AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLENBOROUGH REALTY TRUST INCORPORATED GLENBOROUGH PROPERTIES, L.P
(EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS CHARTER) IN ITS CHARTER)
MARYLAND CALIFORNIA
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
94-3211970 94-3231041
(I.R.S.EMPLOYER INDEMNIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
400 SOUTH EL CAMINO REAL, 11TH FLOOR
SAN MATEO, CALIFORNIA 94402
(650) 343-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRAR'S PRINCIPAL EXECUTIVE OFFICES)
FRANK E. AUSTIN, ESQ.
SENIOR VICE PRESIDENT
400 SOUTH EL CAMINO REAL, 11TH FLOOR
SAN MATEO, CALIFORNIA 94402
(650) 343-9300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
STEPHEN J. SCHRADER, ESQ.
JUSTIN L. BASTIAN, ESQ.
MORRISON & FOERSTER LLP
755 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 813-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
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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, 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. [ ] ----------------
<TABLE>
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum Maximum
Title of Each Class Amount to be Offering Price Aggregate Amount Of
Of Securities to be Registered Registered(1) Per Unit Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Glenborough Realty Trust
Incorporated
Guarantees(2)............. (3) (3) (3) (3)
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Glenborough Properties, L.P.
Debt Securities(4)........ $300,000,000 (4) $300,000,000 $88,500(5)
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(1) In no event will the aggregate maximum offering price of all debt securities
registered pursuant to this Registration Statement exceed $300,000,000.
(2) Debt securities registered hereby issued by Glenborough Properties, L.P.
(the "Operating Partnership") may be accompanied by a Guarantee to be issued
by Glenborough Realty Trust Incorporated (the "Company").
(3) None of the proceeds from guaranteed debt securities of the Operating
Partnership will be received by the Company for the Guarantee.
(4) The proposed maximum offering price per unit (a) has been omitted pursuant
to instruction II.D. of Form S-3 and (b) will be determined, from time to
time, by the Registrants in connection with the issuance by the Registrant
of the securities registered hereunder.
(5) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended. Pursuant to Rule 429 under the
Securities Act of 1933, the Prospectus included in this Registration
Statement is a combined Prospectus and relates to Registration Statement No.
333-40959 previously filed by the Company on Form S-3 and declared effective
on December 18, 1997, pursuant to which $801,202,500 of securities remain to
be issued and, with respect to such securities, a filing fee of $246,273.24
was previously paid.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
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EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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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 soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER , 1998
PROSPECTUS
$801,202,500
[LOGO] GLENBOROUGH REALTY TRUST
INCORPORATED
Preferred Stock, Common Stock, Warrants and Guarantees
$300,000,000
GLENBOROUGH PROPERTIES, L.P.
Debt Securities
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Glenborough Realty Trust Incorporated may from time to time offer the
following securities separately or together in one or more series or classes and
in amounts, at prices and on terms to be determined at the time of offering and
set forth in one or more supplements to this prospectus, with an aggregate
public offering price of up to $801,202,500:
shares or fractional shares of its preferred stock, par value $0.001;
shares of its common stock, par value $0.001 per share;
warrants to purchase shares of preferred sock or common stock; and
guarantees relating to debt securities of Glenborough Properties, L.P.
Glenborough Properties, L.P. may from time to time offer debt securities in
one or more series or classes, which may be either senior or subordinated, in
amounts, at prices and on terms to be determined at the time of the offering,
with an aggregate public offering price of up to $300,000,000. Glenborough
Realty Trust Incorporated may unconditionally guarantee the payment obligations
on such debt securities on terms described in this prospectus and in the
applicable supplement to this prospectus.
The specific terms of these equity and debt securities will be provided in
one or more supplements to this prospectus. You should read this prospectus and
the applicable prospectus supplement carefully before you invest. The applicable
prospectus supplement will also contain information, where applicable, about
certain United States Federal Income Tax Consequences relating to, and any
listing on a securities exchange of, the securities covered by such prospectus
supplement.
The Common Stock of Glenborough Realty Trust Incorporated is listed on the
New York Stock Exchange under the symbol "GLB," and the 7 3/4% Series A
Convertible Preferred Stock (liquidation preference $25.00 per share) of
Glenborough Realty Trust Incorporated is listed on the New York Stock Exchange
under the symbol "GLB Pr A."
Investing in securities described in this prospectus and applicable
prospectus supplement involves certain risks. See "Risk Factors" beginning on
page 8.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998.
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING SUPPLEMENT TO
THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS AND THE
ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE, NOR DO THIS PROSPECTUS AND THE ACCOMPANYING
SUPPLEMENT TO THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS AND THE SUPPLEMENT TO
THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THEIR RESPECTIVE DATES, EVEN THOUGH
THIS PROSPECTUS OR A SUPPLEMENT IS DELIVERED OR SECURITIES ARE SOLD ON A LATER
DATE.
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TABLE OF CONTENTS
Page
About This Prospectus..........................................................9
Where You Can Find More Information............................................9
Incorporation of Certain Documents By Reference................................9
Forward Looking Statements....................................................10
Risk Factors..................................................................11
The Company and the Operating Partnership.....................................20
Use of Proceeds...............................................................21
Ratio of Earnings To Fixed Charges and Preferred Stock Dividends..............21
Ratio of Earnings To Fixed Charges and Preferred Partner Interest
Distributions..............................................................21
Description of Debt Securities................................................21
Description of Preferred Stock................................................30
Description of Common Stock...................................................33
Description of Warrants.......................................................34
Certain Provisions of The Company's Charter and Bylaws and Stockholders'
Rights Plans...............................................................35
Federal Income Tax Consequences...............................................36
Plan of Distribution..........................................................46
Experts.......................................................................47
Legal Matters.................................................................47
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, Glenborough Realty Trust Incorporated (the "Company") may
sell any combination of the common stock, preferred stock, depositary shares,
warrants and guarantees described in this prospectus in one or more offerings up
to a total dollar amount of $801,202,500 and Glenborough Properties, L.P. (the
"Operating Partnership") may sell the debt securities described in this
prospectus in one or more offerings up to a total dollar amount of $300,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and the applicable
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information."
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "we," "us," or "our" mean the Company and its
subsidiaries, including the Operating Partnership and the Company's consolidated
subsidiaries for the periods from and after December 31, 1995 (the date the
Company merged with and into Glenborough Corporation ("Old GC"), a California
corporation, and eight public limited partnerships (collectively with Old GC,
the "GRT Predecessor Entities")) and the Company's predecessor partnerships and
companies for periods prior to the Consolidation.
WHERE YOU CAN FIND MORE INFORMATION
The Company and the Operating Partnership file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy any document we file with
the Commission at the Commission's public reference rooms at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the Commission at (800) SEC-0330 for
further information on the public reference rooms. The Commission also maintains
a web site that contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the Commission
(http://www.sec.gov). You can inspect reports and other information we file at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
We have filed a registration statement of which this prospectus is a part and
related exhibits with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). The registration statement contains additional
information about us and the securities. You may view the registration statement
and exhibits on the Commission's web site. Also, you may inspect the
registration statement and exhibits without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and you may obtain
copies from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company
The Commission allows us to "incorporate by reference" the information we
file with the Commission, which means that we can disclose important information
to you by referring to those documents. The information incorporated by
reference is an important part of this prospectus. Any statement contained in a
document which is incorporated by reference in this prospectus is automatically
updated and superseded if information contained in this prospectus, or
information that we later file with the Commission, modifies or replaces this
information.
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended December 31,
1997;
b. The Company's Annual Report on Form 10-K/A for the year ended December
31, 1997, filed with the Commission on September 10, 1998;
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c. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
d. The Company's Quarterly Reports on Form 10-Q/A for the quarters ended
March 31, 1998 and June 30, 1998, each filed with the Commission on September
10, 1998;
e. The Company's Current Reports on Form 8-K filed with the Commission on
April 29, 1998, May 7, 1998, July 10, 1998, July 15, 1998 and July 22, 1998;
f. The Company's Current Reports on Form 8-K/A filed with the Commission on
May 15, 1998, August 13, 1998 and September 10, 1998 ;
g. The description of the Registrant's common stock, par value $0.001 per
share, contained in the Company's Registration Statement on Form 8-A (File
No. 1-14162); and
h. The description of the Company's 7 3/4% Convertible Preferred Stock
(liquidation preference $25.00 per share), par value $0.001 per share,
contained in the Company's Registration Statement on Form 8-A (File No.
1-14162).
The Operating Partnership
The documents listed below have been filed by the Operating Partnership under
the Exchange Act with the Commission and are incorporated herein by reference.
a. The reports and financial statements included in the Operating
Partnership's Registration Statement on Form S-4 (File No. 333-08808).
b. The Operating Partnership's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
To receive a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits, unless they are specifically incorporated
by reference in the documents), call or write the director of capital markets,
Glenborough Realty Trust Incorporated, 400 South El Camino Real, Suite 1100, San
Mateo, California 94402-1708, telephone number (650) 343-9300.
You should rely only on the information incorporated by reference or set
forth in this prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with different information. We may only
use this prospectus to sell securities if it is accompanied by a prospectus
supplement. We are only offering these securities in states where the offer is
permitted. You should not assume that the information in this prospectus or the
applicable prospectus supplement is accurate as of any date other than the dates
on the front of these documents.
In addition, we incorporate by reference all documents filed by us with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 after the date of this prospectus.
FORWARD LOOKING STATEMENTS
Some of the information included and incorporated by reference in this
prospectus contains forward-looking statements, such as those pertaining to the
acquisition and sale of properties, our capital resources, portfolio performance
and results of operations. Likewise, the pro forma financial statements and
other pro forma information contained or incorporated by reference in this
prospectus also contain forward-looking statements. In addition, all statements
regarding anticipated growth in our funds from operations and anticipated market
conditions, demographics and results of operations are forward-looking
statements. Forward-looking statements involve numerous risks and uncertainties
and you should not rely on them as predictions of future events. There is no
assurance that the events or circumstances reflected in forward-looking
statements will be achieved or will occur. You can identify forward-looking
statements by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
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"plans," "pro forma," "estimates" or "anticipates" or the negative of these
words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise. Actual results may be inconsistent
with such forward-looking statements. The following factors, among others, could
cause actual results and future events to differ materially from those set forth
or contemplated in the forward-looking statements: defaults on or non-renewal of
leases by tenants, increased interest rates and operating costs, our failure to
obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, our failure to successfully integrate
acquired properties and operations, risks and uncertainties affecting property
development and construction (including construction delays, cost overruns, our
inability to obtain necessary permits and public opposition to such activities),
our failure to qualify and maintain the Company's status as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), environmental uncertainties, risks related to natural disasters,
financial market fluctuations, changes in real estate and zoning laws and
increases in real property tax rates. Our success also depends upon economic
trends generally, including interest rates, income tax laws, governmental
regulations, legislation, population changes and certain other matters discussed
in this prospectus and the applicable prospectus supplement, including under the
heading "Risk Factors." We caution you not to place undue reliance on
forward-looking statements, which reflect our analysis only.
RISK FACTORS
Before you invest in our equity or debt securities, you should be aware that
purchasing or owning our securities involves various risks, including those
described below. You should consider carefully the risk factors together with
all of the other information included in this prospectus and accompanying
prospectus supplement before you decide to purchase our securities.
The Limited Availability of and Competition for Real Estate Acquisitions May
Restrict Our Ability to Grow
Our growth depends, in part, upon acquisitions. We cannot be sure that
properties will be available for acquisition or, if available, that we will be
able to purchase those properties on favorable terms. The unavailability of such
acquisitions could limit our growth. Furthermore, we face competition from
several other businesses, individuals, fiduciary accounts and plans and entities
in the acquisition, operation and sale of properties. Some of our competitors
are larger than we are and have greater financial resources than we do. This
competition could cause the cost of properties we wish to purchase to rise.
Competition for Tenants Could Adversely Affect Our Operations
When space becomes available at our properties the leases may not be renewed,
the space may not be leased or re-leased, or the terms of the renewal or
re-lease (including the cost of required renovations or concessions to tenants)
may be less favorable to us. We have established annual property budgets that
include estimates of costs for renovation and reletting expenses. We believe
that these estimates are reasonable in light of each property's situation;
however, no assurance can be given that these estimates will sufficiently cover
these expenses. If we cannot lease all or substantially all of the space at our
properties promptly, if the rental rates are significantly lower than expected,
or if our reserves for these purposes prove inadequate, then our results of
operations, financial condition and ability to service debt could be negatively
impacted.
Tenants' Defaults Could Adversely Affect Our Operations
Our ability to manage our assets is subject to federal bankruptcy laws and
state laws that limit creditors' rights and remedies available to real property
owners to collect delinquent rents. If a tenant becomes insolvent or bankrupt,
we cannot be sure that we could recover the premises from the tenant promptly or
from a trustee or debtor-in-possession in any bankruptcy proceeding relating to
that tenant. We also cannot be sure that we would receive rent in the proceeding
sufficient to cover our expenses with respect to the premises. If a tenant
becomes bankrupt, the federal bankruptcy code will apply, which in some
instances may restrict the amount and recoverability of our claims against the
tenant. A tenant's default on its obligations to us could adversely affect our
results of operations, financial condition and ability to service debt.
Cash Flow May Be Insufficient for Debt Service Requirements
We intend to incur indebtedness in the future, including through borrowings
under our credit facility, to finance property acquisitions. As a result, we
expect to be subject to the following risks associated with debt financing
including:
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that interest rates may increase;
that our cash flow may be insufficient to meet required payments on our
debt; and
that we may be unable to refinance or repay the debt as it comes due.
Debt Restrictions May Affect Operations and Negatively Affect Our Ability to
Repay Indebtedness at Maturity
Our current $250 million unsecured credit facility with Wells Fargo Bank,
N.A. contains provisions that restrict the amount of distributions we can make.
These provisions provide that distributions may not exceed the lesser of (i) 90%
of funds from operations or (ii) the minimum amount that the Company must
distribute to its stockholders in order to avoid federal tax liability and
remain qualified as a REIT. If we cannot obtain acceptable financing to repay
indebtedness at maturity, we may have to sell properties to repay indebtedness
or properties may be foreclosed upon, which could adversely affect our results
of operations, financial condition and ability to service debt. Also, as of
September 30, 1998, approximately $283.9 million of our total indebtedness was
secured by mortgages that included cross-collateralization provisions. In the
event of a default, the holders of this indebtedness may seek to foreclose upon
properties which are not the primary collateral for their loan. This may, in
turn, accelerate other indebtedness secured by these properties. Foreclosure of
properties would cause a loss to us of income and asset value.
Fluctuations in Interest Rates May Adversely Affect Our Operations
As of September 30, 1998, we had approximately $412.9 million of variable
interest rate indebtedness. Accordingly, an increase in interest rates will
adversely affect our net income, results of operations and ability to service
debt.
Addition of New Properties Could Make Management of Expansion Difficult
We have experienced a period of rapid growth. Since the Consolidation on
December 31, 1995, we have invested approximately $1.8 billion in properties as
of September 30, 1998. To manage growth effectively, we must apply successfully
our experience managing our existing portfolio to expanded markets and to an
increased number of properties. We cannot be sure that we will be able to manage
these operations effectively. If we do not manage our expansion effectively,
this could adversely affect our results of operations, financial condition and
ability to service debt.
Acquisitions Could Adversely Affect Operations
Consistent with our growth strategy, we are continually pursuing and
evaluating potential acquisition opportunities. From time to time we are
actively considering the possible acquisition of specific properties, which may
include properties managed by Glenborough Corporation ("GC") or owned by
affiliated parties. It is possible that one or more of such possible future
acquisitions, if completed, could adversely affect our results of operations,
financial condition and ability to service debt.
Assumption of General Partner Liabilities May Adversely Affect Operations
We and our predecessors have acquired a number of properties by acquiring
interests in partnerships that own the properties or by first acquiring general
partnership interests and acquiring properties from the partnership at a later
date. We may pursue acquisitions in this manner in the future. When we use this
acquisition technique, a subsidiary of the Company may become a general partner.
As a general partner, such subsidiary would become generally liable for the
debts and obligations of the partnership, including debts and obligations that
may be contingent or unknown at the time of the acquisition. In addition, the
Company's subsidiary assumes obligations under the partnership agreements, which
may include obligations to make future contributions for the benefit of other
partners. We undertake detailed due diligence reviews to ascertain the nature
and extent of obligations that the subsidiary will assume when it becomes a
general partner, but we cannot be sure the obligations assumed may exceed our
estimates. Also, we cannot be sure that the assumed liabilities will not have an
adverse effect on our results of operations or financial condition and ability
to service debt. In addition, GC or another subsidiary may enter into management
agreements pursuant to which it assumes certain obligations as a manager of
properties. These obligations may have an adverse effect on such subsidiary's
results of operations or financial condition, which could adversely affect our
results of operations or financial conditions and ability to service debt.
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Potential Adverse Consequences of Transactions Involving Conflicts of Interest
We have acquired, and from time to time may acquire, properties from
partnerships that Robert Batinovich, the Company's Chairman and Chief Executive
Officer, and Andrew Batinovich, the Company's President and Chief Operating
Officer, control, and in which they and members of their families have
substantial interests. These transactions involve or will involve conflicts of
interest. These transactions also may provide substantial economic benefits to
those individuals such as:
payments or issuances of partnership units in the Operating Partnership,
relief or deferral of tax liabilities,
relief of primary or secondary liability for debt, and
reduction in exposure to other property-related liabilities.
Our policy provides that interested directors may not vote with regard to
transactions in which they have a substantial interest. These transactions may
only be completed if they are approved by a majority of the disinterested
directors, with the interested directors abstaining. Despite this policy and the
presence of appraisals or fairness opinions or review by parties who have no
interest in the transactions, the transactions will not be the product of
arm's-length negotiation. These transactions may not be as favorable to us as
transactions that we negotiate with unrelated parties and they could result in
undue benefit to Robert and Andrew Batinovich and members of their families.
None of these parties has guaranteed that any properties acquired from entities
they control or in which they have a significant interest will be as profitable
as other investments made by us or will not result in losses.
Dependence on Executive Officers
We depend on the efforts of Robert Batinovich, the Company's Chief Executive
Officer and Andrew Batinovich, the Company's President and Chief Operating
Officer, and of the Company's other executive officers. The loss of the services
of any of them could have an adverse effect on our results of operations and
financial condition. Both Robert and Andrew Batinovich have entered into
employment agreements.
Potential Liability Due to Environmental Matters
Under federal, state and local laws relating to protection of the environment
("Environmental Laws"), a current or previous owner or operator of real estate
may be liable for contamination resulting from the presence or discharge of
petroleum products or other hazardous or toxic substances on the property. These
owners may be required to investigate and clean-up the contamination on the
property as well as the contamination which has migrated from the property.
Environmental Laws typically impose liability and clean-up responsibility
without regard to whether the owner or operator knew of, or was responsible for,
the presence of the contamination. This liability may be joint and several
unless the harm is divisible and there is a reasonable basis for allocation of
responsibility. In addition, the owner or operator of a property may be subject
to claims by third parties based on personal injury, property damage and/or
other costs, including investigation and clean-up costs, resulting from
environmental contamination. Environmental Laws may also impose restrictions on
the manner in which a property may be used or transferred or in which businesses
may be operated. These restrictions may require expenditures. Under the
Environmental Laws, any person who arranges for the transportation, disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
investigation or clean-up of those substances at the disposal or treatment
facility, whether or not the facility is or ever was owned or operated by that
person.
Tenants of our properties generally are required by their leases to operate
in compliance with all applicable Environmental Laws, and to indemnify us
against any environmental liability arising from their activities on the
properties. However, we could be subject to environmental liability relating to
our management of the properties or strict liability by virtue of our ownership
interest in the properties. Also tenants may not satisfy their indemnification
obligations under the leases. We are also subject to the risk that
any environmental assessments of our properties, properties being
considered for acquisition, or the properties owned by the partnerships
managed by GC may not have revealed all potential environmental
liabilities,
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any prior owner or prior or current operator of such properties may have
created an environmental condition not known to us or
an environmental condition may otherwise exist as to any one or more of
such properties.
Any one of these conditions could have an adverse effect on our results of
operations and financial condition or ability to service debt, either directly
(with respect to our properties), or indirectly (with respect to properties
owned by partnerships managed by GC). Any condition adversely affecting the
financial condition of GC could adversely affect us by diminishing the value of
our interest in GC. Moreover, future environmental laws, ordinances or
regulations may have an adverse effect on our results of operations, financial
condition and ability to service debt. Also, the current environmental condition
of those properties may be affected by tenants and occupants of the properties,
by the condition of land or operations in the vicinity of the properties (such
as the presence of underground storage tanks), or by third parties unrelated to
us.
Environmental Assessments and Potential Liability Due to Asbestos-Containing
Materials
Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials. These laws require that
asbestos-containing building materials be properly managed and maintained and
that those who may come into contact with asbestos-containing building materials
be adequately informed and trained. They also require that special precautions,
including removal or other abatement, be undertaken in the event
asbestos-containing building materials is disturbed during renovation or
demolition of a building. These laws may impose fines and penalties on building
owners or operators for failure to comply with these requirements. They also may
allow third parties to seek recovery from owners or operators for personal
injury associated with exposure to asbestos fibers.
All of the properties that we presently own have been subject to Phase I
environmental assessments by independent environmental consultants. Some of the
Phase I environmental assessments recommended further investigations in the form
of Phase II environmental assessments, including soil and groundwater sampling.
We have completed all of these investigations or are in the process of
completing them. Certain of our properties have been found to contain
asbestos-containing building materials. We believe that these materials have
been adequately contained and we have implemented an asbestos-containing
building materials operations and maintenance program for the properties found
to contain asbestos-containing building materials.
Some, but not all, of the properties owned by partnerships managed by GC have
been subject to Phase I environmental assessments by independent environmental
consultants. GC determines on a case-by-case basis whether to obtain Phase I
environmental assessments on these properties and whether to undertake further
investigation or remediation. Certain of these properties contain
asbestos-containing building materials. In each case GC believes that these
materials have been adequately contained and has implemented an
asbestos-containing building materials operations and maintenance program has
been implemented for the properties found to contain asbestos-containing
building materials.
Potential Environmental Liability Resulting From Underground Storage Tanks
Some of our properties, as well as properties that we have previously owned,
are leased or have been leased to owners or operators of businesses that use,
store or otherwise handle petroleum products or other hazardous or toxic
substances. These businesses include dry cleaners that operate on-site dry
cleaning plants and auto care centers. Some of these properties contain, or may
have contained, underground storage tanks for the storage of petroleum products
and other hazardous or toxic substances. These operations create a potential for
the release of those substances. Some of our properties are adjacent to or near
other properties that have contained or currently contain underground storage
tanks used to store petroleum products or other hazardous or toxic substances.
Several of our properties have been contaminated with these substances from
on-site operations or operations on adjacent or nearby properties. In addition,
certain of our properties are on, or are adjacent to or near other properties
upon which others, including former owners or tenants of the properties, have
engaged or may engage in activities that may release petroleum products or other
hazardous or toxic substances.
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Environmental Liabilities May Adversely Affect Operating Costs and Ability to
Borrow
The obligation to pay for the cost of complying with existing Environmental
Laws as well as the cost of complying with future legislation may affect our
operating costs. In addition, the presence of petroleum products or other
hazardous or toxic substances at any of our properties, or the failure to
remediate those properties properly, may adversely affect our ability to borrow
by using those properties as collateral. The cost of defending against claims of
liability and the cost of complying with Environmental Laws, including
investigation or clean-up of contaminated property, could materially adversely
affect our results of operations, financial condition and ability to service
debt.
General Risks of Ownership of Real Estate
We are subject to risks generally incidental to the ownership of real estate.
These risks include:
Changes in general economic or local conditions.
Changes in supply of or demand for similar or competing properties in an
area.
The impact of environmental protection laws.
Changes in interest rates and availability of financing which may render
the sale or financing of a property difficult or unattractive.
Changes in tax, real estate and zoning laws.
The creation of mechanics' liens or similar encumbrances placed on the
property by a lessee or other parties without our knowledge and consent.
Should any of these events occur, our results of operations, financial
condition and ability to service debt could be adversely affected.
General Risks Associated With Management, Leasing and Brokerage Contracts
We are subject to the risks generally associated with the property
management, leasing and brokerage businesses. These risks include the risk that:
management contracts or service agreements may be terminated;
contracts will not be renewed upon expiration or will not be renewed on
terms consistent with current terms; and
leasing and brokerage activity generally may decline.
In addition, our acquisition of properties from partnerships managed by GC or
another subsidiary could result in a decrease in revenues to such subsidiary and
a corresponding decrease in dividends received by us from such subsidiary. Each
of these developments could have an adverse effect on our results of operations,
financial condition and ability to service debt.
To maintain the Company's status as a REIT while realizing income from GC's
third-party management business, the capital stock of GC is divided into two
classes. All of the voting common stock of GC, representing 5% of GC's total
equity, is held by individual stockholders. Nonvoting preferred stock
representing the remaining equity of GC is held entirely by the Operating
Partnership. Although the Operating Partnership holds a majority of the equity
interest in GC, it is not able to elect GC's directors and, consequently, we
have no ability to influence GC's day-to-day decisions.
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Uninsured Losses May Adversely Affect Operations
We, or in certain instances tenants of the properties, carry comprehensive
liability, fire and extended coverage with respect to the properties. This
coverage has policy specification and insured limits customarily carried for
similar properties. However, certain types of losses (such as from earthquakes
and floods) may be either uninsurable or not economically insurable. Further,
certain of the properties are located in areas that are subject to earthquake
activity and floods. Should a property sustain damage as a result of an
earthquake or flood, we may incur losses due to insurance deductibles,
co-payments on insured losses or uninsured losses. Should an uninsured loss
occur, we could lose some or all of our capital investment, cash flow and
anticipated profits related to one or more properties. This could have an
adverse effect on our results of operations, financial condition and ability to
service debt.
Illiquidity of Real Estate May Limit Our Ability to Vary Our Portfolio
Real estate investments are relatively illiquid and, therefore, will tend to
limit our ability to vary our portfolio promptly in response to changes in
economic or other conditions. In addition, the Internal Revenue Code of 1986, as
amended (the "Code"), and individual agreements with sellers of properties place
limits on our ability to sell properties. Eighty-five of our properties were
acquired on terms and conditions under which they can be disposed of only in a
like-kind exchange or other non-taxable transaction. The agreed upon time
periods for these restrictions on dispositions vary from transaction to
transaction.
Potential Liability Under the Americans With Disabilities Act
As of January 26, 1992, all of our properties were required to be in
compliance with the Americans With Disabilities Act. The Americans With
Disabilities Act generally requires that places of public accommodation be made
accessible to people with disabilities to the extent readily achievable.
Compliance with the Americans With Disabilities Act requirements could require
removal of access barriers. Non-compliance could result in imposition of fines
by the federal government, an award of damages to private litigants and/or a
court order to remove access barriers. Because of the limited history of the
Americans With Disabilities Act, the impact of its application to our
properties, including the extent and timing of required renovations, is
uncertain. Pursuant to lease agreements with tenants in certain of the
"single-tenant" properties, the tenants are obligated to comply with the
Americans With Disabilities Act provisions. If our costs are greater than
anticipated or tenants are unable to meet their obligations, our results of
operations, financial condition and ability to service debt could be adversely
affected.
Development Alliances May Adversely Affect Operations
We may, from time to time, enter into alliances with selected developers for
the purpose of developing new projects in which these developers have, in the
opinion of management, significant expertise or experience. These projects
generally require various governmental and other approvals, the receipt of which
cannot be assured. These development activities also may entail certain risks,
including the risk that
management may expend funds on and devote time to projects which may not
come to fruition;
construction costs of a project may exceed original estimates, possibly
making the project uneconomical;
occupancy rates and rents at a completed project may be less than
anticipated; and
expenses at a completed development may be higher than anticipated.
In addition, the partners in development alliances may have significant
control over the operation of the alliance project. Therefore, these investments
may, under certain circumstances, involve risks such as the possibility that the
partner might
become bankrupt;
have economic or business interests or goals that are inconsistent with our
business interest or goals; or
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be in a position to take action contrary to our instructions or requests or
contrary to our policies or objectives.
Consequently, actions by a partner in a development alliance might subject
property owned by the alliance to additional risk. Although we will seek to
maintain sufficient control of any alliance to permit our objectives to be
achieved, we may be unable to take action without the approval of our
development alliance partners. Conversely, our development alliance partners
could take actions binding on the alliance without our consent. In addition,
should a partner in a development alliance become bankrupt we could become
liable for the partner's share of the project's liabilities. These risks may
result in a development project adversely affecting our results of operations,
financial condition and ability to service debt.
Material Tax Risks
Since 1996, the Company operated as a REIT under the Code. However, the
Company may not be able to maintain its status as a REIT. To qualify as a REIT
the Company must satisfy numerous requirements (some on an annual and quarterly
basis) established under highly technical and complex Code provisions. Only
limited judicial or administrative interpretation exists for these provisions
and involves the determination of various factual matters and circumstances not
entirely within our control. The Company receives nonqualifying management fee
income and owns nonqualifying preferred stock in certain subsidiaries. As a
result, the Company may approach the income and asset test limits imposed by the
Code. There is a risk that the Company may not satisfy these tests. In order to
avoid exceeding the asset test limit, for example, the Company may have to
reduce its interest in its subsidiaries. The Company is relying on the opinion
of its tax counsel regarding its ability to qualify as a REIT. This legal
opinion, however, is not binding on the Internal Revenue Service ("IRS"). See
"Federal Income Tax Consequences -- Taxation of the Company."
Consequences of Failure to Qualify as a REIT
If the Company fails to qualify as a REIT in any taxable year, it would be
subject to federal income tax on its taxable income at corporate rates. In
addition, the Company also may be disqualified from treatment as a REIT for the
four taxable years following the year in which it failed to qualify. This would
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability. In addition, the
Company would no longer be required to make distributions to stockholders. See
"Federal Income Tax Consequences -- Failure to Qualify."
Even if the Company continues to qualify as a REIT, it will be subject to
certain federal, state and local taxes on its income and property. See "Federal
Income Tax Consequences -- Taxation of the Company."
Possible Changes in Tax Laws; Effect on the Market Value of Real Estate
Investments
Income tax treatment of REITs may be modified by legislative, judicial or
administrative action at any time. These changes may be applied to past as well
as future operations. Legislation, regulations, administrative interpretations
or court decisions may significantly change the tax laws with respect to (1) the
qualification as a REIT or (2) the federal income tax consequences of this
qualification. In addition, the changes might also indirectly affect the market
value of all real estate investments, and consequently our ability to realize
our investment objectives.
Additional Capital Requirements; Possible Adverse Effects on Holders of Equity
Our future growth depends in large part upon our ability to raise additional
capital on satisfactory terms. We may not be able to raise sufficient capital to
achieve our objectives. If we raise additional capital through the issuance of
additional equity securities, or securities convertible into or exercisable for
equity securities, the interests of holders of the securities offered by this
Prospectus could be diluted. Likewise, the Company's Board of Directors is
authorized to issue Preferred Stock and to determine the rights of the Preferred
Stock. Accordingly, the Board of Directors may authorize the issuance of
Preferred Stock with rights which may dilute or otherwise adversely affect the
interests of holders of securities offered by this Prospectus. If we raise
additional capital through debt financing, we will be subject to the risks
described below, among others.
The Company's Indebtedness Restrictions May Adversely Affect the Operating
Partnership's Ability to Incur Indebtedness
The Company's organizational documents limit its ability to incur additional
debt if the total debt, including the additional debt, would exceed 50% of the
"Borrowing Base." This debt limitation in the Company's Charter can only be
amended by an affirmative vote of the majority of all outstanding stock entitled
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to vote on such amendment. The term "Borrowing Base" is defined as the greater
of Fair Market Value or Total Market Capitalization. Fair Market Value is based
upon the value of the Company's assets as determined by an independent
appraiser. Total Market Capitalization is the sum of the market value of the
Company's outstanding capital stock, including shares issuable on exercise of
redemption options by holders of units of the Operating Partnership, plus debt.
An exception is made for refinancings and borrowings required to make
distributions to maintain the Company's status as a REIT. In light of these debt
restrictions, it should be noted that a change in the value of the Common Stock
could affect the Borrowing Base, and therefore our ability to incur additional
indebtedness, even though such change in the Common Stock's value is unrelated
to our liquidity.
Limitation on Ownership of Common Stock And Stockholder's Rights Plan May
Preclude Acquisition of Control
Provisions of the Company's Charter are designed to assist the Company in
maintaining its qualification as a REIT under the Code by preventing
concentrated ownership of the Company which might jeopardize REIT qualification.
Among other things, these provisions provide that
-any transfer or acquisition of the Company's Common or preferred stock
that would result in the disqualification of the Company as a REIT under
the Code will be void; and
-if any person attempts to acquire shares of the Company's Common or
preferred stock that after the acquisition would cause the person to own
an amount of Common Stock and preferred stock in excess of a predetermined
limit, such acquisitions would be void.
Ownership is determined by operation of certain attribution rules set out in
the Code. Pursuant to Board action, the limit currently is 9.9% of the value of
the outstanding shares of Common Stock and preferred stock (the "Ownership
Limitation"). The Common Stock or preferred stock the transfer of which would
cause any person to violate the Ownership Limitation, is referred to as the
"Excess Shares." A transfer that would violate the Ownership Limitation will be
void and the Common Stock or preferred stock subject to the transfer will
automatically be transferred to an unaffiliated trustee for the benefit of a
charitable organization designated by the Board of Directors of the Company
until sold by the trustee to a third party or purchased by the Company. This
limitation on the ownership of Common Stock and preferred stock may preclude the
acquisition of control of the Company by a third party without the consent of
the Board of Directors. If the Board of Directors waives the Ownership
Limitation for any person, the Ownership Limitation will be proportionally and
automatically reduced with regard to all other persons such that no five persons
may own more than 50% of the value of the Common Stock and preferred stock.
Certain other provisions contained in the Company's Charter and Bylaws may also
have the effect of discouraging a third party from making an acquisition
proposal for the Company and may thereby inhibit a change in control in the
Company even if a change in control would be in the best interests of the
stockholders. See "Certain Provisions of the Company's Charter and Stockholders'
Rights Plan."
In addition, in July 1998, the Company's Board of Directors adopted a
stockholder rights plan. Under the plan, the Company declared a dividend of
Rights on its Common Stock. The rights issued under the plan will be triggered,
with certain exceptions, if and when any person or group acquires, or commences
a tender offer to acquire, 15% or more of the Company's shares. The rights plan
is intended to prevent abusive hostile takeover attempts by requiring a
potential acquiror to negotiate the terms of an acquisition with the Board of
Directors. However, it could have the effect of deterring or preventing an
acquisition of the Company, even if a majority of the Company's stockholders
would be in favor of such acquisition, and could also have the effect of making
it more difficult for a person or group to gain control of the Company or to
change existing management.
Losses Relating to Consolidation
The Company was created through the merger of eight partnerships and a
corporation (the "Consolidation"). Prior to the Consolidation, two lawsuits were
filed in 1995 contesting the fairness of the Consolidation, one in California
State court and one in federal court. The Company has been named as a defendant
in each of the suits. The complaints in both actions alleged, among other
things, breaches by the defendants of fiduciary duties and inadequate
disclosures. The California State court action was settled and, upon appeal, the
settlement was affirmed by the State Court of Appeals on February 17, 1998. The
objectors petitioned the California Supreme Court for review, which was denied
on May 21, 1998. On August 18, 1998, the objectors filed with the United States
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Supreme Court a petition for writ of certiorari. On September 18, 1998, the
defendants filed a brief in opposition to the objectors' petition for writ of
certiorari, and on September 25, 1998, the objectors filed a reply in support of
their petition. The United States Supreme Court has not yet ruled on the
petition for writ of certiorari. Pursuant to the terms of the settlement in the
California State court action, pending appeal, the Company has paid one-third of
the $855,000 settlement amount and the remaining two-thirds are being held in
escrow. In the federal court action, the court in December of 1995 deferred all
further proceedings pending a ruling in the California State court action. The
federal court action has been voluntarily stayed pending final outcome of the
California State court action. We believe that it is very unlikely that this
litigation would result in a liability that would exceed our accrued liability
by a material amount. However, given the inherent uncertainties of litigation,
we cannot be sure that the ultimate outcomes of these actions will be favorable
to us.
From time to time we are involved in other litigation arising out of our
business activities. Certain other claims and lawsuits have arisen against us in
our normal course of business. It is possible that this litigation and the other
litigation previously described could result in significant losses in excess of
amounts reserved, which could have an adverse effect on our results of
operations and financial condition.
Uncertainty Due to the Company's Board of Directors' Ability to Change
Investment Policies
The Company's Board of Directors may change our investment policies without a
vote of the stockholders. If our investment policies change, the risks and
potential rewards of an investment in the Offered Securities may also change. In
addition, the methods of implementing our investment policies may vary as new
investment techniques are developed.
Effect of Market Interest Rates on Price of Common Stock
The annual yield on the price paid for shares of Common Stock from
distributions by the Company may influence the market price of the shares of
Common Stock in public markets. An increase in market interest rates may lead
prospective purchasers of the Common Stock to seek a higher annual yield from
their investments. This may adversely affect the market price of the Common
Stock.
Shares Available for Future Sale
We cannot predict the effect, if any, that future sales of shares of Common
Stock or future conversions or exercises of securities for future sales will
have on the market price of the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, may adversely
affect the prevailing market price for the Common Stock.
Impact of Year 2000 Compliance Costs on Operations
State of Readiness. We use a number of computer software programs and
operating systems across our entire organization. These programs and systems
primarily comprise (i) information technology systems ("IT Systems") (i.e.,
software programs and computer operating systems) that serve our management
operations, and (ii) embedded systems such as devices used to control, monitor
or assist the operation of equipment and machinery systems (e.g., HVAC, fire
safety and security) at our properties ("Property Systems"). To the extent that
our software applications contain source code that is unable to appropriately
interpret the upcoming calendar year "2000" and beyond, some level of
modification or replacement of these applications will be necessary.
IT Systems. Employing a team made up of internal personnel and third-party
consultants, we have completed our identification of IT Systems, including
hardware components, that are not yet Year 2000 compliant. To the best of our
knowledge based on available information and a reasonable level of inquiry
and investigation, we have completed such upgrading of such systems that we
believe are called for under the circumstances, and in accordance with
prevailing industry practice. We have commenced a testing program which we
anticipate will be completed during 1999. In addition, we are currently
communicating with third parties with whom we do significant business, such
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as financial institutions, tenants and vendors, to determine their readiness
for Year 2000 compliance.
Property Systems. Employing a team made up of internal personnel and
third-party consultants, we have also completed our identification of
Property Systems, including hardware components, that are not yet Year 2000
compliant. We have commenced such upgrading of such systems that we believe
are called for under the circumstances, based on available information and a
reasonable level of inquiry and investigation, and in accordance with
prevailing industry practice. Upon completion of such upgrading, we will
initiate a testing program which we anticipate will be completed during 1999.
To the best of our knowledge, there are no Property Systems, the failure of
which would have a material effect on our operations.
Costs of Addressing Our Year 2000 Issues. Given the information known at this
time about our systems that are non-compliant, coupled with our ongoing, normal
course-of-business efforts to upgrade or replace critical systems, as necessary,
we do not expect Year 2000 compliance costs to have any material adverse impact
on our liquidity or ongoing results of operations. The costs of such assessment
and remediation will be paid as an operating expense.
Risks of Our Year 2000 Issues. In light of our assessment and upgrading
efforts to date, and assuming completion of the planned, normal
course-of-business upgrades and subsequent testing, we believe that any residual
Year 2000 risk will be limited to non-critical business applications and support
hardware, and to short-term interruptions affecting Property Systems which, if
they occur at all, will not be material to our overall operations. We believe
that all of our systems will be Year 2000 compliant and that compliance will not
materially adversely affect our future liquidity or results of operations or
ability to service debt, but we cannot give absolute assurance that this is the
case.
Our Contingency Plans. We are currently developing our contingency plans for
all operations to address the most reasonably likely worst case scenarios
regarding Year 2000 compliance. Such plans, however, will recognize material
limitations on our ability to plan for major regional or industrial failures
such as regional power outages or regional or industrial communications
breakdowns. We expect such contingency plans to be completed during 1999.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed REIT. As of September 30,
1998, we owned a nationally diversified portfolio of 190 office, office/flex,
industrial, retail and multi-family properties (collectively, the "Properties,"
and each a "Property") aggregating approximately 24.7 million square feet
located in 24 states throughout the country. In addition, GC provides
comprehensive asset, partnership and property management services for a
diversified portfolio of 33 additional properties that we do not own. The
combined portfolios encompass approximately 27.5 million rentable square feet in
24 states and 36 major metropolitan areas.
The Operating Partnership holds directly or indirectly all of the Company's
interests in the Properties and all of the Company's operations relating to the
Properties are conducted through the Operating Partnership. The Operating
Partnership is controlled by the Company as its sole general partner and, as of
September 30, 1998, the Company owned a 1% general partnership interest and an
approximate 89% limited partnership interest in the Operating Partnership.
Unless otherwise indicated, ownership percentages of the units of limited
partnership interest in the Operating Partnership have been calculated assuming
the entire Preferred Partner Interest in the Operating Partnership has been
converted into such units. The description of the Company's business and
properties (incorporated by reference herein), would apply, without material
differences, to the Operating Partnership's business and properties.
Our principal strategy is to acquire diverse properties, manage a diversified
portfolio of real estate and make dispositions from our portfolio as
appropriate. This strategy has evolved from our predecessors' experience since
1978 in managing real estate partnerships and their assets and, since 1989, in
acquiring portfolios and management interests from third parties. In particular,
unlike most REITs, which typically purchase specific types of properties or
properties located in regional markets, we seek to maintain a portfolio of
properties which are diversified by both property type and location. We believe
we can acquire diversified real estate portfolios at attractive prices from
partnerships as well as REITs, life insurance companies and other institutions
because we can provide liquidity to portfolio owners who might otherwise face a
limited market for their diversified portfolios, or who might be forced to
liquidate through multiple sales of the individual properties which can be more
expensive and time consuming than the single sale of the entire portfolio.
Furthermore, the Operating Partnership's UPREIT structure allows us to
address the current owners' tax concerns and structure transactions that may
defer taxable gains. The Operating Partnership has issued partnership units in
the Operating Partnership, which are redeemable for cash or exchangeable for the
Company's Common Stock, to sellers in connection with the acquisition of
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properties with a total acquisition cost of approximately $689 million. To date,
we have issued a total of approximately 4.3 million units of limited partnership
interests in the Operating Partnership at an average price of $23.06 per unit.
If you wish to contact us, you have the following options:
Address of 400 South El Camino Real, Suite 1100
Executive Offices: San Mateo, California 94402-1708
Telephone: (650) 343-9300
Facsimile: (650) 343-8379
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, we intend
to invest the net proceeds from any sale of the securities offered pursuant to
this Prospectus for general corporate purposes including, without limitation,
the acquisition and development of properties and the repayment of debt. Net
proceeds from the sale of such securities initially may be temporarily invested
in short-term securities.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's ratio of earnings to fixed charges and preferred stock
dividends for the nine month period ended September 30, 1998 was 1.44x. The
ratio of earnings to fixed charges and preferred stock dividends is computed as
income from operations, before minority interest, income taxes and extraordinary
items, plus fixed charges (primarily interest expense) and preferred stock
dividends, divided by fixed charges and preferred stock dividends. Prior to
January 1998, the Company did not have any outstanding preference securities.
The Company's ratio of earnings to fixed charges for the fiscal years ended
December 31, 1996 and 1997 was 0.71x and 3.21x, respectively. Prior to the
Consolidation, the Company's Predecessors' ratio of earnings to fixed charges
for 1993, 1994 and 1995 was 2.67x, 2.58x and 1.41x, respectively. The ratio of
earnings to fixed charges is computed as income from operations, before minority
interest, income taxes and extraordinary items, plus fixed charges (primarily
interest expense) divided by fixed charges.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED PARTNER INTEREST DISTRIBUTIONS
The Operating Partnership's ratio of earnings to fixed charges and preferred
partner interest distributions for the nine month period ended September 30,
1998 was 1.42x. The ratio of earnings to fixed charges and preferred partner
interest distributions is computed as income from operations, before minority
interest, income taxes and extraordinary items, plus fixed charges (primarily
interest expense) and preferred partner interest distributions, divided by fixed
charges and preferred partner interest distributions. Prior to January 1998, the
Operating Partnership did not have any outstanding preference securities. The
Operating Partnership's ratio of earnings to fixed charges for the fiscal years
ended December 31, 1996 and 1997 was 0.55x and 2.81x, respectively. Prior to the
Consolidation, the Operating Partnership's Predecessors' ratio of earnings to
fixed charges for 1993, 1994, and 1995 was 2.67x, 2.58x and 1.41x, respectively.
The ratio of earnings to fixed charges is computed as income from operations,
before minority interest, income taxes and extraordinary items, plus fixed
charges (primarily interest expense) divided by fixed charges.
DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general terms and provisions of the
Indenture under which the debt securities which may be offered by the Operating
Partnership hereby (the "Debt Securities," and together with the Preferred
Stock, common stock, warrants and guarantees, which may be offered by the
Company hereby, the "Offered Securities") are to be issued. The particular terms
of the Debt Securities will be set forth in a Prospectus Supplement relating to
such Debt Securities.
Unless otherwise specified in the applicable Prospectus Supplement, the Debt
Securities are to be issued under an Indenture dated March 23, 1998, as
supplemented by the First Supplemental Indenture dated March 23, 1998, as
amended or supplemented from time to time (the "Indenture"), among the Operating
Partnership, the Company and Chase Manhattan and Trust Company National
Association, as trustee (together with any other trustee(s) appointed in a
supplemental indenture with respect to a particular series, the "Trustee"). The
Indenture is available for inspection at the corporate trust office of the
Trustee, or as described above under "Where You Can Find More Information." The
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Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as
amended. The statements made hereunder relating to the Indenture and the Debt
Securities to be issued hereunder are summaries of certain provisions thereof
and do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein have the respective
meanings set forth in the Indenture.
General
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership. Except for any series of Debt Securities which is specifically
subordinated to other indebtedness of the Operating Partnership, the Debt
Securities will rank pari passu with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. Under the Indenture, the Debt
Securities may be issued without limit as to aggregate principal amount, in one
or more series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors of the Company as
sole general partner of the Operating Partnership or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series may
be reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
The Debt Securities may be unconditionally guaranteed by the Company as to
payment of principal, premium, if any, and interest. (Section 1601).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee will be appointed to act with respect
to such series (Section 608). In the event that two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Section 609), and, except as
otherwise indicated herein, any action described herein to be taken by the
Trustee may be taken by each such Trustee with respect to, and only with respect
to, the one or more series of Debt Securities for which it is Trustee under the
Indenture.
Terms
The specific terms of any series of Debt Securities being offered will be set
forth in the Prospectus Supplement for such offering. Such specific terms may
include:
(1) the title of such Debt Securities, whether such Debt Securities are
Senior Securities or Subordinated Securities and whether such Debt Securities
are guaranteed by a Guarantee;
(2) the aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities will
be issued and, if other than the principal amount thereof, the portion of the
principal amount thereof payable upon declaration of acceleration of the
maturity thereof;
(4) the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities will
bear interest, if any;
(6) the date or dates, or the method for determining such date or dates, from
which any such interest will accrue, the Interest Payment Dates on which any
such interest will be payable, the Regular Record Dates for such Interest
Payment Dates, or the method by which such Dates shall be determined, the Person
to whom such interest shall be payable, and the basis upon which interest shall
be calculated if other than that of a 360-day year of twelve 30-day months;
(7) the place or places where (i) the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, (ii) such Debt
Securities may be surrendered for registration of transfer, exchange or
conversion and (iii) notices or demands to or upon the Operating Partnership in
respect of such Debt Securities, any applicable Guarantees and the Indenture may
be served;
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(8) the period or periods within which, or the date or dates on which, the
price or prices at which and the terms and conditions upon which such Debt
Securities may be redeemed, as a whole or in part, at the option of the
Operating Partnership, if the Operating Partnership is to have such an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay or
repurchase such Debt Securities pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof, and the period or periods
within which, or the date or dates on which, the price or prices at which and
the terms and conditions upon which such Debt Securities are required to be
redeemed, repaid or purchased, as a whole or in part, pursuant to such
obligation;
(10) if other than the Trustee, the identity of each security registrar
and/or paying agent for the Debt Securities;
(11) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and/or payable, which may be a foreign currency
or units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with reference to an
index, formula or other method (which index, formula or method may, but need not
be, based on a currency, currencies, currency unit or units or composite
currency or currencies) and the manner in which such amounts shall be
determined;
(13) provisions, if any, granting special rights to the holders of Debt
Securities upon the occurrence of such events as may be specified;
(14) any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to the Events of Default or covenants set forth in
the Indenture (whether or not such Events of Default or covenants are consistent
with the Events of Default or covenants set forth in the Indenture);
(15) the person to whom any interest on any registered Debt Security will be
payable, if other than the person in whose name the Debt Security (or one or
more predecessor Debt Securities) is registered at the close of business on the
Regular Record Date for such interest, the manner in which, or the person to
whom, any interest on any bearer Debt Security will be payable, if otherwise
than upon presentation and surrender of the coupons appertaining thereto, and
the extent to which, or the manner in which, any interest payable on a temporary
global Debt Security on an Interest Payment Date will be paid if other than the
manner provided in the Indenture;
(16) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(17) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof and
terms and conditions relating thereto;
(18) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article XIV of the Indenture, or any modification thereof;
(19) the terms and conditions, if any, upon which such Debt Securities may be
subordinated to other indebtedness of the Operating Partnership;
(20) whether and under what circumstances the Operating Partnership will pay
Additional Amounts as contemplated in the Indenture on such Debt Securities in
respect of any tax, assessment or governmental charge and, if so, whether the
Operating Partnership will have the option to redeem such Debt Securities in
lieu of making such payment;
(21) the terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Operating Partnership, including a
description of the indebtedness ranking senior to the Debt Securities, the
restrictions on payments to the Holders of such Debt Securities while a default
with respect to such senior indebtedness is continuing, the restrictions, if
any, on payments to the Holders of such Debt Securities following an Event of
Default, and provisions requiring Holders of such Debt Securities to remit
certain payments to holders of senior indebtedness; and
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(22) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to the Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
The Indenture does not contain any provisions that would limit the ability of
the Operating Partnership to incur indebtedness or that would afford Holders of
Debt Securities protection in the event of a highly leveraged or similar
transaction involving the Operating Partnership. However, restrictions on
ownership and transfers of the Company's common stock and Preferred Stock,
designed to preserve the Company's status as a REIT, may prevent or hinder a
change of control. Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Operating Partnership that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
Guarantees
The Debt Securities may be unconditionally and irrevocably guaranteed by
Guarantees of the Company, on a senior or subordinated basis, which will
guarantee the due and punctual payment of principal of, premium, if any, and
interest on such Debt Securities, and the due and punctual payment of any
sinking fund payments thereon, when and as the same shall become due and payable
whether at a maturity date, by declaration of acceleration, call for redemption
or otherwise. The applicability and terms of any such Guarantee relating to a
series of Debt Securities will be set forth in the Prospectus Supplement
relating to such Debt Securities. (Section 1601).
Denominations, Interest, Registration And Transfer
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Holder, payment of interest may be made by check mailed to the
address of the Person entitled thereto as it appears in the Security Register or
by wire transfer of funds to such Person at an account maintained within the
United States (Sections 301, 305, 307 and 1002).
All amounts paid by the Operating Partnership to a paying agent or a Trustee
for the payment of the principal of or any premium or interest on any Debt
Security which remain unclaimed at the end of two years after the principal,
premium or interest has become due and payable will be repaid to the Operating
Partnership, and the holder of the Debt Security thereafter may look only to the
Operating Partnership for payment thereof.
(Section 1003).
Any interest not punctually paid or duly provided for on any Interest Payment
Date with respect to a Debt Security ("Defaulted Interest") will forthwith cease
to be payable to the Holder on the applicable Regular Record Date and may either
be paid to the person in whose name such Debt Security is registered at the
close of business on a special record date (the "Special Record Date") for the
payment of such Defaulted Interest to be fixed by the Trustee, notice whereof
shall be given to the Holder of such Debt Security not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner, all as more completely described in the Indenture (Sections 101 and
307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series, of a like aggregate principal amount
and tenor, of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, the
Debt Securities of any series may be surrendered for conversion or registration
of transfer thereof at the corporate trust office of the Trustee referred to
above. Every Debt Security surrendered for conversion, redemption, registration
of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any Debt Securities, but the Operating Partnership may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
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designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Operating
Partnership will be required to maintain a transfer agent in each Place of
Payment for such series. The Operating Partnership may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002).
Neither the Operating Partnership nor the Trustee shall be required to (i)
issue, register the transfer of or exchange Debt Securities of any series during
a period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business of the day of mailing of the relevant notice of redemption; (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except that portion, if any, of such Debt Security which is not to be so repaid
(Section 305).
Merger, Consolidation Or Sale
The Operating Partnership may consolidate with, or sell, lease or convey all
or substantially all of its assets to, or merge with or into, any other person,
provided (a) either the Operating Partnership shall be the continuing person, or
the successor (if other than the Operating Partnership) formed by or resulting
from any such consolidation or merger or which shall have received the transfer
of such assets shall expressly assume payment of the principal, premium, if any,
and interest on all of the Debt Securities and the due and punctual performance
and observance of all of the covenants and conditions contained in the
Indenture; (b) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Operating Partnership or any
Subsidiary as a result thereof as having been incurred by the Operating
Partnership or such Subsidiary at the time of such transaction, no Event of
Default under the Indenture, and no event which, after notice or the lapse of
time, or both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officers' certificate of the Company as General Partner
of the Operating Partnership and an opinion of counsel covering such conditions
shall be delivered to the Trustee (Sections 801 and 803).
Certain Covenants
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Indenture requires each of the Operating Partnership and the Company to do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence, rights (partnership and statutory) and franchises;
provided, however, that each of the Operating Partnership and the Company shall
not be required to preserve any right or franchise if the Board of Directors of
the Company determines that the preservation thereof is no longer desirable in
the conduct of the business of the Operating Partnership and that the loss
thereof is not disadvantageous in any material respect to the Holders of the
Debt Securities (Section 1004).
Maintenance of Properties. The Indenture requires each of the Operating
Partnership and the Company to cause all of its material properties used or
useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order, all as in the
judgment of the Operating Partnership may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that the Operating Partnership or the Company,
as the case may be, and its Subsidiaries shall not be prevented from selling or
otherwise disposing of their properties for value in the ordinary course of
business. (Section 1006).
Insurance. The Indenture requires the Operating Partnership and each of its
Subsidiaries to keep its insurable properties insured against loss or damage
with commercially reasonable amounts and types of insurance provided by insurers
of recognized responsibility. (Section 1007).
Payment of Taxes and Other Claims. The Indenture requires each of the
Operating Partnership and the Company to pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges levied or imposed upon it or any Subsidiary or upon its
income, profits or property or that of any Subsidiary and (ii) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
upon the property of the Operating Partnership or any Subsidiary; provided,
however, that the Operating Partnership or the Company shall not be required to
pay or discharge or cause to be paid or discharged any tax, assessment, charge
or claim whose amount or applicability is being contested in good faith.
(Section 1008).
Provision of Financial Information. The Operating Partnership and the Company
(if the Company has guaranteed any Debt Securities) will file with the Trustee
copies of annual reports, quarterly reports and other documents (the "Financial
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Reports") which the Operating Partnership may be required to file with the
Commission pursuant to Sections 13 or 15(d) of the Exchange Act; provided,
however, that if the Operating Partnership or the Company is not subject to such
Sections, it will file with the Trustee and the Commission such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange.
Additional Covenants. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
Events Of Default, Notice And Waiver
Unless otherwise provided in the Prospectus Supplement, the Indenture
provides that the following events are "Events of Default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any interest on any Debt Security of such series; (b) default in the
payment of any principal of (or premium, if any, on) any Debt Security of such
series when due; (c) default in making any sinking fund payment as required for
any Debt Security of such series; (d) default in the performance of any other
covenant or warranty of the Operating Partnership contained in the Indenture
with respect to any Debt Security of such series, continued for 60 days after
written notice as provided in the Indenture; (e) default in the payment of an
aggregate principal amount exceeding $10,000,000 under any bond, debenture, note
or other evidence of indebtedness of the Operating Partnership, or under any
mortgage, indenture or other instrument of the Operating Partnership (including
a default with respect to Debt Securities of any series other than that series)
under which there may be issued or by which there may be secured any
indebtedness of the Operating Partnership (or by any subsidiary of the Operating
Partnership, the repayment of which the Operating Partnership has guaranteed or
for which the Operating Partnership is directly responsible or liable as obligor
or guarantor), such default having continued after the expiration of any
applicable grace period and having resulted in the acceleration of the maturity
of such indebtedness, but only if such indebtedness is not discharged or such
acceleration is not rescinded or annulled; (f) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of the Operating Partnership, or any Significant Subsidiary or all or
substantially all of any of their respective property; and (g) any other Event
of Default provided with respect to a particular series of Debt Securities
(Section 501). The term "Significant Subsidiary" means each significant
Subsidiary (as defined in Regulation S-X promulgated under the Securities Act)
of the Operating Partnership or the Company. (Section 101).
If an Event of Default under the Indenture with respect to Debt Securities of
any series at the time Outstanding occurs and is continuing, then in every such
case the Trustee or the Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of that series may declare the principal
amount (or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Company (if the
Company has guaranteed any Debt Securities under such Indenture) and the
Operating Partnership (and to the Trustee if given by the Holders). However, any
time after such a declaration of acceleration with respect to Debt Securities of
such series has been made, but before a judgment or decree for payment of the
money due has been obtained by the Trustee, the Holders of not less then a
majority in principal amount of Outstanding Debt Securities of such series may
rescind and annul such declaration and its consequences if (a) the Operating
Partnership shall have paid or deposited with the Trustee all required payments
of the principal of (and premium, if any) and interest on the Debt Securities of
such series plus certain fees, expenses, disbursements and advances of the
Trustee and (b) all Events of Default, other than the nonpayment of accelerated
principal or interest with respect to Debt Securities of such series have been
cured or waived as provided in the Indenture (Section 502). The Indenture also
provides that the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may waive any past default with
respect to such series and its consequences, except a default (x) in the payment
of the principal of (or premium, if any) or interest on any Debt Security of
such series or (y) in respect of a covenant or provision contained in the
Indenture that cannot be modified or amended without the consent of the Holder
of each Outstanding Debt Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal, premium, if any, or interest on any Debt Security of such series or
in the payment of any sinking fund installment in respect of any Debt Security
of such series) if the Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than a majority
in principal amount of the Outstanding Debt Securities of that series, as well
as an offer of reasonable indemnity (Section 507). This provision will not
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prevent, however, any Holder of Debt Securities from instituting suit for the
enforcement of payment of the principal, premium, if any, and interest on such
Debt Securities at the respective due date thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of Debt
Securities of any series then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities)
must deliver to the Trustee a certificate, signed by one of several specified
officers of the Company, stating whether or not such officer has knowledge of
any default under the Indenture and, if so, specifying each such default and the
nature and status thereof (Section 1005).
Modification Of The Indenture
Modifications and amendments of provisions of the Indenture applicable to any
series may be made only with consent of the Holders of not less than a majority
in principal amount of all Outstanding Debt Securities which are affected by
such modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the Place of Payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security on or after the Stated
Maturity thereof; (e) reduce the above-stated percentage of Outstanding Debt
Securities of any series necessary to modify or amend the Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holder of such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of a particular series have the right to waive compliance by the
Operating Partnership or the Company with certain covenants in the Indenture
relating to such series (Section 1010).
Modifications and amendments of the Indenture may be made by the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities)
and the Trustee without the consent of any Holder of Debt Securities for any of
the following purposes: (i) to evidence the succession of another Person to the
Operating Partnership as obligor under the Indenture or succession of another
Person as Guarantor; (ii) to add to the covenants of the Operating Partnership
and the Company (if the Company has guaranteed any Debt Securities) for the
benefit of the Holders of all or any series of Debt Securities or to surrender
any right or power conferred upon the Operating Partnership or the Company in
the Indenture; (iii) to add Events of Default for the benefit of the Holders of
all or any series of Debt Securities; (iv) to add or change any provisions of
the Indenture to facilitate the issuance of Debt Securities in bearer form, or
to permit or facilitate the issuance of Debt Securities in uncertificated form,
provided that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series in any material respect; (v) to
change or eliminate any provisions of the Indenture, provided that any such
change or elimination shall become effective only when there are not Debt
Securities Outstanding of any series created prior thereto which are entitled to
the benefit of such provision; (vi) to secure the Debt Securities or Guarantees;
(vii) to establish the form or terms of Debt Securities of any series and any
related Guarantees; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trust under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; and (x) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of any series
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of such Debt Securities, provided that such action shall not adversely affect
the interests of the Holders of the Debt Securities of any series in any
material respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
Section 301 of the Indenture, and (iv) Debt Securities owned by the Operating
Partnership or any other obligor upon the Debt Securities or any Affiliate of
the Operating Partnership or of such other obligor shall be disregarded (Section
101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by the Operating Partnership or the
Holders of at least 25% in principal amount of the Outstanding Debt Securities
of such series, in any such case upon notice given as provided in the Indenture
(Section 1502). Except for any consent that must be given by the Holder of each
Debt Security affected by certain modifications and amendments of the Indenture,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the Holders
of a majority in principal amount of the Outstanding Debt Securities of that
series; provided, however, that, except as referred to above, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such specified percentage in principal amount of the Outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
the Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
Discharge, Defeasance And Covenant Defeasance
Unless otherwise provided in the Prospectus Supplement, the Operating
Partnership or the Company (if the Company has guaranteed any Debt Securities
under such Indenture) may discharge certain obligations to Holders of any series
of Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or are scheduled for redemption within one year) by
irrevocably depositing with the Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal, premium, if any,
and interest to the date of such deposit (if such Debt Securities have become
due and payable) or to the Stated Maturity or Redemption Date, as the case may
be (Section 401).
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, if the provisions of Article Fourteen are made applicable to the
Debt Securities of any series pursuant to Section 301 of the Indenture, the
Operating Partnership may elect either (a) to decease and be discharged from any
and all obligations with respect to such Debt Securities (except for the
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obligation to pay Additional Amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with respect to payments on
such Debt Securities and the obligations to register the transfer or exchange of
such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such Debt
Securities to compensate the Trustee and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under Sections 1006 through 1008, inclusive, of
the Indenture (being the restrictions described under "Certain Covenants") or,
if provided pursuant to Section 301 of the Indenture, its obligations with
respect to any other covenant, and any omission to comply with such obligations
shall not constitute a default or an Event of Default with respect to such Debt
Securities ("covenant defeasance") (Section 1403), in either case upon the
irrevocable deposit by the Operating Partnership or the Company, as the case may
be, with the Trustee, in trust, of any amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at Stated Maturity, or Government Obligations (as defined
below), or both applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership has delivered to the Trustee an Opinion of Counsel (as specified in
the Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations of
the United States of America or the government which issued the Foreign Currency
in which the Debt Securities of a particular series are payable, for the payment
of which its full faith and credit is pledged or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or such government which issued the Foreign Currency in
which the Debt Securities of such series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or such other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Company, as the case may be, has deposited
funds and/or Government Obligations to effect defeasance or covenant defeasance
with respect to Debt Securities of any series, (a) the Holder of a Debt Security
of such series is entitled to, and does, elect pursuant to Section 301 of the
Indenture or the terms of such Debt Security to receive payment in a currency,
currency unit or composite currency other than that in which such deposit has
been made in respect of such Debt Security, or (b) a Conversion Event (as
defined below) occurs in respect of the currency, currency unit or composite
currency in which such deposit has been made, the indebtedness represented by
such Debt Security shall be deemed to have been, and will be, fully discharged
and satisfied through the payment of the principal, premium, if any, and
interest on such Debt Security as the same becomes due out of the proceeds
yielded by converting the amount so deposited in respect of such Debt Security
into the currency, currency unit or composite currency in which such Debt
Security becomes payable as a result of such election or such cessation of usage
based on the applicable market exchange rate (Section 1405). "Conversion Event"
means the cessation of use of (i) a currency, currency unit or composite
currency either by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions or within the international banking community, (ii) the ECU either
within the European Monetary System or for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. (Section 101.) Unless otherwise provided in the applicable
Prospectus Supplement, all payments of principal, premium, if any, and interest
on any Debt Security that is payable in a Foreign Currency that cease to be used
by its government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership or the Company, as the case may be,
effects covenant defeasance with respect to any Debt Securities and such Debt
Securities are declared due and payable because of the occurrence of any Event
of Default other than the Event of Default described in clause (d) under "Events
of Default, Notice and Waiver" with respect to Section 1006 through 1008 of the
Indenture (which Sections would no longer be applicable to such Debt Securities)
or described in clause (g) under "Events of Default, Notice and Waiver" with
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respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Operating Partnership and the Company (if the Company
has guaranteed any Debt Securities) would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
DESCRIPTION OF PREFERRED STOCK
Subject to limitations prescribed by Maryland law and the Company's Articles
of Incorporation and Articles Supplementary (collectively, the "Charter"), the
Board of Directors is authorized to issue, from the authorized but unissued
capital stock of the Company, preferred stock in such classes or series as the
Board of Directors may determine and to establish from time to time the number
of shares of preferred stock to be included in any such class or series and to
fix the designation and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of any such class or series, and such
other subjects or matters as may be fixed by resolution of the Board of
Directors. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company.
Preferred stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class or series of preferred stock will be described in the
Prospectus Supplement relating to that class or series, including a Prospectus
Supplement providing that preferred stock may be issuable upon the exercise of
Warrants issued by the Company. The description of preferred stock set forth
below and the description of the terms of a particular class or series of
preferred stock set forth in a Prospectus Supplement do not purport to be
complete and are qualified in their entirety by reference to the articles
supplementary relating to that class or series.
The rights, preferences, privileges and restrictions of the preferred stock
of each class or series will be fixed by the articles supplementary relating to
such class or series. A Prospectus Supplement, relating to each class or series,
will specify the terms of the preferred stock as follows:
(1) The title and stated value of such preferred stock;
(2) The number of shares of such preferred stock offered, the liquidation
preference per share and the offering price of such preferred stock;
(3) The dividend rate(s), period(s), and/or payment date(s) or method(s) of
calculation thereof applicable to such preferred stock;
(4) Whether such preferred stock is cumulative or not and, if cumulative,
the date from which dividends on such preferred stock shall accumulate;
(5) The procedures for any auction and remarketing, if any, for such
preferred stock;
(6) The provision for a sinking fund, if any, for such preferred stock;
(7) The provision for redemption, if applicable, of such preferred stock;
(8) Any listing of such preferred stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such preferred
stock will be converted into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10) A discussion of any material federal income tax consequences
applicable to such preferred stock;
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(11) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of the
Company as a REIT;
(12) The relative ranking and preferences of such preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
(13) Any limitations on issuance of any class or series of preferred stock
ranking senior to or on a parity with such class or series of preferred stock as
to dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
(14) Any other specific terms, preferences, rights, limitations or
restrictions of such preferred stock; and
(15) Any voting rights of such preferred stock.
Unless otherwise specified in the Prospectus Supplement, the preferred stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock and Excess Stock of the Company, and to all equity securities ranking
junior to such preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the preferred stock with
respect to dividends rights or rights upon liquidation, dissolution or winding
up of the Company; and (iii) junior to all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
senior to the preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company.
The terms and conditions, if any, upon which shares of any class or series of
preferred stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the preferred stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
preferred stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such preferred stock.
All certificates representing shares of preferred stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% of the outstanding Common Stock and preferred stock (or
1% if there are fewer than 2,000 stockholders) must file an affidavit with the
Company containing the information specified in the Charter within 30 days after
December 31 of each year. In addition, each stockholder shall upon demand be
required to disclose to the Company in writing such information with respect to
the direct, indirect and constructive ownership of shares as the Board of
Directors deems necessary to determine the Company's status as a real estate
investment trust and to insure compliance with the Ownership Limit.
The articles supplementary, if applicable, for the Offered Securities may
also contain provisions that further restrict the ownership and transfer of the
Offered Securities. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to the Offered Securities.
Description of Series A Preferred Stock
The following description of the Company's 7 3/4% Series A Convertible
Preferred Stock (liquidation preference $25.00 per share) (the "Series A
Preferred Stock") is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Charter, including the
Articles Supplementary applicable to the Series A Preferred Stock, and Bylaws.
The Company is authorized to issue 12,000,000 shares of Series A Preferred
Stock, 11,500,000 shares of which were issued and outstanding as of September
30, 1998. The Series A Preferred Stock ranks senior to the Company's Common
Stock as to dividends and liquidation amounts. The dividend per share on the
Series A Preferred Stock is equal to the greater of (i) $1.9375 per annum or
(ii) the cash distributions (determined on each of the quarterly dividend
payment dates referred to above) on the shares of the Company's Common Stock,
into which a share of Series A Preferred Stock is convertible (equal to the
number of shares of Common Stock, or portion thereof, into which a share of
Series A Preferred Stock is convertible, multiplied by the most current
quarterly distribution on or before the applicable dividend payment date). The
dividends on the Series A Preferred Stock are cumulative. The Company currently
pays regular dividends to holders of Series A Preferred Stock.
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In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A Preferred Stock are entitled to receive prior and in
preference to any distribution to the holders of Common Stock, an amount per
share of Series A Preferred Stock equal to the sum of $25.00 and any accrued but
unpaid dividends with respect thereto.
Except in certain instances relating to the preservation of the Company's
status as a REIT, the Series A Preferred Stock is not redeemable prior to
January 16, 2003. On and after January 16, 2003, the Series A Preferred Stock
may be redeemed at the option of the Company, in whole or from time to time in
part, at the following percentages of the Liquidation Preference if redeemed
during the twelve-month period beginning January 16 of the year indicated below,
plus, in each case, all dividends accumulated, accrued and unpaid on the Series
A Preferred Stock to the date fixed for such redemption (the "Redemption Date"),
upon giving notice as provided below:
Redemption Price Per
Year Share of Series A Preferred
Stock
2003.............. 103.88%
2004.............. 103.10%
2005.............. 102.33%
2006.............. 101.55%
2007.............. 100.78%
2008 and thereafter 100.00%
Each share of Series A Preferred Stock is convertible, at the option of the
holder thereof at any time prior to a redemption date, into shares of Common
Stock at an initial conversion price of $32.83 per share of Common Stock,
subject to adjustment. Currently, the 11,500,000 outstanding shares of Series A
Preferred Stock are convertible into approximately 8,757,250 shares of Common
Stock. Except under certain circumstances, the holders of Series A Preferred
have no voting rights.
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DESCRIPTION OF COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of preferred stock or upon the exercise of warrants
issued by the Company. This description is in all respects subject to and
qualified in its entirety by reference to the applicable provisions of the
Company's Charter and its Bylaws. The Common Stock is listed on the New York
Stock Exchange under the symbol "GLB." Registrar and Transfer Company is the
Company's transfer agent.
General
The Company's Charter authorizes the Company to issue up to 200,000,000
shares of capital stock, 188,000,000 of which has been designated of Common
Stock with a par value of $.001 per share. There were 31,737,286 shares of
Common Stock issued and outstanding as of the date of September 30, 1998. Under
Maryland law, stockholders generally are not liable for the Company's debts or
obligations.
The holders of shares of Common Stock are entitled to one vote per share on
all matters voted on by stockholders, including election of directors, and,
except as provided in the Charter in respect of any other class of or series of
stock, the holders of these shares exclusively possess all voting power. The
Charter does not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding shares or series of stock,
holders of shares of Common Stock are entitled to receive distributions, when
and as declared by the Board of Directors, out of funds legally available
therefor. Upon any liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive pro rata all assets of the
Company legally available for distribution to its stockholders after payment of,
or adequate provisions for, all known debts and liabilities of the Company. All
shares of Common Stock now outstanding are fully paid and nonassessable, as will
be the shares of Common Stock offered by this Prospectus or any Prospectus
Supplement when issued. The holders of the Common Stock offered hereby will have
no preemptive rights to subscribe to additional stock or securities issued by
the Company at a subsequent date.
Restrictions on Ownership and Transfer of Common Stock
For the Company to qualify as a REIT under the Code, not more than 50% of the
value of its outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year (the
"closely-held test"). Shares of capital stock must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months (other
than the first year) or during a proportionate part of a shorter taxable year
(the "100 person test"). See "Federal Income Tax Consequences -- Taxation of the
Company -- Requirements for Qualification."
Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Charter, subject to certain exceptions, provides that no
holder, other than Robert Batinovich and the individuals or entities whose
ownership of shares of Common Stock is attributed to Mr. Batinovich under the
Code (the "Attributed Owners"), may own an amount of Common Stock in excess of
the Ownership Limitation, which, pursuant to Board action, currently is 9.9% of
the outstanding shares of Common Stock and preferred stock. A qualified trust
(as defined in the Charter) generally may own up to 9.9% of the outstanding
shares of Common Stock and preferred stock. The Ownership Limitation provides
that Robert Batinovich and the Attributed Owners may hold up to 9.9% of the
outstanding shares of Common Stock, including shares which Robert Batinovich and
the Attributed Owners may acquire pursuant to an option held by GPA, Ltd. or Mr.
Batinovich to cause the Company to redeem their respective partnership interests
in the Operating Partnership, assuming GPA, Ltd. then dissolves and distributes
these shares to the partners of GPA, Ltd.
The Board of Directors may waive the Ownership Limitation if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that such ownership will not jeopardize the Company's status as a
REIT. As a condition to such waiver, the Board of Directors may require opinions
of counsel satisfactory to it and/or an undertaking from the applicant with
respect to preserving the REIT status of the Company. The Ownership Limitation
will not apply if the Board of Directors and the stockholders determine that it
is no longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT. Any transfer of Common Stock that would (a)
create actual or constructive ownership of Common Stock in excess of the
Ownership Limitation, (b) result in the Company failing the 100 person test, or
(c) result in the Company failing the closely-held test, shall be null and void,
and the intended transferee will acquire no rights to the Common Stock.
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The Charter also provides that Common Stock involved in a transfer or change
in capital structure that results in a person (other than Robert Batinovich and
the Attributed Owners) owning in excess of the Ownership Limitation or would
cause the Company to fail either the closely-held test or the 100 person test
will automatically be transferred to a trustee for the benefit of a charitable
organization until purchased by the Company or sold to a third party without
violation of the Ownership Limitation. While held in trust, the Excess Shares
will remain outstanding for purposes of any stockholder vote or the
determination of a quorum for such vote and the trustee will be empowered to
vote the Excess Shares. Excess Shares shall be entitled to distributions,
provided that such distributions shall be paid to a charitable organization
selected by the Board of Directors as beneficiary of the trust. The trustee may
transfer the Excess Shares to any individual (a "Permitted Transferee") whose
ownership of Common Stock would be permitted under the Ownership Limitation and
would not cause the Company to fail the closely-held test. In addition, the
Company would have the right, for a period of 90 days, to purchase all or any
portion of the Excess Shares from the trustee at the lesser of (i) where (a) the
intended transferee gave value for the Excess Shares, the price paid for the
Excess Shares by the intended transferee or (b) average of the intended
transferee did not give value for the Excess Shares, the price per share equal
to the average of the market price for the Common Stock for the five consecutive
trading days ending on the date of the purported transfer to the intended
transferee and (ii) the closing market price for the Common Stock for the five
consecutive trading days ending the date the Company exercises its option to
purchase. The intended transferee would be entitled to receive from the trustee
the lesser of (i) where (a) the intended transferee gave value for the Excess
Shares, the price paid for the Excess Shares by the intended transferee or (b)
the intended transferee did not give value for the Excess Shares, the price per
share equal to the average of the closing market price for the Common Stock for
the five consecutive trading days ending on the date of the purported transfer
to the intended transferee and (ii) the price per share received by the trustee
from the transfer of the Excess Shares to a Permitted Transferee.
The Ownership Limitation will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limitation would require an amendment to the Charter. Such amendments require
the affirmative vote of stockholders owning a majority of the outstanding Common
Stock. In addition to preserving the Company's status as a REIT, the Ownership
Limitation may have the effect of precluding an acquisition of control of the
Company by a third party without the approval of the Board of Directors.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
All stockholders of record who own 5% or more of the value of the outstanding
Common Stock (or 1% if there are fewer than 2,000 stockholders of record but
more than 200, or 1/2% if there are 200 or fewer stockholders of record) must
file written notice with the Company containing the information specified in the
Charter by January 30 of each year. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information with
respect to the direct, indirect and constructive ownership of Common Stock as
the Board of Directors deems necessary to determine the effect, if any, of such
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limitation. The Company intends to use its best efforts to enforce the
Ownership Limitation and will make prohibited transferees aware of their
obligation to pay over any distributions received, will not give effect on its
books to prohibited transfers, will institute proceedings to enjoin any transfer
violating the Ownership Limitation, and will declare all votes of prohibited
transferees invalid.
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under the
Company's employee stock option plan). The Company may issue Warrants for the
purchase of preferred stock or Common Stock. Warrants may be issued
independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following:
(1) The title of such Warrants;
(2) The aggregate number of such Warrants;
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(3) The price or prices at which such Warrants will be issued;
(4) The designation, number of terms of the shares of preferred stock or
Common Stock purchasable upon exercise of such Warrants;
(5) The designation and terms of the Offered Securities, if any, with which
such Warrants are issued and the number of such Warrants issued with each such
Offered Security;
(6) The date, if any, on and after which such Warrants and the related
preferred stock or Common Stock will be separately transferable;
(7) The price at which each share of preferred stock or Common Stock
purchasable upon exercise of such Warrants may be purchased;
(8) The date on which the right to exercise such Warrants shall commence
and the date on which such right shall expire;
(9) The minimum or maximum amount of such Warrants which may be exercised
at any one time;
(10) Information with respect to book-entry procedures, if any;
(11) A discussion of certain federal income tax consequences; and
(12) Any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
AND STOCKHOLDERS' RIGHTS PLAN
Certain provisions of the Company's Charter and Bylaws might discourage
certain types of transactions that involve an actual or threatened change in
control of the Company that might involve a premium price for the Company's
capital stock or otherwise be in the best interest of the stockholders. See
"Description of Common Stock -- Restrictions on Ownership and Transfer of Common
Stock." The issuance of shares of preferred stock or other capital stock by the
Board of Directors may also have the effect of delaying, depriving or preventing
a change in control of the Company. The Bylaws of the Company contain certain
advance notice requirements in the nomination of persons for election to the
Board of Directors which could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority, of the Common Stock
might receive a premium for their Common Stock over the prevailing market price,
or which such holders might believe to be otherwise in their best interests. In
addition, in July 1998, the Company's Board of Directors adopted a stockholder
rights plan which is intended to protect the Company's stockholders in the event
of coercive or unfair takeover tactics, or an unsolicited attempt to acquire
control of the Company in a transaction the Board of Directors believes is not
in the best interests of the stockholders. Under the plan, the Company declared
a dividend of Rights on its Common Stock. The rights issued under the plan will
be triggered, with certain exceptions, if and when any person or group acquires,
or commences a tender offer to acquire, 15% or more of the Company's shares. The
rights plan is intended to prevent abusive hostile takeover attempts by
requiring a potential acquiror to negotiate the terms of an acquisition with the
Board of Directors. However, it could have the effect of deterring or preventing
an acquisition of the Company, even if a majority of the Company's stockholders
would be in favor of such acquisition, and could also have the effect of making
it more difficult for a person or group to gain control of the Company or to
change existing management.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax consequences is based on
current law and does not purport to deal with all aspects of taxation that may
be relevant to particular stockholders in light of their personal investment or
tax circumstances, or to certain types of stockholders (including insurance
companies, financial institutions and broker-dealers) subject to special
treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE OFFERED SECURITIES.
The Company believes that since January 1, 1996, it has operated in a manner
that permits it to satisfy the requirements for taxation as a REIT under the
applicable provisions of the Code. The Company intends to continue to operate to
satisfy such requirements. No assurance can be given, however, that such
requirements will be met.
The provisions of the Code and the Treasury Regulations thereunder relating
to qualification and operation as a REIT are highly technical and complex. The
following sets forth the material aspects of the laws 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, rules and Treasury
Regulations thereunder, and administrative and judicial interpretations thereof.
Morrison & Foerster LLP has acted as tax counsel to the Company in connection
with the Company's election to be taxed as a REIT.
In the opinion of Morrison & Foerster LLP, commencing with the Company's
taxable year that ended on December 31, 1996, the Company has been organized in
conformity with the requirements for qualification as a REIT, and its method of
operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, and various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Morrison &
Foerster LLP. Accordingly, no assurance can be given that the actual results of
the Company's operations for any particular taxable year will satisfy such
requirements. See "-- Failure to Qualify."
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are satisfied, entities, such as the Company, that invest primarily in
real estate and that otherwise would be treated for federal income tax purposes
as corporations, are generally not taxed at the corporate level on their "REIT
Taxable Income" (generally the REIT's taxable income adjusted for, among other
things, the disallowance of the dividends-received deduction generally available
to corporations) that is currently distributed to stockholders. This treatment
substantially eliminates the "double taxation" (i.e., taxation at both the
corporate and stockholder levels) that generally results from investing in
corporations.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities and the amount of cash available for distribution to
its stockholders could be reduced.
Taxation of the Company
General
In any year in which the Company qualifies as a REIT, in general, it will not
be subject to federal income tax on that portion of its net income that it
distributes to stockholders. However, the Company will be subject to federal
income tax as follows: First, the Company will be taxed at regular corporate
rates on any undistributed REIT Taxable Income, including undistributed net
capital gains. (However, a REIT can elect to "pass through" any of its taxes
paid on its undistributed net capital gain to its stockholders on a pro rata
basis). Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the Company
has: (i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of
business; or (ii) other nonqualifying income from foreclosure property, it will
be subject to tax at the highest corporate rate on such income. Fourth, if the
Company has net income from "prohibited transactions" (which are, in general,
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certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than property held for at
least four years, foreclosure property and property involuntarily converted),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), and has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the gross income attributable to the greater of the amount
by which the Company fails the 75% gross income test or the 95% gross income
test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of: (i) 85% of its ordinary income for such year;
(ii) 95% of its capital gain net income for such year; and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation, and the Company recognizes gain on the disposition
of such asset during the 10 year period beginning on the date on which such
asset was acquired by the Company, then, to the extent of any built-in gain at
the time of acquisition, such gain will be subject to tax at the highest regular
corporate rate.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (4) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons (the "100
person test"); (6) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) at any time during the last half of each taxable year (the
"closely-held test"); and (7) which meets certain other tests, described below,
regarding the nature of income and assets. The Treasury has proposed legislation
that would also prohibit a REIT from owning securities in a corporation that
represent either 10 percent of the corporation's vote or value. The Code
provides that conditions (1) to (4), inclusive, must be met during the entire
taxable year and that condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Conditions (5) and (6) will not apply until after the first
taxable year for which an election is made by the Company to be taxed as a REIT.
In addition, beginning in 1998, a REIT's failure to satisfy condition (6) during
a taxable year will not result in its disqualification as a REIT under the Code
for such taxable year as long as (i) the REIT satisfies the stockholder demand
statement requirements described in the succeeding paragraph and (ii) the REIT
did not know, or exercising reasonable diligence, would not have known, whether
it had failed condition (6). The Treasury has also proposed legislation that
would change condition (6) by preventing any "person" (i.e., a corporation,
partnership or trust) from owning stock of a REIT possessing more than 50% of
the total combined voting power of all classes of voting stock or more than 50%
of the total value of shares of all classes of stock. Furthermore, a REIT must
also report its income, for federal income tax purposes, based on the calendar
year.
In order to assist the Company in complying with the 100 person test and the
closely-held test, the Company has placed certain restrictions on the transfer
of the Common Stock and the Company's preferred stock to prevent further
concentration of stock ownership. See "Description of Common Stock --
Restrictions on Transfer." Moreover, to evidence compliance with these
requirements, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock and preferred stock. In fulfilling its
obligations to maintain records, the Company must and will demand written
statements each year from the record holders of designated percentages of its
Common Stock and preferred stock disclosing the actual owners of such Common
Stock and preferred stock. A list of those persons failing or refusing to comply
with such demand must be maintained as part of the Company's records. A
stockholder failing or refusing to comply with the Company's written demand must
submit with his or her tax returns a similar statement disclosing the actual
ownership of Common Stock and preferred stock and certain other information. In
addition, the Company's Charter provides restrictions regarding the transfer of
its shares that are intended to assist the Company in continuing to satisfy the
share ownership requirements. See "Description of Common Stock -- Restrictions
on Ownership and Transfer of Common Stock." Furthermore, the Company reports its
income, for federal income tax purposes, based on the calendar year.
Although the Company intends to satisfy the stockholder demand letter rules
described in the preceding paragraph, beginning in 1998, its failure to satisfy
these requirements will not result in its disqualification as a REIT but may
result in the imposition of IRS penalties against the Company.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
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assets and gross income of a partnership shall retain the same character in the
hands of a partner qualifying as a REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and the asset tests, described
below. Thus, the Company's proportionate share of the assets, liabilities and
items of income of the Operating Partnership will be treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described below.
Asset Tests
At the close of each quarter of the Company's taxable year, the Company must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by interests in real
property, interests in mortgages on real property, shares in other REITs, cash,
cash items and government securities (as well as certain temporary investments
in stock or debt instruments purchased with the proceeds of new capital raised
by the Company). Second, although the remaining 25% of the Company's assets
generally may be invested without restriction, securities in this class may not
exceed either: (i) 5% of the value of the Company's total assets as to any one
non-government issuer; or (ii) 10% of the outstanding voting securities of any
one issuer. The Company's investment in real property through its interest in
the Operating Partnership constitutes qualified assets for purposes of the 75%
asset test. In addition, the Company may own 100% of "qualified REIT
subsidiaries," which are, in general, corporate subsidiaries 100% owned by a
REIT. All assets, liabilities, and items of income, deduction and credit of a
qualified REIT subsidiary will be treated as owned and realized directly by the
Company.
The Company has analyzed the impact of its ownership interests in GC on its
ability to satisfy the asset tests. Based upon its analysis of the estimated
value of the Company's total assets as well as its estimate of the value of the
respective nonvoting Preferred Stock interests in GC, the Company believes that
none of such Preferred Stock interests will exceed 5% of the value of the
Company's total assets on the last day of any calendar quarter in 1996. The
Company intends to monitor compliance with the 5% test on a quarterly basis and
believes that it will be able to manage its operations in a manner to comply
with the tests, either by managing the amount of its qualifying assets or
reducing its interests in GC, although there can be no assurance that such steps
will be successful. In rendering its opinion as to the qualification of the
Company as a REIT, counsel has relied upon the Company's representation as to
the value of its assets and the value of its interests in GC. Counsel has
discussed with the Company its valuation analysis and the future actions
available to it to comply with the 5% tests but it has not independently
verified the valuations.
Gross Income Tests
There are three separate percentage tests (two beginning in 1998) relating to
the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the income
and loss of the partnership, and the gross income of the partnership will retain
the same character in the hands of the Company as it has in the hands of the
partnership. See "-- Tax Aspects of the Company's Investment in the Operating
Partnerships -- General."
The 75% Test. At least 75% of the Company's gross income for the taxable year
must be "qualifying income." Qualifying income generally includes:(i) "rents
from real property" (except as modified below); (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gains from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); and (vii) commitment fees received for agreeing to
make loans collateralized by mortgages on real property or to purchase or lease
real property.
For purposes of determining whether the Company complies with the 75% test
and 95% test (described below), gross income does not include income from
prohibited transactions. See "-- Tax Aspects of the Company's Investment in the
Operating Partnership -- Sale of Properties."
In addition, rents received from a tenant will not qualify as rents from real
property in satisfying the 75% test (or the 95% test described below) if the
Company, or an owner of 10% or more of the Company, directly or constructively
owns 10% or more of such tenant (a "related party tenant"). In addition, if rent
attributable to personal property, leased in connection with a lease of real
property, is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued generally will
not qualify as rents from real property (or as interest income) for purposes of
the 75% and 95% gross income tests if it is based in whole or in part on the
income or profits of any person. Rent or interest will not be disqualified,
however, solely by reason of being based on a fixed percentage or percentages of
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receipts or sales. Finally, for rents received to qualify as rents from real
property, the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent that the services
provided by the Company are "usually or customarily rendered" in connection with
the rental of space for occupancy only, and are not otherwise considered
"rendered to the occupant." For both the related party tenant rules and
determining whether an entity qualifies as an independent contractor, certain
attribution rules of the Code apply, pursuant to which shares of a REIT held by
one entity are deemed held by another.
Under prior law, if a REIT provides impermissible services to its tenants,
all of the rent from those tenants would have been disqualified from satisfying
the 75% test and 95% test (described below). Beginning in 1998, rents will not
be disqualified if a REIT provides de minimis, impermissible services. For this
purpose, services provided to tenants of a property are considered de minimis
where income derived from the services rendered equals 1% or less of all income
derived from the property (threshold determined on a property-by-property
basis). For purposes of this 1% threshold, the amount treated as received for
any service shall not be less than 150% of the direct cost of the Company in
furnishing or rendering the services.
The Company will be deemed to provide certain services which are actually
provided by the Operating Partnership (which is not an independent contractor of
the Company) with respect to properties owned by the Operating Partnership. The
Company believes that the services provided by the Operating Partnership are
usually or customarily rendered in connection with the rental of space of
occupancy only, and therefore that the provision of such services will not cause
the rents received with respect to its properties to fail to qualify as rents
from real property for purposes of the 75% test and 95% test (described below).
The Company does not intend to rent to related party tenants or to charge rents
that would not qualify as rents from real property because the rents are based
on the income or profits of any person (other than rents that are based on a
fixed percentage or percentages of receipts or sales).
The Company will receive nonqualifying management fee income. As a result,
the Company may approach the income test limits and could be at risk of not
satisfying such tests and thus not qualifying as a REIT. Counsel's opinion is
based on the Company's representation that the actual amount of nonqualifying
income will not exceed such limits.
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligation not collateralized by an interest on real property are included for
purposes of the 95% test, but not for purposes of the 75% test. Furthermore,
income earned on interest rate swaps and caps entered into as liability hedges
against variable rate indebtedness qualify for the 95% test (but not the 75%
test). Beginning in 1998, income earned on liability hedges against all of a
REIT's indebtedness, such as options, futures, and forward contracts, will
qualify for the 95% test (but not the 75% test). In certain cases, Treasury
Regulations treat a debt instrument and a liability hedge as a synthetic debt
instrument for all purposes of the Code. If a liability hedge entered into by a
REIT is subject to these rules, income earned thereon will operate to reduce its
interest expense, and, therefore such income will not affect the REIT's
compliance with either the 75% or 95% tests.
Even if the Company fails to satisfy one or both of the 75% or 95% tests for
any taxable year, it may still qualify as a REIT for such year if it is entitled
to relief under certain provisions of the Code. These relief provisions will
generally be available if: (i) the Company's failure to comply was due to
reasonable cause and not to willful neglect; (ii) the Company reports the nature
and amount of each item of its income included in the 75% and 95% tests on a
schedule attached to its tax return; and (iii) any incorrect information on this
schedule is not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled to
the benefit of these relief provisions. If these relief provisions apply, the
Company will, however, still be subject to a special tax upon the greater of the
amount by which it fails either the 75% or 95% test for that year.
The 30% Test. Prior to 1998, the Company must have derived less than 30% of
its gross income for each taxable year from the sale or other disposition of:
(i) real property held for less than four years (other than foreclosure property
and involuntary conversions); (ii) stock or securities held for less than one
year; and (iii) property in a "prohibited transaction." The 30% test has been
repealed effective for tax years beginning after December 31, 1997.
Annual Distribution Requirements
The Company, in order to qualify as a REIT, is required to make distributions
(other than capital gain distributions) to its stockholders each year in an
amount at least equal to (A) the sum of: (i) 95% of the Company's REIT Taxable
Income (computed without regard to the dividends paid deduction and the REIT's
net capital gain); and (ii) 95% of the net income (after tax), if any, from
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foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular distribution
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT Taxable Income, as adjusted, it will be subject to tax on
the undistributed amount at regular capital gains or ordinary corporate tax
rates, as the case may be. (However, a REIT can elect to "pass through" any of
its taxes paid on its undistributed net capital gain to its shareholders on a
pro rata basis.) Furthermore, if the REIT should fail to distribute during each
calendar year at least the sum of: (i) 85% of its ordinary income for such year;
(ii) 95% of its net capital gain for such year; and (iii) any undistributed
taxable income from prior periods, the REIT would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. For such purposes, dividends declared to shareholders of record in
October, November, or December of one calendar year and paid by January 31 of
the following calendar year are deemed paid as of December 31 of the initial
calendar year.
The Company believes that it has made and will make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
partnership agreement of the Operating Partnership authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that in the
future the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand. Further, as described below, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. To avoid any problem with the
95% distribution requirement, the Company will closely monitor the relationship
between its REIT Taxable Income and cash flow and, if necessary, will borrow
funds (or cause the Operating Partnership or other affiliates to borrow funds)
in order to satisfy the distribution requirement. The Company (through the
Operating Partnership) may be required to borrow funds at times when market
conditions are not favorable.
If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the IRS, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company, nor will they be
required to be made. In such event, to the extent of the Company's current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory provisions, the Company will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether the Company would be entitled to such statutory relief.
Tax Aspects of the Company's Investment in the Operating Partnership
The following discussion summarizes certain federal income tax considerations
applicable solely to the Company's investment in the Operating Partnership.
General
The Company holds a direct ownership interest in the Operating Partnership.
In general, partnerships are "pass-through" entities which are not subject to
federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company includes its
proportionate share of the foregoing Operating Partnership items for purposes of
the various REIT income tests and in the computation of its REIT Taxable Income.
See "-- Requirements for Qualification" and "-- Gross Income Tests." Any
resultant increase in the Company's REIT Taxable Income increases its
distribution requirements (see "-- Requirements for Qualification" and "--
Annual Distribution Requirements"), but is not subject to federal income tax in
the hands of the Company provided that such income is distributed by the Company
to its stockholders. Moreover, for purposes of the REIT asset tests (see "--
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Requirements for Qualification" and "-- Asset Tests"), the Company includes its
proportionate share of assets held by the Operating Partnership.
Tax Allocations with Respect to Certain Properties
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property. Consequently, the partnership agreement of the Operating
Partnership requires such allocations to be made in a manner consistent with
Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership of the
contributed assets. This will tend to eliminate the Book-Tax Difference over the
life of the Operating Partnership. However, the special allocation rules under
Section 704(c) of the Code do not always entirely rectify 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
of the Operating Partnership may cause the company to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "-- Requirements for Qualification" and "-- Annual
Distribution Requirements." In addition, the application of Section 704(c) of
the Code to the Operating Partnership is not entirely clear and may be affected
by authority that may be promulgated in the future.
Basis in Operating Partnership Interest
The Company's adjusted tax basis in its partnership interest in the Operating
Partnership generally: (i) is equal to the amount of cash and the basis of any
other property contributed to the Operating Partnership by the Company; (ii) is
increased by (a) its allocable share of the Operating Partnership's income and
(b) increases in its allocable share of indebtedness of the Operating
Partnership and; (iii) is reduced, but not below zero, by the Company's
allocable share of (a) the Operating Partnership's losses and (b) the amount of
cash distributed to the Company, and by constructive distributions resulting
from a reduction in the Company's share of indebtedness of the Operating
Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's losses would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition of
such losses will be deferred until such time as the recognition of such loss
would not reduce the Company's adjusted tax basis below zero. To the extent that
the Operating Partnership's distributions, or any decrease in the Company's
share of the indebtedness of the Operating Partnership (each such decrease being
considered a constructive cash distribution to the partners), would reduce the
Company's adjusted tax basis below zero, such distributions (including such
constructive distributions) constitute taxable income to the Company. Such
distributions and constructive distributions will normally be characterized as a
capital gain, and if the Company's partnership interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gains.
Sale of Properties
Generally, any gain realized by the Operating Partnership on the sale of
property held by the Operating Partnership will be capital gain, except for any
portion of such gain that is treated as depreciation or cost recovery recapture.
The Company's share of any gain realized by the Operating Partnership on the
sale of any dealer property generally will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. See "Taxation of
the Company" and "-- Requirements for Qualification" and "-- Gross Income Tests
- -- The 95% Test." Under existing law, whether property is dealer property is a
question of fact that depends on all the facts and circumstances with respect to
the particular transaction. The Operating Partnership intends to hold its
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 such occasional sales of properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
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believes that in general the Operating Partnership's properties should not be
considered dealer property and that the amount of income from prohibited
transactions, if any, will not be material.
Taxation of Stockholders
Taxation of Taxable Domestic Stockholders
As used herein, the term "U.S. Stockholder" means a holder of shares of
Company stock who (for U.S. federal income tax purposes): (i) is a citizen or
resident of the United States; (ii) is a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof (except, in the case of a partnership, the
Treasury provides otherwise by regulations); (iii) is an estate the income of
which is subject to United States Federal income taxation regardless of its
source; or (iv) 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
regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date that elect to continue to be treated as
United States persons, shall also be considered U.S. Stockholders.
As long as the Company qualifies as a REIT, distributions made by the Company
out of its current or accumulated earnings and profits (and not designated as
capital gain dividends) will constitute dividends taxable to its taxable U.S.
Stockholders as ordinary income. Such distributions will not be eligible for the
dividends received deduction otherwise available with respect to dividends
received by U.S. Stockholders that are corporations. Distributions made by the
Company that are properly designated by the Company as capital gain dividends
will be taxable to taxable U.S. Stockholders as gains (to the extent that they
do not exceed the Company's actual net capital gain for the taxable year) from
the sale or disposition of a capital asset. Depending on the period of time the
Company held the assets which produced such gains, and on certain designations,
if any, which may be made by the Company, such gains may be taxable to
noncorporate 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. To the extent that the Company makes
distributions (not designated as capital gain dividends) in excess of its
current and accumulated earnings and profits, such distributions will be treated
first as a tax-free return of capital to each U.S. Stockholder, reducing the
adjusted basis which such U.S. Stockholder has in his shares of Company Stock
for tax purposes by the amount of such distribution (but not below zero), with
distributions in excess of a U.S. Stockholder's adjusted basis in his shares
taxable as capital gain, provided that the shares have been held as a capital
asset (which, with respect to a non-corporate U.S. Stockholder, will be taxable
as long-term capital gain if the shares have been held for more than eighteen
months, mid-term capital gain if the shares have been held for more than one
year but not more than eighteen months, or short-term capital gain if the shares
have been held for one year or less). Dividends declared by the Company in
October, November, or December of any year and payable to a stockholder of
record on a specified date in any such month shall be treated as both paid by
the Company and received by the stockholder on December 31st of such year;
provided that the dividend is actually paid by the Company on or before January
31st of the following calendar year. Stockholders may not include in their own
income tax returns any net operating losses or capital losses of the Company.
Distributions made by the Company and gain arising from the sale of exchange
by a U.S. Stockholder of shares of Company stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be able
to apply any "passive losses" against such income or gain. Distributions made by
the Company (to the extent they do not constitute a return of capital) generally
will be treated as investment income for purposes of computing the investment
interest limitation. Gain arising from the sale or other disposition of Company
stock (or distributions treated as such), will not be treated as investment
income under certain circumstances.
The Company may elect to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains. In such event, the Company would pay
tax on such retained net long-term capital gains. In addition to the extent
designated by the Company, a U.S. Stockholder generally would: (i) include its
proportionate share of such 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 the Company's taxable year falls (subject to certain limitations as to
the amount so includable); (ii) be deemed to have paid the capital gains tax
imposed on the Company on the designated amounts included in such U.S.
Stockholder's long-term capital gains; (iii) receive a credit or refund for such
amount of tax deemed paid by it; (iv) increase the adjusted basis of its Shares
by the difference between the amount of such includable gains and the tax deemed
to have been paid by it; and (v), 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.
Upon any sale or other disposition of Company stock, a U.S. Stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between: (i) the amount of cash and the fair market value of any
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property received on such sale or other disposition; and (ii) the holder's
adjusted basis in such shares of Company stock for tax purposes. Such gain or
loss will be capital gain or loss if the shares have been held by the U.S.
Stockholder as a capital asset and, with respect to a non-corporate U.S.
Stockholder, will be long-term gain or loss if such shares have been held for
more than one year at the time of disposition. In general, any loss recognized
by a U.S. Stockholder upon the sale or other disposition of shares of Company
stock that have been held for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
capital gain dividends received by such U.S. Stockholder from the Company which
were required to be treated as long-term capital gains.
Backup Withholding
The Company will report to its domestic stockholders and to the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid and redemption proceeds unless such stockholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules.
Notwithstanding the foregoing, the Company will institute backup withholding
with respect to a stockholder when instructed to do so by the IRS. A stockholder
that does not provide the Company with his correct taxpayer identification
number may also be subject to penalties imposed by the IRS. Any amount paid as
backup withholding will be creditable against the stockholder's federal income
tax liability.
Taxation of Tax-Exempt Stockholders
The IRS has issued a revenue ruling in which it held that amounts distributed
by a REIT to a tax-exempt employees' pension trust do not constitute unrelated
business taxable income ("UBTI"). Revenue rulings, however, are interpretive in
nature and are subject to revocation or modification by the IRS. Based upon the
ruling and the analysis therein, distributions by the Company to a stockholder
that is a tax-exempt entity should not constitute UBTI, provided that the tax
exempt entity has not financed the acquisition of its shares of Common Stock
with "acquisition indebtedness" within the meaning of the Code, and that the
shares of the Company's stock are not otherwise used in an unrelated trade or
business of the tax-exempt entity. In addition, REITs generally treat the
beneficiaries of qualified pension trusts as the beneficial owners of REIT
shares owned by such pension trusts for purposes of determining if more than 50%
of the REIT's shares are owned by five or fewer individuals. However, if a
pension trust owns more than 10% of the REIT's shares, it can be subject to UBTI
on all or a portion of REIT dividends made to it, if the Company is treated as a
"pension-held REIT." In view of the Ownership Limitation, the Company does not
expect to be treated as a "pension-held REIT." See "Description of Common Stock
- -- Restrictions on Transfer." Consequently, a pension trust stockholder should
not be subject to UBTI on dividends that it receives from the Company. However,
because the Common Stock is publicly traded, no assurance can be given to this
effect.
Taxation of Foreign Stockholders
The rules governing U.S. federal income taxation of the ownership and
disposition of Company stock by persons who or that are not U.S. Stockholders
("Non-U.S. Stockholders") are complex and no attempt is made herein to provide
more than a summary of such rules. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of federal, state,
local and any foreign income tax laws with regard to an investment in the
Company, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company or the Operating Partnership of "United States real property
interests" ("USRPIs"), as defined in the Code, and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to the
extent they are made out of current or accumulated earnings and profits of the
Company. Unless such distributions are effectively connected with the Non-U.S.
Stockholder's conduct of a U.S. trade or business (or, if an income tax treaty
applies, is attributable to a U.S. permanent establishment of the Non-U.S.
Stockholder), the gross amount of the distributions will ordinarily be subject
to U.S. withholding tax at a 30% or lower treaty rate, if applicable. In
general, Non-U.S. Stockholders will not be considered engaged in a U.S. trade or
business (or, in the case of an income tax treaty, as having a U.S. permanent
establishment) solely by reason of their ownership of the Company's stock. If
income on the Company's stock is treated as effectively connected with the
Non-U.S. Stockholder's conduct of a U.S. trade or business (or, if an income tax
treaty applies, is attributable to a U.S. permanent establishment of the
Non-U.S. Stockholder), the Non-U.S. Stockholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such distributions (and may also be subject to the 30% branch profits
tax in the case of a stockholder that is a foreign corporation). The Company
expects to withhold U.S. income tax at the rate of 30% on the gross amount of
any distributions of ordinary income made to a Non-U.S. Stockholder unless: (i)
a lower treaty rate applies and proper certification is provided; or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that the
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distribution is effectively connected with the Non-U.S. Stockholder's conduct of
a U.S. trade or business (or, if an income tax treaty applies, is attributable
to a U.S. permanent establishment of the Non-U.S. Stockholder).
Pursuant to Treasury Regulations, dividends paid to an address in a country
outside the United States are generally presumed to be paid to a resident of
such country for purposes of ascertaining the requirement of withholding
discussed above and the applicability of a tax treaty rate. Under certain income
tax treaties, lower withholding rates generally applicable to dividends do not
apply to dividends from a REIT, such as the Company. Under recently promulgated
Temporary Treasury Regulations, certain Non-U.S. Stockholders who seek to claim
the benefit of an applicable treaty rate will be required to satisfy certain
residency requirements. In addition, certain certification and disclosure
requirements must be satisfied under the effectively connected income and
permanent establishment exemptions discussed in the preceding paragraph.
Unless the Company's stock constitutes a USRPI, distributions in excess of
current and accumulated earnings and profits of the Company will not be taxable
to a stockholder to the extent that such distributions do not exceed the
adjusted basis of the stockholder's shares but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's shares of the Company's capital stock, such
distributions will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
shares, as described below. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distributions will be subject
to withholding at the same rate as dividends. If, however, the Company's stock
is treated as a USRPI, then unless otherwise treated as a dividend for
withholding tax purposes as described below, any distributions in excess of
current or accumulated earnings and profits will generally be subject to 10%
withholding and, to the extent such distributions also exceed the adjusted basis
of a Non-U.S. Stockholder's stock, they will also give rise to gain from the
sale or exchange of the stock, the tax treatment of which is described below.
Distributions that are designated by the Company at the time of distribution
as capital gain dividends (other than those arising from the disposition of a
USRPI) generally will not be subject to taxation, unless: (i) investment in the
shares is effectively connected with the Non-U.S. Stockholder's United States
trade or business (or, if an income tax treaty applies, it is attributable to a
United States permanent establishment of the Non-U.S. Stockholder), in which
case the Non-U.S. Stockholder will be subject to the same treatment as U.S.
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); or (ii)
the Non-U.S. Stockholder is a non-resident alien individual whose is present in
the United States for 183 days or more during the taxable year and either has a
"tax home" in the United States or sold his or her shares under circumstances in
which the sale was attributable to a U.S. office, in which case the non-resident
alien individual will be subject to a 30% tax on the individual's capital gains.
For any year in which the Company qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Company of USRPIs ("USRPI
Capital Gains"), such as properties beneficially owned by the Company (including
property held by the Operating Partnership), will be taxed to a Non-U.S.
Stockholder under the provisions of the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Stockholder as gain effectively connected with a U.S. trade or business
regardless or whether such dividends are designated as capital gain dividends.
Non-U.S. Stockholders would thus be taxed at the normal capital gain rates
applicable to U.S. stockholders (subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien
individuals) on such distributions. Also, distributions of USRPI Capital Gains
may be subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder not entitled to treaty exemption or rate reduction. The Company is
required by applicable Treasury Regulations to withhold 35% of any distribution
consisting of USRPI Capital Gains. This amount may be creditable against the
Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares of Company
stock will generally not be taxed under FIRPTA if the shares do not constitute a
USRPI. Shares of the Company will not be considered a USRPI if the Company is a
"domestically controlled REIT," or if the shares are part of a class of stock
that is regularly traded on an established securities market and the holder
owned less 5% of the class of stock sold during a specified testing period. A
"domestically controlled REIT" is defined generally as a real estate investment
trust in which at all times during a specified testing period less than 50% in
value of the stock was held directly or indirectly by foreign persons. The
Company believes that it is a "domestically controlled REIT," and therefore the
sale of shares will not be subject to taxation under FIRPTA. If the gain on the
sale of shares were to be subject to taxation under FIRPTA, the Non-U.S.
Stockholder would be subject to the same treatment as U.S. stockholders with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals),
and the purchaser of the stock may be required to withhold 10% of the purchase
price and remit such amount to the IRS. However, since the Company's Common
Stock is publicly traded, no assurance can be given to this effect.
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Gain not subject to FIRPTA will be taxable to a Non-U.S. Stockholder if: (i)
investment in the shares is effectively connected with a U.S. trade or business
of the Non-U.S. Stockholder (or, if an income tax treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Stockholder), in
which case the Non-U.S. Stockholder will be subject to the same treatment as
U.S. stockholders with respect to such gain; or (ii) the Non-U.S. Stockholder is
a nonresident alien individual who was present in the U.S. for 183 days or more
during the taxable year and has a "tax home" in the U.S., in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as
U.S. stockholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals).
If the proceeds of a disposition of shares of Company stock are paid by or
through a U.S. office of a broker, the payment is subject to information
reporting and backup withholding unless the disposing Non-U.S. Stockholder
certifies as to his name, address and non-U.S. status or otherwise establishes
an exemption. Generally, U.S. information reporting and backup withholding will
not apply to a payment of disposition proceeds if the payment is made outside
the U.S. through a non-U.S. office of a non-U.S. broker. U.S. information
reporting requirements (but not backup withholding) will apply, however, to a
payment of disposition proceeds outside the U.S. if: (i) the payment is made
through an office outside the U.S. of a broker that is either (a) a U.S. person,
(b) a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the U.S. or (c) a "controlled
foreign corporation" for U.S. federal income tax purposes; and (ii) the broker
fails to obtain documentary evidence that the stockholder is a Non-U.S.
Stockholder and that certain conditions are met or that the Non-U.S. Stockholder
otherwise is entitled to an exemption.
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
described above, but unify current certification procedures and forms and
clarify reliance standards. For example, the New Withholding Regulations adopt a
certification rule under which a Non-U.S. stockholder who wishes to claim the
benefit of an applicable treaty rate with respect to dividends received from a
U.S. 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 designed 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.
EXCEPT AS PROVIDED IN THIS PARAGRAPH, THE DISCUSSION SET FORTH ABOVE IN
"TAXATION OF FOREIGN 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.
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective investors should recognize that the present federal income tax
treatment of an investment in the Company may be modified by legislative,
judicial or administrative action at any time, and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department, resulting
in revisions or regulations and revised interpretations of established concepts
as well as statutory changes. Revisions in federal tax laws and interpretations
thereof could adversely affect the tax consequences of an investment in the
Company.
State Tax Consequences and Withholding
The Company and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Several states in which the Company may conduct business treat
REITs as ordinary corporations. The Company does not believe, however, that
stockholders will be required to file state tax returns, other than in their
respective states of residence, as a result of the ownership of shares of the
Company's capital stock. However, prospective stockholders should consult their
own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.
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EACH INVESTOR IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE OWNERSHIP AND SALE OF COMMON
STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Offered Securities to
one or more underwriters for public offering and sale by them or may sell the
Offered Securities to investors directly or through agents, which agents may be
affiliated with the Company or the Operating Partnership. Any such underwriter
or agent involved in the offer and sale of the Offered Securities will be named
in the applicable Prospectus Supplement. Direct sales to investors may be
accomplished through subscription offerings or concurrent rights offerings to
the Company's stockholders and direct placements to third parties.
Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions on the
New York Stock Exchange or in negotiated transactions or any combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at other negotiated prices.
Underwriters may offer and sell Offered Securities at a fixed price or prices
which may be changed, at prices related to the prevailing market prices at the
time of sale, or at negotiated prices. The Company and the Operating Partnership
also may offer and sell the Offered Securities in exchange for one or more of
then outstanding issues of debt or convertible debt securities. The Company and
the Operating Partnership also may, from time to time, authorize underwriters
acting as their agents to offer and sell the Offered Securities upon the terms
and conditions as set forth in the applicable Prospectus Supplement. In
connection with the sale of Offered Securities, underwriters may be deemed to
have received compensation from the Company or the Operating Partnership in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of Offered Securities for whom they may act as agent.
Underwriters may sell Offered Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of Offered
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Offered Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Offered Securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company or the Operating
Partnership, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act. Any such
indemnification agreements will be described in the applicable Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, each series
of Offered Securities will be a new issue with no established trading market,
other than the Company's Common Stock and Series A Preferred Stock which are
listed on the New York Stock Exchange. Any shares of Common Stock sold pursuant
to a Prospectus Supplement will be listed on such exchange, subject to official
notice of issuance. The Company and the Operating Partnership may elect to list
any series of Offered Securities on any exchange, but is not obligated to do so.
It is possible that one or more underwriters may make a market in a series of
Offered Securities, but will not be obligated to do so and may discontinue any
market making at any time without notice. Therefore, no assurance can be given
as to the liquidity of the trading market for the Offered Securities.
If so indicated in the applicable Prospectus Supplement, the Company or the
Operating Partnership may authorize dealers acting as the Company's or Operating
Partnership's agents to solicit offers by certain institutions to purchase
Offered Securities from the Company or the Operating Partnership at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company or the Operating Partnership. Contracts will not
be subject to any conditions except (i) the purchase by an institution of the
Offered Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the U.S. to which such
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institution is subject, and (ii) if the Offered Securities are being sold to
underwriters, the Company or the Operating Partnership shall have sold to such
underwriters the total principal amount of the Offered Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for, the Company and the Operating
Partnership and its subsidiaries in the ordinary course of business.
In order to facilitate an offering of Offered Securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the Offered Securities during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the Offered Securities for their own account by
selling more Offered Securities than have been sold to them by the Company or
the Operating Partnership. The underwriters may elect to cover any such short
position by purchasing Offered Securities in the open market or by exercising
any over-allotment option granted to the underwriters. In addition, such persons
may stabilize or maintain the price of the Offered Securities by bidding for or
purchasing Offered Securities in the open market and may impose penalty bids,
under which selling concessions allowed to syndicate members or other
broker-dealers participating in the offering are reclaimed if Offered Securities
previously distributed in the offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of the Offered Securities at a level
above that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the Offered Securities to the extent
that it discourages resales thereof. No representation is made as to the
magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
EXPERTS
The financial statements of the Company and the GRT Predecessor Entities, and
related financial statements schedules included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, have been audited by Arthur
Andersen LLP, independent public accountants, to the extent and for the periods
indicated in their reports, and have been incorporated herein in reliance on
such reports given on the authority of that firm as experts in accounting and
auditing.
In addition, the financial statements of the Operating Partnership and the
GRT Predecessor Entities, and related financial statement schedules included in
the Registration Statement on Form S-4/A of the Operating Partnership filed on
November 12, 1998, have been audited by Arthur Andersen LLP, independent public
accountants, to the extent and for the periods indicated in their reports, and
have been incorporated herein, in reliance on such reports given on the
authority of that firm as experts in accounting and auditing.
In addition, the respective statements of revenues and certain expenses of
the BGK Portfolio, the Eaton and Lauth Portfolio, One and Three Pacific, the
Pauls Portfolio, the Galesi Portfolio and the Donau/Gruppe Portfolio, including
in various Current Reports on Form 8-K and Form 8-K/A, have also been audited by
Arthur Andersen LLP, independent public accountants, to the extent and for the
periods indicated in their reports, and have been incorporated herein, in
reliance on such reports given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
and the Operating Partnership by Morrison & Foerster LLP, Palo Alto, California.
In addition, the description of the Company's qualifications and taxation as a
REIT under the Code contained in the Prospectus under the caption "Federal
Income Tax Consequences" is based upon the opinion of Morrison & Foerster LLP.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses, other than underwriting discounts and commissions, in
connection with the offering of the securities being registered are set forth
below. All of such expenses are estimates, except the Securities Act
Registration fee.
Securities Act Registration fee...... $ 88,500
Printing fees........................ 10,000
Legal fees and expenses.............. 40,000
Accounting fees and expenses......... 5,000
Blue sky fees and expenses........... 15,000
Miscellaneous expenses............... 16,500
-------
Total........................ $175,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Maryland GCL permits a Maryland Corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for (i) actual receipt
of an improper benefit or profit in money, property or services or (ii) active
and deliberate dishonesty established by a final judgment as being material to
the cause of action. The Charter contains such a provision which limits such
liability to the maximum extent permitted by the Maryland GCL.
The Charter authorizes the Company to obligate itself to indemnify its
present and former officers and directors and to pay or reimburse reasonable
expenses for those individuals in advance of the final disposition of a
proceeding to the maximum extent permitted from time to time by the laws of
Maryland. The Bylaws of the Company obligate it to indemnify, and advance
expenses to present, former and proposed directors and officers to the maximum
extent permitted by Maryland law. The Maryland GCL 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 (a) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services, or (c) in the case of any criminal proceeding, the director or officer
had a reasonable cause to believe that the act or omission was unlawful.
However, a corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In addition, the Maryland GCL requires the
Company, as conditions to advancing expenses, to obtain (i) a written
affirmation by the director or officer of his good-faith belief that he has met
the standard of conduct necessary for indemnification by the Company as
authorized by the applicable Bylaws and (ii) a written statement by him or on
his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The Bylaws of
the Company also permit the Company to provide indemnification and to advance
expenses to a present or former director or officer who served a predecessor of
the Company in that capacity, and to any employee or agent of the Company, or a
predecessor of the Company. Finally, the Maryland GCL requires a corporation
(unless its charter provides otherwise, which the Company's Charter does not) to
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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 service in that capacity.
The Company has entered into indemnification agreements with each of its
directors and executive officers to provide them with indemnification to the
full extent permitted by the Charter and Bylaws of Company.
The Company has obtained an insurance policy to provide liability coverage
for directors and officers of Company.
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ITEM 16. EXHIBITS
1.1* -- Form of Underwriting Agreement
3.1 -- Articles of Amendment and Restatement of Articles of
Incorporation of the Registrant (incorporated by reference to
Exhibit 3.2 to Registrant's Registration Statement on Form
S-11 (File No. 333-09411))
3.2 -- Bylaws of the Registrant (incorporated by reference to Exhibit
3.1 to Registrant's Registration Statement on Form S-11 (File
No. 333-09411))
4.1* -- Form of Warrant Agreement
4.2 -- Indenture dated March 23, 1998 between the Operating
Partnership, the Company and the Trustee, including the Form
of Notes, and the First Supplemental Indenture thereto
relating to the Company's 7 5/8% Series A Redeemable Notes due
2008 and related 7 5/8% Series B Redeemable Notes due 2008
(incorporated by reference to Exhibit 4.2 to the Operating
Partnership's Registration Statement on Form S-4 (File No.
333-08808))
4.3* -- Supplemental Indenture
4.4 -- Form of Articles Supplementary of Glenborough Realty Trust
Incorporated relating to the 7 3/4% Series A Convertible
Preferred Stock (incorporated by reference to Exhibit 3.03 of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997)
4.5* -- Form of Articles Supplementary of Glenborough Realty Trust
Incorporated for additional series of preferred stock or for
other classes or series of capital stock.
5.1 -- Opinion of Morrison & Foerster LLP
8.1 -- Opinion of Morrison & Foerster LLP relating to certain tax
matters
12.1 -- Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
12.2 -- Computation of Ratio of Earnings to Fixed Charges and
Preferred Partner Interest Distributions
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Morrison & Foerster LLP (included in Exhibits 5.1
and 8.1)
24.1 -- Power of Attorney
25.1 -- Statement of Eligibility of Trustee on Form T-1 (incorporated
by reference to Exhibit 25.1 of the Operating Partnership's
Registration Statement on Form S-4 (File No. 333-08808))
- ------------
* To be filed by amendment or incorporated by reference in connection with the
applicable offering of the Offered Securities.
ITEM 17. UNDERTAKINGS
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-3
<PAGE>
(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 this registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that 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
Registrants pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) 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.
(3) 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 Registrants hereby further undertake that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrants' respective annual reports pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to 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 therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have 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 Registrants 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 Registrants 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each 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 San Mateo, State of California on January 11, 1999.
GLENBOROUGH PROPERTIES, L.P. GLENBOROUGH REALTY TRUST
INCORPORATED
By: Glenborough Realty Trust Incorporated By: /s/ ROBERT BATINOVICH
as General Partner ---------------------------------
Robert Batinovich
Chairman and Chief Executive Officer
By: /s/ ROBERT BATINOVICH
-----------------------------------
Robert Batinovich
Chairman and Chief Executive Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Robert Batinovich, Andrew
Batinovich, Stephen Saul and Frank E. Austin as his/her true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and resubstitution, for and in his/her stead, in any and all
capacities, to sign on his/her behalf the Registration Statement on Form S-3 in
connection with the sale by Glenborough Realty Trust Incorporated of shares of
offered securities, and to execute any amendments thereto (including
post-effective amendments) or certificates that may be required in connection
with this Registration Statement, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission and granting unto said attorneys-in-fact and agents,
jointly and severally, the full power and authority to do and perform each and
every act and thing necessary or advisable to all intents and purposes as he/she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, jointly and severally, or his/her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-3 has been signed by the following persons in the capacities
and on the dates indicated:
SIGNATURE TITLE DATE
/s/ ROBERT BATINOVICH Chairman and Chief Executive January 11, 1999
- ----------------------- Officer
Robert Batinovich
/s/ ANDREW BATINOVICH Director, President and Chief January 11, 1999
- ----------------------- Operating Officer
Andrew Batinovich
/s/ STEPHEN SAUL Executive Vice President and Chief January 11, 1999
- ----------------------- Financial Officer
Stephen Saul
/s/ TERRI GARNICK Senior Vice President and Chief January 11, 1999
- ----------------------- Accounting Officer
Terri Garnick
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ PATRICK FOLEY Director January 11, 1999
- -----------------------
Patrick Foley
/s/ LAURA WALLACE Director January 11, 1999
- -----------------------
Laura Wallace
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
1.1* Form of Underwriting Agreement
3.1 Articles of Amendment and Restatement of Articles of Incorporation
of the Registrant (incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement on Form S-11 (File No.
333-09411))
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form S-11 (File No. 333-09411))
4.1* Form of Warrant Agreement
4.2 Indenture dated March 23, 1998 between the Operating Partnership,
the Company and the Trustee, including the Form of Notes, and the
First Supplemental Indenture thereto relating to the Company's 7
5/8% Series A Redeemable Notes due 2008 and related 7 5/8% Series
B Redeemable Notes due 2008 (incorporated by reference to Exhibit
4.2 to the Operating Partnership's Registration Statement on Form
S-4 (File No. 333-08808))
4.3* Supplemental Indenture
4.4 Form of Articles Supplementary of Glenborough Realty Trust
Incorporated relating to the 7 3/4% Series A Convertible Preferred
Stock (incorporated by reference to Exhibit 3.03 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997)
4.5* Form of Articles Supplementary of Glenborough Realty Trust
Incorporated for additional series of preferred stock or for other
classes or series capital stock.
5.1 Opinion of Morrison & Foerster LLP
8.1 Opinion of Morrison & Foerster LLP relating to certain tax matters
12.1 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred
Partner Interest Distributions
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morrison & Foerster LLP (included in Exhibits 5.1 and 8.1)
24.1 Power of Attorney
25.1 Statement of Eligibility of Trustee on Form T-1 (incorporated by
reference to Exhibit 25.1 of the Operating Partnership's Registration
Statement on Form S-4 (File No. 333-08808))
- ------------
* To be filed by amendment or incorporated by reference in connection with the
applicable offering of the Offered Securities.
II-7
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
January 11, 1999
EXHIBIT 5.1
Glenborough Realty Trust Incorporated
Glenborough Properties, L.P.
400 South El Camino Real, 11th Floor
San Mateo, California 94402
Dear Sirs:
We have acted as counsel to Glenborough Realty Trust Incorporated, a Maryland
corporation (the "Company") and Glenborough Properties, L.P., a California
limited partnership (the "Operating Partnership") in connection with the
offering and sale by the Operating Partnership, from time to time of up to
$300,000,000 of its debt securities (the "Notes"), and in connection therewith,
certain Guarantees which may be issued by the Company. The Notes and the
Guarantees are the subject of a Registration Statement filed by the Operating
Partnership and the Company on Form S-3 under the Securities Act of 1933, as
amended.
In our capacity as your counsel in connection with such registration, we are
familiar with the proceedings taken and proposed to be taken by the Operating
Partnership in connection with the authorization and issuance of the Notes, and
for the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, 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 instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
Based upon and subject to the foregoing, it is our opinion that the Operating
Partnership has authority to issue the Notes to be registered under the
Registration Statement and when (a) the applicable provisions of the Act and
such state "blue sky" or securities laws as may be applicable have been complied
with and (b) the Notes have been issued and delivered for value as contemplated
in the Registration Statement, the Notes will be legally issued and will be
binding obligations of the Operating Partnership and the Company (if the Company
has guaranteed the Notes), respectively.
To the extent that the obligations of the Company as guarantor and the Operating
Partnership as obligor under an indenture may be dependent upon such matters, we
have assumed for purposes of this opinion (i) that the indenture has been duly
authorized, executed and delivered by and constitutes the legal, valid and
binding obligation of the trustee enforceable in accordance with its terms, (ii)
that such trustee is in compliance, generally and with respect to acting as a
trustee under the applicable indenture, with all applicable laws and regulations
and (iii) that such trustee has the requisite organizational and legal power and
authority to perform its obligations under the applicable indenture.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to us under the heading "Legal
Matters" in the Registration Statement, the Prospectus constituting a part
thereof and any amendments thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
EXHIBIT 8.1
December 29, 1998
Glenborough Realty Trust Incorporated
Glenborough Properties, L.P.
400 South El Camino Real, 11th Floor
San Mateo, California 94402
Ladies and Gentlemen:
We have acted as special tax counsel to Glenborough Realty Trust
Incorporated, a Maryland corporation (the "Company") and Glenborough Properties,
L.P., a California limited partnership (the "Operating Partnership"), in
connection with the offering and sale by the Operating Partnership from time to
time of up to $300,000,000 of its debt securities (the "Notes"), and in
connection therewith, certain Guarantees which may be issued by the Company. The
Notes and the Guarantees are the subject of a Registration Statement filed by
the Operating Partnership and the Company on Form S-3 under the Securities Act
of 1933, as amended. Capitalized terms not defined herein shall have the
meanings ascribed to them in the certificate (or incorporated therein by
reference), dated December 21, 1998 (the "Certificate"), delivered to us which
provides certain representations of fact by the Company relevant to this
opinion.
You have requested our opinion as to whether the Company has operated in a
manner to qualify it as a real estate investment trust ("REIT"), within the
meaning of Section 856(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). This opinion is solely for the benefit of the Company and may not be
relied upon by, nor may copies be delivered to, any other person without our
prior written consent.
In our capacity as special tax counsel to the Company and for purposes of
rendering this opinion, we have examined and relied upon the following, with
your consent: (i) the Certificate; (ii) the Registration Statement and (iii)
such other documents we have considered relevant to our analysis. In our
examination of such documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories. We have also assumed that all parties to such documents
have acted, and will act, in accordance with the terms of such documents.
Furthermore, our opinion is based on (a) our understanding of the facts as
represented to us in the Certificate and (b) the assumption that (I) the Company
is operated and will continue to be operated in the manner described in the
Certificate, (II) the facts contained in the Registration Statement are true and
complete in all material respects, and (III) all representations of fact
contained in the Certificate are true and complete in all material respects. We
have not undertaken any independent inquiry into or verification of these facts
either in the course of our representation of the Company or for the purpose of
rendering this opinion. While we have reviewed all representations made to us to
determine their reasonableness, we have no assurance that they are or will
ultimately prove to be accurate.
We also note that the tax consequences addressed herein depend upon the
actual occurrence of events in the future, which events may or may not be
consistent with any representations made to us for purposes of this opinion. In
particular, qualification and taxation of the Company as a REIT under the Code
depends upon the Company's ability to meet on a continuing basis certain
distribution levels, diversity of stock ownership, and the various qualification
tests imposed by the Code. To the extent that the facts differ from those
represented to us or assumed by us herein, our opinion should not be relied
upon.
Our opinion herein is based on existing law as contained in the Code, the
Treasury Regulations promulgated thereunder, administrative pronouncements of
the IRS and court decisions as of the date hereof. The provisions of the Code
and the Treasury Regulations, IRS administrative pronouncements and case law
upon which this opinion is based could be changed at any time, perhaps with
retroactive effect. In addition, some of the issues under existing law that
could significantly affect our opinion have not yet been authoritatively
addressed by the IRS or the courts, and our opinion is not binding on the IRS or
the courts. Hence, there can be no assurance that the IRS will not challenge or
that the courts will agree with our conclusions.
Based upon, and subject to, the foregoing and the next paragraph below, we
are of the opinion that, commencing with the Company's taxable year ended
<PAGE>
December 31, 1996 through its taxable year ending December 31, 1997, the Company
has been organized in conformity with the requirements for qualification as a
REIT under the Code and its method of operation has enabled it to so qualify,
and if it operates after December 31, 1997 in the same manner as it has prior to
that date, it will continue to so qualify.
We undertake no obligation to update this opinion, or to ascertain after
the date hereof whether circumstances occurring after such date may affect the
conclusions set forth herein. We express no opinion as to matters governed by
any laws other than the Code, the Treasury Regulations, published administrative
announcements and rulings of the IRS and case law.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
GLENBOROUGH REALTY TRUST INCORPORATED
Computation of Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed Charges and Preferred Dividends
For the five years ended December 31, 1997,
and the nine months ended September 30, 1998
(in thousands, except ratios)
GRT Predecessor
Entities, Combined The Company
------------------------- ---------------------------
Nine
Months
Ended
September
Year ended December 31, 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS, AS DEFINED
Net Income (Loss) before
Preferred Dividends $4,418 $1,580 $ 524 $(1,609) $19,368 $36,644
Extraordinary items (2,274) -- -- 186 843 --
Federal & State income taxes 24 176 357 -- -- --
Minority Interest 5 43 -- 292 1,119 1,909
Fixed Charges 1,301 1,140 2,129 3,913 9,668 35,916
------- ------- ------- ------- -------- --------
$3,474 $2,939 $3,010 $2,782 $30,998 $74,469
======= ======= ======= ======= ======== ========
FIXED CHARGES AND PREFERRED
DIVIDENDS, AS DEFINED
Interest Expense $1,301 $1,140 $2,129 $3,913 $9,668 $35,916
Capitalized Interest -- -- -- -- -- 724
Preferred Dividends -- -- -- -- -- 15,050
------- ------- ------- ------- -------- --------
$1,301 $1,140 $2,129 $3,913 $9,668 $51,690
======= ======= ======= ======= ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 2.67 2.58 1.41 0.71 (1) 3.21 2.03
======= ======= ======= ======= ======== ========
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 2.67 2.58 1.41 0.71 (1) 3.21 1.44
======= ======= ======= ======= ======== ========
(1)For the twelve months ended December 31, 1996, earnings were insufficient to
cover fixed charges and fixed charges plus preferred dividends by $1,131.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.2
GLENBOROUGH PROPERTIES, L.P.
Computation of Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed Charges and Preferred Partner Interest Distributions
For the five years ended December 31, 1997,
and the nine months ended September 30, 1998
(in thousands, except ratios)
GRT Predecessor
Entities, Combined The Operating Partnership
------------------------- ---------------------------
Nine
Months
Ended
September
Year ended December 31, 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) before Preferred
Partner Interest Distributions $4,418 $1,580 $ 524 $(1,928) $16,671 $37,737
Extraordinary items (2,274) -- -- 186 843 --
Federal & State income taxes 24 176 357 -- -- --
Minority Interest 5 43 -- -- -- --
Fixed Charges 1,301 1,140 2,129 3,913 9,668 35,916
------- ------- ------- ------- -------- --------
EARNINGS, AS DEFINED $3,474 $2,939 $3,010 $2,171 $27,182 $73,653
======= ======= ======= ======= ======== ========
Interest Expense $1,301 $1,140 $2,129 $3,913 $9,668 $35,916
Capitalized Interest -- -- -- -- -- 724
------- ------- ------- ------- -------- --------
FIXED CHARGES, AS DEFINED $1,301 $1,140 $2,129 $3,913 $9,668 $36,640
======= ======= ======= ======= ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 2.67 2.58 1.41 0.55 (1) 2.81 2.01
======= ======= ======= ======= ======== ========
Preferred Partner Interest
Distributions -- -- -- -- -- 15,050
------- ------- ------- ------- -------- --------
FIXED CHARGES AND PREFERRED PARTNER
INTEREST DISTRIBUTIONS, AS DEFINED $1,301 $1,140 $2,129 $3,913 $9,668 $51,690
======= ======= ======= ======= ======== ========
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED PARTNER INTEREST
DISTRIBUTIONS 2.67 2.58 1.41 0.55 (1) 2.81 1.42
======= ======= ======= ======= ======== ========
(1)For the twelve months ended December 31, 1996, earnings were insufficient to
cover fixed charges and fixed charges plus preferred partner interest
distributions by $1,742.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 21, 1998
(except with respect to the matters discussed in Note 14, as to which the date
is March 20, 1998) on the consolidated financial statements of Glenborough
Realty Trust Incorporated and the combined financial statements of the GRT
Predecessor Entities and our report dated January 21, 1998 on the consolidated
financial statements of Glenborough Hotel Group each of which is included in the
Form 10-K and the Form 10-K/A of Glenborough Realty Trust Incorporated for the
year ended December 31, 1997 and to all references to our Firm included in this
registration statement.
We also consent to the incorporation by reference in this registration statement
of our report dated January 21, 1998 on the consolidated financial statements of
Glenborough Properties, L.P. and the combined financial statements of the GRT
Predecessor Entities included in the Registration Statement on Form S-4 of
Glenborough Properties, L.P. filed on November 12, 1998.
We also consent to the incorporation by reference in this registration statement
of our report dated May 12, 1998 with respect to the combined statement of
revenues and certain expenses of the BGK Portfolio for the year ended December
31, 1997, included in the Current Reports on Form 8-K/A of Glenborough Realty
Trust Incorporated filed on May 15, 1998 and September 10, 1998.
We also consent to the incorporation by reference in this registration statement
of our report dated May 15, 1998 with respect to the combined statement of
revenues and certain expenses of the Eaton & Lauth Portfolio for the year ended
December 31, 1997, included in the Current Reports on Form 8-K/A of Glenborough
Realty Trust Incorporated filed on May 15, 1998 and September 10, 1998.
We also consent to the incorporation by reference in this registration statement
of our report dated June 12, 1998 with respect to the combined statement of
revenues and certain expenses of the Galesi Portfolio for the year ended
December 31, 1997, included in the Current Report on Form 8-K/A of Glenborough
Realty Trust Incorporated filed on August 13, 1998.
We also consent to the incorporation by reference in this registration statement
of our report dated June 25, 1998 with respect to the combined statement of
revenues and certain expenses of the Donau/Gruppe Portfolio for the year ended
December 31, 1997, included in the Current Report on Form 8-K/A of Glenborough
Realty Trust Incorporated filed on August 13, 1998.
We also consent to the incorporation by reference in this registration statement
of our report dated July 15, 1998 with respect to the combined statement of
revenues and certain expenses of the Pauls Portfolio for the year ended December
31, 1997, included in the Current Report on Form 8-K/A of Glenborough Realty
Trust Incorporated filed on August 13, 1998.
We also consent to the incorporation by reference in this registration statement
of our report dated July 15, 1998 with respect to the statement of revenues and
certain expenses of the One and Three Pacific for the year ended December 31,
1997, included in the Current Report on Form 8-K/A of Glenborough Realty Trust
Incorporated filed on August 13, 1998.
ARTHUR ANDERSEN LLP
San Francisco, California
January 6, 1999
