalties may
be imposed by the IRS on a holder that is required to supply information but
does not do so in the proper manner.
Information reporting requirements and backup withholding will not apply to
payments on a note to a U.S. Alien Holder if the U.S. Alien Holder provides the
required statement on IRS Form W-8 or a substantially similar form, provided
that the withholding Agent does not have actual knowledge that the Holder is a
United States person. Information reporting requirements and backup withholding
will not apply to any payment of the proceeds of the sale of a note effected
outside the United States by a foreign office of a "broker" (as defined in
applicable Treasury Regulations), unless such broker (i) is a United States
person, (ii) derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States, or (iii) is a
controlled foreign corporation as to the United States. Payment of the proceeds
of any such sale effected outside the United States by a foreign office of any
broker that is described in (i), (ii) or (iii) of the preceding sentence will
not be subject to backup withholding, but will be subject to the information
reporting requirements unless such broker has documentary evidence in its
records that the beneficial owner is a U.S. Alien Holder and certain other
conditions are met, or the beneficial owner otherwise establishes an exemption.
Payment of the proceeds of any such sale to or through the United States office
of a broker is subject to information reporting and backup withholding
requirements, unless the beneficial owner of the note provides the statement
described above or otherwise establishes an exemption.
Any amount withheld from a payment to a holder of a note under the backup
withholding rules is allowable as a credit against such holder's United States
federal income tax liability (which might entitle such holder to a refund),
provided that such holder furnishes the required information to the IRS.
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<PAGE> 12
NEW WITHHOLDING REGULATIONS
Final regulations dealing with withholding tax on income paid to U.S. Alien
Holders and related matters (the "New Withholding Regulations") were promulgated
recently. In general, the New Withholding Regulations do not alter significantly
the substantive withholding and information return reporting requirements
applicable to U.S. Alien Holders, but attempt to unify current certification
procedures and forms and clarify reliance standards. The New Withholding
Regulations generally are effective for payments made after December 31, 2000,
and are subject to certain transition rules. THE DISCUSSION SET FORTH ABOVE DOES
NOT TAKE INTO ACCOUNT THE NEW WITHHOLDING REGULATIONS. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE IMPACT THAT THE NEW
WITHHOLDING REGULATIONS MAY HAVE ON THEIR INDIVIDUAL SITUATION.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made statements in this prospectus supplement, in the attached
prospectus and in the documents that are incorporated by reference in the
prospectus that constitute forward-looking statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. These statements are
subject to risks and uncertainties. Forward-looking statements include
information relating to acquisitions (including related pro forma financial
information) and other business development and development activities, future
capital expenditures, financing sources and availability, and the effects of
regulation (including environmental regulation) and competition. These
forward-looking statements generally are accompanied by words, such as
"believes," "anticipates," "expects," "estimates," "should," "seeks," "intends,"
"planned," "outlook" and "goal" or similar expressions. You should understand
that forward-looking statements are not guaranties and that there are inherent
difficulties in predicting future results. Actual results could differ
materially from those expressed or implied in the forward-looking statements.
Risks and uncertainties that may affect the operations, performance and
results of our business include, but are not limited to, the following: (i)
uncertainties affecting real estate businesses generally (such as entry into new
leases, renewals of leases and dependence on tenants' business operations), (ii)
risks relating to acquisition, construction and development activities, (iii)
possible environmental liabilities, (iv) risks relating to leverage and debt
service (including availability of financing terms acceptable to us and
sensitivity of our operations and financing arrangements to fluctuations in
interest rates), (v) the potential for the use of borrowings to make
distributions necessary for the Trust to qualify as a REIT, (vi) dependence on
the primary markets in which our properties are located, (vii) the existence of
complex regulations relating to status as a REIT and the adverse consequences of
the failure to qualify as a REIT and (viii) the potential adverse impact of
market interest rates on the market price for the securities of the Partnership
and the Trust.
Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may vary materially
from those described in, or implied by, the forward-looking statements.
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<PAGE> 13
UNDERWRITING
Lehman Brothers Inc., Banc One Capital Markets, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Goldman, Sachs & Co. and Salomon Smith Barney
Inc. each have agreed to purchase from us the principal amount of the notes set
forth opposite its name.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Lehman Brothers Inc. ........................... $140,000,000
Banc One Capital Markets, Inc. ................. 15,000,000
Donaldson, Lufkin & Jenrette Securities
Corporation................................... 15,000,000
Goldman, Sachs & Co. ........................... 15,000,000
Salomon Smith Barney Inc. ...................... 15,000,000
------------
Total................................. $200,000,000
============
</TABLE>
The underwriters will purchase the notes under an Underwriting Agreement
with us. The underwriters will pay us the offering price less the underwriting
discount specified on the cover page of this prospectus supplement. We estimate
our expenses for this offering at $314,000. Certain conditions contained in the
Underwriting Agreement must be satisfied before the underwriters are required to
purchase the notes. The underwriters will either purchase all of the notes or
none of them.
The underwriters have advised us that they will offer the notes directly to
the public initially at the offering price and to certain dealers at the
offering price less a selling concession not to exceed 0.40% of the principal
amount of the notes. The underwriters may allow and these dealers may reallow a
concession not to exceed 0.25% of the principal amount of the notes to other
dealers. After the initial offering of the notes, the underwriters may change
the offering price, the concession to selected dealers and the reallowance to
other dealers.
The underwriters will offer the notes subject to prior sale, withdrawal,
cancellation or modification of the offer of the notes without notice, and to
their receipt and acceptance of the notes. The underwriters may reject any order
to purchase notes.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, and to
contribute to payments which the underwriters may be required to make in respect
thereof.
We have agreed that until the closing of this offering, we will not,
without the prior written consent of Lehman Brothers Inc., sell, offer to sell,
distribute or otherwise dispose of any of our debt securities or register for
sale under the Securities Act of 1933, as amended, any of our debt securities,
except for the notes offered hereby.
There is currently no public market for the notes, and we currently have no
intention to list the notes on any national securities exchange. The
underwriters have advised us that they presently intend to make a market in the
notes as permitted by applicable laws and regulations. The underwriters are not
obligated to make a market in the notes, however, and they may discontinue such
market making at any time in their sole discretion. Accordingly, there may not
be adequate liquidity or adequate trading markets for the notes.
Certain of the underwriters and their affiliates have from time to time
provided, and may in the future provide, investment banking and general
financing and banking services to us and our affiliates. Banc One Capital
Markets, Inc. is an affiliate of Bank One Trust Company, N.A., which is a lender
under the credit facility and the Trustee for the notes. The net proceeds from
the sale of the notes will be used to reduce borrowings under the credit
facility. Accordingly, this offering is being conducted pursuant to Rule
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc.
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<PAGE> 14
The underwriters may engage in stabilizing and syndicate covering
transactions in accordance with Rule 104 under the Securities Exchange Act of
1934, as amended. Rule 104 permits stabilizing bids to purchase a security so
long as bids do not exceed a specified maximum. Syndicate covering transactions
involve purchases of notes in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing and syndicate
covering transactions may cause the price of the notes to be higher than it
would otherwise be in the absence of such transactions. The underwriters may or
may not engage in such transactions, in their discretion, and, if such
transactions are commenced, they may be discontinued without notice.
For more information, see "Plan of Distribution" in the attached
prospectus.
LEGAL MATTERS
The legality of the notes will be passed upon for us by Morgan, Lewis &
Bockius LLP, Philadelphia, Pennsylvania. Certain legal matters will be passed
upon for the underwriters by Clifford Chance Rogers & Wells LLP, New York, New
York. Morgan, Lewis & Bockius and Clifford Chance Rogers & Wells will rely on
the opinions of Saul, Ewing, Remick & Saul LLP, Baltimore, Maryland, as to
matters of Maryland law.
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<PAGE> 15
PROSPECTUS
[LIBERTY PROPERTY TRUST LOGO]
$688,382,230
LIBERTY PROPERTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
DEPOSITARY SHARES
WARRANTS
GUARANTIES
$708,000,600
LIBERTY PROPERTY LIMITED PARTNERSHIP
DEBT SECURITIES
Liberty Property Trust may offer up to $688,382,230 of its common shares of
beneficial interest, preferred shares of beneficial interest, depositary shares
representing interests in its preferred shares, warrants to purchase common
shares and/or preferred shares, and guaranties of the debt securities of Liberty
Property Limited Partnership. The Trust's common shares are listed on the New
York Stock Exchange under the symbol "LRY."
Liberty Property Limited Partnership may offer up to $708,000,600 of its
debt securities in one or more series.
We may offer the securities at prices and on terms to be set forth in one
or more supplements to this prospectus. The securities may be offered directly,
through agents on our behalf or through underwriters or dealers.
The terms of the securities may include limitations on ownership and
restrictions on transfer thereof as may be appropriate to preserve the status of
the Trust as a real estate investment trust for United States federal income tax
purposes.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A DESCRIPTION
OF RISKS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES DESCRIBED IN THIS
PROSPECTUS OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 27, 2000.
<PAGE> 16
ABOUT THIS PROSPECTUS
This prospectus describes certain securities of Liberty Property Trust,
which is a real estate investment trust, and Liberty Property Limited
Partnership, which is a limited partnership. We sometimes refer to the Trust and
the Operating Partnership together, along with their subsidiaries and
affiliates, using the words "we," "our" or "us," or as the "Company." This
prospectus is part of a registration statement that we filed with the SEC
utilizing a "shelf" registration process, which allows us to offer and sell any
combination of the securities described in this prospectus in one or more
offerings. Using this Prospectus, the Trust may offer up to $688,382,230 worth
of securities, and the Operating Partnership may offer up to $708,000,600 worth
of securities.
This prospectus contains a general description of the securities we may
offer. We will describe the specific terms of these securities, as necessary, in
supplements that we attach to this prospectus for each offering. Each supplement
will also contain specific information about the terms of the offering it
describes. The supplements may also add, update or change information contained
in this prospectus. In addition, as we describe below in the section entitled
"Where to Find Additional Information," we have filed and plan to continue to
file other documents with the SEC that contain information about us. Before you
decide whether to invest in our securities, you should read this prospectus, the
supplement that further describes the offering of those securities and the
information we otherwise file with the SEC.
WHERE TO FIND ADDITIONAL INFORMATION
We are required by federal securities laws to file certain information with
the SEC. You can access this material on the SEC's Internet website, at
http://www.sec.gov. You can also read and copy this material at the SEC's public
reference room, located at 450 Fifth Street, N.W., Washington, DC 20549. Please
call the SEC at (800) 732-0330 for information on how the public reference room
operates. In addition, the common shares are listed on the NYSE, and you can
obtain our reports, proxy statements and other information about us at the
offices of the NYSE, located at 20 Broad Street, New York, New York 10005.
We will also send you copies of the material we file with the SEC, free of
charge, upon your request. Please call or write our Investor Relations
department at:
65 Valley Stream Parkway
Malvern, Pennsylvania 19355
Telephone No.: (610) 648-1700
The SEC allows us to "incorporate by reference" into this prospectus
certain important information about us. This means that the information in this
prospectus and any later supplement may not be complete, and you should read the
information incorporated by reference for more detail. We incorporate by
reference in two ways. First, we list certain documents that we have already
filed with the SEC. The information in these documents is considered part of
this prospectus. Second, we may in the future file additional documents with the
SEC.
When filed, the information in these documents will update and supersede
the current information in, and incorporated by reference in, this prospectus
and any supplement.
We incorporate by reference the documents listed below, and any other
documents we file with the SEC under Section 13(a), 13(c), 14 or 15 of the
Securities Exchange Act of 1934 until the offer of the securities described in
this prospectus is completed:
(a) Our Annual Reports on Form 10-K for the fiscal year ended December
31, 1999;
(b) Our Quarterly Reports on Form 10-Q for the fiscal quarter ended
March 31, 2000;
(c) The description of the Trust's common shares contained in the
Registration Statement on Form 8-A of the Trust registering such securities
under Section 12 of the Securities Exchange Act of 1934; and
(d) The description of the Trust's preferred share purchase rights
contained in the Registration Statement on Form 8-A of the Trust
registering such securities under Sec-
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<PAGE> 17
tion 12 of the Securities Exchange Act of 1934.
This prospectus is part of our "shelf" registration statement. We have
filed the registration statement with the SEC under the Securities Act of 1933
to register the securities that we may offer by this prospectus and any
supplements. Not all of the information in the registration statement appears in
this prospectus, or will appear in any supplement. For more detail, you can read
the entire registration statement, and all of the exhibits filed with it, at the
SEC's offices as described above.
You should rely on the information that is in this prospectus and its
supplements, or incorporated by reference. You should not, however, assume that
the information that appears directly in this prospectus, or any supplement, is
accurate or complete as of any date other than the date on the front cover of
the document.
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<PAGE> 18
RISK FACTORS
Investing in our securities can involve various risks. We have described
below all of the risks that we believe are material to your investment decision.
RISKS THAT ARE GENERALLY APPLICABLE TO INVESTMENTS IN COMPANIES THAT OWN,
OPERATE AND DEVELOP REAL ESTATE
We Depend on Our Tenants and Our Ability to Renew Leases and Relet
Space. Our cash flow from operations depends on our ability to lease space to
tenants, on economically favorable terms, in our properties currently in
operation and those under development. If our tenants do not renew their leases
as they expire, we may not be able to relet the space. Some leases that are
renewed, and some new leases for space that we relet, may have terms that are
less economically favorable to us than current lease terms, or may require us to
incur significant costs, such as for renovations. These events could adversely
affect our cash flow from operations and our ability to make expected
distributions to shareholders.
Our cash flow from operations also could be adversely affected if one or
more significant tenants fail to pay rent or become bankrupt. Also, if a tenant
defaults on a lease, we may experience delays and costs in enforcing our rights
as landlord.
We could also be adversely affected by various facts and events over which
we have no control, such as:
- a lack of demand for space in the areas where our properties are located
- inability to attract tenants
- economic or physical decline of the areas where our properties are
located
- physical damage to our properties
- the national, state and local economic climate and real estate
conditions, such as oversupply of or reduced demand for space and changes
in market rental rates
- the need to periodically renovate, repair and relet our space
- increasing operating costs, including real estate taxes and utilities,
which may not be passed through to tenants
- defaults by our tenants or their failure to pay rent on a timely basis
- uninsured losses
A significant portion of our expenses of real estate investments, such as
mortgage and debt service payments, real estate taxes, insurance and maintenance
costs, are generally not reduced when circumstances cause a decrease in income
from our properties.
There are Risks Associated with Developing and Acquiring Properties. We
intend to continue to develop and acquire properties. Our acquisition and
development activities include the risks that:
- our construction and leasing up of a property may not be completed on
schedule, which could result in increased debt service expenses and
construction costs
- we may exceed our original or budgeted estimates, possibly making the
property uneconomical
- some acquisitions and developments may fail to perform in accordance with
our expectations
- we may have to abandon some development projects
Our development activities are also subject to risks relating to our
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
We anticipate that future acquisitions and development will be financed
through secured or unsecured financing, including our $450 million credit
facility. Also, we intend to sell securities in capital markets. It is possible
that financing on desirable terms may become unavailable, and that we would not
be able to continue our acquisitions and development. If this occurs, our
ability to distribute cash to our shareholders might be adversely affected.
Also, our newly developed or acquired properties could be foreclosed on.
4
<PAGE> 19
If any particular property that we develop is not successful, we could lose
more than we invested in that property.
Real Estate Investments Are Illiquid, and We May Not Be Able to Sell
Properties When Appropriate. Real estate generally cannot be sold quickly. We
may not be able to alter our portfolio or properties promptly in response to
economic or other conditions. In addition, provisions of the Internal Revenue
Code limit a REIT's ability to sell properties in some situations when it may be
economically advantageous to do so, thereby adversely affecting returns to our
shareholders and adversely impacting our ability to meet our obligations to the
holders of our other securities.
We Experience Competition in Our Industry. We experience a great deal of
competition in locating land to develop, properties to acquire and tenants for
properties. If the availability of land for development or high quality
properties to acquire in our markets diminishes, our operating results could be
adversely affected.
Increasing Operating Costs Could Adversely Affect Cash Flow. Our
properties are subject to operating risks common to commercial real estate, any
and all of which could adversely affect occupancy or rental rates. Our
properties are subject to increases in our operating expenses such as cleaning,
electricity, heating, ventilation and air conditioning; elevator repair and
maintenance; insurance and administrative costs; and other costs associated with
security, landscaping, repairs and maintenance of our properties. While our
tenants generally are currently obligated to pay a portion of these costs, there
is no assurance that tenants will agree to pay these costs upon renewal or that
new tenants will agree to pay these costs initially. If operating expenses
increase in some or all of our markets, we may not be able to increase rents in
all of these markets so as to meet increased expenses without at the same time
decreasing occupancy rates. If this occurs, our ability to pay distributions to
our shareholders and service our indebtedness could be adversely affected.
Some Potential Losses Are Not Covered by Insurance. We carry comprehensive
liability, fire, extended coverage and rental loss insurance on all of our
properties. However, losses arising from acts of war or relating to pollution
are not generally insured because they are either uninsurable or not
economically insurable. If an uninsured loss or a loss in excess of insured
limits should occur, we could lose our capital invested in a property, as well
as any future revenue from the property. We would nevertheless remain obligated
on any mortgage indebtedness or other obligations related to the property.
There are Possible Environmental Liabilities in our Operations. Various
federal, state and local laws, ordinances and regulations designed to protect
the environment may require us to investigate and clean up damage to our
properties from hazardous materials. These environmental laws often impose
liability regardless of whether we knew of, or were responsible for, the damage.
Also, the presence of hazardous materials on a property, or the damage caused by
those materials, may make it impossible to sell or rent the property or use it
as collateral. Our liability for the costs of cleaning up environmental damage
is generally not limited under environmental laws and could exceed the value of
the property and/or our aggregate assets. Also, private plaintiffs can sue us
for personal injury or initiate other causes of action if hazardous materials
are found on our properties.
We may incur environmental liability on some of our properties, and may
have to comply with rules and regulations regarding business-related activities
on our properties as they affect the environment. Our failure to comply with
those requirements could result in difficulty in leasing or selling any affected
property or in our incurrence of monetary penalties and fines in addition to the
costs necessary to attain compliance.
DEBT SERVICING AND REFINANCING, INCREASES IN INTEREST RATES AND FINANCIAL
COVENANTS COULD ADVERSELY AFFECT OUR ECONOMIC PERFORMANCE
We May Not be Able to Access Financial Markets to Obtain Capital. In order
to qualify as a REIT for federal income tax purposes, we are required to
distribute 95% of our taxable income (90% of our taxable income for taxable
years beginning after December 31, 2000) to our shareholders each year. As a
result, we rely on third party capital sources for many of our capital needs,
including capital for acquisitions and development. The public debt and equity
markets are among the sources we rely on. There is no guarantee that we will be
able to access these markets, or any other source of capital. Our ability
5
<PAGE> 20
to access the public debt and equity markets depends on a variety of factors,
including:
- general economic conditions affecting these markets
- our own financial structure and performance
- the market's opinion of REITs in general
- the market's opinion of REITs that own properties like ours
We Are Indebted to Various Lenders and May Suffer Adverse Effects as a
Result of the Terms of this Debt. Our required payments on the mortgages and
other indebtedness on some of our properties generally are not reduced if the
economic performance of the property declines. If the economic performance of a
property declines, our income, cash from operations and cash available for
distribution to our shareholders will be reduced. If we cannot make payments on
our debt, we could sustain a loss, suffer foreclosures by mortgagees or suffer
judgments against us.
Further, some of our obligations, including our exchangeable subordinated
debentures due in 2001 and our credit facility, contain cross-default and/or
cross-acceleration provisions, which means that a default on one obligation may
constitute a default on other obligations. Our exchangeable subordinated
debentures are exchangeable for our common shares, and, depending on how many
debentures are exchanged prior to the time they mature, we may not have
sufficient cash to repay the principal due on the debentures upon their
maturity. If this happens, we would be forced to meet our obligations through
refinancings, which may not be available on attractive terms.
Also, some of our indebtedness, including that incurred under our credit
facility, bears interest at variable rates and we therefore are at risk of
increasing interest rates. If interest rates increase, we may not be able to
refinance the credit facility, or any other indebtedness, on attractive terms.
We also may not be able to refinance any indebtedness we incur in the future.
Finally, we may not be able to obtain funds by selling assets or raising
equity to make required payments on maturing indebtedness.
Rising Market Interest Rates Could Adversely Affect Cash Flow. Increases
in interest rates could increase our operating partnership's interest expense,
which could adversely affect the ability to service our indebtedness or our
ability to pay distributions to our shareholders. Outstanding advances under our
credit facility bear interest at variable rates. In addition, we may incur
indebtedness in the future that also bears interest at a variable rate.
THERE ARE RISKS IN ENTERING NEW MARKETS
At times we may attempt to expand our operations into markets where we
don't currently operate. When we determine whether to enter a new market, we
consider the market's demographics, job growth, employment, real estate
fundamentals and competition. We may not be able to find attractive new markets,
and we may not achieve our anticipated results in the new markets we do enter.
If this occurs, our cash from operations may be adversely affected.
WE DEPEND ON CONDITIONS IN OUR PRIMARY MARKETS
Our properties are located principally in specific geographic areas in the
Southeastern, Mid-Atlantic and Midwestern United States, and our performance is
therefore dependent on economic conditions in these areas. Like much of the
country, these areas have experienced periods of economic decline.
WE ARE REQUIRED TO COMPLY WITH VARIOUS TAX LAWS
We Could Suffer Adverse Consequences if We Fail to Qualify as a
REIT. Although we believe that we qualify as a REIT under federal tax laws, we
cannot be certain that we in fact qualify, or that we will remain qualified.
Qualification as a REIT involves the application of highly technical and complex
provisions of the Internal Revenue Code, as to which there are only limited
judicial or administrative interpretations. The complexity of these provisions
and of the related income tax regulations is greater in the case of a REIT that
holds its assets in partnership form, as we do. Moreover, no assurance can be
given that new tax laws will not significantly affect our qualification as a
REIT or the federal income tax consequences of such qualification. New laws
could be applied retroactively, which means that our past operations could be
found to be in violation, which
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would have a negative effect on our business. Presently, we have no reason to
expect a change in the tax laws that would significantly and adversely affect
our qualification and operation as a REIT.
If we fail to qualify as a REIT in any taxable year, we would not be able
to deduct our distributions to shareholders when computing our taxable income.
If this happened, we would be subject to federal income tax on our taxable
income at regular corporate rates. Also, we could be prevented from qualifying
as a REIT for the four years following the year in which we were disqualified.
Further, if we requalified as a REIT after failing to qualify, we might have to
pay the full corporate-level tax on any unrealized gain in our assets during the
period we were not qualified as a REIT. We would then have to distribute to our
shareholders the earnings we accumulated while we were not qualified as a REIT.
These additional taxes would reduce our funds available for distribution to our
shareholders for each of the years involved. In addition, while we were
disqualified as a REIT, we would not be required by the Internal Revenue Code to
make distributions to our shareholders.
Although we intend to continue to operate and qualify as a REIT, future
economic, market, legal, tax or other considerations may cause our Board of
Trustees to revoke our election to qualify as a REIT. This decision requires the
consent of the holders of a majority of the voting interests of all of our
outstanding common shares.
For more information about federal income tax law as it affects us,
including a discussion of the qualification of the Operating Partnership as a
partnership for federal income tax purposes, see "Federal Income Tax
Considerations with Respect to the Trust and the Operating Partnership --
Classification as a Partnership" in the Registration Statement we incorporate by
reference in this Prospectus.
Certain Officers and Trustees of the Trust May Not Have the Same Interests
as Our Shareholders as to Certain Tax Laws. Certain officers and trustees of
the Trust own units of limited partnership interest in the Operating
Partnership. These units may be exchanged for our common shares. The officers
and trustees who own those units and have not yet exchanged them for our common
shares may suffer different and more adverse tax consequences than holders of
our common shares suffer in certain situations:
- when certain of our properties are sold
- when debt on those properties is refinanced
- if we are involved in a tender offer or merger
The Trust also owns units in the Operating Partnership. Because the Trust,
as well as the trustees and officers who own units, face different consequences
than our shareholders do, the Trust and those trustees and officers may have
different objectives as to these transactions than our shareholders do.
THERE ARE LIMITATIONS ON THE CHANGE OF CONTROL OF THE COMPANY
There is an Ownership Limit on Our Shares. To qualify as a REIT, five or
fewer individuals cannot own, directly or indirectly, more than 50% in value of
our outstanding shares of beneficial interest. To this end, our Declaration of
Trust, among other things, generally prohibits any holder of the Trust's shares
from owning more than 5.0% of the Trust's outstanding shares of beneficial
interest, unless that holder gets the consent of our Board of Trustees. This
limitation could prevent the acquisition of control of the Company by a third
party without the consent of our Board of Trustees.
We Have a Staggered Board and Certain Restrictive Nominating
Procedures. Our Board of Trustees has three classes of trustees. The term of
office of one class expires each year. Trustees for each class are elected for
three-year terms as that class' term expires. The terms of the Class I, Class II
and Class III trustees expire in 2001, 2002 and 2003, respectively. Any nominee
for trustee must be selected under the nominating provisions contained in our
Declaration of Trust and By-Laws. The staggered terms for trustees and the
nominating procedures may affect our shareholders' ability to take control of
the Company, even if a change in control was in the shareholders' interest.
Our Board Can Issue Preferred Shares. Our Declaration of Trust authorizes
our Board of Trustees to issue preferred shares of beneficial interest and to
establish the preferences and rights of any shares issued. The issuance of
preferred
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shares could have the effect of delaying, making or preventing a change of
control of the Company, even if a change in control was in the shareholders'
interest.
We Have a Poison Pill. Under our shareholder rights plan, rights are
issued along with each of the Trust's common shares. Holders of these rights can
purchase from us, under certain conditions, a portion of a preferred share of
beneficial interest, or receive common shares of the Trust, or common shares of
an entity acquiring us, or other consideration, having a value equal to twice
the exercise price of the right. The exercise price of the right is $200. This
arrangement is often called a "poison pill." Our poison pill could have the
effect of delaying or preventing a change of control of the Company, even if a
change in control was in the shareholders' interest.
Limitations on Acquisition of And Changes in Control Pursuant to Maryland
Law. The Maryland General Corporation Law contains provisions which are
applicable to the Trust as if the Trust were a corporation. Among these
provisions is a section, referred to as the "control share acquisition statute,"
which eliminates the voting rights of shares acquired in quantities so as to
constitute "control shares," as defined under the MGCL. The MGCL also contains
provisions applicable to us that are referred to as the "business combination
statute," which would generally limit business combinations between the Company
and any 10% owners of the Trust's shares or any affiliate thereof. These
provisions may have the effect of inhibiting a third party from making an
acquisition proposal for our company or of delaying, deferring or preventing a
change in control of our company under circumstances that otherwise could
provide the holders of our common shares with the opportunity to realize a
premium over the then current market price.
VARIOUS FACTORS COULD HURT THE MARKET VALUE OF OUR PUBLICLY TRADED SECURITIES
Market Conditions Could Change for the Worse. As with other publicly
traded securities, the value of our publicly traded securities depends on
various market conditions, which may change from time to time. In addition to
general economic and market conditions and our particular financial condition
and performance, the value of our publicly traded securities could be affected
by, among other things, the extent of institutional investor interest in us and
the market's opinion of REITs in general and, in particular, REITs that own and
operate properties similar to ours.
The market value of the equity securities of a REIT may be based primarily
upon the market's perception of the REIT's growth potential and its current and
future cash distributions, and may be secondarily based upon the real estate
market value of the underlying assets. Our failure to meet the market's
expectations with regard to future earnings and cash distributions likely would
adversely affect the market price of our common shares.
Rising Market Interest Rates Could Harm the Market Prices of Our
Securities. If market interest rates increase, purchasers of the Trust's common
shares may demand a higher annual yield on the price they pay for their shares.
This could adversely affect the market price of the Trust's common shares.
TRANSACTIONS BY THE TRUST OR THE OPERATING PARTNERSHIP COULD ADVERSELY AFFECT
DEBT HOLDERS
Except with respect to several covenants limiting the incurrence of
indebtedness and a covenant requiring the Operating Partnership to maintain a
certain unencumbered total asset value, our indentures do not contain any
provisions that would protect holders of the Operating Partnership's debt
securities in the event of (i) a highly leveraged or similar transaction
involving the Operating Partnership, the management of the Operating Partnership
or the Trust, or any affiliate of any these parties, (ii) a change of control,
or (iii) certain reorganizations, restructuring, mergers or similar transactions
involving the Operating Partnership or the Trust.
WE MAKE FORWARD-LOOKING STATEMENTS WHICH MAY NOT COME TRUE
The Private Securities Litigation Reform Act of 1995 provides us with a
"safe harbor" for forward-looking statements we make. This means that we may not
be liable to our shareholders if the projections we make about our future
operations or performance do not come true. Certain materials that we have filed
or will file with the SEC, and that we incorporate by reference in this
Prospectus, contain forward-looking statements. These may include projections
about the perform-
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ance of properties we acquire (including pro forma financial information that we
file about those properties) and other business development activities. We may
also make forward-looking statements about future capital expenditures, access
to financing sources, the effects of regulations (including environmental
regulations) and competition in our operations. These forward-looking statements
involve important risks and uncertainties that could significantly affect our
future results, which may not meet our expectations. Among other things, these
risks and uncertainties could include the types of risks discussed in this "Risk
Factors" section.
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THE COMPANY
Liberty Property Trust (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 Southeastern,
Mid-Atlantic and West Coast markets, founded in 1972. The Trust provides
leasing, property management, acquisition, development, construction and design
management and other related services to its portfolio of 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 (the "Operating
Partnership"). The Trust is the sole general partner and also is a limited
partner of the Operating Partnership. Unless the context otherwise requires, as
used in this Prospectus, (i) the term "Operating Partnership" includes Liberty
Property Limited Partnership and its subsidiaries (and, where the context
indicates, its predecessor entities, Rouse & Associates, a Pennsylvania general
partnership, and certain affiliated entities) and (ii) the term "Company"
includes the Trust and the Operating Partnership.
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.
SECURITIES OFFERED BY THIS PROSPECTUS
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 Common Shares of Beneficial Interest, $0.001 par value
("Common Shares"); (b) 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 or other Securities (as
defined below); 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 Common Shares, Preferred Shares, Depositary Shares
and Guaranties (as defined below), as "Trust Securities."
The Operating Partnership 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, together with
Trust Securities, as "Securities."
USE OF PROCEEDS
Unless otherwise provided in the applicable supplement accompanying this
Prospectus (the "Prospectus Supplement"), the net proceeds, if any, from the
sale of the Securities offered hereby will be used for general corporate
purposes, including the acquisition or development of properties or other assets
and the repayment of indebtedness. At the date hereof, we have not identified as
probable any specific material proposed purchases. If, as of the date of any
Prospectus Supplement, we have identified any such purchases, we will describe
all such purchases in such Prospectus Supplement. 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 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.
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CERTAIN RATIOS
The ratios of earnings to fixed charges of the Company for the three months
ended March 31, 2000 and for the years ended December 31, 1999, 1998, 1997, 1996
and 1995 were 2.34, 2.24, 2.07, 1.92, 1.66 and 1.47, respectively. The ratios of
earnings to combined fixed charges and preferred share dividends of the Company
for the three months ended March 31, 2000 and for the years ended December 31,
1999, 1998, 1997, 1996 and 1995 were 2.01, 1.98, 1.85, 1.80, 1.66 and 1.47,
respectively.
The ratios of earnings to fixed charges and the ratios of earnings to
combined fixed charges and preferred share dividends were computed by dividing
earnings by fixed charges and by combined fixed charges and preferred share
dividends, respectively. For the purpose of such computations, earnings have
been calculated by adding fixed charges (excluding capitalized interest) to
income before minority interest and extraordinary items. Fixed charges consist
of interest costs, whether expensed or capitalized, and amortization of deferred
financing costs.
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
"Indentures"), by and 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. Except as otherwise indicated, each reference to a
section contained herein is to that section of each of the Indentures. 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 its 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 subordinated 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 Indentures
applicable to such Debt Securities. Whenever defined terms of the Indentures 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."
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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:
- the title and series of such Debt Securities;
- any limit on the aggregate principal amount of such Debt Securities;
- the price or prices (expressed as a percentage of the aggregate principal
amount thereof) at which such Debt Securities will be issued;
- 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;
- 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;
- 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;
- 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;
- the period or periods within which, the price or prices at which, the
currency or currencies, currency unit or units or composite currency or
currencies in which, and other terms and conditions upon 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;
- the extent to which any of the Debt Securities will be issuable in
temporary or permanent global form with or without coupons 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;
- the denomination or denominations in which such Debt Securities are
authorized to be issued;
- 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);
- information with respect to book-entry procedures;
- whether any of the Debt Securities will be issued as Original Issue
Discount Securities (as defined below);
- the place or places where, subject to the terms of the related Indenture,
the principal of and interest on, and any other applicable amounts
payable in respect of, such Debt Securities shall be payable, and where
such Debt Securities may be presented for registration of transfer,
exchange or conversion and where notices or demands to or upon the Issuer
in respect of such Debt Securities may be served;
- 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;
- 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
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<PAGE> 27
units or composite currencies, commodities, equity indices or other
indices) and the manner in which such amounts shall be determined;
- whether the Issuer or a holder may elect payment of the principal of or
interest on such Debt Securities in a currency or 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 or 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;
- 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;
- if applicable, the defeasance of certain obligations by the Issuer
pertaining to Debt Securities of the series;
- 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;
- whether and under what circumstances the Issuer will pay 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);
- 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, whether or not such Events of Default or Covenants are
consistent with Events of Default or Covenants set forth in the
Indenture;
- 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;
- any other terms of the series (which will not be inconsistent with the
provisions of the applicable Indenture); and
- 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.
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Except as described below under "Merger, Consolidation or Sale" or as
indicated in the applicable Prospectus Supplement, the Indentures do not contain
any provisions that would limit the ability of the Issuer to incur indebtedness
or that would afford holders of Debt Securities protection in the event of:
- a highly leveraged or similar transaction involving the Issuer, the Trust
as the sole general partner of the Issuer or any affiliate of either such
party;
- a change of control; or
- a reorganization, restructuring, merger or similar transaction involving
the Company that may adversely affect the holders of Debt Securities.
However, certain restrictions on the ownership and transfer of the Common
Shares and the Preferred Shares designed to preserve the Trust's status as a
REIT may act to prevent or hinder a change of control. The Issuer and its
management have no present intention of engaging in a transaction which would
result in the Issuer being highly leveraged or that would result in a change of
control.
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 (as defined below) of the person
in whose name such registered Debt Security is registered at the close of
business on the applicable Regular Record Date(s).
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
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<PAGE> 29
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.
MERGER, CONSOLIDATION OR SALE
The Issuer may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into any other entity,
provided that in any such case: (i) either the Issuer shall be the continuing
entity, or the successor entity shall be an entity organized and existing under
the laws of the United States or a State thereof and such successor entity shall
expressly assume the due and punctual payment of the principal of (and premium
or Make-Whole Amount, if any) and any interest on all of any series of Debt
Securities, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Indentures to be
performed by the Issuer by supplemental indenture, complying with the provisions
of the Indentures relating to supplemental indentures, satisfactory to the
Trustee, executed and delivered to the Trustee by such entity; (ii) immediately
after giving effect to such transaction and treating any indebtedness which
becomes an obligation of the Issuer or any Subsidiary as a result thereof as
having been incurred by the Issuer or such Subsidiary at the time of such
transaction, no Event of Default, and no event which, after notice or the lapse
of time, or both, would become an Event of Default, shall have occurred and be
continuing; and (iii) an officer's certificate and legal opinion covering such
conditions shall be delivered to the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
The Indentures contain various covenants including the following:
Existence. Except as described under "Merger, Consolidation or Sale,"
above, the Issuer will do or cause to be done all things necessary to preserve
and keep in full force and effect its existence, rights (by partnership
agreement and statute) and franchises; provided, however, that the Issuer shall
not be required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of Debt Securities (Section 1005).
Maintenance of Properties. The Issuer will cause all of its material
properties used or useful in the conduct of its business or the business of any
Subsidiary (as defined below) to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Issuer may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Issuer and
its Subsidiaries shall not be prevented from selling or otherwise disposing of
for value their respective properties in the ordinary course of business
(Section 1006).
Insurance. The Issuer will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage at least
equal to their then full insurable value with insurers of recognized
responsibility and having an A.M. Best policy holder's rating of not less than
A-V (Section 1007).
Payment of Taxes and Other Claims. The Issuer will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent: (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Issuer or any
Subsidiary; and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Issuer or any
Subsidiary; provided, however, that the Issuer shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings or for which the Issuer has set apart and maintains
an adequate reserve (Section 1008).
Provision of Financial Information. Whether or not the Issuer is subject
to Section 13 or 15(d) of the Exchange Act, the Issuer will, to the extent
permitted under the Exchange Act, file with the
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Commission the annual reports, quarterly reports and other documents which the
Issuer would have been required to file with the Commission pursuant to such
Sections 13 or 15(d) if the Issuer were so subject (the "Financial
Information"), such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Issuer would have
been required so to file such documents if the Issuer were so subject. The
Issuer also will in any event (x) within 15 days of each Required Filing Date:
(i) transmit by mail to all Holders of Debt Securities, as their names and
addresses appear in the Security Register, without cost to such Holders, copies
of the Financial Information; and (ii) file with the Trustee copies of the
Financial Information, and (y) if filing such documents by the Issuer with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1009).
As used in the Indentures and the description thereof herein:
"Security Register" means a register maintained at a place of payment for
the registration and transfer of the Debt Securities.
"Subsidiary" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Company or by one or more Subsidiaries of the Company.
Liberty Property Development Corp. and Liberty Property Development Corp.-II are
Subsidiaries for purposes of this definition. For the purposes of this
definition, "voting stock" means stock having the voting power for the election
of directors, general partners, managers or trustees, as the case may be,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
ADDITIONAL COVENANTS AND/OR MODIFICATION TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Issuer and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The term "Event of Default," when used in the Indenture, means any one of
the following events (whatever the reason for such Event of Default and whether
or not it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body): (i) default in the
payment of any interest upon any series of Debt Securities issued thereunder
when such interest becomes due and payable, and continuance of such default for
a period of 30 days; (ii) default in the payment of the principal of (or premium
or Make-Whole Amount, if any, on) any Debt Security issued thereunder when it
becomes due and payable at its Maturity Date or by declaration of acceleration,
notice of redemption or otherwise; (iii) default in the performance, or breach,
of any covenant or warranty of the Issuer in the Indentures with respect to any
Debt Security issued thereunder (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in the relevant section of the
Indentures specifically dealt with), and continuance of such default or breach
for a period of 60 days after there has been given, by registered or certified
mail, to the Issuer by the Trustee, or to the Issuer and the Trustee by the
Holders of at least 25% in principal amount of the Debt Securities of such
series, a written notice specifying such default or breach and requiring it to
be remedied and stating that such notice is a "Notice of Default" under the
Indenture; (iv) a default under any bond, debenture, note or other evidence of
indebtedness of the Issuer, or under any mortgage, indenture or other instrument
of the Issuer under which there may be issued or by which there may be secured
any indebtedness of the Issuer (or by any Subsidiary of the Issuer, the
repayment of which the Issuer has guaranteed or for which the Issuer is directly
responsible or liable as obligor or guarantor on a full recourse basis), whether
such indebtedness now exists or shall hereafter be
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created, which default shall constitute a failure to pay an aggregate principal
amount exceeding $10,000,000 of such indebtedness when due and payable after the
expiration of any applicable grace period with respect thereto and shall have
resulted in such indebtedness in an aggregate principal amount exceeding
$10,000,000 becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days after there shall have been given, by registered or
certified mail, to the Issuer by the Trustee, or to the Issuer and the Trustee
by the Holders of at least 10% in principal amount of the outstanding Debt
Securities, a written notice specifying such default and requiring the Issuer to
cause such indebtedness to be discharged or cause such acceleration to be
rescinded or annulled and stating that such notice is a "Notice of Default"
under the Indenture; or (v) certain events of bankruptcy, insolvency or
reorganization (Section 501).
If an Event of Default under the Indentures with respect to any series of
Debt Securities at the time outstanding occurs and is continuing (other than
Events of Default arising in connection with certain events of bankruptcy,
insolvency or reorganization), then in every such case the Trustee or the
Holders of not less than 25% of the principal amount of the outstanding Debt
Securities of such series may declare the principal amount and premium (if any)
and accrued interest on all the Debt Securities of such series to be due and
payable immediately by written notice thereof to the Issuer (and to the Trustee
if given by the Holders). However, at any time after such a declaration of
acceleration with respect to the Debt Securities has been made, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of not less than a majority in principal amount of the
outstanding Debt Securities of such series may rescind and annul such
declaration and its consequences if (a) the Issuer shall have deposited with the
Trustee all required payments of the principal of (and premium or Make-Whole
Amount, if any) and interest on the Debt Securities of such series, plus certain
fees, expenses, disbursements and advances of the Trustee and (b) all Events of
Default with respect to the Debt Securities of such series, other than the
non-payment of principal of (or premium or Make-Whole Amount, if any) or
interest on the Debt Securities of such series which has become due solely by
such declaration of acceleration, have been cured or waived as provided in the
Indenture. In the event of a declaration of acceleration because an Event of
Default as described in clause (iv) of the preceding paragraph has occurred and
is continuing, such declaration shall be automatically rescinded and annulled if
the default triggering such Event of Default (along with any other defaults
caused thereby) shall be remedied or cured by the Issuer or its relevant
Subsidiary or waived by the holders of such indebtedness within 60 days after
such declaration of acceleration. Upon the occurrence of an Event of Default
arising in connection with certain events of bankruptcy, insolvency or
reorganization, the principal of, premium, if any, and accrued interest on all
Debt Securities of such series then outstanding shall immediately become due and
payable without any declaration or other act on the part of the Trustee or any
Holder (Section 502).
The Trustee will be required to give notice to the Holders of the Debt
Securities of such series within 90 days of the occurrence of a default under
the Indentures unless such default shall have been cured or waived; provided,
however, that the Trustee may withhold notice to the Holders of the Debt
Securities of such series of any default (except a default in the payment of the
principal of (or premium or Make-Whole Amount, if any) or interest on the Debt
Securities of such series) if and so long as specified responsible officers of
the Trustee determine in good faith that the withholding of such notice is in
the interest of such Holders; provided, that in the case of any default or
breach of a covenant or warranty under the Indentures as described in clause
(iii) of the first paragraph of this section "Events of Default, Notice and
Waiver," no such notice to Holders shall be given until at least 60 days after
the occurrence thereof. For purposes of this paragraph, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default under the Indentures with respect to the Debt Securities of
such series (Section 601).
The Indentures provide that no Holder of Debt Securities may institute any
proceedings, judicial or otherwise, with respect to the Indentures or for any
remedy thereunder, except in the case of failure of the Trustee, for 60 days, to
act after it has received a written request to institute proceedings in respect
of an
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Event of Default from the Holders of not less than 25% in principal amount of
the outstanding Debt Securities of any series, as well as an offer of indemnity
reasonably satisfactory to it (Section 507). Such provision will not prevent,
however, any Holder of Debt Securities from instituting suit for the payment of
the principal of (and premium or Make-Whole Amount, if any) and interest on the
Debt Securities of such series on the respective due dates thereof (Section
508).
Defaults (except a default in the payment of principal of (or premium or
Make-Whole Amount, if any) or interest on the Debt Securities of any series or
default with respect to a covenant or provision which cannot be modified under
the terms of the Indentures without the consent of each Holder affected) may be
waived by the Holders of not less than a majority of principal amount of the
then outstanding Debt Securities of such series, upon the conditions provided in
the Indentures (Section 513).
Subject to provisions in the Indentures relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indentures at the request or direction of any Holders of any
series of Debt Securities then outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred upon such Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of the Debt
Securities of such series not joining therein and the Trustee may take any other
action it deems proper not inconsistent with such direction (Section 512).
Within 120 days after the close of each fiscal year, the Issuer will be
required to deliver to the Trustee a certificate, signed by one of several
specified officers of the Issuer, stating whether or not such officer has
knowledge of any default under the Indentures and, if so, specifying each such
default and the nature and status thereof (Section 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of each Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all of
the Debt Securities issued under that Indenture; provided, however, that no such
modification or amendment may, without the consent of the Holder of each Debt
Security affected thereby:
- change the stated maturity of the principal of (or premium or Make-Whole
Amount, if any, on), or any installment of interest on, any such Debt
Security;
- reduce the principal amount of, or the rate or amount of interest on, or
any premium payable on redemption of Debt Securities, or adversely affect
any right of repayment of the Holder of any Debt Securities;
- change the place of payment, or the coin or currency, for payment of
principal or premium, if any, or interest on the Debt securities;
- impair the right to institute suit for the enforcement of any payment on
or with respect to the Debt Securities on or after the stated maturity of
any such Debt Security;
- reduce the above-stated percentage in principal amount of outstanding
Debt Securities the consent of whose Holders is necessary to modify or
amend the Indenture, for any waiver with respect to the Debt Securities,
or to waive compliance with certain provisions of the Indentures or
certain defaults and consequences thereunder or to reduce the quorum or
voting requirements set forth in the Indenture; or
- modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect such action or to
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provide that certain other provisions of the Indentures may not be
modified or waived without the consent of the Holder of each Debt
Security of all series under both Indentures (Section 902).
The Holders of not less than a majority in principal amount of the Debt
Securities have the right to waive compliance by the Issuer with certain
covenants in the Indentures (Section 1012).
Modifications and amendments of each Indentures are permitted to be made by
the Issuer and the Trustee without the consent of any Holder for any of the
following purposes:
- to evidence the succession of another person to the Issuer as obligor
under the Indenture;
- to add to the covenants of the Issuer for the benefit of the Holders of
Debt Securities or to surrender any right or power conferred upon the
Issuer in the Indenture;
- to add Events of Default for the benefit of the Holders of Debt
Securities;
- to add or change any provisions of the Indentures to facilitate the
issuance of, or to liberalize certain terms of, Debt Securities in bearer
form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect
the interests of the Holders of Debt Securities in any material respect;
- to change or eliminate any provisions of the Indenture, provided that any
such change or elimination shall become effective only when the
outstanding Debt Securities are not entitled to the benefit of such
provision;
- to secure the Debt Securities;
- to establish the form or terms of the Debt Securities and any related
coupons as permitted by the Indenture;
- to evidence and provide for the acceptance of appointment under the
Indentures by a successor Trustee with respect to the Debt Securities or
facilitate the administration of the trust under the Indentures by more
than one Trustee;
- to cure any ambiguity, defect or inconsistency in the Indenture, provided
that such action is not inconsistent with the provisions of the Indenture
and shall not adversely affect the interests of Holders of Debt
Securities in any material respect; or
- to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of Debt
Securities, provided that such action shall not adversely affect the
interests of the Holders of Debt Securities in any material respect
(Section 901).
Each of the Indentures contain provisions for convening meetings of the
Holders of the Debt Securities of any series (Section 1501). A meeting will be
permitted to be called at any time by the Trustee, and also, upon request, by
the Issuer or the Holders of at least 10% in principal amount of the outstanding
Debt Securities of such series, in any such case upon notice given as provided
in the Indenture. Except for any consent that must be given by the Holder of
each Debt Security of such series affected by certain modifications and
amendments of the Indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
outstanding Debt Securities of such series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specific percentage, which is less than
a majority, in principal amount of the outstanding Debt Securities of a series,
may be adopted at a meeting or adjourned meeting duly reconvened and at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of the
Debt Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons entitled to vote a majority in principal amount
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of the outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the outstanding Debt Securities of a series, the persons entitled to
vote such specified percentage in principal amount of the outstanding Debt
Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, each of the Indentures provides
that if any action is to be taken at a meeting of Holders of Debt Securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver and other action that the Indenture expressly provides
may be made, given or taken by the Holders of a specified percentage in
principal amount of all outstanding Debt Securities affected thereby, or the
Holders of such series and the other series: (i) there shall be no minimum
quorum requirement for such meeting; and (ii) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under the Indenture.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Issuer will be permitted under each of the Indentures to discharge
certain obligations to the Holders of any series of Debt Securities that have
not already been delivered to the Trustee for cancellation by irrevocably
depositing with the Trustee, in trust, funds in the currency in which the Debt
Securities of such series are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal (and premium or
Make-Whole Amount, if any) and interest to the date of such deposit (if such
Debt Securities have become due and payable) or to the stated Maturity Date or
redemption date, as the case may be.
Each of the Indentures will also provide that the Issuer may elect either
(a) to defease and be discharged from any and all obligations with respect to
any series of Debt Securities other than the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain sections of Article Ten of the
Indenture relating to limitations on the incurrence of Debt, maintenance of
Unencumbered Total Asset Value, existence of the Issuer, maintenance of the
Issuer's properties, insurance, payment of taxes and other claims and provision
of financial information and any omission to comply with such obligations shall
not constitute an Event of Default with respect to such Debt Securities
("covenant defeasance") (Section 1403), in either case upon the irrevocable
deposit by the Issuer with the Trustee, in trust, of an amount, in the currency
in which such Debt Securities are payable at stated maturity, or Government
Obligations (as defined below), or both, applicable to such Debt Securities
which through the scheduled payment of principal and interest in accordance with
their terms will provide money in an amount sufficient without reinvestment to
pay the principal of (and premium or Make-Whole Amount, if any) and interest on
such Debt Securities or analogous payments thereon, on the scheduled due dates
therefor.
Such a trust may only be established if, among other things, the Issuer has
delivered to the Trustee an opinion of counsel (as specified in the Indenture)
to the effect that the Holders of such Debt Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, and such
opinion of counsel, in the case of defeasance, will be required to refer to and
be based upon a ruling of the Internal Revenue Service or a change in applicable
federal income tax law occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are: (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged; or (ii) obligations of a Person
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controlled or supervised by and acting as an agency or instrumentality of the
United States of America, the payment of which is unconditionally guaranteed as
a full faith and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depositary receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depositary receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depositary receipt.
In the event the Issuer effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iii) under "Events of Default, Notice and Waiver" with respect to
certain specified sections of Article Ten of the Indentures (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) the amount in such currency in which such Debt Securities
are payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
stated maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Default. However,
the Issuer would remain liable to make payment of such amounts due at the time
of acceleration.
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 an Indenture: (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 either of 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 other
than that stated in the definitive notes representing such Debt Securities; (e)
change the provisions of the 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 Indenture
regarding subordination and seniority of the Debt Securities that adversely
affects the rights of any Holders of Debt Securities outstanding thereunder.
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
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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 applicable Indenture, as supplemented or amended
from time to time.
OPTIONAL REDEMPTION
Except as otherwise provided in the applicable Prospectus Supplement, the
Debt Securities of any series may be redeemed at any time at the option of the
Issuer, in whole or from time to time in part, at a redemption price equal to
the sum of: (i) the principal amount of the Debt Securities being redeemed plus
accrued interest thereon to the redemption date; and (ii) the Make-Whole Amount
(as defined below), if any, with respect to such Debt Securities (the
"Redemption Price").
If notice of redemption has been given as provided in the applicable
Indenture and funds for the redemption of any Debt Securities called for
redemption shall have been made available on the redemption date referred to in
such notice, such Debt Securities will cease to bear interest on the date fixed
for such redemption specified in such notice and the only right of the Holders
of the Debt Securities from and after the redemption date will be to receive
payment of the Redemption Price upon surrender of such Debt Securities in
accordance with such notice.
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the security register for the Debt
Securities, not more than 60 nor less than 30 days prior to the date fixed for
redemption. The notice of redemption will specify, among other items, the
Redemption Price and principal amount of the Debt Securities held by such Holder
to be redeemed.
If all or less than all of the Debt Securities of any series are to be
redeemed at the option of the Issuer, the Issuer will notify the Trustee at
least 45 days prior to giving notice of redemption (or such shorter period as
may be satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed, if less than all of the Debt Securities of any series
are to be redeemed, and their redemption date. If less than all of the Debt
Securities of any series are to be redeemed, the Trustee shall select, in such
manner as it shall deem fair and appropriate, no less than 60 days prior to the
date of redemption, the Debt Securities of such series to be redeemed.
Neither the Issuer nor the Trustee shall be required to: (i) issue,
register the transfer of or exchange Debt Securities during a period beginning
at the opening of business 15 days before any selection of Debt
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Securities to be redeemed and ending at the close of business on the day of
mailing of the relevant notice of redemption; (ii) register the transfer of or
exchange any Debt Securities, or portion thereof, called for redemption, except
the unredeemed portion of any Debt Securities being redeemed in part; or (iii)
issue, register the transfer of or exchange any Debt Securities that have been
surrendered for repayment at the option of the Holder, except the portion, if
any, of such Debt Securities not to be so repaid (Section 305).
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption of
any Debt Securities, the excess, if any, of: (i) the aggregate present value as
of the date of such redemption of each dollar of principal being redeemed and
the amount of interest (exclusive of interest accrued to the date of redemption)
that would have been payable in respect of each such dollar if such redemption
had not been made, determined by discounting, on a semi-annual basis, such
principal and interest at the Reinvestment Rate (as defined below) (determined
on the third Business Day preceding the date notice of such redemption is given)
from the respective dates on which such principal and interest would have been
payable if such redemption had not been made, to the date of redemption, over
(ii) the aggregate principal amount of the Debt Securities being redeemed.
"Reinvestment Rate" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of redemption, and
rounded to the nearest month) to stated maturity of the principal being redeemed
(the "Treasury Yield"), plus 0.25%, unless such percentage is otherwise provided
in the applicable Pricing Supplement. For purposes hereof, the Treasury Yield
shall be equal to the arithmetic mean of the yields published in the Statistical
Release (as defined below) under the heading "Week Ending" for "U.S. Government
Securities -- Treasury Constant Maturities" with a maturity equal to such
remaining life; provided, that if no published maturity exactly corresponds to
such remaining life, then the Treasury Yield shall be interpolated or
extrapolated on a straight-line basis from the arithmetic means of the yields
for the next shortest and next longest published maturities. For purposes of
calculating the Reinvestment Rate, the most recent Statistical Release published
prior to the date of determination of the Make-Whole Amount shall be used. If
the format or content of the Statistical Release changes in a manner that
precludes determination of the Treasury Yield in the above manner, then the
Treasury Yield shall be determined in the manner that most closely approximates
the above manner, as reasonably determined by the Issuer.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which reports yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Issuer.
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.
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BOOK-ENTRY SYSTEM
Certain series of Debt Securities may be represented by a single fully
registered note in book-entry form (each, a "Global Note") registered in the
name of a nominee of The Depository Trust Company ("DTC"). The following are
summaries of certain rules and operating procedures of DTC that affect the
payment of principal and interest and transfers in the Global Notes. Upon
issuance, each series of Debt Securities that is represented by a Global Note
will be issued only in the form of a Global Note which will be deposited with,
or on behalf of, DTC and registered in the name of Cede & Co., as nominee of
DTC. Unless and until it is exchanged in whole or in part for Debt Securities of
such series in definitive form under the limited circumstances described below,
a Global Note may not be transferred except as a whole: (i) by DTC to a nominee
of DTC; (ii) by a nominee of DTC to DTC or another nominee of DTC; or (iii) by
DTC or any such nominee to a successor or a nominee of such successor.
Ownership of beneficial interests in a Global Note will be limited to
persons that have accounts with DTC for such Global Note ("participants") or
persons that may hold interests through participants. Upon the issuance of a
Global Note, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with the respective principal amounts of the
Debt Securities represented by such Global Note beneficially owned by such
participants. Ownership of beneficial interests in such Global Notes will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such laws may limit or impair the ability to own, transfer or pledge
beneficial interests in the Global Notes.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole owner or Holder
of the Debt Securities represented by such Global Note for all purposes under
the Indenture. Except as set forth below, owners of beneficial interests in a
Global Note will not be entitled to have Debt Securities represented by such
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of such Debt Securities in certified form and will not
be considered the registered owners or Holders thereof under the Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must rely
on the procedures of DTC and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a Holder under the Indenture. The Issuer understands that
under existing industry practices, if the Issuer requests any action of Holders
or if an owner of a beneficial interest in a Global Note desires to give or take
any action that a Holder is entitled to give or take under the Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take such action, and such participants would authorize beneficial
owners owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners holding through them.
Principal and interest payments on interests represented by a Global Note
will be made to DTC or its nominee, as the case may be, as the registered owner
of such Global Note. None of the Issuer, the Trustee or any agent of the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payment made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuer expects that DTC, upon receipt of any payment of principal or
interest in respect of a Global Note, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in such Global Note as shown on the records of DTC. The Issuer also
expects that payments by participants to owners of beneficial interests in the
Global Notes held through such participants will be governed by standing
customer instructions and customary practice, as is now the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participants.
If DTC is at any time unwilling or unable to continue as depository for
Debt Securities represented by a Global Note and the Issuer fails to appoint a
successor depository registered as a clearing agency
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under the Exchange Act within 90 days, the Issuer will issue such Debt
Securities in definitive from in exchange for the Global Notes. Any Debt
Securities issued in definitive form in exchange for the Global Notes will be
registered in such name or names, and will be issued in denominations of $1,000
and such integral multiples thereof, as DTC shall instruct the Trustee. It is
expected that such instructions will be based upon directions received by DTC
from participants with respect to ownership of beneficial interests in the
Global Notes.
DTC has advised the Issuer of the following information regarding DTC. DTC
is a limited-purpose trust company organized under the Banking Law of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own DTC. Access to the DTC book-entry
system is also available to others, such as banks, brokers and dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
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:
- 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;
- 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;
- the liquidation preference, if any, over and above the par value of such
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 Trust;
- 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;
- 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 Trust upon the voluntary or involuntary
dissolution or liquidation of the Trust;
- a description of the voting rights, if any, of the Preferred Shares; and
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- other preferences, rights, qualifications or restrictions or material
terms of such Preferred Shares.
The Maryland Real Estate Investment Trust Law and the Trust's Declaration
of Trust provide that no shareholder shall be personally liable for any
obligation of the Trust. The Trust's Declaration of Trust and By-laws further
provide that the Trust 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.
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.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Trust, rank (i) senior to all classes or series
of Common Shares of the Trust, and to all equity securities ranking junior to
such Preferred Shares; (ii) on a parity with all equity securities issued by the
Trust the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Shares; and (iii) junior to all equity securities
issued by the Trust the terms of which specifically provide that such equity
securities rank senior to the Preferred Shares. The term "equity securities"
does not include convertible debt securities for this purpose.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Trust (the "Board of
Trustees"), out of assets of the Trust legally available for payment, cash
dividends (or dividends in kind or in other property if expressly permitted and
described in the applicable Prospectus Supplement) at such rates and on such
dates as will be set forth in the applicable Prospectus Supplement. Each such
dividend shall be payable to holders of record as they appear in the shareholder
records of the Trust at the close of business on such record dates as shall be
fixed by the Board of Trustees.
Dividends on any series of Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees fails to declare a
dividend payable on a dividend payment date on any series of the Preferred
Shares for which dividends are non-cumulative, then the holders of such series
of the Preferred Shares will have no right to receive a dividend in respect of
the dividend period ending on such dividend payment date, and the Trust will
have no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
Unless otherwise specified in the Prospectus Supplement, if any Preferred
Shares of any series are outstanding, no full dividends shall be declared or
paid or set apart for payment on any capital shares of the Trust of any other
series ranking, as to dividends, on a parity with or junior to the Preferred
Shares of such series for any period unless (i) if such series of Preferred
Shares has a cumulative dividend, full
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cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such payment
on the Preferred Shares of such series for all past dividend periods and the
then current dividend period or (ii) if such series of Preferred Shares does not
have a cumulative dividend, full dividends for the then current dividend period
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series. When dividends are not paid in full (or a sum sufficient
for such full payment is not so set apart) upon Preferred Shares of any series
and the shares of any other series of Preferred Shares ranking on a parity as to
dividends with the Preferred Shares of such series, all dividends declared upon
Preferred Shares of such series and any other series of Preferred Shares ranking
on a parity as to dividends with such Preferred Shares shall be declared pro
rata so that the amount of dividends declared per share of Preferred Shares of
such series and such other series of Preferred Shares shall in all cases bear to
each other the same ratio that accrued dividends per share on the Preferred
Shares of such series (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Shares do not have
a cumulative dividend) and such other series of Preferred Shares bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other capital shares
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or other
distribution upon the Common Shares, or any other capital shares of the Trust
ranking junior to or on a parity with the Preferred Shares of such series as to
dividends or upon liquidation, nor shall any Common Shares, or any other capital
shares of the Trust ranking junior to or on a parity with the Preferred Shares
of such series 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 Trust
(except by conversion into or exchange for other capital shares of the Trust
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Trust, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Trust in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of capital shares of the Trust, the terms of such
Preferred Shares may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Shares shall
automatically and mandatorily be converted into the applicable capital shares of
the Trust pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
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Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all Preferred
Shares of any series shall have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the current dividend period and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
of the Preferred Shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
any series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Trust or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series. In addition, unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividends periods and the then current dividend period, and (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on the Preferred Shares of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Trust shall not
purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for capital shares of the
Trust ranking junior to the Preferred Shares of such series as to dividends and
upon liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of Preferred Shares of such series to preserve the REIT
status of the Trust or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the Trust
and such shares may be redeemed pro rata from the holders of record of such
shares in proportion to the number of such shares held or for which redemption
is requested by such holder (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by the Trust.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
the Trust. Each notice shall state: (i) the redemption date; (ii) the number and
series of Preferred Shares to be redeemed; (iii) the place or places where the
Preferred Shares are to be surrendered for payment of the redemption price; (iv)
that dividends on the shares to be redeemed will cease to accrue on the
redemption date; and (v) the date upon which the holder's conversion rights, if
any, as to such shares shall terminate. If fewer than all of the Preferred
Shares of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of Preferred Shares to be redeemed from
such holder. If notice of redemption of any Preferred Shares has been given and
if the funds necessary for such redemption have been set aside by the Trust from
and after the redemption date dividends will cease to accrue on such Preferred
Shares, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Trust, then, before any distribution or payment shall be made
to the holders of any Common Shares or any other class or series of capital
shares of the Trust ranking junior to the Preferred Shares in the distribution
of assets upon any liquidation, dissolution or winding up of the Trust, the
holders of each series of Preferred Shares shall be entitled to receive out of
the assets of the Trust legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Shares do not have a cumulative dividend). After payment of the full amount of
the liquidating
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distributions to which they are entitled, the holders of Preferred Shares will
have no right or claim to any of the remaining assets of the Trust. In the event
that, upon any such voluntary or involuntary liquidation, dissolution or winding
up, the available assets of the Trust are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of
capital shares of the Trust ranking on a parity with the Preferred Shares in the
distribution of assets, then the holders of the Preferred Shares and all other
such classes or series of capital shares shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Trust shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Shares upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Trust with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Trust, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Trust.
VOTING RIGHTS
Holders of Preferred Shares will not have any voting rights except as
indicated in the applicable Prospectus Supplement.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of Common Shares
into which the Preferred Shares are convertible, the conversion price (or manner
of calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred Shares or the
Trust, the events requiring an adjustment of the conversion price and provisions
affecting conversion in the event of the redemption of such series of Preferred
Shares.
SHAREHOLDER LIABILITY
As discussed above under "Description of Preferred Shares -- General,"
applicable Maryland law provides that no shareholder, including holders of
Preferred Shares, shall be personally liable for the acts and obligations of the
Trust and that the funds and property of the Trust shall be the only recourse
for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
For the Trust to qualify as a REIT under the Internal Revenue Code of 1986,
as amended (the "Code"), the issued and outstanding Common Shares and Preferred
Shares (together, the "Shares"), taken as a whole, 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 Trust to
continue to qualify as a REIT, the Trust's 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 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,
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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 Trust
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 may require such opinions
of counsel, affidavits, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure the Trust'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 Trust being "closely held"
within the meaning of Section 856(h) of the Code, shall be null and void, and
the intended transferee will acquire no rights to the Shares. The 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 Trust 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 Trust 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 Trust 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 Trust, in its capacity as trustee, 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 Trust, in its
capacity as trustee, 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 Trust 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 Trust exercises its right to
purchase. Fair market value shall be the last reported sales price reported on
the New York Stock Exchange ("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. The Trust'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 Trust that such Shares have been transferred in
violation of the provisions of the Trust's Declaration of Trust shall be repaid
to the Trust 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 Trust, to have
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acted as an agent on behalf of the Trust in acquiring such Excess Shares and to
hold such Excess Shares on behalf of the Trust.
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 Trust by
January 31 of each year. In addition, each shareholder shall be required upon
demand to disclose to the Trust 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 comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
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 Certificate will be filed with
the Commission as an exhibit to or incorporated by reference in the Registration
Statement.
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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:
- if the Warrants are offered for separate consideration, the offering
price and the currency for which Warrants may be purchased;
- 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;
- if applicable, the number 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;
- the date, if any, on and after which the offered Warrants and the related
Preferred Shares and/or Common Shares will be separately transferable;
- the date on which the right to exercise the offered Warrants shall
commence and the date on which such right shall expire ("Expiration
Date");
- 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;
- 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;
- any applicable anti-dilution provisions;
- any applicable redemption or call provisions;
- any applicable book-entry provisions; and
- 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
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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 intended as tax advice. The tax treatment of a holder of any of the
Securities will vary depending on the terms of the specific Securities acquired
or held by such holder as well as such holder's particular situation, and this
summary is addressed only to holders that hold Securities as capital assets and
does not attempt to address all aspects of federal income taxation relating to
holders of the Securities. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to certain types of holders (including
insurance companies, tax-exempt entities, financial institutions or broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States) who are subject to special treatment under the federal income
tax laws.
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
Management of 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 it 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 LLP 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 LLP 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 LLP.
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
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Trust will be subject to federal income or excise 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 and, effective for the Trust's taxable year ending December
31, 1998 and thereafter, dispositions of property that occur due to involuntary
conversion), 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 an amount equal to (i) the gross income attributable to the greater of
the amount by which the Trust fails the 75% test or the 95% test in the taxable
year, multiplied by (ii) 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
corporation, where some or all of the gain from the taxable disposition of the
asset would have been taxable to the corporation 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 such 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 in the case of assets acquired from a C
corporation), such gain will be subject to tax at the Trust level 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 or the temporary or final regulations
issued under Section 337(d) of the Code.
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. 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 and certain other
attribution rules will apply.
The Trust has satisfied and will continue to satisfy conditions (1) through
(6) above. In making the "five or fewer individuals" 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
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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
Declaration of Trust, filed as an exhibit to a report 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. Effective for the Trust's taxable year ending December 31,
1998, a qualified REIT subsidiary is any corporation 100% of the stock of which
is held by the REIT, regardless of whether the REIT has held such corporation's
stock at all times during its existence. 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 (as defined below) 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. Thus, the Trust's proportionate share of the assets, liabilities and
items of income of the Operating Partnership and the other partnerships through
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 two 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. For taxable years
ending on or before December 31, 1997, 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, although a payment of
rent 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 to permit 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, directly or through the
applicable ownership attribution rules, owns 10% or more, by voting power or
value, 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
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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, other than services
usually and customarily rendered in connection with the rental of space for
occupancy only.
For taxable years beginning after December 31, 2000, rent received from a
taxable REIT subsidiary will, under certain circumstances, qualify as rents from
real property even if the Trust owns more than 10% of the voting power or value
of such subsidiary.
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.
Effective for the Trust's taxable years beginning on or after January 1,
1998, the Trust is permitted to render a de minimis amount of impermissible
services to tenants, or in connection with the management of a property
(together, "Impermissible Services"), without otherwise qualifying rents from
the property being classified as not "rents from real property." In order to
qualify for this de minimis exception, the amount received by the Trust for
Impermissible Services with respect to any property for any taxable year may not
exceed 1% of all amounts received or accrued by the Trust during such taxable
year with respect to such property. For purposes of the foregoing, the amount
treated as "received" by the Trust for Impermissible Services will not be less
than 150% of the Trust's direct cost in rendering such service. However, the
amount of any income that the Trust receives for Impermissible Services will not
be treated as "rents from real property" for purposes of the gross income tests.
The Trust does not believe that the level of its gross income from Impermissible
Services, if any, would cause the Trust to violate the 1% safe harbor as to any
property.
The Operating Partnership may receive fees in consideration of the
performance of management and administrative services with respect to any
properties that are not owned entirely by the Operating Partnership. Although a
portion of such management and administrative fees generally will not constitute
"qualifying income" for purposes of the 75% and 95% gross income tests, the
Trust Management believes that the aggregate amount of such fees, if any (plus
any income from Impermissible Services and other nonqualifying income), in any
taxable year will not cause the Trust to fail the 75% and 95% gross income
tests.
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 net 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.
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
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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.
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 government 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 (other than 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). This rule was amended recently to allow REITs to have a greater
percentage ownership of the stock of "taxable REIT subsidiaries."
For taxable years beginning after December 31, 2000, not more than 20% of
the Trust's total assets may constitute securities issued by taxable REIT
subsidiaries, and of the investments included in the 25% asset class, the value
of any one issuer's securities, other than securities issued by another REIT or
by a taxable REIT subsidiary, 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 the vote
or value of the outstanding securities of any one issuer, except for issuers
that are taxable REIT subsidiaries. For these purposes, a taxable REIT
subsidiary is any corporation in which the Trust owns an interest, that joins
with the Trust in making an election to be treated as a taxable REIT subsidiary,
and that does not engage in certain activities.
The Operating Partnership owns 8.0% of the voting common stock and 100% of
the non-voting common stock of Liberty Property Development Corp. ("Liberty
Development") and none of the voting common stock and 100% of the non-voting
common stock of Liberty Property Development Corp.-II ("Development-II" and,
together with Liberty Development, the "Development Companies"). By virtue of
its ownership of partnership interests in the Operating Partnership, the Trust
owns its pro rata shares of the common stock of the Development Companies. The
Operating Partnership does not own more than 10% of the voting securities of
either of the Development Companies and, therefore, the Trust will not own more
than 10% of the voting securities of either of the Development Companies. The
IRS could contend that the Trust, through its interest in the Operating
Partnership, should be viewed as owning more than 10% of the voting securities
of either of the Development Companies because of its substantial economic
positions in the Development Companies and because of the close business
relationships between it and each of the two Development Companies. 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 respective Boards of Directors of the Development Companies, and there is
no understanding or arrangement permitting the Trust to exercise voting power or
control over the voting common stock of either of the Development Companies not
owned by it. Accordingly, Wolf, Block, Schorr and Solis-Cohen LLP and the Trust
do not believe that the Trust will be viewed as owning in excess of 10% of the
voting securities of either of the Development Companies. 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 respective
pro rata shares of the securities of the Development Companies held by the
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Operating Partnership do 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 LLP, 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 values of the Development Companies. The 5%-of-value
requirement must be satisfied each time the Trust increases its ownership of
securities of either of the Development Companies (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 either of the Development Companies.
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
To qualify as a REIT, the Trust 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% (90% for taxable years beginning after December 31, 2000)
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% (90% for
taxable years beginning after December 31, 2000) 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% (90% for
taxable years beginning after December 31, 2000), 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 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.
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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.
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 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.
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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. 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 LLP
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 permitted 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 Solis-Cohen LLP, 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.
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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 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
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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 Treasury Regulations to be issued, the tax rates
applicable to such capital gain will likely vary depending on the precise amount
of time such interest has been held by the Trust and the nature of the Operating
Partnership's property.
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), and may result in
capital gain distributions to the shareholders. See "-- Taxation of Taxable
Domestic Shareholders," below.
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. 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. Complete assurance cannot be given, however, that the Trust will be
able to avoid
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owning property that may be characterized as property held "primarily for sale
to customers in the ordinary course of business."
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Trust qualifies as a REIT, distributions made to the Trust'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 gain from the sale or exchange of a
capital asset held for more than one year (to the extent they do not exceed the
Trust's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its stock. Subject to certain
limitations, the Trust may further designate capital gain dividends as a "20%
rate gain distribution" or an "unrecaptured section 1250 gain distribution," in
which case such dividends will be taxable to recipient individual shareholders
when received at tax rates of 20% and 25%, respectively. 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 short-term,
mid-term or long-term capital gain (depending on the length of time the shares
have been held) assuming the shares are a capital asset in the hands of the
shareholder. In addition, any dividend declared by the Trust 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 Trust and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Trust 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 Trust.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of common shares equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the shareholder's adjusted basis of such common shares. Subject to certain
exceptions, the maximum rate of tax on net capital gains of individuals, trusts
and estates from the sale or exchange of capital assets held for more than one
year is 20%. Any loss upon a sale or exchange of shares by a shareholder who has
held such shares for six months or less (after applying certain holding-period
rules) will be treated as a long-term capital loss to the extent of
distributions from the Trust required to be treated by such shareholder as
long-term capital gain.
Effective for its taxable years beginning on or after January 1, 1998, the
Trust may elect to retain its net long-term capital gains recognized during a
taxable year ("Retained Gains") and pay a corporate-level tax on such Retained
Gains. Corporations are currently subject to a maximum 35 percent tax on
recognized capital gains. A shareholder owning the Trust's shares of beneficial
interest on December 31 of any taxable year in which the Trust has Retained
Gains would be required to include in gross income such shareholder's
proportionate share of the Retained Gains (as designated by the Trust in a
notice mailed to shareholders within 60 days following the end of the taxable
year). The amount of any corporate-level tax paid by the Trust in respect of the
Retained Gains (the "Trust Tax") would be treated as having been paid by the
shareholders of the Trust and each shareholder would receive a credit for such
shareholder's share of the Trust Tax. A shareholder's basis in his shares of
beneficial interest would increase by the excess of such shareholder's
proportionate share of the Retained Gains over the shareholder's share of the
Trust Tax. Unless the Retained Gains were treated as actually distributed, it is
possible that the Retained Gains might be subject to the Excise Tax.
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BACKUP WITHHOLDING
The Trust 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 Trust with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Trust may be required to
withhold a portion of capital gain distributions to shareholders who fail to
certify their non-foreign status to the Trust. The United States Treasury has
recently issued final regulations (the "Final Regulations") which affect the
procedures regarding the withholding and information reporting rules discussed
above. In general, the Final Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards.
The Final Regulations are generally effective for payments made on or after
January 1, 1999, subject to certain transition rules. Prospective investors
should consult their own tax advisors concerning the adoption of the Final
Regulations and the potential effect on their ownership of common shares. See
"-- Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Generally, distributions to a tax-exempt entity from a real estate
investment trust 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
Trust 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 real estate investment trust to a
tax-exempt employee's pension fund that owns more than 10% in value of the real
estate investment trust would be treated as UBTI if the real estate investment
trust constitutes a "pension-held REIT" and if other conditions are met. In
order to constitute a "pension-held REIT" the real estate investment trust must
meet the test for classification as a real estate investment trust only because
tax-exempt pension funds are not treated as a single individual for purposes of
the "five-or-fewer" rule (see "Risk Factors -- Limitations on Changes in
Control -- Ownership Limit") and either (A) one pension fund owns more than 25%
in value of the real estate investment trust or (B) one or more pension funds
(holding at least 10% in value of the real estate investment trust each) own, in
the aggregate, more than 50% of the value of the real estate investment trust.
In addition, the gross income of the real estate investment trust 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 real estate investment trust in the taxable year in which the
distributions are made. The ownership limitations in the Trust's Declaration of
Trust (assuming no waiver by the Board of Trustees) would prevent the Trust 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 Common Shares offered hereby, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws. If income from the investment in the Common Shares offered
hereby is treated as "effectively connected" with the Non-U.S. Shareholder's
conduct of a United States trade or business
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or attributable to a permanent establishment that the Non-U.S. Shareholder
maintains in the United States that is required by an applicable income tax
treaty as a condition for subjecting the Non-U.S. Shareholder to tax on a "net
income basis," 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. Prospective investors whose investment in common shares may
be "effectively connected" with the conduct of a United States trade or business
should consult their own tax advisors as to the tax consequences thereof.
Distributions by the Trust that are not attributable to gain from sales or
exchanges by the Trust of United States real property interests and not
designated by the Trust 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 Trust. 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
Trust will not be taxable to a shareholder to the extent that such distributions
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 distributions in
excess of current 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 Trust, as described
below. The Trust 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 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 W 8-ECI with the Trust 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 Trust. 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. Effective for
distributions made after August 20, 1996, the Trust is obligated to withhold 10%
of the amount of any distribution in excess of the Trust'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 Trust and the amount withheld exceeded
the Non-U.S. Shareholders' United States tax liability, if any.
For any year in which the Trust qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Trust 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
domestic shareholders (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals),
without regard to whether such distributions are designated by the Trust as
capital gain dividends. 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 Trust is required by applicable income tax
regulations that have been promulgated under the Code (the "Treasury
Regulations") to withhold 35% of any distribution that could be designated by
the Trust 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 Trust is a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the stock was held directly or indirectly by
foreign persons. The Trust currently is a "domestically controlled REIT," and
anticipates continuing to be
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so classified, and therefore the sale of the common shares offered hereby should
not be subject to taxation under FIRPTA. However, because the common shares will
be publicly traded, no assurance can be given that the Trust will continue to so
qualify. Notwithstanding the foregoing, any gain not otherwise 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 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 or maintains an office or a fixed place of business
in the United States to which the gain is attributable, 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 common 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, (c) a foreign partnership which is owned 50% or
more by United States persons or is engaged in United States trade or business,
(d) a United States branch of a foreign bank or foreign insurance company, or
(e) 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 the Non-U.S. Shareholder is otherwise entitled to an exemption. The Final
Regulations, issued by the United States Treasury on October 6, 1997, affect the
rules applicable to payments to foreign persons. In general, the Final
Regulations do not alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
and modify reliance standards. The Final Regulations also address certain issues
relating to intermediary certification procedures designed to simplify
compliance by withholding agents. The Final Regulations are generally effective
for payments made on or after January 1, 2001, subject to certain transition
rules. Prospective investors should consult their own tax advisors concerning
the adoption of the Final Regulations and the potential effect on their
ownership of the common shares.
TAXATION OF HOLDERS OF DEBT SECURITIES
As used herein, the term "U.S. Holder" means a holder of a Debt Security
who (for United States Federal income tax purposes) is (i) a citizen or resident
of the United States, (ii) a domestic corporation, (iii) an estate, the income
of which is subject to United States federal income tax without regard to its
source, (iv) a Trust if a court within the United States is able to exercise
primary supervision over the administration of the Trust and one or more United
States persons have the authority to control all substantial decisions of the
Trust, or (v) any other person who is subject to United States Federal income
taxation on a net income basis with respect to a Debt Security and "U.S. Alien
Holder" means a holder of a Debt Security who is not a U.S. Holder. In the case
of a holder of a Debt Security that is a partnership for United States tax
purposes, and each partner will take into account its allocable share of income
or loss from the Debt Security, and will take such income or loss into account
under the rules of taxation applicable to such partner, taking into account the
partnership and the partner.
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U.S. HOLDERS
Payments of Interest
Interest on a Debt Security will be taxable to a U.S. Holder as ordinary
income at the time it is received or accrued, depending on the U.S. Holder's
method of accounting for tax purposes.
Purchase, Sale and Retirement of the Debt Securities
A U.S. Holder's tax basis in a Debt Security will generally be its U.S.
dollar cost.
A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and the U.S. Holder's tax basis in the Debt
Security. Except to the extent attributable to accrued but unpaid interest, gain
or loss recognized on the sale or retirement of a Debt Security will be capital
gain or loss, will be a long-term capital gain or loss if the Debt Security was
held for more than one year and may be eligible for a reduced rate of tax if the
Debt Security was held for more than 18 months and in certain other
circumstances.
U.S. ALIEN HOLDERS
This discussion assumes that the Debt Security is not subject to the rules
of Section 871(h)(4)(A) of the Code (relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party).
Under present United States Federal income and estate tax law, and subject
to the discussion of backup withholding above:
(i) payments of principal, premium (if any) and interest by the
Operating Partnership or any of its paying agents to any holder of a Debt
Security that is a U.S. Alien Holder will not be subject to United States
Federal withholding tax if, in the case of interest (a) the beneficial
owner of the Debt Security does not actually or constructively own 10% or
more of the capital or profits interest in the Operating Partnership, (b)
the beneficial owner of the Debt Security is not a controlled foreign
corporation that is related to the Operating Partnership through stock
ownership, and (c) either (A) the beneficial owner of the Debt Security
certifies to the Operating Partnership or its agent, under penalties of
perjury, that it is not a U.S. person and provides its name and address or
(B) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") and holds the Debt Security certifies
to the Operating Partnership or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof;
(ii) a U.S. Alien Holder of a Debt Security will not be subject to
United States Federal withholding tax on any gain realized on the sale or
exchange of a Debt Security; and
(iii) a Debt Security held by an individual who at death is not a
citizen or resident of the United States will not be includible in the
individual's gross estate for purposes of the United States Federal estate
tax as a result of the individual's death if (a) the individual did not
actually or constructively own 10% or more of the capital or profits
interest in the Operating Partnership, and (b) the income on the Debt
Security would not have been effectively connected with a United States
trade or business of the individual at the time of the individual's death.
Special rules may apply in the case of U.S. Alien Holders (i) that are
engaged in a United States trade or business, (ii) that are former citizens or
long term residents of the United States, "controlled foreign corporations,"
"foreign personal holding companies," corporations which accumulate earnings to
avoid United States Federal income tax, and certain foreign charitable
organizations, each within the meaning of the Code, or (iii) certain
non-resident alien individuals who are present in the United States for 183 days
of more during a taxable year. Such persons are urged to consult their own tax
advisors before purchasing a Debt Security.
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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 of 1933, as amended (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, including any underwriting discounts and other items constituting
compensation of the underwriters and dealers, if any, 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. The securities will be acquired by the
underwriters for their own accounts and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
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. The name of the dealer and the terms of the transaction
will be identified in the applicable Prospectus Supplement.
If an agent is used in an offering of securities being offered by this
Prospectus, the agent will be named, and the terms of the agency will be
described, in the applicable Prospectus Supplement relating to the offering.
Unless otherwise indicated in the Prospectus Supplement, an agent will act on a
best efforts basis for the period of its appointment.
If indicated in the applicable Prospectus Supplement, the issuer(s) of the
Securities to which the Prospectus Supplement relates will authorize
underwriters or their other agents to solicit offers by certain institutional
investors to purchase Securities from the issuer(s) pursuant to contracts
providing for payment and delivery at a future date. Institutional investors
with which these contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others. In all cases, these purchasers must be
approved by the issuer(s) of the Securities. The obligations of any purchaser
under any of these contracts will not be subject to any conditions except that
(a) the purchase of the securities must not at the time of delivery be
prohibited under the laws of any jurisdiction to which that purchaser is subject
and (b) if the securities are also being sold to underwriters, the issuer(s)
must have sold to these underwriters the securities not subject to delayed
delivery. Underwriters and other agents will not have any responsibility in
respect of the validity or performance of these contracts.
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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.
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 any
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.
The anticipated date of delivery of the Securities offered by this
Prospectus will be described in the applicable Prospectus Supplement relating to
the offering. The Securities offered by this Prospectus may or may not be listed
on a national securities exchange or a foreign securities exchange. We cannot
give any assurances that there will be a market for any of the Securities
offered by this Prospectus and any Prospectus Supplement.
We estimate that the total expenses we will incur in offering the
Securities to which this Prospectus relates, excluding underwriting discounts
and commissions, if any, will be approximately $1,060,000.
LEGAL OPINIONS
Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania, has
rendered an opinion with respect to the legality of the Securities to be issued
by the Operating Partnership. Saul, Ewing, Remick & Saul LLP, 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 LLP, 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, the Trust's United
Kingdom affiliate.
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EXPERTS
The consolidated financial statements and schedule of Liberty Property
Trust and Liberty Property Limited Partnership appearing in Liberty Property
Trust's and Liberty Property Limited Partnership's Annual Reports (Form 10-K)
for the year ended December 31, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such financial statements and schedule are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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$200,000,000
LIBERTY PROPERTY
LIMITED PARTNERSHIP
8.50% Senior Notes Due 2010
-------------------------
PROSPECTUS SUPPLEMENT
July 26, 2000
-------------------------
LEHMAN BROTHERS
BANC ONE CAPITAL MARKETS, INC.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
[MAP WATERMARK]
