FORM
S-3
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
_______________________________
Winthrop
Realty Trust
(Exact
name of
registrant
as
specified in its charter
)
Ohio
(State
or jurisdiction
of
incorporation or organization)
|
|
34-6513659
(I.R.S.
Employer
Identification
No.)
|
7
Bulfinch Place – Suite 500
Boston,
Massachusetts 02214
(617)
570-4614
(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
|
Michael
L. Ashner
Chief
Executive Officer
Winthrop
Realty Trust
7
Bulfinch Place – Suite 500
Boston,
Massachusetts 02114
Telephone:
(617) 570-4614
(Name,
address, including zip code, and telephone number, including area
code, of
agent for service)
|
|
Copy
to:
Mark
I. Fisher, Esq.
Elliot
Press, Esq.
Katten
Muchin Rosenman LLP
575
Madison Avenue
New
York, New York 10022
Telephone:
(212) 940-8800
|
Approximate
date of proposed sale to
the public:
As soon as practicable after this registration statement
becomes effective.
If
the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box.
o
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, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box:
o
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.
o
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.
o
If
this
forms is a registration statement pursuant to General Instruction I.D or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box.
o
If
this
form is a post-effective amendment to a registration statement filed pursuant
to
General Instruction I.D filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box.
o
CALCULATION
OF REGISTRATION FEE
Title
of each class of
securities
to be registered
(1)
|
Amount
to be registered
|
Proposed
maximum offering price per unit
(2)
|
Proposed
maximum
aggregate
offering
price
(2)
|
Amount
of
registration
fee
(2)
|
Non-transferable
Common Share Subscription Rights
|
8,845,036
rights
|
$0
(3)
|
$0
(3)
|
$0
(3)
|
Common
Shares of beneficial interest, par value $1 per share
|
8,845,036
shares
|
$5.06
(2)
|
$44,755,883
(2)
|
$1,759
(4)(5)
|
(1)
|
This
registration statement relates to (a) non-transferable subscription
rights
to purchase common shares of beneficial interest of Winthrop Realty
Trust,
or the Registrant, which subscription rights will be issued to holders
of
common shares and holders of Series B-1 Preferred Shares of the Registrant
and (b) the common shares deliverable upon the exercise of the
non-transferable subscription rights pursuant to the rights offering.
This
registration statement also covers any additional number of common
shares
of Winthrop Realty Trust as may become issuable pursuant to Rule
416 due
to adjustments for changes resulting from stock dividends, stock
splits,
recapitalizations, mergers, reorganizations, combinations or exchanges
or
other similar events.
|
(2)
|
Estimated
pursuant to Rule 457(c), solely for purposes of calculating the
registration fee, based on 100% of the average of the high and low
prices
for the Registrant’s common shares as quoted on the New York Stock
Exchange on January 22, 2008.
|
(3)
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The
non-transferable subscription rights are being issued without
consideration. Pursuant to Rule 457(g), no separate registration
fee is
payable with respect to the rights being offered hereby since the
rights
are being registered in the same registration statement as the securities
to be offered pursuant thereto.
|
(4)
|
This
amount is based upon the maximum number of shares of common stock
of the
company issuable pursuant to the non-transferable subscription rights
at
the Proposed Maximum Aggregate Offering Price Per
Security.
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(5)
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Represents
the gross proceeds from the assumed exercise of all non-transferable
subscription rights issued.
|
The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment 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
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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 Commissions 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, DATED ____________, 2008
PRELIMINARY
PROSPECTUS
8,845,036
Shares
Winthrop
Realty Trust
Common
Shares of Beneficial Interest
Rights
to
Purchase up to 8,845,036 Common Shares
of
Beneficial Interest at $____ per share
We
are
distributing at no charge to holders of our common shares of beneficial interest
and to holders of our Series B-1 Cumulative Convertible Redeemable Preferred
Shares, non-transferable subscription rights to purchase our common shares
of
beneficial interest. You will receive one subscription right for
every 10 common shares owned, or in the case of the Series B-1 Preferred Shares,
one subscription right for every 10 common shares issuable upon conversion,
at
the close of business on ______, 2008. We are distributing
subscription rights exercisable for up to 8,845,036 of our common
shares.
Each
subscription right will entitle you to purchase one common share at a
subscription price of $____ per share. The subscription rights will expire
if
they are not exercised by 5:00 p.m., New York City time, on ______, 2008, unless
we extend this offering period. You may revoke your subscription exercise at
any
time until the offering period has expired. You should carefully
consider whether to exercise your subscription rights before the expiration
of
the rights offering. Our board of trustees is making no recommendation regarding
your exercise of the subscription rights. The subscription rights may not be
sold or transferred except under the very limited circumstances described in
this prospectus.
If
you
exercise all of the rights distributed to you, you will also be entitled to
purchase additional shares not purchased by other shareholders pursuant to
the
over-subscription rights described in this prospectus. We will not
issue fractional rights and will round all of the subscription rights down
to
the nearest whole number.
We
may
cancel or terminate the rights offering at any time prior to the expiration
of
the rights offering. If we terminate or cancel this offering, we will return
your subscription price, but without any payment of interest.
Our
common shares are traded on the New York Stock Exchange, which we refer to
as
the NYSE, under the symbol “FUR” and their last reported sales price on January
__, 2008 was $________. The shares are being offered directly by us
without the services of an underwriter or selling agent. The common
shares issued in the rights offering will also be listed on the NYSE under
the
symbol “FUR”.
The
exercise of your subscription rights for common shares involves
risks. You should carefully consider the risk factors described
beginning on page 12 of this prospectus before exercising your subscription
rights.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The
date
of this prospectus is ______, 2008.
TABLE
OF CONTENTS
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You
should rely only on the information contained or incorporated by reference
in
this prospectus. We have not authorized anyone to provide you with additional
or
different information from that contained or incorporated by reference in this
prospectus. The information contained in this prospectus is accurate only as
of
the date on the front cover of this prospectus and any information we have
incorporated by reference is accurate only as of the date of the document
incorporated by reference, regardless of the time of delivery of this prospectus
or any exercise of the rights.
This
section highlights information contained elsewhere or incorporated by reference
in this prospectus. This section does not contain all of the
important information that you should consider before exercising your
subscription rights and investing in our common shares. You should read this
entire prospectus carefully.
Q:
What is the rights offering?
A:
We are distributing, at no charge, non-transferable subscription rights to
purchase our common shares to holders of our common shares of beneficial
interest and Series B-1 Cumulative Redeemable Preferred Shares. We refer to
these shares as our common shares and Series B-1 Preferred Shares, respectively.
You will receive one subscription right for every 10 common shares you owned
(or
in the case of Series B-1 Preferred Shares, one subscription right for every
10
common shares issuable upon conversion) at the close of business on ________,
2008, the record date. The subscription rights will be evidenced by rights
certificates.
Q:
What is a subscription right?
A:
Each subscription right is a right to purchase one of our common shares. When
you “exercise” a subscription right, you choose to purchase one common share
that the subscription right entitles you to purchase. You may exercise any
number of your subscription rights, or you may choose not to exercise any
subscription rights. We will not distribute any fractional rights,
but will round down the aggregate number of rights you are issued to the nearest
whole number.
Q:
What is the subscription price?
A:
The subscription price for a subscription right is $___ per share. Our board
of
trustees set all of the terms and conditions of the rights offering, including
the subscription price. The basis for determining the subscription price was
based upon consideration of the factors more fully described in
“THE RIGHTS OFFERING -- Determination
of Subscription Price.”
Q:
Where will the common shares issued in the rights offering be
listed?
A:
Our common shares are traded on the NYSE under the symbol “FUR.” The common
shares issued in the rights offering will also be listed on the NYSE under
the
same symbol. On January 22, 2008, the last day prior to the
filing of the registration statement relating to the rights offering of which
this prospectus forms a part, the closing price of our common shares on the
NYSE
was $5.33 per share. On _______ , 2008, the day prior to
the date of this Prospectus, the closing price of our common shares on the
NYSE
was $____ per share. See
“PRICE RANGE OF COMMON STOCK
AND
DIVIDEND POLICY.”
Q:
How long will the rights offering last?
Q:
Why are we engaging in a rights offering?
A:
We are making this rights offering in order to raise new capital that we intend
to use for general corporate purposes, which may include the acquisition of
additional investments and/or contributions to our existing joint ventures.
See
“USE OF PROCEEDS,”
“CAPITALIZATION,” and “THE RIGHTS OFFERING -- Reasons
for the Rights
Offering.”
Q:
How much money will we receive from the rights offering?
A:
If the rights offering is fully subscribed, we will receive gross proceeds
of
approximately $__ million, less expenses. All of our executive officers have
agreed to fully exercise the 1,116,283 basic subscription rights beneficially
owned by them and also intend to exercise their over-subscription rights in
an
as yet undetermined amount. Accordingly, we will receive net proceeds of at
least $________, less expenses, from the sale of shares in the
offering.
Q:
Am I required to subscribe in the rights offering?
A:
No.
Q:
Can I subscribe for any number of shares less than all of my subscription
rights?
A:
Yes. You can subscribe for any whole number of shares by exercising less than
all of your subscription rights.
Q:
What are the over-subscription rights?
A:
If you fully exercise your basic subscription rights the over-subscription
rights entitle you to subscribe for additional common shares at the same
subscription price of $____ per share that applies to your basic subscription
rights.
Q:
What are the limitations on the over-subscription rights?
A:
We will be able to satisfy your exercise of the over-subscription rights only
if
other shareholders do not elect to purchase all of the shares offered under
their basic subscription rights. We will honor over-subscription requests in
full to the extent sufficient shares are available following the exercise of
rights under the basic subscription rights. If over-subscription requests exceed
shares available, we will allocate the available shares pro rata based on the
number of shares each oversubscribing shareholder purchased under the basic
subscription rights. See
“THE
RIGHTS OFFERING - Basic Subscription Rights; Over-Subscription Rights;
Limitation on Subscription - Over-Subscription Rights.”
Q:
What effect will our 9.8% ownership limitation have on a holder’s ability to
exercise a subscription right?
A:
To help maintain our status as a real estate investment trust (REIT), our
by-laws restrict beneficial and constructive ownership of common shares by
any
person or group of persons acting collectively to 9.8% of our outstanding common
shares. See
“THE RIGHTS
OFFERING -- Basic Subscription Rights; Over-Subscription Rights; Limitation
on
Subscription”
and
“DESCRIPTION OF CAPITAL
STOCK --
Common Shares -- Restriction on Size of Holdings”
.
If
the
offering is fully subscribed and you only exercise your basic subscription
rights, your percentage ownership interest in us on a fully diluted basis giving
effect to the conversion of our Series B-1 Preferred Shares will neither
increase nor decrease. However, if you exercise your over-subscription rights,
your ownership interest in us will increase. If you fail to exercise all or
a
portion of your subscription rights, your ownership percentage in us will
decrease. We intend to grant waivers from our 9.8% limitation to any holder
that
exceeds the limit as a result of its exercise of over-subscription rights and
requests a waiver by checking the “9.8% Waiver Request” box on the rights
certificate, provided we can do so without jeopardizing our REIT status and
such
holder enters into an ownership limitation waiver agreement in a form that
is
reasonably satisfactory to us. Ownership waiver agreements are designed to
ensure that we preserve our status as a REIT. The 9.8% limit for a person is
computed based on the outstanding common shares, including any common shares
issuable to that person upon conversion of preferred shares. For purposes of
determining whether you will need to request a waiver from us, you should assume
that a waiver will be required if you would own more than 6,600,000 common
shares.
If
an
ownership waiver cannot be granted, any rights exercised by a holder and any
common shares subscribed for by that holder through the exercise of its basic
or
over-subscription privilege that would cause it to go over the 9.8% ownership
limit will not be considered exercised or subscribed for by that holder. The
total subscription price paid by a holder for rights that are not considered
exercised and for common shares not considered subscribed for will be returned
to that holder, without interest, as soon as practicable after completion of
this offering.
If
a
holder that is not granted a waiver subscribes for and, inadvertently or
otherwise, is issued a number of common shares that causes that holder to go
over the 9.8% ownership limit, the number of common shares in excess of the
9.8%
ownership limit will be “Excess Securities” under our by-laws and therefore will
not, in the hands of that holder, have dividend, voting and other rights or
be
considered outstanding for quorum, voting and other purposes. See
“DESCRIPTION OF CAPITAL STOCK
--
Common Shares -- Restriction on Size of Holdings”
.
We
have
granted exemptions to our ownership limitation to certain purchasers of our
Series B-1 Preferred Shares. Those exemptions allow these holders of Series
B-1
Preferred Shares to fully subscribe for their basic subscription rights. We
intend to grant further waivers to these holders upon execution of satisfactory
ownership waiver agreements, to the extent such holders exercise their
over-subscription rights, provided that doing so does not jeopardize our REIT
status.
Q:
What happens if I choose not to exercise my subscription rights?
A:
If you do not exercise any rights, the number of shares you own will not change,
but your percentage ownership of our common shares (or in the case of the Series
B-1 Preferred Shares, your percentage ownership of our common shares on an
as-converted basis) will decline following the rights offering.
Q:
How do I exercise my subscription rights?
A:
You must properly complete the attached rights certificate and deliver it,
along
with the subscription price for the shares you are subscribing for under the
basic subscription privilege, to National City Bank, the Subscription Agent,
at
or before 5:00 p.m., New York City time, on ______, 2008, unless the
offering period is extended. The address for the Subscription Agent
is on page 38. For your convenience, we have enclosed a
self-addressed envelope. Alternatively, a holder may use the
guaranteed delivery procedures described below. See
“THE RIGHTS OFFERING - How
to
Exercise Your Rights .”
Q:
What should I do if I want to participate in the rights offering but my shares
are held in the name of my broker, custodian bank or other nominee?
A:
If you hold shares through a broker, custodian bank or other nominee, we will
ask your broker, custodian bank or other nominee to notify you of the rights
offering. If you wish to exercise your subscription rights, you will need to
have your broker, custodian bank or other nominee act for you. To indicate
your
decision, you should complete and return to your broker, custodian bank or
other
nominee the form entitled “Beneficial Owner Election Form.” You
should receive this form from your broker, custodian bank or other nominee
with
the other rights offering materials. You should contact your broker,
custodian bank or other nominee if you believe you are entitled to participate
in the rights offering but you have not received this form.
Q:
Will I be charged a sales commission or a fee by Winthrop Realty Trust if I
exercise my subscription rights?
A:
No. We will not charge you a brokerage commission or a fee for exercising your
subscription rights. However, if you exercise your subscription rights through
a
broker or nominee, you will be responsible for any fees charged by your broker
or nominee.
Q:
Are there risks in exercising my subscription rights?
A:
Yes. The exercise of your subscription rights involves risks. Exercising your
subscription rights means buying additional common shares and should be
considered as carefully as you would consider any other equity investment.
Among
other things, you should carefully consider the risks described under the
heading
“RISK FACTORS,”
beginning on page 12.
Q:
May I transfer my subscription rights if I do not want to purchase any
shares?
A:
No. Should you choose not to exercise your subscription rights, you may not
sell, give away or otherwise transfer your subscription rights. However,
subscription rights will be transferable by operation of law (for example,
upon
death of the recipient).
Q:
After I exercise my subscription rights, can I change my mind and cancel my
purchase?
A:
Yes. You can revoke your subscription exercise at any time until the offering
period has expired. See
“THE
RIGHTS OFFERING -- Revocation.”
Q:
Can the board of trustees withdraw the rights offering?
A:
Yes. The board of trustees may decide to withdraw the rights offering at any
time on or before the expiration of the rights offering for any reason. If
we
withdraw the rights offering, any money received from subscribing shareholders
will be refunded promptly, without interest. See
“THE RIGHTS OFFERING -- Withdrawal
and Amendment.”
Q:
If the rights offering is not completed, will my subscription payment be
refunded to me?
A:
Yes. The Subscription Agent will hold all funds it receives in respect of your
basic subscription rights in a segregated bank account until completion of
the
rights offering. If the rights offering is not completed, the Subscription
Agent
will return promptly, without interest, all basic subscription
payments.
Q:
When must I pay for subscription rights that I exercise?
A.
You must submit payment for shares you subscribe for under the basic
subscription rights at the time that you send in your rights certificate. If
you
exercise your over-subscription rights you will be notified within five business
days after the expiration date of this offering of the number of shares, if
any,
allocated to you. You will then be obligated to send in payment for such
additional shares subscribed for within five business days after such
notification.
Q:
What is the board of trustees’ recommendation regarding the rights
offering?
A:
Our board of trustees is not making any recommendation as to whether you should
exercise your subscription rights. You are urged to make your decision based
on
your own assessment of the rights offering and Winthrop Realty
Trust.
Q:
How many common shares will be outstanding after the rights
offering?
A:
As of January 16, 2008, we had 66,613,376 common shares issued and outstanding.
We expect to issue up to 8,845,036 shares in the rights offering and,
accordingly, after the rights offering, we anticipate that we will have
75,458,412 shares outstanding if the offering is fully subscribed. If you own
common shares, your ownership percentage of our common shares, without giving
effect to common shares issuable upon conversion of Series B-1 Preferred Shares,
may decrease as a result of the rights offering even if you exercise your rights
because we are also providing subscription rights to holders of our Series
B-1
Preferred Shares.
Q:
What are the United States federal income tax consequences of exercising my
subscription rights as a holder of common shares?
A:
A holder of common shares generally should not recognize income or loss for
federal income tax purposes in connection with the receipt or exercise of
subscription rights in the rights offering. A holder of Series B-1 Preferred
Shares may recognize dividend income for federal income tax purposes in
connection with the receipt of subscription rights in the offering, but should
not recognize income or loss for federal income tax purposes in connection
with
the exercise of the subscription rights. We urge you to consult your own tax
advisor with respect to the particular tax consequences to you of the rights
offering and your exercise of the subscription rights. See
“MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES.”
Q:
When will I receive certificates for the shares purchased in the rights
offering?
A:
We will issue certificates representing shares purchased in the rights offering
to you or to The Depository Trust Company on your behalf, as the case may be,
as
soon as practicable after the completion of the rights offering.
Q:
What should I do if I have other questions or need assistance?
A:
If you have other questions or need assistance, please contact MacKenzie
Partners, Inc., the Information Agent for the rights offering, at the following
address and telephone number:
105
Madison Avenue
New
York,
New York 10016
(212)
929-5500 (Call Collect)
or
Call
Toll-Free (800) 322-2885
Email:
proxy@mackenziepartners.com
For
a more complete description of the rights offering, see “THE RIGHTS
OFFERING.”
This
summary highlights selected information from this prospectus. The
following summary information is qualified in its entirety by the information
contained elsewhere or incorporated by reference in this
prospectus. This summary may not contain all of the information that
you should consider prior to making a decision to exercise your subscription
rights. You should read the entire prospectus carefully, including
the “RISK FACTORS” section beginning on page 12 of this prospectus and the
financial statements and notes to these statements contained or incorporated
by
reference in this prospectus. Unless the context otherwise requires,
references to “we,” “us,” “our” or the “Company” refer to Winthrop
Realty Trust and its subsidiaries.
Our
Company
We
are a
real estate investment trust, commonly referred to as a REIT, formed under
the
laws of the State of Ohio. Our operations are managed by our advisor, FUR
Advisors LLC, which we refer to as FUR Advisors. Our common shares
are traded on the NYSE under the symbol “FUR”. We conduct our
business through WRT Realty L.P., a Delaware limited partnership which we refer
to as the “operating partnership”. We are the sole general partner
of, and own all of the limited partnership interests in the operating
partnership. Our operating partnership structure, commonly referred
to as an umbrella partnership real estate investment trust or “UPREIT”
structure, enables us to acquire properties for cash and/or by issuing to
sellers, as a form of consideration, limited partnership interests in our
operating partnership. Although we have not yet issued any limited
partnership interests in connection with the acquisition of an asset, we believe
that this structure facilitates our ability to acquire portfolio and individual
properties by enabling us to structure transactions which may defer tax gains
for a seller while preserving our available cash for other purposes, including
the payment of dividends and distributions.
Our
primary business is making investments in: (i) operating properties;
(ii) joint ventures formed to invest in real estate related assets; (iii) loans;
and (iv) real estate securities. In general, rather than focus on a
particular type of real estate asset or a specific geographic sector, our
investments will continue to be based, at least for the foreseeable future,
on
our assessment that a potential investment is significantly undervalued on
a
risk adjusted basis or presents an opportunity to outperform the
marketplace. Additionally, we will continue to make investments in
assets believed to be underperforming and in which we believe, through an
infusion of capital and improved management, an appropriate return on investment
can be realized. Consequently, with certain limitations, we will
continue to seek to invest in or acquire most types of real estate assets or
securities.
Our
principal executive offices are located at 7 Bulfinch Place, Suite 500, Boston,
Massachusetts 02114-9507, our telephone number is (617) 570-4614 and our
Internet address is www.winthropreit.com. None of the information on our website
that is not otherwise expressly set forth in or incorporated by reference in
this prospectus is a part of this prospectus.
The
Rights Offering
Further
details concerning this part of the summary are set forth under
“THE RIGHTS OFFERING.”
Only
holders of record of our common shares and Series B-1 Preferred Shares on the
record date stated below may exercise rights.
Securities
Offered
|
We
are distributing to you, at no charge, one non-transferable subscription
right for every 10 common shares that you owned (or in the case of
Series
B-1 Preferred Shares, one subscription right for every 10 common
shares
issuable upon conversion) at 5:00 p.m., New York City time, on _____,
2008, either as a holder of record or, in the case of shares held
of
record by brokers, banks or other nominees, on your behalf, as a
beneficial owner of such shares. We will not distribute any
fractional subscription rights but
will round
down the
number of subscription rights you receive to the nearest whole
number.
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Subscription
Rights
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Each
subscription right entitles you to purchase one common share upon
payment
of the subscription price.
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Record
Date
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_____,
2008 at 5:00 p.m., New York City time. Only holders of our
common shares or Series B-1 Preferred Shares as of the record date
will
receive rights to subscribe for shares in the rights
offering.
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Expiration
Date
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The
rights expire on ______, 2008 at 5:00 p.m., New York City time.
Rights not exercised by the expiration of the rights offering will
be null
and void. We have the option, in our sole discretion, to extend
the expiration of the rights offering for any reason, for a period
not to
exceed 30 business days.
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Subscription
Price
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$____
per share, payable in cash. You must make payment for shares
subscribed for under the basic subscription rights at the time
that you
submit your subscription rights.
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Over-subscription
Rights
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If
you fully exercise your basic subscription rights, the over-subscription
rights entitle you to subscribe to additional common shares at
the same
subscription price that applies to your basic subscription
privilege.
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We
will be able to satisfy your exercise of the over-subscription
rights only
if other shareholders do not elect to purchase all of the shares
offered
under their basic subscription rights. We will honor
over-subscription requests in full to the extent sufficient shares
are
available following the exercise of rights under the basic subscription
rights. If over-subscription requests exceed shares available,
we will allocate the available shares pro rata based on the number
of
shares each oversubscribing shareholder purchased under the basic
subscription rights.
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You
do not need to send payment for the exercise of your over-subscription
rights at the time you return your rights certificate. We will
notify you within five business days after the expiration of this
offering
as to how many, if any, additional shares that you subscribed for
under
the over-subscription privilege have been allocated to you. You
will then be obligated to send in full payment for such additional
shares
within five business days of such
notification.
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Effect
of Ownership Limitation
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To
help maintain our status as a real estate investment trust (REIT),
our
by-laws restrict beneficial and constructive ownership of common
shares by
any person or group of persons acting collectively to 9.8% of our
outstanding common shares.
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If
the offering is fully subscribed and you only exercise your basic
subscription rights, your percentage ownership interest in us on
a fully
diluted basis giving effect to the conversion of our Series B-1
Preferred
Shares will neither increase nor decrease. However, if you
exercise your over-subscription rights, your ownership percentage
will
increase. If you fail to exercise all or a portion of your
subscription rights, your ownership percentage in us will
decrease. We intend to grant waivers from our 9.8% limitation
to any holder that exceeds the limit as a result of its exercise
of
over-subscription rights and requests a waiver from us by checking
the
“9.8% Waiver Request” box on the rights subscription certificate, provided
doing so does not jeopardize our REIT status and such holder enters
into
an ownership limitation waiver agreement in a form that is reasonably
satisfactory to us. Ownership limitation waiver agreements are
designed to ensure that we preserve our status as a REIT. For
example, such agreements will not permit a holder’s ownership of our
outstanding common shares in excess of the 9.8% limitation to cause
us to
become “closely held” in violation of one of the requirements for REIT
status. In order for us to qualify as a REIT under the Internal
Revenue
Code of 1986, as amended, which we refer to as the Code, not more
than 50%
(by value) of our 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). We have previously granted
exemptions to our ownership limitation to certain purchasers of
our Series
B-1 Preferred Shares. Those exemptions allow these holders of
Series B-1 Preferred Shares to fully subscribe for their basic
subscription rights. We intend to grant future waivers to these
holders upon execution of satisfactory ownership waiver agreements,
to the
extent such holders exercise their over-subscription rights, provided
that
doing so does not jeopardize our REIT status.
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The
9.8% limit for a person is computed based on the outstanding common
shares, including any common shares issuable to that person upon
conversion of preferred shares. For purposes of determining whether
you
will need to request a waiver from us you should assume that a
waiver will
be required if you would own more than 6,600,000 common
shares.
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If
an ownership waiver cannot be granted, any rights exercised by
a holder
and any common shares subscribed for by that holder through the
exercise
of its over-subscription rights that would cause it to go over
the 9.8%
ownership limit will not be considered exercised or subscribed
for by that
holder. The total subscription price paid by a holder for rights
that are
not considered exercised and for common shares not considered subscribed
for will be returned to that holder, without interest, as soon
as
practicable after completion of this offering.
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Use
of proceeds
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We
will use the net proceeds of this offering for general corporate
purposes,
which include the acquisition of additional investments and/or
contributions to our existing joint ventures.
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Non-transferability
of rights
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The
subscription rights may not be sold, transferred or assigned, and
will not
be listed for trading on any stock exchange.
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No
board recommendation
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Our
board of trustees makes no recommendation to you about whether
you should
exercise any rights. You are urged to make your decision based
on your own
assessment of our business and the rights offering. For more information
regarding some of the risks inherent in this rights offering, please
see
“RISK FACTORS”
beginning on page 12.
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Revocation
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You
can revoke your subscription exercise at any time until the offering
period has expired.
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Material
United States federal
income
tax
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A
holder of common shares generally should not recognize income or
loss for
federal income tax purposes in connection with the receipt or exercise
of
subscription rights in the rights offering. A holder of Series
B-1 Preferred Shares may recognize dividend income for federal
income tax
purposes in connection with the receipt of subscription rights
in the
offering, but should not recognize income or loss for federal income
tax
purposes in connection with the exercise of the subscription
rights. We urge you to consult your own tax advisor with
respect to the particular tax consequences to you of the rights
offering
and your exercise of the subscription rights. For more
information, see
“MATERIAL UNITED
STATES FEDERAL
INCOME TAX CONSEQUENCES.”
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Extension,
withdrawal, cancellation and cancellation and amendment
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We
have the option, in our sole discretion, to extend the rights
offering and the period for exercising your subscription rights,
for a
period not to exceed 30 business days, although we do not presently
intend
to do so. Our board of trustees may cancel, withdraw or
terminate the rights offering in its sole discretion at any time
prior to
or on the expiration of the rights offering for any reason (including,
without limitation, a change in the market price of our common
shares). In
the event that this offering is cancelled, withdrawn or terminated,
all
funds received from subscriptions by shareholders will be returned.
Interest will not be payable on any returned funds. We also
reserve the right to amend the terms of this rights
offering.
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Procedure
for exercising rights
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To
exercise rights, you must complete the rights certificate and deliver
it
to the Subscription Agent, National City Bank, together with full
payment
for all the basic subscription rights you elect to
exercise. Alternatively, a holder may use the guaranteed
delivery procedures described below. National City Bank must
receive the proper forms and payments on or before the expiration
of the
rights offering. You may deliver the documents and payments by
mail or commercial courier. If regular mail is used for this
purpose, we recommend using registered mail, properly insured,
with return
receipt requested.
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You
do not need to send payment for the exercise of your over-subscription
rights at the time you return your rights certificate. We will
notify you within five business days after the expiration of this
offering
as to how many, if any, additional shares that you subscribed for
under
the over-subscription rights have been allocated to you. You
will then be obligated to send in full payment for such additional
shares
within five business days of such notification.
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Questions
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Questions
regarding the rights offering should be directed to our Information
Agent,
at (800) 322-2885.
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Shares
outstanding before the rights offering
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66,613,376
of our common shares were outstanding as of January 16,
2008.
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Shares
outstanding after completion
of
the rights offering
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We
anticipate that we will have 75,458,412 common shares outstanding
following the completion of the rights offering if the offering
is fully
subscribed.
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Risk
factors
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Shareholders
considering making an investment in the rights offering should
consider
the risk factors described in
“RISK FACTORS”
beginning
on page 12.
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Fees
and expenses
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We
will bear the fees and expenses relating to the rights
offering.
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New
York Stock Exchange trading symbol
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Shares
of our common stock are currently listed for quotation on the NYSE
under
the symbol “FUR”.
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You
should carefully consider the information under “
RISK FACTORS
” and all other
information included in this prospectus prior to making a decision to make
an
investment in the rights offering.
RISK
FACTORS
The
exercise of your subscription rights for shares of our common stock involves
a
high degree of risk. Prior to making an investment decision, you should
carefully consider all of the information in this prospectus and evaluate the
following risk factors.
Risks
Relating to this Rights Offering
As
a holder of common shares, you may suffer significant dilution of your
percentage ownership of our common shares.
If
you do
not exercise your subscription rights and shares are purchased by other
shareholders in the rights offering, your proportionate voting and ownership
interest will be reduced and the percentage that your original shares represent
of our expanded equity after exercise of the subscription rights will be
diluted. Even if the holders of our common shares choose to exercise their
subscription rights in full, their percentage ownership of our common shares
could still decrease because we are also providing subscription rights to
holders of our Series B-1 Preferred Shares. The magnitude of the
reduction of your percentage ownership will depend upon the extent to which
you
subscribe in the rights offering. If you do not exercise your basic subscription
rights and the offering is fully subscribed, you will experience an 11.7%
dilution in your ownership percentage of common shares and a 9.1% dilution
in
your ownership percentage of common shares assuming the conversion of all Series
B-1 Preferred Shares.
We
may cancel the rights offering.
We
may
unilaterally withdraw or terminate this rights offering in our discretion until
the expiration of the rights offering. If we elect to withdraw or
terminate the rights offering, neither we nor the Subscription Agent will have
any obligation with respect to the subscription rights except to return, without
interest or penalty, any subscription payments.
To
exercise your subscription rights, you need to act promptly and follow
subscription instructions.
If
you
desire to purchase shares in this rights offering, you must act promptly to
ensure that all required forms and basic subscription payments are actually
received by the Subscription Agent at or prior to 5:00 p.m., New York City
time,
on _______, 2008, the expiration of the rights offering. If you
fail to complete and sign the required subscription forms, send an incorrect
payment amount, or otherwise fail to follow the subscription procedures that
apply to your desired transaction, we may, depending on the circumstances,
reject your subscription or accept it to the extent of the payment
received. If your exercise is rejected, your payment of the exercise
price will be promptly returned. Neither we nor our Subscription Agent
undertakes to contact you concerning, or attempt to correct, an incomplete
or
incorrect subscription form or payment. We have the sole discretion
to determine whether a subscription exercise properly follows the subscription
procedures and to decide all questions as to the validity, form and eligibility
(including times of receipt and beneficial ownership). Alternative,
conditional or contingent subscriptions will not be accepted. We reserve the
absolute right to reject any subscriptions not properly submitted. In addition,
we may reject any subscription if the acceptance of the subscription would
be
unlawful. We also may waive any irregularities (or conditions) in the
subscription. If you are given notice of a defect in your subscription, you
will
have five business days after the giving of notice to correct it. You
will not, however, be allowed to cure any defect later than 5:00 p.m., New
York
City time, on the expiration date. We are not obligated to give you
notification of defects in your subscription. We will not consider an
exercise to be made until all defects have been cured or waived.
The
subscription price of $ ___ per share was determined by our board of
trustees. Our board of trustees set the $ ____ per share subscription
price after considering a variety of factors discussed under
“THE RIGHTS OFFERING -- Determination
of Subscription Price”
, including the market price. The price,
however, does not necessarily bear any relationship to the book value of our
assets or our past operations, cash flows, earnings or financial condition
or
any other established criteria for value. Our common shares may trade at prices
below the subscription price after the completion of this offering, and we
cannot assure you that you will be able to sell shares purchased during this
offering at a price equal to or greater than the $____ per share subscription
price.
Other
Risks
We,
our
assets and the entities in which we invest are subject to a number of risks
customary for REITs, property owners, loan originators and holders and equity
investors. Although this section is divided into a number of
subheadings, it should be read in its entirety and although certain risks are
more likely to occur with respect to certain types of assets in which we invest,
and have been included under such heading, such risks may be applicable to
other
types of assets in which we invest or in which we may invest in the
future. Accordingly, this section should be read in its entirety to
fully understand the risks applicable to an investment in us.
General
Risks Relating to Us and Our Business
We
have grown rapidly since January 1, 2004. We may not be able to
maintain this rapid growth and our failure to do so could adversely affect
our
stock price.
We
have
experienced rapid growth in recent years, increasing our total assets from
approximately $146,838,000 at December 31, 2003 to approximately
$771,637,000 at September 30, 2007. We may not be able to maintain a
similar rate of growth in the future or manage our growth
effectively. In fact, our assets remained relatively constant during
2007 as we elected to limit our investments due primarily to the high cost
of
real estate assets and the capital market crisis limiting debt investment
opportunities. Our failure to continue to grow our assets may have a
material adverse affect on our financial condition and results of operations,
our stock price and our ability to pay dividends to our
shareholders.
We
may not be able to invest our cash reserves in suitable
investments.
At
September 30, 2007, we had approximately $55,370,000 of cash and cash
equivalents available for investment. Our ability to generate
increased revenues is dependent upon our ability to invest these funds as well
as the funds from this offering in real estate related assets that will
ultimately generate favorable returns.
We
are subject to significant competition and we may not compete successfully.
We
have
significant competition with respect to our acquisition of operating properties
and our acquisition and origination of loan assets with many other companies,
including other REITs, insurance companies, commercial banks, private investment
funds, hedge funds, specialty finance companies and other investors. Some
competitors may have a lower cost of funds and access to funding sources that
are not available to us. In addition, some of our competitors may have higher
risk tolerances or different risk assessments, which could allow them to
consider a wider variety of investments and establish more relationships than
us. We cannot assure you that the competitive pressures we face will
not have a material adverse effect on our business, financial condition and
results of operations. Also, as a result of this competition, we may
not be able to take advantage of attractive investment opportunities from time
to time, and we can offer no assurance that we will be able to identify and
make
investments that are consistent with our investment
objective.
Investing
through joint ventures presents additional risks.
Our
investments in entities over which we do not have sole control, including joint
ventures such as our Concord and Marc Realty joint ventures, present additional
risks such as our having differing objectives than our partners or the entities
in which we invest or our becoming involved in disputes or competing with those
persons. In addition, we rely on the internal controls and financial
reporting controls of these entities and their failure to comply with applicable
standards may adversely affect us.
Investing
in private companies involves specific risks.
We
have
held ownership interests in, and may acquire additional ownership interests
in,
private companies not subject to the reporting requirements of the Securities
and Exchange Commission. Investments in private businesses involve a
higher degree of business and financial risk, which can result in substantial
losses and accordingly should be considered very speculative. There
is generally no publicly available information about these private companies,
and we will rely significantly on the due diligence of our advisor to obtain
information in connection with our investment decisions.
We
may acquire or sell additional assets or properties. Our failure or
inability to consummate these transactions or manage the results of these
transactions could adversely affect our operations and financial
results.
We
may
acquire or sell properties or acquire or sell other real estate companies when
we believe that an acquisition or sale is consistent with our business
strategies. We may not, however, succeed in consummating desired
acquisitions or sales. Also, we may not succeed in leasing newly
acquired properties at rents sufficient to service the costs of acquisition
and
cover the costs of operation. Difficulties in integrating
acquisitions may prove costly or time-consuming and could consume a
disproportionate share of management's attention.
Many
of our investments are illiquid, and we may not be able to vary our portfolio
in
response to changes in economic and other conditions, which may result in losses
to us.
Many
of
our investments are relatively illiquid and, therefore, our ability to sell
properties and purchase other properties, securities and debt promptly in
response to a change in economic or other conditions may be
limited. The requirements of the Code with regard to REITs also
places limits on our ability to sell properties held for fewer than four
years. These considerations could make it difficult for us to dispose
of properties, even if a disposition were in the best interest of our
shareholders. In addition, a majority of the mortgage-backed
securities and real estate debt that we purchase in connection with privately
negotiated transactions will not be registered under the relevant securities
laws, resulting in a prohibition against their transfer, sale, pledge or other
disposition except in accordance with applicable securities laws and the terms
of the agreements governing such debt asset. As a result, our ability
to vary our portfolio in response to changes in economic and other conditions
may be relatively limited, which may result in losses to us.
We
leverage our portfolio, which may adversely affect our return on our investments
and may reduce cash available for distribution.
We
seek
to leverage our portfolio through borrowings. Our return on
investments and cash available for distribution to holders of beneficial
interests may be reduced to the extent that changes in market conditions cause
the cost of our financing to increase relative to the income that can be derived
from the assets. Our debt service payments reduce the cash available
for distributions to holders of preferred and common shares of beneficial
interests. We may not be able to meet our debt service obligations
and, to the extent that we cannot, we risk the loss of some or all of our assets
to foreclosure or forced sale to satisfy our debt obligations. A
decrease in the value of the assets may lead to a requirement that we repay
certain borrowings. We may not have the funds available, or be able
to arrange for refinancings, to satisfy such repayments.
We
may change our investment and operational policies.
We
may
change our investment and operational policies, including our policies with
respect to investments, acquisitions, growth, operations, indebtedness,
capitalization and distributions, at any time without the consent of our
shareholders, which could result in our making investments that are different
from, and possibly riskier than, the types of investments described in this
filing. A change in our investment strategy may increase our exposure
to interest rate risk, default risk and real estate market fluctuations, all
of
which could adversely affect our ability to make distributions.
Interest
rate fluctuations may reduce the spread we earn on our interest-earning
investments and may reduce our investment return.
Market
risk is the exposure to loss resulting from changes in interest rates and equity
prices. Although we seek to finance our assets on a match-funded
basis and mitigate the risk associated with future interest rate volatility,
we
are subject to credit risk and interest rate risk with respect to our
investments in real estate debt and real estate securities. The
primary market risk that we are exposed to is interest rate
risk. Interest rates are highly sensitive to many factors, including
governmental monetary and tax policies, domestic and international economic
and
political considerations and other factors beyond our control.
Our
interest rate risk sensitive assets, liabilities and related derivative
positions are generally held for non-trading purposes. As of
September 30, 2007, a hypothetical 100 basis point increase in interest rates
applied to our variable rate assets would increase our annual interest income
by
approximately $4,120,000, offset by an increase in our interest expense of
approximately $3,345,000 on our variable rate liabilities after the impact
of
our interest rate swaps. Similarly, a hypothetical 100 basis point
decrease in interest rates would decrease our annual interest income by the
same
net amount.
We
and our joint venture Concord Debt Holdings LLC engage in hedging transactions
that may limit gains or result in losses.
We
and
Concord use derivatives to hedge our respective liabilities and this has certain
risks, including:
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losses
on a hedge position have in the past and may in the future reduce
the cash
available for distribution to us as a partner in Concord and to our
shareholders and such losses may exceed the amount invested in such
instruments;
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counterparties
to a hedging arrangement could default on their obligations;
and
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we
and Concord may have to pay certain costs, such as transaction fees
or
brokerage costs.
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Our
Board
of Trustees has authorized FUR Advisors to use interest rate swaps, the purchase
or sale of interest rate collars, caps or floors, options, mortgage derivatives
and other hedging instruments in order to hedge as much of the interest rate
risk as it determines is in the best interest of our holders of beneficial
interests, given the cost of such hedges and the need to maintain our status
as
a REIT. Our Board does not set specific policies and procedures for
the use of these instruments. We may use these hedging instruments in
our risk management strategy to limit the effects of changes in interest rates
on our operations. A hedge may not be effective in eliminating all of
the risks inherent in any particular position. Our profitability may
be adversely affected during the period as a result of the use of
derivatives.
We
must manage our investments in a manner that allows us to rely on an exemption
from registration under The Investment Company Act in order to avoid the
consequences of regulation under that Act.
We
intend
to operate so that we are exempt from registration as an investment company
under the Investment Company Act of 1940, as amended. Therefore, the
assets that we may invest in, or acquire, are limited by the provisions of
the
Investment Company Act and the rules and regulations promulgated
thereunder. The investments that we make in order to be exempt from
registration, including our whole pool mortgage-backed securities, may not
represent an optimum use of our capital when compared to other available
investments.
We
may not be able to obtain capital to make investments.
At
such
time as we utilize our cash reserves, we will be dependent primarily on external
financing to fund the growth of our business. This is because one of
the requirements for a REIT is that it distribute 90% of its net taxable income,
excluding net capital gains, to its shareholders. There is also a
separate requirement to distribute net capital gains or pay a corporate level
tax. Our access to debt or equity financing depends on the
willingness of third parties to lend or make equity investments as well as
on
conditions in the capital markets generally. We and other companies
in the real estate industry have experienced limited availability of financing
from time to time. Although we believe that we will be able to
finance any investments we seek to make in the foreseeable future, requisite
financing may not be available on acceptable terms.
We
have significant distribution obligations to holders of our preferred
shares.
The
provisions of our Series B-1 Preferred Shares currently require us to make
annual distributions presently aggregating approximately $6,400,000 before
any
distributions may be made on our common shares.
Our
ratio of total debt to total entity value may increase.
As
of
September 30, 2007, we had approximately $420,107,000 in total debt outstanding
(including Series B-1 Preferred Shares as debt). Our ratio of total
debt to total entity value was approximately 46%. When we say “entity
value”, we mean market equity value of our common and preferred shares plus
total debt outstanding. In the future, we may incur additional debt,
and thus increase our ratio of total debt to total entity value, to finance
acquisitions, property developments or joint ventures. If our level
of indebtedness increases, there may be an increased risk of default on our
obligations that could adversely affect our financial condition and results
of
operations. In addition, in a rising interest rate environment, the
cost of our floating rate debt and any new debt or other market rate securities
or instruments may increase.
Covenants
in our debt instruments could adversely affect our financial condition and
our
ability to make future investments.
The
mortgages on our properties contain customary covenants such as those that
limit
our ability, without the prior consent of the lender, to further mortgage the
applicable property or to discontinue insurance coverage. Our credit
facility and other loans that we may obtain in the future contain customary
restrictions, requirements and other limitations on our ability to incur
indebtedness, including covenants that limit our ability to incur debt based
upon the level of our ratio of total debt to total assets, our ratio of secured
debt to total assets, our ratio of EBITDA to interest expense and fixed charges,
and that require us to maintain a certain level of unencumbered assets to
unsecured debt. Our ability to borrow under our credit facility is
subject to compliance with certain other covenants. In addition,
failure to comply with our covenants could cause a default under the applicable
debt instrument, and we may then be required to repay such debt with capital
from other sources. Under those circumstances, other sources of
capital may not be available to us, or be available only on unattractive
terms. Additionally, our ability to satisfy current or prospective
lenders’ insurance requirements may be adversely affected if lenders generally
insist upon insurance coverage against acts of terrorism not available to us
in
the marketplace on commercially reasonable terms.
We
rely
on debt financing, including borrowings under our credit facility, issuances
of
unsecured debt and debt secured by individual properties, to finance our
acquisition activities and for working capital. If we are unable to
obtain debt financing from these or other sources, or to refinance existing
indebtedness upon maturity, our financial condition and results of operations
would be adversely affected. If we breach covenants in our debt
agreements, the lenders can declare a default and, if the debt is secured,
obtain possession of the property securing the defaulted loan.
Future
issuances and sales of equity or debt interests pursuant to an
outstanding registration statement may affect the market price of our Common
Shares.
We
currently have an effective “shelf” registration statement on file covering the
issuance, from time to time, of up to $256,388,000 of our common shares,
preferred shares and/or debt securities. The registration statement
also covers the resale by certain selling shareholders of up to 23,222,223
common shares. The actual issuance of additional common shares or
sale of these or other large holdings of common shares may decrease the market
price of our common shares. We have also agreed to file a
registration statement covering the resale of 3,522,566 common
shares.
If
we issue preferred equity or debt we may be exposed to additional restrictive
covenants and limitations on our operating flexibility, which could adversely
affect our ability to pay dividends.
If
we
decide to issue preferred equity or debt in the future, it is likely that they
will be governed by an indenture or other instrument containing covenants
restricting our operating flexibility. Holders of preferred equity or
debt may be granted specific rights, including but not limited to: the right
to
hold a perfected security interest in certain of our assets, the right to
accelerate payments due under the indenture, rights to restrict dividend
payments, and rights to require approval to sell
assets. Additionally, any convertible or exchangeable securities that
we issue in the future may have rights, preferences and privileges more
favorable than those of our common shares. We, and indirectly our
shareholders, will bear the cost of issuing and servicing such
securities.
Our
due diligence may not reveal all of the liabilities associated with a proposed
investment and may not reveal other weaknesses.
Before
making an investment in an operating property, loan or real estate security,
FUR
Advisors assesses the value of the operating property or, in the case of a
loan
or real estate security, the value of the assets underlying the loan or real
estate security. Further, in entering into a joint venture or making
a loan or acquiring a real estate security, FUR Advisors assesses the strength
and skills of such entity's management and other factors that it believes are
material to the performance of the investment. This process is
particularly important and subjective with respect to newly organized entities
because there may be little or no information publicly available about the
entities. In making the assessment and otherwise conducting customary
due diligence, FUR Advisors relies on the resources available to them and,
in
some cases, an investigation by third parties. There can be no
assurance that its due diligence processes will uncover all relevant facts
or
that any investment will be successful.
We
may fail to qualify or remain qualified as a REIT and may be required to pay
income taxes at corporate rates.
Although
we believe that we have been and will remain organized and have operated and
will continue to operate so as to qualify as a REIT for federal income tax
purposes, we cannot assure this result. Qualification as
a
REIT
for
federal income tax purposes is governed by highly technical and complex
provisions of the Code for which there are only limited judicial or
administrative interpretations. Our qualification as a REIT also
depends on various facts and circumstances that are not entirely within our
control. In addition, legislation, new regulations, administrative
interpretations or court decisions might change the tax laws with respect to
the
requirements for qualification as a REIT or the federal income tax consequences
of qualification as a REIT.
If,
with
respect to any taxable year, we fail to maintain our qualification as a REIT
and
certain relief provisions do not apply, we could not deduct distributions to
our
shareholders in computing our taxable income and would have to pay federal
corporate income tax (including any applicable alternative minimum tax) on
our
taxable income. If we had to pay federal income tax, the amount of
money available to distribute to our shareholders would be reduced for the
year
or years involved, but we would no longer be required to pay dividends to our
shareholders. In addition, we would be disqualified from treatment as
a REIT for the four taxable years following the year during which qualification
was lost and thus our cash available for distribution to our shareholders would
be reduced in each of those years, unless we were entitled to relief under
relevant statutory provisions.
Although
we currently intend to operate in a manner designed to allow us to continue
to
qualify as a REIT, future economic, market, legal, tax or other considerations
may cause us to revoke the REIT election. In that event, we and our
shareholders would no longer be entitled to the federal income tax benefits
applicable to a REIT.
Pursuant
to an agreement with one of our common shareholders, we may be liable to pay
damages to that shareholder in the event we fail to maintain our status as
a
REIT.
In
order to maintain our status as a REIT, we may be forced to borrow funds during
unfavorable market conditions.
As
a
REIT, we generally must distribute at least 90% of our annual REIT taxable
income, subject to certain adjustments, to our shareholders. To the
extent that we satisfy the REIT distribution requirement but distribute less
than 100% of our taxable income, we will be subject to federal corporate income
tax on our undistributed taxable income. In addition, we will be
subject to a 4% nondeductible excise tax if the actual amount that we pay to
our
shareholders in a calendar year is less than a minimum amount specified under
federal tax laws.
From
time
to time, we may generate taxable income greater than our cash flow available
for
distribution to our shareholders (for example, due to substantial non-deductible
cash outlays, such as capital expenditures or principal payments on
debt). If we do not have other funds available in these situations,
we could be required to borrow funds, sell investments at disadvantageous prices
or find alternative sources of funds to make distributions sufficient to enable
us to pay out enough of our taxable income to satisfy the REIT distribution
requirement and to avoid income and excise taxes in a particular
year. These alternatives could increase our operating costs and
diminish our rate of growth.
Factors
that may cause us to lose our New York Stock Exchange listing.
We
might
lose our listing on the NYSE depending on a number of factors, including failure
to qualify as a REIT, the number of holders of beneficial interests and amount
and composition of our assets.
Ownership
limitations in our Bylaws may adversely affect the market price of our Common
Shares.
Our
bylaws contain an ownership limitation that is designed to prohibit any transfer
that would result in our being "closely-held" within the meaning of Section
856(h) of the Code. This ownership limitation, which may
be
waived
by our Board of Trustees, generally prohibits ownership, directly or indirectly,
by any single shareholder of more than 9.8% of the common shares. Our
Board has waived this ownership limitation on a number of
occasions. Unless the Board waives the restrictions or approves a
bylaw amendment, common shares owned by a person or group of persons in excess
of 9.8% of our outstanding common shares are not entitled to any voting rights,
are not considered outstanding for quorum or voting purposes, and are not
entitled to dividends, interest or any other distributions with respect to
the
common shares. The ownership limit may have the effect of inhibiting
or impeding a change of control over us or a tender offer for our common
shares.
Failure
to maintain effective internal controls could have a material adverse affect
on
our business, operating results and share price.
Section
404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments
of
the effectiveness of our internal controls over financial reporting and a report
by our independent registered public accounting firm addressing these
assessments.
If
we
fail to maintain the adequacy of our internal controls, as such standards may
be
modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002. Moreover, effective internal controls,
particularly those related to revenue recognition, are necessary for us to
produce reliable financial reports and to maintain our qualifications as a
REIT
and are important to helping prevent financial fraud. If we cannot
provide reliable financial reports or prevent fraud, our business and operating
results could be harmed, our REIT qualification would be jeopardized, investors
could lose confidence in our reported financial information, and the trading
price of our shares could drop significantly.
A
prolonged economic slowdown, a lengthy or severe recession, or declining real
estate values could harm our operations.
We
believe the risks associated with our business are more severe during periods
of
economic slowdown or recession if these periods are accompanied by declining
real estate values. Declining real estate values will likely reduce
our level of new mortgage loan originations, since borrowers often use increases
in the value of their existing properties to support the purchase or investment
in additional properties. Borrowers may also be less able to pay
principal and interest on our loans if the real estate economy
weakens. Further, declining real estate values significantly increase
the likelihood that we will incur losses on our loans in the event of default
because the value of our collateral may be insufficient to cover our cost on
the
loan. Any sustained period of increased payment delinquencies,
foreclosures or losses could adversely affect both our net interest income
from
loans in our portfolio as well as our ability to originate, sell and securitize
loans, which would significantly harm our revenues, results of operations,
financial condition, business prospects and our ability to make distributions
to
the shareholders.
We
may be adversely affected by unfavorable economic changes in geographic areas
where our properties are concentrated.
Adverse
conditions in the areas where the properties underlying our investments are
located (including business layoffs or downsizing, industry slowdowns, changing
demographics and other factors) and local real estate conditions (such as
oversupply of, or reduced demand for, office and industrial properties) may
have
an adverse effect on the value of our properties. A material decline
in the demand or the ability of tenants to pay rent for office and industrial
space in these geographic areas may result in a material decline in our cash
available for distribution.
Risks
Relating to our Operating Properties
Risks
incidental to the ownership and operation of real estate assets.
The
value
of an investment in us depends upon our economic performance and the value
of
our real estate assets, both those presently held as well as future investments,
which are subject to the risks normally associated with the ownership, operation
and disposal of real estate properties and real estate related assets,
including:
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changes
in the general and local economic
climate;
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competition
from other properties;
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changes
in interest rates and the availability of
financing;
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the
cyclical nature of the real estate industry and possible oversupply
of, or
reduced demand for, space in the markets in which our properties
are
located;
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the
attractiveness of our properties to tenants and
purchasers;
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how
well we manage our properties;
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changes
in market rental rates and our ability to rent space on favorable
terms;
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the
financial condition of our tenants and borrowers including bankruptcy
or
insolvency of tenants and
borrowers;
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the
need to periodically renovate, repair and re-lease space and the
costs
thereof;
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increases
in maintenance, insurance and operating
costs;
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civil
unrest, armed conflict or acts of terrorism against the United States;
and
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earthquakes
and other natural disasters or acts of God that may result in uninsured
losses.
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In
addition, applicable federal, state and local regulations, zoning
and tax
laws and potential liability under environmental and other laws
may affect
real estate values. Further, throughout the period that we own
real property, regardless of whether or not a property is producing
any
income, we must make significant expenditures, including those
for
property taxes, maintenance, insurance and related charges and
debt
service. The risks associated with real estate investments may
adversely affect our operating results and financial position,
and
therefore the funds available for distribution to you as
dividends.
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We
face a number of significant issues with respect to the properties we own which
may adversely affect our financial performance.
Leasing
Issues.
With respect to our properties, we are subject to the
risk that, upon expiration, leases may not be renewed, the space may not be
relet, or the terms of renewal or reletting, including the cost of required
renovations, may be less favorable than the current lease terms. This
risk is substantial with respect to our net lease properties as single tenants
lease 100% of each property. Twenty-one of our properties, containing
an aggregate of approximately 2,947,000 square feet of space are net leased
to
seven different tenants. Leases accounting for approximately 2% of
the aggregate 2006 annualized base rents from our properties, representing
approximately 1% of the net rentable square feet at the properties, expired
without penalty or premium through the end of 2007, and leases accounting for
approximately 2% of aggregate 2006 annualized base rent from the properties,
representing approximately 2% of the net rentable square feet at the properties,
are scheduled to expire in 2008. Other leases grant tenants early
termination rights upon payment of a termination penalty. Lease
expirations will require us to locate new tenants and negotiate replacement
leases with tenants. The costs for tenant improvements, tenant
inducements and leasing commissions, with respect to new leases, are
traditionally greater than costs relating to renewal leases. If we
are unable to promptly relet or renew leases for all or a substantial portion
of
the space subject to expiring leases, if the rental rates upon such renewal
or
reletting are significantly lower than expected or if our reserves for these
purposes prove inadequate, our revenue and net income could be adversely
affected.
Financial
Condition of
Tenant.
A tenant may experience a downturn in its business,
which could result in the tenant's inability to make rental payments when
due. In addition, a tenant may seek the protection of bankruptcy,
insolvency or similar laws, which could result in the rejection and termination
of such tenant's lease and cause a reduction in our cash flow. If
this were to occur at a net lease property, the entire property would become
vacant.
We
cannot
evict a tenant solely because of its bankruptcy. A court, however,
may authorize a tenant to reject and terminate its lease. In such a
case, our claim against the tenant for past due rent and unpaid future rent
would be subject to a statutory cap that might be substantially less than the
remaining rent owed under the lease. In any event, it is unlikely
that a bankrupt tenant will pay in full the amount it owes us under a
lease. The loss of rental payments from tenants could adversely
affect our cash flows and operating results
Tenant
Concentration.
Our Jacksonville property (previously leased to
Winn-Dixie) has two tenants that occupy 79% of the space at the
property. Our properties at 550-650 Corporetum and 701 Arboretum
(Chicago, Illinois market), each have two tenants who occupy 49% and 68% of
the
space at the property, respectively.
Our
Ontario property in which we hold an 80% interest has two tenants that occupy
26% of the space at the property. We believe that the relocation or
future financial weakness of these tenants would not have a material adverse
affect on our rental revenue.
With
respect to the net lease properties, leases with Viacom Inc., The Kroger
Co. and Duke Energy represent approximately 34%, 20% and 20%,
respectively, of the total rentable square footage of the net lease
properties. Accordingly, the financial weakness of any of these
tenants could negatively impact our operations and cash
flows. However, we presently own only an 8% interest in the Duke
Energy property.
We
may be unable to refinance our existing debt or obtain favorable refinancing
terms.
We
are
subject to the normal risks associated with debt and preferred share financings,
including the risk that our cash flow will be insufficient to meet required
payments of principal and interest on debt and distributions to holders of
preferred shares and the risk that indebtedness on our properties, or unsecured
indebtedness, will not be able to be renewed, repaid or refinanced when due,
or
that the terms of any renewal or refinancing will not be as favorable as the
terms of such indebtedness. This risk is presently exacerbated by the
recent capital market crisis which has resulted in tightening lending
requirements and increased interest rates for real estate loans. If
we were unable to refinance the indebtedness on acceptable terms, or at all,
we
might be forced to dispose of one or more of our properties on disadvantageous
terms, which might result in losses to us, which could have a material adverse
affect on us and our ability to pay distributions to our holders of preferred
and common shares of beneficial interests. Furthermore, if a property
is mortgaged or a loan pledged to secure payment of indebtedness and we are
unable to meet the debt payments, the lender could foreclose upon the property
or the loan, appoint a receiver or obtain an assignment of rents and leases
or
pursue other remedies, all with a consequent loss of revenues and asset value
to
us. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby hindering our ability to meet the REIT
distribution requirements of the Code.
Some
of our potential losses may not be covered by insurance.
We
may
not be able to insure our properties against losses of a catastrophic nature,
such as terrorist acts, earthquakes and floods, because such losses are
uninsurable or are not economically insurable. We will use our
discretion in determining amounts, coverage limits and deductibility provisions
of insurance, with a view to maintaining appropriate insurance coverage on
our
investments at a reasonable cost and on suitable terms. This may
result in insurance coverage that, in the event of a substantial loss, would
not
be sufficient to pay the full current market value or current replacement cost
of the lost investment and also may result in certain losses being totally
uninsured. Inflation, changes in building codes, zoning or other land
use ordinances, environmental considerations, lender imposed restrictions and
other factors also might make it not feasible to use insurance proceeds to
replace the property after such property has been damaged or
destroyed. Under such circumstances, the insurance proceeds, if any,
received by us might not be adequate to restore our economic position with
respect to such property. With respect to our net lease properties,
under the lease agreements for such properties, the tenant is required to
adequately insure the property, but their failure or inability to have adequate
coverage for catastrophic losses may adversely affect our economic position
with
respect to such property.
Compliance
with the Americans with Disabilities Act and fire, safety and other regulations
may require us to make unanticipated expenditures that adversely impact our
ability to pay dividends.
All
of
our properties are required to comply with the Americans with Disabilities
Act,
or the ADA. The ADA has separate compliance requirements for "public
accommodations" and "commercial facilities," but generally requires that
buildings be made accessible to people with disabilities. Compliance
with the ADA requirements could require, for example, removal of access barriers
and non-compliance could result in imposition of fines by the
U.S. Government or an award of damages to private litigants, or
both. Although we believe that our properties are in compliance with
the ADA, it is possible that we may incur additional expenditures which, if
substantial, could adversely affect our results of operations, our financial
condition and our ability to pay dividends to you.
In
addition, we are required to operate our properties in compliance with fire
and
safety regulations, building codes and other land use regulations, as they
may
be adopted by local, state and federal governmental agencies and bodies and
become applicable to our properties. We may be required to make
substantial capital expenditures to comply with those requirements and these
expenditures could have an adverse affect on our ability to pay dividends to
you. Additionally, failure to comply with any of these requirements
could result in the
imposition
of fines by such governmental authorities or awards of damages to private
litigants. While we intend to acquire only properties that we believe
are currently in substantial compliance with all regulatory requirements, these
requirements could change or new requirements could be imposed which would
require significant unanticipated expenditures by us and could have an adverse
affect on our cash flow and ability to pay dividends.
We
may incur costs to comply with environmental laws.
The
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with future
legislation, may affect our operating costs. Under various federal,
state and local environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on or under the
property. Environmental laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances and whether or not such substances originated
from
the property. In addition, the presence of hazardous or toxic
substances, or the failure to remediate such property properly, may adversely
affect our ability to borrow by using such property as collateral. We
maintain insurance related to potential environmental issues on our currently
owned properties which may not be adequate to cover all possible
contingencies.
Certain
environmental laws and common law principles could be used to impose liability
for releases of hazardous materials, including asbestos-containing materials
("ACMs") into the environment. In addition, third parties may seek
recovery from owners or operators of real property for personal injury
associated with exposure to released ACMs or other hazardous
materials. Environmental laws may also impose restrictions on the use
or transfer of property, and these restrictions may require expenditures and/or
affect the value of such property. In connection with the ownership
and operation of any of our properties, we and the lessees of these properties
may be liable for any such environmental costs. The cost of defending
against claims of liability or remediating contaminated property and the cost
of
complying with environmental laws could materially adversely affect our ability
to pay amounts due on indebtedness and dividends to holders of beneficial
interests. This risk is mitigated for our net lease properties as the
lease agreements for those properties require the tenant to comply with all
environmental laws and indemnify us for any loss relating to environmental
liabilities, which may be affected by the financial ability of the tenant to
discharge its responsibility. We have no reason to believe that any
environmental contamination or violation of any applicable law, statute,
regulation or ordinance governing hazardous or toxic substances has occurred
or
is occurring, except for the property located in Jacksonville, Florida,
previously net leased to Winn-Dixie. Given the nature of the
contamination at the Jacksonville property and the fact that a substantial
portion of the costs associated with the remediation are covered by a state
sponsored plan, we do not believe the costs to be borne by us will be
material. Prior to undertaking major transactions, we hire
independent environmental experts to review specific properties. FUR
Advisors also endeavors to protect us from acquiring contaminated properties
or
properties with significant compliance problems by obtaining site assessments
and property reports at the time of acquisition when it deems such
investigations to be appropriate. There is no guarantee, however,
that these measures will successfully insulate us from all such
liabilities.
Risks
Relating to our Loan Assets
We
invest
both directly and indirectly through our joint venture investment with Lexington
Realty Trust in Concord Debt Holdings LLC, which we refer to as Concord, in
loans secured directly or indirectly by operating properties. All
references in this “Risks Relating to our Loan Assets” section to we, us or the
like shall, except as expressly provided otherwise, include us and
Concord.
The
mortgage loans we invest in are subject to delinquency, foreclosure and
loss.
We
seek
to make commercial mortgage loans directly and indirectly that are secured
by
income producing property. These loans are subject to risks of
delinquency and foreclosure as well as risk associated with the capital
markets. The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower. If the net operating income of the
property is reduced, the borrower's ability to repay the loan may be
impaired. Net operating income of an income-producing property can be
affected by, among other things: tenant mix; success of tenant businesses;
property management decisions; property location and condition; competition
from
comparable types of properties; changes in laws that increase operating expense
such as real estate tax rates or limit rents that may be charged; the need
to
address environmental contamination at the property; the occurrence of any
uninsured casualty at the property; changes in national, regional or local
economic conditions and/or specific industry segments; declines in regional
or
local real estate values; declines in regional or local rental or occupancy
rates; increases in interest rates and other operating expenses; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; acts of God; terrorism; social unrest; and civil
disturbances.
In
the
event of a default under a mortgage loan held directly by us, we will bear
a
risk of loss of principal to the extent of any deficiency between the value
of
the collateral, including the overall financial condition of the tenant, and
the
principal and accrued interest of the mortgage loan, which could have a material
adverse affect on our cash flow from operations. In the event of the
bankruptcy of a mortgage loan borrower, the loan will be deemed to be secured
only to the extent of the value of the underlying collateral at the time of
bankruptcy (as determined by the bankruptcy court), and the lien securing the
mortgage loan will be subject to the avoidance powers of the bankruptcy trustee
or debtor-in-possession to the extent the lien is unenforceable under state
law. Foreclosure of a mortgage loan can be an expensive and lengthy
process which could have a substantial negative affect on our anticipated return
on the foreclosed mortgage loan.
The
subordinate mortgage notes, mezzanine loans and participation interests in
mortgage and mezzanine loans we invest in may be subject to risks relating
to
the structure and terms of the transactions, and there may not be sufficient
funds or assets remaining to satisfy our subordinate notes, which may result
in
losses to us.
We
invest
in subordinate mortgage notes, mezzanine loans and participation interests
in
mortgage and mezzanine loans. These investments are subordinate to
first mortgages on commercial property and are secured by subordinate rights
to
the commercial property or by equity interests in the commercial entity owning
the property. If a borrower defaults or declares bankruptcy, after
senior obligations are met, there may not be sufficient funds or assets
remaining to satisfy our subordinate notes. Because each transaction
is privately negotiated, subordinate mortgage notes can vary in their structural
characteristics and lender rights. Our rights to control the default
or bankruptcy process following a default will vary from transaction to
transaction. The subordinate real estate debt that we intend to
invest in may not give it the right to demand foreclosure as a subordinate
real
estate debtholder. Furthermore, the presence of intercreditor
agreements may limit our ability to amend the loan documents, assign the loans,
accept prepayments, exercise its remedies and control decisions made in
bankruptcy proceedings relating to borrowers. Bankruptcy and borrower
litigation can significantly increase the time needed for us to acquire
underlying collateral in the event of a default, during which time the
collateral may decline in value. In addition, there are significant
costs and delays associated with the foreclosure process.
We
invest in subordinate mortgage-backed securities which are subject to a greater
risk of loss than senior securities. We may hold the most junior
class of mortgage-backed securities which are subject to the first risk of
loss
if any losses are realized on the underlying mortgage loans.
We
invest
in a variety of subordinate mortgage-backed securities (“loan securities”) and
sometimes hold a "first loss" subordinate holder position. The
ability of a borrower to make payments on the loan underlying these securities
is dependent primarily upon the successful operation of the property rather
than
upon the existence of independent income or assets of the
borrower. In the event of default and the exhaustion of any equity
support, reserve funds, letters of credit and any classes of securities junior
to those in which we invest, we will not be able to recover all of its
investment in the securities it purchases.
Expenses
of enforcing the underlying mortgage loans (including litigation expenses),
expenses of protecting the properties securing the mortgage loans and the liens
on the mortgaged properties, and, if such expenses are advanced by the servicer
of the mortgage loans, interest on such advances will also be allocated to
such
"first loss" securities prior to allocation to more senior classes of securities
issued in the securitization. Prior to the reduction of distributions
to more senior securities, distributions to the "first loss" securities may
also
be reduced by payment of compensation to any servicer engaged to enforce a
defaulted mortgage loan. Such expenses and servicing compensation may
be substantial and consequently, in the event of a default or loss on one or
more mortgage loans contained in a securitization, Concord may not recover
its
investment.
If
credit spreads widen, the value of Concord’s assets may suffer.
Our
investments in loan securities are subject to changes in credit
spreads. The value of these loan securities is dependent upon the
yield demanded on these loan securities by the market based on the underlying
credit. Excessive supply of these loan securities combined with
reduced demand will generally cause the market to require a higher yield on
these loan securities, resulting in the use of a higher, or "wider," spread
over
the benchmark rate to value such loan securities. Under such
conditions, the value of our loan securities portfolio would tend to
decline. Such changes in the market value of our portfolio may
adversely affect our net equity or cash flow directly through their impact
on
unrealized gains or losses on available-for-sale loan securities, and therefore
our ability to realize gains through sale of such loan securities, or indirectly
through their impact on our ability to borrow and access capital.
The
value
of our investments in mortgage loans, mezzanine loans and participation
interests in mortgage and mezzanine loans is also subject to changes in credit
spreads. The majority of the loans we invest in are floating rate
loans whose value is based on a market credit spread to LIBOR. The
value of the loans is dependent upon the yield demanded by the market based
on
their credit. The value of our portfolio would tend to decline should
the market require a higher yield on such loans, resulting in the use of a
higher spread over the benchmark rate. Any credit or spread losses
incurred with respect to our loan portfolio would affect us in the same way
as
similar losses on our loan securities portfolio as described above.
Concord
prices its assets based on its assumptions about future credit spreads for
financing of those assets. Concord has obtained, and may obtain in
the future, longer term financing for its assets using structured financing
techniques such as CDOs. Such issuances entail interest rates set at
a spread over a certain benchmark, such as the yield on United States Treasury
obligations, swaps or LIBOR. If the spread that investors are paying
on structured finance vehicles over the benchmark widens and the rates Concord
charges on its securitized assets are not increased accordingly, this may reduce
Concord’s income or cause losses.
Prepayment
rates can increase, adversely affecting yields on our investments.
The
value
of our assets may be affected by prepayment rates on mortgage loans underlying
the loan securities in which we invest. Prepayment rates on mortgage
loans are influenced by changes in current interest rates and a variety of
economic, geographic and other factors beyond our control and consequently
such
prepayment rates cannot be predicted with certainty. In periods of
declining mortgage interest rates, prepayments on mortgage loans generally
increase. If general interest rates decline as well, the proceeds of
such prepayments received during such periods are likely to be reinvested by
us
in assets yielding less than the yields on the assets that were
prepaid. Under certain interest rate and prepayment scenarios we may
fail to recoup fully our cost of acquisition of certain
investments.
Concord
may not be able to issue CDO securities, which may require Concord to seek
more
costly financing for its real estate loan assets or to liquidate
assets.
Concord
has and may continue to seek to finance its loan assets on a long-term basis
through the issuance of CDOs. Prior to a new investment grade CDO
issuance, there is a period during which real estate loan assets are identified
and acquired for inclusion in a CDO, known as the warehouse accumulation
period. During this period, Concord authorizes the acquisition of
loan assets under one or more warehouse facilities from warehouse
providers. The warehouse providers then purchase the loan assets and
hold them for later acquisition by Concord. Concord contributes cash
and other collateral to be held in escrow by the warehouse providers to back
Concord’s commitment to purchase equity in the CDO and to cover its share of
losses should loan assets need to be liquidated. As a result, Concord
is subject to the risk that Concord will not be able to acquire, during the
period that its warehouse facilities are available, a sufficient amount of
loan
assets to maximize the execution of an investment grade CDO
issuance. In addition, conditions in the capital markets may make it
difficult, if not impossible, for Concord to pursue a CDO when it does have
a
sufficient pool of collateral. If Concord is unable to issue a CDO to
finance these assets or if doing so is not economical, Concord may be required
to seek other forms of potentially less attractive financing or to liquidate
the
assets at a price that could result in a loss of all or a portion of the cash
and other collateral backing its purchase commitment.
Concord’s
warehouse facilities and its CDO financing agreements may limit its ability
to
make investments.
In
order
for Concord to borrow money to make investments under its warehouse facilities,
its warehouse providers have the right to review the potential investment for
which Concord is seeking financing. Concord may be unable to obtain
the consent of its warehouse providers to make certain
investments. In the event that Concord’s warehouse providers do not
consent to the inclusion of the potential asset in the warehouse facility,
Concord may be unable to obtain alternate financing for that
investment. Concord’s warehouse providers’ consent rights with
respect to its warehouse facility may limit Concord’s ability to execute its
business strategy.
The
repurchase agreements that Concord uses to finance its investments may require
it to provide additional collateral.
Concord
uses credit facilities in the nature of repurchase agreements to finance some
of
its investments, primarily on an interim basis. If the market value
of the loan assets pledged or sold by Concord to a funding source decline in
value, which decline is determined, in most cases, by the warehouse line
provider, Concord may be required by the lending institution to provide
additional collateral or pay down a portion of the funds
advanced. Concord may not have the funds available to pay down its
debt, which could result in defaults. Posting additional collateral
to support its credit facilities will reduce its liquidity and limit its ability
to leverage its assets. In the event Concord does not have sufficient
liquidity to meet such requirements, lending institutions could accelerate
its
indebtedness, increase interest rates and terminate its ability to
borrow. Such a situation would likely result in a rapid deterioration
of Concord’s financial condition and solvency and adversely affect our
investment in Concord.
Concord’s
future investment grade CDOs, if any, will be collateralized with real estate
securities that are similar to those collateralizing its existing investment
grade CDO, and any adverse market trends are likely to adversely affect the
issuance of future CDOs as well as Concord’s CDOs in general.
Concord’s
existing investment grade CDO issuance is collateralized by fixed and floating
rate CMBS, whole first mortgage loans, mezzanine loans, participations in first
mortgage loans and mezzanine loans, and real estate CDOs, and we expect that
future issuances, if any, will be backed by similar securities. Any
adverse market trends that affect the value of these types of securities will
adversely impact the value of Concord’s interests in the CDOs and, accordingly,
our investment in Concord. Such trends could include declines in real
estate values in certain geographic markets or sectors, underperformance of
CMBS
issued in a particular year, or changes in federal income tax laws that could
affect the performance of debt issued by REITs.
The
recent capital market crisis has made financings through CDOs
difficult.
The
lack of a CDO market may require us to make a larger equity investment in
Concord.
At
January 8, 2008, we had committed to invest up to $162,500,000 in Concord,
$157,413,000 of which has already been invested. In view of the
difficulties in the CDO market, we may continue to invest additional amounts
in
Concord.
Concord
may not be able to access financing sources on favorable terms, or at all,
which
could adversely affect its ability to execute its business plan and its ability
to make distributions.
Concord
finances its assets over the long-term through a variety of means, including
repurchase agreements, credit facilities, CDOs and other structured
financings. Concord may also seek to finance its investments through
the issuance of common or preferred securities. Concord’s ability to
execute this strategy depends on various conditions in the markets for financing
in this manner which are beyond its control, including lack of liquidity and
wider credit spreads. We cannot assure the shareholders that these
markets will remain an efficient source of long-term financing for Concord’s
assets. If Concord’s strategy is not viable, it will have to find
alternative forms of long-term financing for its assets, as secured revolving
credit facilities and repurchase facilities may not accommodate long-term
financing. This could subject Concord to more expensive debt which
would require a larger portion of its cash flows, thereby reducing cash
available for distribution to its members, funds available for operations as
well as for future business opportunities.
Credit
ratings assigned to our investments are subject to ongoing evaluations and
we
cannot be sure that the ratings currently assigned to our investments will
not
be downgraded.
Some
of
Concord’s investments are rated by Moody's Investors Service, Fitch Ratings or
Standard & Poor's, Inc. The credit ratings on these investments
are subject to ongoing evaluation by credit rating agencies, and we cannot
assure you that any such rating will not be changed or withdrawn by a rating
agency in the future if, in its judgment, circumstances warrant. If
rating agencies assign a lower-than-expected rating or reduce, or indicate
that
they may reduce, their ratings of our investments in the future, the value
of
these investments could significantly decline, which may have an adverse affect
on our financial condition.
Concord
may make investments in assets with lower credit quality, which will increase
our risk of losses.
Concord
may invest in unrated loan securities or participate in unrated or distressed
mortgage loans. The anticipation of an economic downturn, for
example, could cause a decline in the price of lower credit quality investments
and securities because the ability of obligors of mortgages, including mortgages
underlying mortgage-backed securities, to make principal and interest payments
may be impaired. If this were to occur, existing credit support in
the warehouse structure may be insufficient to protect Concord against loss
of
its principal on these investments and securities.
The
use of CDO financings with coverage tests may have a negative impact on
Concord’s, and accordingly our operating results and cash
flows.
Concord’s
current CDO contains, and it is likely that future CDOs, if any, will contain
coverage tests, including over-collateralization tests, which are used primarily
to determine whether and to what extent principal and interest proceeds on
the
underlying collateral debt securities and other assets may be used to pay
principal of and interest on the subordinate classes of bonds in the
CDO. In the event the coverage tests are not satisfied, distributions
otherwise payable to Concord may be re-directed to pay principal on the bond
classes. Therefore, Concord’s failure to satisfy the coverage tests
could adversely affect Concord’s, and accordingly, our operating results and
cash flows.
Certain
coverage tests which may be applicable to Concord’s interest in its CDOs (based
on delinquency levels or other criteria) may also restrict Concord’s (and,
accordingly, our) ability to receive net income from assets pledged to secure
the CDOs. Concord cannot assure us and therefore we cannot assure
you, in advance of completing negotiations with the rating agencies or other
key
transaction parties on any future CDOs, what will be the actual terms of the
delinquency tests, over-collateralization, cash flow release mechanisms or
other
significant factors regarding the calculation of net income to Concord (and,
accordingly, to us). Failure to obtain favorable terms with regard to
these matters may materially and adversely affect the availability of net income
to Concord (and, accordingly, to us). If Concord’s assets fail to
perform as anticipated, Concord’s over-collateralization or other credit
enhancement expense associated with its CDOs will increase.
Risks
Relating to our Real Estate Securities
Our
investments in REIT securities are subject to specific risks relating to the
particular REIT issuer of the securities and to the general risks of investing
in equity real estate securities.
Our
investments in REIT securities, such as our investment in Lexington Realty
Trust
involve special risks. REITs generally are required to substantially
invest in real estate or real estate-related assets and are subject to the
inherent risks described herein including: (i) risks generally incident to
interests in real property; (ii) risks associated with the failure to maintain
REIT qualification; and (iii) risks that may be presented by the type and use
of
a particular commercial property.
Risks
Relating to Our Management
Ability
of FUR Advisors to operate properties directly affects our financial
condition.
The
underlying value of our real estate investments, the results of our operations
and our ability to pay dividends to our holders of beneficial interests and
to
pay amounts due on our indebtedness will depend on the ability of FUR Advisors
to operate our properties and manage our other investments in a manner
sufficient to maintain or increase revenues and to generate sufficient revenues
in excess of our operating and other expenses.
We
are dependent on FUR Advisors and the loss of FUR Advisors’ key personnel could
harm our operations and adversely affect the value of our
shares.
We
have
no paid employees. Our officers are employees of FUR
Advisors. We have no separate facilities and are completely reliant
on FUR Advisors, which has significant discretion as to the implementation
of
our operating policies and strategies. We are subject to the risk
that FUR Advisors will terminate its advisory agreement and that no suitable
replacement will be found to manage us. Furthermore, we are dependent
on the efforts, diligence, skill, network of business contacts and close
supervision of all aspects of our business by FUR Advisors and, in particular,
Michael Ashner, chairman of our Board and our chief executive officer, and
Peter
Braverman, our president, as well as our other executive
officers. While we believe that we could find replacements for these
key personnel, the loss of their services could harm our operations and
adversely affect the value of our shares of beneficial interest.
There
are
conflicts of interest in our relationship with
FUR
Advisors.
Our
chairman and chief executive officer and each of our executive officers also
serve as officers of FUR Advisors. Our base management and an
incentive compensation agreements with FUR Advisors were negotiated as part
of
an overall transaction in which a sister entity of FUR Advisors acquired control
of us. Accordingly, the terms of the advisory agreement, including
fees payable, may not be as favorable to us as if it had been negotiated with
an
unaffiliated third party.
The
incentive fee
payable to
FUR
Advisors may
be substantial.
Pursuant
to the terms of the advisory agreement, at such time, if at all, as we have
paid
aggregate dividends to our holders of common shares in excess of a threshold
amount ($349,653,000 at December 31, 2007), FUR Advisors will be entitled to
receive 20% of subsequent dividends paid to our holders of common
shares. If we were to liquidate or sell all or a substantial portion
of our assets at December 31, 2007, based upon a per share price equal to the
closing price on the last day of the year ($5.29 per share at December 31,
2007), the amount payable to FUR Advisors as incentive fee compensation would
be
approximately $23,310,000. Although the foregoing calculation of the
incentive fee is based on the closing price of our common shares on the last
day
of the year, if the advisory agreement were terminated, the actual incentive
fee
payable would be based on an appraised valuation or the liquidation proceeds
received for our assets.
Termination
of the Advisory Agreement may be costly.
Termination
of the advisory agreement with FUR Advisors may be costly. Upon
termination of the advisory agreement, FUR advisors will be paid a termination
fee equal to the incentive fee assuming we were then liquidated. The
amount payable on termination of the advisory agreement could be
substantial.
CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
Any
statements included in this prospectus, including any statements in the document
that are incorporated by reference herein that are not strictly historical
are
forward-looking statements within the meaning of the safe harbor provisions
of
the Private Securities Litigation Reform Act of 1995. Any such
forward-looking statements contained or incorporated by reference herein should
not be relied upon as predictions of future events. Certain such forward-looking
statements can be identified by the use of forward-looking terminology such
as
“believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,”
“plans,” “pro forma,” “estimates” or “anticipates” or the negative thereof or
other variations thereof or comparable terminology, or by discussions of
strategy, plans, intentions or anticipated or projected events, results or
conditions. Forward-looking statements are dependent on assumptions,
data or methods that may be incorrect or imprecise and they may be incapable
of
being realized. Forward-looking statements include statements with
respect to:
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the
declaration or payment of distributions by
us;
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the
ownership, management and operation of
properties;
|
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potential
acquisitions or dispositions of our properties, assets or other
businesses;
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our
policies regarding investments, acquisitions, dispositions, financings
and
other matters;
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our
qualification as a real estate investment trust under the Internal
Revenue
Code of 1986, as amended;
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the
real estate industry and real estate markets in
general;
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the
availability of debt and equity
financing;
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general
economic conditions;
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supply
of real estate investment opportunities and
demand;
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trends
affecting us or our assets;
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the
effect of acquisitions or dispositions on capitalization and financial
flexibility;
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the
anticipated performance of our assets and of acquired properties
and
businesses, including, without limitation, statements regarding
anticipated revenues, cash flows, funds from operations, earnings
before
interest, depreciation and amortization, property net operating
income,
operating or profit margins and sensitivity to economic downturns
or
anticipated growth or improvements in any of the foregoing;
and
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our
ability, and that of our assets and acquired properties and businesses
to
grow.
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You
are
cautioned that, while forward-looking statements reflect our good faith beliefs,
they are not guarantees of future performance and they involve known and unknown
risks and uncertainties. Actual results may differ materially from
those in the forward-looking statements as a result of various
factors. The information contained or incorporated by reference in
this prospectus and any amendment hereof, including, without limitation, the
information set forth in “
RISK
FACTORS
” or in any risk factors in documents that are incorporated by
reference in this prospectus, identifies important factors that could cause
such
differences. We undertake no obligation to publicly release the
results of any revisions to these forward-looking statements that may reflect
any future events or circumstances.
USE
OF PROCEEDS
The
maximum proceeds to us from the sale of our common shares in this rights
offering are estimated to be approximately $____ million before deducting
offering expenses allocable to and payable by us.
We
intend
to use the net proceeds of the rights offering for general corporate purposes,
including the acquisition of additional investments and/or contributions to
our
existing joint ventures.
The
following table shows our capitalization as of September 30, 2007 on a
historical basis (in thousands). The table also includes our
capitalization on a pro forma basis reflecting the partial conversion of our
Series B-1 Cumulative Convertible Redeemable Preferred Shares, the issuance
of
common shares pursuant to our dividend reinvestment and stock purchase plan
and
assuming the completion of a fully-subscribed rights offering.
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Historical
as
reported
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Rights
Offering
(1)
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Pro
Forma
Adjustments
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Pro
Forma
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Mortgage
loans payable
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$
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238,079
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|
|
|
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238,079
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Repurchase
agreements
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83,457
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83,457
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Series
B-1 Cumulative Convertible Redeemable Preferred Shares of Beneficial
Interest, $25 per share liquidating preference, 3,942,832
shares authorized and outstanding
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98,571
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(305
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)
(2)
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98,266
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|
Minority
interest
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|
|
10,019
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|
|
|
|
|
|
|
|
|
|
10,019
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SHAREHOLDERS’
EQUITY
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Common
Shares of Beneficial Interest, $1 par unlimited authorized, 66,072,613
outstanding
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66,073
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8,845
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$
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541
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(2)(3)
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75,459
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Additional
paid-in capital
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357,167
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(2)(3)
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Accumulated
other comprehensive income (loss)
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(13,370
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)
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|
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(13,370
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)
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Accumulated
distributions in excess of net income
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(83,946
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)
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|
|
|
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(83,946
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)
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Total
Shareholders’ Equity
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325,924
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Total
capitalization
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$
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756,050
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$
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$
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_________________
(1)
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Based
upon 8,845,036 common shares issued pursuant to this rights offering
at a
subscription price of $____ less expenses related to the rights offering.
|
(2)
|
On
October 1, 2007 and November 5, 2007, certain holders of our Series
B-1
Cumulative Convertible Redeemable Preferred Shares exercised their
right
to convert 12,175 of those shares. We issued a total of 67,637 of
our
common shares to the holders requesting the conversion.
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(3)
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On
October 26, 2007 and January 16, 2008 we issued 151,587 common shares
and
321,539 common shares, respectively, pursuant to our dividend reinvestment
and stock purchase plan.
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Before
exercising any subscription rights, you should read carefully the information
set forth under “
RISK
FACTORS
.”
Basic
Subscription Rights; Over-Subscription Rights; Limitation on
Subscription
Basic
Subscription Rights
We
are
distributing to the holders of record of our common shares and Series B-1
Preferred Shares on ______, 2008, at no charge, one non-transferable
subscription right for every 10 common shares they own (or, in the case of
the
Series B-1 Preferred Shares, one subscription right for every 10 common shares
issuable upon conversion). The subscription rights will be evidenced
by rights certificates. Each subscription right will entitle the holder to
purchase one of our common shares. You are not required to exercise
any or all of your subscription rights.
If,
pursuant to your exercise of your subscription rights, the number of common
shares you are entitled to receive would result in your receipt of fractional
shares, the aggregate number of shares issued to you will be rounded down to
the
nearest whole number.
Over-Subscription
Rights
Holders
of rights who exercise their basic subscription rights in full will have
over-subscription rights, subject to the availability of shares following
exercise of the basic subscription rights. The over- subscription
rights entitle such rights holders to purchase, also at
$ per share, the shares remaining available, if any,
after exercise of the basic subscription rights by the other rights
holders. If there are not enough common shares to satisfy all
subscriptions made under the over-subscription rights, we will allocate the
remaining common shares pro rata, among those over-subscribing rights holders.
“Pro rata” means in proportion to the number of common shares that
over-subscribers have purchased by exercising their basic subscription rights.
If there is a pro rata allocation of the remaining common shares and you receive
an allocation of a greater number of shares than you subscribed for under your
over-subscription rights, then we will allocate to you only the number of shares
for which you subscribed. Any remaining shares will then be allocated
among holders who over-subscribed for more than their pro rata portion of the
over-subscription shares in the same manner until all over-subscription shares
have been allocated.
Limitation
on Subscription
To
help
maintain our status as a real estate investment trust (REIT), our by-laws
restrict beneficial and constructive ownership of common shares by any person
or
group of persons acting collectively to 9.8% of our outstanding common shares.
“DESCRIPTION OF CAPITAL STOCK
-- Common Shares
--
Restriction on Size of Holdings”
.
If
the
offering is fully subscribed and you only exercise your basic subscription
rights, your percentage ownership interest in us on a fully diluted basis giving
effect to the conversion of our Series B-1 Preferred Shares will neither
increase nor decrease. However, if you are allocated common shares
through the exercise of your over-subscription rights, your percentage ownership
will increase. If you fail to exercise all or a portion of your
subscription rights and the offering is fully subscribed, your ownership
percentage in us will decrease. We intend to grant waivers from our
9.8% limitation to any holder that exceeds the limit as a result of its exercise
of over-subscription rights and requests a waiver from us by checking the “9.8%
Waiver Request” box on the rights certificate, provided such holder enters into
an ownership limitation waiver agreement in a form that is reasonably
satisfactory to us. Ownership waiver agreements are designed to
ensure that we preserve our status as a REIT. For
example,
such
agreements will not permit a holder’s ownership of our
outstanding common shares in excess of the 9.8% limitation to cause us to
become
“closely held” in violation of one of the requirements for REIT status. In order
for us to qualify as a REIT under the Code, not more than 50% (by value)
of our
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).
The
9.8%
limit for a person is computed based on the outstanding common shares, including
any common shares issuable to that person upon conversion of preferred
shares. For purposes of determining whether you will need to request
a waiver from us, you should assume that a waiver will be required if you would
own more than 6,600,000 common shares.
If
an
ownership waiver cannot be granted, any rights exercised by a holder and any
common shares subscribed for by that holder through the exercise of its
over-subscription rights that would cause it to go over the 9.8% ownership
limit
will not be considered exercised or subscribed for by that holder. The total
subscription price paid by a holder for rights that are not considered exercised
and for common shares not considered subscribed for will be returned to that
holder, without interest, as soon as practicable after completion of this
offering.
If
a
holder that is not granted a waiver subscribes for and, inadvertently or
otherwise, is issued a number of common shares that causes that holder to go
over the 9.8% ownership limit, the number of common shares in excess of the
9.8%
ownership limit will be “Excess Securities” under our by-laws and therefore will
not, in the hands of that holder, have dividend, voting and other rights or
be
considered outstanding for quorum, voting and other purposes. See
“DESCRIPTION OF CAPITAL STOCK
-
Common Shares - Restriction on Size of Holdings.”
Certain
of the holders of our Series B-1 Preferred Shares were granted exemptions to
the
9.8% ownership limit at the time they purchased their Series B-1 Shares. See
“DESCRIPTION OF CAPITAL STOCK
-
Common Shares - Restriction on Size of Holdings.”
The terms of these
exemptions permit such holders to exercise their basic subscription rights
in
full. We intend to grant further waivers to these holders upon execution of
satisfactory ownership waiver agreements, to the extent such holders exercise
their over-subscription rights, provided that doing so does not jeopardize
our
REIT status.
Commitments
of Executive Officers
All
of
our executive officers have agreed to fully exercise the 1,116,283 basic
subscription rights that they will be receiving with respect to common shares
beneficially owned by them and they also intend to exercise their
over-subscription rights in an as yet undetermined amount.
Subscription
Price
The
subscription price for an exercised subscription right is $_______ per
share.
Our
board
of trustees set all of the terms and conditions of the rights offering. The
board of trustees makes no recommendation to you about whether you should
exercise any of your subscription rights. The board of trustees considered
the
following factors in establishing the subscription price:
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strategic
alternatives for capital raising;
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the
anticipated financial effect of the rights
offering;
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the
recent market price of our common
shares;
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the
pricing of similar
transactions;
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how
to incentivize participation in the rights
offering;
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our
business prospects; and
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general
conditions in the securities
markets.
|
The
$______ per share subscription price, however, does not necessarily bear any
relationship to our past or expected future results of operations, cash flows,
current financial condition, the future market value of our common shares,
or
any other established criteria for value. There can be no assurance
that you will be able to sell shares purchased in this offering at a price
equal
to or greater than the $____ per share subscription
price. On ________, 2008, the closing price of a common share on
the NYSE was $_____. No change will be made to the cash subscription
price by reason of changes in the trading price of our common shares prior
to
the closing of the rights offering.
The
subscription price has not yet been determined but will not be less than the
greater of $5.02 or 96% of the closing price of our common shares on the NYSE
during a 5 consecutive trading day period selected by our board of trustees
commencing no more than 20 trading days prior to the date on which the common
shares trade ex-rights on the NYSE. The common shares will trade
ex-rights on the second trading day prior to the record date.
We
did
not seek or obtain any opinion of financial advisors or investment bankers
in
establishing the subscription price for the offering. You should not
consider the subscription price as an indication of the value of us or our
common shares. See “
RISK FACTORS
.”
Expiration
Date, Extensions and Termination
We
will
keep the rights offering open until ____, 2008. You may exercise your
subscription right at any time at or before 5:00 p.m., New York City time,
on ______, 2008, the expiration date for the rights
offering. However, we may extend the offering period for exercising
your subscription rights from time to time in our sole discretion, with such
extension not to exceed 30 business days. If you do not exercise your
subscription rights before the expiration of the rights offering, your
unexercised subscription rights will be null and void. We will not be
obligated to honor your exercise of subscription rights if the Subscription
Agent receives the documents relating to your exercise after the rights offering
expires, regardless of when you transmitted the documents.
We
may
unilaterally terminate or withdraw the rights offering until the expiration
of
the rights offering. See “
Withdrawal and Amendment
”
below.
Reasons
for the Rights Offering
In
approving the rights offering, our board of trustees carefully evaluated our
need for financial flexibility and additional capital. The board also considered
alternative capital raising methods that are available to us, some of which
have
also recently been employed by us, including, among other things, the costs
and
expenses associated with such methods. In conducting its analysis, the board
of
trustees also considered the effect on the ownership percentage of the current
holders of our common shares caused by the rights offering, the pro-rata nature
of a rights offering to our shareholders, the market price of our common shares
and general conditions of the securities markets.
After
weighing the factors discussed above and the effect of the rights offering
of
generating approximately $_______ million, before expenses, in additional
capital for us, we determined to initiate this rights offering. As
described in
“USE OF
PROCEEDS,”
the proceeds of the rights offering are intended to be used
for general corporate purposes including the acquisition of additional
investments and/or contributions to our existing joint ventures.
Non-transferability
of the Subscription Rights
Except
in
the limited circumstances described below, only you may exercise your
subscription rights. You may not sell, give away or otherwise transfer your
subscription rights.
Notwithstanding
the foregoing, your subscription rights may be transferred by operation of
law;
for example, a transfer of subscription rights to the estate of the recipient
upon the death of the recipient would be permitted. If the
subscription rights are transferred as permitted, evidence satisfactory to
us
that the transfer was proper must be received by us prior to the expiration
of
the rights offering.
Withdrawal
and Amendment
We
reserve the right to withdraw or terminate this rights offering at any time
for
any reason until the expiration of the rights offering. In the event that this
offering is withdrawn or terminated, all funds received from subscriptions
by
shareholders will be returned. Interest will not be payable on any returned
funds.
We
reserve the right to amend the terms of this rights offering. If we
make an amendment that we consider significant, we will:
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mail
notice of the amendment to all shareholders of record as of the record
date; and
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·
|
if
necessary, extend the expiration of the rights offering at least
10 days
following the date of such
amendment.
|
The
extension
of the expiration of the rights offering will not, in
and of itself, be treated as a significant amendment for these
purposes.
You
may
exercise your subscription rights by delivering the following to the
Subscription Agent, at or prior to 5:00 p.m., New York City time, on _____,
2008, the date on which the subscription rights expire:
|
·
|
your
properly completed and executed rights certificate with any required
supplemental documentation; and
|
|
·
|
your
full subscription price payment for each share subscribed for under
your
basic subscription rights.
|
Certificates
for Common Shares
As
soon
as practicable after the expiration of the rights offering, the Subscription
Agent will mail to each exercising subscription rights holder of record that
has
validly exercised the basic subscription rights a certificate representing
common shares purchased pursuant to the basic subscription
rights. The Subscription Agent also will arrange for issuance through
DTC of shares subscribed for by or through DTC
participants. Certificates representing the over-subscription shares
will be delivered as soon as practicable after the expiration of the
subscription period so that we may make such pro-rations as may be necessary
in
the event the over-subscription requests exceed the number of remaining
available shares in the rights offering.
How
to Exercise Your Rights
Rights
holders may subscribe to purchase shares by:
|
·
|
completing
and signing the rights certificate which accompanies this
prospectus;
|
|
·
|
mailing
or delivering the rights certificate to National City Bank, the
Subscription Agent, at the appropriate address in the table below;
and
|
|
·
|
sending
with your rights certificate the required payment for the exercise
of your
basic subscription rights.
|
For
your
convenience, a self-addressed envelope is enclosed with this Prospectus which
you may use if you return the rights certificate and payment by
mail.
You
should carefully read and follow those instructions. In order for a subscription
to be accepted, the Subscription Agent must receive either the rights
certificate or the notice of guaranteed delivery described below and payment
for
the shares (including clearance of personal checks used for payment) before
the
expiration of the subscription period.
Rights
holders are not required to pay for the shares subscribed for under the
over-subscription rights when they return the subscription certificate or notice
of guaranteed delivery. In order to exercise their over-subscription rights,
they must exercise in full their basic rights and indicate on the rights
certificate the amount of the over-subscription rights the holder wishes to
exercise. Within five business days after the expiration of the
subscription period, we will make such pro-rations as may be necessary to the
over-subscription requests and notify each over-subscribing rights holder as
to
how many additional shares so subscribed for under the over-subscription rights,
if
any,
have been
allocated to such holder. The
over-subscribing rights holder will then be obligated to pay for such
over-subscription shares in full within five business days after such
notification.
You
should make checks payable to: National City Bank, the Subscription Agent for
this rights offering. You should mail or deliver checks and completed rights
subscription certificates to the Subscription Agent at:
If
by mail:
|
If
by registered, certified, or express mail, overnight delivery or
in
person:
|
|
|
National
City Bank
|
National
City Bank
|
Corporate
Actions Processing Center
|
Corporate
Actions Processing
|
P.O.
Box 859208
|
Center
|
Braintree,
MA 02185-9208
|
161
Bay Street Drive
|
|
Braintree,
MA 02184
|
The
Subscription Agent’s facsimile number for eligible institutions only is (781)
380-3388. The telephone number for confirmation of receipt of facsimiles is
(781) 843-1833, extension 209.
Any
rights holder who has not submitted a properly completed rights certificate
(or
notice of guaranteed delivery) along with payment of the basic subscription
price (including clearance of personal checks used for payment) to the
Subscription Agent by 5:00 p.m., New York City time, on _______, 2008,
unless such subscription period is extended by us, shall forfeit all rights
to
subscribe in the rights offering.
Funds
paid by uncertified personal checks may take at least five business days to
clear and such checks must clear by the expiration of the subscription period
in
order for the required payment to have been made. Accordingly, if any
rights holder wishes to pay the subscription price by means of an uncertified
personal check, the rights holder is urged to make payment sufficiently in
advance of the expiration of the subscription period to ensure that the payment
is received and clears before that time. Rights holders are also
urged to consider, any alternative payment by means of certified or cashier’s
check, money order or wire transfer of funds.
If
a
rights holder wishes to exercise his or her subscription rights, but there
is
not sufficient time to deliver the subscription certificate before the time
the
rights expire, the holder may exercise the rights by delivering payment in
full
for such holder’s basic subscription right along with the notice of guaranteed
delivery in the form included as part of the subscription documents sent with
this prospectus on or prior to the expiration date. The notice of
guaranteed delivery must be guaranteed by a commercial bank, trust company
or
credit union having an office branch or agency in the United States or by a
member of a Stock Transfer Association approved medallion program such as STAMP,
SEMP or MSP. Notices of guaranteed delivery should be mailed or
delivered to the appropriate addresses set forth above.
Acceptance
of
Subscriptions
We
are
entitled to resolve all questions concerning the timeliness, validity, form
and
eligibility of any exercise of basic or over-subscription rights. Our
determination of these questions will be final and binding. In our
sole discretion, we may waive any defect or irregularity, or permit a defect
or
irregularity to be corrected within such time as we may determine, or reject
the
purported exercise of any right because of any defect or
irregularity.
Rights
certificates will not be considered received or accepted until all
irregularities have been waived or cured within such time as we determine in
our
sole discretion. Neither we nor the Subscription Agent has any
duty
to
give notification
of any defect or irregularity in connection
with the submission of rights certificates or any other required
document. Neither we nor the Subscription Agent will incur any
liability for failure to give such notification.
We
reserve the right to reject any exercise of basic or over-subscription rights
if
the exercise does not fully comply with the terms of the rights offering or
is
not in proper form or if the exercise of rights would be unlawful.
Revocation
Any
holder of subscription rights that has exercised its subscription rights may
revoke such exercise prior to the expiration date of this offering. In order
to
effect such a revocation, a written or facsimile transmission notice of
revocation must be received by the Subscription Agent, at its address set forth
in this Prospectus, prior to the expiration date. Any such notice of
revocation must (i) specify the name of the person who has exercised the
subscription rights being revoked, (ii) identify the rights certificate(s)
for
which a subscription exercise is being revoked (including the certificate number
or numbers and the number of common shares for which such rights certificate(s)
may be exercised) and (iii) be signed by the holder in the same manner as the
original signature on the rights certificate(s) previously
tendered. All questions as to the validity, form and eligibility
(including time of receipt thereof) of such notices will be determined by us
in
our sole discretion, which determination shall be final and binding on all
parties. Any rights certificate for which a right of exercise has
been revoked will be deemed not to have been validly tendered for purposes
of
this offering and no common shares will be issued with respect thereto unless
such rights certificate is validly retendered. Properly revoked
rights certificates may be retendered by following the procedures described
above under “How to Exercise Your Rights” at any time prior to the expiration
date.
Incomplete
Forms; Insufficient Payment
If
you do
not indicate the number of rights being exercised, or do not forward sufficient
payment for the number of basic subscription rights that you indicate are being
exercised, then we will accept the subscription forms and payment only for
the
maximum number of basic subscription rights that may be exercised based on
the
actual payment delivered. We will return any payment not applied to
the purchase of shares under the rights offering procedures to those who made
these payments as soon as practicable by mail. Interest will not be payable
on
amounts refunded.
Notice
to Beneficial Holders
If
you
are a broker, a trustee or a depository for securities who holds common shares
for the account of others at the close of business on ___________, 2008, the
record date for the rights offering, you should notify the respective beneficial
owners of such shares on that date of the rights offering as soon as possible
to
find out their intentions with respect to exercising their subscription
rights. You should obtain instructions from the beneficial owner with
respect to the subscription rights, as set forth in the instructions we have
provided to you for your distribution to beneficial owners. If the
beneficial owner so instructs, you should complete the appropriate rights
certificates and submit them to the Subscription Agent with the proper
payment. If you hold common shares for the account(s) of more than
one beneficial owner, you may exercise the number of subscription rights to
which all such beneficial owners in the aggregate otherwise would have been
entitled had they been direct record holders of our common shares on the record
date for the rights offering, provided that, you, as a nominee record holder,
make a proper showing to the Subscription Agent by submitting the form entitled
“Nominee Holder Certification” which we will provide to you with your rights
offering materials.
If
you
are a beneficial owner of common shares or will receive your subscription rights
through a broker, custodian bank or other nominee, we will ask your broker,
custodian bank or other nominee to notify you of this rights
offering. If you wish to exercise your subscription rights, you will
need to have your broker, custodian bank or other nominee act for you. If you
hold certificates of our common shares directly and would prefer to have your
broker, custodian bank or other nominee exercise your subscription rights,
you
should contact your nominee and request it to effect the transaction for
you. To indicate your decision with respect to your subscription
rights, you should complete and return to your broker, custodian bank or other
nominee the form entitled “Beneficial Owners Election Form.” You
should receive this form from your broker, custodian bank or other nominee
with
the other rights offering materials. If you wish to obtain a separate rights
certificate, you should contact the nominee as soon as possible and request
that
a separate rights certificate be issued to you.
Instructions
for Completing your Rights Certificate(s)
You
should read and follow the instructions accompanying the rights certificate(s)
carefully.
If
you
want to exercise your subscription rights, you should send your rights
certificate(s) with your basic subscription price payment to the Subscription
Agent at the addresses indicated above. A self-addressed envelope is
provided with this Prospectus which you may use if you send the rights
certificate and payment by mail. Do not send your rights certificate(s) or
subscription price payment to us.
YOU
ARE
RESPONSIBLE FOR THE METHOD OF DELIVERY OF YOUR RIGHTS CERTIFICATE(S) WITH YOUR
SUBSCRIPTION PRICE PAYMENT TO THE SUBSCRIPTION AGENT. If you send
your rights certificate(s) and subscription price payment by mail, we recommend
that you send them by registered mail, properly insured, with return receipt
requested. You should allow a sufficient number of days to ensure
delivery to the Subscription Agent prior to the time the rights offering
expires.
Regulatory
Limitation
We
will
not be required to issue common shares to you pursuant to the rights offering
if, in our opinion, you would be required to obtain prior clearance or approval
from any state or federal regulatory authorities to own or control such shares
if, at the time the subscription rights expire, you have not obtained such
clearance or approval.
Procedures
for DTC Participants
If
you
are a participant in The Depository Trust Company, or DTC, and the shares you
own are held through DTC, we expect that your exercise of your basic
subscription rights and oversubscription rights may be made through the
facilities of DTC. Payment for each share subscribed for under the
basic subscription right must be made at the time the rights are
exercised. You will be obligated to pay for over-subscription shares
within five business days after receiving notice from us as to how many (if
any)
shares have been allocated to you under the over-subscription
rights.
Foreign
or Other Shareholders Located Outside the United States
Rights
certificates will be mailed to rights holders whose addresses are outside the
United States or who have an Army Post Office or Fleet Post Office
address. To exercise such subscription rights, you must notify the
Subscription Agent, and take all other steps that are necessary to exercise
your
subscription rights, on or prior to the
expiration
of the rights
offering. If the procedures set
forth in the preceding sentence are not followed prior to the expiration of
the
rights offering, your subscription rights will expire.
No
Board Recommendation
An
investment in our common shares must be made according to each investor’s
evaluation of its own best interests. Accordingly, our board of trustees is
not
making any recommendation as to whether you should exercise your subscription
rights. In making the decision to exercise or not exercise your
subscription rights, you must consider your own best interests. You
are urged to make your decision based on your own assessment of our business
and
the rights offering. Among other things, you should carefully
consider the risks that are described under the heading “
RISK FACTORS
.”
Common
Shares Outstanding after the Rights Offering
If
the
rights offering is fully subscribed, upon the issuance of the common shares
offered in the rights offering, 75,458,412 shares of common shares will be
issued and outstanding. This would represent an approximate 13.3%
increase in the number of common shares on the record date for the rights
offering and an approximate 10% increase assuming conversion of all Series
B-1
Preferred Shares.
Other
Matters
We
are
not making this rights offering in any state or other jurisdiction in which
it
is unlawful to do so, nor are we selling or accepting any offers to purchase
any
of our common shares from rights holders who are residents of those states
or
other jurisdictions. We may delay the commencement of the rights
offering in those states or other jurisdictions, or change the terms of the
rights offering, in order to comply with the securities law requirements of
those states or other jurisdictions. We may decline to make
modifications to the terms of the rights offering requested by those states
or
other jurisdictions, in which case, if you are a resident in those states or
jurisdictions you will not be eligible to participate in the rights
offering.
Fees
and Expenses
We
will
pay all fees charged by the Information Agent and the Subscription
Agent. You are responsible for paying any other commissions, fees,
taxes or other expenses incurred in connection with the exercise of the
subscription rights. Neither we, the Information Agent nor the
Subscription Agent will pay such expenses.
Issuance
of Share Certificates
Share
certificates for shares purchased in this rights offering through the exercise
of basic subscription rights will be issued as soon as practicable after the
expiration of the rights offering. Certificates representing the
over-subscription shares will be delivered as soon as practicable after the
expiration of the subscription period and after we have (1) made such
pro-rations as may be necessary in the event the over-subscription requests
exceed the number of remaining available shares in the rights offering, (2)
notified over-subscribing rights holders as to how many (if any) shares
over-subscribed have been allocated to them and (3) received payment for such
over-subscription shares from over-subscribing holders. Our
Subscription Agent, National City Bank, will deliver subscription payments
to us
only after consummation of this rights offering and the issuance of share
certificates to our shareholders that exercised rights and the issuance through
DTC of shares subscribed for through DTC.
We
have
appointed MacKenzie Partners, Inc. as Information Agent for the rights
offering. We will pay the fees and certain expenses of the
Information Agent, which we estimate will total $________. Under
certain circumstances, we may indemnify the Information Agent from certain
liabilities that may arise in connection with the rights offering.
Subscription
Agent
We
have
appointed National City Bank as Subscription Agent for the rights offering.
We
will pay the fees and certain expenses of the Subscription Agent, which we
estimate will total $_______. Under certain circumstances, we may
indemnify the Subscription Agent from certain liabilities that may arise in
connection with the rights offering.
IMPORTANT
PLEASE
CAREFULLY READ THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION CERTIFICATE AND
FOLLOW THOSE INSTRUCTIONS IN DETAIL. DO NOT SEND SUBSCRIPTION
CERTIFICATES DIRECTLY TO US. YOU ARE RESPONSIBLE FOR CHOOSING THE
PAYMENT AND DELIVERY METHOD FOR YOUR SUBSCRIPTION CERTIFICATE, AND YOU BEAR
THE
RISKS ASSOCIATED WITH SUCH DELIVERY. IF YOU CHOOSE TO DELIVER YOUR
SUBSCRIPTION CERTIFICATE AND PAYMENT BY MAIL, WE RECOMMEND THAT YOU USE
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. WE
ALSO RECOMMEND THAT YOU ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY
TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO ________,
2008. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR, WE STRONGLY URGE YOU TO PAY, OR ARRANGE FOR PAYMENT,
BY
MEANS OF CERTIFIED OR CASHIER’S CHECK OR MONEY ORDER.
If
You Have Questions
If
you
have questions or need assistance concerning the procedure for exercising
subscription rights, or if you would like additional copies of this prospectus
or the Instructions as to the Use of Rights Certificates, you should contact
the
Information Agent at the following address and telephone number:
105
Madison Avenue
New
York,
New York 10016
(212)
929-5500 (Call Collect)
or
Call
Toll-Free (800) 322-2885
Email:
proxy@mackenziepartners.com
The
following discussion is a summary of certain U.S. federal income tax
consequences of the rights offering to holders of common shares and Series
B-1
Preferred Shares who hold such shares as a capital asset for federal income
tax
purposes. This discussion is based on laws, regulations, rulings and
decisions in effect on the date of this prospectus, all of which are subject
to
change (possibly with retroactive effect) and to differing
interpretations. This discussion applies only to holders who are U.S.
persons, which is defined as a citizen or resident of the United States, a
domestic corporation, any estate the income of which is subject to U.S. federal
income taxation regardless of source, and any trust so long as a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the authority
to
control all substantial decisions of the trust, or if it has a valid election
in
place to be treated as a U.S. person.
This
discussion does not address all aspects of federal income taxation that may
be
relevant to holders in light of their particular circumstances or to holders
who
may be subject to special tax treatment under the Internal Revenue Code of
1986,
as amended, including holders of options or warrants, holders who are dealers
in
securities or foreign currency, foreign persons (defined as all persons other
than U.S. persons), insurance companies, tax-exempt organizations, banks,
financial institutions, broker-dealers, holders who hold stock as part of a
hedge, straddle, conversion or other risk reduction transaction, or who acquired
stock pursuant to the exercise of compensatory stock options or warrants or
otherwise as compensation. In the case of a holder that is an entity treated
as
a partnership for U.S. federal income tax purposes, the treatment of its
partners generally will depend upon the status of the partner and the activities
of the partnership.
We
have
not sought, and will not seek, an opinion of counsel or a ruling from the
Internal Revenue Service regarding the federal income tax consequences of the
rights offering or the related share issuance. The following summary
does not address the tax consequences of the rights offering or the related
share issuance under foreign, state, or local tax laws. Accordingly,
we urge each holder of our common shares and Series B-1 Preferred Shares to
consult his or its own tax advisor with respect to the particular tax
consequences to such holder of the rights offering and the exercise of the
subscription rights, including state and local tax consequences.
Holders
of Common Shares
The
federal income tax consequences to a holder of common shares on the receipt
of
subscription rights under the rights offering should be as follows:
|
·
|
A
holder should not recognize taxable income for federal income tax
purposes
in connection with the receipt of subscription rights in the rights
offering.
|
|
·
|
Except
as provided in the following sentence, the tax basis of the subscription
rights received by a holder in the rights offering should be
zero. If either (a) the fair market value of the subscription
rights on the date such subscription rights are distributed is equal
to
15% or greater of the fair market value on such date of the common
shares
with respect to which the subscription rights are received or (b)
the
holder irrevocably elects, by attaching a statement to his or its
federal
income tax return for the taxable year in which the subscription
rights
are received, to allocate part of the tax basis of the holder’s common
shares to the subscription rights, then upon exercise of the subscription
rights, the holder’s tax basis in the common shares should be allocated
between the common shares and the subscription rights in proportion
to
their respective fair market values on the date the subscription
rights
are distributed.
|
|
·
|
A
holder who allows the subscription rights received in the rights
offering
to expire should not recognize a tax loss, and the tax basis of the
common
shares owned by such holder with respect to
which
such subscription rights were distributed should be equal to the
tax basis
of such common shares immediately before the receipt of the subscription
rights in the rights
offering.
|
|
·
|
A
holder should
not recognize any gain or loss upon the
exercise of the subscription rights received in the rights
offering.
|
|
·
|
The
tax basis of the common shares acquired through exercise of the
subscription rights should equal the sum of the subscription price
for the
common shares and the holder’s tax basis, if any, in the subscription
rights as described above.
|
|
·
|
The
holding period for the common shares acquired through exercise of
the
subscription rights should begin on the date the subscription rights
are
exercised.
|
Holders
of Series B-1 Preferred Shares
The
federal income tax consequences to a holder of Series B-1 Preferred Shares
on
the receipt of subscription rights under the rights offering should be as
follows:
|
·
|
A
holder should be treated as receiving a distribution in an amount
equal to
the fair market value of the subscription rights that it
receives.
|
|
|
To
the extent that the distribution is made out of our earnings and
profits,
it will be a taxable dividend to the holder. If the amount of
the distribution received by the holder exceeds the holder’s proportionate
share of our earnings and profits, the excess will reduce the holder’s tax
basis in the Series B-1 Preferred Shares that it holds, and to
the extent
that the excess is greater than the holder’s tax basis in its shares, it
will be treated as gain from the sale of the Series B-1 Preferred
Shares. If the holder has held the applicable Series B-1
Preferred Shares for more than one (1) year, the gain should be
treated as
long-term capital gain.
|
|
|
A
holder’s tax basis in the subscription rights that it receives should
equal the fair market value of the subscription rights on the date
of the
distribution.
|
|
|
A
holder who allows the subscription rights received in the rights
offering
to expire generally should recognize a capital loss, the deductibility
of
which would be subject to applicable tax law
limitations.
|
|
|
A
holder should not recognize any gain or loss upon the exercise
of the
subscription rights received in the rights
offering.
|
|
|
The
tax basis of the common shares acquired through exercise of the
subscription rights should equal the sum of the subscription price
for the
common shares and the holder’s tax basis in the subscription rights as
described above.
|
|
|
The
holding period for the common shares acquired through exercise
of the
subscription rights should begin on the date the subscription rights
are
exercised.
|
Price
Range of Common Stock
Our
common shares trade on the NYSE under the symbol “FUR”.
On
January 22, 2008, the last day prior to the initial filing of the registration
statement relating to the proposed rights offering of which this prospectus
forms a part, the closing price of our common shares on the NYSE was $5.33
per
share. On _____, 2008, the date prior to the date of this
Prospectus, the closing price of our common shares on the New York Stock
Exchange was $_______ per share.
The
following table sets forth the high and low sales prices per common share on
the
New York Stock Exchange for the quarterly periods indicated:
|
High
|
Low
|
Dividends
Declared
|
Year
Ended December 31, 2006:
|
|
|
|
First
Quarter
|
$5.75
|
$5.16
|
|
Second
Quarter
|
$6.27
|
$5.14
|
|
Third
Quarter
|
$6.79
|
$5.86
|
$0.18
(1)
|
Fourth
Quarter
|
$6.99
|
$5.95
|
$0.12
(2)
|
|
|
|
|
Year
Ended December 31, 2007:
|
|
|
|
First
Quarter
|
$6.99
|
$6.24
|
$0.06
(3)
|
Second
Quarter
|
$7.19
|
$6.32
|
$0.06
(3)
|
Third
Quarter
|
$7.30
|
$4.85
|
$0.65
(3)
|
Fourth
Quarter
|
$6.84
|
$4.88
|
$0.245
(4)
|
(1)
Represents
a
regular dividend of $0.06 per quarter for the first three quarters of
2006.
(2)
Includes
a
regular dividend of $0.06 and a special dividend of $0.06 on our common
shares.
(3)
Represents
a
regular dividend.
(4)
Includes
a
regular dividend of $0.065 and a special dividend of $0.18 on our common
shares.
The
approximate number of holders of record of our common shares as
of December 31, 2007 was 1,691.
Dividends
In
order
to maintain our status as a real estate investment trust (REIT), we generally
must pay dividends to our common and preferred shareholders equal to at least
90% of our REIT taxable income each year, excluding taxable income.
Common
Shares
The
following summary of the material terms and provisions of our common shares
does
not purport to be complete and is subject to the detailed provisions of our
declaration of trust and our bylaws, each of which is incorporated by reference
into this prospectus. You should carefully read each of these
documents in order to fully understand the terms and provisions of our common
shares. For information on incorporation by reference, and how to
obtain copies of these documents, see the sections entitled
“WHERE YOU CAN FIND MORE
INFORMATION”
on page 54 of this prospectus and
“INCORPORATION OF CERTAIN
DOCUMENTS
BY REFERENCE”
on page 54 of this prospectus.
General
We
are
authorized to issue an unlimited number of common shares. As of January 16,
2008
there were 66,613,376 common shares outstanding. All our
common shares are entitled to participate equally in any distributions thereon
declared by us. Subject to the provisions of our bylaws regarding
excess securities and the provisions of our preferred shares described below,
each outstanding common share entitles the holder to one vote on all matters
voted on by shareholders. Shareholders have no preemptive rights. The
outstanding common shares are fully paid and non-assessable and have equal
liquidation rights. The common shares are fully transferable except
that their issuance and transfer may be regulated or restricted by us in order
to assure our qualification for taxation as a REIT. See
“-- Restriction on Size of
Holdings.”
The common shares are not redeemable at our option
or at the option of any shareholder. Our board of trustees is generally
authorized without shareholder approval to borrow money and issue obligations
and equity securities which may or may not be convertible into common shares
and
warrants, rights or options to purchase common shares; and to issue other
securities of any class or classes which may or may not have preferences or
restrictions not applicable to our common shares. The issuance of
additional common shares or such conversion rights, warrants or options may
have
the effect of diluting the interest of shareholders. Annual meetings of the
shareholders are held on the second Tuesday of the fourth month following the
close of each fiscal year at such place as the trustees may from time to time
determine. Special meetings may be called at any time and place when
ordered by a majority of the trustees, or upon written request of the holders
of
not less than 25% of the outstanding common shares.
Shareholder
Liability
Our
declaration of trust provides that no shareholder shall be personally liable
in
connection with our property or affairs, and that all persons shall look solely
to our property for satisfaction of claims of any nature arising in connection
with our affairs.
Under
present Ohio law, no personal liability will attach to our shareholders, but
with respect to tort claims, contract claims where liability of shareholders
is
not expressly negated, claims for taxes and certain statutory liabilities,
our
shareholders may in some jurisdictions other than the State of Ohio be held
personally liable to the extent that such claims are not satisfied by us, in
which event the shareholders would, in the absence of negligence or misconduct
on their part, be entitled to reimbursement from our general
assets. We carry comprehensive general liability insurance in a form
typically available in the marketplace which our trustees consider
adequate. To the extent our assets and insurance would be
insufficient to reimburse a shareholder who has been required to pay a claim
against us, the shareholder would suffer a loss. The statements in
this paragraph and the previous paragraph also apply to holders of our preferred
shares of beneficial interest, although any possible liability of such holders
would be further reduced by the greater limitations on their voting
power.
Subject
to the provisions of our bylaws regarding restrictions on transfer and ownership
of common stock, you will have one vote per share on all matters submitted
to a
vote of shareholders. Shareholders are currently granted the right by
a majority vote or a supermajority vote, as the case may be, (i) to elect
trustees, (ii) to approve or disapprove certain transfers of our assets or
mergers involving us, (iii) to approve or disapprove amendments to our
declaration of trust, (iv) when removal is proposed by all other trustees,
to
approve removal of any trustee, (v) to waive the ownership limit (see
“Restriction on Size of Holdings,” below) if greater than a majority but less
than 70% of the trustees approve such waiver and (vi) to approve our incurrence
of indebtedness in excess of 83.33% of the value of our assets. We
have no fixed duration and will continue indefinitely, unless terminated as
provided in our declaration of trust.
As
described below under
“Description of our Preferred
Shares”
, the holders of our preferred shares have voting rights on
various matters. These include the right of holders of our Series B-1
Shares to elect one trustee and an additional right to elect one-third of the
trustees if we fail to comply with specific provisions of the certificate of
designations for the Series B-1 Preferred Shares. We are also
required to obtain the approval of preferred shareholders if we seek to take
specific actions that are also described below.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common shares is National City
Bank.
Restriction
on Size of Holdings
Our
bylaws restrict beneficial or constructive ownership of our outstanding capital
stock by a single person, or persons acting as a group, to 9.8% of our common
shares, which limitation assumes that all securities convertible into our common
shares owned by such person or group of persons have been
converted. The purpose of these provisions is to protect and preserve
our REIT status. For us to qualify as a REIT under the Code, not more than
50%
in value of our outstanding capital stock may be owned by five or fewer
individuals (as defined in the Code) at any time during the last half of our
taxable year. The provision permits five persons each to acquire up
to a maximum of 9.8% of our common shares, or an aggregate of 49% of the
outstanding common shares, and thus, assists our trustees in protecting and
preserving REIT status for tax purposes.
Unless
the board waives the restrictions or approves a bylaw amendment, common shares
owned by a person or group of persons in excess of 9.8% of our outstanding
common shares are not entitled to any voting rights; are not considered
outstanding for quorum or voting purposes; and are not be entitled to dividends,
interest or any other distributions with respect to the
securities. Waivers or bylaw amendments have been granted or approved
for (i) FUR Investors LLC which can hold up to 33% or our common and preferred
shares, and (ii) certain of the holders of our Series B-1 Preferred Shares.
In
each case we conditioned the waivers and amendments on compliance with
additional requirements designed to preserve our REIT status.
Our
declaration of trust provides that the share ownership limit contained in the
bylaws may be amended from time to time with the approval of either (i) 70%
of
the trustees then in office or (ii) a majority of the trustees then in office
and the approval of at least 70% of the holders of our outstanding common
shares.
Trustee
Liability
Our
declaration of trust provides that our trustees will not be individually liable
for any obligation or liability incurred by or on our behalf or by trustees
for
our benefit and on our behalf. Under our declaration of
trust
and
Ohio
law respecting business trusts, trustees are not liable to us or to our
shareholders for any act or omission except for acts or omissions which
constitute bad faith, willful misfeasance, gross negligence or reckless
disregard of duties to us and our shareholders.
The
following summary of the material terms and provisions of our preferred shares
does not purport to be complete and is subject to the detailed provisions of
our
declaration of trust, including any applicable articles supplementary, amendment
or annex to our declaration of trust designating the terms of a series of
preferred shares, and our bylaws, each of which is incorporated by reference
into this prospectus. You should carefully read each of these
documents in order to fully understand the terms and provisions of our preferred
shares. For information on incorporation by reference, and how to obtain copies
of these documents, see the sections entitled
“WHERE YOU CAN FIND MORE
INFORMATION”
on page 54 of this prospectus and
“INCORPORATION OF CERTAIN
DOCUMENTS
BY REFERENCE”
on page 54 of this prospectus.
General
Subject
to limitations as may be prescribed by Ohio law and our bylaws and declaration
of trust, our board of trustees is authorized to issue without the approval
of
our shareholders, preferred shares in series and to establish from time to
time
the number of preferred shares to be included in such series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and
conditions of redemption of the shares of each such series. We
currently have outstanding Series B-1 Cumulative Convertible Redeemable
Preferred Shares of beneficial interest, $1.00 par value, which we refer to
as
the Series B-1 Preferred Shares. Please see “Terms of Our Series B-1 Preferred
Stock” below for more information of the terms of our Series B-1 Preferred
Stock.
Terms
of Our Series B-1 Preferred Shares
General
In
February and June 2005 we issued 4,000,000 of our Series B-1 Preferred Shares
and there are currently outstanding 3,930,657 Series B-1 Preferred
Shares. The Series B-1 Preferred Shares are not listed for trading on
any securities exchange or national quotation market. The following
description sets forth certain general terms and provisions of the Series B-1
Preferred Shares. The statements below describing the Series B-1
Preferred Shares do not purport to be complete and are in all respects subject
to, and qualified in their entirety by reference to, the respective terms and
provisions of the certificate of designations authorizing the Series B-1
Preferred Shares, our declaration of trust and our bylaws. Each Series B-1
Preferred Share has a $25.00 liquidation preference.
Rank
Our
Series B-1 Preferred Shares are senior to our common shares and all other
preferred stock and other equity securities as to the payment of dividends
and
distributions of assets on liquidation, dissolution or winding up. We refer
below to all shares ranking on a parity with our Series B-1 Preferred Shares
as
parity shares and all shares ranking junior to our Series B-1 Preferred Shares
as junior shares.
Distributions
Holders
of our Series B-1 Preferred Shares are entitled to receive, when, as and if
declared by our board of trustees, out of funds legally available for the
payment of distributions, cumulative preferential cash distributions
in
an
amount per share equal to the
greater of $1.625 per share per
annum which is equivalent to 6.5% of the liquidation preference per annum,
or
the cash distributions on our common shares into which a Series B-1 Preferred
Share is convertible.
If
we
fail to redeem Series B-1 Preferred Shares as described under “Redemption”
below, then dividends will thereafter accrue on Series B-1 Preferred Shares
at a
rate 250 basis points higher than the distribution rate described
above. Once we are again in compliance with our applicable
obligations, the dividend rate will revert back to the rate described
above.
Distributions
on our Series B-1 Preferred Shares accrue whether or not we have earnings,
whether or not there are funds legally available for the payment of
distributions and whether or not distributions are declared. Accrued but unpaid
distributions on our Series B-1 Preferred Shares do not bear
interest. Holders of the Series B-1 Preferred Shares are not entitled
to any distributions in excess of full cumulative distributions as described
above.
Unless
full cumulative distributions on our Series B-1 Preferred Shares have been
declared and paid or declared and an amount set apart for payment for all past
distribution periods and the then current distribution period, no distributions,
other than in common shares or other junior shares, will be declared or paid
or
set aside for payment upon the common shares or any other junior shares, nor
will any common shares or any other junior shares be redeemed, purchased or
otherwise acquired for any consideration, or any money paid for a sinking fund
for the redemption of any such shares.
When
distributions are not paid in full or set apart for payment on the Series B-1
Preferred Shares and any parity shares, all distributions declared on Series
B-1
Preferred Shares and any parity shares will be declared ratably in proportion
to
the respective amounts of dividends accumulated and unpaid on the Series B-1
Preferred Shares and unaccumulated and unpaid on such parity
shares.
Liquidation
Rights
Upon
any
voluntary or involuntary liquidation, dissolution or winding up of our affairs,
the holders of Series B-1 Preferred Shares will be entitled to receive their
liquidation preference before any distribution or payment is made to the holders
of any junior shares. The liquidation preference is $25.00 per share,
plus an amount equal to all accrued and unpaid distributions. After payment
of
the liquidation preference, the holders of Series B-1 Preferred Shares will
have
no right to any of our remaining assets.
If
liquidating distributions have been made in full to all holders of Series B-1
Preferred Shares and all other parity shares, our remaining assets will be
distributed among the holders of any other classes of junior shares, according
to their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, our consolidation or merger
with
or into any other entity, the sale, lease or conveyance of all or substantially
all of our property or business or a statutory share exchange will not be deemed
to constitute our liquidation, dissolution or winding up.
Redemption
All
Series B-1 Preferred Shares that are outstanding on February 28, 2012 will
be
redeemed for their liquidation preference of $25.00 per share, plus all accrued
and unpaid distributions.
In
the
event of a “compliance failure”, which we define below, each holder of Series
B-1 Preferred Shares will have the right to require us to redeem all or any
portion of their Series B-1 Preferred Shares at a price per share equal to
the
higher of 150% of the liquidation preference of such Series B-1 Preferred Shares
if such redemption
The
occurrence of any of the following events will be considered a “compliance
failure”:
(1)
the
sale, lease or conveyance to a third party of substantially all our assets,
our
consolidation or merger with or into another entity if the holders of our voting
securities do not hold a majority of the voting securities of the surviving
entity or if Michael Ashner, our chief executive officer, does not continue
to
serve as chief executive officer or of the surviving entity, or the sale in
a
single transaction or series of related transactions of a majority of our issued
and outstanding common shares;
(2)
the
departure or termination, whether voluntarily or involuntarily, of Michael
Ashner, other than in the event of his death or disability, or a breach by
Mr.
Ashner of his services agreement with us;
(3)
any
delay in the audit of our consolidated annual financial statements for a given
fiscal year for more than 180 calendar days after the end of such fiscal
year;
(4)
our
failure to file required reports or forms under the Sarbanes-Oxley Act of 2002;
and
(5)
our
failure to quality as a REIT or the delisting or our common shares by the
NYSE.
We
refer
to the events described above in clause (1) as a “change of control”. If a
change of control takes place within 12 months after the death or disability
of
Michael Ashner, then each holder of Series B-1 Preferred Shares will also have
the right to require us to redeem their Series B-1 Preferred Shares at 100%
or
their liquidation preference.
Voting
Rights
Except
as
indicated below, or except as otherwise from time to time required by applicable
law, the holders of Series B-1 Preferred Shares have no voting
rights.
So
long
as at least 1,000,000 of the Series B-1 Preferred Shares are outstanding, the
holders of Series B-1 Preferred Shares will be entitled to elect one trustee
to
serve on the board of trustees. Any trustee proposed to be elected by
the holders of Series B-1 Preferred Shares must meet the requirements of the
NYSE for independent directors.
Upon
the
occurrence of a “governance default”, which we define below, our board of
trustees will be increased and the holders of Series B-1 Preferred Shares,
voting as a class, will be entitled to elect additional trustees, such that
the
number of trustees elected by the holders of Series B-1 Preferred Shares upon
the occurrence of a governance default will equal one-third of the total number
of trustees. The additional trustees elected upon a governance
default will serve for so long as the governance default continues. A
“governance default” will have occurred if (i) we fail to declare and pay
dividends on the Series B-1 Preferred Shares following payment of dividends
on
common shares, (ii) we default on our obligations under certain agreements
we
entered into with the original holders of Series B-1 Preferred Shares (see
“Agreements with Initial Holders of Series B-1 Preferred Shares” below), (iii)
we fail to effect any required redemption of our Series B-1 Preferred Shares
(see “Redemption”, above) or (iv) the aggregate fair market value of our common
shares falls below $71,200,000.
The
approval of two-thirds of the outstanding Series B-1 Preferred Shares, voting
as
a single class, is required in order to:
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amend
our declaration of trust
, bylaws or the Series B-1
Preferred Shares certificate of designations to adversely affect
the
rights, preferences or voting power of the holders of the Series
B-1
Preferred Shares;
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enter
into a share exchange that affects the Series B-1 Preferred Shares,
permit
us to consolidate with or merge into another entity, or permit another
entity to consolidate with or merge into us, unless in each such
case each
Series B-1 Preferred Share remains outstanding without any adverse
change
to its terms and rights or is converted into or exchanged for convertible
preferred stock of the surviving entity having preferences, conversion
and
other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms or conditions of redemption
identical to that of a Series B-1 Preferred Share except for changes
that
do not adversely affect the holders of the Series B-1 Preferred
Shares;
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authorize,
reclassify, create or increase the authorized amount of any class
of
shares of beneficial interest having rights senior to or pari passu
with
the Series B-1 Preferred Shares as to distributions or in the distribution
of assets. However, we may create additional classes of shares ranking
junior to the Series B-1 Preferred Shares as to distributions or
in the
distribution of assets, increase the authorized number of junior
shares
and issue additional series of junior shares without the consent
of any
holder of Series B-1 Preferred
Shares;
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take
any action that would substantially alter our business;
or
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redeem
or purchase common shares, parity shares or junior shares other than
certain purchases of Series B-1 Preferred Shares, or purchases of
common
shares in any dividend period at an aggregate purchase price, which
when
added to the distributions paid on our common shares for such dividend
period, does not exceed the sum of the amount paid to purchase common
shares and the amount paid as distributions on the common shares
for the
immediately preceding dividend period. Any purchase of Series B-1
Preferred Shares must be made in an offer to all holders of those
shares
if the purchase is made at a time when the share issuable on conversion
of
those shares have not been registered under the Securities Act of
1933.
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In
the
event of a change of control referred to above under “--Redemption” or in the
event of a vote of holders of common shares on a matter that relates to the
potential dilution of the Series B-1 Preferred Shares, or in the event that
we
propose to issue common shares, and a vote of the holders of common shares
is
required under applicable law to effect such issuance, the Series B-1 Preferred
Shares will have the right to vote with the common shares as a class on all
matters on which a vote of common shares is taken, with each holder of Series
B-1 Preferred Shares entitled to one vote for every common share issuable upon
conversion of such holder’s Series B-1 Preferred Shares.
Conversion
Rights
Our
Series B-1 Preferred Shares are convertible, in whole or in part, at any time,
unless previously redeemed, at the option of the holders, into common shares
at
a conversion price of $4.50 per common share which means that 5.556 common
shares would be issuable for each Series B-1 Preferred Share. This conversion
price is subject to adjustment as described below. See “--Conversion Price
Adjustments.” The right to convert Series B-1 Preferred Shares called for
redemption will terminate at the close of business on the redemption date for
such Series B-1 Preferred Shares.
The
conversion price is subject to adjustment upon certain events,
including:
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distributions
payable in common shares;
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the
issuance to all holders of common shares of certain rights, options
or
warrants entitling them to subscribe for or purchase common shares
at a
price per share less than the fair market value per common share
which, as
defined, includes an adjustment for underwriting commissions avoided
in
rights offerings to
shareholders;
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subdivisions,
combinations and reclassifications of common
shares;
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distributions
to all holders of common shares of any of our capital stock, other
than
common shares, evidences of our indebtedness or assets, including
securities, but excluding cash dividends required in order to satisfy
distribution requirements to maintain our status as a REIT under
Section
856 of the Code, and those rights, warrants and distributions referred
to
above;
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payment
in respect of a tender or exchange offer made by us or any subsidiary
of
ours for common shares if the cash and value of any other consideration
included in such payment per common share as determined by our
board of
trustees exceeds the current market price per common share on the
trading
day next succeeding the last date tenders or exchanges may be made
pursuant to such tender or exchange offer;
and
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below
market issuances of common shares or securities convertible into
common
shares other than pursuant to certain firm commitment underwritten
public
offerings.
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However,
no adjustment to the conversion price will be made on account of (i) issuances
of common shares pursuant to dividend reinvestment plans, (ii) issuances of
common shares upon exercise of stock options granted under certain equity
compensation plans, (iii) issuances of common shares as consideration for our
acquisition of real property, real estate related assets or a business, (iv)
issuances of common shares in redemption of units in our operating partnership,
(v) issuances of common shares upon exercise of convertible securities that
were
outstanding on the date the Series B-1 Preferred Shares were issued or (vi)
issuances of common shares upon conversion of Series B-1 Preferred
Shares.
Mandatory
Conversion
We
can
require holders of Series B-1 Preferred Shares to convert their Series B-1
Preferred Shares into common shares if, at any time after February 28, 2008
(i)
the market price for common shares for any consecutive 20 trading-day period
beginning with the date we mail the mandatory conversion notice and ending
on
the 25th trading day following our mailing of the mandatory conversion notice
equals or exceeds 125% of the conversion price and (ii) there exists at such
time a currently effective registration statement covering the resale of common
shares issuable upon conversion of Series B-1 Preferred Shares.
Restrictions
on Ownership
The
certificate of designations contains certain provisions restricting the amount
of our equity securities that any holder of Series B-1 Preferred Shares can
own
in the aggregate and restricting certain transfers of our equity securities
by
holders of Series B-1 Preferred Shares. The purpose of these provisions is
to
protect and preserve our REIT status.
Agreements
with Initial Holders of Series B-1 Preferred Shares
At
the
time of our initial issuance of Series B-1 Preferred Shares we entered into
an
Investor Rights Agreement and a Registration Rights Agreement with the initial
investors in Series B-1 Preferred Shares. The Investor Rights
Agreement grants the investors preemptive rights with respect to future
issuances of our securities, a co-investment right enabling them to participate
in certain future investments we make, tag-along rights, drag-along rights
in
the event of a sale of substantially all of our securities and certain other
rights. The Registration Rights Agreement required us to register the
resale of the common shares issuable upon conversion of the Series B-1 Preferred
Shares on or before February 28, 2007 (which we have done pursuant to separate
registration statements) and permits the investors to participate in certain
of
our registered offerings.
PLAN
OF DISTRIBUTION
We
are
offering shares of our common shares pursuant to this rights offering directly
to holders of our common shares and holders of our Series B-1 Series Preferred
Shares on the record date. We have not employed any brokers, dealers
or underwriters in connection with the solicitation or exercise of subscription
privileges in this offering and no commissions, fees or discounts will be paid
in connection with it. Certain of our officers and other employees
may solicit responses from you, but such officers and other employees will
not
receive any commissions or compensation for such services other than their
normal employment compensation.
We
will
pay the fees and expenses of National City Bank and MacKenzie Partners, Inc.,
as
subscription agent and information agent, respectively, and have agreed to
indemnify the subscription agent and the information agent from any liability
it
may incur in connection with this offering.
On
or
about _________, 2008, we will distribute the rights and copies of this
prospectus to the holders of record of our common shares and Series B-1
Preferred Shares as of the record date. If you wish to exercise your rights
and
subscribe for new common shares, you should follow the procedures described
under
“THE RIGHTS OFFERING -
How to Exercise Your Rights.”
The rights generally are
non-transferable; please see
“THE RIGHTS OFFERING -
Non-transferability of the Subscription Rights.”
Common
shares sold in this offering will, like our currently outstanding common shares,
be listed on the NYSE under the symbol “FUR”.
EXPERTS
The
financial statements, the related financial statement schedule, and management’s
report on the effectiveness of internal control over financial reporting
incorporated in this prospectus by reference from Winthrop Realty Trust’s Annual
Report on Form 10-K (as amended by Amendment No. 1 thereto on Form 10-K/A filed
on January 7, 2008) for the year ended December 31, 2006, have been audited
by
Deloitte & Touche LLP, an independent registered public accounting firm, as
stated in their reports (which reports include an explanatory paragraph related
to the restatement discussed in Note 21), which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.
Certain
legal matters, including the legality of the securities offered hereby, have
been passed upon by Hahn Loeser & Parks LLP.
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the informational requirements of the Securities Exchange Act of
1934
which requires us to file reports and other information with the Securities
and
Exchange Commission. You can inspect and copy reports, proxy
statements and other information filed by us at the Public Reference Room
maintained by the SEC at 100 F Street, N.E., Washington, D.C.
20549.
You
can
obtain information on the operation of the Public Reference Room by calling
the
SEC at 1-800-SEC-0330. You can obtain copies of this material by mail from
the
Public Reference Room of the SEC at Room 1580, 100 F Street, N.E., Washington,
D.C. 20549, at prescribed rates. You can also obtain such reports,
proxy statements and other information from the web site that the SEC maintains
at
http://www.sec.gov
.
Reports,
proxy statements and other information concerning us may also be obtained
electronically at our website, http://www.winthropreit.com and through a variety
of databases, including, among others, the SEC’s Electronic Data Gathering and
Retrieval (“EDGAR”) program, Knight-Ridder Information Inc., Federal Filing/Dow
Jones and Lexis/Nexis.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
SEC
allows us to “incorporate by reference” the information we file with them, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is considered to
be
part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we will make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934,
as amended, which is commonly referred to as the Exchange Act:
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Annual
Report on Form 10-K for the year ended December 31, 2006 (as amended
by
Amendment No. 1 thereto on Form 10-K/A filed on January 7,
2008);
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Definitive
Proxy Statement on Schedule 14A filed on March 30,
2007;
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Quarterly
Report on Form 10-Q for the period ended March 31,
2007;
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Quarterly
Report on Form 10-Q for the period ended June 30,
2007;
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Quarterly
Report on Form 10-Q for the period ended September 30,
2007;
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Current
Reports on Form 8-K filed on March 23, 2007 (as amended on April
2, 2007),
April 2, 2007, May 11, 2007, May 31, 2007, June 18, 2007, June
22, 2007,
June 28, 2007, July 17, 2007, August 9, 2007, September 17, 2007,
September 27, 2007, November 8, 2007, November 13, 2007, December
26, 2007
and January 8, 2008.
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You
may
request a copy of these filings, at no cost, by writing or telephoning us at
the
following address:
Winthrop
Realty Trust
7
Bulfinch Place, Suite 500
Boston,
MA 02114
(617)
570-4614
This
prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations
provided in or incorporated by reference into this prospectus. We
have not authorized anyone else to provide you with different
information. You should not assume that the information in this
prospectus or any supplement is accurate as of any date other than the date
on
the front of those documents.
No
dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this prospectus in connection with the offer made
by this prospectus, and, if given or made, such information or representations
must not be relied upon as having been authorized by us. This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy any security other than the securities offered hereby, nor does it
constitute an offer to sell or a solicitation of any offer to buy any of the
shares offered by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation
is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation.
Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein
is
correct as of any time subsequent to the date hereof.
The
date
of this prospectus is ,
2008.
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution.
Set
forth
below is an estimate of the approximate amount of the fees and expenses (other
than underwriting discounts and commissions) incurred in connection with the
sale and distribution of the securities being registered hereby. All amounts
are
estimated except the Commission registration fee:
Securities
and Exchange Commission registration fee
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$1,759
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Subscription
Agent and Information Agent Fees
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*
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NYSE
Listing Fee
|
*
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Printing
and engraving costs
|
*
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Accounting
fees and expense
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*
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Legal
fees and expenses
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*
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Miscellaneous
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*
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TOTAL
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$
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__________