As filed with the Securities and Exchange Commission on October 30, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST WASHINGTON REALTY TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 52-1879972
(State or Other (IRS Employer Identification Number)
Jurisdiction of
Incorporation or
Organization)
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
(301) 907-7800
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
William J. Wolfe
President and Chief Executive Officer
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
(301) 907-7800
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For
Service)
with a copy to:
R. Ronald Hopkinson, Esq.
Latham & Watkins
885 Third Avenue
Suite 1000
New York, New York 10022
(212) 906-1200
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, please check the following box.
[X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Title of
Each Class Proposed Proposed
of Securities Amount Maximum Maximum Amount of
to be to be Aggregate Aggregate Registration
Registered Registered Unit (1) Price Fee
- --------------------------------------------------------------------------------
Common Stock (2) 1,043,109 $23.28125 $24,284,881 $6,751.20
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), and based on a per share price of $22.9375, the average
of the high and low prices of the Company's common stock, as reported on the New
York Stock Exchange on October 27, 1998. (2) Also includes preferred share
purchase rights. Prior to the occurrence of certain events, these rights will
not be exercisable or represented separately from the Common Stock. This
registration statement relates to the possible issuance of shares of common
stock of First Washington Realty Trust, Inc. upon the exchange of units of
limited partnership interest in First Washington Realty Limited Partnership.
These units were issued in transactions on September 1, 1998 and October 1,
1998, and become exchangeable after October 31, 1998. The registrant hereby
amends this registration statement on such date or dates as may be necessary to
delay its effective date until the registrant shall file a further amendment
that specifically states that this registration statement shall thereafter
become effective in accordance with section 8(a) of the Securities Act of 1933,
as amended, or until the registration statement shall become effective on such
date as the Commission, acting pursuant to said section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not a solicitation of an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1998
FIRST WASHINGTON REALTY TRUST, INC.
1,043,109 Shares
Common Stock
($0.01 Par Value Per Share)
Through this prospectus, First Washington Realty Trust, Inc., a
Maryland corporation, offers shares of its common stock, par value $0.01 per
share. We are offering all of the shares included in this prospectus upon the
exchange of certain partnership units as described more fully in this
prospectus. We will not receive any of the proceeds from the sale of the shares
offered under this prospectus. See "Plan of Distribution."
We engage in the acquisition, property management, leasing, renovation
and development of principally supermarket- anchored neighborhood shopping
centers. We are a fully-integrated, self-administered and self-managed real
estate investment trust (a "REIT"). We refer to First Washington Realty Trust,
Inc. as the REIT. We are the sole general partner of, and own approximately
77.1% of the partnership interests in, First Washington Realty Limited
Partnership. We refer to First Washington Realty Limited Partnership in this
prospectus as the Operating Partnership. All of our operations are conducted,
directly or indirectly, through the Operating Partnership. We own a portfolio of
52 retail properties, which contain a total of approximately 5.6 million square
feet of gross leasable area. Our affiliate, First Washington Management, Inc.
provides management, leasing and related services to our properties and to
properties owned by third parties. We refer to First Washington Management, Inc.
in this prospectus as the Management Company.
Our common stock is listed on the New York Stock Exchange under the
symbol "FRW." On October 19, 1998, the closing sale price of our common stock
was $23.00.
To maintain our qualification as a REIT, we limit transfer of the
common stock, and no person may own, either actually or constructively, more
than 9.8% of the outstanding shares of our common stock and 9.8% of the
outstanding shares of our convertible preferred stock, subject to certain
exceptions.
This prospectus relates to our possible issuance of up to 1,043,109
shares of our common stock. Whether we issue these shares depends on whether,
and to what extent, holders of up to 1,043,109 common units of limited
partnership interest in the Operating Partnership tender their common units for
exchange. We are filing the registration statement of which this prospectus is a
part to fulfill our contractual obligations. We are registering these shares to
provide the holders of the shares with freely tradable securities. However, the
registration of these shares does not necessarily mean that the holders of the
shares will offer or sell the shares.
You should be aware that an investment in our common stock involves
various risks. In addition to the risk factors described in this prospectus, we
have described these risks in our Current Report on Form 8-K filed on October
30, 1998, which is incorporated in this prospectus by reference. Holders of
units should also realize that the exchange of a unit will be treated as a
taxable sale of the unit. As such, holders will recognize gain or loss from the
"sale" of the unit equal to the difference between the amount considered
realized for tax purposes and the holders' adjusted tax basis in the unit. You
should consider carefully these risk factors together with all of the other
information included in this prospectus before you decide to exchange units for
shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus is accurate or complete. It is illegal for any person to tell
you otherwise.
The date of this prospectus is October 30, 1998
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Therefore, we
file reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). You may inspect and obtain copies of our
reports, proxy statements and other information at:
.. Public Reference Section
Securities and Exchange Commission
Room 1024, Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
.. 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
The Commission also maintains a website at http://www.sec.gov where you can
retrieve this information. You may inspect copies of these materials and other
information about us at The New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
We have filed with the Commission a Registration Statement on Form S-3 for
the shares offered under this prospectus (together with all amendments, exhibits
and schedules, the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"). The prospectus and any accompanying
prospectus supplement do not contain all of the information included in the
Registration Statement. We have omitted certain parts of the Registration
Statement in accordance with the rules and regulations of the Commission. For
further information, we refer you to the Registration Statement, including its
exhibits and schedules. Statements contained in this prospectus and any
accompanying prospectus supplement about the provisions or contents of any
contract, agreement or any other document referred to are not necessarily
complete. For each of these contracts, agreements or documents filed as an
exhibit to the Registration Statement, we refer you to the actual exhibit for a
more complete description of the matters involved.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which we have previously filed with the
Commission, are incorporated by reference:
(1) our Annual Report on Form 10-K for the year ended December 31, 1997
filed with the Commission on March 31, 1998;
(2) the description of our common stock contained in our Registration
Statement on Form 8-A filed with the Commission on August 9, 1996, and the
description of our preferred share purchase rights contained in our Registration
Statement on Form 8-A filed on October 23, 1998;
(3) our Proxy Statement for our Annual Meeting of Shareholders held on May
8, 1998;
(4) our quarterly reports on Form 10-Q for the periods ended March 31, 1998
and June 30, 1998; and
(5) our current reports on Form 8-K filed on October 27, October 23, July
31, July 28, June 17 and May 18, 1998.
We incorporate by reference all documents that we file pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and before the termination of the offering of the shares made under
this prospectus. All of these documents shall be a part of this prospectus from
the date of filing. Any statement contained in this prospectus, or in a document
incorporated or deemed to be incorporated by reference in this prospectus, shall
be considered modified or superseded for purposes of this prospectus if anything
in this prospectus or in a document incorporated by reference into this
prospectus modifies or supersedes the statement. Any modified or superseded
statement will not constitute a part of this prospectus except as modified or
superseded.
We will provide without charge to each person who requests it in
writing, a copy of any or all of the documents incorporated by reference in this
prospectus, except the exhibits to those documents (unless the exhibits are
specifically incorporated by reference in the documents). You should direct
requests for these copies to First Washington Realty Trust, Inc., at 4350
East-West Highway, Suite 400, Bethesda, MD 20814, Attention: Investor Relations;
telephone number 301-907-7800.
<PAGE>
This prospectus, including the documents incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act. Also, documents subsequently filed by us with the Commission and
incorporated 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 described below and incorporated by
reference and the matters set forth or incorporated in this prospectus
generally. We caution you, however, that any list of risk factors may not be
exhaustive, particularly with respect to future filings.
Although First Washington Realty Trust, Inc., First Washington Realty
Limited Partnership and First Washington Management, Inc. are separate entities,
for ease of reference, the terms "we," "us," and "ours" refer to the business
and properties of all of these entities, unless the context indicates otherwise.
For ease of reference and clarity, we refer to First Washington Realty Trust,
Inc. as the "REIT," First Washington Realty Limited Partnership as the
"Operating Partnership," and First Washington Management, Inc. as the
"Management Company."
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
risk factors described below and incorporated by reference.
Tax Consequences of Exchange of Units. If you redeem or exchange units for
cash or shares of stock, you will recognize gain or loss because the redemption
and exchange are each fully taxable transactions. Depending upon your particular
situation, it is possible that the amount of gain you recognize or even your tax
liability resulting from the gain could exceed the amount of cash and the value
of the shares of stock you receive upon the redemption or exchange. See "Federal
Income Tax Considerations - Tax Consequences of Redemption or Exchange of
Units."
THE COMPANY
General
We are a fully-integrated, self-administered and self-managed real estate
investment trust with expertise in the acquisition, property management,
leasing, renovation and development of principally supermarket-anchored
neighborhood shopping centers. As of September 30, 1998, we owned a portfolio of
52 retail properties containing a total of approximately 5.6 million square feet
of gross leasable area ("GLA").
We have followed a highly focused business strategy with respect to
property type and location. We concentrate our efforts on supermarket-anchored
neighborhood shopping centers. We generally seek to own properties located in
densely populated areas with high visibility, open-air designs and ease of entry
and exit. Also, we seek to own properties that may be readily adaptable over
time to expansion, renovation and redevelopment.
Our retail properties are strategically located neighborhood shopping
centers principally anchored by well known tenants such as Giant Food, Safeway,
Shoppers Food Warehouse, Food Lion, A&P Superfresh, Winn Dixie, Weis Markets,
Acme Market, Dominick's Supermarket, CVS/Pharmacy and Rite Aid. Neighborhood
shopping centers are typically open-air centers ranging in size from 50,000 to
150,000 square feet of GLA and anchored by supermarkets and/or drug stores. Our
retail properties range in size from approximately 3,000 square feet of GLA to
approximately 335,000 square feet of GLA, and average approximately 106,000
square feet of GLA. The anchor tenants typically offer daily necessity items
rather than specialty goods. Nine of our retail properties are relatively small
in size, with less than 50,000 square feet of GLA. These smaller properties do
not have a large supermarket or drug store anchor tenant, and, therefore, may
experience greater variability in consumer traffic and operating performance.
The Operating Partnership and the Management Company hold all of our assets
and conduct all of our operations. Some of the properties are owned by
partnerships (or limited liability companies) in which the REIT, a subsidiary of
the REIT, or the Operating Partnership, acts as general partner (or managing
member) and owns a controlling interest (the "Lower Tier Partnerships"). We are
the sole general partner of the Operating Partnership and we currently own
approximately 77.1% of the partnership interests in the Operating Partnership.
The limited partners are individuals, partnerships and others who have
contributed their properties in exchange for partnership interests ("Units").
The limited partners may exchange their Units for cash, or, at our option, for
our stock on a one for one basis.
The Operating Partnership owns 100% of the non-voting preferred stock of
the Management Company, and is entitled to 99% of the cash flow from the
Management Company.
First Washington Realty Trust, Inc. was formed in April 1994 to continue
and expand the neighborhood shopping center acquisition, management and
renovation strategies of the Management Company. The Management Company has been
engaged in the business since 1983, and was founded by Stuart D. Halpert, our
Chairman, William J. Wolfe, our President and Chief Executive Officer, and
Lester Zimmerman, one of our Executive Vice Presidents.
We have approximately 70 employees. These employees include a team of asset
and property managers and leasing agents and in-house legal, architectural,
engineering, accounting, marketing and computer specialists. Our executive and
principal property management office is located at 4350 East-West Highway, Suite
400, Bethesda, Maryland 20814 and our telephone number is 301-907-7800. We also
have regional property management offices located in North Carolina,
Pennsylvania and Virginia.
Growth Strategies
We seek to increase cash flow and distributions and the value of our
portfolio through intensive property management and strategic renovation and
expansion of our properties. We also seek the opportunistic acquisition of
additional neighborhood shopping centers within the Mid-Atlantic region and the
Chicago metropolitan area. We have extensive knowledge of local market growth
patterns and economic conditions in these two areas. We would also consider
acquisitions in other metropolitan markets which management determines to be
both attractive and conveniently accessible.
Intensive Management. A key aspect of our strategy is improving the
operating performance of our properties over time through intensive property
management. We seek to increase operating margins by increasing revenues
(through increased occupancy and/or rental rates), maintaining high tenant
retention rates (i.e., the percentage of tenants who renew their leases upon
expiration), and aggressively managing operating expenses.
We believe that, as a fully integrated real estate organization with both
owned and third-party managed properties, we enjoy significant operating
efficiencies. Many of our competitors operate smaller, fragmented portfolios.
Our operating efficiencies are the result of economies of scale in operating
expenses, more effective leasing and marketing efforts, and enhanced tenant
retention levels. We also benefit from effectively spreading certain fixed
property management and leasing costs over our entire owned and third-party
managed portfolio. We believe that the scope of our portfolio, combined with the
professional and community ties of Messrs. Halpert and Wolfe to the Mid-Atlantic
region enables us to develop long-term relationships with national and regional
tenants which occupy multiple properties in our portfolio. We believe that these
relationships improve occupancy rates and tenant retention levels.
Strategic Renovation and Expansion. We seek to increase operating results
through the strategic renovation and expansion of certain of our properties. The
retail properties are typically adaptable for varied tenant layouts and can be
reconfigured to accommodate new tenants or the changing space needs of existing
tenants. In determining whether to proceed with a renovation or expansion, we
consider both the cost of expansion or renovation and the increase in rent
attributable to expansion or renovation. We believe that our retail properties
will provide opportunities for renovation and expansion.
As a fully-integrated real estate organization, we maintain expertise in
the development of new retail properties. We developed three of our properties
containing approximately 525,000 square feet of GLA. We believe that our
principal anchor tenants and other real estate professionals are likely to
present us with development opportunities in the future.
Opportunistic Acquisitions. Another principal component of our strategy is
the acquisition of additional neighborhood shopping centers within the
Mid-Atlantic region and the Chicago metropolitan area. We will seek to acquire
properties which are strategically located along major traffic arteries in
well-established, densely populated communities. We typically select properties
in locations where we believe the supply of developable land and zoning
restrictions impede the development of competing shopping centers and where
tenants' location alternatives are limited. We would also consider acquisitions
in other metropolitan markets which management determines to be both attractive
and conveniently accessible.
Through our third-party management, leasing and related service business
and network of regional management and leasing offices, we are familiar with
local conditions in our markets. Because our third-party clients frequently seek
assistance with the revitalization and disposition of their properties, we
believe that we are in a unique position to ultimately acquire these properties.
For example, the Management Company provided property management and leasing
services for five properties acquired from third-party clients. We believe
opportunities for neighborhood shopping center acquisitions are particularly
attractive at this time, due to fragmented ownership of neighborhood shopping
center properties, limited availability of capital for non-institutional owners
of retail property, and declining construction of new retail properties.
When evaluating potential acquisitions, we consider such factors as:
.. economic, demographic and regulatory conditions in the property's local and
regional market;
.. the location, construction quality and design of the property;
.. the current and projected cash flow of the property and the potential to
increase cash flow;
.. the potential for capital appreciation of the property;
.. the terms of tenant leases, including the relationship between the
property's current rents and market rents and the ability to increase rents
upon lease rollover;
.. the occupancy and demand by tenants for properties of a similar type in the
market area;
.. the potential to complete a strategic renovation, expansion, or retenanting
of the property;
.. the property's current expense structure and the potential to increase
operating margins; and
.. competition from comparable retail properties in the market area. We have
successfully completed the acquisition of 39 properties since our
organization in April 1994.
Property Management, Leasing And Related Service Business
Through our interest in the Management Company, we have continued the
property management, leasing and related service business of the Management
Company. The Operating Partnership owns all of the non-voting preferred stock of
the Management Company and is entitled to 99% of the cash flow of the Management
Company. Certain members of management own the outstanding common stock of the
Management Company, and are therefore entitled to 1% of the cash flow of the
Management Company. In addition to servicing our properties, as of September 30,
1998, the Management Company provided management, leasing and related services
to 25 properties comprising approximately 2.7 million square feet of GLA for 15
third-party clients. In addition to providing another source of growth for funds
from operations, we believe that the third-party management business allows us
to:
.. achieve operating efficiencies in managing our owned properties through the
bulk purchase of goods and services;
.. develop more extensive, long-term relationships with tenants in multiple
properties; and
.. identify additional acquisition opportunities from third-party clients
interested in the eventual sale of their properties.
The Management Company provides services to third-party owners under
contracts of varying duration. These contracts generally provide for management
fees of up to 5.0% of monthly gross property receipts. The management contracts
are typically cancelable upon 30 days' notice or upon the occurrence of certain
events, including the sale of the property. Leasing fees typically range from
3.0% to 6.0% of the minimum base rents payable during the initial term of the
lease. We believe that the Management Company has an excellent reputation with
respect to lease renewals, increases in net operating income for managed
properties, and its timely and accurate reporting to clients. In addition to its
third-party management and leasing business, the Management Company provides
related services including consulting and brokerage services for which it
receives customary fees.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of our stock does not purport to be
complete and is subject to and qualified by the Maryland General Corporation Law
and our charter (a copy of which is an exhibit to our Annual Report on Form 10-K
for the year ended December 31, 1997) and our bylaws (a copy of which is an
exhibit to this Registration Statement). See "Available Information."
General
Our charter authorizes us to issue up to 90,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. As of September 30, 1998, we have 8,556,985 shares of common
stock and 2,314,189 shares of convertible preferred stock issued and
outstanding. Under Maryland law, stockholders generally are not liable for the
corporation's debts or obligations.
Common Stock
As a holder of common stock, you will be entitled to receive distributions
on common stock if, as and when our Board of Directors authorizes and declares
distributions. However, your rights to receive distributions may be subordinated
to the rights of holders of preferred stock. In any liquidation, each
outstanding common share entitles its holder to share (based on the percentage
of shares held) in the assets that remain after we pay our liabilities and any
preferential distributions owed to preferred stockholders. Holders of shares of
convertible preferred stock are entitled to a participating distribution in
amounts available for distribution on the common stock. The participating
distribution is equal to the amount of any distribution on the common stock in
excess of $0.4875 per share of common stock multiplied by the number of shares
of common stock (or fraction thereof ) into which each share of convertible
preferred stock is (or will be) convertible.
The amount of the aggregate liquidation preference of the convertible
preferred stock will not be counted as a liability in determining whether we are
permitted under Maryland law to make a distribution (other than upon voluntary
or involuntary liquidation), by dividend, redemption or other acquisition of
shares or otherwise.
Subject to the matters discussed under "Certain Provisions of Maryland Law
and the REIT's Charter and Bylaws,Control Share Acquisitions," holders of the
common stock are entitled to one vote for each share on all matters submitted to
a stockholder vote. Unless our charter provides otherwise with respect to
preferred stock, the holders of common stock will possess exclusive voting
power. There is no cumulative voting in the election of directors. This means
that the holders of a majority of the outstanding shares of common stock can
elect all of the directors then standing for election and the holders of the
remaining shares of common stock cannot elect any directors.
Holders of shares of common stock have no preference, conversion, sinking
fund, redemption or exchange rights or preemptive rights. A conversion feature
is one where a stockholder has the option to convert his shares to a different
security, such as debt or preferred stock. A sinking fund or redemption right is
one where a stockholder will have the right to redeem his shares (for cash or
other securities) at some point in the future. Sometimes a redemption right is
paired with an obligation of the company to create an account into which the
company must deposit money to fund redemption (i.e., a sinking fund). Preemptive
rights are rights granted to stockholders to subscribe for a percentage of any
other securities we offer in the future based on the percentage of shares owned.
All shares of a particular class of issued common stock have equal dividend,
distribution, liquidation and other rights.
Under Maryland law, we generally cannot dissolve, amend our charter, merge,
sell all or substantially all of our 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. As permitted under Maryland law, our
charter provides for approval of any of these actions 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 Maryland law
could significantly affect the shares of common stock and the rights and
obligations of its holders. See "Certain Provisions of Maryland Law and the
REIT's Charter and Bylaws."
Power To Issue Additional Shares Of Stock
The charter grants the Board of Directors the power to authorize the
issuance of 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 these series). The Board of Directors
may also classify or reclassify unissued shares of common or preferred stock and
authorize the issuance of these classified or reclassified shares of stock.
Under Maryland law and the charter, the Board of Directors is required to fix
the terms and conditions for each class or series prior to the issuance of the
shares of each class or series of stock. These terms and conditions include
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption.
We believe that this power of the Board of Directors provides us with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other needs which might arise. Unless stockholder action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which our securities may be listed or traded, the additional
classes or series, as well as the common stock, will generally be available for
issuance without further action by our stockholders. However, the issuance of
additional series of preferred stock with rights senior to the convertible
preferred stock must be approved by the holders of convertible preferred stock.
Although the Board of Directors does not intend to do so at the present time, it
could authorize the issuance of a class or series that could delay, defer or
prevent a change of control or other transaction 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
Internal Revenue Code Requirements. To maintain our REIT qualification, no
less than six individuals (as defined in the Code to include certain entities)
can own, actually or constructively, more than 50% in value of our issued and
outstanding capital stock at any time during the last half of a taxable year.
Attribution rules in the Code determine if any individual or entity actually or
constructively owns our capital stock under this requirement. Additionally, at
least 100 or more persons must beneficially own our capital stock during at
least 335 days of a taxable year. Also, rent from Related Party Tenants (as
defined below under "Federal Income Tax Considerations,Taxation of the
REIT,Income Tests") is not qualifying income for purposes of the gross income
tests of the Code. See "Federal Income Tax Considerations,Taxation of the
REIT,Requirements for Qualification." To help ensure we meet these tests, our
charter restricts the acquisition and ownership of shares of our capital stock.
Transfer Restrictions in Charter. Subject to certain exceptions specified
in our 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. Except
as described below, this limit will not apply to holders of shares of common
stock who exceed the limit solely because they convert shares of convertible
preferred stock into shares of common stock. 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, if the
total value of convertible preferred stock and common stock actually and
constructively owned by the person would exceed 9.8% of the total value of the
outstanding shares of all of our capital stock. Under certain circumstances,
this limitation could prevent a person who owns shares of convertible preferred
stock from converting a portion of these shares into shares of common stock.
Effect of Violation of Transfer Restrictions. If, as a result of an
attempted 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 ownership restriction, those shares will be automatically transferred to a
trust for the benefit of a charitable beneficiary. This transfer will be
effective as of the close of business on the business day prior to the attempted
acquisition by the Prohibited Transferee. While this stock is held in trust, the
trustee shall have all of the shares' voting rights and all dividends or
distributions paid on the 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 our discovery that the 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 us of the transfer of shares to the trust, the trustee of
the trust must sell the shares held in the trust to a person who may hold the
shares without violating the ownership restrictions (a "Permitted Holder"). Upon
this 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:
.. the price paid by the Prohibited Transferee for the shares;
.. 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
Market Price (as defined in the charter) on the date of transfer to the
trust, of the shares so transferred; or
.. the price per share received by the trustee from the sale or other
disposition of the shares held in the trust. Any proceeds in excess of this
amount shall be paid to the charitable beneficiary.
We will automatically repurchase shares to the extent necessary to prevent
any violation of the ownership limits resulting from events other than the
actual or constructive acquisition of capital stock by the holder (e.g., changes
in the relative value of different classes of our capital stock). In the event
of any 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 us that the shares have been automatically repurchased by us as
described above) must be repaid to us upon demand.
If shares of capital stock which would cause us to be beneficially owned by
less than 100 persons are issued or transferred to any person, the issuance or
transfer shall be null and void to the intended transferee, and the intended
transferee will acquire no rights to the stock.
The Board of Directors may waive the ownership limits for a particular
stockholder if the Board of Directors and our tax counsel is satisfied that the
ownership will not jeopardize our status as a REIT. As a condition of the
waiver, the Board of Directors may require opinions of counsel satisfactory to
it and/or an undertaking from the applicant with respect to preserving our REIT
status.
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 our capital stock if:
.. more than 50% in value of our outstanding capital stock would 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),
.. our capital stock would be beneficially owned by less than 100 persons
(determined without reference to any rules of attribution), or
.. we would fail to qualify as a REIT.
Acquisition or ownership (actual or constructive) of our 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, our automatic repurchase
of the violative shares, or voiding the violative transfer, 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 our capital stock in violation of the limits described above, the
Board of Directors shall take actions to refuse to give effect to or to prevent
the ownership or acquisition. These actions include but are not limited to
authorizing us to repurchase stock, refusing to give effect to such ownership or
acquisition on our books, 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 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.
All certificates representing shares of our 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 our stock must file with us a completed questionnaire annually
containing information about their ownership of the 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 may be required to disclose to us in writing
information about 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 discourage 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 stockholders might believe to be otherwise
in their best interest.
Registration Rights Agreements
Under various registration rights agreements we have shelf registration
statements effective (or have agreed to file a registration statement) that
cover:
.. the resale of shares of convertible preferred stock and shares of common
stock and the issuance of shares of common stock upon exchange of common
units that were issued in private placements at the time of and since our
formation; and
.. the exchange of exchangeable debentures and exchangeable preferred units
for convertible preferred stock. We must use our best efforts to maintain
the effectiveness of these registration statements. The exchange of
outstanding securities for common stock and convertible preferred stock
will increase the number of outstanding shares of common stock and
convertible preferred stock, and will increase our percentage ownership
interest in the Operating Partnership.
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 pf." The
current rules of the NYSE effectively preclude the listing on the NYSE of any
securities of an issuer which has issued securities or taken other corporate
action that has certain effects. Such effects include nullifying, restricting or
disparately reducing the per share voting rights of holders of an outstanding
class or classes of equity securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We do not
intend to issue any additional securities that would make us ineligible for
inclusion on the NYSE or any national securities exchange or national market
system. However, if we issued additional securities that caused us to become
ineligible for continued inclusion on NYSE, the ineligibility would be likely to
reduce materially the liquidity of an investment in the common stock. The
ineligibility would also likely depress the market value of the common stock
below that which would otherwise prevail.
Transfer Agent
American Stock Transfer & Trust Company is the transfer agent and registrar
for the shares of common stock and convertible preferred stock.
<PAGE>
PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement, including the
descriptions of certain provisions set forth elsewhere in this prospectus, is
qualified in its entirety by reference to the Partnership Agreement.
Management
The Operating Partnership was organized as a Maryland limited partnership
pursuant to the Maryland Revised Uniform Limited Partnership Act and the terms
of the First Amended and Restated Agreement of Limited Partnership. The REIT is
the sole general partner and the holder of a majority of the Units of the
Operating Partnership. Generally, pursuant to the partnership agreement, the
REIT has full, exclusive and complete responsibility and discretion in the
management and control of the Operating Partnership, subject to certain limited
exceptions. The limited partners of the Operating Partnership generally have no
authority to participate in or exercise control or management power over the
business and affairs of the Operating Partnership.
Transferability of Interests
The partnership agreement generally provides that the REIT may not
voluntarily withdraw from the Operating Partnership, or transfer or assign its
interest in the Operating Partnership. The limited partners, on the other hand,
may transfer their interests in the Operating Partnership to a Qualified
Transferee (as defined in the partnership agreement). Both the REIT and the
Operating Partnership have a right of first refusal in the case of transfer by
the limited partners. No transferee may become a substituted limited partner
without our consent.
Capital Contributions
If we determine that the Operating Partnership requires additional funds at
any time, then we, to the extent consistent with our REIT status, will borrow
such funds from a lender and lend such funds to the Operating Partnership on
comparable terms. We will contribute the amount of any required additional funds
which were not borrowed from a lender as an additional capital contribution to
the Operating Partnership. If we contribute additional capital to the Operating
Partnership, our partnership interest in the Operating Partnership will be
increased on a proportionate basis based upon the amount of the additional
capital contributions. Conversely, the partnership interests of the limited
partners will be decreased on a proportionate basis in the event of additional
capital contributions by the REIT.
Exchange Rights
Under the partnership agreement, the holders of common units have the right
to require the Operating Partnership to redeem part or all of their common units
for cash. We may elect to acquire the common units tendered for redemption in
exchange for shares of common stock (on a one-for-one basis). However, a holder
of common units may not effect an exchange or a redemption if an exchange for
common stock would cause any person to violate any provision of our charter,
including those provisions relating to restrictions on ownership and transfer of
our capital stock. Holders of exchangeable preferred units may require that we
acquire exchangeable preferred units for shares of convertible preferred stock
(on a one-for-one basis), subject to the limitation set forth in the charter.
See "Description of Capital Stock,Restrictions on Ownership, Transfers and
Conversion."
Tax Matters
As provided in the partnership agreement, the REIT is the tax matters
partner of the Operating Partnership. Accordingly, the REIT makes whatever tax
elections must be made under the Code. The net income or net loss of the
Operating Partnership will generally be allocated to the REIT and the limited
partners in accordance with priorities of distribution. See "Federal Income Tax
Considerations,Tax Aspects of the Operating Partnership."
Operations
The partnership agreement requires that the Operating Partnership be
operated in a manner that will enable us to satisfy the requirements for
classification as a REIT. The partnership agreement provides that distributions
of cash will be distributed from time to time as determined by us. Distributions
will be pro rata in accordance with the distribution rights of the holders of
the preferred units and the common units. Under the partnership agreement,
subject to certain exceptions, the Operating Partnership will also assume and
pay when due, or reimburse us for payment of, all costs and expenses relating to
the ownership of interests in and operation of the Operating Partnership.
Duties and Conflicts
The partnership agreement provides generally that all of our business
activities must be conducted through the Operating Partnership.
Term
The term of the Operating Partnership continues until December 31, 2094, or
until sooner dissolved upon the occurrence of certain other events.
Indemnification
The partnership agreement provides that the Operating Partnership will
indemnify the REIT and the officers and directors of the REIT or the Management
Company against any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, that relate to the operations
of the Operating Partnership. The REIT's liability to the Operating Partnership
and its partners for losses sustained, liabilities incurred or benefits not
derived as a result of good faith errors, mistakes of fact or law, or acts or
omissions is limited. See "Limitation of Liability and Indemnification."
EXCHANGE OF THE UNITS
Terms of the Exchange of Common Units
Holders of common units may exchange up to 1,043,109 common units of the
Operating Partnership for cash, or at our discretion, for a like number of
shares of common stock. These shares of common stock may be resold at any time,
subject to certain exceptions and volume limitations. The number of shares of
stock for which the holders of Units may exchange their Units may be adjusted in
the event of stock splits, stock dividends, issuance of certain rights, certain
extraordinary distributions and similar events.
A holder of common units effecting an exchange must deliver to us a notice
of exchange. The tendering holder shall have the right to receive an amount of
cash from the Operating Partnership equal to the Cash Amount (as defined in the
partnership agreement) on the Valuation Date (as defined in the partnership
agreement). We may elect to acquire these tendered common units in exchange for
a like number of shares of common stock. If we do so, the tendering holder shall
have no right to cause the Operating Partnership to redeem the common units in
exchange for the Cash Amount.
The shares of common stock exchanged for tendered units shall be delivered
as duly authorized, validly issued, fully paid and nonassessable shares, free of
any pledge, lien, encumbrance or restriction, other than those provided in our
charter and bylaws, relevant state and federal securities laws, and any
applicable registration rights agreement entered into by the tendering holder.
Even if delivery is delayed, the tendering holder shall be deemed the owner of
the shares and rights for all purposes, as of the date of the exchange notice.
Each tendering holder shall continue to own all Units subject to any
exchange, and be treated as a limited partner with respect to the Units for all
purposes, until the Units are transferred to us and paid for on the date of the
exchange notice. Until the date of the exchange notice, the tendering holder
shall have no rights as one of our stockholders.
Certain Conditions to the Exchange
We will issue shares of stock in exchange for Units to a tendering holder
promptly upon receipt of a notice of exchange unless:
.. an exchange would cause the tendering holder or any other person to violate
the Restrictions on Ownership and Transfer provisions of the charter;
.. the exchange is for less than 100 Units, or if the tendering holder holds
less than 100 Units, the exchange is for less than all of the Units held by
the tendering holder; or
.. the tendering holder wishes to effect an exchange during the period between
the record date established by us for a distribution from the Operating
Partnership to the partners in the Operating Partnership and the record
date established by us for a distribution to our stockholders of some or
all of our portion of the distribution.
Any attempted exchange in violation of any of the foregoing conditions
shall be void and the tendering holder shall not acquire any rights or economic
interest in the shares of stock otherwise issuable upon the exchange.
Comparison of the REIT and the Operating Partnership
Generally the nature of an investment in common stock is similar in several
respects to an investment in the Units of the Operating Partnership. Holders of
common stock and holders of common units receive similar distributions.
Shareholders and holders of Units generally share in the risks and rewards of
ownership in the enterprise being conducted by us through the Operating
Partnership. However, there are also differences between ownership of Units and
ownership of stock, some of which may be material to investors.
The information below highlights a number of the significant differences
between the REIT and the Operating Partnership including form of organization,
management control, voting rights, liquidity and federal income tax
considerations. These comparisons are intended to assist holders of Units in
understanding how their investment will be changed if they exchange their Units
for common stock. This discussion is only a summary and does not constitute a
complete discussion of these matters. Holders of Units should carefully review
the balance of this prospectus and the registration statement of which this
prospectus is a part for additional important information.
<PAGE>
Form of Organization and Assets Owned
The Operating Partnership is organized as a Maryland limited partnership. The
Operating Partnership owns interests in properties and the Lower Tier
Partnerships. The Operating Partnership's purpose is to conduct any business
that may be lawfully conducted by a limited partnership organized under the
Maryland Revised Uniform Limited Partnership Act. However, its business must be
conducted in a manner that permits the REIT to qualify as a REIT unless it
otherwise ceases to qualify as a REIT.
The REIT is a Maryland corporation. It has elected to be taxed as a REIT under
the Code, commencing with our taxable year ended December 31, 1994. It intends
to maintain its qualification as a REIT. Its primary asset is its interest in
the Operating Partnership, which gives it an indirect investment in the
properties owned by the Operating Partnership. Under its charter, the REIT may
engage in any lawful activity permitted under Maryland law. However, under the
partnership agreement, the REIT, as general partner, may not conduct any
business other than the business of the Operating Partnership.
ADDITIONAL EQUITY
The Operating Partnership may issue common units, exchangeable preferred units
and other partnership interests (including partnership interests of different
series or classes that may be senior to common units) in exchange for additional
capital contributions as determined by the REIT, in its sole discretion. In
exchange for capital contributions, the Operating Partnership may issue common
units and other partnership interests to the REIT, may issue additional common
units to existing limited partners, and may admit third parties as additional
limited partners.
The Board of Directors may, in its discretion, authorize the issuance of
additional common stock or shares of convertible preferred stock. However, the
total number of shares issued cannot exceed the authorized number of shares of
stock set forth in the charter. As long as the Operating Partnership is in
existence, the proceeds of all equity capital raised by the REIT will be
contributed to the Operating Partnership in exchange for Units in the Operating
Partnership.
Management Control
All management powers over the business and affairs of the Operating Partnership
are vested in the REIT as the general partner. No limited partner of the
Operating Partnership has any right to participate in or exercise control or
management power over the business and affairs of the Operating Partnership
except:
.. the REIT may not dispose of all or substantially all of the Operating
Partnership's assets without the consent of the holders of two-thirds of
the outstanding common units; and
.. the REIT is limited in its ability to cause or permit the Operating
Partnership to dissolve. See "Vote Required to Dissolve the Operating
Partnership or the REIT" below.
The REIT's business and affairs are managed under the direction of the Board of
Directors subject to restrictions in the charter and bylaws. The board is
classified into three classes of directors. At each annual meeting of the
stockholders, the successors of the class of directors whose terms expire at
that meeting will be elected. The Board of Directors may alter or eliminate its
policies without a vote of the stockholders. Accordingly, except for their vote
in the elections of directors, stockholders have no control over the REIT's
ordinary business policies. However, the Board of Directors cannot change the
policy of maintaining status as a REIT without the approval of holders of a
majority of the outstanding common stock.
The REIT may not be removed as general partner by the holders of common units
with or without cause.
Duties of General Partners and Directors
Under Maryland law, the REIT, as general partner, is Under Maryland law,
the directors must perform accountable to the Operating Partnership as a their
duties in good faith, in a manner that they fiduciary. Consequently, the REIT is
required to reasonably believe to be in the REIT's best interests exercise good
faith and integrity in all of its dealings and with the care of an ordinarily
prudent person with respect to partnership affairs. However, under under similar
circumstances. Directors who act in the Partnership Agreement, the REIT is not
liable for such a manner generally will not be liable by reason monetary damages
for losses sustained or liabilities of being a director. incurred by partners as
a result of good faith errors of judgment, acts or omissions.
Management Liability and Indemnification
As a matter of Maryland law, the REIT, as the general partner, has liability for
the payment of the obligations and debts of the Operating Partnership unless
limitations upon such liability are stated in the document or instrument
evidencing the obligations. Under the partnership agreement, the Operating
Partnership has agreed to indemnify the REIT and any of its directors or
officers from and against all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees and expenses), judgments, fines,
settlements and other amounts incurred in connection with any actions relating
to the operations of the Operating Partnership. However, the Operating
Partnership will not be required to indemnify the REIT or its officers and
directors if:
The charter contains a provision which eliminates the liability of directors and
officers to the REIT and its stockholders to the fullest extent permitted by
Maryland law. The bylaws provide indemnification to directors and officers to
the same extent that the directors and officers have indemnification rights
under the Partnership Agreement (as officers and directors of the general
partner of the Operating Partnership).
.. a bad faith act was material to the action;
.. the REIT or its officers or directors received an improper personal
benefit; or
.. in the case of any criminal proceeding, the REIT or its officers or
directors had reasonable cause to believe the act was unlawful.
The reasonable expenses incurred by an indemnitee may be reimbursed by the
Operating Partnership before the final disposition of the proceeding. First,
however, the indemnitee must deliver to the Operating Partnership an affirmation
of his, her or its good faith belief that the standard of conduct necessary for
indemnification has been met and an undertaking that the indemnitee shall repay
the amount if it is determined that such standard was not met.
Antitakeover Provisions
Except in limited circumstances (See "Voting Rights" below), the REIT has
exclusive management power over the business and affairs of the Operating
Partnership. The REIT may not be removed as general partner by the limited
partners with or without cause. A limited partner may generally transfer its
limited partnership interest without restriction. Partnership have a right of
first refusal for any proposed transfer.
The REIT's charter and bylaws contain a number of provisions that may delay or
discourage an unsolicited proposal for acquisition or the removal of incumbent
management. These provisions include:
.. a staggered board of directors;
.. authorized stock that may be issued as preferred stock in the discretion of
the Board of Directors, with voting or other rights superior to the common
stock;
.. a requirement that directors may be removed only for cause and only by the
affirmative vote of two-thirds of the aggregate number of votes then
entitled to be cast generally in the election of directors;
.. provisions designed to avoid concentration of share ownership in a manner
that would jeopardize the status as a REIT under the Code; and
..a stockholder's rights plan.
See "Description of Capital Stock-Restrictions on Ownership, Transfer and
Conversion." Maryland law also contains certain provisions which could delay,
defer or prevent a change of control or other transaction. See "Certain
Provisions of Maryland Law and the REIT's Charter and Bylaws."
<PAGE>
Voting Rights
Under the partnership agreement, the limited partners have voting rights only as
to the dissolution of the Operating Partnership, the sale of all or
substantially all of the assets or merger of the Operating Partnership, and
certain amendments to the partnership agreement, as described more fully below.
Otherwise, the REIT makes all decisions relating to the operation and management
of the Operating Partnership. As holders of common units exchange their common
units, the REIT's percentage ownership of the common units will increase. If
additional Units are issued to third parties, the REIT's percentage ownership of
the Units will decrease.
The Board of Directors directs the REIT's business and affairs. The Board
consists of three classes having staggered terms of office. Stockholders elect
each class at the annual meetings of stockholders. Maryland law requires that
certain major corporate transactions, including most amendments to the charter,
must have stockholder approval as set forth below. All shares of common stock
have one vote per share. The charter permits the Board of Directors to classify
and authorize the issuance of preferred stock in one or more series having
voting power which may differ from that of the common stock. "See Description of
Capital Stock."
The following is a comparison of the voting rights of the holders of
Units of the Operating Partnership and the REIT's stockholders as they relate to
certain major transactions:
A. Amendment of the Partnership Agreement or the Charter
The partnership agreement may be amended through a Under Maryland law and
the charter, the Board of proposal by the REIT as the general partner or any
Directors and holders of at least a majority of the limited partner. Such
proposal, in order to be votes entitled to be cast on the matter generally must
effective, must be approved by the REIT and by the approve amendments to the
charter. written vote of holders of at least a majority of the outstanding
common units and exchangeable preferred units. Each affected limited partner
must approve certain amendments that affect the fundamental rights of a holder
of common units. In addition, the REIT may, without the consent of the holders
of common units, amend the partnership agreement as to certain ministerial
matters.
B. Vote Required to Dissolve the Operating Partnership or the REIT
The REIT may not elect to dissolve the Operating Under Maryland law and the
charter, the Board of Partnership without the prior written consent of the
Directors and holders of at least a majority of the holders of at least a
majority of the outstanding votes entitled to be cast on the matter must approve
common units and exchangeable preferred units. dissolution of the REIT.
C. Vote Required to Sell Assets or Merge
Under the partnership agreement, the disposition of Under Maryland law, the
sale of all or substantially all or substantially all of the Operating
Partnership's all of the REIT's assets or a merger or a assets or merger or
consolidation of the Operating consolidation requires the approval of the Board
of Partnership requires the REIT's consent and that of Directors and holders of
at least a majority of the holders of at least a majority of the outstanding
votes entitled to be cast on the matter. The sale of common units and
exchangeable preferred units. less than all or substantially all of the REIT's
assets does not require approval of the stockholders.
Compensation, Fees and Distributions
The REIT does not receive any compensation for its The REIT's officers and
outside directors may services as general partner of the Operating receive
compensation for their services.
Partnership. As a partner in the Operating Partnership, however, the REIT has
the same right to receive pro rata allocations and distributions as other
partners of the Operating Partnership. In addition, the Operating Partnership
will reimburse the REIT for all expenses incurred relating to its ongoing
operation and any other offering of additional partnership interests in the
Operating Partnership.
Liability of Investors
Under the Partnership Agreement and applicable Under Maryland law, the REIT's
stockholders are Maryland law, the liability of the holders of common not
personally liable for the REIT's debts or units and exchangeable preferred units
for the obligations. Operating Partnership's debts and obligations is generally
limited to the amount of their investment in the Operating Partnership.
Liquidity
The REIT may not transfer its Units except to a The shares of stock will be
freely transferable as successor general partner with the consent of a
registered securities under the Securities Act, subject majority in interest of
the limited partners. Limited to prospectus delivery and other requirements for
partners may generally transfer their Units without registered securities.
restriction, provided that both the Operating Partnership and the REIT have a
right of first refusal for any proposed transfer.
Taxes
The Operating Partnership itself is not subject to Federal income taxes.
Instead, each holder of Units includes its allocable share of the Operating
Partnership's taxable income or loss in determining its individual federal
income tax liability. Depending on certain facts, a Unit holder's allocable
share of income and loss from the Operating Partnership may be subject to the
"passive activity" limitations. Under the "passive activity" rules, a Unit
holder's allocable share of income and loss from the Operating Partnership that
is considered "passive" generally can be offset only against a holder's income
and loss from other investments that constitute "passive activities." Cash
distributions from the Operating Partnership are generally not taxable to a
holder of Units. However, to the extent cash distributions exceed a holder's
basis in its interest in the Operating Partnership (which will include the
holder's allocable share of the Operating Partnership's nonrecourse debt), they
are taxable to the holder of the Units. Holders of common units are required, in
some cases, to file state income tax returns and/or pay state income taxes in
the states in which the Operating Partnership owns property, even if they are
not residents of those states.
Dividends by the REIT will be treated as "portfolio" income and cannot be offset
with losses from "passive activities." Distributions made by the REIT to its
taxable domestic stockholders out of current or accumulated earnings and profits
will be taken into account by domestic stockholders as ordinary income.
Distributions that are designated as capital gain dividends generally will be
taxed as capital gain at a rate of 20% or 25%. Distributions in excess of
current or accumulated earnings and profits will be treated as a non-taxable
return of basis to the extent of a stockholder's adjusted basis in its stock,
with the excess taxed as capital gain. See "Federal Income Tax Considerations
Taxation of U.S. Stockholders Generally." The REIT may be required to pay state
income taxes in certain states.
CERTAIN PROVISIONS OF MARYLAND
LAW AND THE REIT'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law
and the REIT'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 charter (a copy of which is an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997) and bylaws (a copy of which is
an exhibit to this Registration Statement). See "Available Information."
Classification of the Board Of Directors
Under the bylaws, the number of our directors may be established by the
Board of Directors. However, this number may not be fewer than the minimum
number required under Maryland law (which under most circumstances is three
directors) nor more than fifteen. Most vacancies will be filled, at any regular
meeting or at any special meeting called for that purpose, by a majority of the
remaining directors. 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 charter, the directors are divided into three classes. One class
held office for a term which expired at the annual meeting of stockholders held
in May 1996 (and the directors of this 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 May 1997 (and the directors of this class were
reelected for a full term of three years). Yet another class held office for a
term which expired at the annual meeting of stockholders held in May 1998 (and
the directors of this class were reelected for a full term of three years). As
the term of each class expires, directors in that class will be elected for a
term of three years until their successors are duly elected and qualify. We
believe that classification of the Board of Directors will help to assure the
continuity and stability of our business strategies and policies.
The classified director provision may make the replacement of incumbent
directors more time consuming and difficult. This could discourage a third party
from making a tender offer or otherwise attempting to obtain control of us, even
though such an attempt might be beneficial to us and our stockholders. A change
in a majority of the Board of Directors will generally require at least two
annual meetings of stockholders, instead of one. 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 and the holders of the remaining shares of common stock will not be
able to elect any directors.
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 generally in the election of directors.
Therefore, given that the Board of Directors is authorized to fill vacant
directorships, stockholders may not both remove incumbent directors and fill the
vacancies created by such removal with their own nominees.
Business Combinations
Under Maryland law, 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 an interested stockholder or an affiliate of an
interested stockholder are prohibited for five years after the most recent date
on which the interested stockholder becomes an interested stockholder. An
interested stockholder is defined as:
<PAGE>
.. 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. At the conclusion of the five-year prohibition, any business
combination between the Maryland corporation and an interested stockholder
generally must be recommended by the board of directors of the corporation
and approved by the affirmative vote of at least:
.. 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation and
.. two-thirds of the votes entitled to be cast by holders of voting stock of
the corporation other than shares held by the interested stockholder with
whom (or with whose affiliate) the business combination is to be effected.
These super-majority vote requirements do not apply if the corporation's
common stockholders receive a minimum price (as defined under Maryland law)
for their shares in the form of cash or other consideration in the same
form as previously paid by the interested stockholder for its shares. None
of these provisions of the Maryland law will 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. Our Board of Directors has exempted from these
provisions of Maryland law any business combination with certain of our
officers, any present or future affiliate or associate of theirs or any
other person acting in concert or as a group with them. As a result, these
persons may be able to enter into business combinations with us that may
not be in the best interest of our stockholders, without compliance with
the super-majority vote requirements and the other provisions of the
statute.
The business combination statute may discourage others from trying to
acquire control of us and increase the difficulty of consummating any offer.
Control Share Acquisitions
Maryland law 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. Share of stock owned by the acquiror, by officers or by directors who
are employees of the corporation are excluded from shares entitled to vote on
the matter. "Control Shares" are voting shares of stock which, if aggregated
with all other shares of stock owned by the acquiror or shares of stock for
which the acquiror 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:
.. one-fifth or more but less than one-third;
.. one-third or more but less than a majority; or
.. a majority or more 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. Fair value is 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 control 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 these appraisal rights may not be less than the highest price per
share paid in the control share acquisition. 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.
Our bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions by any person of our shares of stock. Our Board
of Directors may amend or eliminate this provision at any time in the future.
Amendment to the Charter
Certain provisions of the 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
Our dissolution 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 provide that nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders at the
annual meeting of stockholders may be made only:
.. pursuant to our notice of the meeting;
.. by or at the direction of the Board of Directors; and
.. by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in the bylaws.
The bylaws also provide that only the business specified in our notice of
meeting may be brought before a special meeting of stockholders. Nominations of
persons for election to the Board of Directors at a special meeting of
stockholders may be made only:
.. pursuant to our notice of the meeting;
.. by or at the direction of the Board of Directors; or
.. 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.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the Charter
and Bylaws
The provisions in the charter on classification of the Board of Directors
and removal of directors, the business combination and, if the applicable
provision in our bylaws is rescinded, the control share acquisition provisions
of Maryland law, and the advance notice provisions of the bylaws may delay,
defer or prevent a change of control 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
Maryland law 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. However, liability resulting
from actual receipt of an improper benefit or profit in money, property or
services or active and deliberate dishonesty established by a final judgment as
being material to the cause of action may not be eliminated. Our charter
contains a provision which eliminates liability of directors and officers to the
maximum extent permitted by Maryland law. This provision does not limit our
ability or that of our stockholders to obtain equitable relief, such as an
injunction or rescission.
The charter authorizes us, to the maximum extent permitted by Maryland law,
to obligate us to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to any present or former director or officer
from and against any claim or liability incurred by reason of his status as one
of our present or former directors or officers. The charter also provides that
we may indemnify any other persons permitted but not required to be indemnified
by Maryland law. The bylaws obligate us, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to:
.. any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity; or
.. any individual who, while one of our directors and at our request, 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 and who is made a party to the
proceeding by reason of his service in that capacity. The bylaws also
permit us to indemnify and advance expenses to any person who served one of
our predecessors in any of the capacities described above and to any of our
(or our predecessors') employees or agents.
Maryland law requires a corporation (unless its charter provides otherwise,
which our 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. Maryland law
permits a 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:
.. the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
.. the director or officer actually received an improper personal benefit in
money, property or services; or
.. in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under Maryland law, a Maryland corporation generally may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. Also,
a Maryland corporation generally may not indemnify for a judgment of
liability on the basis that personal benefit was improperly received. In
either of these cases, a Maryland corporation may indemnify for expenses
only if a court orders indemnification. In addition, Maryland law permits a
corporation to advance reasonable expenses to a director or officer. First,
however, the corporation must receive 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 corporation and a written undertaking
by him or on his behalf to repay the amount paid or reimbursed by the
corporation 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.
The partnership agreement also provides for indemnification of the REIT, as
general partner, and its officers and directors generally to the same extent as
permitted by Maryland law for a corporation's officers and directors. The
partnership agreement also limits our liability 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 made in good faith. 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.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding First Washington Realty Trust, Inc. and the common stock we are
registering is based on current law, is for general information only and is not
tax advice. The information set forth below, to the extent that it constitutes
matters of law, summaries of legal matters or legal conclusions, is the opinion
of Latham & Watkins, our tax counsel, as to the material federal income tax
considerations relevant to purchasers of our common stock. The tax treatment to
holders of common stock will vary depending on a holder's particular situation
and this discussion does not purport to deal with all aspects of taxation that
may be relevant to a holder of common stock in light of his or her personal
investments or tax circumstances, or to certain types of stockholders, subject
to special treatment under the federal income tax laws except to the extent
discussed under the headings "Taxation of Tax-Exempt Stockholders" and "Taxation
of Non-U.S. Stockholders." Stockholders subject to special treatment include,
without limitation, insurance companies, financial institutions or
broker-dealers, tax-exempt organizations, stockholders holding securities as
part of a conversion transaction, or a hedge or hedging transaction or as a
position in a straddle for tax purposes, foreign corporations and persons who
are not citizens or residents of the United States. In addition, the summary
below does not consider the effect of any foreign, state, local or other tax
laws that may be applicable to holders of the common stock.
The information in this section is based on the Internal Revenue Code,
current, temporary and proposed Treasury Regulations promulgated under the Code,
the legislative history of the Code, current administrative interpretations and
practices of the Internal Revenue Service (the "IRS") (including its practices
and policies as expressed in certain private letter rulings which are not
binding on the IRS except with respect to the particular taxpayers who requested
and received such rulings), and court decisions, all as of the date of this
prospectus. There is no assurance that future legislation, Treasury Regulations,
administrative interpretations and practices and/or court decisions will not
adversely affect existing interpretations. Any change could apply retroactively
to transactions preceding the date of the change. We have not requested, and do
not plan to request, any rulings from the IRS concerning our tax treatment and
the statements in this prospectus are not binding on the IRS or a court. Thus,
we can provide no assurance that these statements will not be challenged by the
IRS or sustained by a court if challenged by the IRS.
Each prospective purchaser should consult his or her own tax advisor
regarding the specific tax consequences to him or her of the purchase, ownership
and sale of common stock, including the federal, state, local, foreign and other
tax consequences of such purchase, ownership and sale and of potential changes
in applicable tax laws.
Tax Consequences of Redemption or Exchange of Units
If you redeem or exchange Units for cash or shares of stock, you will
recognize gain or loss because the redemption and exchange are each fully
taxable transactions. Depending upon your particular situation, it is possible
that the amount of gain you recognize or even your tax liability resulting from
the gain could exceed the amount of cash and the value of the shares of stock
you receive upon the redemption or exchange. You are advised to consult your own
tax advisors regarding the specific tax consequences of the redemption or
exchange of units, including the federal, state, local, foreign or other tax
consequences of this transaction.
<PAGE>
Taxation of First Washington Realty Trust, Inc.
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with our taxable year ended December 31, 1994. We believe
we have been organized and have operated in a manner which qualifies for
taxation as a REIT under the Code commencing with our taxable year ended
December 31, 1994. We intend to continue to operate in this manner. However, our
qualification and taxation as a REIT depends upon our ability to meet (through
actual annual operating results, asset diversification, distribution levels and
diversity of stock ownership) the various qualification tests imposed under the
Code. Accordingly, there is no assurance that we have operated or will continue
to operate in a manner so as to qualify or remain qualified as a REIT. Further,
legislative, administrative or judicial action may change, perhaps
retroactively, the anticipated income tax treatment described in this
prospectus. See "Failure to Qualify."
The sections of the Code that relate to the qualification and operation as
a REIT are highly technical and complex. The following sets forth the material
aspects of the sections of the Code that govern the federal income tax treatment
of a REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, relevant rules and regulations promulgated under the
Code, and administrative and judicial interpretations of the Code, and these
rules and these regulations.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" (once at the corporate level when earned and once again at the
stockholder level when distributed) that generally results from investment in a
corporation. However, the Company will be subject to federal income tax as
follows:
First, we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" on our items of
tax preference under certain circumstances.
Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" (defined generally as property we acquired through
foreclosure or after a default on a loan secured by the property or a lease of
the property) which is held primarily for sale to customers in the ordinary
course of business or (b) other nonqualifying income from foreclosure property,
we will be subject to tax at the highest corporate rate on this income.
Fourth, we will be subject to a 100% tax on any 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).
Fifth, we 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 we fail the 75% or 95%
test multiplied by (b) a fraction intended to reflect our profitability, if we
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but have maintained our qualification as a REIT because we
satisfied certain other requirements.
Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to distribute
during each calendar year at least the sum of (i) 85% of our REIT ordinary
income for the year, (ii) 95% of our REIT capital gain net income for the year,
and (iii) any undistributed taxable income from prior periods.
Seventh, if we acquire any asset (a "Built-In Gain Asset") 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 our hands is determined by reference to the basis
of the asset in the hands of the C corporation, and we subsequently recognize
gain on the disposition of the asset during the ten-year period (the
"Recognition Period") beginning on the date on which we acquired the asset, then
we will be subject to tax at the highest regular corporate tax rate on this gain
to the extent of the Built-In Gain (i.e., the excess of (a) the fair market
value of the asset over (b) our adjusted basis in the asset, determined as of
the beginning of the Recognition Period). The results described in this
paragraph with respect to the recognition of Built-In Gain assume that we will
make an election pursuant to IRS Notice 88-19.
Requirements for Qualification as a REIT. The Code defines a REIT as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that uses transferable shares or transferable certificates to evidence
beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections 856
through 859 of the Code;
(4) that is not a financial institution or an insurance company within the
meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of each taxable
year; and
(7) that meets certain other tests, described below, regarding the nature of
its income and assets and the amount of its distributions.
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 (6), pension funds and certain other
tax-exempt entities are treated as individuals, subject to a "look-through"
exception.
We have satisfied condition (5) and believe that we have issued sufficient
shares to satisfy condition (6). In addition, our charter provides for
restrictions regarding ownership and transfer of shares. These restrictions are
intended to assist us in continuing to satisfy the share ownership requirements
described in (5) and (6) above. These ownership and transfer restrictions are
described in "Description of Capital Stock,Restrictions on Ownership, Transfer
and Conversion." Primarily (though not exclusively) as a result of fluctuations
in value among the different classes of our capital stock, these restrictions
may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements described in (5) and (6) above. If we fail to satisfy
these share ownership requirements, our status as a REIT will terminate.
However, if we comply with the rules contained in applicable Treasury
Regulations that require us to ascertain the actual ownership of our shares and
we do not know, or would not have known through the exercise of reasonable
diligence, that we failed to meet the requirement described in condition (6)
above, we will be treated as having met this requirement. See "Failure to
Qualify."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. We have and will continue to have a calendar
taxable year.
Ownership of Subsidiaries. We own interests in certain of the Lower Tier
Partnerships through subsidiaries. Code Section 856(i) provides that a
corporation which is a "qualified REIT subsidiary" 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 items of income of the REIT for all purposes of the Code
including the REIT qualification tests. A "qualified REIT subsidiary" is defined
for taxable years beginning on or before August 5, 1997, as any corporation if
100 percent of the stock of the corporation is held by the REIT at all times
during the period the corporation was in existence and, for taxable years
beginning after August 5, 1997, as any corporation 100 percent of the stock of
which is owned by the REIT, without regard to prior ownership. Each of our
subsidiaries qualifies as a "qualified REIT subsidiary." Thus, in applying the
requirements described herein, our subsidiaries are ignored, and all of our
subsidiaries' assets, liabilities and items of income, deduction and credit are
treated as our assets, liabilities and items of income, deduction, and credit
for all purposes of the Code, including the REIT qualification tests. For this
reason, references under "Federal Income Tax Considerations" to our income and
assets include the income and assets of the our subsidiaries. Because our
subsidiaries are treated as "qualified REIT subsidiaries" they will not be
subject to federal income tax. In addition, our ownership of the voting
securities of the subsidiaries will not violate the restrictions against
ownership of securities of any one issuer which constitutes more than 10% of
such issuer's voting securities or more than 5% in value of our assets,
described below under ", Asset Tests."
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. Also, the REIT
will be deemed to be entitled to the income of the partnership attributable to
its proportionate share. The character of the assets and gross income of the
partnership retains 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, our proportionate share of the assets, liabilities and items
of income of the Operating Partnership (including the Operating Partnership's
share of these items for any Lower Tier Partnership) are treated as our assets,
liabilities and items of income for purposes of applying the requirements
described in this prospectus (including the income and asset tests described
below). We have included a summary of the rules governing the Federal income
taxation of partnerships and their partners below in ",Tax Aspects of the
Operating Partnership." We have direct control of the Operating Partnership and
will continue to operate it consistent with the requirements for qualification
as a REIT.
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT. First, each taxable year we must derive
directly or indirectly at least 75% of our gross income (excluding gross income
from prohibited transactions) from investments relating to real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
each taxable year we must derive at least 95% of our gross income (excluding
gross income from prohibited transactions) from these real property investments,
dividends, interest and gain from the sale or disposition of stock or securities
(or from any combination of the foregoing). The term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of the 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.
Rents we receive 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 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 the property (subject to a 1% de minimis exception),
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.
We do not and will not:
.. 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);
.. rent any property to a Related Party Tenant;
.. 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
.. perform services considered to be rendered to the occupant of the property,
other than through an independent contractor from whom we derive no
revenue. Notwithstanding the foregoing, we may have taken and may continue
to take certain of the actions set forth above to the extent these actions
will not, based on the advice of our tax counsel, jeopardize our status as
a REIT.
The Management Company receives fees in exchange for the performance of
certain management services. These fees will not accrue to us, but we will
derive dividends from the Management Company which qualify under the 95% gross
income test, but not the 75% gross income test. We believe 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.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under certain provisions of the Code. Generally, we may avail
ourselves of the relief provisions if:
.. our failure to meet these tests was due to reasonable cause and not due to
willful neglect;
.. we attach a schedule of the sources of our income to our 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 we would be entitled to the benefit of these relief
provisions. For example, if we fail to satisfy the gross income tests
because nonqualifying income that we intentionally incur exceeds the limits
on nonqualifying income, the IRS could conclude that our failure to satisfy
the tests was not due to reasonable cause. If these relief provisions do
not apply to a particular set of circumstances, we will not qualify as a
REIT. As discussed above in ",Taxation of First Washington Realty Trust,
Inc., General," even if these relief provisions apply, and we retain our
status as a REIT, a tax would be imposed with respect to our excess net
income. We may not always be able to maintain compliance with the gross
income tests for REIT qualification despite our periodic monitoring of our
income.
Prohibited Transaction Income. Any gain realized by us 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 our 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. This prohibited
transaction income may also adversely affect our 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 surrounding 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 its properties and to make occasional sales of the properties as are
consistent with the Operating Partnership's investment objectives. However, the
IRS may contend that that one or more of these sales is subject to the 100%
penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets must be represented by real
estate assets, cash, cash items and government securities. For purposes of this
test, real estate assets include stock or debt instruments held for one year or
less that are purchased with the proceeds of a stock offering or a long-term
<PAGE>
(at least five years) debt offering. Second, not more than 25% of our total
assets may be represented by securities, other than those securities includible
in the 75% asset test. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities may not exceed 5% of the value
of our total assets and we 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. Therefore we will not be considered to own more than 10% of
the voting securities of the Management Company. In addition, we believe that
the value of our pro rata share of the securities of the Management Company 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 our assets and will not exceed
this amount in the future.
After initially meeting the asset tests at the close of any quarter, we
will not lose our 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 we fail
to satisfy the asset tests because we acquire additional securities of the
Management Company or other securities or other property during a quarter
(including an increase in our interests in the Operating Partnership), we can
cure this failure by disposing of sufficient nonqualifying assets within 30 days
after the close of that quarter. We have maintained and will continue to
maintain adequate records of the value of our 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 we fail to
cure noncompliance with the asset tests within this time period, we would cease
to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends (other than capital gain dividends) to
our stockholders in an amount at least equal to the sum of 95% of our "REIT
taxable income" (computed without regard to the dividends paid deduction and our
net capital gain) and 95% of the net income (after tax), if any, from
foreclosure property, minus the excess of the sum of certain items of noncash
income over 5% of "REIT taxable income" as described above.
These distributions must be paid in the taxable year to which they relate,
or in the following taxable year if they are declared before we timely file our
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. These distributions are taxable to holders of
common stock and convertible preferred stock (other than tax-exempt entities, as
discussed below) in the year in which paid. This is so even though these
distributions relate to the prior year for purposes of our 95% distribution
requirement. The amount distributed must not be preferential , e.g., every
shareholder of the class of stock to which a distribution is made must be
treated the same as every other shareholder of that class, and no class of stock
may be treated otherwise than in accordance with its dividend rights as a class.
To the extent that we do not distribute all of our net capital gain or
distribute at least 95%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates. We have made and intend to make timely distributions
sufficient to satisfy these annual distribution requirements.
We expect that our REIT taxable income will be less than our cash flow due
to the allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. However, from time to time, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under certain circumstances, we 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 our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail to
distribute during each calendar year (or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following such year) at least the sum of
85% of our REIT ordinary income for such year, 95% of our REIT capital gain
income for the year and any undistributed taxable income from prior periods. Any
REIT taxable income and net capital gain on which this excise tax is imposed for
any year is treated as an amount distributed during that year for purposes of
calculating such tax.
Failure To Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
will not be deductible by us and we will not be required to distribute any
amounts to our stockholders. As a result, our failure to qualify as a REIT would
reduce the cash available for distribution by us to our stockholders. In
addition, if we fail to qualify as a REIT, all distributions to stockholders
will be taxable as ordinary income to the extent of our 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, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which we lost our qualification. It is not possible to state whether
in all circumstances we would be entitled to this statutory relief.
Taxation Of Taxable U.S.Stockholders
As used below, the term "U.S. Stockholder" means a holder of shares of
common stock who (for United States federal income tax purposes):
.. is a citizen or resident of the United States;
.. is a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state thereof or in the
District of Columbia, unless, in the case of a partnership, Treasury
Regulations provide otherwise;
.. is an estate the income of which is subject to United States federal income
taxation regardless of its source; or
.. is 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.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to this date that elect to continue to be
treated as United States persons, shall also be considered U.S.
Stockholders.
Distributions Generally. As long as we qualify as a REIT, distributions out
of our current or accumulated earnings and profits, other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable U.S.
Stockholders as ordinary income. These 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, our
earnings and profits will be allocated:
.. first to the convertible preferred stock (to the extent of the preferred
distribution on this stock);
.. second to the common stock (to the extent of distributions equal to $0.4875
per quarter per share); and
.. third pro-rata between both the convertible preferred stock and the common
stock for any distributions in which the convertible preferred stock is
entitled to participate.
To the extent that we make distributions, other than capital gain dividends
discussed below, in excess of our current and accumulated earnings and profits,
these distributions will be treated first as a tax-free return of capital to
each U.S. Stockholder. This treatment will reduce the adjusted basis which each
U.S. Stockholder has in his shares of stock for tax purposes by the amount of
the distribution (but not below zero). Distributions in excess of a U.S.
Stockholder's adjusted basis in his shares will be taxable as capital gains
(provided that the shares have been held as a capital asset) and will be taxable
as long-term capital gain if the shares have been held for more than one year.
Dividends we declare in October, November, or December of any year and payable
to a stockholder of record on a specified date in any of these months shall be
treated as both paid by us and received by the stockholder on December 31 of
that year, provided we actually pay the dividend on or before January 31 of the
following calendar year. Stockholders may not include in their own income tax
returns any of our net operating losses or capital losses.
Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends will be taxable to taxable U.S. Stockholders as gains (to
the extent that they do not exceed our actual net capital gain for the taxable
year) from the sale or disposition of a capital asset. Depending on the period
of time we have held the assets which produced these gains, and on certain
designations, if any, which we may make, these gains may be taxable to
non-corporate U.S. stockholders at a 20% or 25% rate. U.S. Stockholders that are
corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income.
Passive Activity Losses and Investment Interest Limitations. Distributions
we make and gain arising from the sale or exchange by a U.S. Stockholder of our
shares will not be treated as passive activity income. As a result, U.S.
Stockholders generally will not be able to apply any "passive losses" against
this income or gain. Distributions we make (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 our shares, however, will not be treated as investment
income under certain circumstances.
Retention of Net Long-Term Capital Gains. We may elect to retain, rather
than distribute as a capital gain dividend, our net long-term capital gains. If
we make this election, we would pay tax on our retained net long-term capital
gains. In addition, to the extent we designate, a U.S. Stockholder generally
would:
.. include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls (subject to
certain limitations as to the amount that is includible);
.. be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. Stockholder's long-term capital
gains;
.. receive a credit or refund for the amount of tax deemed paid by it;
.. increase the adjusted basis of its common stock by the difference between
the amount of includible gains and the tax deemed to have been paid by it;
and
.. in the case of a U.S. Stockholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be prescribed by the IRS.
Dispositions of Common Stock
If you are a U.S. Stockholder and you sell or dispose of your shares of
common stock, you will recognize gain or loss for federal income tax purposes in
an amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted basis in the shares for tax purposes. This gain or loss will be capital
if you have held the common stock as a capital asset and will be long-term
capital gain or loss if you have held the common stock for more than one year.
In general, if you are a U.S. Stockholder and you recognize loss upon the sale
or other disposition of common stock that you have held for six months or less
(after applying certain holding period rules), the loss you recognize will be
treated as a long-term capital loss, to the extent you received distributions
from us which were required to be treated as long-term capital gains.
Backup Withholding
We report to our U.S. Stockholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless the holder is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or 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 us 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, we may
be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their non-foreign status. See "Taxation of
Non-U.S. Stockholders."
Taxation Of Tax-Exempt Stockholders
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt shareholder
(except certain tax-exempt shareholders described below) has not held its shares
as "debt financed property" within the meaning of the Code and the shares are
not otherwise used in a trade or business, dividend income from us will not be
UBTI to a tax-exempt shareholder. Similarly, income from the sale of shares will
not constitute UBTI unless a tax-exempt shareholder has held its shares as "debt
financed property" within the meaning of the Code or has used the shares in its
trade or business.
For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Section 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in our shares will constitute UBTI unless the organization is able to
properly deduct amounts set aside or placed in reserve for certain purposes so
as to offset the income generated by its investment in our shares. These
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.
<PAGE>
Notwithstanding the above, however, the Omnibus Budget Reconciliation Act
of 1993 (the "1993 Act") provides that, effective for taxable years beginning in
1994, a portion of the dividends paid by a "pension held REIT" shall be treated
as UBTI as to any trust which:
.. is described in Section 401(a) of the Code;
.. is tax-exempt under Section 501(a) of the Code; and
.. holds more than 10% (by value) of the interests in the REIT. Tax-exempt
pension funds that are described in Section 401(a) of the Code are referred
to below as "qualified trusts." A REIT is a "pension held REIT" if:
.. it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Code (added by the 1993 Act) provides that stock owned by
qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust (rather than by the
trust itself); and
.. either at least one such qualified trust holds more than 25% (by value) of
the interests in the REIT, or one or more such qualified trusts, each of
which owns more than 10% (by value) of the interests in the REIT, holds in
the aggregate more than 50% (by value) of the interests in the REIT. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of:
.. the UBTI earned by the REIT (treating the REIT as if it were a qualified
trust and therefore subject to tax on UBTI) to
.. the total gross income of the REIT.
A de minimis exception applies where the percentage is less than 5% for any
year. The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception with
respect to qualified trusts. As a result of certain limitations on the transfer
and ownership of stock contained in the charter, we are not and do not expect to
be classified as a "pension held REIT."
Taxation of Non-U.S. Stockholders
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex.
No attempt is made in this prospectus to provide more than a brief summary of
these rules. Accordingly, this discussion does not address all aspects of United
States federal income tax and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Stockholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that we qualify for taxation as a REIT.
Prospective Non-U.S. Stockholders should consult with their own tax advisers to
determine the impact of federal, state, local and foreign income tax laws with
regard to an investment in stock, including any reporting requirements.
Distributions. If we make a distribution that is not attributable to gain
from the sale or exchange of United States real property interests and is not
designated as capital gains dividends, then the distribution will be treated as
dividends of ordinary income to the extent it is made out made out of current or
accumulated earnings and profits. These distributions ordinarily will be subject
to withholding of United States federal income tax on a gross basis (that is,
without allowance of deductions) at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. However, if the dividends are
treated as effectively connected with the conduct by the Non-U.S. Stockholder of
a United States trade or business, or if an income tax treaty applies, as
attributable to a United States permanent establishment of the Non- U.S.
stockholder, the dividends will be subject to tax on a net basis (that is, after
allowance of deductions) at graduated rates, in the same manner as domestic
stockholders are taxed with respect to such dividends and are generally not
subject to withholding. Any such dividends received by a Non-U.S. Stockholder
that is a corporation may also be subject to an additional branch profits tax at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Under current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of the country for purposes of determining the applicability of the
withholding rules discussed above and the applicability of a tax treaty rate.
Under certain treaties, lower withholding rates generally applicable to
dividends do not apply to dividends from a REIT. Certain certification and
disclosure requirements must be satisfied to be exempt from withholding under
the effectively connected income and permanent establishment exemptions
discussed above.
Distributions we make in excess of our current or accumulated earnings and
profits will not be taxable to a Non-U.S. Stockholder to the extent that they do
not exceed the adjusted basis of the stockholder's stock, but rather will reduce
the adjusted basis of such stock. To the extent that these distributions exceed
the adjusted basis of a Non-U.S. Stockholder's stock, they will give rise to
gain from the sale or exchange of his stock. The tax treatment of this gain is
described below. If it cannot be determined at the time a distribution is made
whether or not a distribution will be in excess of current or accumulated
earnings and profits, the distribution will generally be treated as a dividend
for withholding purposes. However, the IRS will generally refund amounts that
are withheld if it is subsequently determined that the distribution was, in
fact, in excess of our current or accumulated earnings and profits.
Distributions to a Non-U.S. Stockholder that we designate at the time of
distribution as capital gains dividends (other than those arising from the
disposition of a United States real property interest) generally will not be
subject to United States federal income taxation, unless:
.. investment in the stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as domestic stockholders
with respect to such gain (except that a stockholder that is a foreign
corporation may also be subject to the 30% branch profits tax, as discussed
above); or
.. the Non-U.S. Stockholder is a nonresident alien individual who is present
in the United States for 183 days or more during the taxable year and has a
"tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
Distributions to a Non-U.S. Stockholder that are attributable to gain from
our sale or exchange of United States real property interests will cause the
Non-U.S. Stockholder to be treated as recognizing this gain as income
effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, this gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Stockholder that is a corporation,
as discussed above. We are required to withhold 35% of any such distribution.
That amount is creditable against the Non-U.S. Stockholder's United States
federal income tax liability.
We or any nominee (e.g., a broker holding shares in street name) may rely
on a certificate of non-foreign status on Form W-8 or Form W-9 to determine
whether withholding is required on gains realized from the disposition of United
States real property interests. A domestic person who holds shares of common
stock on behalf of a Non-U.S. Stockholder will bear the burden of withholding,
provided that we have properly designated the appropriate portion of a
distribution as a capital gain dividend.
Sale of Stock. If you are a Non-U.S. Stockholder and you recognize gain
upon the sale or exchange of shares of stock, the gain generally will not be
subject to United States taxation unless the stock constitutes a "United States
real property interest" within the meaning of FIRPTA. If we are a "domestically
controlled REIT", then the stock will not constitute a "United States real
property interest." A "domestically controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its stock is
held directly or indirectly by Non-U.S. Stockholders. We believe that we are a
"domestically controlled REIT," and therefore that the sale of shares of our
stock will not be subject to taxation under FIRPTA. However, because our shares
of stock will be publicly traded, there is no assurance that we will continue to
be a "domestically- controlled REIT." Notwithstanding the foregoing, if you are
a Non-U.S. Stockholder and you recognize gain upon the sale or exchange of
shares of stock and the gain is not subject to FIRPTA, the gain will be subject
to United States taxation if:
.. your investment in the stock is effectively connected with a United States
trade or business (or, if an income treaty applies, is attributable to a
United States permanent establishment); or
.. you are a nonresident alien individual who is present in the United States
for 183 days or more during the taxable year and you have a "tax home" in
the United States. In this case, a nonresident alien individual will be
subject to a 30% United States withholding tax on the amount of such
individual's gain.
If we are not or cease to be a "domestically-controlled REIT," whether gain
arising from the sale or exchange by a Non-U.S. Stockholder of shares of stock
would be subject to United States taxation under FIRPTA as a sale of a "United
States real property interest" will depend on whether the shares are "regularly
traded" (as defined by applicable Treasury Regulations) on an established
securities market (e.g., the New York Stock Exchange) and on the size of the
selling Non-U.S. Stockholder's interest in our shares. If gain on the sale or
exchange of shares of stock were subject to taxation under FIRPTA, the Non-U.S.
Stockholder would be subject to regular United States income tax on this gain in
the same manner as a U.S. Stockholder (subject to any applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals and the possible application of the 30% branch profits tax in the
case of foreign corporations), and the purchaser of the stock would be required
to withhold and remit to the IRS 10% of the purchase price.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as:
.. dividends subject to the 30% (or lower treaty rate) withholding tax
discussed above;
.. capital gains dividends; or
.. distributions attributable to gain from our sale or exchange of United
States real property interests. As a general matter, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale
of stock by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply, however, to a payment of
the proceeds of a sale of stock by a foreign office of a broker that:
.. is a United States person;
.. derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States; or
.. is a "controlled foreign corporation" (generally, a foreign corporation
controlled by United States stockholders) for United States tax.
Information Reporting will not apply if the broker has documentary evidence
in its records that the holder is a Non-U.S. Stockholder and certain other
conditions are met, or the stockholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of the proceeds of
sale of stocks is subject to both backup withholding and information
reporting unless the stockholder certifies under penalties of perjury that
the stockholder is a Non-U.S. Stockholder, or otherwise establishes an
exemption. A Non- U.S. Stockholder may obtain a refund of any amounts
withheld under the backup withholding rules by filing the appropriate claim
for refund with the IRS.
New Withholding Regulations. Final regulations dealing with withholding tax
on income paid to foreign persons and related matters (the "New Withholding
Regulations") were recently promulgated. In general, the New Withholding
Regulations do not significantly alter the substantive withholding and
information reporting requirements, but unify current certification procedures
and forms and clarify reliance standards. For example, the New Withholding
Regulations adopt a certification rule under which a foreign stockholder who
wishes to claim the benefit of an applicable treaty rate with respect to
dividends received from a United Stated corporation will be required to satisfy
certain certification and other requirements. In addition, the New Withholding
Regulations require a corporation that is a REIT to treat as a dividend the
portion of a distribution that is not designated as a capital gain dividend or
return of basis and apply the 30% withholding tax (subject to any applicable
deduction or exemption) to such portion, and to apply the FIRPTA withholding
rules (discussed above) with respect to the portion of the distribution
designated by the REIT as capital gain dividend. The New Withholding Regulations
will generally be effective for payments made after December 31, 1999, subject
to certain transition rules. The discussion set forth above in "Taxation of
Non-U.S. Stockholders" does not take the new withholding regulations into
account. Prospective Non-U.S. Stockholders are strongly urged to consult their
own tax advisors with respect to the new withholding regulations.
Tax Aspects Of The Operating Partnership
General. Substantially all of our investments will be 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. We will include in our income our proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and in
the computation of our REIT taxable income. Moreover, for purposes of the REIT
asset tests, we will include our proportionate share of assets held by the
Operating Partnership. See "Taxation of First Washington Realty Trust, Inc."
Entity Classification. Our interests in the Operating Partnership and the
Lower-Tier Partnerships involve special tax considerations, including the
possibility of a challenge by the IRS of the status of the Operating Partnership
or a Lower-Tier Partnership as a partnership (as opposed to an association
taxable as a corporation) for federal income tax purposes. If the Operating
Partnership or a Lower-Tier Partnership were treated as an association, it would
be taxable as a corporation and therefore be subject to an entity-level tax on
its income. In such a situation, the character of our assets and items of gross
income would change and preclude us from satisfying the asset tests and possibly
the income tests (see ",Taxation of First Washington Realty Trust, Inc. ,Asset
Tests" and ",Income Tests"). This, in turn, would prevent us from qualifying as
a REIT. See ",Taxation of First Washington Realty Trust, Inc.,Failure to
Qualify" above for a discussion of the effect of our failure to meet these tests
for a taxable year. In addition, a change in the Operating Partnership's or a
Lower-Tier Partnership's status for tax purposes might be treated as a taxable
event. If so, we might incur a tax liability without any related cash
distributions.
Treasury Regulations that apply for tax period beginning on or after
January 1, 1997 provide that a domestic business entity not otherwise classified
as a corporation and which has at least two members (an "Eligible Entity") may
elect to be taxed as a partnership for federal income tax purposes. Unless it
elects otherwise, an Eligible Entity in existence prior to January 1, 1997 will
have the same classification for federal income tax purposes that it claimed
under the entity classification Treasury Regulations in effect prior to this
date. In addition, an Eligible Entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. The Operating
Partnership and each of the Lower-Tier Partnerships intends to claim
classification as a partnership under the Final Regulations.
Partnership Allocations. A partnership agreement will generally determine
the allocation of income and losses among partners. However, these 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 under
this section of the Code. Generally, Section 704(b) and the Treasury Regulations
promulgated under this section of the Code 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. This reallocation 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 under this section of the Code.
<PAGE>
Tax Allocations with Respect to the Properties. Under 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 so that the contributing partner is charged with the unrealized gain or
benefits from the unrealized loss associated with the property at the time of
the contribution. The amount of the 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 the property
at the time of contribution (a "Book-Tax Difference"). These 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 these allocations be made
in a manner consistent with Section 704(c) of the Code.
In general, 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 these 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 the Book-Tax Difference
will generally be allocated to the limited partners who contributed the
property, and we will generally be allocated only our 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 us to be allocated lower depreciation and
other deductions. Possibly we could be allocated an amount of taxable income in
the event of a sale of these contributed assets in excess of the economic or
book income allocated to us as a result of the sale. This may cause us to
recognize taxable income in excess of cash proceeds, which might adversely
affect our ability to comply with the REIT distribution requirements. See
"Taxation of First Washington Realty Trust, Inc.,Annual Distribution
Requirements."
Treasury Regulations issued 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. We and the Operating Partnership
have determined to use the "traditional method" for accounting for Book-Tax
Differences for the properties initially contributed to the Operating
Partnership and for certain assets acquired subsequently. We and the Operating
Partnerships have not yet decided what method will be used to account for
Book-Tax Differences for properties acquired by the Operating Partnership in the
future.
Any property acquired by the Operating Partnership in a taxable transaction
will initially have a tax basis equal to its fair market value, and Section
704(c) of the Code will not apply.
Basis in Operating Partnership Interest. The adjusted tax basis in our
interest in the Operating Partnership generally will be equal to the amount of
cash and the basis of any other property we contribute to the Operating
Partnership, increased by our allocable share of the Operating Partnership's
income and our allocable share of indebtedness of the Operating Partnership and
reduced (but not below zero) by our allocable share of losses suffered by the
Operating Partnership, the amount of cash distributed to us and constructive
distributions resulting from a reduction in our share of indebtedness of the
Operating Partnership.
If the allocation of our distributive share of the Operating Partnership's
loss exceeds the adjusted tax basis of our partnership interest in the Operating
Partnership, the recognition of this excess loss will be deferred until such
time and to the extent that we have adjusted tax basis in our interest in the
Operating Partnership. We will recognize taxable income to the extent that the
Operating Partnership's distributions, or any decrease in our share of the
indebtedness of the Operating Partnership (this decreases being considered a
cash distribution to the partners), exceeds our adjusted tax basis in the
Operating Partnership.
Other Tax Consequences
We may be subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business and our
stockholders may be subject to state or location taxation in various state or
local jurisdiction, including those in which they reside. Our state and local
tax treatment may not conform to the federal income tax consequences discussed
above. In addition, your state and locate tax treatment may not conform to the
federal income tax consequences discussed above. Consequently, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in our shares.
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.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-K of First Washington Realty Trust, Inc. for the
year ended December 31, 1997 and the combined statement of revenues and certain
expenses of the Acquired Properties (as defined in footnote 1 of that statement)
for the year ended December 31, 1997 included in the REIT's Form 8-K/A filed on
June 26, 1998 have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in auditing and accounting.
LEGAL MATTERS
Latham & Watkins, Washington, D.C. will issue an opinion to us regarding
certain legal matters. 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, LLP, Baltimore, Maryland.
PLAN OF DISTRIBUTION
This prospectus relates to the possible issuance by us of up to 1,043,109
shares of common stock if, and to the extent that, holders of up to 1,043,109
common units tender such units for exchange. We are registering the common stock
to provide the holders with freely tradeable securities, but the registration of
these shares does not necessarily mean that any of these shares will be offered
or sold by the holders.
We will not receive any proceeds from the issuance of the common stock to
holders of common units upon receiving a notice of exchange (but we may acquire
from such holders the common units tendered).
<PAGE>
We have not authorized any person to make a statement that differs from what is
in this prospectus. If any person does make a statement that differs from what
is in this prospectus, you should not rely on it. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, these securities in any state
where the offer or sale is not permitted. The information in this prospectus is
complete and accurate as of its date, but the information may change after that
date.
TABLE OF CONTENTS
PAGE
Available Information 1
Incorporation Of Certain Documents By Reference 1
Risk Factors 3
The Company 3
Description of Capital Stock 7
Partnership Agreement 12
Exchange Of The Units 13
Certain Provisions of Maryland Law And the Company's Charter And Bylaw 20
Federal Income Tax Considerations 25
Experts 42
Legal Matters 43
Plan Of Distribution 43
FIRST WASHINGTON
REALTY TRUST, INC.
1,043,109 Shares
Common Stock
($0.01 Par Value Per Share)
PROSPECTUS
October ___, 1998
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the amount of fees and expenses to be incurred
in connection with the issuance and distribution of the common stock registered
under this prospectus:
SEC Registration Fee $ 6,751
Printing and Mailing Costs 1,000
Legal Fees and Expenses 10,000
Accounting Fees and Expenses 3,000
Miscellaneous 1,000
Total $21,751
ITEM 15. LIMITATION OF LIABILITY AND INDEMNIFICATION
Maryland law 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. However, liability resulting
from actual receipt of an improper benefit or profit in money, property or
services or active and deliberate dishonesty established by a final judgment as
being material to the cause of action may not be eliminated. Our charter
contains a provision which eliminates liability of directors and officers to the
maximum extent permitted by Maryland law. This provision does not limit our
ability or that of our stockholders to obtain equitable relief, such as an
injunction or rescission.
The charter authorizes us, to the maximum extent permitted by Maryland law, to
obligate us to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to any present or former director or officer
from and against any claim or liability incurred by reason of his status as one
of our present or former directors or officers. The charter also provides that
we may indemnify any other persons permitted but not required to be indemnified
by Maryland law. The bylaws obligate us, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to:
.. any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity; or
.. any individual who, while one of our directors and at our request, 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 and who is made a party to the
proceeding by reason of his service in that capacity. The bylaws also
permit us to indemnify and advance expenses to any person who served one of
our predecessors in any of the capacities described above and to any of our
(or our predecessors') employees or agents.
Maryland law requires a corporation (unless its charter provides otherwise,
which our 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. Maryland law
permits a 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:
.. the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
.. the director or officer actually received an improper personal benefit in
money, property or services; or
.. in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under Maryland law, a Maryland corporation generally may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. Also,
a Maryland corporation generally may not indemnify for a judgment of
liability on the basis that personal benefit was improperly received. In
either of these cases, a Maryland corporation may indemnify for expenses
only if a court orders indemnification. In addition, Maryland law permits a
corporation to advance reasonable expenses to a director or officer. First,
however, the corporation must receive 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 corporation and a written undertaking
by him or on his behalf to repay the amount paid or reimbursed by the
corporation 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.
The partnership agreement also provides for indemnification of us, as general
partner, and our officers and directors generally to the same extent as
permitted by Maryland law for a corporation's officers and directors. The
partnership agreement also limits our liability 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 made in good faith. 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.
ITEM 16. EXHIBITS
4.1(a) Amended and Restated Articles of Incorporation*
4.1(b) Articles Supplementary to the Amended and Restated Articles of
Incorporation**
4.2 Amended and Restated Bylaws***
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP
8 Opinion of Latham & Watkins regarding tax matters
23(a) Consent of Latham & Watkins (included in Exhibit 8)
23(b) Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5)
23(c) Consent of PricewaterhouseCoopers LLP
* Included as an exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by reference. ** Included in the
Company's Form 8-K filed October 23, 1998, and incorporated herein by reference.
*** To be filed by amendment to this registration statement.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
.. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. However, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii)To include any material information about the plan of distribution not
previously disclosed in this registration statement or any material change
to this information in this registration statement.
However, subparagraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in the periodic reports filed by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
.. That for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the Securities offered herein, and the
offering of such Securities at that time shall be deemed to be the initial
bona fide offering thereof.
.. To remove from registration by means of a post-effective amendment any of
the Securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the Securities offered herein, and the offering of such
Securities at that time shall be deemed to be the initial bona fide offering
thereof.
As far as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant under the provisions of this registration statement,
or otherwise (other than insurance), the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the Securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Bethesda, State of Maryland on October 30, 1998.
FIRST WASHINGTON REALTY TRUST, INC.
By: /s/ William J. Wolfe
William J. Wolfe
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below hereby constitutes
and appoints William Wolfe as his attorney-in-fact and agent, with full power of
substitution and resubstitution for him in any and all capacities, to sign any
or all amendments or post-effective amendments to this Registration Statement,
or any Registration Statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with exhibits thereto and other documents in connection therewith or in
connection with the registration of the Securities under the Securities Exchange
Act of 1934, as amended, with the Securities and Exchange Commission, granting
unto such attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that such attorney-in-fact and
agent or his substitutes may do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Stuart D. Halpert Chairman of the Board of Directors October 30, 1998
Stuart D. Halpert
/s/ William J. Wolfe President, Chief Executive Officer, October 30, 1998
William J. Wolfe Director
/s/ Lester Zimmerman Executive Vice President, Director October 30, 1998
Lester Zimmerman
/s/ James G. Blumenthal Executive Vice President and October 30, 1998
James G. Blumenthal Chief Financial Officer
/s/ Stanley T. Burns Director October 30, 1998
Stanley T. Burns
/s/ Matthew J. Hart Director October 30, 1998
Matthew J. Hart
/s/ William M. Russell Director October 30, 1998
William M. Russell
/s/ Heywood Wilansky Director October 30, 1998
Heywood Wilansky
<PAGE>
EXHIBIT 5
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
October 30, 1998
First Washington Realty Trust, Inc.
Suite 400
4350 East-West Highway
Bethesda, Maryland 20814
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have served as Maryland counsel to First Washington Realty
Trust, Inc., a Maryland corporation (the "Company"), in connection with certain
matters of Maryland law arising out of the registration of 1,043,109 shares of
common stock (the "Shares"), $.01 par value per share, of the Company ("Common
Stock") issuable if, and to the extent that, holders of up to 1,043,109 common
units of limited partnership interest ("Units") in First Washington Realty
Limited Partnership, a Maryland limited partnership (the "Operating
Partnership"), tender such Units for exchange, covered by the above-referenced
Registration Statement, and all amendments thereto (the "Registration
Statement"), filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "1933
Act"). Unless otherwise defined herein, capitalized terms used herein shall have
the meanings assigned to them in the Registration Statement.
In connection with our representation of the Company, and as a
basis for the opinion hereinafter set forth, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of the following
documents (collectively, the "Documents"):
1. The Registration Statement and the related form of prospectus included
therein in the form in which it was transmitted by the Company to the Commission
under the 1933 Act;
2. The charter of the Company (the "Charter"), certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
3. The Bylaws of the Company, certified as of the date hereof by its
Secretary;
<PAGE>
First Washington Realty Trust, Inc.
October 30, 1998
Page 2
4. Resolutions adopted by the Board of Directors of the Company (the
"Board") authorizing the issuance and registration of the Shares, certified as
of the date hereof by the Secretary of the Company (the "Resolutions");
5. The form of certificate representing a share of Common Stock, certified
as of the date hereof by the Secretary of the Company;
6. A certificate as of a recent date of the SDAT as to the good standing of
the Company;
7. A certificate executed by the Secretary of the Company, dated the date
hereof; and
8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far as
is known to us there are no facts inconsistent with, the following:
1. Each individual executing any of the Documents, whether on behalf of
such individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding.
4. Any Documents submitted to us as originals are authentic. Any Document
submitted to us as certified or photostatic copies conform to the original
documents. All signatures on all such Documents are genuine. All public records
reviewed or relied upon by us or on our behalf are true and complete. All
statements and information contained in the Documents are true and complete.
There has been no oral or written modification of or amendment to any of the
Documents, and there has been no waiver of any provision of any of the
Documents, by action or omission of the parties or otherwise.
5. The outstanding shares of stock of the Company have not been and will
not be transferred in violation of any restriction or limitation contained in
the Charter. The Shares will not be transferred in violation of any restriction
or limitation contained in the Charter.
<PAGE>
First Washington Realty Trust, Inc.
October 30, 1998
Page 3
The phrase "known to us" is limited to the actual knowledge,
without independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under and by
virtue of the laws of the State of Maryland and is in good standing with the
SDAT.
2. The issuance of the Shares has been duly authorized and, when and to the
extent issued in accordance with the Resolutions and in the manner described in
the Registration Statement, the Shares will be (assuming that, upon issuance,
the total number of shares of Common Stock issued and outstanding will not
exceed the total number of shares of Common Stock that the Company is then
authorized to issue under the Charter) validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the substantive laws of
the State of Maryland and we do not express any opinion herein concerning any
other law. We express no opinion as to the applicability or effect of any
federal or state securities laws, including the securities laws of the State of
Maryland, or as to federal or state laws regarding fraudulent transfers. To the
extent that any matter as to which our opinion is expressed herein would be
governed by any jurisdiction other than the State of Maryland, we do not express
any opinion on such matter.
We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for submission
to the Commission as an exhibit to the Registration Statement and, accordingly,
may not be relied upon by, quoted in any manner to, or delivered to any other
person or entity without, in each instance, our prior written consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm in the section
entitled "Legal Matters" in the Registration Statement. In giving this consent,
we do not admit that we are within the category of persons whose consent is
required by Section 7 of the 1933 Act.
Very truly yours,
BALLARD SPAHR ANDREWS &
INGERSOLL, LLP
<PAGE>
EXHIBIT 8
[LETTERHEAD OF LATHAM & WATKINS]
October 30, 1998
First Washington Realty Trust, Inc.
4350 East/West Highway, Suite 400
Bethesda, MD 20814
Re: Federal Income Tax Consequences
Ladies and Gentlemen:
We have acted as tax counsel to First Washington Realty Trust, Inc., a
Maryland corporation (the "Company"), in connection with its issuance of up to
1,043,109 shares of common stock of the Company pursuant to a registration
statement on Form S-3 under the Securities Act of 1933, as amended, filed with
the Securities and Exchange Commission on October 30, 1998 (and as so amended as
of the time it becomes effective) (the "Registration Statement").
You have requested our opinion concerning certain of the federal income tax
consequences to the Company in connection with the issuance described above.
This opinion is based on various facts and assumptions, including the facts set
forth in the Registration Statement concerning the business, properties and
governing documents of the Company and First Washington Realty Limited
Partnership (the "Operating Partnership"). We have also been furnished with, and
with your consent have relied upon, certain representations made by the Company
and the Operating Partnership with respect to certain factual matters through a
certificate of an officer of the Company (the "Officer's Certificate").
In our capacity as tax counsel to the Company, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for purposes of this opinion. For the purposes of our opinion, we
have not made an independent investigation, or audit of the facts set forth in
the above referenced documents or in the Officer's Certificate.
<PAGE>
First Washington Realty Trust, Inc.
October 30, 1998
Page 2
In our examination, we have assumed the authenticity of all documents
submitted to us as originals, the genuineness of all signatures thereon, the
legal capacity of natural persons executing such documents and the conformity to
authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the federal income tax laws of the United States and we express no opinion with
respect to the applicability thereto, or the effect thereon, of other federal
laws, the laws of any state or other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies within any state.
Based on such facts, assumptions and representations, it is our opinion
that the statements in the Registration Statement set forth under the caption
"Federal Income Tax Considerations" to the extent such information constitutes
matters of law, summaries of legal matters, or legal conclusions, have been
reviewed by us and are accurate in all material respects.
No opinion is expressed as to any matter not discussed herein.
This opinion is rendered to you as of the date of this letter, and we
undertake no obligation to update this opinion subsequent to the date hereof.
This opinion is based on various statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service and the
courts having jurisdiction over such matters, all of which are subject to change
either prospectively or retroactively. Also, any variation or difference in the
facts from those set forth in the Registration Statement or the Officer's
Certificate may affect the conclusions stated herein. Moreover, the Company's
qualification and taxation as a real estate investment trust depends upon the
Company's ability to meet, through actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership, the
various qualification tests imposed under the Code, the results of which have
not been and will not be reviewed by Latham & Watkins. Accordingly, no assurance
can be given that the actual results of the Company's operation for any one
taxable year will satisfy such requirements.
This opinion is rendered only to you, and is solely for your use in
connection with the issuance of common stock by the Company pursuant to the
Registration Statement. This opinion may not be relied upon by you for any other
purpose, or furnished to, quoted to, or relied upon by any other person, firm or
corporation, for any purpose, without our prior written consent. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Registration Statement.
Very truly yours,
LATHAM & WATKINS
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of First Washington
Realty Trust, Inc. (the "Company") of (1) our report dated January 31, 1998,
except for Note 16, as to which the date is March 26, 1998, appearing on page
F-2 of the Company's Annual Report on Form 10-K for the year ended December 31,
1997 and (2) our report on the combined statement of revenues and certain
expenses of the Acquired Properties (as defined in footnote 1 of that statement)
for the year ended December 31, 1997, which report is included in the Company's
Form 8-K/A filed on June 26, 1998. We also consent to the reference to us under
the caption "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Washington, D.C.
October 27, 1998
