Filed Pursuant to Rule 424(b)5
Registration No. 333-24017
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 17, 1997)
1,800,000 SHARES
FIRST WASHINGTON REALTY TRUST, INC.
COMMON STOCK
------------
First Washington Realty Trust, Inc. (the "Company") engages in the
acquisition, management, renovation and development of principally
supermarket-anchored neighborhood shopping centers. The Company is a
fully-integrated, self-administered and self-managed real estate company that
operates as a real estate investment trust (a "REIT"). As of June 30, 1997, the
Company owned a portfolio of 39 retail properties, and the Company expects to
complete the acquisition of seven additional retail properties within 30 days
following the Offering. The 46 retail properties contain a total of
approximately 5.0 million square feet of gross leasable area. The Company also
manages properties owned by third parties.
All of the shares of common stock offered hereby ("Common Stock") are being
offered by the Company (the "Offering"). To assist the Company in maintaining
its qualification as a REIT, transfer of the Common Stock and the Company's
outstanding 9.75% Series A Cumulative Participating Convertible Preferred Stock
(the "Convertible Preferred Stock") is restricted, and actual or constructive
ownership by any person is limited to 9.8% of the outstanding shares of such
class of stock, subject to certain exceptions.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol FRW. On September 16, 1997, the last reported sale price of the
Common Stock on the NYSE was $24.6875 per share. Since inception the Company has
paid regular quarterly distributions of $.4875 on its Common Stock, representing
an annualized distribution per share of $1.95. See Price Range of the Common
Stock and Distributions.
------------
SEE "RISK FACTORS" INCORPORATED BY REFERENCE INTO THE ACCOMPANYING
PROSPECTUS FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K FILED ON SEPTEMBER 10,
1997 FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------ -------------- ----------
Per share ........ $24.00 $1.26 $22.74
Total(3) ......... $43,200,000 $2,268,000 $40,932,000
- ----------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. "See Underwriting."
(2) Before deducting expenses of the Offering, estimated at $100,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
270,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $49,680,000,
$2,608,200 and $47,071,800, respectively. See "Underwriting."
------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and to the
right of the Underwriters to reject any order in whole or in part, and to
certain other conditions. It is expected that delivery of the shares of Common
Stock will be made at the offices of BT Alex. Brown Incorporated, Baltimore,
Maryland, on or about September 22, 1997.
BT ALEX. BROWN
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
SALOMON BROTHERS INC
TUCKER ANTHONY
INCORPORATED
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 17, 1997.
<PAGE>
THE UNDERWRITERS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED HEREBY. SUCH TRANSACTIONS
MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER A SYNDICATE SHORT
POSITION AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
The following information contained in this Prospectus Supplement is
qualified in its entirety by the detailed information appearing elsewhere in
this Prospectus Supplement, the accompanying Prospectus or incorporated therein
by reference. Unless indicated otherwise, all information in this Prospectus
Supplement assumes that the Underwriters' over-allotment option is not exercised
and assumes the offering price set forth on the cover of this Prospectus
Supplement. Capitalized terms used but not defined herein shall have the
meanings given such terms in the accompanying Prospectus. Although the Company,
the Operating Partnership, the Lower Tier Partnerships, and the Management
Company are separate entities, each of which is managed in accordance with its
governing documents, for ease of reference the term "Company" as used herein
shall refer to the business and properties of the Company, the Operating
Partnership, the Lower Tier Partnerships, and the Management Company, unless the
context indicates otherwise.
THE COMPANY
First Washington Realty Trust, Inc. (the "Company") is a fully integrated,
self-administered and self-managed real estate company that operates as a REIT
with expertise in the acquisition, management, renovation and development of
principally supermarket-anchored neighborhood shopping centers. As of June 30,
1997, the Company owned a portfolio of 39 retail properties (the "Existing
Retail Properties"). The Company expects to complete the acquisition of seven
additional retail properties within 30 days following the closing of the
Offering (the "New Retail Properties," and together with the Existing Retail
Properties, the "Retail Properties"). The Retail Properties contain a total of
approximately 5.0 million square feet of gross leasable area ("GLA"). The
Company also owns two multifamily properties in the Mid-Atlantic region (the
"Multifamily Properties") (the Retail Properties and the Multifamily Properties
are collectively referred to as the "Properties").
The Company's business strategy is highly focused with respect to property
type and location. The Company concentrates its efforts on supermarket-anchored
neighborhood shopping centers. The Company generally seeks to own properties
located in densely populated areas, that have high visibility, open-air designs
and ease of entry and exit, and that may be readily adaptable over time to
expansion, renovation and redevelopment.
The Retail Properties are strategically located neighborhood shopping
centers, principally anchored by well-known tenants such as Safeway, Food Lion,
Giant Food, Shoppers Food Warehouse, Dominick's Supermarkets, Omni Superstore,
Weis Markets, Rite Aid, A&P Superfresh, CVS/Pharmacy, Winn Dixie and Acme
Markets. As of June 30, 1997, national and regional tenants accounted for
approximately 69.8% of leased GLA and approximately 65.3% of annualized minimum
rents for the Retail Properties. The anchor tenants at the Retail Properties
typically offer daily necessity items. Management believes that anchor tenants
offering daily necessity items help to generate regular consumer traffic and to
provide economic stability.
Since December 31, 1992, the occupancy rate for the Existing Retail
Properties (during the respective periods each such property was owned by the
Company) has averaged approximately 95%. Average effective net rents (as
measured by base rent divided by square feet leased, excluding vacant space)
increased from $9.07 per square foot as of December 31, 1992 to $10.78 as of
June 30, 1997.
The Company manages and leases all of the Existing Retail Properties and
will manage and lease the New Retail Properties. In addition, the Company
provides management, leasing and related services for third parties. As of June
30, 1997, the Company provided management, leasing and related services to
third-party clients for 30 shopping centers containing approximately 3.2 million
square feet of GLA.
S-1
<PAGE>
RECENT DEVELOPMENTS
New Retail Properties. The Company expects to expand its geographic
diversification with the acquisition of six supermarket-anchored neighborhood
shopping centers located in the Chicago metropolitan area. These acquisitions
are consistent with the Company's strategy of acquiring neighborhood shopping
centers located in and around large densely-populated metropolitan areas. The
following table sets forth certain information with respect to all seven of the
New Retail Properties. No assurance can be given that the Company will
consummate any or all of the following acquisitions.
PURCHASE GLA
NAME LOCATION PRICE (SQ. FT.)
- ---- -------- -------- ---------
McHenry Commons................ McHenry, IL $ 7,988,354 100,526
Mallard Creek.................. Round Lake Beach, IL 12,650,439 143,759
The Oaks....................... Des Plaines, IL 13,517,642 138,274
Riverside Square/River's Edge.. Chicago, IL 13,236,618 169,434
Pheasant Hill Plaza............ Bolingbrook, IL 9,329,792 111,190
Stonebrook Plaza............... Merrionette Park, IL 7,728,907 95,825
Mitchellville Plaza............ Mitchellville, MD 19,000,000 155,674
-----------
Total...................... $83,451,752(1) 914,682
=========== =======
- ----------
(1) This amount includes assumption of approximately $57.5 million of mortgage
indebtedness and the issuance of approximately 1,022,000 common units of
limited partnership interest in the Operating Partnership redeemable for
cash (or, at the option of the Company, exchangeable for shares of Common
Stock on a one-for-one basis) ("Common Units") with a market value as of the
date each purchase agreement was executed of approximately $24.0 million.
Recent Acquisitions. The following table sets forth certain information
with respect to the seven Retail Properties acquired since December 1, 1996:
PURCHASE GLA
NAME LOCATION PRICE (SQ. FT.)
- ---- -------- -------- -------
Ashburn Farm Village Center(1). Ashburn, VA $ 9,185,000 88,942
City Line Shopping Center(2)... Philadelphia, PA 13,150,000 153,899
Four Mile Fork Shopping Center. Fredericksburg, VA 5,700,000 101,262
Kings Park Shopping Center..... Burke, VA 5,700,000 76,212
Newtown Square Shopping Center. Newtown Square, PA 11,700,000 137,569
Northway Shopping Center....... Millersville, MD 9,000,000 91,276
Shoppes of Graylyn............. Wilmington, DE 7,200,000 65,476
----------- -------
Total...................... $61,635,000(3) 714,636
=========== =======
- ----------
(1) The Company is obligated to issue to the seller additional Common Units
with a value of up to $480,060 upon the earlier of the leasing or sale of a
pad site on the property, or March 1, 2000.
(2) The Company owns an 89% interest in this property. The seller of City Line
Shopping Center has retained an 11% interest which it is obligated to
transfer to the Company and which the Company is obligated to acquire in
January, 2000 in exchange for Common Units. In addition, the Company is
obligated to issue to the seller additional Common Units with a value of up
to $750,000 if certain portions of this property are re-leased any time
before January, 2000 at rental rates higher than rates as of the closing of
the acquisition of the property.
(3) This amount includes assumption of $27.9 million of mortgage indebtedness
and the issuance of 283,000 Common Units and 9,538 exchangeable preferred
units of limited partnership interest in the Operating Partnership
redeemable for cash (or, at the option of the Company, exchangeable for
shares of Convertible Preferred Stock on a one-for-one basis)
("Exchangeable Preferred Units") with a market value as of the date of each
acquisition of approximately $6.3 million.
S-2
<PAGE>
THE OFFERING
Common Stock offered hereby ......................... 1,800,000 shares
Common Stock to be outstanding after the Offering(1).. 7,023,013 shares
Use of proceeds ..................................... Repayment of outstanding
indebtedness
NYSE symbol ......................................... FRW
- ----------
(1) Does not reflect: (i) 6,894,237 shares of Common Stock issuable upon
exchange or conversion of Common Units, including 1,022,000 Common Units
issued or to be issued in connection with the acquisition of the New Retail
Properties, Series A Cumulative Participating Convertible Preferred Stock of
the Company (Convertible Preferred Stock), Exchangeable Preferred Units,
Exchangeable Debentures (as defined below) and exchange of a convertible
note, or (ii) 887,320 shares of Common Stock reserved for issuance under the
Company's employee benefit plans.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, after payment of all expenses of the Offering, are estimated to be
approximately $40.8 million ($47.0 million if the Underwriters' over-allotment
option is exercised in full). The net cash proceeds of the Offering will be used
to repay existing indebtedness (with a weighted average interest rate of 7.8%
and a weighted average term to maturity of 3.7 years from June 30, 1997). The
foregoing represent estimates, and the actual amount and timing of such use of
proceeds will depend upon numerous factors. Pending such uses, the Company
intends to invest such net proceeds in short-term, income-producing investments
which are consistent with the Company's intention to qualify for taxation as a
REIT.
Any net proceeds from the exercise of the Underwriters' over-allotment
option will be invested as described above. These funds will be used to develop
or acquire additional properties (including expansion and redevelopment of the
Properties) consistent with the Company's investment policies and growth
strategies.
PROPERTIES
The Company engages in the acquisition, management and renovation of
neighborhood shopping centers. As of June 30, 1997, the Company owned a
portfolio of 39 retail properties containing a total of approximately 4.1
million square feet and two multifamily properties. The Company expects to
complete the acquisition of seven New Retail Properties containing a total of
approximately 915,000 square feet within 30 days following the consummation of
the Offering. However, no assurance can be given that the acquisition of any or
all of the New Retail Properties will be consummated. All references to net rent
per square foot are calculated without giving effect to vacant space, unless
otherwise specified.
S-3
<PAGE>
The following table sets forth certain information relating to the
Properties as of June 30, 1997:
FIRST WASHINGTON REALTY TRUST, INC.
PROPERTY SUMMARY TABLE
<TABLE>
<CAPTION>
YEAR GLA NUMBER
YEAR DEVELOPED OR LAND AREA (SQ. FT. OR OF
LOCATION OF PROPERTY BUILT ACQUIRED (ACRES) UNITS) TENANTS
-------------------- ----- ------------ --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
MARYLAND
Bryans Road Shopping Center............... Bryans Road, MD 1972 1990 11.8 118,676 19
Capital Corner Shopping Center............ Landover, MD 1987 1987 4.1 42,625 16
Clinton Square Shopping Center............ Clinton, MD 1979 1984 2.0 18,961 11
Clopper's Mill Village Shopping Center.... Germantown, MD 1995 1996 14.2 137,952 21
Festival At Woodholme..................... Baltimore, MD 1986 1995 7.1 81,027 29
Firstfield Shopping Center................ Gaithersburg, MD 1978 1995 2.4 22,504 9
Northway Shopping Center.................. Millersville, MD 1987 1996 9.6 91,276 20
Penn Station Shopping Center(1)........... District Heights, MD 1989 1987 22.5 334,970(2) 48
P.G. County Commercial Park............... Beltsville, MD 1988 1985 9.7 146,438 28
Rosecroft Shopping Center................. Temple Hills, MD 1963 1985 8.3 119,010 22
Southside Marketplace..................... Baltimore, MD 1990 1996 9.1 125,146 25
Takoma Park Shopping Center............... Takoma Park, MD 1960 1996 9.8 105,156 16
Valley Centre............................. Owings Mills, MD 1987 1994 33.0 237,449 25
VIRGINIA
Ashburn Farm Village Center............... Ashburn, VA 1996 1997 10.2 88,942 15
Brafferton Center......................... Garrisonville, VA 1974 1994 9.4 94,731 20
Centre Ridge Marketplace.................. Centreville, VA 1996 1996 10.9 104,154 6
Chesapeake Bagel Building................. Alexandria, VA 1800's 1983 0.1 11,288 16
Davis Ford Crossing....................... Manassas, VA 1988 1994 20.8 147,622 31
Four Mile Fork Shopping Center............ Fredericksburg, VA 1975 1997 10.3 101,262 18
Fox Mill Shopping Center.................. Reston, VA 1977 1994 14.0 103,269 24
Glen Lea Shopping Center.................. Richmond, VA 1969 1995 9.2 78,823 11
Hanover Village Shopping Center........... Mechanicsville, VA 1971 1995 9.5 95,331 17
Kings Park Shopping Center................ Burke, VA 1966 1996 8.6 76,212 18
Laburnum Park Shopping Center............. Richmond, VA 1988 1995 9.3 113,992(3) 27
Laburnum Square Shopping Center........... Richmond, VA 1975 1995 11.4 109,405 21
Potomac Plaza............................. Woodbridge, VA 1963 1986 5.4 85,400 15
NORTH CAROLINA
Shoppes of Kildaire....................... Cary, NC 1986 1986 14.0 148,205 28
PENNSYLVANIA
City Line Shopping Center................. Philadephia, PA 1950's-60's 1997 12.2 153,899 37
Colonial Square Shopping Center........... York, PA 1955 1990 2.9 27,488 15
Allen Street Shopping Center.............. Allentown, PA 1958 1996 4.1 46,503 13
Kenhorst Plaza Shopping Center............ Kenhorst, PA 1990 1995 19.2 164,434 26
Mayfair Shopping Center................... Philadelphia, PA 1988 1994 5.7 112,275 27
Newtown Square Shopping Center............ Newtown Square, PA 1960's-70's 1996 14.4 137,569 37
Stefko Boulevard Shopping Center.......... Bethlehem, PA 1958-60-75 1996 10.3 135,864 18
DELAWARE
First State Plaza......................... New Castle County, DE 1988 1994 21.0 162,404 20
Shoppes of Graylyn........................ Wilmington, DE 1971 1997 5.0 65,476 15
SOUTH CAROLINA
Branchwood Apartments..................... Charleston, SC 1986 1989 5.4 96 N/A
James Island Shopping Center.............. Charleston, SC 1967 1990 6.5 88,557 21
Park Place Apartments..................... Charleston, SC 1973 1990 21.2 305 N/A
WASHINGTON, D.C.
Connecticut Avenue Shops.................. Washington, DC 1954 1986 0.1 3,000 3
The Georgetown Shops(1)................... Washington, DC Late 1800s 1981-1989 0.3 22,052 11
----- --------- ---
Subtotal/Average....................... 415.0 4,059,347(4) 799
----- --------- ---
NEW RETAIL PROPERTIES
---------------------
ILLINOIS
Mallard Creek ............................ Round Lake Beach, IL 1987 1997 14.9 143,759 26
McHenry Commons .......................... McHenry, IL 1988 1997 11.5 100,526 15
Pheasant Hill Plaza ...................... Bolingbrook, IL 1983 1997 14.4 111,190 23
Riverside Square/River's Edge ............ Chicago, IL 1986 1997 17.7 169,434 22
Stonebrook Plaza ......................... Merrionette Park, IL 1984 1997 8.1 95,825 12
The Oaks ................................. Des Plaines, IL 1983 1997 16.7 138,274 23
MARYLAND
Mitchellville Plaza....................... Mitchellville, MD 1991 1997 14.6 155,674 49
----- --------- ---
Subtotal/Average....................... 97.9 914,682 170
----- --------- ---
Total/Average.......................... 512.9 4,974,029(4) 969
===== ========= ===
- ----------
<FN>
(1) Represents five historic retail shops all clustered in close proximity in
the central shopping district in Georgetown, Washington D.C.
(2) Includes Safeway (50,000 square feet) and bowling alley (40,000 square
feet) pad sites owned others.
(3) Includes Ukrops Supermarket (43,500 square feet) pad site not owned by the
Company.
(4) Total does not include multifamily properties.
</FN>
</TABLE>
S-4
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
PROPERTY SUMMARY TABLE--Continued
<TABLE>
<CAPTION>
TOTAL
ANNUALIZED AVERAGE MINIMUM RENT
MINIMUM RENT PER SQ. FT. PERCENT LEASED SIGNIFICANT TENANTS (LEASE EXPIRATION DATE)
- ---------- ----------------- -------------- -------------------------------------------
<S> <C> <C> <C>
$955,819 $ 8.54 94.4% Safeway (2014), CVS (1998)
560,040 14.90 88.2 Burger King (2007), Dollar Bills (2001), Gallo Clothing (2001)
245,712 15.39 84.2 Mattress Discounters (1997)
2,066,223 14.98 100.0 Shoppers Food Warehouse (2015), CVS (2006)
1,783,828 22.02 100.0 Pier One Imports (1999), Sutton Place Gourmet (2006)
432,607 20.60 93.3 Jerry's Sub (2010)
993,395 11.26 96.7 Metro Foods (2007), Rite Aid (1998)
2,780,413 11.78 97.3 Safeway, Service Merchandise (2006), Kid City Clothing (2003)
813,954 6.39 86.9 Montgomery Automotive (2006)
752,114 7.00 90.3 Food Lion (2015), Rite Aid (1998)
1,306,197 11.84 88.2 Metro Foods (2016), Rite Aid (2001)
782,930 8.31 89.6 Shoppers Food Warehouse (2011)
2,773,420 11.84 98.6 Weis Markets (2002), T.J. Maxx (2007), Ross (1998), Sony Theater (2005)
992,636 11.16 100.0 A&P Superfresh (20160
835,954 9.09 97.1 Giant Food (2009)
1,404,680 13.49 100.0 A&P Superfresh (2016), Sears Paint & Hardware (2007)
260,183 23.05 100.0 Chesapeake Bagel Bakery (1998)
1,612,683 12.35 88.5 Weis Markets (2010), CVS (2000)
634,557 7.27 86.2 Safeway (2000), CVS (2001)
1,332,762 13.43 96.1 Giant Food (2018)
515,847 6.54 100.0 Winn Dixie (2005), Revco (2000)
754,612 8.14 97.3 Rack 'n Sack (2008), Rite Aid (1998)
642,748 8.43 100.0 Giant Food (2013), CVS (1998)
826,243 11.72 100.0 Ukrops Supermarket, Rite Aid (2007)
806,151 7.37 100.0 Hannaford Bros. Supermarket (2013), CVS (1999)
469,598 6.29 87.4 Wall Street Buffet (2002), Aaron Rents (2001)
1,838,905 12.41 100.0 Winn Dixie (2006)
1,601,743 13.63 76.3 Acme Supermarkets (1999), Thrift Drug (1999), T J Maxx (2001)
344,450 12.68 98.8 Minich Pharmacy (1999)
528,752 11.59 98.1 Laneco Supermarket (2003), Thrift Drug (2004)
1,576,908 9.79 98.0 Redner's Supermarket (2009), Rite Aid (2000), Sears Paint & Hardware (2007)
1,326,366 11.81 100.0 Shop 'N Bag Supermarket (2013), Thrift Drug (2006)
1,358,943 10.83 91.3 Acme Supermarkets (1999), Thrift Drug (1999)
680,071 5.17 96.8 Laneco Supermarket (2003), McCrory (1998)
1,642,635 10.11 100.0 Shop Rite Supermarket (2009), Cinemark USA (2011)
789,206 12.47 96.7 Rite Aid (2016)
97.0 N/a
589,537 6.66 100.0 Piggly Wiggly Supermarket (2010), Rite Aid (1997)
95.0 N/a
159,333 53.11 100.0 N/a
417,667 18.94 100.0 Radio Shack (1999)
- ----------- -------- -----
$40,189,847 $ 10.78 95.1%(4)
- ----------- -------- -----
$ 1,438,177 $ 10.12 98.9% Omni Superstore (2008)
912,042 9.33 97.2 Omni Superstore (2008)
1,132,399 10.18 100.0 Dominick's Finer Foods (2005)
1,702,124 11.63 86.4 Dominick's Finer Foods (2017)
916,022 10.03 95.3 Dominick's Finer Foods (2005)
1,652,031 13.13 91.0 Dominick's Finer Foods (2017)
2,513,777 16.23 99.5 Food Lion (2016)
- ----------- -------- -----
$10,266,572 $ 11.81 95.1%
- ----------- -------- -----
$50,456,419 $ 10.98 95.1%(4)
=========== ======== =====
</TABLE>
S-5
<PAGE>
The following table sets forth the square footage and percentage of leased
GLA of the Retail Properties leased to anchor and other tenants, and national,
regional and local tenants as of June 30, 1997. The Company believes that anchor
tenants are those that, due to size, reputation or other factors, in the view of
the Company's management, are particularly responsible for drawing other tenants
and shoppers to the shopping center. The Company has considered tenants located
primarily in two or three states to be regional tenants; tenants with wider
distribution of stores have been treated as national tenants; and tenants
located entirely within a local area have been treated as local tenants:
<TABLE>
<CAPTION>
ANCHOR OTHER NATIONAL REGIONAL LOCAL
TENANTS TENANTS TOTAL TENANTS TENANTS TENANTS TOTAL
------- ------- ----- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Existing Retail Properties
(sq. ft.)........................ 1,614,968 2,245,957 3,860,925 1,599,176 1,046,445 1,215,304 3,860,925
New Retail Properties(sq. ft.)... 461,642 407,871 869,513 218,761 440,770 209,982 869,513
------- ------- ------- ------- ------- ------- -------
Total Leased GLA(sq. ft.)........ 2,076,610 2,653,828 4,730,438 1,817,937 1,487,215 1,425,286 4,730,438
========= ========= ========= ========= ========= ========= =========
Percentage of Total Leased GLA... 43.9% 56.1% 100.0% 38.4% 31.4% 30.1% 100.0%
</TABLE>
TENANT DIVERSIFICATION
The following table sets forth information regarding the Company's leases
with respect to the Retail Properties with its 20 largest tenants based upon
annualized minimum rents as of June 30, 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
NUMBER ANNUALIZED ANNUALIZED
GLA OF MINIMUM MINIMUM
TENANT (SQ. FT.) PROPERTIES RENT RENTS
- ------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Dominick's Finer Foods(1)..................... 416,542 6 $4,161,878 8.1%
A&P Superfresh................................ 112,168 2 1,079,656 2.1
Shoppers Food Warehouse....................... 129,113 2 1,075,280 2.1
Metro Foods................................... 93,292 2 847,121 1.6
Weis Markets.................................. 86,890 2 786,200 1.5
Rite Aid...................................... 92,168 8 692,653 1.3
Food Lion..................................... 78,100 2 677,500 1.3
Giant Food.................................... 121,518 3 606,740 1.2
CVS/Pharmacy.................................. 77,350 7 527,929 1.0
Safeway....................................... 124,851 3 485,025 0.9
Winn Dixie.................................... 79,000 2 481,500 0.9
Hollywood Video............................... 22,366 3 424,520 0.8
Redner's Supermarket.......................... 52,570 1 416,560 0.8
Shop Rite Supermarket......................... 55,244 1 386,708 0.8
Sony Theaters................................. 32,058 1 384,696 0.7
Thrift Drug................................... 38,641 4 382,014 0.7
T.J. Maxx..................................... 46,686 2 359,804 0.7
Laneco Supermarket............................ 95,075 2 329,237 0.6
Blockbuster Video............................. 17,715 3 326,109 0.6
Service Merchandise........................... 50,000 1 325,000 0.6
--------- ----------- ----
Total.................................. 1,821,347 $14,756,130 28.7%
========= =========== ====
<FN>
- -------
(1) Includes Omni Superstore which is a unit of Dominick's Finer Foods.
</FN>
</TABLE>
S-6
<PAGE>
The following table sets forth gross leasable area, occupancy, and
effective net rent per leased square foot as of the end of each of the last five
years for the Existing Retail Properties during the respective periods each such
property was owned by the Company:
GLA PERCENT AVERAGE EFFECTIVE NET RENT
PERIOD-END (SQ. FT.) LEASED PER LEASED SQ. FT.(1)
- ---------- --------- ------ ---------------------
December 31, 1992 ....... 1,185,977 94.6% $ 9.07
December 31, 1993 ....... 1,185,977 95.4 9.16
December 31, 1994 ....... 2,014,180 96.4 10.08
December 31, 1995 ....... 2,668,171 96.0 10.28
December 31, 1996 ....... 3,285,696 96.4 10.43
June 30, 1997 ........... 4,059,347 95.1 10.78
- ----------
(1) Average effective net rent per leased square foot is calculated using
weighted average rents and occupancy during the respective periods, without
giving effect to vacant space. If vacant space were included, the average
effective net rent per square foot would be $10.71 (June 30, 1997), $10.42
(December 31, 1996), $9.87 (December 31, 1995), $9.72 (December 31, 1994),
$8.74 (December 31, 1993), and $8.58 (December 31, 1992).
Lease Expirations. The following table shows lease expirations (excluding
renewal options) with respect to the Retail Properties from September 1, 1997
through 2005 and thereafter:
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AVERAGE ANNUAL
NUMBER OF GLA PERCENT OF ANNUALIZED ANNUALIZED MINIMUM RENT
YEAR LEASES (SQ. FT.) TOTAL GLA MINIMUM RENT MINIMUM RENT PER SQ. FT.
- ---- ------ --------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1997 (from September 1)....... 77 139,135 3.0% $ 1,761,640 3.5% $ 12.66
1998.......................... 184 481,076 10.5 5,016,075 9.9 10.43
1999.......................... 139 430,306 9.4 4,907,303 9.7 11.40
2000.......................... 138 411,494 9.0 4,732,896 9.3 11.50
2001.......................... 125 509,064 11.1 7,077,610 14.0 13.90
2002.......................... 83 263,044 5.7 3,374,835 6.7 12.83
2003.......................... 31 231,117 5.0 2,201,665 4.3 9.54
2004.......................... 18 74,685 1.6 1,017,565 2.0 13.62
2005.......................... 23 285,416 6.2 3,123,917 6.2 10.95
Thereafter.................... 98 1,771,601 38.5 17,467,572 34.5 9.86
-- --------- ---- ---------- ---- ----
Total/Average................. 916 4,596,938 100.0% $50,681,078 100.0% $ 11.02
=== ========= ===== =========== ===== =========
</TABLE>
S-7
<PAGE>
PRICE RANGE OF THE COMMON STOCK AND DISTRIBUTIONS
The Company's Common Stock began trading on the Nasdaq National Market
("NASDAQ") on June 27, 1995 and on the NYSE on August 13, 1996. The table below
sets forth for the fiscal periods indicated the high and low sales prices per
share of the Company's Common Stock, as reported on the NYSE composite tape or
NASDAQ and the distributions paid for such periods.
DISTRIBUTIONS
HIGH LOW PER SHARE
---- --- ---------
1995
Third Quarter .............................. $18 $17 $.4875
Fourth Quarter ............................. 18 1/2 17 .4875
1996
First Quarter .............................. 19 17 3/4 .4875
Second Quarter ............................. 20 1/2 18 1/4 .4875
Third Quarter .............................. 21 1/4 19 1/4 .4875
Fourth Quarter ............................. 23 5/8 20 3/8 .4875
1997
First Quarter .............................. 24 1/4 22 1/4 .4875
Second Quarter ............................. 25 3/8 22 3/8 .4875
Third Quarter (through September 16, 1997).. 25 1/4 22 3/4 .4875
On September 16, 1997, the closing sale price of the Common Stock as
reported on the NYSE was $24.6875 per share. As of September 16, 1997, the
approximate number of holders of record of the Common Stock was 183.
For the year ended December 31, 1996, 75.6% (or $1.47 per share) of the
distributions made through December 31, 1996 on the Common Stock represented a
return of capital for federal income tax purposes.
In the future, the Company's ability to make distributions will be affected
by a number of factors, including the revenues received from its properties, the
operating expenses of the Company, the interest expense incurred on outstanding
indebtedness, the ability of tenants to meet their obligations under leases,
unanticipated capital expenditures and dividends received from the Management
Company. In addition, if the Exchangeable Debentures (as defined below) are
exchanged for Convertible Preferred Stock annual cash available for distribution
will be reduced by approximately $375,000. One or more of the foregoing factors
could limit the Company's ability to maintain distributions at the current
level.
Federal income tax law requires a REIT to distribute annually at least 95%
of its REIT taxable income. For the twelve-month period ended December 31, 1996,
the amount of distributions necessary to maintain the Company's REIT status for
that year would have been approximately $5.6 million or $2.44 per share of
Convertible Preferred Stock and $1.4 million or $0.41 per share of Common Stock.
Distributions by the Company to the extent of its current or accumulated
earnings and profits for Federal income tax purposes, other than capital gain
dividends, will be taxable to stockholders as ordinary dividend income. Capital
gain dividends generally will be treated as gains from the sale or exchange of a
capital asset held for more than one year. Distributions in excess of earnings
and profits generally will be treated as a non-taxable reduction of the
stockholder's basis in the stock to the extent thereof, and thereafter as
taxable gain. Distributions treated as non-taxable reduction in basis will have
the effect of deferring taxation until the sale of a stockholder's capital
stock. For a discussion of the tax treatment of distributions to holders of
shares of capital stock, see "Federal Income Tax Considerations to Holders of
Common Stock."
S-8
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and the pro forma capitalization of the Company as of June 30, 1997,
after giving effect to the sale of the Common Stock offered hereby, and the
application of the net proceeds from the Offering as described under the caption
"Use of Proceeds." The information set forth in the following table should be
read in conjunction with the consolidated financial statements and notes thereto
incorporated into the accompanying Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Mortgage and other notes payable.................................................. $ 192,377 $ 151,577
Exchangeable Debentures(1)........................................................ 25,000 25,000
Minority interest(2).............................................................. 18,418 18,418
Stockholders' equity:(3)
Preferred Stock, $.01 par value, 10,000,000 shares authorized; Convertible
Preferred Stock, $.01 par value, 3,800,000 shares designated; 2,314,189
shares issued and outstanding(4)............................................. 23 23
Common Stock, $.01 par value, 90,000,000 shares authorized; 5,038,999 and
6,838,999 shares issued and outstanding, respectively........................ 50 68
Additional paid-in capital...................................................... 121,247 162,029
Accumulated distributions in excess of earnings................................. (23,221) (23,221)
------- -------
Total stockholders' equity................................................. 98,099 138,899
------ -------
Total capitalization.................................................. $ 333,894 $ 333,894
=========== ===========
</TABLE>
- ---------
(1) The $25.0 million of Exchangeable Debentures, due 1999 (the "Exchangeable
Debentures"), are exchangeable for shares of Convertible Preferred Stock at
$25.00 per share (1,000,000 shares) and are collateralized by two
Properties.
(2) Reflects the 429,147 Exchangeable Preferred Units and 950,012 (Historical)
and 1,972,012 (Pro Forma) Common Units of the Operating Partnership not
owned by the Company.
(3) Does not include: (i) 950,012 (Historical) and 1,972,012 (Pro Forma) shares
of Common Stock and 429,147 shares of Convertible Preferred Stock reserved
for issuance upon exchange of issued and outstanding Common Units
(including Common Units to be issued in connection with the acquisition of
the New Retail Properties) and Exchangeable Preferred Units, respectively,
and (ii) 887,320 shares of Common Stock reserved for issuance under the
Company's employee benefit plans.
(4) The Convertible Preferred Stock has a stated liquidation preference of
$25.00 per share, is convertible (based on the then-applicable liquidation
preference of the Convertible Preferred Stock) on or after May 31, 1999
into shares of Common Stock at a conversion price equal to $19.50, and is
not redeemable by the Company prior to July 15, 1999.
S-9
<PAGE>
SELECTED HISTORICAL FINANCIAL AND PORTFOLIO INFORMATION
The following tables set forth historical summary financial information for
the Company and its predecessor, the FWM Group. The following selected financial
information should be read in conjunction with the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and all of the financial statements and notes thereto incorporated
into the accompanying Prospectus by reference. The historical operating data of
the Company and its predecessor for the years ended December 31, 1992, 1993,
1994, 1995, and 1996 have been derived from the historical consolidated
financial statements audited by Coopers & Lybrand L.L.P., independent
accountants, whose report with respect to the information for the years ended
December 31, 1994, 1995 and 1996 is incorporated into the accompanying
Prospectus by reference. The operating data for the six months ended June 30,
1996 and 1997 has been derived from the unaudited consolidated financial
statements of the Company. In the opinion of management, the operating data for
the six months ended June 30, 1996 and 1997 included all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
information set forth therein.
Per share data for periods prior to the formation of the Company are not
relevant to the historical combined financial statements of the FWM Group
because such financial statements are a combined presentation of the predecessor
entities. Historical operating results, including net income, may not be
comparable to future operating results because of the recapitalization resulting
from the formation of the Company. In addition, the Company believes that the
book value of the Properties, which reflects historical cost of such assets,
less accumulated depreciation, is not indicative of the fair value of the
Properties.
S-10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996
---- ---- ---- ---- ---- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT RETAIL PROPERTY INFORMATION)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INFORMATION:
Revenues:
Minimum rent........................................ $ 10,242 $ 10,594 $ 14,701 $ 23,276 $ 31,925 15,018
Percentage rent..................................... 114 68 255 495 664 394
Tenant reimbursements............................... 1,642 1,889 2,823 4,362 6,704 3,273
Third-party fees.................................... 3,095 4,396 1,912 -- -- --
Other income........................................ 310 245 508 1,447 1,672 914
------ ------ ------ ------ ------ ------
Total revenues.................................... 15,403 17,192 20,199 29,580 40,965 19,599
Expenses:
Property operating and maintenance.................. 4,726 5,137 6,299 7,229 10,270 4,992
General and administrative.......................... 2,115 2,665 1,356 2,831 3,137 1,700
Interest............................................ 8,144 7,909 9,301 11,230 14,986 7,026
Depreciation and amortization....................... 2,514 2,721 4,579 5,808 8,019 3,744
----- ----- ----- ----- ----- -----
Total expenses.................................... 17,499 18,432 21,535 27,098 36,412 17,462
------ ------ ------ ------ ------ ------
Income (loss) before income from Management Company,
extraordinary item and minority interest.............. (2,096) (1,240) (1,336) 2,482 4,553 2,137
Income from Management Company(1)...................... -- -- 500 449 221 7
-- ------ ------ ------ ------ ------ ------
Income (loss) before distributions to preferred
stockholders, extraordinary item and minority
interest.............................................. (2,096) (1,240) (836) 2,931 4,774 2,144
Extraordinary item..................................... -- 2,665 2,251 -- -- --
------ ------ ----- ----- ----- ------
Net income (loss)...................................... $ (2,096) $ 1,425
====== ======
Income before minority interest and distributions to
preferred stockholders................................ 1,415 2,931 4,774 2,144
(Income) loss allocated to minority
interest.............................................. (1,101) (602) (694) (298)
------ ---- ---- ----
Income before distributions to preferred
stockholders.......................................... 314 2,329 4,080 1,846
Distributions to preferred stockholders................ (1,811) (5,117) (5,641) (2,820)
------ ------ ------ ------
Loss allocated to common stockholders.................. $ (1,497) $ (2,788) $ (1,561) $ (974)
========= ========= ========= =========
Net loss per Common
Share(2)........................................ $ (0.95) $ (1.19) $ (0.46) $ (0.30)
========= ========= ========= =========
Shares of Common Stock, in thousands................... 1,574 2,351 3,367 3,196
===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED
JUNE 30,
----------------
1997
----
(UNAUDITED)
FINANCIAL INFORMATION:
Revenues:
Minimum rent........................................ 20,666
Percentage rent..................................... 573
Tenant reimbursements............................... 4,231
Third-party fees.................................... --
Other income........................................ 447
---
Total revenues.................................... 25,917
Expenses:
Property operating and maintenance.................. 6,726
General and administrative.......................... 2,140
Interest............................................ 8,928
Depreciation and amortization....................... 5,117
-----
Total expenses.................................... 22,911
------
Income (loss) before income from Management Company,
extraordinary item and minority interest.............. 3,006
Income from Management Company(1)...................... 299
-- ---
Income (loss) before distributions to preferred
stockholders, extraordinary item and minority
interest.............................................. 3,305
Extraordinary item..................................... --
-----
Net income (loss)......................................
Income before minority interest and distributions to
preferred stockholders................................ 3,305
(Income) loss allocated to minority
interest.............................................. (499)
----
Income before distributions to preferred
stockholders.......................................... 2,806
Distributions to preferred stockholders................ (2,820)
------
Loss allocated to common stockholders.................. $ (14)
=========
Net loss per Common
Share(2)........................................ $ (0.00)
=========
Shares of Common Stock, in thousands................... 4,968
=====
S-11
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996
---- ---- ---- ---- ---- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT RETAIL PROPERTY INFORMATION)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Rental properties, gross.............................. $ 87,299 $ 87,749 $ 175,213 $ 228,092 $ 314,235 $ 284,151
Total assets.......................................... 82,798 81,056 172,487 227,405 313,613 274,585
Mortgage and other notes payable...................... 93,918 92,382 89,858 116,182 167,047 160,363
Exchangeable Debentures............................... -- -- 25,000 25,000 25,000 25,000
Total liabilities..................................... 99,235 96,216 117,925 145,241 198,375 189,847
Minority interest(3).................................. -- -- 8,580 11,088 16,661 13,009
Stockholders' equity (deficit)........................ (16,437) (15,160) 45,982 71,076 98,577 71,729
RETAIL PROPERTY INFORMATION:
Retail Occupancy...................................... 94.6% 95.4% 94.7% 96.0% 96.4% 95.6%
Number of Retail Properties........................... 14 14 20 27 36 33
Retail Properties GLA (thousands of square feet)...... 1,186 1,186 2,014 2,646 3,522 3,290
Average rent(4):
Retail Properties (per square foot)................. $ 9.07 $ 9.16 $ 10.08 $ 10.28 $ 10.43 $ 10.54
OTHER DATA(5)
Funds From Operations(6).............................. $ 10,539 $ 14,290 $ 6,588
Cash flow from operating activities................... $ 1,037 $ 831 $ 3,164 $ 10,003 $ 11,616 $ 5,723
Cash flow (used in) investing activities.............. (1,636) (450) (56,236) (29,884) (56,994) (40,637)
Cash flow provided by (used in) financing
activities............................................ 367 (529) 53,615 26,574 49,352 28,567
</TABLE>
SIX MONTHS ENDED
JUNE 30,
----------------
1997
----
(UNAUDITED)
BALANCE SHEET INFORMATION:
Rental properties, gross.............................. $ 358,479
Total assets.......................................... 344,073
Mortgage and other notes payable...................... 192,377
Exchangeable Debentures............................... 25,000
Total liabilities..................................... 227,556
Minority interest(3).................................. 18,418
Stockholders' equity (deficit)........................ 98,099
RETAIL PROPERTY INFORMATION:
Retail Occupancy...................................... 95.1%
Number of Retail Properties........................... 39
Retail Properties GLA (thousands of square feet)...... 4,059
Average rent(4):
Retail Properties (per square foot)................. $ 10.78
OTHER DATA(5)
Funds From Operations(6).............................. $ 9,630
Cash flow from operating activities................... $ 10,361
Cash flow (used in) investing activities.............. (20,420)
Cash flow provided by (used in) financing
activities............................................ 929
- --------
(1) Subsequent to June 27, 1994, activity of the Management Company is being
reflected using the equity method of accounting.
(2) Because the Company's income is based on its percentage interest in the
Operating Partnership's income, the net loss per share would be unchanged
for the periods presented even if Common Units were exchanged for Common
Stock of the Company.
(3) Reflects the Exchangeable Preferred Units and Common Units of the Operating
Partnership not owned by the Company.
(4) Represents base rent divided by square feet leased, for the annualized
12-month period.
(5) For the year or six months ending as of the date indicated.
(6) The White Paper on Funds From Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds From Operations as net income (computed in
accordance with generally accepted accounting principles), excluding gains
(or losses) from debt restructuring and sales of property, plus
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect Funds From
Operations on the same basis. The Company believes that Funds From
Operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes Funds From Operations in accordance with standards established by
NAREIT which may not be comparable to Funds From Operations reported by
other REITS that do not define the term in accordance with the current
NAREIT definition or that interpret the NAREIT definition differently from
the Company. Funds From Operations does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund cash
needs and should not be considered an alternative to net income as an
indicator of the Company's operating performance or as an alternative to
cash flow as a measure of liquidity or of ability to make distributions.
S-12
<PAGE>
MANAGEMENT
The persons who are directors and executive officers of the Company and their
ages (as of June 30, 1997) are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND POSITION
---- --- ----------------------------------
<S> <C> <C>
Stuart D. Halpert...................... 54 Chairman of the Board
William J. Wolfe....................... 45 President, Chief Executive Officer and Director
James G. Blumenthal.................... 40 Executive Vice President and Chief Financial Officer
Lester Zimmerman....................... 47 Executive Vice President and Director
Jeffrey S. Distenfeld.................. 42 Senior Vice President, Secretary and General Counsel
James G. Pounds........................ 41 Senior Vice President
Stephen Mitnick........................ 36 Vice President
Stanley T. Burns....................... 52 Director; Principal of The Calloway Group, a consulting firm
specializing in business strategy and finance.
Matthew J. Hart........................ 45 Director; Executive Vice President and Chief Financial Officer of
Hilton Hotel Corporation
William M. Russell..................... 61 Director; Senior Real Estate Advisor of Aetna, Inc.
Heywood Wilansky....................... 49 Director; President, Chief Executive Officer and a Director of the
Bon-Ton Stores, Inc. a retail department store.
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO HOLDERS OF COMMON STOCK
The following summary of certain federal income tax considerations to
holders of Common Stock is based on current law, is for general information
only, and is not tax advice. The tax treatment of a holder of Common Stock will
vary depending upon his particular situation, and this discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
stockholders in light of their personal investment or tax circumstances, or to
certain types of stockholders (including insurance companies, financial
institutions or broker-dealers, tax-exempt organizations, foreign corporations,
and persons who are not citizens or residents of the United States) subject to
special treatment under the Federal income tax laws.
Except as set forth below under the heading "Recently Enacted Legislation,"
this discussion does not address any aspects of federal income taxation to the
Company relating to its election to be taxed as a real estate investment trust.
A summary of certain federal income tax considerations to the Company is
provided in the Prospectus.
The discussion set forth below assumes that the Company qualifies as a REIT
under the Code. If in any taxable year the Company were to fail to qualify as a
REIT, the Company would not be allowed a deduction for distributions paid to
stockholders in computing taxable income and would be subject to federal income
tax on its taxable income at regular corporate rates. As a result, the funds
available for distribution to the Company's stockholders would be reduced. See
"Certain Federal Income Tax Considerations--Failure to Qualify" in the
Prospectus.
EACH INVESTOR SHOULD REFER TO THE PROSPECTUS FOR A SUMMARY OF THE FEDERAL
INCOME TAX CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION. EACH INVESTOR IS
ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO
HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF COMMON STOCK, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
S-13
<PAGE>
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
who (for United States Federal income tax purposes) (i) is a citizen or resident
of the United States, (ii) is a corporation, partnership, or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, or (iii) is an estate or trust the income of
which is subject to the United States Federal income taxation regardless of its
source, or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions of the
trust.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Stockholders
that are corporations. For purposes of determining whether distributions to
holders of Common Stock are out of current or accumulated earnings and profits,
the earnings and profits of the Company will be allocated first to the
Convertible Preferred Stock (to the extent of the preferred distributions on
such stock), then to the Common Stock (to the extent of distributions equal to
$0.4875 per quarter per share) and then pro-rata between both the Convertible
Preferred Stock and the Common Stock with respect to any distributions in which
the Convertible Preferred Stock is entitled to participate.
Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable U.S. Stockholders
as gains from the sale or exchange of a capital asset held for more than one
year (to the extent that they do not exceed the Company's actual net capital
gain for the taxable year) without regard to the period of which a U.S.
Stockholder has held his shares of stock. It is not clear whether such amounts
will be taxable at the rates applicable to mid-term capital gains (applicable to
gains from the sale of capital assets held for more than one year but less than
or equal to eighteen months) or whether long-term capital gain rates (applicable
to gains from the sale of capital assets held for more than eighteen months)
will apply. This uncertainty may be clarified by future legislation or
regulations. U.S. Stockholders that are corporations may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in his shares of stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of U.S.
Stockholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset). Dividends declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Stockholder of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be able
to apply any "passive losses" against such income or gain. Distributions made by
the Company (to the extent they do not constitute a return of capital) generally
will be treated as investment income for purposes of computing the investment
income limitation. Gain arising from the sale or other disposition of Common
Stock, however, will not be treated as investment income unless the U.S.
Stockholder elects to reduce the amount of such U.S. Stockholder's total net
capital gain eligible for the capital gains rates by the amount of such gain
with respect to the shares.
Upon any sale or other disposition of Common Stock, a U.S. Stockholder will
recognize gain or loss for Federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the stock for tax purposes. Such gain or loss will be capital
gain or loss if the shares have been held by the U.S. Stockholders as a capital
asset, and in the case of a U.S. Stockholder who is an individual, will be
mid-term gain or loss if such shares have been held for more than one year or
eighteen months, respectively.
S-14
<PAGE>
In general, any loss recognized by a U.S. Stockholder upon the sale or other
disposition of Common Stock that has been held 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 received by such U.S. Stockholder from the
Company which were required to be treated as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (a) is a corporation or comes within certain other exempt categories 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 U.S. Stockholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status to the Company.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
RECENTLY ENACTED LEGISLATION
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (H.R. 2014), which will have the effect of modifying certain
REIT-related Code provisions for tax years of the Company beginning on or after
January 1, 1998. The following list sets forth the significant changes contained
in this legislation: (i) the rule disqualifying a REIT for any year in which it
fails to comply with certain regulations requiring the REIT to monitor its stock
ownership is replaced with an intermediate financial penalty; (ii) the rule
disqualifying a REIT that is "closely held" (i.e., during the last half of each
taxable year, 50% or more in value of a REIT's outstanding stock is owned by
five or fewer individuals) does not apply if during such year the REIT complied
with certain regulations which require the REIT to monitor its stock ownership,
and the REIT did not know or have reason to know that it was closely held; (iii)
a REIT is permitted to render a de minimis amount of impermissible services to
tenants in connection with the management of property and still treat amounts
received with respect to such property (other than certain amounts relating to
such services) as qualified rent; (iv) the rules regarding attribution to
partnerships for purposes of defining qualified rent and independent contractors
are modified so that attribution occurs only when a partner owns a 25% or
greater interest in the partnership; (v) the 30% gross income test is repealed;
(vi) any corporation wholly owned by a REIT is permitted to be treated as a
qualified REIT subsidiary regardless of whether such subsidiary has always been
owned by the REIT; (vii) the class of excess noncash items for purposes of the
REIT distribution requirements is expanded; (viii) property that is
involuntarily converted is excluded from the prohibited transaction rules; (ix)
the rules relating to shared appreciation mortgages are modified; (x) income
from all hedges that reduce the interest rate risk of REIT liabilities,
including rate swap or cap agreements, options, futures and
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forward rate contracts, is included in qualifying income for purposes of the 95%
gross income test; (xi) a REIT is able to elect to retain and pay income tax on
its net long-term capital gains, and if such election is made, the REIT's
shareholders include in income their proportionate share of the undistributed
long-term capital gain and are deemed to have paid their proportionate share of
tax paid by the REIT; (xii) the rules relating to the grace period for
foreclosure property are modified and (xiii) certain other Code provisions
relating to REITS are amended.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, Friedman, Billings, Ramsey & Co., Inc., Salomon
Brothers Inc and Tucker Anthony Incorporated have severally agreed to purchase
from the Company the following respective numbers of shares of Common Stock at
the public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus Supplement:
UNDERWRITER NUMBER OF SHARES
----------- ----------------
BT Alex. Brown Incorporated................. 450,000
Friedman, Billings, Ramsey & Co., Inc....... 450,000
Salomon Brothers Inc........................ 450,000
Tucker Anthony Incorporated................. 450,000
---------
Total....................................... 1,800,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Common Stock offered hereby if any of
such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement and to certain dealers at such price less a concession not in excess
of $0.72 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Representatives of the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 270,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus Supplement. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 1,800,000, and the Company
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered hereby.
If purchased, the Underwriters will sell such additional shares on the same
terms as those on which the 1,800,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
In addition, the Company and each of its executive officers and directors
have agreed with the Underwriters not to offer, sell, contract to sell or
otherwise issue or dispose of shares of Common Stock for the 90-day period
following the Offering, except that the Company may issue new shares of
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Common Stock pursuant to the exchange or conversion of outstanding securities,
the issuance of shares of Common Stock pursuant to employee benefit plans and in
connection with future acquisitions.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing, or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement, the
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, 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.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1995, the consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996, and the
combined statement of revenues and certain expenses of the Chicago Properties
for the year ended December 31, 1996, incorporated by reference into the
accompanying Prospectus, have been incorporated herein in reliance on the
reports of Coopers & Lybrand L.L.P, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Latham &
Watkins, Washington, D.C. Latham & Watkins will rely as to certain matters of
Maryland law, including the legality of the Common Stock, on the opinion of
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. In addition, the
description of federal income tax consequences contained in the accompanying
Prospectus entitled "Federal Income Tax Considerations to the Company of its
REIT Election" and in this Prospectus Supplement entitled "Certain Federal
Income Tax Considerations to Holders of Common Stock" is based upon the opinion
of Latham & Watkins. Certain legal matters related to the Offering will be
passed upon for the Underwriters by Hogan & Hartson L.L.P., Washington, D.C.
S-17
<PAGE>
PROSPECTUS
$175,000,000
FIRST WASHINGTON REALTY TRUST, INC.
Common Stock, Common Stock Warrants, Preferred Stock,
Depositary Shares and Debt Securities
First Washington Realty Trust, Inc. (the "Company") may from time to time
offer in one or more series (i) shares of common stock, par value $.01 per share
(the "Common Stock"), (ii) warrants to purchase Common Stock (the "Common Stock
Warrants"), (iii) shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), (iv) shares of Preferred Stock represented by depositary
shares (the "Depositary Shares"), or (v) debt securities (the " Debt
Securities"), with an aggregate public offering price of up to $175,000,000 in
amounts, at prices and on terms to be determined at the time of any such
offering. The Company may offer the Common Stock, Common Stock Warrants,
Preferred Stock, Depositary Shares, and Debt Securities (collectively, the
"Securities") from time to time, separately or together, in separate series, in
amounts, at prices and on terms to be set forth in supplements to this
Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Common Stock, the specific
number of shares and issuance price per share; (ii) in the case of Common Stock
Warrants, the duration, offering price, exercise price and detachability; (iii)
in the case of Preferred Stock, the specific number of shares, designation, any
dividend, liquidation, redemption, conversion, voting and other rights, and
issuance price per share; (iv) in the case of Depositary Shares, the fractional
share of Preferred Stock represented by each such Depositary Share; and (v) in
the case of Debt Securities, the specific title, aggregate principal amount,
form (which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder, terms for any sinking fund payments,
terms for conversion into Common Stock, Preferred Stock or Debt Securities of
another series, and any initial public offering price. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Securities, in each case as may be appropriate
to preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain federal income tax considerations relating to, and any
listing on a securities exchange of, the Securities covered by such Prospectus
Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in the applicable Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
series of Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate sales of securities unless
accompanied by a prospectus supplement. Any statement contained in this
Prospectus will be deemed to be modified or superseded by any inconsistent
statement contained in an accompanying Prospectus Supplement.
------------------------
THE DATE OF THIS PROSPECTUS IS APRIL 17, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Midwest Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material may be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission also maintains a website at
http://www.sec.gov containing reports, prospectuses and information statements
and other information regarding registrants, including the Company, that file
electronically. Similar materials and other information concerning the Company
also are available for inspection at The New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, exhibits and schedules, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. The Prospectus and any accompanying Prospectus
Supplement do not contain all of the information included in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Securities, reference is hereby made to the Registration
Statement, including the exhibits and schedules thereto. Statements contained in
this Prospectus and any accompanying Prospectus Supplement concerning the
provisions or contents of any contract, agreement or any other document referred
to herein are not necessarily complete. With respect to each such contract,
agreement or document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matters
involved, and each such statement shall be deemed qualified in its entirety by
such reference to the copy of the applicable document filed with the Commission.
The Registration Statement may be inspected without charge at the Commission's
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of it or any part thereof may be obtained from such office,
upon payment of the fees prescribed by the Commission. The Registration
Statement also may be retrieved from the Commission's website.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have previously been filed by the Company
with the Commission are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1995;
(2) the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1996, June 30, 1996, and September 30, 1996;
(3) the Company's Current Reports on Form 8-K dated February 13, 1997;
November 5, 1996; June 28, 1996; April 29, 1996; April 1, 1996;
January 30, 1996; and January 19, 1996;
(4) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission
on August 9, 1996;
(5) item 27 of the Company's Registration Statement on Form S-11, as
amended, filed on November 22, 1996;
(6) the Company's Proxy Statement with respect to its Annual Meeting of
Shareholders held on May 23, 1996.
All documents filed by the Company, pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities made hereby shall be deemed to be
incorporated in this Prospectus by reference and to be a part hereof from the
date of filing of such documents. Any statement contained herein, or in a
document incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
request of any such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Requests for such
copies should be directed to the Company, at 4350 East-West Highway, Suite 400,
Bethesda, MD 20814, Attention: Investor Relations; telephone number (301)
907-7800.
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<PAGE>
THE COMPANY
First Washington Realty Trust, Inc. (the "Company") is a fully integrated,
self-administered and self-managed real estate company that operates as a REIT
with expertise in the acquisition, management, renovation and development of
principally supermarket-anchored neighborhood shopping centers. As of January
31, 1997, the Company owned a portfolio of 38 retail properties (the "Retail
Properties"). The Retail Properties contain a total of approximately 3.9 million
square feet of gross leasable area ("GLA") in the Mid-Atlantic region. The
Company also owns two multifamily properties in the Mid-Atlantic region (the
"Multifamily Properties") (the Retail Properties and the Multifamily Properties
are collectively referred to as the "Properties").
The Company's business strategy is highly focused with respect to property
type and location. The Company concentrates its efforts on supermarket-anchored
neighborhood shopping centers. The Company generally seeks to own properties
located in densely populated areas, that have high visibility, open-air designs
and ease of entry and exit, and that may be readily adaptable over time to
expansion, renovation and redevelopment.
The Retail Properties are strategically located neighborhood shopping
centers, principally anchored by well-known tenants such as Shoppers Food
Warehouse, Weis Markets, Rite Aid, A&P Superfresh, Giant Food, CVS/Pharmacy,
Safeway, Winn Dixie and Acme Markets. As of December 31, 1996, national and
regional tenants accounted for approximately 73% of leased GLA and approximately
60% of annualized minimum rents for the Retail Properties. The anchor tenants at
the Retail Properties typically offer daily necessity items. Management believes
that anchor tenants offering daily necessity items help to generate regular
consumer traffic and to provide economic stability.
From December 31, 1992 to December 31, 1996, the occupancy rate for the
Retail Properties (during the respective periods each such property was owned by
the Company) has averaged approximately 95%. Average effective net rents (as
measured by base rent divided by square feet leased, excluding vacant space)
increased from $9.07 per square foot as of December 31, 1992 to $10.44 as of
December 31, 1996.
The Company owns the Properties indirectly through its ownership of First
Washington Realty Limited Partnership (the "Operating Partnership"). Certain of
the Properties are also owned by partnerships (or limited liability companies)
in which the Operating Partnership, the Company or a subsidiary of the Company
acts as general partner (or Managing Member) and owns a controlling interest
(the "Lower Tier Partnerships"). The Company, through its ownership of First
Washington Management, Inc. (the "Management Company"), manages and leases all
of the Retail Properties. In addition, the Management Company provides
management, leasing and related services for third parties. As of December 31,
1996, the Management Company provided management, leasing and related services
to third-party clients for 30 shopping centers containing approximately 3.2
million square feet of GLA throughout the Mid-Atlantic region.
Although the Company, the Operating Partnership, the Lower Tier
Partnerships and the Management Company are separate entities, each of which is
managed in accordance with its governing documents, for ease of reference the
term "Company" as used herein shall refer to the business and properties of the
Company, the Operating Partnership, the Lower Tier Partnerships and the
Management Company, unless the context indicates otherwise.
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<PAGE>
This Prospectus, including the documents incorporated herein by reference,
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"). Also, documents
subsequently filed by the Company with the Securities and Exchange Commission
and incorporated herein by reference will contain forward-looking statements.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in the
Prospectus Supplement and the matters set forth or incorporated in this
Prospectus generally. The Company cautions the reader, however, that this list
of factors may not be exhaustive, particularly with respect to future filings.
Prospective investors should carefully consider, among other factors, the risk
factors described in the Prospectus Supplement and the matters described below
before purchasing Securities.
USE OF PROCEEDS
Unless otherwise indicated in the Prospectus Supplement accompanying this
Prospectus, the Company intends to use the net proceeds from the sale of the
Securities for general corporate purposes, which may include the acquisition,
development and renovation of neighborhood shopping centers as suitable
opportunities arise, the expansion and improvement of certain properties and the
repayment of outstanding indebtedness. Pending such uses, the net proceeds from
the sale of Securities will be invested in short-term, investment grade
securities.
RATIO OF EARNINGS TO FIXED CHARGES
Prior to its formation in June 1994, the Company and its predecessor were
privately held and operated in a manner to minimize net taxable income. As a
result, although the Company historically generated positive cash flow, it
experienced net losses for the years 1992 to 1996. Consequently, the computation
of the ratios of earnings to fixed charges for these periods were inadequate to
cover fixed charges by approximately $2.1 million, $3.0 million, $3.0 million,
$4.6 million and $1.2 million for the years 1992 through 1996.
For the purpose of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income (loss) before
income taxes and extraordinary items. Fixed charges consist of interest costs,
whether expensed or capitalized, amortization of debt discount and issuance
costs, whether expensed or capitalized.
GENERAL DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the stock of the Company does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Maryland law and to the Company's charter and bylaws which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part. See "Available Information."
General
The charter of the Company provides that the Company may issue up to
100,000,000 shares of capital stock, consisting of 90,000,000 shares of common
stock, par value $0.01 per share (the "Common Stock"), and 10,000,000 shares of
preferred stock, par value $0.01 per share. As of December 31, 1996, 4,946,245
shares of Common Stock and 2,314,189 shares of Series A Cumulative Participating
Convertible Preferred Stock (the "Convertible Preferred Stock") were issued and
outstanding. Under Maryland law, stockholders generally are not liable for the
corporation's debts or obligations solely as a result of their status as
stockholders. In determining whether a distribution (other than upon voluntary
or involuntary liquidation), by distribution, redemption or other acquisition of
shares or otherwise, is permitted under the MGCL, the amount of the aggregate
liquidation preference of the Convertible Preferred Stock will not be counted as
a liability of the Company.
Power To Issue Additional Shares Of Common Stock And Preferred Stock
The Board of Directors has the power under the charter to authorize the
Company to issue additional authorized but unissued shares of Common Stock and
preferred stock (including any unissued shares of any series of preferred stock,
to the extent permitted by the terms of such series or class) and to classify or
reclassify unissued shares of Common or preferred stock and thereafter to cause
the Company to issue such classified or
4
<PAGE>
reclassified shares of stock. Prior to the issuance of such shares of Common
Stock and shares of preferred stock, the Board of Directors is required by the
MGCL and the charter of the Company to fix, the terms, preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption for
each share or series or class. The Company believes that this power of the Board
of Directors will provide the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. The additional classes or series of Preferred Stock, as well as the
Common Stock, will be available for issuance without further action by the
Company's stockholders (provided, however, that the issuance of additional
series or classes of preferred stock with rights senior to the Convertible
Preferred Stock is subject to the approval of the holders of Convertible
Preferred Stock), unless such action is required by applicable law or the rules
of any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Directors has no
intention at the present time of doing so, it could authorize the Company to
issue a class or series that could, depending upon the terms of such class or
series, delay or impede a transaction or a change of control of the Company that
might involve a premium price for the Common Stock and Convertible Preferred
Stock or otherwise be in the best interest of the stockholders.
Restrictions On Ownership, Transfer And Conversion
For the Company to qualify as a REIT under the Code, not more than 50% in
value of the issued and outstanding capital stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year and the capital stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of twelve months (or during a proportionate part of a shorter
taxable year). In addition, rent from Related Party Tenants (as defined below
under "Federal Income Tax Considerations-Taxation of the Company-Income Tests")
is not qualifying income for purposes of the gross income tests of the Code. See
"Federal Income Tax Considerations-Taxation of the Company-Requirements for
Qualification." Because the Board of Directors believes it is essential for the
Company to qualify as a REIT, the Board of Directors has adopted, and the
stockholders prior to the June 1994 Offering have approved, provisions in the
Company's charter restricting the acquisition and ownership of shares of the
Company's capital stock.
Subject to certain exceptions specified in the Company's charter, no holder
may own, either actually or constructively under the applicable attribution
rules of the Code, more than 9.8% (by number or value, whichever is more
restrictive) of the outstanding shares of Common Stock (the "Common Ownership
Limit"). Except as described below, the Common Ownership Limit will not apply,
however, to holders of shares of Common Stock who acquire shares of Common Stock
in excess of the Common Ownership Limit solely by reason of the conversion of
shares of Convertible Preferred Stock owned by such holder into shares of Common
Stock.
Subject to certain exceptions specified in the Company's charter, no holder
may acquire, either actually or constructively under the applicable attribution
rules of the Code, more than 9.8% (by number or value, whichever is more
restrictive) of the outstanding shares of Convertible Preferred Stock (the
"Convertible Preferred Ownership Limit"). Except as described below, there are
no restrictions on the ability of a holder of shares of Convertible Preferred
Stock to convert such shares into shares of Common Stock even if, as a result of
such conversion, the holder will own shares of Common Stock in excess of the
Common Ownership Limit. However, no person may actually or constructively
acquire or own shares of Convertible Preferred Stock or shares of Common Stock,
or convert Convertible Preferred Stock into Common Stock, to the extent that the
aggregate value of Convertible Preferred Stock and Common Stock actually and
constructively owned by such person would exceed 9.8% of the total value of the
outstanding shares of the capital stock of the Company (the "Aggregate Stock
Ownership Limit"). Under certain circumstances, this limitation could prevent a
person who owns shares of Convertible Preferred Stock from converting a portion
of such shares into shares of Common Stock.
If, as a result of a purported acquisition (actual or constructive) of
capital stock, any person (a "Prohibited Transferee") would acquire, either
actually or constructively under the applicable attribution rules of the Code,
shares of capital stock in excess of an applicable ownership restriction, such
shares will be automatically transferred to a trust for the benefit of a
charitable beneficiary, effective as of the close of business on the
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<PAGE>
business day prior to the purported acquisition by the Prohibited Transferee.
While such stock is held in trust, the trustee shall have all voting rights with
respect to the shares, and all dividends or distributions paid on such stock
will be paid to the trustee of the trust for the benefit of the charitable
beneficiary (any dividend or distribution paid on shares of capital stock prior
to the discovery by the Company that such shares have been automatically
transferred to the trust shall, upon demand, be paid over to the trustee for the
benefit of the charitable beneficiary). Within 20 days of receiving notice from
the Company of the transfer of shares to the trust, the trustee of the trust is
required to sell the shares held in the trust to a person who may own such
shares without violating the ownership restrictions (a "Permitted Holder"). Upon
such sale, the price paid for the shares by the Permitted Holder shall be
distributed to the Prohibited Transferee to the extent of the lesser of (i) the
price paid by the Prohibited Transferee for the shares or, in the case of a
transfer of shares to a trust resulting from an event other than an actual
acquisition of shares by a Prohibited Transferee, the fair market value, on the
date of transfer to the trust, of the shares so transferred or (ii) the fair
market value of the shares on the date of transfer by the trustee to the
Permitted Holder. Any proceeds in excess of this amount shall be paid to the
charitable beneficiary.
An automatic repurchase of shares by the Company will occur to the extent
necessary to prevent any violation of the Convertible Preferred Ownership Limit,
Common Stock Ownership Limit, or the Aggregate Stock Ownership Limit as the
result of events other than the actual or constructive acquisition of capital
stock by the holder, such as changes in the relative value of different classes
of the Company's capital stock. In the event of any such automatic repurchase,
the repurchase price of each share will be equal to the market price on the date
of the event that resulted in the repurchase. Any dividend or other distribution
paid to a holder of repurchased shares (prior to the discovery by the Company
that such shares have been automatically repurchased by the Company as described
above) will be required to be repaid to the Company upon demand.
If shares of capital stock which would cause the Company to be beneficially
owned by less than 100 persons are issued or transferred to any person, such
issuance or transfer shall be null and void to the intended transferee, and the
intended transferee would acquire no rights to such stock.
The Board of Directors may waive the Common Ownership Limit or the
Convertible Preferred Ownership Limit or the Aggregate Stock Ownership Limit
with respect to a particular stockholder if evidence satisfactory to the Board
of Directors and the Company's tax counsel is presented that such ownership will
not then or in the future jeopardize the Company's status as a REIT. As a
condition of such waiver, the Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving the REIT status of the Company.
In addition to any of the foregoing ownership limits, no holder may own,
either actually or constructively under the applicable attribution rules of the
Code, any shares of any class of the Company's capital stock if such ownership
or acquisition (i) would cause more than 50% in value of the Company's
outstanding capital stock to be owned, either actually or constructively under
the applicable attribution rules of the Code, by five or fewer individuals (as
defined in the Code to include certain entities), (ii) would result in the
Company's capital stock being beneficially owned by less than 100 persons
(determined without reference to any rules of attribution), or (iii) would
otherwise result in the Company failing to qualify as a REIT. Acquisition or
ownership (actual or constructive) of the Company's capital stock in violation
of these restrictions will result in automatic transfer of such stock to a trust
for the benefit of a charitable beneficiary, automatic repurchase of the
violative shares by the Company, or the violative transfer will be deemed void
ab initio, as described above.
If the Board of Directors shall at any time determine in good faith that a
person intends to acquire or own, has attempted to acquire or own, or may
acquire or own capital stock of the Company in violation of the above described
limits, the Board of Directors shall take such action as it deems advisable to
refuse to give effect or to prevent such ownership or acquisition, including but
not limited to causing the Company to repurchase stock, refusing to give effect
to such ownership or acquisition on the books of the Company, or instituting
proceedings to enjoin such ownership or acquisition.
The constructive ownership rules are complex and may cause Common Stock or
Convertible Preferred Stock owned actually or constructively by a group of
related individuals and/or entities to be constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8% of the outstanding
Common Stock or less than 9.8% of the outstanding Convertible Preferred Stock
(or the acquisition of an interest in an
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entity which owns Common Stock or Convertible Preferred Stock) by an individual
or entity could cause that individual or entity (or another individual or
entity) to constructively own Common Stock or Convertible Preferred Stock in
excess of the limits described above, and thus subject such stock to the Common
Ownership Limit, the Convertible Preferred Ownership Limit, or the Aggregate
Stock Ownership Limit.
All certificates representing shares of the Company's capital stock bear a
legend referring to the restrictions described above.
All persons who own a specified percentage (or more) of the outstanding
shares of the stock of the Company must file a completed questionnaire annually
with the Company containing information regarding their ownership of such
shares, as set forth in the Treasury Regulations. Under current Treasury
Regulations, the percentage will be set between 0.5% and 5.0%, depending on the
number of record holders of shares. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information with
respect to the actual and constructive ownership of shares as the Board of
Directors deems necessary to comply with the provisions of the Code applicable
to a REIT or to comply with the requirements of any taxing authority or
governmental agency.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of Common Stock or Convertible Preferred Stock might receive a premium for their
shares over the then prevailing market price or which such holders might believe
to be otherwise in their best interest.
NYSE Listing
The Common Stock is listed on the NYSE under the symbol "FRW." The
Convertible Preferred Stock is listed on the NYSE under the symbol "FRW pfA."
DESCRIPTION OF COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Debt Securities or Preferred Stock of the Company or
upon the exercise of Common Stock Warrants issued by the Company. The statements
below describing the Common Stock are in all respects subject to and qualified
in their entirety by reference to the applicable provisions of the Articles of
Incorporation.
Holders of shares of Common Stock are entitled to receive such dividends as
the Board of Directors may declare out of funds legally available for the
payment of dividends. Upon issuance, the shares of Common Stock will be fully
paid and nonassessable and have no preferences or conversion, exchange or
preemptive rights. In the event of any liquidation, dissolution or winding-up of
the Company, the holders of shares of Common Stock are entitled to share ratably
in any of the Company's assets remaining after the satisfaction of all
obligations and liabilities of the Company and after required distributions to
holders of Preferred Stock, if any. Each share is entitled to one vote on all
matters voted upon by the holders of Common Stock. Holders of shares of Common
Stock have no cumulative voting rights.
Subject to the preferential rights of any other shares or series of capital
stock, holders of shares of Common Stock are entitled to receive distributions
on such shares if, as and when authorized and declared by the Board of Directors
of the Company out of assets legally available therefor and to share ratably in
the assets of the Company legally available for distribution to its stockholders
in the event of its liquidation, dissolution or winding-up after payment of, or
adequate provision for, all known debts and liabilities of the Company.
Subject to the matters discussed under "Certain Provisions of Maryland Law
and the Company's Charter and Bylaws-Control Share Acquisitions," each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as otherwise required by law or except as provided with respect to any
other class or series of stock, the holders of such shares of Common Stock
possess the exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all
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of the directors then standing for election and the holders of the remaining
shares of Common Stock will not be able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, sinking
fund, redemption, exchange or preemptive rights to subscribe for any securities
of the Company. All shares of a particular class of issued Common Stock have
equal dividend, distribution, liquidation and other rights.
Pursuant to the MGCL, a corporation generally cannot (except under and in
compliance with specifically enumerated provisions of the MGCL) dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Company's charter
provides for approval of any such action by a majority of the votes entitled to
be cast in the matter, except in the case of amendment of the charter provisions
relating to removal of directors, classification of the Board of Directors,
voting rights of the Common Stock or voting requirements for charter amendments.
In addition, a number of other provisions of the MGCL could have a significant
effect on the shares of Common Stock and the rights and obligations of holders
thereof. See "Certain Provisions of Maryland Law and the Company's Charter and
Bylaws."
The transfer agent and registrar for the shares of Common Stock is American
Stock Transfer & Trust Company.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Securities offered pursuant to any Prospectus Supplement and may be
attached to or separate from such Securities. Each series of Common Stock
Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and the warrant recipient or,
if the recipients are numerous, a warrant agent identified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent, if engaged, will
act solely as an agent of the Company in connection with the Common Stock
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Common Stock
Warrants. Further terms of the Common Stock Warrants and the applicable Warrant
Agreements will be set forth in the Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Securities with which such Common Stock Warrants are issued and the number
of such Common Stock Warrants issued with such offered Securities; (6) the date,
if any, on and after which such Common Stock Warrants and the related Common
Stock will be separately transferable; (7) the price at which each share of
Common Stock purchasable upon exercise of such Common Stock Warrants may be
purchased; (8) the date on which the right to exercise such Common Stock
Warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such Common Stock Warrants which may be exercised
at any one time; (10) information with respect to book-entry procedures, if any;
(11) a discussion of certain federal income tax considerations relevant to a
holder of such Common Stock Warrants; and (12) any other terms of such Common
Stock Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Common Stock Warrants.
Reference is made to the section captioned "Description of Common Stock"
for a general description of the Common Stock to be acquired upon the exercise
of the Common Stock Warrants. Additionally, the section captioned "Description
of Capital Stock" includes a description of certain restrictions on transfer of
the Common Stock.
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DESCRIPTION OF PREFERRED STOCK
The following description of the Preferred Stock sets forth certain
anticipated general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any class or series of
Preferred Stock (which terms may be different than those stated below) will be
described in the Prospectus Supplement to which such class or series relates.
The statements below describing the Preferred Stock are in all respects subject
to and qualified in their entirety by reference to the applicable provisions of
the Prospectus Supplement and Articles of Incorporation (including the amendment
describing the designations, rights, and preferences of each class or series of
Preferred Stock) and Bylaws.
Subject to limitations prescribed by Maryland law and the Articles of
Incorporation, the Company's Board of Directors is authorized to fix the number
of shares constituting each class or series of Preferred Stock and the
designations and powers, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof,
including such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution of the Board of
Directors or the duly authorized committee thereof. The Preferred Stock will,
when issued, be fully paid and nonassessable and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including: (1) the title and stated
value of such Preferred Stock; (2) the number of shares of such Preferred Stock
offered, the liquidation preference per share and the offering price of such
Preferred Stock; (3) the dividend rate(s), period(s) and or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock; (4) the
date from which dividends on such Preferred Stock shall accumulate, if
applicable; (5) the procedures for any auction and remarketing, if any, for such
Preferred Stock; (6) the provision for a sinking fund, if any, for such
Preferred Stock; (7) the provisions for redemption, if applicable, of such
Preferred Stock; (8) any listing of such Preferred Stock on any securities
exchange; (9) the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, including the conversion price (or
manner of calculation thereof); (10) a discussion of certain federal income tax
considerations relevant to a holder of such Preferred Stock; (11) the relative
ranking and preferences of such Preferred Stock as to dividend rights and rights
upon liquidation, dissolution or winding up of the affairs of the Company; (12)
any limitations on issuance of any series or classes of Preferred Stock ranking
senior to or on a parity with such class or series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; (13) any limitations on direct or beneficial ownership
and restrictions on transfer, in each case as may be appropriate to preserve the
status of the Company as a REIT and (14) any other specific terms, preferences,
rights, limitations or restrictions of such Preferred Stock.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity and debt securities
which are specifically designated as ranking junior to such Preferred Stock with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Company; (ii) on a parity with all equity and debt securities issued by
the Company the terms of which specifically provide that such equity and debt
securities rank on a parity with the Preferred Stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of the Company; and
(iii) junior to all equity and debt securities issued by the Company the terms
of which specifically provide that such equity and debt securities rank senior
to the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company.
Dividends
Holders of shares of the Preferred Stock of each class or series shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Company, out of assets of the Company 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
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Supplement. Each such dividend shall be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as shall
be fixed by the Board of Directors of the Company.
Dividends on any class or series of the Preferred Stock 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 Prospectus Supplement. If the Board of Directors of the Company fails to
declare a dividend payable on a dividend payment date on any class or series of
the Preferred Stock for which dividends are noncumulative, then the holders of
such class or series of the Preferred Stock will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment date,
and the Company will have no obligation to pay the dividend accrued for such
period, whether or not dividends on such class or series are declared payable on
any future dividend payment date.
Unless otherwise specified in the applicable Prospectus Supplement, if any
shares of the Preferred Stock of any class or series are outstanding, no full
dividends shall be declared or paid or set apart for payment on the Preferred
Stock of the Company of any other class or series ranking, as to dividends, on a
parity with or junior to the Preferred Stock of such class or series for any
period unless full dividends (which include all unpaid dividends in the case of
cumulative dividend Preferred Stock) 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 Stock of such class or series.
When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the shares of Preferred Stock of any class or
series and the shares of any other class or series of Preferred Stock ranking on
a parity as to dividends with the Preferred Stock of such class or series, all
dividends declared upon shares of Preferred Stock of such class or series and
any other class or series of Preferred Stock ranking on a parity as to dividends
with such Preferred Stock shall be declared pro rata among the holders of such
class or series. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Stock of
such class or series which may be in arrears.
Until required dividends are paid, no dividends (other than in Common Stock
or other capital stock ranking junior to the Preferred Stock of such class or
series as to dividends and upon liquidation) shall be declared or paid or set
aside for payment, nor shall any other distribution be declared or made upon the
Common Stock or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such class or series as to dividends or upon
liquidation, nor shall any Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Stock of such class
or 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 shares of any such stock)
by the Company (except by conversion into or exchange for other capital stock of
the Company ranking junior to the Preferred Stock of such class or series as to
dividends and upon liquidation).
Any dividend payment made on shares of a class or series of Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of Preferred Stock of such class or series which remains
payable.
Redemption
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a class or series of Preferred Stock
that is subject to mandatory redemption will specify the number of shares of
such Preferred Stock that shall be redeemed by the Company in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid dividends
thereon (which shall not, if such Preferred Stock does 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 Prospectus Supplement. If the
redemption price for Preferred Stock of any class or series is payable only from
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the net proceeds of the issuance of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such capital stock 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 Stock shall
automatically and mandatorily be converted into shares of the applicable capital
stock of the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
So long as any dividends on shares of any class or series of the Preferred
Stock of the Company ranking on a parity as to dividends and distributions of
assets with such class or series of the Preferred Stock are in arrears, no
shares of any such class or series of the Preferred Stock of the Company will be
redeemed (whether by mandatory or optional redemption) unless all such shares
are simultaneously redeemed, and the Company will not purchase or otherwise
acquire any such shares; provided, however, that the foregoing will not prevent
the purchase or acquisition of such shares of Preferred Stock to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding shares of Preferred Stock of such
class or series and, unless the full cumulative dividends on all outstanding
shares of any cumulative Preferred Stock of such class or series and any other
stock of the Company ranking on a parity with such class or series as to
dividends and upon liquidation shall have been paid or contemporaneously are
declared and paid for all past dividend periods, the Company shall not purchase
or otherwise acquire directly or indirectly any shares of Preferred Stock of
such class or series (except by conversion into or exchange for stock of the
Company ranking junior to the Preferred Stock of such class or series as to
dividends and upon liquidation); provided, however, that the foregoing will not
prevent the purchase or acquisition of such shares of Preferred Stock to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such class or series.
If fewer than all of the outstanding shares of Preferred Stock of any class
or series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
by such holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by the Company that will not result in the
issuance of any Excess Shares.
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 a share of Preferred
Stock of any class or series to be redeemed at the address shown on the stock
transfer books of the Company. If notice of redemption of any shares of
Preferred Stock has been given and if the funds necessary for such redemption
have been set aside by the Company in trust for the benefit of the holders of
any shares of Preferred Stock so called for redemption, then from and after the
redemption date dividends will cease to accrue on such shares of Preferred
Stock, such shares of Preferred Stock shall no longer be deemed outstanding and
all rights of the holders of such shares will terminate, except the right to
receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of Common Stock, or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each class or series of Preferred Stock shall be entitled to receive
out of assets of the Company legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Stock does not have a cumulative dividend). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of shares
of Preferred Stock will have no right or claim to any of the remaining assets of
the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the legally available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of Preferred Stock and the corresponding amounts payable
on all shares of other classes or series of capital stock of the Company ranking
on a parity with the Preferred Stock in the distribution of assets upon
liquidation, dissolution or winding up, then the holders of the Preferred Stock
and all other such classes or
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series of capital stock 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
shares of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares.
Voting Rights
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Any class or series of Preferred Stock may provide that, so long as any
shares of such class or series of Preferred Stock remain outstanding, the
holders of such class or series may vote as a separate class on certain
specified matters, which may include changes in the Company's capitalization,
amendments to the Articles of Incorporation, and mergers and dispositions.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such class or series of Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been irrevocably deposited in trust to effect such
redemption.
The provisions of a class or series of Preferred Stock may provide for
additional rights, remedies, and privileges if dividends on such class or series
are in arrears for specified periods, which rights and privileges will be
described in the applicable Prospectus Supplement.
Under Maryland law, notwithstanding anything to the contrary set forth
above, holders of each class or series of Preferred Stock will be entitled to
vote upon a proposed amendment to the Articles of Incorporation, whether or not
entitled to vote thereon by the Articles of Incorporation, if the amendment
would alter the contract rights, as set forth in the Articles of Incorporation,
of their shares of stock.
Conversion Rights
The terms and conditions, if any, upon which shares of any class or series
of Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is 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 Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Stock.
Restrictions On Ownership
The Preferred Stock will be subject to certain restrictions on ownership as
described in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
General
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular class or series of Preferred Stock, as specified in the applicable
Prospectus Supplement. Shares of Preferred Stock of each class or series
represented by Depositary Shares will be deposited under a separate Deposit
Agreement (each, a "Deposit Agreement") among the Company, the depositary named
therein (the "Preferred Stock Depositary") and the holders from time to time of
the Depositary Receipts. Subject to the terms of the Deposit Agreement, each
owner of a Depositary Receipt will be entitled, in proportion to the fractional
interest of a share of a particular class or series of Preferred Stock
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represented by the Depositary Shares evidenced by such Depositary Receipt, to
all the rights and preferences of the Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to the Preferred Stock
Depositary, the Company will cause the Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipts to be issued thereunder are summaries of certain
provisions thereof and do not purport to be complete and are subject to, and
qualified in their entirety by reference to, all of the provisions of the
applicable Deposit Agreement and related Depositary Receipts.
Dividends and Other Distributions
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to the record
holders of Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Stock
Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock converted into other securities.
Withdrawal of Stock
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into other securities), the
holders thereof will be entitled to delivery at such office, to or upon such
holder's order, of the number of whole or fractional shares of the Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of shares of Preferred Stock to be withdrawn, the
Preferred Stock Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
Redemption of Depositary Shares
Whenever the Company redeems shares of Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of Depositary Shares representing shares of the
Preferred Stock so redeemed, provided the Company shall have paid in full to the
Preferred Stock Depositary the redemption price of the Preferred Stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the corresponding proportion of the redemption price and any other
amounts per share payable with respect to the Preferred Stock. If fewer than all
the Depositary Shares are to be redeemed, the Depositary Shares to be redeemed
will be selected pro rata (as nearly as may be practicable without creating
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fractional Depositary Shares) or by any other equitable method determined by the
Company that will not result in a violation of the Ownership Limit.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption and surrender thereof to the Preferred Stock Depositary.
Voting of the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of Preferred
Stock represented by such holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Stock Depositary in order to enable the Preferred Stock Depositary to
do so. The Preferred Stock Depositary will abstain from voting the amount of
Preferred Stock represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Stock Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or willful misconduct of the
Preferred Stock Depositary.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
Conversion of Preferred Stock
The Depositary Shares, as such, are not convertible into Common Stock or
any other securities or property of the Company. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
Preferred Stock Depositary with written instructions to the Preferred Stock
Depositary to instruct the Company to cause conversion of the Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipts into
whole shares of Common Stock, other shares of Preferred Stock of the Company or
other shares of stock, and the Company has agreed that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for delivery
of Preferred Stock to effect such conversion. If the Depositary Shares evidenced
by a Depositary Receipt are to be converted in part only, a new Depositary
Receipt or Receipts will be issued for any Depositary Shares not to be
converted. No fractional shares of Common Stock will be issued upon conversion,
and if such conversion would result in a fractional share being issued, an
amount will be paid in cash by the Company equal to the value of the fractional
interest based upon the closing price of the Common Stock on the last business
day prior to the conversion.
Amendment and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and
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the Preferred Stock Depositary. However, any amendment that materially and
adversely alters the rights of the holders of Depositary Receipts or that would
be materially and adversely inconsistent with the rights granted to the holders
of the related Preferred Stock will not be effective unless such amendment has
been approved by the existing holders of at least 66 2/3% of the Depositary
Shares evidenced by the Depositary Receipts then outstanding. No amendment shall
impair the right, subject to certain exceptions in the Depositary Agreement, of
any holder of Depositary Receipts to surrender any Depositary Receipt with
instructions to deliver to the holder the related Preferred Stock and all money
and other property, if any, represented thereby, except in order to comply with
law. Every holder of an outstanding Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such Receipt,
to consent and agree to such amendment and to be bound by the Deposit Agreement
as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each class or series of Preferred Stock affected by such termination
consents to such termination, whereupon the Preferred Stock Depositary shall
deliver or make available to each holder of Depositary Receipts, upon surrender
of the Depositary Receipts held by such holder, such number of whole or
fractional shares of Preferred Stock as are represented by the Depositary Shares
evidenced by such Depositary Receipts together with any other property held by
the Preferred Stock Depositary with respect to such Depositary Receipts. The
Company has agreed that if the Deposit Agreement is terminated to preserve the
Company's status as a REIT, then the Company will use its best efforts to list
the Preferred Stock issued upon surrender of the related Depositary Shares on a
national securities exchange. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been
redeemed, (ii) there shall have been a final distribution in respect of the
related Preferred Stock in connection with any liquidation, dissolution or
winding up of the Company and such distribution shall have been distributed to
the holders of Depositary Receipts evidencing the Depositary Shares representing
such Preferred Stock or (iii) each share of the related Preferred Stock shall
have been converted into securities of the Company not so represented by
Depositary Shares.
Charges of Preferred Stock Depositary
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
Resignation and Removal of Depository
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
Miscellaneous
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to
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performing their duties thereunder in good faith and without negligence (in the
case of any action or inaction in the voting of Preferred Stock represented by
the Depositary Shares), gross negligence or willful misconduct, and the Company
and the Preferred Stock Depositary will not be obligated to prosecute or defend
any legal proceeding in respect of any Depositary Receipts, Depositary Shares or
shares of Preferred Stock represented thereby unless satisfactory indemnity is
furnished. The Company and the Preferred Stock Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event the Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF DEBT SECURITIES
The Company may issue Debt Securities under one or more trust indentures
(each an "Indenture") to be executed by the Company and one or more trustees
(each a "Trustee") meeting the requirements of a trustee under the Trust
Indenture Act of 1939, as amended (the "TIA"). The Indentures will be qualified
under the TIA.
The following description sets forth certain anticipated 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
(which terms may be different than those stated below) 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.
Accordingly, for a description of the terms of a particular issue of Debt
Securities, reference must be made to both the Prospectus Supplement relating
thereto and the following description. Forms of the Senior Indenture (as defined
herein) and the Subordinated Indenture (as defined herein) have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
General
The Debt Securities will be direct obligations of the Company and may be
either senior Debt Securities ("Senior Securities") or subordinated Debt
Securities ("Subordinated Securities"). The indebtedness represented by
Subordinated Securities will be subordinated in right of payment to the prior
payment in full of the Senior Debt (as defined in the applicable Indenture) of
the Company. Senior Securities and Subordinated Securities will be issued
pursuant to separate indentures (respectively, a "Senior Indenture" and a
"Subordinated Indenture"), in each case between the Company and a Trustee.
Except as set forth in the applicable Indenture and described in a
Prospectus Supplement relating thereto, the Debt Securities may be issued
without limit as to aggregate principal amount, in one or more series, secured
or unsecured, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors of the Company or as
established in the applicable Indenture. All Debt Securities of one series need
not be issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) the title of such Debt Securities and whether such Debt Securities are
Senior Securities or Subordinated Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
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acceleration of the maturity thereof, or (if applicable) the portion
of the principal amount of such Debt Securities which is convertible
into Common Stock or Preferred Stock, or the method by which any such
portion shall be determined;
(4) if convertible, any applicable limitations on the ownership or
transferability of the Common Stock or Preferred Stock into which such
Debt Securities are convertible;
(5) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) the date or dates, or the method for determining such date or dates,
from which any interest will accrue, the interest payment dates on
which any such interest will be payable, the regular record dates for
such interest payment dates, or the method by which any such date
shall be determined, the person to whom such interest shall be
payable, and the basis upon which interest shall be calculated if
other than that of a 360-day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for conversion or registration of
transfer or exchange and notices or demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be
served;
(9) the period or periods within which, the price or prices at which and
the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Company, if the
Company is to have such an option;
(10) the obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or
periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not be, based on a currency, currencies,
currency unit or units or composite currency or currencies) and the
manner in which such amounts shall be determined;
(13) any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(14) any provisions for collateral security for repayment of such Debt
Securities;
(15) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(16) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(17) the applicability, if any, of defeasance and covenant defeasance
provisions of the applicable Indenture;
(18) the terms, if any, upon which such Debt Securities may be convertible
into Common Stock or Preferred Stock of the Company and the terms and
conditions upon which such conversion will be effected, including,
without limitation, the initial conversion price or rate and the
conversion period;
(19) whether and under what circumstances the Company will pay additional
amounts as contemplated in the Indenture on such Debt Securities in
respect of any tax, assessment or governmental charge and, if
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so, whether the Company will have the option to redeem such Debt
Securities in lieu of making such payment; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture, the applicable Indenture
will not contain any provisions that would limit the ability of the Company to
incur indebtedness or that would afford Holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company or
in the event of a change of control. Restrictions on ownership and transfers of
the Company's Common Stock and Preferred Stock are designed to preserve its
status as a REIT and, therefore, may act to prevent or hinder a change of
control. See "Description of Capital Stock -- Restrictions on Ownership."
Reference is made to the applicable Prospectus Supplement for information with
respect to any deletions from, modifications of or additions to the Events of
Default or covenants of the Company that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
Merger, Consolidation Or Sale
It is expected that each Indenture will provide that the Company may
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other corporation, provided that (a)
either the Company shall be the continuing corporation, or the successor
corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
shall expressly assume payment of the principal of (and premium, if any), and
interest on, all of the applicable Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
the applicable Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Company or any subsidiary as a result thereof as having been incurred by the
Company or such subsidiary at the time of such transaction, no Event of Default
under the applicable Indenture, and no event which, after notice or the lapse of
time, or both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officer's certificate and legal opinion covering such
conditions shall be delivered to the Trustee.
Covenants
Each Indenture will contain covenants requiring the Company to take certain
actions and prohibiting the Company from taking certain actions. The covenants
with respect to any series of Debt Securities will be described in the
Prospectus Supplement relating thereto.
Events Of Default, Notice And Waiver
Each Indenture will describe specific "Events of Defaults" with respect to
any series of Debt Securities issued thereunder. Such "Events of Defaults" are
likely to include (with grace and cure periods): (i) default in the payment of
any installment of interest on any Debt Security of such series; (ii) default in
the payment of principal of (or premium, if any, on) any Debt Security of such
series at its maturity; (iii) default in making any required sinking fund
payment for any Debt Security of such series; (iv) default in the performance or
breach of any other covenant or warranty of the Company contained in the
applicable Indenture (other than a covenant added to the Indenture solely for
the benefit of a series of Debt Securities issued thereunder other than such
series), continued for a specified period of days after written notice as
provided in the applicable Indenture; (v) default in the payment of specified
amounts of indebtedness of the Company or any mortgage, indenture or other
instrument under which such indebtedness is issued or by which such indebtedness
is secured, such default having occurred after the expiration of any applicable
grace period and having resulted in the acceleration of the maturity of such
indebtedness, but only if such indebtedness is not discharged or such
acceleration is not rescinded or annulled and
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(vi) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company or any
subsidiary or either of its property.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% of the
principal amount of the outstanding Debt Securities of that series will have the
right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amounts may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the holders of not less than a majority in principal amount of outstanding Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (a) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture. Each
Indenture also will provide that the holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under the applicable Indenture, as the case may
be) may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or (y) in respect of a covenant or
provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the holder of each outstanding Debt Security
affected thereby.
Each Trustee will be required to give notice to the holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such holders.
Each Indenture will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the cases of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of a Event of Default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of Debt
Securities from instituting suit for the enforcement of payment of the principal
of (and premium, if any) and interest on such Debt Securities at the respective
due dates thereof.
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any holders of any
series of Debt Securities then outstanding under such Indenture, unless such
holders shall have offered to the Trustee thereunder reasonable security or
indemnity. The holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series (or of all Debt Securities then
outstanding under an Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or of exercising any trust or power
conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the holders of Debt Securities of such series not joining
therein.
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Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof.
Modification Of The Indentures
It is anticipated that modifications and amendments of an Indenture may be
made by the Company and the Trustee, with the consent of the holders of not less
than a majority in aggregate principal amount of each series of the outstanding
Debt Securities issued under the Indenture which are affected by the
modification or amendment, provided that no such modification or amendment may,
without a consent of each holder of such Debt Securities affected thereby: (1)
change the stated maturity date of the principal of (or premium, if any) or any
installment of interest, if any, on any such Debt Security; (2) reduce the
principal amount of (or premium, if any) or the interest, if any, on any such
Debt Security or the principal amount due upon acceleration of an Original Issue
Discount Security; (3) change the place or currency of payment of principal of
(or premium, if any) or interest, if any, on any such Debt Security; (4) impair
the right to institute suit for the enforcement of any such payment on or with
respect to any such Debt Security; (5) reduce the above-stated percentage of
holders of Debt Securities necessary to modify or amend the Indenture; or (6)
modify the foregoing requirements or reduce the percentage of outstanding Debt
Securities necessary to waive compliance with certain provisions of the
Indenture or for waiver of certain defaults. A record date may be set for any
act of the holders with respect to consenting to any amendment.
The holders of not less than a majority in principal amount of outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture.
Each Indenture will contain provisions for convening meetings of the
holders of Debt Securities of a series to take permitted action.
Redemption Of Securities
Each Indenture will provide that the Debt Securities may be redeemed at any
time at the option of the Company, in whole or in part, for certain reasons
intended to protect the Company's status as a REIT. Debt Securities may also be
subject to optional or mandatory redemption on terms and conditions described in
the applicable Prospectus Supplement.
From and after notice has been given as provided in the applicable
Indenture, if funds for the redemption of any Debt Securities called for
redemption shall have been made available on such redemption date, 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 will be to receive payment of the Redemption Price.
Conversion Of Securities
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
Subordination
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Securities. No payment of principal or interest will be permitted to be
made on Subordinated Securities at any time if a default
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in Senior Securities exists that permits the Holders of such Senior Securities
to accelerate their maturity and the default is the subject of judicial
proceedings or the Company receives notice of the default. After all Senior
Securities are paid in full and until the Subordinated Securities are paid in
full, Holders of Subordinated Securities will be subrogated to the right of
Holders of Senior Securities to the extent that distributions otherwise payable
to Holders of Subordinated Securities have been applied to the payment of Senior
Securities. By reason of such subordination, in the event of a distribution of
assets upon insolvency, certain general creditors of the Company may recover
more, ratably, than Holders of Subordinated Securities. If this Prospectus is
being delivered in connection with a series of Subordinated Securities, the
accompanying Prospectus Supplement or the information incorporated herein by
reference will contain the approximate amount of Senior Securities outstanding
as of the end of the Company's most recent fiscal quarter.
CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's charter and bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to Maryland law and
to the Company's charter and bylaws. See "Available Information."
Classification Of The Board Of Directors
The Company's bylaws provide that the number of directors of the Company
may be established by the Board of Directors but may not be fewer than the
minimum number required by MGCL (which under most circumstances is three
directors) nor more than fifteen. Any vacancy will be filled, at any regular
meeting or at any special meeting called for that purpose, by a majority of the
remaining directors, except that a vacancy resulting from an increase in the
number of directors will be filled by a majority vote of the entire Board of
Directors. Pursuant to the terms of the charter, the directors are divided into
three classes. One class held office initially for a term which expired at the
annual meeting of stockholders held in May 1995 (and the directors of such class
were reelected for a full term of three years). Another class held office for a
term which expired at the annual meeting of stockholders held in 1996 (and the
directors of such class were reelected for a full term of three years) and
another class will hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1997. As the term of each class expires,
directors in that class will be elected for a term of three years and until
their successors are duly elected and qualify. The Company believes that
classification of the Board of Directors will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Board of Directors.
The classified director provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult, which
could discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. At least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in a majority of the Board of Directors. Thus, the classified board provision
could increase the likelihood that incumbent directors will retain their
positions. Holders of Common Stock will have no right to cumulative voting for
the election of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of shares of Common Stock will be able to elect all of
the successors of the class of directors whose term expires at that meeting.
Removal Of Directors
The charter provides that a director may be removed only for cause (as
defined in the charter) and only by the affirmative vote of at least two-thirds
of the votes entitled to be cast in the election of directors. This provision,
when coupled with the provision in the bylaws authorizing the Board of Directors
to fill vacant directorships, precludes stockholders from removing incumbent
directors and filling the vacancies created by such removal with their own
nominees.
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Business Combinations
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting stock of the corporation (an "Interested Stockholder") or an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Stockholder becomes an Interested Stockholder. Thereafter,
any such business combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least: (a) 80% of
the votes entitled to be cast by holders of outstanding voting shares of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. These provisions of Maryland law
do not apply, however, to business combinations that are approved or exempted by
the Board of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Board of Directors has
exempted from these provisions of the MGCL any business combination with the
Principals and other officers of the Company, any present or future affiliate or
associate of theirs or any other person acting in concert or as a group with any
of the foregoing persons. As a result, these persons may be able to enter into
business combinations with the Company, which may not be in the best interest of
the stockholders, without compliance by the Company with the super-majority vote
requirement and the other provisions of the statute.
Control Share Acquisitions
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control Shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
such person, or in respect of which such person is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
of all voting power. Control shares do not include shares the acquiring person
is then entitled to vote as a result of having previously obtained stockholder
approval. A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions. A person who has made or proposes to make a
control share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the Board of Directors to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights previously have
been approved) for fair value determined, without regard to the absence of
voting rights for control shares, as of the date of the last control share
acquisition or of any meeting of stockholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a stockholders meeting and the acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid in
the control share acquisition, and certain limitations and restrictions
otherwise applicable to the exercise of dissenters' rights do not apply in the
context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
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The business combination statute and the control share acquisition statute
could have the effect of discouraging others to acquire the Company and of
increasing the difficulty of consummating any offer.
Amendment To The Charter
Certain provisions of the Company's charter, including its provisions on
classification of the Board of Directors, removal of directors, voting rights of
Common Stock and voting requirements for charter amendments, may be amended only
by the affirmative vote of the holders of not less than two-thirds of all of the
votes entitled to be cast on the matter.
Dissolution Of The Company
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be cast
on the matter.
Advance Notice Of Director Nominations And New Business
The bylaws of the Company provide that: (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only: (i) pursuant to the Company's notice of the meeting, (ii) by the
Board of Directors, (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
bylaws, and (b) with respect to special meetings of stockholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of stockholders, and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of the meeting,
(ii) by the Board of Directors, or (iii) provided that the Board of Directors
has determined that directors shall be elected to such meeting, by a stockholder
who is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the bylaws.
The provisions in the charter on classification of the Board of Directors
and removal of directors, the business combination and the control share
acquisition provisions of the MGCL, and the advance notice provisions of the
bylaws could have the effect of discouraging a takeover or other transaction in
which holders of some, or a majority, of the Common Stock might receive a
premium for their Common Stock over the then prevailing market price or which
such holders might believe to be otherwise in their best interests.
Limitation of Liability and Indemnification
The MGCL permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from: (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The charter of the
Company contains such a provision which limits such liability to the maximum
extent permitted by the MGCL. This provision does not limit the ability of the
Company or its stockholders to obtain other relief, such as an injunction or
rescission.
The bylaws of the Company obligate it to the maximum extent permitted by
Maryland law to indemnify and to pay or reimburse reasonable expenses in advance
of final disposition of a proceeding to: (a) any present or former director or
officer or (b) any individual who, while a director of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. The charter and
bylaws also permit the Company to indemnify and advance expenses to any person
who served a predecessor of the Company in any of the capacities described above
and to any employee or agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a
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corporation to indemnify its present and former directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other capacities
unless it is established that: (a) the act or omission of the director or
officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL requires the Company, as a condition to advancing expenses,
to obtain: (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the Company as authorized by the bylaws and (b) a written
statement by or on his behalf to repay the amount paid or reimbursed by the
Company if it shall ultimately be determined that the standard of conduct was
not met. The termination of any proceeding by conviction, or upon a plea of nolo
contendere or its equivalent, or an entry of any order of probation prior to
judgment, creates a rebuttable presumption that the director or officer did not
meet the requisite standard of conduct required for indemnification to be
permitted. It is the position of the Commission that indemnification of
directors and officers for liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act of 1933, as amended.
The limited partnership agreement of the Operating Partnership (the
"Partnership Agreement") also provides for indemnification of the Company, as
general partner, and its officers and directors generally to the same extent as
permitted by the MGCL for a corporation's officers and directors and limits the
liability of the Company to the Operating Partnership and its partners in the
case of losses sustained, liabilities incurred or benefits not derived as a
result of errors in judgment or mistakes of fact or law or any act or omission
if the Company acted in good faith.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO THE COMPANY OF ITS REIT ELECTION
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not tax
advice. The tax treatment of a holder of any of the Offered Securities will vary
depending upon the terms of the specific securities acquired by such holder, as
well as his or her particular situation, and this discussion does not attempt to
address any aspects of federal income taxation relating to holders of Offered
Securities. Certain federal income tax considerations relevant to holders of the
Offered Securities will be provided in the applicable Prospectus Supplement
relating thereto.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation Of The Company
General. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1994. The Company believes
that it has been organized and has operated in such a manner as to qualify for
taxation as a REIT under the Code commencing with such taxable year, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that it has operated or will continue to operate in such a manner so as to
qualify or remain qualified.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT. This summary is qualified in its entirety
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by the applicable Code provisions, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof.
As a condition to the closing of each offering of Offered Securities,
except as otherwise specified in the applicable Prospectus Supplement, tax
counsel to the Company will render an opinion to the effect that, commencing
with the Company's taxable year ended December 31, 1994, the Company has been
organized in conformity with the requirements for qualification as a REIT, and
its proposed method of operation will enable it to meet the requirements for
continued qualification and taxation as a REIT under the Code. It must be
emphasized that this opinion will be based on various factual assumptions
relating to the organization and operation of the Company, the Operating
Partnership, the Lower Tier Partnerships, and the Management Company and will be
conditioned upon certain representations made by the Company as to factual
matters. Tax counsel to the Company will undertake no obligation to update its
opinion subsequent to its date. In addition, this opinion will be based upon the
factual representations of the Company concerning its business and properties as
set forth in this Prospectus and will assume that the actions described in this
Prospectus have been completed as described. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Code discussed below, the
results of which have not been and will not be reviewed by such tax counsel to
the Company. Accordingly, no assurance can be given that the actual results of
the Company's operation for any particular taxable year will satisfy such
requirements. Further, the anticipated income tax treatment described in this
Prospectus may be changed, perhaps retroactively, by legislative or
administrative action at any time. See "-Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, the Company will be subject to federal
income tax as follows: First, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference. Third, if the
Company has (i) net income from the sale or other disposition of "foreclosure
property" 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 rate on such income. Fourth, if
the Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as 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 (a) the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company 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 Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, with respect to an
asset (a "Built-In Gain Asset") acquired by the Company from a corporation which
is or has been a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in certain transactions in which the basis of the Built-In
Gain Asset in the hands of the Company is determined by reference to the basis
of the asset in the hands of the C corporation, if the Company recognizes gain
on the disposition of such asset during the ten-year period (the " Recognition
Period") beginning on the date on which such asset was acquired by the Company,
then, to the extent of the Built-In Gain (i.e., the excess of (a) the fair
market value of such asset over (b) the Company's adjusted basis in such asset,
determined as of the beginning of the Recognition Period), such gain will be
subject to tax at the highest regular corporate tax pursuant to Internal Revenue
Service ("IRS") regulations that have not yet been promulgated. The results
described above with respect to the recognition of Built-In Gain assume that the
Company will make an election pursuant to IRS Notice 88-19.
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Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities);
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 twelve months, or
during a proportionate part of a taxable year of less than twelve months.
Conditions (5) and (6) do not apply until after the first taxable year for which
an election is made to be taxed as a REIT. For purposes of conditions (5) and
(6), pension funds and certain other tax-exempt entities are treated as
individuals, subject to a "look-through" exception in the case of condition (6).
The Company has satisfied condition (5) and believes that it has issued
sufficient shares to allow it to satisfy condition (6). In addition, the
Company's charter provides for restrictions regarding ownership and transfer of
shares, which restrictions are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (5) and (6) above. Such
ownership and transfer restrictions are described in "Description of Capital
Stock-Restrictions on Ownership, Transfer and Conversion." These restrictions
may not ensure that the Company will, in all cases, be able to satisfy the share
ownership requirements described above, primarily (though not exclusively) as a
result of fluctuations in value among the different classes of the Company's
capital stock. If the Company fails to satisfy such share ownership
requirements, the Company's status as a REIT will terminate. See "-Failure to
Qualify."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has and will continue to have a
calendar taxable year.
Ownership of Subsidiaries. The Company owns interests in certain of the
Lower Tier Partnerships through subsidiaries. Code Section 856(i) provides that
a corporation which is a "qualified REIT subsidiary" (defined as any corporation
if 100 percent of the stock of such corporation is held by the REIT at all times
during the period such corporation was in existence) shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities and such items (as the case may be) of the REIT. Each of the
Company's subsidiaries qualify as "qualified REIT subsidiaries" within the
meaning of the Code. Thus, in applying the requirements described herein, the
Company's subsidiaries are ignored, and all assets, liabilities and items of
income, deduction and credit of such subsidiaries are treated as assets,
liabilities and items of income, deduction, and credit of the Company.
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, IRS regulations provide that the REIT will be deemed
to own its proportionate share of the assets of the partnership and will be
deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership shall 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. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Partnership (including the
Operating Partnership's share of such items of any Lower Tier Partnership) are
treated as assets, liabilities and items of income of the Company for purposes
of applying the requirements described herein. A summary of the rules governing
the Federal income taxation of partnerships and their partners is provided below
in "-Tax Aspects of the Operating Partnership." The Company has direct control
of the Operating Partnership and has and will continue to operate it consistent
with the requirements for qualification as a REIT.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances,
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interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments, dividends, interest and gain from the sale or disposition of stock
or securities (or from any combination of the foregoing). Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the Company's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an actual or constructive owner of 10% or more of
the REIT, actually or constructively owns 10% or more of such tenant (a "Related
Party Tenant"). Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an independent contractor from whom the REIT
derives no revenue. The REIT may, however, directly perform certain services
that are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant" of the property. The Company has not and will not (i) charge rent for
any property that is based in whole or in part on the income or profits of any
person (except by reason of being based on a percentage of receipts or sales, as
described above), (ii) rent any property to a Related Party Tenant (unless the
Board of Directors determines in its discretion that the rent received from such
Related Party Tenant is not material and will not jeopardize the Company's
status as a REIT), (iii) derive rental income attributable to personal property
(other than personal property leased in connection with the lease of real
property, the amount of which is less than 15% of the total rent received under
the lease), or (iv) perform services considered to be rendered to the occupant
of the property, other than through an independent contractor from whom the
Company derives no revenue.
The Management Company receives fees in exchange for the performance of
certain management services. Such fees will not accrue to the Company, but the
Company will derive dividends from the Management Company which qualify under
the 95% gross income test, but not the 75% gross income test. The Company
believes that the aggregate amount of any non-qualifying income in any taxable
year has not exceeded and will not exceed the limit on non-qualifying income
under the gross income tests.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above in "-Taxation of the
Company-General," even if these relief provisions apply, a tax would be
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imposed with respect to the excess net income. No similar mitigation provision
provides relief if the Company fails the 30% gross income test. In such case,
the Company would cease to qualify as a REIT.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business (including the Company's share of any such gain realized by
the Operating Partnership) will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon the Company's ability to satisfy the
income tests for qualification as a REIT. 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 intends to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating the Properties (and other properties) and to make such
occasional sales of the Properties as are consistent with the Operating
Partnership's investment objectives. There can be no assurance, however, that
the IRS might not contend that that one or more of such sales is subject to the
100% penalty tax.
Asset Tests. The Company, 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 Company's total assets (including its allocable
share of the assets held by the Operating Partnership) must be represented by
real estate assets (including (i) its allocable share of real estate assets held
by partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company'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 Company may not exceed 5% of
the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities.
The Operating Partnership owns 100% of the nonvoting preferred stock of the
Management Company and a note of the Management Company. The Operating
Partnership does not and will not own any of the voting securities of the
Management Company, and therefore the Company will not be considered to own more
than 10% of the voting securities of the Management Company. In addition, the
Company believes (and has represented to counsel to the Company for purposes of
its opinion, as discussed below) that the value of its pro rata share of the
securities of the Management Company to be held by the Operating Partnership did
not exceed at any time up to and including the date of this Prospectus 5% of the
total value of the Company's assets and will not exceed such amount in the
future. Tax counsel to the Company, in rendering its opinion as to the
qualification of the Company as a REIT, will be relying on representations of
the Company to such effect with respect to the value of such securities and
assets. No independent appraisals will be obtained to support this conclusion.
There can be no assurance that the IRS will not contend that the value of the
securities of the Management Company held by the Company (through the Operating
Partnership) exceeds the 5% value limitation.
After initially meeting the asset tests at the close of any quarter, the
Company 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
additional securities of the Management Company or other securities or other
property during a quarter (including as a result of the Company increasing its
interests in the Operating Partnership), the failure can be cured by disposition
of sufficient nonqualifying assets within 30 days after the close of that
quarter. The Company has maintained and will continue to maintain adequate
records of the value of its assets to ensure compliance with the asset tests and
to take such other actions within the 30 days after the close of any quarter as
may be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and
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the Company's net capital gain) and (ii) 95% of the net income (after tax), if
any, from foreclosure property, minus (B) the sum of certain items of noncash
income. In addition, if the Company disposes of any Built-In Gain Asset during
its Recognition Period, the Company will be required, pursuant to IRS
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. The Company
has made and intends to make timely distributions sufficient to satisfy these
annual distribution requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet these distribution requirements due to timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company. In the event that such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Furthermore, if the Company 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 Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed.
Failure To Qualify
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would reduce the cash available for distribution by the Company to its
stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income, to the extent
of the Company's current and accumulated earnings and profits, 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 Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
Tax Aspects Of The Operating Partnership
General. Substantially all of the Company's investments are held indirectly
through the Operating Partnership. In general, partnerships are "pass-through"
entities which are not subject to federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT
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taxable income. Moreover, for purposes of the REIT asset tests, the Company will
include its proportionate share of assets held by the Operating Partnership. See
"-Taxation of the Company."
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.
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 Operating Partnership's
allocations of taxable income and loss 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 the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property (including certain of the Properties). Moreover, subsequent
to the formation of the Operating Partnership, additional persons have
contributed appreciated property to the Operating Partnership in exchange for
interests in the Operating Partnership. The Partnership Agreement requires that
such allocations be made in a manner consistent with Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership who acquired
their limited partnership interests through a contribution of appreciated
property will be allocated depreciation deductions for tax purposes which are
lower than such deductions would be if determined on a pro rata basis. In
addition, in the event of the disposition of any of the contributed assets which
have a Book-Tax Difference, all income attributable to such Book-Tax Difference
will generally be allocated to such limited partners, and the Company will
generally be allocated only its share of capital gains attributable to
appreciation, if any, occurring after the time of contribution to the Operating
Partnership. This will tend to eliminate the Book-Tax Difference over the life
of the Operating Partnership. However, the special allocation rules of Section
704(c) do not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the contributed assets in the hands the Operating
Partnership may cause the Company to be allocated lower depreciation and other
deductions, and possibly an amount of taxable income in the event of a sale of
such contributed assets in excess of the economic or book income allocated to it
as a result of such sale. This may cause the Company to recognize taxable income
in excess of cash proceeds, which might adversely affect the Company's ability
to comply with the REIT distribution requirements. See "-Taxation of the
Company-Annual Distribution Requirements."
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
determined to use the "traditional method" for accounting for Book-Tax
Differences with respect to the Properties initially contributed to the
Operating Partnership.
With respect to any property purchased by the Operating Partnership in a
taxable transaction, such property will initially have a tax basis equal to its
fair market value, and Section 704(c) of the Code will not apply.
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Basis in Operating Partnership Interest. The Company's adjusted tax basis
in its 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 Company, (ii) 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 (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners), exceeds the Company's adjusted tax basis,
such excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's 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
will constitute long-term capital gain.
Other Tax Consequences
The Company may be subject to state or local taxation in various state or
local jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of the Company 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 Company.
A portion of the cash to be used by the Operating Partnership to fund
distributions to partners is expected to come from the Management Company,
through interest payments and dividends on non-voting preferred stock to be held
by the Operating Partnership. The Management Company will pay federal and state
tax on its net income at full corporate rates, which will reduce the cash
available for distribution to stockholders.
PLAN OF DISTRIBUTION
The Company may sell Securities through underwriters for public offer and
sale by them, and also may sell Securities offered hereby to investors directly
or through agents. Any such underwriter or agent involved in the offer and sale
of the Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.
Any underwriters or agents in connection with an offering of the
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements to be entered into with the Company, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
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If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts providing for payment and delivery on the date or
dates stated in such Prospectus Supplement. Each delayed delivery contract will
be for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to delayed delivery contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement. Institutions
with whom delayed delivery contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Delayed delivery
contracts will not be subject to any conditions except (i) the purchase by an
institution of the Securities covered by its delayed delivery contracts shall
not at the time of delivery be prohibited under the laws of any jurisdiction in
the United States to which such institution is subject, and (ii) if the
Securities are being sold to underwriters, the Company shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by delayed delivery contracts.
EXPERTS
The consolidated financial statements of First Washington Realty Trust,
Inc. incorporated by reference from the Annual Report on Form 10-K for the year
ended December 31, 1995, have been audited by Coopers & Lybrand L.L.P,
independent accountants as set forth in their report, which is incorporated
herein by reference. The financial statements of the New Retail Properties and
the 1996(B) Acquisition Properties incorporated by reference from the
Registration Statement on Form S-11, as amended, filed on November 23, 1996,
have been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their report, which is incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such reports
given on the authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Latham &
Watkins, Washington, D.C. Latham & Watkins will rely as to certain matters of
Maryland law, including the legality of the Securities, on the opinion of
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
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No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus in
connection with the offering covered by this Prospectus Supplement and the
accompanying Prospectus. If given or made, such information or representations
must not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus Supplement and the accompanying Prospectus do not
constitute an offer to sell or a solicitation of any offer to buy any of the
securities offered hereby to any person or by anyone in any jurisdiction in
which it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus Supplement or the Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information contained
herein is correct as of any date subsequent to the date hereof.
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TABLE OF CONTENTS
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PAGE
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Prospectus Supplement
The Company ............................................................. S-1
Recent Developments...................................................... S-2
The Offering............................................................. S-3
Use of Proceeds.......................................................... S-3
Properties............................................................... S-3
Price Range of the Common Stock and Distributions........................ S-8
Capitalization........................................................... S-9
Selected Historical and Portfolio Financial Information.................. S-10
Management............................................................... S-13
Certain Federal Income Tax Considerations to Holders of Common Stock..... S-13
Underwriting............................................................. S-16
Experts.................................................................. S-17
Legal Matters............................................................ S-17
Prospectus
Available Information.................................................... 1
Incorporation of Certain Documents by Reference.......................... 2
The Company.............................................................. 3
Use of Proceeds.......................................................... 4
Ratio or Earnings to Fixed Charges....................................... 4
General Description of Common Stock...................................... 4
Decscription of Common Stock............................................. 7
Description of Common Stock Warrants..................................... 8
Description of Preferred Stock........................................... 9
Description of Depositary Shares......................................... 12
Description of Debt Securities........................................... 16
Certain Provisions of Maryland Law and the Company's Charter and Bylaws.. 21
Certain Federal Income Tax Considerations
to the Company of its REIT Election.................................... 24
Plan of Distribution..................................................... 31
Experts.................................................................. 32
Legal Matters............................................................ 32
1,800,000 Shares
FIRST WASHINGTON
REALTY TRUST, INC.
Common Stock
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PROSPECTUS SUPPLEMENT
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BT Alex. Brown
Friedman, Billings, Ramsey & Co., Inc.
Salomon Brothers Inc
Tucker Anthony
INCORPORATED
September 17, 1997
