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,” “will,” “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. Such forward-looking statements are dependent on assumptions, data
or methods that may be incorrect or imprecise and they may be incapable of being
realized. Such 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, which we refer to as the
Code;
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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
” below 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.
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, which we refer to as the SEC, using a “shelf”
registration process. You should read this prospectus and the applicable
prospectus supplement together with the additional information described under
the heading “
WHERE YOU CAN FIND
MORE INFORMATION
” in this prospectus. The registration statement that
contains this prospectus and the exhibits to that registration statement contain
additional important information about us and the securities offered under this
prospectus. Specifically, we have filed certain legal documents that control the
terms of the securities offered by this prospectus as exhibits to the
registration statement. We will file certain other legal documents that control
the terms of the securities offered by this prospectus as exhibits to reports we
file with the SEC. That registration statement and the other reports can be read
at the SEC website or at the SEC offices mentioned under the heading “
WHERE YOU CAN FIND MORE
INFORMATION
.” All references to “the trust,” “we,” “our” and “us” in this
prospectus mean Winthrop Realty Trust and all entities owned or controlled by us
except where it is made clear that the term means only the parent company. The
term “you” refers to a prospective investor.
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 FUR Advisors LLC, who
we refer to as FUR Advisor or our advisor. 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, provides us with additional
flexibility when acquiring 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.
We are
engaged in the business of owning real property and real estate related assets
which we categorize into three operating segments: (i) the ownership of
investment properties which we refer to as operating properties; (ii) the
origination and acquisition of loans and debt securities secured directly or
indirectly by commercial and multi-family real property, which we refer to as
loan assets and loan securities, including collateral mortgage-backed
securities, which we refer to as CMBS, and collateral debt obligations, which we
refer to as CDO’s; and (iii) the ownership of equity and debt securities in
other REITs, which we refer to as REIT securities.
As of
June 30, 2009, we held interests in properties containing approximately 9.5
million square feet of rentable space, owned either directly by us or through
joint ventures. We also held loan assets and loan securities totaling
$106,167,000, which consists primarily of our investment in the Marc Realty
portfolio. In addition, we held REIT securities valued at $53,967,000
and cash and cash equivalents of approximately $20,469,000. As
of June 30, 2009, we had written down our investment in Lex-Win Concord LLC,
which we refer to as Concord, to zero for financial statement purposes but we
are continuing efforts towards an equity recovery.
Our
executive offices are located at 7 Bulfinch Place, Suite 500, Boston,
Massachusetts 02114-9507 and Two Jericho Plaza, Jericho, New York
11753. Our telephone numbers are (617) 570-4614 and (516) 822-0022
and our website is located at
http:/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.
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 as well as a number of risks involved in our investment policy that
not all REITs may have. Material factors that may adversely affect
our business operations and financial conditions are summarized
below. As used in this Risk Factors section and except as expressly
provided otherwise, references to the terms “we”, “our” or “us” include both the
trust and its ventures, including Concord.
As of
June 30, 2009, we had approximately $20,469,000 of cash and cash equivalents
available for investment. Our ability to generate increased revenues
is dependent upon our ability to grow our asset base by investing these funds,
as well as additional funds which we may raise or borrow, 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 of which may have a lower cost of funds and access to funding sources that
are not available to us.
Investing
through ventures presents additional risks.
Our
investments in ventures present additional risks such as our having differing
objectives than our partners from time to time or the entities in which we
invest or our becoming involved in disputes or possibly competing with those
persons in investments unrelated to our joint venture. 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 and may acquire additional ownership interests in private companies
not subject to the reporting requirements of the SEC. Investments in
private businesses involve a higher degree of business and financial risk, which
can result in substantial losses and accordingly should be considered
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.
Many
of our investments are illiquid, and we may not be able to adjust 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, loan assets, loan 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 may limit our ability to
sell investments. These considerations could make it difficult for us to dispose
of properties, even if a disposition were in the best interest of our
shareholders. As a result, our ability to adjust 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 our preferred and
common shares may be reduced to the extent that changes in market conditions
make new borrowings or refinancing of existing debt difficult or even impossible
or cause the cost of our financings 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. 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 credit facilities. 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 operating strategy either voluntarily or as result of
the severe downturn in the economy, 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, our current investments. 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 share price and our
ability to make distributions.
Interest
rate fluctuations may reduce our investment return.
Certain
of our loan obligations or loan assets have floating interest
rates. In such cases, an increase in interest rates would increase
our loan obligations while a decrease in interest rates would decrease the
interest received on our loan assets. Where possible we seek to
mitigate these risks by acquiring interest rate cap agreements, rate collars and
other similar protections. To the extent we have not mitigated these
risks or our actions are ineffective, a fluctuation in interest rates could
negatively impact our cash flow due to an increase in loan obligations or a
decrease in interest received on our loan assets.
We
engage in hedging transactions that may limit gains or result in
losses.
We
have and may continue to use 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. Further, we have and could
continue to recognize losses on a hedge position which reduces the cash
available for distribution. In addition, we run the risk of default
by a counterparty to a hedging arrangement
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. If we are
required to make investments in order to be exempt from registration, such
investments 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.
As a
REIT, we are dependent primarily on external financing to fund the growth of our
business because one of the requirements for a REIT is that it distribute at
least 90% of its net taxable income, excluding net capital gains, to its
shareholders. Accordingly, to the extent we are unable to obtain debt
or equity financing it will likely 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
have significant distribution obligations to holders of our Series B-1 preferred
shares.
The
provisions of our Series B-1 preferred shares currently require us to make
annual distributions presently aggregating approximately $2,268,500 before any
distributions may be made on our common shares.
Our
ratio of total debt to total entity value may increase.
If our
ratio of total debt to total entity value (total market equity value of our
common and preferred shares plus debt) increases, it may increase the risk of
default on our loan-debt obligations and limit our ability to obtain additional
equity or debt financing, either of which would adversely affect our financial
condition and results of operations.
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. Our credit facilities contain, and other loans
that we may obtain in the future contain, customary restrictions, requirements
and other limitations on our ability to incur indebtedness. These
restrictions can include, among other things, a limitation on 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 a requirement for us to maintain a certain level of
unencumbered assets to unsecured debt. Our ability to borrow under our credit
facility with KeyBank, National Association is subject to compliance with
certain other covenants including the absence of factors both within
and outside of our control which would cause a material adverse change in the
loan syndication, financial or capital market conditions. 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
funds from other sources which may not be available to us, or be available only
on unattractive terms. Concord is subject to similar risks with
respect to its credit facilities as well as the additional risks discussed
below.
Future
issuances and sales of equity or debt interests pursuant to an outstanding
registration statement may affect the market price of our common
shares.
The
actual issuance of additional common or preferred shares or the sale of debt
securities by us may decrease the market price of our 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 that
may restrict our operating flexibility.
Additional
issuances of common shares may negatively impact our dividend rate payable on
our common shares.
In
paying dividends on our common shares we endeavor to have our dividends track
cash flow from operations, both recurring and nonrecurring. Accordingly,
as we issue additional common shares, the per share dividend will likely
decrease until such time as we can deploy the proceeds from such issuance of
common shares in investments which increase our recurring and nonrecurring cash
flow.
Our
due diligence may not reveal all of the liabilities associated with a proposed
investment and may not reveal other weaknesses.
There
can be no assurance that due diligence by our advisor in connection with a new
investment will uncover all relevant facts which could adversely affect the
value of the investment or that the investment will be
successful.
We
may fail to remain qualified as a REIT, which would reduce the cash available
for distribution to our shareholders.
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 were to fail to maintain our qualification as a
REIT, we would not be able to 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. 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
might 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.
In
order to maintain our status as a REIT, we may be forced to borrow funds or sell
assets during unfavorable market conditions.
As a
REIT, we 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 have 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 did 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, or our not meeting the NYSE’s requirements,
including those relating to the number of shareholders, the price of our common
shares and the 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 our common shares. Our
Board of Trustees has waived this ownership limitation on a number of
occasions. Unless the Board of Trustees 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 or a tender offer for our common
shares.
Any
one of a prolonged economic slowdown, a lengthy or severe recession or continued
instability in the credit market could harm our operations and
viability.
A
prolonged economic slowdown, a lengthy or severe recession and the continued
instability in the credit market has and will affect our operations and
viability in a number of ways including:
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Depressed
prices for our assets;
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Decreases
in interest income received or increases in interest expenses
paid;
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Fewer
potential purchasers for our
assets;
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Increased
risk of default on loan assets and loan
securities;
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Inability
to obtain new or replacement
financing;
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Inability
to sell additional debt or equity securities;
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Increased
likelihood of margin calls on Concord’s repurchase
facilities.
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Risks
incidental to the ownership and operation of real estate assets.
The value
of an investment in us depends upon our financial performance and the value of
our operating properties, 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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adverse
changes in general and local economic conditions which affect the demand
for real estate assets;
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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
floods 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.
Failure
to renew expiring leases could adversely affect our financial
condition.
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
any required renovations, may be less favorable than the current lease
terms. This risk is substantial with respect to our net leased
properties as single tenants lease 100% of each property. Nineteen of
our properties, containing an aggregate of approximately 2,896,000 square feet
of space are net leased to seven different tenants. Leases accounting
for approximately 16% of the aggregate annualized base rents from our operating
properties for 2008, representing approximately 14% of the net rentable square
feet at the properties, are scheduled to expire in 2009. 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 new tenants. The costs for tenant
improvements, tenant concessions 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, or if the rental
rates upon such renewal or reletting are significantly lower than expected, our
revenue and net income could be adversely affected.
We are subject to
risks associated with the financial condition of our tenants
.
The
current credit and capital market crisis and economic slowdown will likely have
a negative impact on our tenants due to a downturn in their
business. This negative impact 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 filing for bankruptcy. A
bankruptcy 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.
The loss of a
major tenant could adversely affect our financial
condition
.
We are
and expect that we will continue to be subject to a degree of tenant
concentration at certain of our operating properties and the properties securing
our loan assets and loan securities. In the event that a tenant
occupying a significant portion of one or more of our properties or whose rental
income represents a significant portion of the rental revenue at such property
or properties were to experience financial weakness, default on its lease, elect
not to renew its lease or file bankruptcy it would negatively impact our
operations and cash flows. Similarly, if a tenant occupying a
significant portion of one or more of the properties securing our loan assets or
loan securities or whose rental income represents a significant portion of the
rental revenue at such property or properties experiences financial weakness,
defaults on its lease, elects not to renew its lease or files for bankruptcy, it
would negatively impact our operations and cash flows.
We
may be unable to refinance our existing debt or preferred share financings 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 and redemption
payments 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
exacerbated by the recent capital market crisis which has resulted in tightened
lending requirements for real estate related assets and in some cases the
inability to refinance real estate indebtedness. If we were unable to
refinance indebtedness or preferred share financings 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 shares and common shares. 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.
With
respect to upcoming maturities, none of our loans are scheduled to mature in
2009, inclusive of extension rights. As of June 30, 2009 there are $2,871,000 of
scheduled principal payments on mortgage loans remaining in 2009. The
remaining balance of approximately $223,784,000 is scheduled to be paid down or
mature in 2010 or later.
Some
of our potential losses may not be covered by insurance.
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 leased 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 might 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 affect our
ability to pay dividends.
All of
our properties are required to comply with the Americans with Disabilities Act,
which we refer to as 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. 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.
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.
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 adversely 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
non-net leased properties which may not be adequate to cover all possible
contingencies.
The
loans we invest in are subject to delinquency, foreclosure and
loss.
Our
commercial real estate loan assets and loan securities are directly and
indirectly 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 a borrower were to default on a loan,
it is possible that we would not recover the full value of the
loan.
The
subordinate loan assets 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 loan assets that are subordinate in payment and collateral to more
senior loans. If a borrower defaults or declares bankruptcy, after
the more senior obligations are satisfied, there may not be sufficient funds or
assets remaining to satisfy our subordinate notes. Because each
transaction is privately negotiated, subordinate loan assets can vary in their
structural characteristics and lender rights, including our rights to control
the default or bankruptcy process. The subordinate loan assets that
we invest in may not give us the right to demand foreclosure as a subordinate
debtholder. Furthermore, the presence of intercreditor agreements may
limit our ability to amend the loan documents, assign the loans, accept
prepayments, exercise 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 possession of
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 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 since the underlying loans are generally non-recourse
in nature. 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 our investment in the
securities purchased.
The
widening of credit spreads has had and will continue to have a negative impact
on the value of Concord’s assets.
The
fair value of Concord’s loan assets and loan securities is dependent upon the
yield demanded on these assets by the market based on the underlying
credit. A large supply of these loan assets and loan securities
combined with reduced demand will generally cause the market to require a higher
yield on these loan assets and loan securities, resulting in a higher, or
“wider,” spread over the benchmark rate of such loan assets and loan
securities. Under these conditions such as those that we are
currently experiencing, the value of loan assets and loan securities in
Concord’s portfolio has and will decline. Such changes in the
market value of Concord’s portfolio has and will adversely affect Concord’s net
equity through their impact on unrealized gains or losses on available-for-sale
loan assets and loan securities, and therefore Concord’s cash flow since Concord
would be unable to realize gains through sale of such loan assets and loan
securities. Also, they have and could continue to adversely affect
Concord’s ability to borrow and access capital.
Concord
prices its assets based on its assumptions about future credit spreads for
financing of those assets. Concord has obtained in the past longer
term financing for its assets using structured financing techniques, such as
Concord Real Estate CDO 2006-1, Ltd., which we refer to as
CDO-1. 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.
The
deterioration of the credit markets has had an adverse impact on the ability of
borrowers to obtain replacement financing.
The
deterioration of credit markets has made it extremely difficult for borrowers to
obtain mortgage financing. The inability of borrowers to obtain
replacement financing has led and will likely continue to lead to more loan
defaults thereby resulting in expensive and time consuming foreclosure actions
and/or negotiated extensions to existing loans beyond their current expirations
on terms which may not be as favorable to us as the existing
loans.
The
repurchase agreements that Concord uses to finance its investments may require
it to provide additional collateral.
If the
market value of the loan assets and loan securities pledged or sold by Concord
to counterparties decline in value, which decline is determined, in most cases,
by the repurchase counterparties, Concord may be required by the repurchase
counterparties to provide additional collateral or pay down a portion of the
funds advanced. Posting additional collateral to support its
repurchase facilities will reduce Concord’s return on assets and liquidity as
well as limit its ability to leverage its assets. If Concord cannot
post additional collateral, Concord will be required to satisfy the margin calls
in cash. Accordingly, if Concord is required to use its cash, or if
it does not have sufficient cash, to meet such requirements, absent additional
capital from us and/or others, it will result in a rapid deterioration of
Concord’s financial condition and solvency as well as the loss of assets to the
repurchase counterparties, thereby adversely affecting the trust’s investment in
Concord. In this regard, Concord is required to reduce the
outstanding balance under its repurchase agreement with Column Financial, Inc.
which had an outstanding balance of $103,063,000 as of June 30, 2009, to
$80,000,000 by September 30, 2009 and to $60,000,000 by December 31, 2009. It is
expected this reduction will be satisfied, if at all, from sales of certain
assets pledged under the repurchase agreement.
The
credit and capital market deterioration has significantly strained Concord’s
liquidity.
The
inability of Concord to obtain replacement financing coupled with pending
maturities and margin calls on its repurchase obligations has significantly
strained Concord’s liquidity as cash from operations is required to be used
primarily to satisfy repayments under repurchase agreements and margin
calls. Until there is a recovery in the credit and capital markets
and depending on the timing and extent of margin calls and loan defaults,
Concord will likely have to utilize its cash flow to meet regular debt service
payments as well as margin calls on its repurchase facilities and preferred
distribution payments. In addition, if alternative financing is not
available or the level of defaults on Concord’s loan assets and loan securities
increases, Concord may not have sufficient liquidity to satisfy its debt
obligations which may require Concord to liquidate assets at unfavorable
pricing, and thereby adversely affect the recovery of the trust’s investment in
Concord.
We
may not recover any of our equity investment in Concord.
For
the quarter ended June 30, 2009, Concord was in default under several of its
credit facilities and, as of June 30, 2009, we wrote down our investment in
Concord to zero. While the writedown of our investment in Concord to
zero for financial statement purposes should not convey to investors that we and
our partners have ceased to work towards equity recovery, there can be no
assurance that we will recover any of our investment in
Concord.
In
addition, as of August 26, 2009, Concord’s independent registered public
accounting firm reissued its audit report, dated March 1, 2009, relating to
Concord’s financial statements at December 31, 2008 to raise substantial doubt
as to Concord’s ability to continue as a going concern because Concord had
suffered losses from operations and was in violation of certain debt covenants,
a
s
a result of certain events that occurred subsequent to the date of their
original report.
Credit
ratings assigned to Concord’s investments are subject to ongoing evaluations and
we cannot be sure that the ratings currently assigned to Concord’s investments
will not be downgraded.
Some
of Concord’s investments are rated by the major rating agencies. The
credit ratings on these investments are subject to ongoing evaluation by credit
rating agencies. If rating agencies assign a lower rating or reduce,
or indicate that they may reduce, their ratings of Concord’s investments, the
market value of those investments could significantly decline, which could have
an adverse affect on Concord’s financial condition by causing additional margin
calls and making it more difficult to replace assets in CDO-1.
The
coverage tests in Concord’s CDO-1 may have a negative impact on Concord’s
operating results and cash flows.
CDO-1
contains 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 and interest on the subordinate classes of bonds in
CDO-1. In the event the coverage tests are not met, distributions
otherwise payable to Concord may be re-directed to pay principal on the highest
bond classes. Therefore, Concord’s failure to satisfy the coverage
tests could adversely affect Concord’s operating results and cash
flows.
Certain
coverage tests which may be applicable to Concord’s interest in CDO-1 (based on
delinquency levels or other criteria) may also restrict Concord’s ability to
receive net income from assets pledged to secure CDO-1. If Concord’s
assets fail to perform in accordance with their terms, Concord’s
over-collateralization or other credit enhancement expense associated with CDO-1
will increase.
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 interests of REITs.
Our
investments in REIT securities involve special risks. These risks include many,
if not all, of the foregoing risks which apply to an investment in us,
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.
Ability
of our advisor to operate properties directly affects our financial
condition.
Other
than for severe economic conditions or natural forces which may be unanticipated
or uncontrollable, the ultimate value of our assets and the results of our
operations will depend on the ability of our advisor to operate and manage our
assets in a manner sufficient to maintain or increase revenues and control our
operating and other expenses in order to generate sufficient revenues to pay
amounts due on our indebtedness and to pay dividends to our
shareholders.
We
are dependent on our advisor and the loss of our advisor’s key personnel could
harm our operations and adversely affect the value of our shares.
We
have no paid employees. Our officers are employees of our
advisor. We have no separate facilities and are completely reliant on
our advisor, which has significant discretion as to the implementation of our
investment and operating strategies. We are subject to the risk that
our advisor 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 our advisor and, in particular,
Michael Ashner, chairman of our Board of Trustees and our chief executive
officer, Carolyn Tiffany, our president, and Peter Braverman, our executive vice
chairman, 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.
The incentive fee
payable to
our advisor may
be substantial.
Pursuant
to the terms of the advisory agreement, our advisor is entitled to receive an
incentive fee equal to 20% of any amounts available for distribution in excess
of a threshold amount. The incentive fee is only payable at such
time, if at all, (i) when holders of our common shares receive aggregate
distributions above a threshold amount (effectively a return of capital plus 7%
per annum) or (ii) upon termination of the advisory agreement, if the value of
our assets exceed the threshold amount based on then current market values and
appraisals. That is, the incentive fee is not payable annually but
only at such time, if at all, as shareholders have received the threshold amount
or, if the advisory agreement is terminated, if the assets of the trust exceed
the threshold amount. At June 30, 2009 the threshold amount was
approximately $353,417,000, which was equivalent to $20.21 for each of our
common shares on a fully diluted basis. At such time as shareholders’
equity in our financial statements exceeds the threshold amount, we will record
a liability equal to approximately 20% of the difference between shareholders’
equity and the threshold amount in accordance with GAAP.
Termination
of the Advisory Agreement may be costly.
Termination
of the advisory agreement either by us or our advisor may be costly. Upon
termination of the advisory agreement, our advisor is entitled to a termination
fee equal to the incentive fee based on an appraised valuation of our assets
assuming we were then liquidated. The amount payable on termination of the
advisory agreement could be substantial which may have a negative effect on the
price of our 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
” and “
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
”.
We are
authorized to issue an unlimited number of common shares. As of August 1, 2009
there were 15,861,233 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 during
May at such time and 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, the chairman of our board of trustees,
our chief executive officer or our president or upon written request of the
holders of not less than 25% of the outstanding common shares.
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. Trustees are required
to receive the vote of shareholders holding at least a majority of the
outstanding shares entitled to vote. 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.
The
transfer agent and registrar for our common shares is National City
Bank.
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.
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. Subject to the specific conditions contained therein, our
declaration of trust also obligates us to indemnify our trustees for, and pay or
reimburse them for expenses incurred related to, claims and liabilities which
they may become subject to by reason of having served as a
trustee.
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
” and “
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
”.
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. For more information on the terms of our
Series B-1 Preferred Shares, please see “
Terms of Our Series B-1
Preferred Shares
” below.
Terms
Reference
is made to the applicable prospectus supplement relating to the preferred shares
offered thereby for specific terms, including:
|
(1)
|
the
title and stated value of the preferred
shares;
|
|
(2)
|
the
number of preferred shares offered, the liquidation preference per share
and the offering price of the preferred
shares;
|
|
(3)
|
the
dividend rate(s), period(s), and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred
shares;
|
|
(4)
|
the
date from which dividends on the preferred shares shall accumulate, if
applicable;
|
|
(5)
|
the
provisions for a sinking fund, if any, for the preferred
shares;
|
|
(6)
|
the
provisions for redemption, if applicable, of the preferred
shares;
|
|
(7)
|
any
listing of the preferred shares on any securities
exchange;
|
|
(8)
|
the
terms and conditions, if applicable, upon which the preferred shares will
be convertible into common shares, including the conversion price, or
manner of calculation thereof;
|
|
(9)
|
a
discussion of federal income tax considerations applicable to the
preferred shares;
|
|
(10)
|
the
relative ranking and preferences of the preferred shares as to dividend
rights and rights upon our liquidation, dissolution or winding-up of our
affairs;
|
|
(11)
|
any
limitations on issuance of any series of preferred shares ranking senior
to or on a parity with the preferred shares as to dividend rights and
rights upon our liquidation, dissolution or winding-up of our
affairs;
|
|
(12)
|
any
limitations on direct or beneficial ownership of our securities and
restrictions on transfer of our securities, in each case as may be
appropriate to preserve our status as a REIT;
and
|
|
(13)
|
any
other specific terms, preferences, rights, limitations or restrictions of
the preferred shares.
|
Unless
otherwise specified in the applicable prospectus supplement, the preferred
shares rank, with respect to dividend rights and rights upon our liquidation,
dissolution or winding-up, and allocation of our earnings and losses:
(i) senior to all classes or series of our common shares, and to all equity
securities ranking junior to the preferred shares; (ii) on a parity with
all equity securities issued by us the terms of which specifically provide that
such equity securities rank on a parity with the preferred shares; and
(iii) junior to all equity securities issued by us the terms of which
specifically provide that such equity securities rank senior to the preferred
shares. As used in this prospectus, the term "equity securities" does not
include convertible debt securities.
Subject
to any preferential rights of any outstanding securities or series of
securities, the holders of preferred shares will be entitled to receive
dividends, when, as and if declared by our Board of Trustees, out of assets
legally available for payment. Dividends will be paid at such rates and on such
dates as will be set forth in the applicable prospectus supplement. Dividends
will be payable to the holders of record of preferred shares as they appear on
our share transfer books on the applicable record dates fixed by our Board of
Trustees. Dividends on any series of our preferred shares may be cumulative or
non-cumulative, as provided in the applicable prospectus
supplement.
If so
provided in the applicable prospectus supplement, the preferred shares offered
thereby will be subject to mandatory redemption or redemption at our option, as
a whole or in part, in each case upon the terms, at the times and at the
redemption prices set forth in such prospectus supplement.
Upon any
voluntary or involuntary liquidation, dissolution or winding-up of our affairs,
and before any distribution or payment shall be made to the holders of any
common shares or any other class or series of shares ranking junior to our
preferred shares, the holders of our preferred shares shall be entitled to
receive, after payment or provision for payment of our debts and other
liabilities, out of our assets legally available for distribution to
shareholders, liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable prospectus supplement,
plus an amount equal to all dividends accrued and unpaid thereon, which shall
not include any accumulation in respect of unpaid noncumulative dividends for
prior dividend periods. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of preferred shares will
have no right or claim to any of our remaining assets. In the event that, upon
any such voluntary or involuntary liquidation, dissolution or winding-up of our
affairs, the legally available assets are insufficient to pay the amount of the
liquidating distributions on all of our outstanding preferred shares and the
corresponding amounts payable on all of our other outstanding equity securities
ranking on a parity with the preferred shares in the distribution of assets upon
our liquidation, dissolution or winding-up of our affairs, then the holders of
our preferred shares and the holders of such other outstanding equity securities
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If
liquidating distributions are made in full to all holders of our preferred
shares, our remaining assets will be distributed among the holders of any other
classes or series of equity securities ranking junior to the preferred shares in
the distribution of assets upon our liquidation, dissolution or winding-up of
our affairs, according to their respective rights and preferences and in each
case according to their respective number of shares.
If we
consolidate or merge with or into, or sell, lease or convey all or substantially
all of our property or business to, any corporation, trust or other entity, such
transaction shall not be deemed to constitute a liquidation, dissolution or
winding-up of our affairs.
Unless
otherwise from time to time required by law, or as otherwise indicated in the
applicable prospectus supplement, holders of our preferred shares will not have
any voting rights.
The terms
and conditions, if any, upon which our preferred shares are convertible into
common shares will be set forth in the applicable prospectus supplement. Such
terms will include the number of common shares into which the preferred shares
are convertible, the conversion price, or manner of calculation thereof, the
conversion period, provisions as to whether conversion will be at the option of
the holders of the preferred shares or at our option, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such preferred shares.
For us to
qualify as a REIT under the Code, not more than 50% in value of our outstanding
capital shares may be owned, directly or indirectly, by five or fewer
individuals, as defined in the Code, during the last half of a taxable year. To
assist us in meeting this requirement, we may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of our
outstanding equity securities, including any series of our preferred shares.
Therefore, the applicable amendment or annex to our declaration of trust
designating the terms of a series of preferred shares may contain provisions
restricting the ownership and transfer of such preferred shares. The applicable
prospectus supplement will specify any additional ownership limitation relating
to the preferred shares being offered thereby. See "
Terms of Our Series B-1
Preferred Stock
—
Restrictions on Ownership
."
The
transfer agent and registrar for our Series B-1 Preferred Shares is
National City Bank. The transfer agent and registrar for our other series of
preferred shares will be set forth in the applicable prospectus
supplement.
General
In
February and June 2005 we issued a total of 4,000,000 of our
Series B-1 Preferred Shares and there are currently outstanding 1,396,000
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 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.
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 125% of the liquidation preference of such Series B-1 Preferred
Shares:
The
occurrence of any of the following events will be considered a “compliance
failure”:
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(1)
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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;
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(2)
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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;
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(3)
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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;
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(4)
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our
failure to file reports or forms required under the Sarbanes-Oxley Act of
2002; and
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(5)
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our
failure to quality as a REIT or the delisting or our common shares by the
NYSE.
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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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•
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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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•
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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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•
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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 $22.50 per common share which means that 1.111
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.
Conversion
Price Adjustments
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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•
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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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Mandatory
Conversion
We can
require holders of Series B-1 Preferred Shares to convert their
Series B-1 Preferred Shares into common shares if (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.
In
addition, with limited exceptions, no person or persons acting as a group may
beneficially own more than 9.8% of our common shares, which limitation is
applied by assuming that all convertible securities, such as the Series B-1
Preferred Shares, owned by such person or group of persons have been
converted.
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.
We may
issue subscription rights to our shareholders for the purchase of our common
shares. When we issue subscription rights,
we
will describe
the specific terms of the rights in the applicable supplement to this
prospectus. The rights certificates relating to each series of subscription
rights will be filed with the SEC and incorporated by reference as an exhibit to
the registration statement of which this prospectus is a part.
General
Each
right will entitle the holder of rights to purchase our common shares at the
exercise price provided in the applicable prospectus supplement. Rights may be
exercised at any time up to the close of business on the expiration date for the
right provided in the applicable prospectus supplement. After the
close of business on the expiration date, all unexercised rights will be
void.
Holders
may exercise rights as provided in the applicable prospectus supplement. If less
than all of the rights issued in any rights offering are exercised, we may offer
any unsubscribed securities directly to persons other than shareholders, to or
through agents, underwriters or dealers or through a combination of such
methods, including pursuant to standby underwriting arrangements, as described
in the applicable prospectus supplement.
Terms
The
applicable prospectus supplement will describe the terms of the
subscription
rights
to be issued, including the following, where applicable:
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the date
for determining the shareholders entitled to the
rights distribution;
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the
aggregate number of our common shares purchasable upon exercise of the
rights;
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the
aggregate number of rights
issued;
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the
commencement date and the expiration date of the offering period of the
rights and the terms under which the offering period may be extended by
us;
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the
date, if any, on and after which the rights will be separately
transferable;
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how
holders of rights may subscribe to purchase our common
shares;
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a
discussion of any material United States federal income tax considerations
applicable to an investment in the rights;
and
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any
other terms of the rights, including terms, procedures and limitations
relating to the distribution, exchange and exercise of the
rights.
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DESCRIPTION
OF OUR DEBT SECURITIES
We will
issue our debt securities under one or more separate indentures between us and a
trustee that we will name in the applicable supplement to this
prospectus. A form of the indenture is attached as an exhibit to the
registration statement of which this prospectus is a part. Following its
execution, the indenture will be filed with the SEC and incorporated by
reference in the registration statement of which this prospectus is a
part.
The
following summary describes certain material terms and provisions of the
indenture and our debt securities. This summary is not complete and is subject
to, and is qualified in its entirety by reference to, the provisions of the
indenture. When we offer to sell a particular series of debt securities, we will
describe the specific terms of the series in the applicable supplement to this
prospectus. You should read the indenture for more details regarding the
provisions we describe below and for other provisions that may be important to
you. For information on incorporation by reference, and how to obtain a copy of
the indenture, see the sections entitled “
WHERE YOU CAN FIND MORE
INFORMATION
” and “
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
”.
The debt
securities will be our direct obligations and may be secured or unsecured and
may be either senior debt securities, which we refer to as “senior securities”
or subordinated debt securities, which we refer to as “subordinated securities.”
The debt securities will be issued under one or more indentures in the form of
indenture filed as an exhibit to the Registration Statement of which this
prospectus is a part. As provided in the form of indenture, the specific terms
of any debt security issued pursuant to an indenture will be set forth in one or
more supplemental indentures, each dated as of a date of or prior to the
issuance of the debt securities to which it relates. Senior securities and
subordinated securities may be issued pursuant to separate indentures, in each
case between us and a trustee, which may be the same trustee, subject to such
amendments or supplements as may be adopted from time to time. We refer to these
indentures as “senior indentures” and “subordinated indentures,” respectively,
and to any such trustee, an “indenture trustee.” The senior indenture and the
subordinated indenture, as amended or supplemented from time to time, are
sometimes hereinafter referred to collectively as the “indentures.” The
indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended. The statements made under this heading relating to the debt
securities and the indentures are summaries of the provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
indentures and such debt securities.
Capitalized
terms used herein and not defined shall have the meanings assigned to them in
the applicable indenture.
The
indebtedness represented by the senior securities will rank equally with all of
our other unsecured and unsubordinated indebtedness. The indebtedness
represented by subordinated securities will be subordinated in right of payment
to the prior payment in full of our senior debt as described under “—
Subordination
.” The particular
terms of the debt securities offered by a prospectus supplement will be
described in the applicable prospectus supplement, along with any applicable
federal income tax considerations unique to such debt securities. Accordingly,
for a description of the terms of any series of debt securities, reference must
be made to both the prospectus supplement relating thereto and the description
of the debt securities set forth in this prospectus.
The form
of indenture provides that we may, but need not, designate more than one
indenture trustee thereunder, each with respect to one or more series of debt
securities. Any indenture trustee under an indenture may resign or be removed
with respect to one or more series of debt securities and a successor indenture
trustee may be appointed to act with respect to such series. If two or more
persons are acting as indenture trustee with respect to different series of debt
securities, each such indenture trustee will be an indenture trustee of a trust
under the applicable indenture separate and apart from the trust administered by
any other indenture trustee, and, except as otherwise indicated herein, any
action described herein to be taken by each indenture trustee may be taken by
each such indenture trustee with respect to, and only with respect to, the one
or more series of debt securities for which it is indenture trustee under the
applicable indenture.
The
following summaries set forth certain general terms and provisions of the
indentures and the debt securities. The prospectus supplement relating to the
series of debt securities being offered will contain further terms of such debt
securities, including the following specific terms:
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(1)
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The
title of such debt securities and whether such debt securities are secured
or unsecured or senior securities or subordinated
securities;
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(2)
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The
aggregate principal amount of such debt securities and any limit on such
aggregate principal amount;
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(3)
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The
price, expressed as a percentage of the principal amount thereof, at which
such debt securities will be issued and, if other than the principal
amount thereof, the portion of the principal amount thereof payable upon
declaration of the maturity thereof, or, if applicable, the portion of the
principal amount of such debt securities that is convertible into common
shares or preferred shares, or the method by which any such portion shall
be determined;
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(4)
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If
convertible, the terms on which such debt securities are convertible,
including the initial conversion price or rate and the conversion period
and any applicable limitations on the ownership or transferability of the
common shares or preferred shares receivable on
conversion;
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(5)
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The
date or dates, or the method for determining such date or dates, on which
the principal of such debt securities will be
payable;
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(6)
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The
rate or rates, which may be fixed or variable, or the method by which such
rate or rates shall be determined, at which such debt securities will bear
interest, if any;
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(7)
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The
date or dates, or the method for determining such date or dates, from
which any such interest will accrue, the dates on which any such interest
will be payable, the record dates for such interest payment dates, or the
method by which such dates shall be determined, the persons to whom such
interest shall be payable, and the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-day
months;
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(8)
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The
place or places where the principal of (and premium, if any) and interest,
if any, on such debt securities will be payable, where such debt
securities may be surrendered for conversion or registration of transfer
or exchange and where notices or demands to us with respect to such debt
securities and the applicable indenture may be
served;
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(9)
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The
period or periods, if any, within which, the price or prices at which and
the other terms and conditions upon which such debt securities may,
pursuant to any optional or mandatory redemption provisions, be redeemed,
as a whole or in part, at our
option;
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Our
obligation, if any, to redeem, repay or purchase such debt securities
pursuant to any sinking fund or analogous provision or at the option of a
holder thereof, and the period or periods within which, the price or
prices at which and the other terms and conditions upon which such debt
securities will be redeemed, repaid or purchased, as a whole or in part,
pursuant to such obligation;
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(11)
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If
other than U.S. dollars, the currency or currencies in which such debt
securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating
thereto;
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(12)
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Whether
the amount of payments of principal of (and premium, if any) or interest,
if any, on such debt securities may be determined with reference to an
index, formula or other method (which index, formula or method may, but
need not, be based on a currency, currencies, currency unit or units, or
composite currency or currencies) and the manner in which such amounts
shall be determined;
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(13)
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Whether
such debt securities will be issued in certificated or book-entry form
and, if so, the identity of the depository for such debt
securities;
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(14)
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Whether
such debt securities will be in registered or bearer form or both and, if
in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating
thereto;
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(15)
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The
applicability, if any, of the defeasance and covenant defeasance
provisions described herein or set forth in the applicable indenture, or
any modification thereof;
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(16)
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Whether
and under what circumstances we will pay any additional amounts on such
debt securities in respect of any tax, assessment or governmental charge
and, if so, whether we will have the option to redeem such debt securities
in lieu of making such payment;
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(17)
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Any
deletions from, modifications of or additions to the events of default to
our covenants, to the extent different from those described herein or set
forth in the applicable indenture with respect to such debt securities,
and any change in the right of any trustee or any of the holders to
declare the principal amount of any of such debt securities due and
payable;
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(18)
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The
provisions, if any, relating to the security provided for such debt
securities; and
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(19)
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Any
other terms of such debt securities not inconsistent with the provisions
of the applicable indenture.
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If so
provided in the applicable prospectus supplement, the debt securities may be
issued at a discount below their principal amount and provide for less than the
entire principal amount thereof to be payable upon declaration of acceleration
of the maturity thereof. We refer to such securities as “original issue discount
securities.” In such cases, any special U.S. federal income tax, accounting and
other considerations applicable to original issue discount securities will be
described in the applicable prospectus supplement.
Except as
may be set forth in any prospectus supplement, neither the debt securities nor
the indenture will contain any provisions that would limit our ability to incur
indebtedness or that would afford holders of debt securities protection in the
event of a highly leveraged or similar transaction involving us or in the event
of a change of control, regardless of whether such indebtedness, transaction or
change of control is initiated or supported by us, any affiliate of ours or any
other party. However, certain restrictions on ownership and transfers of our
common shares and preferred shares are designed to preserve our status as a REIT
and, therefore, may act to prevent or hinder a change of control. See, the
RISK FACTOR
entitled “
Ownership Limitations in Our Bylaws
May Adversely Affect
the Market Price of Our Common
Shares,
” “
DESCRIPTION OF
OUR COMMON SHARES—Restriction on Size of Holdings
,” and “
TERMS OF OUR PREFERRED
SHARES—Restrictions on Ownership
,” for more information. Reference is
made to the applicable prospectus supplement for information with respect to any
deletions from, modifications of, or additions to, the events of default or
covenants that are described below, including any addition of a covenant or
other provision providing event risk or similar protection.
Unless
otherwise described in the applicable prospectus supplement, the debt securities
of any series will be issuable in denominations of $1,000 and integral multiples
thereof.
Unless
otherwise specified in the applicable prospectus supplement, the principal of
(and applicable premium, if any) and interest on any series of debt securities
will be payable at the corporate trust office of the applicable indenture
trustee, the address of which will be stated in the applicable prospectus
supplement; provided, however, that, at our option, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the applicable register for such debt securities or by wire transfer of funds
to such person at an account maintained within the United States.
Subject
to certain limitations imposed upon debt securities issued in book-entry form,
the debt securities of any series will be exchangeable for any authorized
denomination of other debt securities of the same series and of a like aggregate
principal amount and tenor upon surrender of such debt securities at the
corporate trust office of the applicable indenture trustee or at the office of
any transfer agent designated by us for such purpose. In addition, subject to
certain limitations imposed upon debt securities issued in book-entry form, the
debt securities of any series may be surrendered for conversion or registration
of transfer or exchange thereof at the corporate trust office of the applicable
indenture trustee or at the office of any transfer agent designated by us for
such purpose. Every debt security surrendered for conversion, registration of
transfer or exchange must be duly endorsed or accompanied by a written
instrument of transfer, and the person requesting such action must provide
evidence of title and identity satisfactory to the applicable indenture trustee
or transfer agent. No service charge will be made for any registration of
transfer or exchange of any debt securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable prospectus supplement refers to any transfer agent
(in addition to the applicable indenture trustee) initially designated by us
with respect to any series of debt securities, we may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that we will be required to
maintain a transfer agent in each place of payment for such series. We may at
any time designate additional transfer agents with respect to any series of debt
securities.
Neither
we nor any indenture trustee will be required (i) to issue, register the
transfer of or exchange debt securities of any series during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any debt securities that may be selected for redemption and ending
at the close of business on the day of such mailing; (ii) to register the
transfer of or exchange any debt security, or portion thereof, so selected for
redemption, in whole or in part, except the unredeemed portion of any debt
security being redeemed in part; or (iii) to issue, register the transfer
of or exchange any debt security that has been surrendered for repayment at the
option of the holder, except the portion, if any, of such debt security not to
be so repaid.
The
indentures will provide that we may, without the consent of the holders of any
outstanding debt securities, consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other entity
provided that (a) either we shall be the continuing entity, or the
successor entity (if other than us) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such
assets, is organized under the laws of any domestic jurisdiction and assumes our
obligations to pay principal of (and premium, if any) and interest on all of the
debt securities and the due and punctual performance and observance of all of
the covenants and conditions contained in each Indenture; (b) immediately
after giving effect to such transaction and treating any indebtedness that
becomes an obligation of ours or any subsidiary as a result thereof as having
been incurred by us or such subsidiary at the time of such transaction, no event
of default under the indentures, and no event which, after notice or the lapse
of time, or both, would become such an event of default, shall have occurred and
be continuing; and (c) an officers’ certificate and legal opinion covering
such conditions shall be delivered to each indenture trustee.
Existence.
Except as permitted under “—
Merger, Consolidation or Sale of
Assets
,” the indentures will require us to do or cause to be done all
things necessary to preserve and keep in full force and effect our corporate
existence, rights (by declaration of trust, by-laws and statute) and franchises;
provided, however, that we will not be required to preserve any right or
franchise if our Board of Trustees determines that the preservation thereof is
no longer desirable in the conduct of our business by appropriate
proceedings.
Maintenance of Properties.
The indentures will require us to cause all of our
material properties used or useful in the conduct of its business or the
business of any subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in our judgment may be necessary so that the business carried on
in connection therewith may be properly and advantageously conducted at all
times; provided, however, that we and our subsidiaries will not be prevented
from selling or otherwise disposing of our properties for value in the ordinary
course of business.
Insurance.
The indentures will require us to cause each of our
insurable properties to be insured against loss or damage with insurers of
recognized responsibility and, if described in the applicable prospectus
supplement, having a specified rating from a recognized insurance rating
service, in such amounts and covering all such risks as shall be customary in
the industry in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other
Claims.
The indentures will require us to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon us or any subsidiary or upon our income, profits or property or
that of any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon our property;
provided, however, that we will not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith.
Additional Covenants.
Any of our additional covenants with respect to any
series of debt securities will be set forth in the prospectus supplement
relating thereto.
Unless
otherwise provided in the applicable prospectus supplement, each indenture will
provide that the following events are “Events of Default” with respect to any
series of debt securities issued thereunder (i) default for 30 days in
the payment of any installment of interest on any debt security of such series;
(ii) default in the payment of principal of (or premium, if any, on) any
debt security of such series at its maturity; (iii) default in making any
sinking fund payment as required for any debt security of such series;
(iv) default in the performance or breach of any other covenant or warranty
of ours contained in the indenture (other than a covenant added to the indenture
solely for the benefit of a series of debt securities issued thereunder other
than such series), continued for 60 days after written notice as provided
in the applicable indenture; (v) a default under any bond, debenture, note
or other evidence of indebtedness for money borrowed by us or any of our
subsidiaries (including obligations under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles
but not including any indebtedness or obligations for which recourse is limited
to property purchased) in an aggregate principal amount in excess of $30,000,000
or under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by us or any of our subsidiaries (including such leases, but not
including such indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $30,000,000,
whether such indebtedness exists on the date of such indenture or shall
thereafter be created, with such obligations being accelerated and not rescinded
or annulled; (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee and
(vii) any other event of default provided with respect to a particular
series of debt securities.
If an
event of default under any indenture with respect to debt securities of any
series at the time outstanding occurs and is continuing, then in every such case
the applicable indenture trustee or the holders of not less than 25% in
principal amount of the debt securities of that series will have the right to
declare the principal amount (or, if the debt securities of that series are
original issue discount securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the debt
securities of that series to be due and payable immediately by written notice
thereof to us (and to the applicable indenture trustee if given by the holders).
However, at any time after such a declaration of acceleration with respect to
debt securities of such series (or of all debt securities then outstanding under
any indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable
indenture trustee, the holders of not less than a majority in principal amount
of outstanding debt securities of such series (or of all debt securities then
outstanding under the applicable indenture, as the case may be) may rescind and
annul such declaration and its consequences if (i) we shall have deposited
with the applicable indenture trustee all required payments of the principal of
(and premium, if any) and interest on the debt securities of such series (or of
all debt securities than outstanding under the applicable indenture, as the case
may be), plus certain fees, expenses, disbursements and advances of the
applicable indenture trustee and (ii) all events of default, other than the
non-payment of accelerated principal (or specified portion thereof), with
respect to debt securities of such series (or of all debt securities then
outstanding under the applicable indenture, as the case may be) have been cured
or waived as provided in such indenture. The indentures will also provide that
the holders of not less than a majority in principal amount of the outstanding
debt securities of any series (or of all debt
securities then outstanding under the
applicable indenture, as the case may be) may waive any past default with
respect to such series and its consequences, except a default (x) in the
payment of the principal of (or premium, if any) or interest on any debt
security of such series or (y) in respect of a covenant or provision
contained in the applicable indenture that cannot be modified or amended without
the consent of the holder of each outstanding debt security affected
thereby.
The
indentures will require each indenture trustee to give notice to the holders of
debt securities within 90 days of a default under the applicable indenture
unless such default shall have been cured or waived; provided, however, that the
indenture trustee may withhold notice to the holders of any series of debt
securities of any default with respect to such series (except a default in the
payment of the principal of (or premium, if any) or interest on any debt
security of such series or in the payment of any sinking fund installment in
respect to any debt security of such series) if specified responsible officers
of such indenture trustee consider such withholding to be in the interest of
such holders.
The
indentures will provide that no holder of debt securities of any series may
institute any proceeding, judicial or otherwise, with respect to such indenture
or for any remedy thereunder, except in the case of failure of the applicable
indenture trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an event of default from the
holders of not less than 25% in principal amount of the outstanding debt
securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of debt
securities from instituting suit for the enforcement of payment of the principal
of (and premium, if any) and interest on such debt securities at the respective
due dates thereof.
The
indentures will provide that, subject to provisions in each indenture relating
to its duties in case of default, an indenture trustee will be under no
obligation to exercise any of its rights or powers under an indenture at the
request or direction of any holders of any series of debt securities then
outstanding under such indenture, unless such holders shall have offered to the
indenture trustee thereunder reasonable security or indemnity. The holders of
not less than a majority in principal amount of the outstanding debt securities
of any series (or of all debt securities then outstanding under an indenture, as
the case may be) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable indenture
trustee, or of exercising any trust or power conferred upon such indenture
trustee. However, an indenture trustee may refuse to follow any direction which
is in conflict with any law or the applicable indenture, which may involve such
indenture trustee in personal liability or which may be unduly prejudicial to
the holders of debt securities of such series not joining therein.
Within
120 days after the close of each fiscal year, we will be required to
deliver to each indenture trustee a certificate, signed by one of several
specified officers of ours, stating whether or not such officer has knowledge of
any default under the applicable indenture and, if so, specifying each such
default and the nature and status thereof.
Modifications
and amendments of an indenture will be permitted to be made only with the
consent of the holders of not less than a majority in principal amount of all
outstanding debt securities issued under such indenture affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each such debt security
affected thereby, (i) change the stated maturity of the principal of, or
any installment of interest (or premium, if any) on, any such debt security;
(ii) reduce the principal amount of, or the rate or amount of interest on,
or any premium payable on redemption of, any such debt security, or reduce the
amount of principal of an original issue discount security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such debt security; (iii) change the place of payment, or the coin
or
currency, for
payment of principal of, premium, if any, or interest on any such debt security;
(iv) impair the right to institute suit for the enforcement of any payment
on or with respect to any such debt security; (v) reduce the above-stated
percentage of outstanding debt securities of any series necessary to modify or
amend the applicable indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the quorum
or voting requirements set forth in the applicable indenture; or
(vi) modify any of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect such action or to provide that
certain other provisions may not be modified or waived without the consent of
the holder of such debt security.
The
holders of a majority in aggregate principal amount of the outstanding debt
securities of each series may, on behalf of all holders of debt securities of
that series, waive, insofar as that series is concerned, our compliance with
certain restrictive covenants of the applicable indenture.
Modifications
and amendments of an indenture will be permitted to be made by us and the
respective indenture trustee thereunder without the consent of any holder of
debt securities for any of the following purposes: (i) to evidence the
succession of another person to us as obligor under such indenture; (ii) to
add to our covenants for the benefit of the holders of all or any series of debt
securities or to surrender any right or power conferred upon us in such
indenture; (iii) to add events of default for the benefit of the holders of
all or any series of debt securities; (iv) to add or change any provisions
of an indenture to facilitate the issuance of, or to liberalize certain terms
of, debt securities in bearer form, or to permit or facilitate the issuance of
debt securities in uncertificated form; provided that such action shall not
adversely affect the interest of the holders of the debt securities of any
series in any material respect; (v) to change or eliminate any provisions
of an indenture; provided that any such change or elimination shall be effective
only when there are no debt securities outstanding of any series created prior
thereto which are entitled to the benefit of such provision; (vi) to secure
the debt securities; (vii) to establish the form or terms of debt
securities of any series, including the provisions and procedures, if
applicable, for the conversion of such debt securities into common shares or
preferred shares; (viii) to provide for the acceptance of appointment by a
successor indenture trustee or facilitate the administration of the trusts under
an indenture by more than one indenture trustee; (ix) to cure any
ambiguity, defect or inconsistency in an indenture; provided that such action
shall not adversely affect the interests of holders of debt securities of any
series issued under such indenture; or (x) to supplement any of the
provisions of an indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such debt securities; provided that
such action shall not adversely affect the interests of the holders of the
outstanding debt securities of any series.
The
indentures will provide that, in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of debt
securities, (i) the principal amount of an original issue discount security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof (ii) the principal
amount of any debt security denominated in a foreign currency that shall be
deemed outstanding shall be the U.S. dollar equivalent, determined on the issue
date for such debt security, of the principal amount (or, in the case of an
original issue discount security, the U.S. dollar equivalent on the issue date
of such debt securities of the amount determined as provided in (i) above),
(iii) the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of such indexed security at
original issuance, unless otherwise provided with respect to such indexed
security pursuant to such indenture, and (iv) debt securities owned by us
or any other obligor upon the debt securities or an affiliate of ours or of such
other obligor shall be disregarded.
The
indentures will contain provisions for convening meetings of the holders of debt
securities of a series issued thereunder. A meeting may be called at any time by
the applicable indenture trustee, and
also, upon our request or the request of
holders of at least 25% in principal amount of the outstanding debt securities
of such series, in any such case upon notice given as provided in such
indenture. Except for any consent that must be given by the holder of each debt
security affected by certain modifications and amendments of an indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding debt securities of that series;
provided, however, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage, which is less than a majority, in principal amount of the
outstanding debt securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the holders of such specified percentage in principal amount of the outstanding
debt securities of that series. Any resolution passed or decision taken at any
meeting of holders of debt securities of any series duly held in accordance with
an indenture will be binding on all holders of debt securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding debt securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in principal
amount of the outstanding debt securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
debt securities of such series will constitute a quorum.
Notwithstanding
the foregoing provisions, the indentures will provide that if any action is to
be taken at a meeting of holders of debt securities of any series with respect
to any request, demand, authorization, direction, notice, consent, waiver and
other action that such indenture expressly provides may be made, given or taken
by the holders of a specified percentage in principal amount of all outstanding
debt securities affected thereby, or of the holders of such series and one or
more additional series: (i) there shall be no minimum quorum requirement
for such meeting, and (ii) the principal amount of the outstanding debt
securities of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be taken
into account in determining whether such request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken
under such indenture.
Unless
otherwise provided in the applicable prospectus supplement, subordinated
securities will be subject to the following subordination
provisions.
Upon any
distribution to our creditors in a liquidation, dissolution or reorganization,
the payment of the principal of and interest on any subordinated securities will
be subordinated to the extent provided in the applicable indenture in right of
payment to the prior payment in full of all senior debt (as defined below), but
our obligation to make payments of the principal of and interest on such
subordinated securities will not otherwise be affected. No payment of principal
or interest will be permitted to be made on subordinated securities at any time
if a default on senior debt exists that permits the holders of such senior debt
to accelerate its maturity and the default is the subject of judicial
proceedings or we receive notice of the default. After all senior debt is paid
in full and until the subordinated securities are paid in full, holders will be
subrogated to the rights of holders of senior debt to the extent that
distributions otherwise payable to holders have been applied to the payment of
senior debt. The subordinated indenture will not restrict the amount of our
senior indebtedness. As a result of these subordination provisions in the event
of a distribution of assets upon insolvency, holders of subordinated
indebtedness may recover less, ratably, than our senior creditors.
“Senior
debt” will be defined in the applicable indenture as the principal of and
interest on, or substantially similar payments to be made by us in respect of,
the following, whether outstanding at the
date of execution of the applicable
indenture or thereafter incurred, created or assumed: (i) our indebtedness
for money borrowed or represented by purchase-money obligations, (ii) our
indebtedness evidenced by notes, debentures, or bonds, or other securities
issued under the provisions of an indenture, fiscal agency agreement or other
agreement, (iii) our obligations as lessee under leases of property either
made as part of any sale and leaseback transaction to which we are a party or
otherwise, (iv) indebtedness of partnerships and joint ventures which is
included in our consolidated financial statements, (v) indebtedness
obligations and liabilities of others in respect of which we are liable
contingently or otherwise to pay or advance money or property or as guarantor,
endorser or otherwise or which we have agreed to purchase or otherwise acquire,
and (vi) any binding commitment of the real estate investment, in each case
other than (a) any such indebtedness, obligation or liability referred to
in the preceding clause as to which, in the instrument creating or evidencing
the same pursuant to which the same is outstanding, it is provided that such
indebtedness, obligation or liability is not superior in right of payment to the
subordinated securities or ranks
pari passu
with the
subordinated securities, (b) any such indebtedness obligation or liability
which is subordinated to our indebtedness to substantially the same extent as or
to a greater extent than the subordinated securities are subordinated, and
(c) the subordinated securities. There will not be any restriction in any
indenture relating to subordinated securities upon the creation of additional
senior debt.
If this
prospectus is being delivered in connection with a series of subordinated
securities, the accompanying prospectus supplement or the information
incorporated herein by reference will set forth the approximate amount of senior
debt outstanding as of the end of our most recent fiscal quarter.
Unless
otherwise indicated in the applicable prospectus supplement, we will be
permitted, at our option, to discharge certain obligations to holders of any
series of debt securities issued under any indenture that have not already been
delivered to the applicable indenture trustee for cancellation and that either
have become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable indenture trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such debt
securities are payable in an amount sufficient to pay the entire indebtedness on
such debt securities with respect to principal (and premium, if any) and
interest to the date of such deposit (if such debt securities have become due
and payable) or to the stated maturity or redemption date, as the case may
be.
The
indentures will provide that, unless otherwise indicated in the applicable
prospectus supplement, we may elect either (i) to defease and be discharged
from any and all obligations (except for the obligation to pay additional
amounts, if any, upon the occurrence of certain events of tax assessment or
governmental charge with respect to payments on such debt securities and the
obligations to register the transfer or exchange of such debt securities, to
replace temporary or mutilated, destroyed, lost or stolen debt securities, to
maintain an office or agency in respect of such debt securities, to hold moneys
for payment in trust and, with respect to subordinated debt securities which are
convertible or exchangeable, the right to convert or exchange) with respect to
such debt securities (“defeasance”) or (ii) to be released from our
obligations with respect to such debt securities under the applicable indenture
(being the restrictions described under “—
Certain Covenants
”) or, if
provided in the applicable prospectus supplement, our obligations with respect
to any other covenant, and any omission to comply with such obligations shall
not constitute an event of default with respect to such debt securities
(“covenant defeasance”), in either case upon the irrevocable deposit by us with
the applicable indenture trustee, in trust, of an amount in such currency or
currencies, currency unit or units or composite currency or currencies in which
such debt securities are payable at stated maturity, or Government Obligations
(as defined below), or both, applicable to such debt securities, which through
the scheduled payment of principal and interest in accordance with their terms
will provide
money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
debt securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a
trust will only be permitted to be established if, among other things, we have
delivered to the applicable indenture trustee an opinion of counsel (as
specified in the applicable indenture) to the effect that the holders of such
debt securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such opinion of counsel, in the case of
defeasance, will be required to refer to and be based upon a ruling received
from or published by the Internal Revenue Service or a change in applicable
United States federal income tax law occurring after the date of the indenture.
In the event of such defeasance, the holders of such debt securities would
thereafter be able to look only to such trust fund for payment of principal (and
premium, if any) and interest.
“Government
Obligations” means securities that are (i) direct obligations of the United
States of America or the government which issued the foreign currency in which
the debt securities of a particular series are payable, for the payment of which
its full faith and credit is pledged, or (ii) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or such government which issued the foreign currency in
which the debt securities of such series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or such other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless
otherwise provided in the applicable prospectus supplement, if after we have
deposited funds and/or Government Obligations to effect defeasance or covenant
defeasance with respect to debt securities of any series, (i) the holder of
a debt security of such series is entitled to, and does, elect pursuant to the
applicable indenture or the terms of such debt security to receive payment in a
currency, currency unit or composite currency other than that in which such
deposit has been made in respect of such debt security, or (ii) a
conversion event (as defined below) occurs in respect of the currency, currency
unit or composite currency in which such deposit has been made, the indebtedness
represented by such debt security will be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of (and
premium, if any) and interest on such debt security as they become due out of
the proceeds yielded by converting the amount so deposited in respect of such
debt security into the currency, currency unit or composite currency in which
such debt security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. “Conversion
Event” means the cessation of use of (a) a currency, currency unit or
composite currency both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community,
(b) the ECU both within the European Monetary System and for the settlement
of transactions by public institutions of or within the European Communities, or
(c) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable prospectus supplement, all payments of principal of (and premium, if
any)
and interest on
any debt security that is payable in a foreign currency that ceases to be used
by its government of issuance shall be made in U.S. dollars.
If we
effect covenant defeasance with respect to any debt securities and such debt
securities are declared due and payable because of the occurrence of any event
of default other than the event of default described in clause (iv) under
“—
Events of Default, Notice
and Waiver
” with respect to specified sections of an indenture (which
sections would no longer be applicable to such debt securities) or described in
clause (vii) under “—
Events of Default, Notice and
Waiver
” with respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which such debt securities are payable, and Government Obligations
on deposit with the applicable indenture trustee, will be sufficient to pay
amounts due on such debt securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such debt securities at the time of the
acceleration resulting from such event of default. However, we would remain
liable to make payment of such amounts due at the time of
acceleration.
The
applicable prospectus supplement may further describe the provisions, if any,
permitting such defeasance or covenant defeasance, including any modifications
to the provisions described above, with respect to the debt securities of or
within a particular series.
The terms
and conditions, if any, upon which the debt securities are convertible into
common shares or preferred shares will be set forth in the applicable prospectus
supplement relating thereto. Such terms will include whether such debt
securities are convertible into common shares or preferred shares, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders or at
our option, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such debt
securities and any restrictions on conversion, including restrictions directed
at maintaining our REIT status.
Unless
otherwise specified in the applicable prospectus supplement, the principal of
(and applicable premium, if any) and interest on any series of debt securities
will be payable at the corporate trust office of the indenture trustee, the
address of which will be stated in the applicable prospectus supplement;
provided that, at our option, payment of interest may be made by check mailed to
the address of the person entitled thereto as it appears in the applicable
register for such debt securities or by wire transfer of funds to such person at
an account maintained within the United States.
All
moneys paid by us to a paying agent or an indenture trustee for the payment of
the principal of or any premium or interest on any debt security which remain
unclaimed at the end of one year after such principal, premium or interest has
become due and payable will be repaid to us and the holder of such debt security
thereafter may look only to us for payment thereof.
The debt
securities of a series may be issued in whole or in part in the form of one or
more global securities that will be deposited with, or on behalf of, a
depositary identified in the applicable prospectus supplement relating to such
series. Global securities may be issued in either registered or bearer form and
in either temporary or permanent form. The specific terms of the depositary
arrangement with respect to a series of debt securities will be described in the
applicable prospectus supplement relating to such series.
The
following discussion summarizes the material United States federal income tax
consequences of the purchase, ownership and disposition of our common shares,
preferred shares and fixed rate debt securities (that are not original issue
discount or zero coupon debt securities) by persons who hold the securities as
capital assets (within the meaning of section 1221 of the Code). It does
not purport to address the federal income tax consequences applicable to all
categories of holders, including holders subject to special treatment under
federal income tax laws, such as insurance companies, regulated investment
companies, tax-exempt organizations (except as discussed under “—
Taxation of Holders of Common or
Preferred Shares—Tax-Exempt Shareholders
”) or dealers in securities.
Except as discussed under “—
Taxation of Holders of Common or
Preferred Shares—Non-U.S. Shareholders
” and “—
Taxation of Holders of Fixed Rate
Debt Securities—Non-U.S. Holders
,” respectively, this summary does not
address persons who are not U.S. Shareholders or U.S. Holders, respectively
(each as defined herein).
This
summary is based on current provisions of the Code, the Treasury regulations
promulgated thereunder and judicial and administrative authorities. All these
authorities are subject to change, and any change may be effective
retroactively. This summary is not tax advice, and is not intended as a
substitute for careful tax planning. WE RECOMMEND THAT OUR INVESTORS CONSULT
THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF INVESTING IN OUR SECURITIES IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES.
In the
opinion of Katten Muchin Rosenman LLP (“Katten Muchin”), commencing with our
taxable year ended December 31, 2004, we have been organized and operated
in conformity with the requirements for qualification and taxation as a REIT
under the Code, and our current and proposed method of operation, as described
in this prospectus and as represented by us, will enable us to continue to meet
the requirements for qualification and taxation as a REIT. Katten Muchin’s
opinion is not binding on the Internal Revenue Service (“IRS”) or the courts. It
is based on various assumptions relating to our organization and operation,
including that we have operated and will continue to operate in the manner
described in our organizational documents and this prospectus, and
representations made by us concerning certain factual matters related to our
organization and manner of operation. Our qualification and taxation as a REIT
depends upon our ability to meet on a continuous basis, through actual annual
operating results, (i) income and asset composition tests,
(ii) specified distribution levels, (iii) diversity of beneficial
ownership, and (iv) various other qualification tests (discussed below)
imposed by the Code. Katten Muchin has not reviewed and will not monitor our
ongoing compliance with these tests, and expresses no opinion concerning whether
we actually have satisfied or will satisfy these tests on a continuous basis. No
assurance can be given that we actually have satisfied or will satisfy such
tests on a continuous basis. Our failure to qualify as a REIT in prior years
could adversely affect Katten Muchin’s opinion and our eligibility for REIT
status for our taxable year ended December 31, 2004 and subsequent years.
(See “—
Failure to
Qualify
,” below.)
The
following is a general summary of the material Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These provisions
are technical and complex.
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we
will be taxed at regular corporate rates on any undistributed “REIT
taxable income,” including undistributed net capital
gains;
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we
may be subject to the “alternative minimum tax” on our undistributed items
of tax preference;
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if
we have (i) net income from the sale or other disposition of
foreclosure property that we hold primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from
foreclosure property, then we will be subject to tax on that income at the
highest corporate rate. In general, “foreclosure property” is any property
we acquire by foreclosure (or otherwise) on default of a lease of such
property or a loan secured by such
property;
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if
we have net income from prohibited transactions, such income will be
subject to a 100% tax. In general, “prohibited transactions” are sales or
other dispositions of property (other than foreclosure property) that we
hold primarily for sale to customers in the ordinary course of
business;
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if
we derive “excess inclusion income” from an interest in certain mortgage
loan securitization structures (i.e., a “taxable mortgage pool” or a
residual interest in a real estate mortgage investment conduit, or
“REMIC”), then we will be subject to tax at the highest regular corporate
tax rate to the extent that such income is allocable to specified types of
shareholders known as “disqualified organizations” (generally, tax-exempt
entities, such as government pension plans, that are not subject to
unrelated business income tax). See “
—
Taxable Mortgage
Pools and Excess Inclusion Income”
below.
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if
we fail to satisfy either the 75% gross income test or the 95% gross
income test (discussed below), but preserve our qualification as a REIT by
satisfying certain other requirements, then we will be subject to a 100%
tax on the product of (a) the greater of the amount by which we fail
the 75% gross income test or the 95% gross income test, multiplied by
(b) a fraction intended to reflect our
profitability;
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if
we fail to distribute for each calendar year at least the sum of
(i) 85% of our REIT ordinary income, (ii) 95% of our REIT
capital gain net income, and (iii) any undistributed taxable income
from prior years, then we will be subject to a 4% excise tax on the excess
of the required distributions over the actual
distributions;
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if
we acquire any asset from a “C” corporation in a transaction in which the
basis of the asset in our hands is determined by reference to the basis of
the asset (or any other property) in the hands of the C corporation, and
if we recognize gain on the disposition of such asset during the ten-year
period beginning on the date we acquire the asset, then the asset’s
“built-in” gain (the excess of the asset’s fair market value at the time
we acquired it over the asset’s adjusted basis at that time) will be
subject to tax at the highest regular corporate
rate;
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we
may elect to retain and pay income tax on some or all of our long-term
capital gain, as described below;
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if
it is determined that amounts of certain income and expense were not
allocated between us and a taxable REIT subsidiary (as defined below) on
the basis of arm’s length dealing, or to the extent we charge a taxable
REIT subsidiary interest in excess of a commercially reasonable rate, then
we will be subject to a tax equal to 100% of those amounts;
and
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we
may be required to pay monetary penalties if we fail to satisfy certain
requirements for REIT qualification as the price for maintaining our REIT
status.
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The Code
defines a REIT as a corporation, trust, or association:
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that
is managed by one or more trustees or
directors;
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the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial
interest;
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that
would be taxable as a domestic corporation, but for Sections 856 through
859 of the Code;
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that
is neither a financial institution nor an insurance company subject to
certain provisions of the Code;
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the
beneficial ownership of which is held by 100 or more
persons;
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no
more than 50% in value of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of each taxable
year;
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that
meets certain other tests, described below, regarding the composition of
its income and assets; and
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whose
taxable year is the calendar year.
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The first
four requirements must be satisfied during the entire taxable year, and the
fifth must be satisfied during at least 335 days of a taxable year of
12 months (or during a proportionate part of a taxable year of less than
12 months). We will be treated as satisfying the sixth requirement for any
taxable year for which we comply with the regulatory requirements to request
information from our shareholders regarding their actual ownership of our shares
and we do not know, or exercising reasonable due diligence would not have known,
that we failed to satisfy such condition.
We intend
to comply with Treasury regulations requiring us to ascertain the actual
ownership of our outstanding shares. (Failure to do so will subject us to a
fine.) In addition, certain restrictions on the transfer of our shares, imposed
by our Declaration of Trust, are meant to help us continue to satisfy the fifth
and sixth requirements for qualification described above.
Finally,
a corporation may not elect to become a REIT unless its taxable year is the
calendar year. Our taxable year is the calendar year.
Income Tests.
To
remain qualified as a REIT, we must satisfy two gross income tests in each
taxable year. First, at least 75% of our gross income (excluding gross income
from “prohibited transactions”) must come from real estate sources such as rents
from real property (as defined below), dividends and gain from the sale or
disposition of shares in other REITs, interest on obligations secured by real
property, and earnings from certain temporary investments. Second, at least 95%
of our gross income (excluding gross income from “prohibited transactions”) must
come from real estate sources and from dividends, interest and gain from the
sale or disposition of stock or securities (or from any combination of the
foregoing).
Rents
received by a REIT (which include charges for services customarily furnished or
rendered in connection with real property and rent attributable to personal
property leased in connection with real property) will generally qualify as
“rents from real property,” subject to certain restrictions,
including:
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the
amount of rent must not be based, in whole or in part, on the income or
profits of any person (with an exception for rents based on fixed
percentages of the tenant’s gross receipts or
sales);
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except
for certain qualified lodging and healthcare facilities leased to a
taxable REIT subsidiary (described below), the REIT (or a direct or
indirect owner of 10% or more of the REIT) may not own (directly or
constructively) 10% or more of the tenant (a “Related Party
Tenant”);
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the
amount of rent attributable to personal property leased in connection with
a lease of real property may not exceed 15% of the total rent received
under the lease; and
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the
REIT generally may not operate or manage the property or furnish or render
services to the tenants except through (i) a taxable REIT subsidiary
(described below) or (2) an “independent contractor” that satisfies
certain stock ownership restrictions, that is adequately compensated and
from whom the REIT derives no income. We are not required to use a taxable
REIT subsidiary or independent contractor to the extent that any service
we provide is “usually or customarily rendered” in connection with the
rental of space for occupancy only and is not considered “rendered to the
tenants.”
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If, for
any taxable year, we fail to satisfy the 75% gross income test, the 95% gross
income test, or both, we may nevertheless preserve our REIT status if we satisfy
certain relief provisions under the Code. In general, relief will be available
if (i) our failure to meet one or both of the gross income tests is due to
reasonable cause rather than willful neglect and (ii) we attach a schedule
to our federal corporate income tax return indicating the nature and amount of
our non-qualifying income. However, it is impossible to state whether in all
circumstances we would be entitled to the benefit of the relief provisions. As
discussed above under “—
General
,” even if we qualify
for relief, a tax would be imposed with respect to the amount by which we fail
the 75% gross income test or the 95% gross income test.
Asset Tests.
To
maintain our qualification as a REIT we must also satisfy, at the close of each
quarter of each taxable year, the following tests relating to the nature of our
assets:
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at
least 75% of the value of our total assets must be represented by real
estate assets, including (a) interests in real property and interests
in obligations secured (or deemed, for these purposes, to be secured) by
real property, (b) our proportionate share (determined in accordance
with our capital interest) of real estate assets held by the operating
partnership and any other partnership in which we are a partner,
(c) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (that is, at
least five-years) public debt offering, (d) stock in other REITs and
(e) cash, cash items and federal government
securities;
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no
more than 25% (20% for taxable years beginning before August 1, 2008) of
the value of our total assets may be securities of one or more taxable
REIT subsidiaries (described below);
and
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except
for (a) securities in the 75% asset class, (b) securities in a
taxable REIT subsidiary or qualified REIT subsidiary (defined below), and
(c) certain partnership interests and debt obligations: (i) the
value of any one issuer’s securities we own may not exceed 5% of the value
of our total assets; (ii) we may not own more than 10% of any one
issuer’s outstanding voting securities; and (iii) we may not own more
than 10% of the total value of any one issuer’s outstanding securities.
However, if (i) the value of the assets causing us to violate the 5% or
10% tests does not exceed the lesser of (A) 1% of the value of our assets
at the end of the quarter in which the violation occurs, or (B)
$10,000,000, and (ii) we cure the violation by disposing of such assets
within 6 months after the end of the quarter in which we identify the
failure, then we will not lose our REIT
status.
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We
currently hold assets (or provide services to tenants) through one or more
taxable REIT subsidiaries. To treat a subsidiary as a taxable REIT subsidiary,
we and the subsidiary must make a joint election by filing a Form 8875 with
the IRS. A taxable REIT subsidiary pays tax at regular corporate rates on its
earnings, but such earnings may include types of income that might jeopardize
our REIT status if earned by us directly. To prevent the shifting of income and
expenses between us and a taxable REIT subsidiary, the Code imposes on us a tax
equal to 100% of certain items of income and expense that are not allocated
between us and the taxable REIT subsidiary at arm’s length. The 100% tax is also
imposed to the extent we charge a taxable REIT subsidiary interest in excess of
a commercially reasonable rate.
We may
also hold assets through one or more corporate subsidiaries that satisfy the
requirements to be treated as “qualified REIT subsidiaries.” A qualified REIT
subsidiary is disregarded for federal income tax purposes, which means, among
other things, that for purposes of applying the gross income and assets tests,
all assets, liabilities and items of income, deduction and credit of the
subsidiary will be treated as ours. A subsidiary is a qualified REIT subsidiary
if we own all the stock of the subsidiary (and no election is made to treat the
subsidiary as a taxable REIT subsidiary). We may also hold assets through other
entities that may be disregarded for federal income tax purposes, such as one or
more limited liability companies in which we are the only member.
If we
satisfy the asset tests at the close of any quarter, we will not lose our REIT
status if we fail to satisfy the asset tests at the end of a later quarter
solely because of changes in asset values. If our failure to satisfy the asset
tests results, either in whole or in part, from an acquisition of securities or
other property during a quarter, the failure can be cured by disposing of
sufficient non-qualifying assets within 30 days after the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and to take such other action within
30 days after the close of any quarter as may be required to cure any
noncompliance. In some instances, however, we may be compelled to dispose of
assets that we would prefer to retain.
If we
were to fail to satisfy the asset tests at the end of any quarter and the relief
provisions discussed earlier do not apply, then we will still maintain our REIT
status provided (i) our failure to satisfy the relevant asset test was due
to reasonable cause and was not due to willful neglect, (ii) we file a
schedule with the IRS describing the assets causing the violation, (iii) we
cure the violation by disposing of the assets within 6 months after the end
of the quarter in which we identify the failure, and (iv) we pay a penalty
tax of the greater of (A) $50,000 or (B) the product derived by
multiplying the highest federal corporate income tax rate by the net income
generated by the non-qualifying assets during the period of the
failure.
Annual Distribution
Requirements.
To qualify as a REIT, we must also distribute to
our shareholders, dividends (other than capital gain dividends) in an amount at
least equal to (i) the sum of (A) 90% of our “REIT taxable income”
(computed without regard to the dividends paid deduction and our “net capital
gain”) plus (B) 90% of our after-tax net income (if any) from foreclosure
property, minus (ii) the sum of certain items of non-cash income
(including, among other things, cancellation of indebtedness income and original
issue discount). In general, the distributions must be paid during the taxable
year to which they relate. We may also satisfy the distribution requirements
with respect to a particular year provided we (1) declare a sufficient
dividend before timely filing our tax return for that year and (2) pay the
dividend within the 12-month period following the close of the year, and on or
before the date of the first regular dividend payment after such
declaration.
As of
December 31, 2008, we had approximately $22 million of net operating loss
carryforwards (expiring from 2021 through 2023)] that may be available to reduce
the amounts that we are required to distribute in order to maintain our REIT
status and avoid entity-level taxes. Our ability to utilize these carryforwards
is subject to an annual limitation (pursuant to the provisions of
Section 382 of the Code) that we have currently estimated at $6.9 million.
Any adjustments made to the amount of our taxable income in prior years or a
determination that we did not qualify as a REIT in one or more years in which we
generated the losses being carried forward could reduce or otherwise affect the
amount of our loss carryforwards or our ability to deduct them from our REIT
taxable income.
Dividends
declared by us in October, November or December of any calendar year and payable
to shareholders of record on a specified date in such month, are treated as paid
by us and as received by our shareholders on the last day of the calendar year
(including for excise tax purposes), provided we actually pay the dividends no
later than in January of the following calendar year.
We intend
to make timely distributions sufficient to meet the annual distribution
requirements. It is possible that from time to time, we may not have sufficient
cash or other liquid assets to meet the 90% distribution requirement. The
shortfall may, for example, be due to differences between the time we actually
receive income or pay an expense, and the time we must include the income or may
deduct the expense for purposes of calculating our REIT taxable income. As a
further example, the shortfall may be due to an excess of non-deductible cash
outlays such as principal payments on debt and capital expenditures, over
non-cash deductions such as depreciation. In such instances, we may arrange for
short-term or long-term borrowings so that we can pay the required dividends and
meet the 90% distribution requirement.
Under
certain circumstances, if we fail to meet the distribution requirement for a
taxable year, we may correct the situation by paying “deficiency dividends” to
our shareholders in a later year. By paying the deficiency dividend, we may
increase our dividends paid deduction for the earlier year, thereby reducing our
REIT taxable income for the earlier year. However, if we pay a deficiency
dividend, we will have to pay to the IRS interest based on the amount and timing
of any deduction taken for such dividend.
Failure to
Qualify.
Beginning with our 2005 taxable year, if we would
otherwise fail to qualify as a REIT because of a violation of one of the
requirements described above (other than an asset or income test violation for
which one of the relief provisions described earlier is available), then our
qualification as a REIT will not be terminated if the violation is due to
reasonable cause and not willful neglect and we pay a penalty tax of $50,000 for
each violation.
If we
fail to qualify for taxation as REIT in any taxable year and the relief
provisions do not apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to shareholders in any year in which we do not qualify will not be
deductible by us, nor will they be required to be made. Unless we are entitled
to relief under specific statutory provisions, we also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
our qualification was lost. It is not possible to state whether in all
circumstances we would be entitled to such statutory relief. Accordingly, our
failure to qualify as a REIT for a prior taxable year could adversely affect our
qualification as a REIT for the current or subsequent taxable years, even if we
otherwise satisfy the REIT requirements for the current or subsequent taxable
years.
Taxable
Mortgage Pools and Excess Inclusion
Income
. An entity, or a portion of an entity, may be
classified as a taxable mortgage pool (“TMP”) under the Internal Revenue Code if
(1) substantially all of its assets consist of debt obligations or interests in
debt obligations, (2) more than 50% of those debt obligations are real estate
mortgages or interests in real estate mortgages as of specified testing dates,
(3) the entity has issued debt obligations (liabilities) that have two or more
maturities, and (4) the payments required to be made by the entity on its debt
obligations (liabilities) “bear a relationship” to the payments to be received
by the entity on the debt obligations that it holds as assets. We have made and
in the future expect to make investments or enter into financing and
securitization arrangements that may give rise to our owning a direct or
indirect interest in a TMP, with the consequences described below.
A TMP
ordinarily is treated as a taxable corporation for U.S. federal income tax
purposes. However, a REIT, a portion of a REIT, or a disregarded subsidiary of a
REIT that is a TMP, is not treated as a corporation that is subject to corporate
income tax, and the TMP classification does not directly affect the tax status
of the REIT. Instead, a portion of the REIT’s income from the TMP arrangement,
which might be non-cash accrued income, may be “excess inclusion income.” Excess
inclusion income must be allocated among the REIT’s shareholders in proportion
to the dividends paid to them. A shareholder’s share of excess inclusion income
(i) may not be offset by any net operating losses otherwise available to the
shareholder, (ii) is subject to tax as unrelated business taxable income in the
hands of most types of shareholders that are otherwise generally exempt from
U.S. federal income tax, and (iii) is subject to a U.S. federal withholding tax
of 30% without reduction for any otherwise applicable income tax treaty, to the
extent allocable to most types of foreign shareholders. See “
Taxation of Holders of Common or
Preferred Shares -- Non-U.S. Shareholders
” below. To the
extent that excess inclusion income is allocated from a TMP to a tax-exempt
shareholder that is not subject to unrelated business income tax (such as
government entities) or to certain foreign shareholders, the REIT is subject to
tax on this income at the highest applicable corporate tax rate (currently
35%).
As used
in this section, the term “U.S. Shareholder” means a holder of common shares or
preferred shares who, for United States federal income tax purposes,
is:
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a
citizen or resident of the United
States;
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a
domestic corporation;
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an
estate whose income is subject to United States federal income taxation
regardless of its source; or
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a
trust if a United States court can exercise primary supervision over the
trust’s administration and one or more United States persons have
authority to control all substantial decisions of the
trust.
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Dividends.
As long
as we qualify as a REIT, distributions that are made to our taxable U.S.
Shareholders out of current or accumulated earnings and profits (and are not
designated as capital gain dividends) will be taken into account by them as
ordinary income. Such distributions will be ineligible for the corporate
dividends received deduction, and except in circumstances that we do not expect
to arise, also will not qualify for the lower rate applicable to qualifying
dividends paid to non-corporate shareholders. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed our actual net capital gain for the taxable year)
without regard to the period for which a U.S. Shareholder has held our shares.
Thus, with certain limitations, capital gain dividends received by a U.S.
Shareholder who is an individual may be eligible for preferential rates of
taxation. However, U.S. Shareholders that are corporations may be required to
treat up to 20% of certain capital gain dividends as ordinary
income. We may elect to pay dividends partly in shares of our common
stock, in which event a U.S. Shareholder generally will be taxable on the value
of our shares received as a dividend.
We may
elect not to distribute part or all of our net long-term capital gain, and pay
corporate tax on the undistributed amount. In that case, a U.S. Shareholder will
(i) include in its income, as long-term capital gain, its proportionate
share of the undistributed gain, and (ii) claim, as a refundable tax
credit, its proportionate share of the taxes paid. In addition, a U.S.
Shareholder will be entitled to increase its tax basis in our shares by an
amount equal to its share of the undistributed gain reduced by its share of the
corporate taxes paid by us on the undistributed gain. As discussed earlier (see
“
Requirements for Qualification
-- Annual Distribution Requirements
”), we may pay certain dividends in
January that will be taxable to shareholders as if paid in the immediately
preceding calendar year.
Distributions
in excess of our current and accumulated earnings and profits will be treated as
a non-taxable return of capital to a U.S. Shareholder to the extent that they do
not exceed the adjusted basis of the shareholder’s shares as to which the
distributions were made, and will reduce the adjusted basis of the shareholder’s
shares. To the extent these distributions exceed the shareholder’s adjusted
basis in its shares, the distributions will be included in the shareholder’s
income as long-term capital gain (or short-term capital gain if the shares have
been held for one year or less).
Earnings
and profits are allocated to distributions with respect to preferred stock
before they are allocated to distributions with respect to common stock.
Therefore, depending on our earnings and profits, distributions with respect to
our preferred shares (as compared to distributions with respect to our common
shares) are more likely to be treated as dividends than as a return of capital
or a distribution in excess of basis.
Sale of
Shares.
When a U.S. Shareholder sells or otherwise disposes of
our shares, the shareholder will recognize capital gain or capital loss for
federal income tax purposes in an amount equal to the difference between
(a) the amount of cash and the fair market value of any property received
on the sale or other disposition, and (b) the shareholder’s adjusted tax
basis in the shares for tax purposes. The gain or loss will be long-term gain or
loss if the U.S. Shareholder has held the shares for more than one year.
Long-term capital gain of a non-corporate U.S. Shareholder is generally taxed at
preferential rates. In general, any loss recognized by a U.S. Shareholder on a
disposition of shares that the shareholder has held for six months or less,
after applying certain holding period rules, will be treated as a long-term
capital loss, to the extent the shareholder received distributions from us that
were treated as long-term capital gains. Capital losses generally are deductible
only to the extent of a U.S. Shareholder’s capital gain.
Backup
Withholding.
We will report to our U.S. Shareholders and the
IRS the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. A U.S. Shareholder may be subject to
backup withholding tax (currently at a rate of 28%) with respect to dividends
paid unless the shareholder (i) is a corporation or comes within certain
other exempt categories and, if required, demonstrates this fact, or
(ii) provides a taxpayer identification number and certifies as to no loss
of exemption, and otherwise complies with the applicable requirements of the
backup withholding rules. An individual U.S. Shareholder may satisfy these
requirements by providing us with a properly completed and signed IRS
Form W-9. Individual U.S. Shareholders who do not provide us with their
correct taxpayer identification numbers may be subject to penalties imposed by
the IRS. Any amount withheld will be creditable against the U.S. Shareholder’s
income tax liability.
Tax-Exempt
Shareholders.
The IRS has ruled that amounts distributed as
dividends by a qualified REIT generally do not constitute unrelated business
taxable income (“UBTI”) if received by a tax-exempt entity. Based on that
ruling, dividend income from our shares generally will not be UBTI to a
tax-exempt U.S. Shareholder, provided that the shareholder has not held its
shares as “debt financed property” within the meaning of the Code. Similarly,
income from selling our shares generally will not constitute UBTI to a
tax-exempt U.S. Shareholder unless the shareholder has held its shares as “debt
financed property.”
Notwithstanding
the above paragraph, tax-exempt U.S. Shareholders will be required to treat as
UBTI any dividends paid by us that are allocable to our excess inclusion income,
if any. (See “
Taxable Mortgage Pools and Excess
Inclusion Income
” above.) Also, if we are a “pension-held
REIT,” then any qualified pension trust that holds more than 10% of our stock
will have to treat dividends paid by us as UBTI in the same proportion that our
gross income would be UBTI. A qualified pension trust is any trust described in
section 401(a) of the Code that is exempt from tax under
section 501(a) of the Code. In general, we will be treated as a
“pension-held REIT” only if both (a) we are predominantly owned by
qualified pension trusts (that is, at least one qualified pension trust holds
more than 25% of our shares, or one or more qualified pension trusts, each of
which owns more than 10% of our shares, hold in the aggregate more than 50% of
our shares) and (b) we would not qualify as a REIT if we had to treat our
stock owned by a qualified pension trust as owned by an “individual” (instead of
treating such stock as owned by the qualified pension trust’s multiple
beneficiaries). As a result of certain limitations on the transfer and ownership
of shares contained in the Declaration of Trust, we do not expect to be
classified as a pension-held REIT.
Tax-exempt
stockholders that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts and qualified group legal services
plans exempt from federal income taxation under
sections 501(c)(7),(c)(9),(c)(17) and (c)(20), respectively, of the
Code, are subject to different UBTI rules, which generally will require them to
characterize our distributions as UBTI.
The rules
governing the U.S. federal income taxation of shareholders (which we call
“non-U.S. Shareholders”) who or which are not subject to U.S. federal income
taxation, are complex, and no attempt will be made herein to provide more than a
limited summary of those rules. The discussion below assumes that the non-U.S.
Shareholder’s investment in our shares is not effectively connected with a trade
or business conducted in the United States by the non-U.S. Shareholder, or, if a
tax treaty applies to the non-U.S. Shareholder, that its investment in our
shares is not attributable to a United States permanent establishment maintained
by the non-U.S. Shareholder. WE RECOMMEND THAT NON-U.S. SHAREHOLDERS CONSULT
WITH THEIR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE, LOCAL AND
FOREIGN INCOME TAX LAWS AND REPORTING REQUIREMENTS WITH REGARD TO AN INVESTMENT
IN OUR SHARES.
Ordinary
Dividends.
Distributions, other than capital gain dividends
and distributions that are treated as attributable to gain from sales or
exchanges by us of U.S. real property interests (discussed below), will be
treated as ordinary dividends to the extent that they are made out of our
current or accumulated earnings and profits. Such dividends paid to non-U.S.
Shareholders will ordinarily be subject to a U.S. federal withholding tax of 30%
of the gross amount of the distribution, unless an applicable tax treaty reduces
that tax rate. We expect to withhold U.S. income tax at the rate of 30% on the
gross amount of any ordinary dividends paid to a non-U.S. Shareholder, unless we
receive the requisite proof that (i) a lower treaty rate applies or
(ii) the income is “effectively connected income.” A non-U.S. Shareholder
claiming the benefit of a tax treaty may need to satisfy certification and other
requirements, such as providing an IRS Form W-8BEN. A non-U.S. Shareholder
who wishes to claim that distributions are effectively connected with a United
States trade or business may need to satisfy certification and other
requirements, such as providing IRS Form W-8ECI. Other requirements, such
as providing an IRS Form W-8IMY, may apply to a non-U.S. Shareholder that
is a financial intermediary or a foreign partnership.
Distributions
in excess of our current and accumulated earnings and profits that are not
treated as attributable to the gain from a disposition of U.S. real property
will be treated as a non-taxable return of capital to a Non-U.S. Shareholder up
to the amount of the non-U.S. Shareholder’s adjusted basis in its shares. To the
extent that such distributions exceed the adjusted basis of a non-U.S.
Shareholder’s shares, they will give rise to a U.S. tax liability only if the
non-U.S. Shareholder otherwise would be subject to tax on any gain from the sale
or disposition of its shares, as described below. If it cannot be determined at
the time a distribution is made whether the distribution will exceed our current
and accumulated earnings and profits, then the distribution will be subject to
withholding at the rate applicable to ordinary dividends. However, the non-U.S.
Shareholder may seek a refund of these amounts from the IRS if it is
subsequently determined that the distribution did, in fact, exceed our current
and accumulated earnings and profits.
Sales of
Shares.
Gain recognized by a non-U.S. Shareholder upon a sale
or exchange of our shares generally will not be taxed under FIRPTA provided we
are a “domestically controlled REIT.” In general, we will qualify as a
domestically controlled REIT if at all times during a designated testing period
less than 50% in value of our shares are held (directly or indirectly) by
foreign persons. We currently are a domestically controlled REIT. Gain not
subject to FIRPTA nevertheless will be subject to a 30% U.S. tax if the non-U.S.
Shareholder is an alien individual who is present in the United States for
183 days or more during the taxable year, and certain other requirements
are met.
Although
we anticipate that we continue to qualify as a domestically controlled REIT,
because our shares will be publicly traded, no assurance can be given that we
will continue to qualify. If we were not a domestically controlled REIT, then a
non-U.S. Shareholder’s sale of the shares generally would not be subject to tax
under FIRPTA if (a) the non-U.S. Shareholder’s shares of a class are
regularly traded on an established securities market (such as the New York Stock
Exchange) and (ii) the non-U.S. Shareholder has not owned more than 5% of
the applicable class of our shares during a designated testing period. If gain
on the sale of shares is subject to tax under FIRPTA, then a Non-U.S.
Shareholder will be subject to income tax (but will not also be subject to a
branch profits tax) as described above under “—
Taxation of Holders of Common or
Preferred Shares
—
Non-U.S. Shareholders
—
Capital Gain Dividends
,” and
the purchaser of such shares will be required to withhold 10% of the gross
purchase price.
Federal Estate
Taxes.
In general, if an individual who is not a citizen or
resident (as defined in the Code) of the United States owns (or is treated as
owning) our stock at the date of death, our stock will be included in the
individual’s estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
Backup Withholding and Information
Reporting.
Generally, we must report annually to the IRS the
amount of dividends paid to a non-U.S. Shareholder, such Shareholder’s name and
address, and the amount of tax withheld, if any. Payments of dividends or of
proceeds from the disposition of stock made to a non-U.S. Shareholder may be
subject to information reporting and backup withholding unless such Shareholder
establishes an exemption, for example, by properly certifying its non-United
States status on an IRS Form W-8BEN or another appropriate version of IRS Form
W-8. Notwithstanding the foregoing, backup withholding and information reporting
may apply if either we or our paying agent has actual knowledge, or reason to
know, that a non-U.S. Shareholder is a United States person.
A
non-U.S. Shareholder generally may obtain a refund of any amounts withheld under
the backup withholding rules that exceed its income tax liability by filing a
refund claim with the IRS.
We and
our shareholders may be subject to state or local taxation in various state and
local jurisdictions, including those in which we or they transact business or
reside. State and local tax laws may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in our shares.
This
section applies to holders of our fixed rate debt securities that are not
original issue discount or zero coupon debt securities and are acquired in the
initial offering at the offering price. Fixed rate debt securities purchased at
a price other than the offering price may be subject to bond premium or market
discount rules that are not discussed below.
The tax
consequences of owning any securities that are floating rate or contingent
interest debt securities, zero coupon debt securities, original issue debt
securities or indexed debt securities that we offer will be discussed in the
applicable prospectus supplement.
As used
herein, a “U.S. Holder” is a beneficial owner of our fixed rate debt security
(which we call a “note”) that comes within any of the categories of the
definition of a “U.S. Shareholder” (see “—
Taxation of Holders of Common or
Preferred Shares
—
U.S.
Shareholders
” above).
Interest
Income.
Payments of interest on our notes generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the holder’s regular method of
U.S. income tax accounting).
Sale of Notes.
A
U.S. Holder will generally recognize taxable gain or loss equal to the
difference (if any) between the amount realized on the sale, exchange or other
taxable disposition of our note (other than amounts attributable to accrued
interest not already taken into income, which will be taxed as ordinary income)
and the holder’s adjusted tax basis in the note. A U.S. Holder’s adjusted tax
basis in a note generally will be the initial purchase price paid therefor. Gain
or loss recognized on the sale of a note should be long-term capital gain or
loss provided the U.S. Holder’s holding period for the note exceeds one year.
Such gain may qualify for taxation at preferential rates in the case of a
non-corporate U.S. Holder. The deduction of capital losses is subject to
limitations, including that capital losses generally cannot be applied to offset
ordinary income for U.S. federal income tax purposes.
Backup Withholding and Information
Reporting.
A U.S. Holder will generally be subject to information
reporting and may be subject, under certain circumstances, to backup withholding
with respect to payments of interest on, or the gross proceeds from disposition
of, our note. We will be required to withhold backup withholding tax (currently
at a rate of 28%) if a U.S. Holder:
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fails
to furnish its social security or other taxpayer identification number
(“TIN”) within a reasonable time after a request
therefor;
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furnishes
an incorrect TIN;
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fails
to report interest or dividends properly;
or
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fails
under certain circumstances to provide a certified statement, signed under
penalty of perjury, that the TIN provided is the correct number and that
the holder is not subject to backup
withholding.
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Backup
withholding is not an additional tax. Any amount withheld from a payment to a
U.S. Holder under the backup withholding rules is allowable as a credit against
the holder’s U.S. federal income tax liability, provided that the required
information is furnished to the IRS. Certain persons are generally exempt from
information reporting and backup withholding, including corporations and
tax-exempt organizations. U.S. Holders should consult their tax advisors as to
their qualification for exemption from backup withholding and the procedure for
obtaining such exemption.
As used
herein, a non-U.S. Holder is a beneficial owner of our note that comes within
any of the categories of the definition of a “non-U.S. Shareholder” (see “—
Taxation of Holders of Common
or Preferred Shares
—
Non-U.S. Shareholders
” above).
The discussion below assumes that the non-U.S. Holder’s investment in our notes
is not effectively connected with a trade or business conducted in the United
States by the non-U.S. Holder, or, if a tax treaty applies to the non-U.S.
Holder, that its investment in our notes is not attributable to a United States
permanent establishment maintained by the non-U.S. Holder.
Interest
Income.
Generally, interest paid on our notes to a non-U.S.
Holder will not be subject to U.S. federal withholding tax if the interest
qualifies as “portfolio interest.” Interest paid on our note to a non-U.S.
Holder will qualify as portfolio interest so long as the non-U.S.
Holder:
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does
not directly or indirectly, actually or constructively, own 10% or more of
the total combined voting power of our voting stock, and is not a
“controlled foreign corporation” with respect to which we are a “related
person” within the meaning of Section
864(d)(4)
of the Code;
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is
not a bank whose receipt of interest on the notes is described in
Section 881(c)(3)(A) of the Code;
and
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certifies
under penalties of perjury that it is not a U.S. person (such
certification may be made on an IRS Form W-8BEN or suitable
substitute form) and such certificate provides the holder’s name and
address, or a financial institution holding the note on behalf of the
non-U.S. Holder certifies, under penalties of perjury, that it has
received such a certification from the non-U.S. Holder and furnishes a
copy thereof.
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The gross
amount of interest payments to a non-U.S. Holder, including amounts paid on a
sale of our notes that are attributable to accrued and unpaid interest, that do
not qualify for the portfolio interest exception will be subject to U.S.
withholding tax at the rate of 30% unless a U.S. income tax treaty applies to
reduce or eliminate withholding. To claim the benefit of a tax treaty, the
non-U.S. Holder must provide a properly completed and signed IRS
Form W-8BEN prior to our payment of interest. This form must be
periodically updated. A non-U.S. Holder that is claiming the benefits of a tax
treaty may be required to obtain a U.S. TIN and provide certain documentary
evidence issued by foreign governmental authorities to prove residence in the
foreign country.
Sale of
Notes.
Subject to the discussion below concerning backup
withholding, gain (if any) realized by a non-U.S. Holder on the sale, exchange
or other taxable disposition of our note generally will not be subject to U.S.
federal income or withholding tax unless, subject to certain exceptions, the
holder is an individual who is present in the United States for 183 days or
more (and certain other requirements are met) in the taxable year of the
disposition.
Information Reporting and Backup
Withholding.
Generally, we must report annually to the IRS and
to a non-U.S. Holder, any interest payments that we make to the holder and the
tax (if any) withheld from such payments. Copies of these information returns
may also be made available under the provisions of a specific treaty or
agreement to the tax authorities of the country in which the non-U.S. Holder
resides.
Information
reporting will apply to proceeds of a sale of our notes within the United States
or conducted through certain financial intermediaries unless the non-U.S. Holder
provides the statement described under “—
Taxation of Holders of Fixed Rate
Debt Securities
—
Non-U.S. Holders
—
Interest Income
” above (and
the payor does not have actual knowledge or reason to know that the holder is a
U.S. person as defined under the Code) or the non-U.S. Holder otherwise
establishes an exemption.
Backup
withholding will not apply to payments on our notes or to proceeds from a sale
or disposition of our notes if a non-U.S. Holder makes the certification
described under “—
Taxation of
Holders of Fixed Rate Debt Securities
—
Non-U.S. Holders
—
Interest Income
” above (and
the payor does not have actual knowledge or reason to know that the holder is a
U.S. person as defined under the Code) or the holder otherwise establishes an
exemption. Any amounts withheld under the backup withholding rules from a
payment to a non-U.S. Holder will be allowed as a refund or a credit against the
holder’s U.S. federal income tax liability, provided that the required
information is furnished to the IRS. A non-U.S. Holder generally may obtain a
refund of any amounts withheld under the backup withholding rules that exceed
its U.S. income tax liability by filing a refund claim with the IRS.
Unless
otherwise described in the applicable prospectus supplement, we intend to use
the net proceeds from any sale of the securities by us for general corporate
purposes, which may include the acquisition of additional investments, the
repayment of outstanding indebtedness or the improvement of certain properties
already in our portfolio.
We may
sell the securities from time to time in one or more transactions:
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to
purchasers directly;
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to
underwriters for public offering and sale by
them;
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in
“at the market offerings” to or through a market maker or into an existing
trading market, or a securities exchange or
otherwise;
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on
The New York Stock Exchange or in any other securities market on which our
common shares are then listed or
traded;
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in
the over-the-counter market;
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in
negotiated transactions;
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through
a combination of any of the foregoing methods of
sale.
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We may
distribute the securities from time to time in one or more transactions
at:
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a
fixed price or prices, which may be
changed;
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market
prices prevailing at the time of
sale;
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prices
related to such prevailing market prices;
or
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We may
sell the securities directly to institutional investors or others. A prospectus
supplement will describe the terms of any sale of the securities we are offering
hereunder.
To
Underwriters
The
applicable prospectus supplement will name any underwriter involved in a sale of
the securities. Underwriters may offer and sell common stock at a fixed price or
prices, which may be changed, or from time to time at market prices or at
negotiated prices. Underwriters may be deemed to have received compensation from
us from sales of the securities in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the securities
for whom they may act as agent.
Underwriters
may sell the securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions (which may be changed from time to time) from
the purchasers for whom they may act as agent.
Unless
otherwise provided in a prospectus supplement, the obligations of any
underwriters to purchase the securities will be subject to certain conditions,
and the underwriters will be obligated to purchase all of the securities if any
are purchased, which is known as a firm commitment offering.
Through
Agents and Dealers
We will
name any agent involved in a sale of the securities, as well as any commissions
payable by us to such agent, in a prospectus supplement to the extent required.
Unless we indicate differently in the prospectus supplement, any such agent will
be acting on a reasonable efforts basis for the period of its
appointment.
If we
utilize a dealer in the sale of the securities, we will sell our common shares
to the dealer, as principal. The dealer may then resell the securities to the
public at varying prices to be determined by the dealer at the time of
resale.
Delayed
Delivery Contracts
If we so
specify in the applicable prospectus supplement, we will authorize underwriters,
dealers, and agents to solicit offers by certain institutions to purchase the
securities pursuant to contracts providing for payment and delivery on future
dates. Such contracts will be subject to only those conditions set forth in the
applicable prospectus supplement.
The
underwriters, dealers, and agents will not be responsible for the validity or
performance of the contracts. We will set forth in the prospectus supplement
relating to the contracts the price to be paid for the securities, the
commissions payable for solicitation of the contracts and the date in the future
for delivery of the securities.
Underwriters,
dealers, and agents participating in a sale of the securities may be deemed to
be underwriters as defined in the Securities Act of 1933, as amended, or
Securities Act, and any discounts and commissions received by them and any
profit realized by them on resale of the securities may be deemed to be
underwriting discounts and commissions under the Securities Act. We may have
agreements with underwriters, dealers, and agents to indemnify them against
certain civil liabilities, including liabilities under the Securities Act, and
to reimburse them for certain expenses.
Underwriters
or agents and their associates may be customers of, engage in transactions with,
or perform services for us or our affiliates in the ordinary course of
business.
We may
indemnify underwriters, dealers, or agents who participate in the distribution
of securities against certain liabilities, including liabilities under the
Securities Act, and may agree to contribute to payments that these underwriters,
dealers, or agents may be required to make.
Some of
the securities offered under this prospectus may be a new issue of securities
with no established trading market. Any underwriters that purchase securities
from us may make a market in these securities. The underwriters will not be
obligated, however, to make a market and may discontinue market-making at any
time without notice to holders of the securities. We cannot assure you that
there will be liquidity in the trading market for any securities of any
series.
Our
common shares are listed and traded on the New York Stock Exchange.
EARNINGS
TO COMBINED FIXED CHARGES
AND
PREFERRED SHARE DIVIDENDS
The
following table sets forth our historical ratios of earnings to fixed charges
and earnings to combined fixed charges and preferred share dividends for the
periods indicated. To the extent the ratio indicates less than one-to-one
coverage, the dollar amount of the deficiency is also listed.
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Six
months ended
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Year
Ended December 31,
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June 30,
2009
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2008
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2007
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2006
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2005
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2004
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Ratio
of Earnings to Fixed Charges
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2.42
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1.63
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1.02
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2.45
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2.07
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1.72
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Deficiency
(in 000s)
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$
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–
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$
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–
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$
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–
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$
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–
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$
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–
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$
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–
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Ratio
of Earnings to Combined Fixed Charges and Preferred Share
Dividends
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2.42
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1.63
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1.02
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2.45
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1.88
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–
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Deficiency
(in 000s)
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$
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–
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$
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–
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$
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–
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$
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–
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$
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–
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$
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(120
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)
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The
ratios of earnings to fixed charges were computed by dividing earnings by fixed
charges. The ratios of earnings to combined fixed charges and preferred share
dividends were computed by dividing earnings by the sum of fixed charges and
preferred share dividends. For these purposes, earnings consist of pre-tax
income from continued operations plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (including capitalized
interest) and the amortization of debt issuance costs.
The financial statements as of December 31, 2006 and
for the year then ended before the effects of the adjustments to retrospectively
apply the change in accounting resulting from the adoption of Statement of
Financial Accounting Standards No. 160 (“SFAS 160”), “
Non-controlling Interests in
Consolidated Financial Statements, an amendment to ARB 51
”as described in
Note 2 and the adjustments to the 2006 earnings per share to retrospectively
apply the effect of the reverse stock split of the Company's Common Shares of
Beneficial Interest, (not separately included or incorporated by reference in
the Prospectus) have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm. The adjustments to those financial
statements to retrospectively apply the change in accounting principle resulting
from the adoption of SFAS 160 as described in Note 2 and the adjustments to the
2006 earnings per share to retrospectively apply the effect of the reverse stock
split of the Company's Common Shares of Beneficial Interest have been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting
firm. The consolidated financial statements as of December 31, 2006
and for the year then ended incorporated in this prospectus by reference to the
Current Report on Form 8-K dated August 27, 2009, have been so incorporated in
reliance on the reports of (i) Deloitte & Touche LLP solely with respect to
those financial statements before the effects of the adjustments to
retrospectively apply the change in accounting resulting from the adoption of
SFAS 160 as described in Note 2 and the adjustments to the 2006 earnings per
share to retrospectively apply the effect of the reverse stock split of the
Company's Common Shares of Beneficial Interest and (ii) PricewaterhouseCoopers
LLP solely with respect to the adjustments to those financial statements to
retrospectively apply the change in accounting resulting from the adoption of
SFAS 160 as described in Note 2 and the adjustments to the 2006 earnings per
share to retrospectively apply the effect of the reverse stock split of the
Company's Common Shares of Beneficial Interest, given on the authority of such
firms as experts in auditing and accounting.
The
financial statements as of December 31, 2008 and 2007 and for the years ended
December 31, 2008 and 2007 incorporated in this Prospectus by reference to
Winthrop Realty Trust's Current Report on Form 8-K dated August 27, 2009 and the
financial statement schedule and management's assessment of the effectiveness of
internal control over financial reporting (which is included in Management's
Report on Internal Control over Financial Reporting) incorporated in this
Prospectus by reference to the Annual Report on Form 10-K of Winthrop Realty
Trust as of December 31, 2008 and 2007 and for the years ended December 31, 2008
and 2007 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and
accounting.
The
financial statements of Lex-Win Concord LLC incorporated in this Prospectus by
reference to Winthrop Realty Trust's Current Report on Form 8-K dated August 27,
2009 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and
accounting.
On
November 1, 2008, our auditors, Tauber & Balser, P.C., combined with, and
changed their name to, Habif, Arogeti & Wynne, LLP. The financial
statements of the Chicago Properties (our Marc Realty joint venture) as of and
for the year ended December 31, 2007 incorporated in this prospectus by
reference to Winthrop Realty Trust’s Annual Report on Form 10-K for the year
ended December 31, 2008 have been so incorporated in reliance on the report of
Tauber & Balser, P.C., an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and
accounting.
Certain
legal matters, including the legality of the securities offered hereby, have
been passed upon by Hahn Loeser & Parks LLP. Certain tax matters have
been passed upon by Katten Muchin Rosenman LLP.
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 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.
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 following documents:
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Annual
Report on Form 10-K for the year ended December 31, 2008 (with
respect to Items 6, 7, 7A and 8, as amended by the Current Report on Form
8-K filed on August 28, 2009);
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Quarterly
Report on Form 10-Q for the quarter ended June 30,
2009;
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Quarterly
Report on Form 10-Q for the quarter ended March 31,
2009;
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Current
Reports on Form 8-K filed on August 28, 2009, August 7, 2009 (solely
with respect to Item 8.01), July 15, 2009, June 4, 2009, May 8, 2009
(solely with respect to Item 8.01), April 21, 2009, March 6, 2009 (solely
with respect to Items 1.01 and 8.01), February 13, 2009, and January 8,
2009; and
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Our
Definitive Proxy Statement on Schedule 14A dated April 21,
2009.
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All
documents filed by us with the SEC pursuant to 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, after the date of this prospectus and prior to
the termination of the offering of all securities under this prospectus will
also be deemed to be incorporated by reference into this prospectus and to be a
part hereof.
You may
request a copy of these filings, at no cost, by writing or telephoning us at the
following address:
Beverly
Bergman, Director of Investor Relations
Winthrop
Realty Trust
7
Bulfinch Place, Suite 500
Boston,
MA 02114
(617) 570-4614
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 ________________, 2009.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
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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$
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17,820
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Printing
and engraving costs
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15,000
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Accounting
fees and expense
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45,000
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Legal
fees and expenses
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75,000
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Miscellaneous
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10,000
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TOTAL
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$
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162,820
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ITEM
15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
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. Subject to the specific conditions
contained therein, our declaration of trust also obligates us to indemnify our
trustees for, and pay or reimburse them for expenses incurred related to, claims
and liabilities which they may become subject to by reason of having served as a
trustee.
We have
acquired insurance indemnifying our trustees and officers in certain cases and
with certain deductible limitations.
ITEM
16. EXHIBITS.
The
following exhibits are included as part of this Registration Statement:
Exhibit
No.
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Exhibit
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1
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Form
of Underwriting Agreement (a)
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3.1
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Amended
and Restated Declaration of Trust as of May 21, 2009 – Incorporated by
reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2009
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3.2
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Bylaws
of the Registrant as restated on November 8, 2005 - Incorporated by
reference to Exhibit 3.1 to the Registrant’s Form 8-K filed November 10,
2005.
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3.3
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Amendment
to Bylaws adopted January 10, 2007 - Incorporated by reference to Exhibit
3.1 to the Registrant’s Form 8-K filed January 16, 2007
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3.4
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Amendment
to Bylaws adopted February 27, 2007 - Incorporated by reference to Exhibit
3.1 to the Registrant’s Form 8-K filed March 2, 2007
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4.1
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Form
of certificate for Shares of Beneficial Interest - Incorporated by
reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K
for the year ended December 31,
2008.
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4.2
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Agreement
of Limited Partnership of First Union REIT L.P., dated as of January 1,
2005 - Incorporated by reference to Exhibit 4.1 to the Registrant’s Form
8-K filed January 4, 2005
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4.3
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Amended
and Restated Certificate of Designations for Series B-1 Cumulative
Convertible Redeemable Preferred Shares of Beneficial Interest (“Series
B-1 Certificate of Designations”) - Incorporated by reference to Exhibit
4.1 to the Registrant’s Form 8-K filed June 21, 2005.
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4.4
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Amendment
No. 1 to Series B-1 Certificate of Designations – Incorporated by
reference to the Registrant’s Form 8-K filed November 13,
2007
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4.5
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Form
of Indenture for Debt Securities (b)
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5.1
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Opinion
of Hahn Loeser & Parks LLP regarding legality of securities being
registered (b)
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8.1
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Opinion
of Katten Muchin Rosenman LLP regarding certain tax matters
(b)
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12.1
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Statement
of Ratio of Earnings to Fixed Charges (b)
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12.2
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Statement
of Ratio of Earnings to Combined Fixed Charges and Preferred Share
Dividends (b)
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23.1
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Consent
of Deloitte & Touche LLP
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23.2
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Consent
of Pricewaterhousecoopers LLP
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23.3
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Consent
of Pricewaterhousecoopers LLP
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23.4
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Consent
of Katten Muchin Rosenman LLP (included in Exhibit 8.1)
(b)
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23.5
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Consent
of Hahn Loeser & Parks LLP (included in Exhibit 5.1)
(b)
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23.6
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Consent
of Tauber & Balser, PC
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24
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Power
of Attorney (included on signature page) (b)
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25
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Statement
of Eligibility of Trustee(c)
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(a)
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To
be filed, if applicable, by amendment to the registration statement or on
Form 8-K.
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(b)
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Previously
filed with the Registration Statement on Form S-3 filed November 26,
2008.
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(c)
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To
be filed as applicable on a delayed basis pursuant to Section 305(b)(2) of
the Trust Indenture Act of
1939.
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(a)
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The
undersigned Registrant hereby
undertakes:
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(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933, as amended (the “Securities Act”);
(ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective Registration Statement; and
Provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in this Registration
Statement.
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(b) The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant’s annual
report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement will be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
(c) Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to trustees, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The
undersigned registrant hereby undertakes to file an application for the purpose
of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Securities and Exchange Commission under
Section 305(b)(2) of the Trust Indenture Act.
(e) That,
for the purpose of determining liability under the Securities Act to any
purchaser:
(1) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration statement;
and
(2) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x)
for the purpose of providing the information required by section 10(a) of
the Securities Act shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided
in Rule 430B, for liability purposes of the issuer and any person that is
at that date an underwriter, such date shall be deemed to be a new effective
date of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such effective date.
Pursuant
to the requirements of the Securities Act of 1933, the Registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused Amendment No. 1 to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, State of Massachusetts, on August 28,
2009.
WINTHROP
REALTY TRUST
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By:
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/s/
MICHAEL L. ASHNER
______________________________
Michael
L. Ashner
Chief
Executive Officer (Principal Executive
Officer)
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By:
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/s/ THOMAS
C. STAPLES
______________________________
Thomas
C. Staples
Chief
Financial Officer (Principal Financial
Officer)
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Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Name
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Title
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Date
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/s/
MICHAEL L. ASHNER
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Michael
L. Ashner
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Trustee
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August
28, 2009
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*
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Thomas
McWilliams
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Trustee
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August
28, 2009
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*
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Arthur
Blasberg, Jr.
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Trustee
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August
28, 2009
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*
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Howard
Goldberg
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Trustee
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August
28, 2009
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*
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Steven
Zalkind
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Trustee
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August
28, 2009
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/s/
Bradley Scher
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Bradley
Scher
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Trustee
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August
28, 2009
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/s/
Carolyn Tiffany
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Carolyn
Tiffany
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Trustee
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August
28, 2009
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/s/
Lee Seidler
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Lee
Seidler
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Trustee
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August
28, 2009
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*
By:
Michael
Ashner
As
Attorney-in-Fact pursuant to a
Power
of Attorney previously granted
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