Form S-3 for Monmouth Real Estate Investment Corporation
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 12, 2004
Registration No. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
(Exact name of registrant as specified in charter)
Maryland 22-1897375
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Juniper Business Plaza, Suite 3-C, 3499 Route 9 North,
Freehold, New Jersey 07728
732-577-9996
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Anna T. Chew
Juniper Business Plaza, Suite 3-C, 3499 Route 9 North,
Freehold, New Jersey 07728
732-577-9996
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Gary D. Gilson
Blackwell Sanders Peper Martin, LLP
Two Pershing Square
2300 Main Street, Suite 1000
Kansas City, Missouri 64108
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Approximate date of commencement of proposed sale to the public:
From time to time after the Registration Statement becomes effective
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registrations statement number of the earlier effective registration statement
for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
_________________________
Calculation of Registration Fee
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Title of each class of Proposed Proposed
securities to be Amount to be maximum offering maximum aggregate Amount of
registered registered price per share (1) offering price (1) registration fee
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Common Stock 500,000 shares $9.25 $4,625,000 $586
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. The proposed
maximum offering price per share is based on the average of the high and
low sales prices of the Registrant's Common Stock on March 11, 2004, as
reported by the Nasdaq Stock Market.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated March 12, 2004
PROSPECTUS
500,000 Shares
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
Common Stock
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This prospectus relates to 250,000 shares of our common stock, par value
$.01 per share ("Common Stock") that may be offered by TIAA-CREF Real Estate
Securities Fund and 250,000 shares of Common Stock that may be offered by TIAA
Life Real Estate Securities Fund, from time to time in transactions on the
Nasdaq Stock Market, in privately negotiated transactions or otherwise at fixed
prices or prices which may be changed, at market prices prevailing at the time
of the sale, at prices related to market prices prevailing at the time of the
sale, or at negotiated prices. TIAA-CREF Real Estate Securities Fund and TIAA
Life Real Estate Fund are collectively referred to in this prospectus as the
"Selling Shareholders." The Selling Shareholders originally purchased these
shares from United Mobile Homes, Inc., in a transaction exempt from registration
under the Securities Act.
We will not receive any of the proceeds from the sale of the shares by the
Selling Shareholders. All proceeds will go to the Selling Shareholders. All
expenses of registration incurred in connection with this offering are being
borne by us, but all selling and other expenses incurred by the Selling
Shareholders will be borne by the Selling Shareholders.
Our Common Stock is listed on the Nasdaq Stock Market under the symbol
"MNRTA." On March 11, 2004, the closing price of our Common Stock on the Nasdaq
Stock Market was $9.29 a share.
An investment in our Common Stock involves a high degree of risk. See "Risk
Factors" beginning on page 6 of this prospectus for a discussion of risk factors
that you should consider in connection with an investment in our Common Stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is March 12, 2004
TABLE OF CONTENTS
Page
ABOUT THIS PROSPECTUS..........................................................1
WHERE YOU CAN FIND MORE INFORMATION............................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................2
MONMOUTH REAL ESTATE INVESTMENT CORPORATION....................................3
RISK FACTORS...................................................................6
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS...............................11
USE OF PROCEEDS...............................................................11
SELLING SHAREHOLDERS..........................................................12
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES........................16
PLAN OF DISTRIBUTION..........................................................31
LEGAL MATTERS.................................................................32
EXPERTS.......................................................................32
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. You should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information different from that which is contained in this
prospectus. The information in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of the prospectus or any
sale of Common Stock.
Under this process, from time to time the Selling Shareholders may sell in
one or more offerings up to 500,000 shares of our Common Stock. We will not
receive any proceeds from any sale of Common Stock by the Selling Shareholders.
You should read this prospectus 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 Common Stock offered under this prospectus. Specifically, we
have filed certain legal documents that control the terms of the Common Stock as
exhibits to the registration statement. We may file certain other legal
documents that control the terms of the Common Sock as exhibits to reports we
file with the SEC. That registration statement and the other reports can be read
at the SEC's website or at the SEC offices mentioned under the heading "Where
You Can Find More Information," or can be obtained by writing or telephoning us
at the following address and telephone number:
Monmouth Real Estate Investment Corporation
Attention: Shareholder Relations
3499 Route 9 N, Suite 3-C
Juniper Business Plaza
Freehold, NJ 07728
(732) 577-9996
In this prospectus, "we," "us," "our," "Monmouth," or the "Company" refers
to Monmouth Real Estate Investment Corporation, together with its predecessors
and subsidiaries unless the context requires otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the Securities
Act with respect to the securities offered hereunder. As permitted by the SEC's
rules and regulations, this prospectus does not contain all the information set
forth in the registration statement. For further information regarding our
company and our Common Stock, please refer to the registration statement and the
contracts, agreements and other documents filed as exhibits to the registration
statement. Additionally, we file annual, quarterly and special reports, proxy
statements and other information with the SEC.
You may read and copy all or any portion of the registration statement or
any other materials that we file with the SEC at the SEC's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our SEC filings, including the
registration statement, are also available to you on the SEC's website
(http://www.sec.gov). We also have a website (www.mreic.com) through which you
may access our recent SEC filings. In addition, you may look at our SEC filings
at the offices of the Nasdaq Stock Market, Inc., which is located at 1500
Broadway, New York, New York 10036. Our SEC filings are available through the
Nasdaq Stock Market because our Common Stock is listed and traded on the Nasdaq
Stock Market under the symbol "MNRTA".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information contained
in documents that we file with them. That means 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 later file with the SEC will automatically update and
supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, after the initial filing of the
registration statement that contains this prospectus and before all the
securities offered by this prospectus are sold.
• Our 2003 Annual Report on Form 10-K, as filed with the SEC on December
22, 2003.
• Our Quarterly Report on Form 10-Q, as filed with the SEC on February
13, 2004.
• Our Current Report on Form 8-K, as filed with the SEC on January 21,
2004.
• Our Current Report on Form 8-K, as filed with the SEC on February 25,
2004.
• The description of the our Common Stock, $.01 par value, which is
contained in a registration statement filed under the Exchange Act,
including our Current Report on Form 8-K, as filed with SEC on May 21,
2003, that updates such description.
You may request a free copy of these filings (other than exhibits, unless
they are specifically incorporated by reference in the documents) by writing or
telephoning us at the following address and telephone number:
Monmouth Real Estate Investment Corporation
Attention: Shareholder Relations
3499 Route 9 N, Suite 3-C
Juniper Business Plaza
Freehold, NJ 07728
(732) 577-9996
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MONMOUTH REAL ESTATE INVESTMENT CORPORATION
Monmouth Real Estate Investment Corporation (the "Company") is a
corporation operating as a qualified real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code (the "Code"), and intends to
maintain its qualification as a REIT in the future. As a qualified REIT, with
limited exceptions, the Company will not be taxed under Federal and certain
state income tax laws at the corporate level on taxable income that it
distributes to its shareholders. For special tax provisions applicable to REITs,
refer to Sections 856-860 of the Code.
The Company was incorporated in 1968 as a Delaware corporation. On May 15,
2003, the Company changed its state of incorporation from Delaware to Maryland
(the "Reincorporation"). The Reincorporation was approved by the Company's
shareholders at the Company's annual meeting on May 6, 2003.
The Reincorporation was accomplished by the merger (the "Merger") of the
Delaware corporation with and into its wholly-owned subsidiary, MREIC Maryland,
Inc., a Maryland Corporation, ("Monmouth Maryland"), which was the surviving
corporation in the Merger. In connection with the Merger, Monmouth Maryland
changed its name to Monmouth Real Estate Investment Corporation. As a result of
the Merger each outstanding share of Class A common stock, $.01 par value per
share of the Delaware corporation was converted into one share of common stock,
$.01 par value of the Maryland corporation.
The Merger was accounted for as if it were a "pooling of interests" rather
than a purchase for financial reporting and related purposes, with the result
that the historical accounts of the Company and Monmouth Maryland have been
combined for all periods presented. Monmouth Maryland has the same business,
properties, directors, management, status as a real estate investment trust
under the Code and principal executive offices as Monmouth Delaware.
Currently, the Company derives its income primarily from real estate rental
operations. Rental and occupancy revenue was $17,888,495, $14,519,670, and
$10,524,575 for the years ended September 30, 2003, 2002 and 2001, respectively.
Total assets were $183,173,874 and $149,011,493 as of September 30, 2003 and
2002, respectively. As of September 30, 2003, the Company had approximately
3,546,000 square feet of property, of which approximately 1,034,000 square feet,
or 29%, is leased to Federal Express Corporation and subsidiaries and
approximately 274,000 square feet, or 8%, is leased to Keebler Company, a
subsidiary of the Kellogg Company. During 2003, 2002 and 2001 rental and
occupancy charges from properties leased to these companies approximated 48%,
52% and 55%, respectively, of total rental and occupancy charges.
At September 30, 2003, the Company had investments in thirty-three
properties. These properties are located in New Jersey, New York, Pennsylvania,
North Carolina, Mississippi, Massachusetts, Kansas, Iowa, Missouri, Illinois,
Michigan, Nebraska, Florida, Virginia, Ohio, Connecticut, Wisconsin, Maryland
and Arizona. All properties are managed by a management company. All properties
are leased on a net basis except Monaca, Pennsylvania.
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The Company competes with other investors in real estate for attractive
investment opportunities. These investors include other "equity" real estate
investment trusts, limited partnerships, syndications and private investors,
among others. Competition in the market areas in which the Company operates is
significant and affects acquisitions and/or development of properties, occupancy
levels, rental rates, and operating expenses of certain properties. Management
has built relationships with merchant builders which provides the Company with
investment opportunities which fit the Company's investment policy.
The Company has a flexible investment policy concentrating its investments
in the area of net-leased industrial properties. The Company's strategy is to
obtain a favorable yield spread between the yield from the net-leased industrial
properties and mortgage interest costs. The Company continues to purchase
net-leased industrial properties, since management believes that there is a
potential for long-term capital appreciation through investing in well-located
industrial properties. There is the risk that, on expiration of current leases,
the properties can become vacant or re-leased at lower rents. The results
obtained by the Company by re-leasing the properties will depend on the market
for industrial properties at that time.
In fiscal 2003, the Company purchased three net-leased industrial
properties for a total cost of approximately $26,200,000. In fiscal 2004, the
Company anticipates acquisitions of approximately $30,000,000. The funds for
these acquisitions may come from the Company's available line of credit, other
bank borrowings, proceeds from the Dividend Reinvestment and Stock Purchase Plan
and private placements. To the extent that funds or appropriate properties are
not available, fewer acquisitions will be made. Because of the contingent nature
of contracts to purchase real property, the Company announces acquisitions only
upon closing.
The Company seeks to invest in well-located, modern buildings leased to
credit worthy tenants on long-term leases. In management's opinion, newly built
facilities leased to Federal Express Corporation ("FDX") or FDX subsidiaries
meet this criteria. The Company has a concentration of properties leased to FDX
and FDX subsidiaries. This is a risk factor that shareholders should consider.
FDX is a publicly-owned corporation and information on its financial business
operations is readily available to the Company's shareholders.
The Company is subject to various environmental regulatory requirements
related to the ownership of real estate. Investments in real property have the
potential for environmental liability on the part of the owner of such property.
The Company is not aware of any environmental liabilities to the Company
relating to the Company's investment properties which would have a material
adverse effect on the Company's business, assets, or results of operations.
The Company operates as part of a group of three public companies (all
REITs) which includes United Mobile Homes, Inc., Monmouth Capital Corporation,
and Monmouth Real Estate Investment Corporation (the affiliated companies). Some
general and administrative expenses are allocated between the three affiliated
companies based on use or services provided. The Company currently has eleven
employees. Allocations of salaries and benefits are made between the affiliated
companies based on the amount of the employees' time dedicated to each
affiliated company. The Company does not have an advisory contract; however, all
of the properties are managed by Cronheim Management Services, a division of
David Cronheim
4
Company. In 1998, the Company entered into a new management contract with
Cronheim Management Services. Under this contract, Cronheim Management Services
receives 3% of gross rental income on certain properties for management fees.
Cronheim Management Services provides sub-agents as regional managers for the
Company's properties and compensates them out of this management fee. Cronheim
Management Services received $258,626, $245,597 and $220,521, in 2003, 2002 and
2001, respectively, for the management of the properties. David Cronheim Company
received $14,377, $20,194 and $26,708 in lease brokerage commissions in 2003,
2002 and 2001, respectively. Daniel Cronheim, a director of the Company, is the
Executive Vice President and General Counsel of the David Cronheim Company and
the President of Cronheim Management Services.
The Company continues to invest in both debt and equity securities of other
REITs. The Company from time to time may purchase these securities on margin
when the interest and dividend yields exceed the cost of the funds. The
securities portfolio, to the extent not pledged to secure borrowing, provides
the Company with liquidity and additional income. Such securities are subject to
risk arising from adverse changes in market rates and prices, primarily interest
rate risk relating to debt securities and equity price risk relating to equity
securities.
We are a Maryland corporation. Our executive offices are located at Juniper
Business Plaza, Suite 3-C, 3499 Route 9 North, Freehold, New Jersey 07728, and
our telephone number is (732) 577-9996. Additional information about the Company
can be found on the Company's website, which is located at www.mreic.com.
Information contained on our website is not a part of this prospectus.
Recent Developments
On February 23, 2004, the Company purchased a 170,779 square foot
industrial building in Tampa, Florida, from Regional Development Group, Inc.
This industrial building is 100% leased to FedEx Ground Package System, Inc., a
subsidiary of Federal Express Corporation, under a net lease for 15 years. The
purchase price was approximately $17,700,000. The Company paid cash of $400,000,
borrowed approximately $4,500,000 against its security portfolio with Wachovia
Securities and obtained a mortgage of approximately $12,800,000. The mortgage is
payable at an interest rate of 6.0% and is due in 2019.
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RISK FACTORS
Set forth below are the risks that we believe are important to investors in
our Common Stock. Before you decide to purchase our Common Stock, you should
consider carefully the risks described below, together with the information
provided in the other parts of this prospectus. From time to time, we may make
forward-looking statements (within the meaning of Section 27A of the Securities
Act and Section 21F of the Exchange Act) in documents filed under the Securities
Act, the Exchange Act, press releases or other public statements. If we make
forward-looking statements, we assume no obligation to update forward-looking
statements. Potential investors should not place undue reliance on
forward-looking statements as they involve numerous risks and uncertainties that
could cause actual results to differ materially from the results stated or
implied in the forward-looking statements. In addition to specific factors that
may be disclosed simultaneously with any forward-looking statement, some of the
factors related to us and our businesses that could cause actual results to
differ materially from a forward-looking statement are set forth below, and
elsewhere in this prospectus and in the documents we incorporate by reference.
Real Estate Industry Risks
We face risks associated with local real estate conditions in areas where
we own properties. We may be affected adversely by general economic conditions
and local real estate conditions. For example, an oversupply of industrial
properties in a local area or a decline in the attractiveness of our properties
to tenants would have a negative effect on us.
Other factors that may affect general economic conditions or local real
estate conditions include:
• population and demographic trends;
• zoning, use and other regulatory restrictions;
• income tax laws;
• changes in interest rates and availability and costs of financing;
• competition from other available real estate;
• our ability to provide adequate maintenance and insurance; and
• increased operating costs, including insurance premiums and real
estate taxes.
We may be unable to compete with our larger competitors and other
alternatives available to tenants or potential tenants of our properties. The
real estate business is highly competitive. We compete for properties with other
real estate investors, including other real estate investment trusts, limited
partnerships, syndications and private investors, many of whom have greater
financial resources, revenues, and geographical diversity than we have.
Furthermore, we compete for tenants with other property owners. All of our
industrial properties are subject to significant local competition. We also
compete with a wide variety of institutions
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and other investors for capital funds necessary to support our investment
activities and asset growth.
We are subject to significant regulation that inhibits our activities and
increases our costs. Local zoning and use laws, environmental statutes and other
governmental requirements may restrict expansion, rehabilitation and
reconstruction activities. These regulations may prevent us from taking
advantage of economic opportunities. Legislation such as the Americans with
Disabilities Act may require us to modify our properties. Future legislation may
impose additional requirements. We cannot predict what requirements may be
enacted or what changes may be implemented to existing legislation.
Risks Associated with Our Properties
We may be unable to renew leases or relet space as leases expire. While we
seek to invest in well-located, modern buildings leased to credit-worthy tenants
on long term leases, a number of our properties are subject to short term
leases. Currently we have an occupancy rate of 96%. When a lease expires, a
tenant may elect not to renew it. We may not be able to relet the property on
similar terms, if we are able to relet the property at all. We have established
an annual budget for renovation and reletting expenses that we believe is
reasonable in light of each property's operating history and local market
characteristics. This budget, however, may not be sufficient to cover these
expenses.
We have been and may continue to be affected negatively by tenant financial
difficulties and leasing delays. A general decline in the economy may result in
a decline in the demand for industrial space. As a result, our tenants may delay
lease commencement, fail to make rental payments when due, or declare
bankruptcy. Any such event could result in the termination of that tenant's
lease and losses to us. We receive a substantial portion of our income as rents
under long-term leases. If tenants are unable to comply with the terms of their
leases because of rising costs or falling sales, we, in our sole discretion, may
deem it advisable to modify lease terms to allow tenants to pay a lower rental
or a smaller share of operating costs, taxes and insurance.
We may be unable to sell properties when appropriate because real estate
investments are illiquid. Real estate investments generally cannot be sold
quickly and, therefore, will tend to limit our ability to vary our property
portfolio promptly in response to changes in economic or other conditions. The
inability to respond promptly to changes in the performance of our property
portfolio could adversely affect our financial condition and ability to serve
debt and make distributions to our stockholders.
We have a concentration of properties leased to FDX and FDX subsidiaries.
We could experience losses should FDX experience financial difficulties that
cause it or its subsidiaries to fail to make rental payments when due or to
declare bankruptcy. FDX is a publicly-owned corporation and information on its
financial business operations is readily available.
Environmental liabilities could affect our profitability. We face possible
environmental liabilities. Current and former real estate owners and operators
may be required by law to
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investigate and clean up hazardous substances released at the properties they
own or operate. They may also be liable to the government or to third parties
for property damage, investigation costs and cleanup costs. Contamination may
affect adversely the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral.
Environmental laws today can impose liability on a previous owner or
operator of a property that owned or operated the property at a time when
hazardous or toxic substances were disposed on, or released from, the property.
A conveyance of the property, therefore, does not relieve the owner or operator
from liability.
We are not aware of any environmental liabilities relating to our
investment properties which would have a material adverse effect on our
business, assets, or results of operations. However, we cannot assure you that
environmental liabilities will not arise in the future.
If our insurance coverage is inadequate or we cannot obtain acceptable
insurance coverage, our operations could be materially adversely affected. We
generally maintain insurance policies related to our business, including
casualty, general liability and other policies covering business operations,
employees and assets. We may be required to bear all losses that are not
adequately covered by insurance. Although our management believes that our
insurance programs are adequate, no assurance can be given that we will not
incur losses in excess of our insurance coverage, or that we will be able to
obtain insurance in the future at acceptable levels and reasonable cost.
Financing Risks
We face risks generally associated with our debt. We finance a portion of
our investments through debt. This debt creates risks, including:
• rising interest rates on our floating rate debt;
• failure to repay or refinance existing debt as it matures, which may
result in forced disposition of assets on disadvantageous terms;
• refinancing terms less favorable than the terms of existing debt; and
• failure to meet required payments of principal and/or interest.
We face risks associated with the use of debt to fund acquisitions,
including refinancing risk. We are subject to the risks normally associated with
debt financing, including the risk that our cash flow will be insufficient to
meet required payments of principal and interest. We anticipate that a portion
of the principal of our debt will not be repaid prior to maturity. Therefore, we
will likely need to refinance at least a portion of our outstanding debt as it
matures. There is a risk that we may not be able to refinance existing debt or
that the terms of any refinancing will not be as favorable as the terms of the
existing debt. If principal payments due at maturity cannot be refinanced,
extended or repaid with proceeds from other sources, such as new equity capital
or sales of properties, our cash flow will not be sufficient to repay all
maturing debt in years when significant "balloon" payments come due. As a
result, we may be forced to dispose of properties on disadvantageous terms.
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We may amend our business policies without your approval. Our board of
directors determines our growth, investment, financing, capitalization,
borrowing, REIT status, operations and distributions policies. Although our
board of directors has no present intention to amend or reverse any of these
policies, they may be amended or revised without notice to stockholders.
Accordingly, stockholders may not have control over changes in our policies. We
cannot assure you that changes in our policies will serve fully the interests of
all stockholders.
Other Risks
The market value of our Common Stock could decrease based on our
performance and market perception and conditions. The market value of our Common
Stock may be based primarily upon the market's perception of our growth
potential and current and future cash dividends, and may be secondarily based
upon the real estate market value of our underlying assets. The market price of
our Common Stock is influenced by the dividend on our Common Stock relative to
market interest rates. Rising interest rates may lead potential buyers of our
Common Stock to expect a higher dividend rate, which would adversely affect the
market price of our Common Stock. In addition, rising interest rates would
result in increased expense, thereby adversely affecting cash flow and our
ability to service our indebtedness and pay dividends.
There are restrictions on the transfer of our Common Stock. To maintain our
qualification as a REIT under the Code, no more than 50% in value of our
outstanding capital stock may be owned, actually or by attribution, by five or
fewer individuals, as defined in the Code to also include certain entities,
during the last half of a taxable year. Accordingly, our charter and bylaws
contain provisions restricting the transfer of our capital stock. See
"Description of Capital Stock - REIT Related Restrictions."
Our earnings are dependent, in part, upon the performance of our investment
portfolio. As permitted by the Code, we invest in and own securities of other
real estate investment trusts. To the extent that the value of those investments
declines or those investments do not provide a return, our earnings could be
adversely affected.
We are subject to restrictions that may impede our ability to effect a
change in control. Certain provisions contained in our charter and bylaws, and
certain provisions of Maryland law may have the effect of discouraging a third
party from making an acquisition proposal for us and thereby inhibit a change in
control.
We may fail to qualify as a REIT. If we fail to qualify as a REIT, we will
not be allowed to deduct distributions to stockholders in computing our taxable
income and will be subject to Federal income tax, including any applicable
alternative minimum tax, at regular corporate rates. In addition, we might be
barred from qualification as a REIT for the four years following
disqualification. The additional tax incurred at regular corporate rates would
reduce significantly the cash flow available for distribution to stockholders
and for debt service.
Furthermore, we would no longer be required to make any distributions to
our stockholders as a condition to REIT qualification. Any distributions to
stockholders that otherwise would have been subject to tax as capital gain
dividends would be taxable as dividend
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income to the extent of our current and accumulated earnings and profits. With
respect to our individual stockholders, any dividends paid by us if we ceased to
be treated as a REIT would likely be treated as qualifying dividends, which
dividend income would be subject to federal income tax at capital gains rates
through 2008. Corporate distributees, however, may be eligible for the dividends
received deduction on the distributions, subject to limitations under the Code.
To qualify as a REIT, and to continue to qualify as a REIT, we must comply
with certain highly technical and complex requirements. We believe that we have
complied, though no assurances can be given that we will always be able to
comply, with these requirements. In addition, facts and circumstances that may
be beyond our control may affect our ability to continue to qualify as a REIT.
We cannot assure you that new legislation, regulations, administrative
interpretations or court decisions will not change the tax laws significantly
with respect to our qualification as a REIT or with respect to the federal
income tax consequences of qualification. We believe that we have qualified as a
REIT since our inception and intend to continue to qualify as a REIT. However,
we cannot assure you that we are qualified or will remain qualified.
We may be unable to comply with the strict income distribution requirements
applicable to REITs. To obtain the favorable tax treatment associated with
qualifying as a REIT, among other requirements, we are required each year to
distribute to our stockholders at least 90% of our REIT taxable income. We will
be subject to corporate income tax on any undistributed REIT taxable income. In
addition, we will incur a 4% nondeductible excise tax on the amount by which our
distributions in any calendar year are less than the sum of (i) 85% of our
ordinary income for the year, (ii) 95% of our capital gain net income for the
year, and (iii) any undistributed taxable income from prior years. We could be
required to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT (and to avoid corporate income tax and the 4% excise tax),
even if conditions were not favorable for borrowing.
Notwithstanding our status as a REIT, we are subject to various federal,
state and local taxes on our income and property. For example, we will be taxed
at regular corporate rates on any undistributed taxable income, including
undistributed net capital gains, provided, however, that properly designated
undistributed capital gains will effectively avoid taxation at the stockholder
level. We may be subject to other federal income taxes as more fully described
in "Material United States Federal Income Tax Consequences-Taxation of Us as a
REIT." We may also have to pay some state income or franchise taxes because not
all states treat REITs in the same manner as they are treated for federal income
tax purposes.
***
10
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements with respect to our financial
condition, results of operations and business. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions as they relate to us or our management are intended to identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties, including
those described under "Risk Factors" in this prospectus and those in the
documents we incorporate by reference that could cause actual results to differ
materially from the results contemplated by the forward-looking statements.
In evaluating the securities offered by this prospectus, you should
carefully consider the discussion of risks and uncertainties in the section
entitled "Risk Factors" beginning on page 6 of this prospectus.
USE OF PROCEEDS
The Selling Shareholders are selling all of the shares covered by this
prospectus for their own accounts. Accordingly, we will not receive any proceeds
from the resale of the shares covered by this prospectus. We will bear all
expenses of registration incurred in connection with this offering, but all
selling and other expenses incurred by the Selling Shareholders will be borne by
the Selling Shareholders.
11
SELLING SHAREHOLDERS
On January 30, 2004, United Mobile Homes, Inc., a Maryland corporation,
sold 500,000 shares of our Common Stock to each of the Selling Shareholders for
an aggregate of $4.1 million in a transaction exempt from the registration
requirements of the Securities Act.
No officer or director of either Selling Shareholder also serves as an
officer or director of Monmouth or any predecessor or affiliate of ours.
The following table lists information with respect to the Selling
Shareholders' ownership of our Common Stock. This information is based on
information provided by or on behalf of the Selling Shareholders. To our
knowledge, the Selling Shareholders have sole voting and investment power over
the shares owned.
Number of
Shares Beneficially Owned Shares Being Shares Beneficially Owned
Prior to the Offering Offered After the Offering
------------------------- ------------ -------------------------
Name Number Percent Number Percent
---- ------ ------- ------ -------
TIAA-CREF 250,000 1.57% 250,000 0 -
Real Estate
Securities Fund
TIAA Life Real 250,000 1.57% 250,000 0 -
Estate Securities
Fund
12
DESCRIPTION OF CAPITAL STOCK
The following description is only a summary of certain terms and provisions
of our capital stock. You should refer to our charter and bylaws for a complete
description.
General. Our authorized capital stock consists of 25,000,000 shares,
currently classified as 20,000,000 shares of Common Stock, and 5,000,000 shares
of excess stock, par value $0.01 per share. The excess stock is designed to
protect our status as a REIT under the Code. See "-REIT Related Restrictions. "
Under Maryland General Corporation Law ("MGCL") and our charter, our board
of directors has the power, without action by the stockholders, to increase or
decrease the aggregate number of shares of stock or the number of shares of
stock of any class that we have the authority to issue. Also, our board of
directors has the power, without any action by the stockholders, to classify or
reclassify any unissued capital stock including classification into a class or
classes of preferred stock, preference stock, special stock or other stock and
to divide or classify shares into one or more series of such class approval. Our
board of directors may exercise its power to increase the number of authorized
shares or to reclassify any unissued shares in connection with a merger or
acquisition, a future underwritten public offering or private placement or a
potential hostile takeover. As a holder of our Common Stock, you will have no
preferences or sinking fund or preemptive rights to subscribe for any of our
securities.
As of February 1, 2004, 15,959,027 shares of Common Stock were issued and
outstanding and no shares of excess stock were issued or outstanding. Our
outstanding shares of Common Stock are currently listed on the Nasdaq Stock
Market under the symbol "MNRTA."
Voting Rights. As a holder of Common Stock, you will have one vote per
share on all matters submitted to a vote of stockholders, including the election
of directors. There is no cumulative voting in the election of directors, which
means that the holders of a plurality of the outstanding shares of Common Stock
can elect all of the directors then standing for election and the holders of the
remaining shares of Common Stock, if any, will not be able to elect any
directors. Holder of excess stock will not have any voting rights.
Classified Board of Directors. Our charter provides that the members of our
board of directors are divided, as evenly as possible, into three classes, with
approximately one-third of the directors elected by the stockholders annually.
Each director is to serve for a three year term or until his or her successor is
duly elected and has qualified. Consequently, members of our board of directors
will serve staggered three-year terms.
Dividends. Subject to any preferential rights granted to any class of
capital stock, as a holder of our Common Stock, you will be entitled to receive
dividends or other distributions as may be authorized from time to time by our
board of directors and declared by us out of funds legally available for
dividends or other distributions to stockholders. We currently pay regular
quarterly dividends on our Common Stock. In the event of our liquidation, after
payment of any preferential amounts to any class of capital stock which may be
outstanding and after payment of, or adequate provision for, all of our known
debts and liabilities, holders of Common Stock
13
and, subject to the provisions of our charter, excess stock will be entitled to
share ratably in all assets that we may legally distribute to our stockholders.
REIT Related Restrictions. To qualify as a REIT under the Code, we must
satisfy a number of statutory requirements, including a requirement that no more
than 50% in value of our outstanding shares of stock may be owned, actually or
constructively, by five or fewer individuals (as defined by the Code to include
certain entities) during the last half of a taxable year (other than the first
taxable year of REIT status). In addition, if we, or an actual or constructive
owner of 10% or more of us, actually or constructively owns 10% or more of a
tenant of ours (or a tenant of any partnership in which we are a partner), the
rent we receive (either directly or through any such partnership) from such
tenant will not be qualifying income for purposes of the REIT gross income tests
of the Code. Our capital stock must also be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of twelve months or during a
proportionate part of a shorter taxable year.
Because we intend to qualify as a REIT under the Code, our charter contains
limitations designed to protect our status as a REIT. Under our charter, any
person who acquires or attempts to acquire shares of our Common Stock in
violation of the ownership limitations and transfer restrictions must give
written notice to us. In addition, every stockholder of more than 5% of the
number or value of our outstanding Common Stock must give written notice to us
of the number of shares of Common Stock beneficially or constructively owned.
Under our charter, if a transfer of our capital stock or a change in our capital
structure would result in (i) any person directly or indirectly acquiring
beneficial ownership of more than 9.8% of our capital stock; (ii) our
outstanding capital stock being constructively or beneficially owned by fewer
than 100 persons; or (iii) us being "closely held" within the meaning of Section
856 of the Code or us otherwise failing to qualify as a REIT under the Code,
then: (a) our board of directors may take any action it deems advisable to
refuse to give effect to, or to prevent, such transfer; (b) any proposed
transfer will be void ab initio and will not be recognized by us; (c) we will
have the right to redeem the shares proposed to be transferred at a price equal
to the lesser of the price per share paid in the transaction which created the
violation and the last reported sales price on the Nasdaq Stock Market on the
trading date immediately prior to the date we give notice of redemption; and (d)
the shares proposed to be transferred will be automatically converted into and
exchanged for shares of a separate class of stock, excess stock, having no
voting rights. Holders of excess stock do have certain rights in the event of
any liquidation, dissolution or winding-up of the corporation. Our charter
further provides that the excess stock will be held by a trustee appointed by us
in trust (i) for the person or persons to whom the shares are ultimately
transferred, until such time as the shares are re-transferred to a person or
persons in whose hands the shares would not be excess stock and certain
price-related restrictions are satisfied, and (ii) with respect to dividend
rights (and rights to funds in excess of the amounts paid to the holder), for
the benefit of a charitable beneficiary appointed by us. Our board of directors
may, in its sole and absolute discretion, exempt certain persons from the
ownership limitations contained in our charter if ownership of shares of Common
Stock by such persons would not disqualify us as a REIT under the Code.
Certain Anti-Takeover Effects. Our charter and bylaws also contain
provisions that may be deemed to have anti-takeover effects. For example, our
charter (i) does not allow for cumulative voting by stockholders; (ii) provides
for a classified board of directors, and (iii)
14
contains limitations on the amount of our securities that any person can own. In
addition, our bylaws contain provisions that (i) give our board of directors the
exclusive power to fill vacancies on the board and provide that any director so
appointed will serve for the remaining term of that directorship; (ii) give our
board the exclusive power to determine the numbers of directors; (iii) require
advance notice of any stockholder nominations for director and proposals of
business by stockholders to be conducted at the annual shareholder meeting; (iv)
limit stockholders' ability to call a special meeting; (v) give our board of
directors the exclusive power to amend our bylaws; (vi) require approval of
two-thirds of the shares to remove directors for cause; (vii) require our board
of directors to have at least three independent directors as defined by Section
3-802 of the MGCL which allows us to opt into certain statutory anti-takeover
provisions; and (viii) specifically opt-into the business combination provisions
of the MGCL (with the exception that such provisions do not apply to
transactions with United Mobile Homes, Inc. or Monmouth Capital Corporation,
which are affiliates of us). Additionally, our charter provides that our board
of directors may authorize additional shares of capital stock and may classify
or reclassify only unissued capital stock, including classification into shares
of preference stock, without stockholder action. Such stock could be issued in
such a way as to have anti-takeover effects.
Transfer Agent. The registrar and transfer agent for shares of our Common
Stock is American Stock Transfer and Trust Company.
15
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Introductory Notes
The following is a description of the material Federal income tax
considerations to a holder of our Common Stock. The following discussion is not
exhaustive of all possible tax considerations and does not provide a detailed
discussion of any state, local or foreign tax considerations, nor does it
discuss all of the aspects of Federal income taxation that may be relevant to a
prospective stockholder in light of his or her particular circumstances or to
stockholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations, and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the Federal income tax laws.
Blackwell Sanders Peper Martin LLP has provided an opinion to the effect
that this discussion, to the extent that it contains descriptions of applicable
Federal income tax law, is correct in all material respects and fairly
summarizes the Federal income tax laws referred to herein. This opinion is filed
as an exhibit to the registration statement of which this prospectus is a part.
This opinion, however, does not purport to address the actual tax consequences
of the purchase, ownership and disposition of our Common Stock to any particular
holder. The opinion, and the information in this section, is based on the Code,
current, temporary and proposed Treasury regulations, the legislative history of
the Code, current administrative interpretations and practices of the Internal
Revenue Service, and court decisions. The reference to Internal Revenue Service
interpretations and practices includes Internal Revenue Service practices and
policies as endorsed in private letter rulings, which are not binding on the
Internal Revenue Service except with respect to the taxpayer that receives the
ruling. In each case, these sources are relied upon as they exist on the date of
this prospectus. No assurance can be given that future legislation, regulations,
administrative interpretations and court decisions will not significantly change
current law, or adversely affect existing interpretations of existing law, on
which the opinion and the information in this section are based. Any change of
this kind could apply retroactively to transactions preceding the date of the
change. Moreover, opinions of counsel merely represent counsel's best judgment
with respect to the probable outcome on the merits and are not binding on the
Internal Revenue Service or the courts. Accordingly, even if there is no change
in applicable law, no assurance can be provided that such opinion, or the
statements made in the following discussion, will not be challenged by the
Internal Revenue Service or will be sustained by a court if so challenged.
Each prospective purchaser is advised to consult his or her own tax
advisor, regarding the specific tax consequences to him or her of the
acquisition, ownership and sale of securities of an entity electing to be taxed
as a real estate investment trust, including the federal, state, local, foreign,
and other tax consequences of such acquisition, ownership, sale, and election
and of potential changes in applicable tax laws.
Taxation of Us as a REIT
General. We have elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with our taxable year which ended September 30,
1968. Our qualification and taxation as a REIT depends upon our ability to meet
on a continuing basis, through actual
16
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests and organizational requirements imposed under
the Code, as discussed below. We believe that we are organized and have operated
in such a manner as to qualify under the Code for taxation as a REIT since our
inception, and we intend to continue to operate in such a manner. No assurances,
however, can be given that we will operate in a manner so as to qualify or
remain qualified as a REIT. 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 stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the regulations
promulgated thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
Blackwell Sanders Peper Martin LLP has provided to us an opinion to the
effect that we have been organized and have operated in conformity with the
requirements for qualification and taxation as a REIT, effective for each of our
taxable years ended September 30, 2001 through September 30, 2003, and our
current organization and method of operation will enable us to continue to meet
the requirements for qualification and taxation as a REIT for taxable year 2004
and thereafter. This opinion is filed as an exhibit to the registration
statement of which this prospectus is a part. It must be emphasized that this
opinion is conditioned upon certain assumptions and representations made by us
to Blackwell Sanders Peper Martin LLP as to factual matters relating to our
organization and operation. In addition, this opinion is based upon our factual
representations concerning our business and properties as described in the
reports filed by us under the federal securities laws.
Qualification and taxation as a REIT depends upon our ability to meet on a
continuing basis, through actual annual operating results, the various
requirements under the Code described in this prospectus with regard to, among
other things, the sources of our gross income, the composition of our assets,
our distribution levels, and our diversity of stock ownership. Blackwell Sanders
Peper Martin LLP will not review our operating results on an ongoing basis.
While we intend to operate so that we qualify as a REIT, given the highly
complex nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in our circumstances, no
assurance can be given that we satisfy all of the tests for REIT qualification
or will continue to do so.
If we qualify for taxation as a REIT, we generally will not be subject to
Federal corporate income taxes on net income that we currently distribute to
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a corporation.
Notwithstanding our REIT election, however, we will be subject to Federal
income tax in the following circumstances. First, we will be taxed at regular
corporate rates on any undistributed taxable income, including undistributed net
capital gains, provided, however, that properly designated undistributed capital
gains will effectively avoid taxation at the shareholder level. Second, under
certain circumstances, we may be subject to the "alternative minimum tax" on any
items of tax preference and alternative minimum tax adjustments. Third, if we
have (i) net income from the sale or other disposition of "foreclosure property"
(which is, in general,
17
property acquired by foreclosure or otherwise on default of a loan secured by
the property) that is held primarily for sale to customers in the ordinary
course of business or (ii) other nonqualifying income from foreclosure property,
we will be subject to tax at the highest corporate rate on such income. Fourth,
if we have net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property (other than foreclosure
property) held primarily for sale to customers in the ordinary course of
business), such income will be subject to a 100% tax on prohibited transactions.
Fifth, if we should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), and have nonetheless maintained our
qualification as a REIT because certain other requirements have been met, we
will be subject to a 100% tax equal to the gross income attributable to the
greater of either (i) the amount by which 75% of our gross income exceeds the
amount qualifying under the 75% test for the taxable year or (ii) the amount by
which 90% of our gross income exceeds the amount of our income qualifying under
the 95% test for the taxable year, multiplied in either case by a fraction
intended to reflect our profitability. Sixth, if we should fail to distribute
during each calendar year at least the sum of (i) 85% of our REIT ordinary
income for such year; (ii) 95% of our REIT capital gain net income for such year
(for this purpose such term includes capital gains which we elect to retain but
which we report as distributed to our stockholders. See "Annual Distribution
Requirements" below); and (iii) any undistributed taxable income from prior
years, we would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if we acquire any
asset from a C corporation (i.e., a corporation generally subject to full
corporate level tax) 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 we recognize gain on the
disposition of such asset during the 10-year period beginning on the date on
which such asset was acquired by us, then, to the extent of such property's
built-in gain (the excess of the fair market value of such property at the time
of acquisition by us over the adjusted basis of such property at such time),
such gain will be subject to tax at the highest regular corporate rate
applicable assuming that we made or would make an election pursuant to Notice
88-19 or Treasury Regulations that were promulgated in 2000. Eighth, we would be
subject to a 100% penalty tax on amounts received (or on certain expenses
deducted by a taxable REIT subsidiary) if arrangements among us, our tenants and
a taxable REIT subsidiary were not comparable to similar arrangements among
unrelated parties.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (i) which is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (iii) which would be taxable as a domestic corporation but
for Code Sections 856 through 859; (iv) which is neither a financial institution
nor an insurance company subject to certain provisions of the Code; (v) the
beneficial ownership of which is held by 100 or more persons; (vi) of which not
more than 50% in value of the outstanding capital stock 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 after applying
certain attribution rules; (vii) that makes an election to be treated as a REIT
for the current taxable year or has made an election for a previous taxable year
which has not been revoked and (viii) which meets certain other tests, described
below, regarding the nature of its income and assets. The Code provides that
conditions (i) through (iv), inclusive, must be met during the entire taxable
year and that condition (v) must be met during at least 335 days of a
18
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Condition (vi) must be met during the last half of each
taxable year. For purposes of determining stock ownership under condition (vi),
a supplemental unemployment compensation benefits plan, a private foundation or
a portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. However, a trust that is a
qualified trust under Code Section 401(a) generally is not considered an
individual, and beneficiaries of a qualified trust are treated as holding shares
of a REIT in proportion to their actuarial interests in the trust for purposes
of condition (vi). Conditions (v) and (vi) do not apply until after the first
taxable year for which an election is made to be taxed as a REIT. We have issued
sufficient Common Stock with sufficient diversity of ownership to allow us to
satisfy requirements (v) and (vi). In addition, our Charter contains
restrictions regarding the transfer of our stock intended to assist in
continuing to satisfy the stock ownership requirements described in (v) and (vi)
above. See "Description of Capital Stock - REIT Related Restrictions." These
restrictions, however, may not ensure that we will be able to satisfy these
stock ownership requirements. If we fail to satisfy these stock ownership
requirements, we will fail to qualify as a REIT.
In addition, if a corporation elected to be a REIT subsequent to October 4,
1976, it must have as its taxable year, the calendar year. We elected to be
classified as a REIT prior to that date. Consequently, our taxable year ends
September 30.
To qualify as a REIT, we cannot have at the end of any taxable year any
undistributed earnings and profits that are attributable to a non-REIT taxable
year. We believe that we have complied with this requirement.
For our tax years beginning prior to January 1, 1998, pursuant to
applicable Treasury Regulations, to be taxed as a REIT, we were required to
maintain certain records and request on an annual basis certain information from
our stockholders designed to disclose the actual ownership of our outstanding
shares. We have complied with such requirements. For our tax years beginning
January 1, 1998 and after, these records and informational requirements are no
longer a condition to REIT qualification. Instead, a monetary penalty will be
imposed for failure to comply with these requirements. If we comply with these
regulatory rules, and we do not know, or exercising reasonable diligence would
not have known, whether we failed to meet requirement (vi) above, we will be
treated as having met the requirement.
Qualified REIT Subsidiaries
If a REIT owns a corporate subsidiary that is a "qualified REIT
subsidiary," the separate existence of that subsidiary will be disregarded for
federal income tax purposes. Generally, a qualified REIT subsidiary is a
corporation, other than a taxable REIT subsidiary, all of the capital stock of
which is owned by the REIT. All assets, liabilities and items of income,
deduction and credit of the qualified REIT subsidiary will be treated as assets,
liabilities and items of income, deduction and credit of the REIT itself. A
qualified REIT subsidiary of ours will not be subject to federal corporate
income taxation, although it may be subject to state and local taxation in some
states.
19
Taxable REIT Subsidiaries
A "taxable REIT subsidiary" is an entity taxable as a corporation in which
we own stock and that elects with us to be treated as a taxable REIT subsidiary
under Section 856(l) of the Code. In addition, if one of our taxable REIT
subsidiaries owns, directly or indirectly, securities representing more than 35%
of the vote or value of a subsidiary corporation, that subsidiary will also be
treated as a taxable REIT subsidiary of ours. A taxable REIT subsidiary is
subject to federal income tax, and state and local income tax where applicable,
as a regular "C" corporation.
Generally, a taxable REIT subsidiary can perform impermissible tenant
services without causing us to receive impermissible tenant services income
under the REIT income tests. However, several provisions regarding the
arrangements between a REIT and its taxable REIT subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary is limited in its
ability to deduct interest payments made to us. In addition, we will be
obligated to pay a 100% penalty tax on some payments that we receive or on
certain expenses deducted by the taxable REIT subsidiary if the economic
arrangements among us, our tenants and the taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties. We currently do not
have any taxable REIT subsidiaries.
Income Tests
In order for us to maintain qualification as a REIT, certain separate
percentage tests relating to the source of our gross income must be satisfied
annually. First, at least 75% of our gross income (excluding gross income from
prohibited transactions) for each taxable year generally must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property," gain, and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments described above, dividends, interest and gain from the sale or
disposition of stock or securities, some payments under hedging instruments, or
from any combination of the foregoing.
Rents received by us will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, amounts received or accrued generally will not
be excluded from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
Second, rents received from a tenant will not qualify as "rents from real
property" if we, or a direct or indirect owner of 10% or more of our stock,
actually or constructively owns 10% or more of such tenant (a "Related Party
Tenant"). We may, however, lease our properties to a taxable REIT subsidiary and
rents received from that subsidiary will not be disqualified from being "rents
from real property" by reason of our ownership interest in the subsidiary if at
least 90% of the property in question is leased to unrelated tenants and the
rent paid by the taxable
20
REIT subsidiary is substantially comparable to the rent paid by the unrelated
tenants for comparable space.
Third, if rent attributable to personal property that is leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." This 15% test is based
on relative fair market value of the real and personal property.
Generally, for rents to qualify as "rents from real property" for the
purposes of the gross income tests, we are only allowed to provide services that
are both "usually or customarily rendered" in connection with the rental of real
property and not otherwise considered "rendered to the occupant." Income
received from any other service will be treated as "impermissible tenant service
income" unless the service is provided through an independent contractor that
bears the expenses of providing the services and from whom we derive no revenue
or through a taxable REIT subsidiary, subject to specified limitations. The
amount of impermissible tenant service income we receive is deemed to be the
greater of the amount actually received by us or 150% of our direct cost of
providing the service. If the impermissible tenant service income exceeds 1% of
our total income from a property, then all of the income from that property will
fail to qualify as rents from real property. If the total amount of
impermissible tenant service income from a property does not exceed 1% of our
total income from that property, the income will not cause the rent paid by
tenants of that property to fail to qualify as rents from real property, but the
impermissible tenant service income itself will not qualify as rents from real
property.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for such year if we are
entitled to relief under certain provisions of the Code. These relief provisions
generally will be available if our failure to meet such tests was due to
reasonable cause and not due to willful neglect, if we attach a schedule of the
sources of our income to our federal income tax return for such years, and if
any incorrect information on the schedules was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances we
would be entitled to the benefit of these relief provisions. As discussed above
in "General," even if these relief provisions were to apply, a tax would be
imposed with respect to the excess net income.
Asset Tests
At the close of each quarter of our taxable year, we must satisfy six tests
relating to the nature of our assets.
1. At least 75% of the value of our total assets must be represented by
"real estate assets," cash, cash items and government securities. Our
real estate assets include, for this purpose, our allocable share of
real estate assets held by the partnerships in which we own an
interest, and the non-corporate subsidiaries of these partnerships, as
well as stock or debt instruments held for less than one year
purchased with the proceeds of an offering of shares or long term
debt.
21
2. Not more than 25% of our total assets may be represented by
securities, other than those in the 75% asset class.
3. Except for certain investments in REITs, qualified REIT subsidiaries,
and taxable REIT subsidiaries, the value of any one issuer's
securities owned by us may not exceed 5% of the value of our total
assets.
4. Except for certain investments in REITs, qualified REIT subsidiaries
and taxable REIT subsidiaries, we may not own more than 10% of any one
issuer's outstanding voting securities.
5. Except for certain investments in REITs, qualified REIT subsidiaries
and taxable REIT subsidiaries, we may not own more than 10% of the
total value of the outstanding securities of any one issuer, other
than securities that qualify as "straight debt" under the Internal
Revenue Code.
6. Not more than 20% of our total assets may be represented by the
securities of one or more taxable REIT subsidiaries.
For purposes of these asset tests, any shares of qualified REIT
subsidiaries are not taken into account, and any assets owned by the qualified
REIT subsidiary are treated as owned directly by the REIT.
Securities, for purposes of the assets tests, may include debt we hold.
However, debt we hold in an issuer will not be taken into account for purposes
of the 10% value test if the debt securities meet the "straight debt" safe
harbor and either (1) the issuer is an individual, (2) the only securities of
the issuer that we hold are straight debt or (3) if the issuer is a partnership,
we hold at least a 20 percent profits interest in the partnership. Debt will
meet the "straight debt" safe harbor if the debt is a written unconditional
promise to pay on demand or on a specified date a sum certain in money (1) which
is not convertible, directly or indirectly, into stock and (2) the interest rate
(or the interest payment dates) of which is not contingent on the profits, the
borrower's discretion or similar factors.
With respect to each issuer in which we currently own an interest that does
not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary,
we believe that our pro rata share of the value of the securities, including
unsecured debt, of any such issuer does not exceed 5% of the total value of our
assets and that we comply with the 10% voting securities limitation and 10%
value limitation (taking into account the "straight debt" exceptions with
respect to certain issuers). With respect to our compliance with each of these
asset tests, however, we cannot provide any assurance that the Internal Revenue
Service might not disagree with our determinations.
After initially meeting the asset tests after the close of any quarter, we
will not lose our status as a REIT if we fail to satisfy the 25%, 20% or 5%
asset tests or the 10% value limitation at the end of a later quarter solely by
reason of changes in the relative values of our assets. If the failure to
satisfy the 25%, 20%, or 5% asset tests or the 10% value limitation results from
an increase in the value of our assets after the acquisition of securities or
other property during a quarter, the failure can be cured by a disposition of
sufficient non-qualifying assets within 30
22
days after the close of that quarter. We have maintained and intend to continue
to maintain adequate records of the value of our assets to ensure compliance
with the asset tests and to take any available actions within 30 days after the
close of any quarter as may be required to cure any noncompliance with the 25%,
20%, or 5% asset tests or the 10% value limitation. We cannot ensure that these
steps always will be successful. If we were to fail to cure the noncompliance
with the asset tests within this 30 day period, we could fail to qualify as a
REIT.
Annual Distribution Requirements
We, in order to qualify as a REIT, are required to distribute dividends
(other than capital gain dividends) to our stockholders 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) and (b) 90% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of noncash income. Such distributions generally must be
paid in the taxable year to which they relate. Dividends may be paid in the
following year in two circumstances. First, dividends may be declared in the
following year if the dividends are declared before we timely file our tax
return for the year and paid within 12 months of the end of the tax year but
before the first regular dividend payment made after such declaration. Second,
if we declare a dividend in October, November or December of any year with a
record date in one of these months and pay the dividend on or before January 31
of the following year, we will be treated as having paid the dividend on
December 31 of the year in which the dividend was declared. To the extent that
we do not distribute all of our net capital gain or distribute at least 90%, but
less than 100%, of our "REIT taxable income," as adjusted, we will be subject to
tax on the nondistributed amount at regular capital gains and ordinary corporate
tax rates. Furthermore, if we should fail to distribute during each calendar
year at least the sum of (i) 85% of our REIT ordinary income for such year; (ii)
95% of our REIT capital gain income for such year; and (iii) any undistributed
taxable income from prior periods, we will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
We may elect to retain and pay tax on net long-term capital gains and
require our stockholders to include their proportionate share of such
undistributed net capital gains in their income. If we make such election,
stockholders would receive a tax credit attributable to their share of the
capital gains tax paid by us, and would receive an increase in the basis of
their shares in us in an amount equal to the stockholder's share of the
undistributed net long-term capital gain reduced by the amount of the credit.
Further, any undistributed net long-term capital gains that are included in the
income of our stockholders pursuant to this rule will be treated as distributed
for purposes of the 4% excise tax.
We have made and intend to continue to make timely distributions sufficient
to satisfy the annual distribution requirements. It is possible, however, that
we, from time to time, may not have sufficient cash or liquid assets to meet the
distribution requirements due to timing differences between the actual receipt
of income and actual payment of deductible expenses and the inclusion of such
income and deduction of such expenses in arriving at our taxable income, or if
the amount of nondeductible expenses such as principal amortization or capital
expenditures exceeds the amount of noncash deductions. In the event that such
timing differences occur, in order to meet the distribution requirements, we may
arrange for short-term, or possibly long-term, borrowing to permit the payment
of required dividends. If the amount of nondeductible
23
expenses exceeds noncash deductions, we may refinance our indebtedness to reduce
principal payments and may borrow funds for capital expenditures.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may avoid being taxed on amounts distributed
as deficiency dividends; however, we will be required to pay interest to the
Internal Revenue Service based upon the amount of any deduction taken for
deficiency dividends.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year and no
relief provisions apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we fail to qualify will not
be deductible by us, nor will such distributions be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
Taxation of Stockholders
Taxation of Taxable U.S. Stockholders. As used in the remainder of this
discussion, the term "U.S. Stockholder" means a beneficial owner of our Common
Stock that is for United States federal income tax purposes:
1. a citizen or resident, as defined in Section 7701(b) of the Code, of
the United States;
2. a corporation or partnership, or other entity treated as a corporation
or partnership for federal income tax purposes, created or organized
in or under the laws of the United States or any state or the District
of Columbia;
3. an estate the income of which is subject to United States federal
income taxation regardless of its source; or
4. in general, a trust subject to the primary supervision of a United
States court and the control of one or more United States persons.
Generally, in the case of a partnership that holds our Common Stock, any
partner that would be a U.S. Stockholder if it held the Common Stock directly is
also a U.S. Stockholder. As long as we qualify as a REIT, distributions made to
our taxable U.S. Stockholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends or retained capital gains) will be
taken into account by them as ordinary income, and corporate stockholders will
not be eligible for the dividends received deduction as to such amounts.
24
Distributions in excess of current and accumulated earnings and profits will not
be taxable to a stockholder to the extent that they do not exceed the adjusted
basis of such stockholder's Common Stock, but rather will reduce the adjusted
basis of such shares as a return of capital. To the extent that such
distributions exceed the adjusted basis of a stockholder's Common Stock, they
will be included in income as long-term capital gain (or short-term capital gain
if the shares have been held for one year or less), assuming the shares are a
capital asset in the hands of the stockholder. In addition, any dividend
declared by us in October, November or December of any year payable to a
stockholder of record on a specific date in any such month shall be treated as
both paid by us and received by the stockholder on December 31 of such year,
provided that the dividend is actually paid by us during January of the
following calendar year. For purposes of determining what portion of a
distribution is attributable to current or accumulated earnings and profits,
earnings and profits will first be allocated to distributions made to holders of
the shares of preferred stock. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of ours.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a
long-term capital gain or loss if the shares have been held for more than one
year, otherwise as short-term capital gain or loss. However, any loss upon a
sale or exchange of Common Stock by a stockholder who has held such shares for
six months or less (after applying certain holding period rules) generally will
be treated as long-term capital loss to the extent of distributions from us
required to be treated by such stockholder as long-term capital gain.
In the Jobs and Growth Tax Relief Reconciliation Act of 2003, Congress
reduced the maximum federal income tax rate on qualified dividend income to the
maximum federal income tax rate for long-term capital gain, which is generally
15%. Generally, the dividends paid by a REIT will not qualify as a qualified
dividend income and, thus, such REIT dividend income will be subject to tax at
ordinary rates, except to the extent the dividends represent capital gains
dividends as described in the following paragraph. In certain circumstances, all
or a portion of a REIT's dividend income will qualify as qualified dividend
income. In such case, the REIT will report such amount to its shareholders and
the stockholders may report such amounts accordingly. We do not anticipate that
any or any significant portion of our dividends to you will constitute qualified
dividend income.
Distributions that we properly designate as capital gain dividends will be
taxable to stockholders as gains (to the extent that they do not exceed our
actual net capital gain for the taxable year) from the sale or disposition of a
capital asset held for greater than one year. If we designate any portion of a
dividend as a capital gain dividend, a U.S. Stockholder will receive an Internal
Revenue Service Form 1099-DIV indicating the amount that will be taxable to the
stockholder as capital gain. However, stockholders that are corporations may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. A portion of capital gain dividends received by noncorporate taxpayers
may be subject to tax at a 25% rate to the extent attributable to certain gains
realized on the sale of real property. In addition, noncorporate taxpayers are
generally taxed at a maximum rate of 15% on net long-term capital gain
(generally, the excess of net long-term capital gain over net short-term capital
loss) attributable to gains realized on the sale of property held for greater
than one year.
25
Distributions we make and gain arising from the sale or exchange by a
stockholder of shares of our stock will not be treated as passive activity
income, and, as a result, stockholders generally will not be able to apply any
"passive losses" against such income or gain. Distributions we make (to the
extent they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or other disposition of our stock (or distributions
treated as such) will not be treated as investment income under certain
circumstances.
Upon any taxable sale or other disposition of our Common Stock, a U.S.
Stockholder will recognize gain or loss for federal income tax purposes on the
disposition of our stock in an amount equal to the difference between
• the amount of cash and the fair market value of any property received
on such disposition; and
• the U.S. Stockholder's adjusted basis in such stock for tax purposes.
Gain or loss will be capital gain or loss if the Common Stock has been held
by the U.S. Stockholder as a capital asset. The applicable tax rate will depend
on the stockholder's holding period in the asset (generally, if an asset has
been held for more than one year it will produce long-term capital gain) and the
stockholder's tax bracket. A U.S. Stockholder who is an individual or an estate
or trust and who has long-term capital gain or loss will be subject to a maximum
capital gain rate of 15%. However, to the extent that the capital gain realized
by a non-corporate stockholder on the sale of REIT stock corresponds to the
REIT's "unrecaptured Section 1250 gain," such gain would be subject to tax at a
rate of 25%. Stockholders are advised to consult with their own tax advisors
with respect to their capital gain tax liability.
Taxation of Tax-Exempt Stockholders. Provided that a tax-exempt stockholder
has not held our Common Stock as "debt financed property" within the meaning of
the Internal Revenue Code, the dividend income from us will not be unrelated
business taxable income, referred to as UBTI, to a tax-exempt stockholder.
Similarly, income from the sale of Common Stock will not constitute UBTI unless
the tax-exempt stockholder has held its stock as debt financed property within
the meaning of the Internal Revenue Code or has used the Common Stock in a trade
or business. However, for a tax-exempt stockholder that is a social club,
voluntary employee benefit association, supplemental unemployment benefit trust,
or qualified group legal services plan exempt from federal income taxation under
Internal Revenue Code Sections 501(c)(7), (c)(9), (c)(17) and (c)(20),
respectively, or a single parent title-holding corporation exempt under Section
501(c)(2) the income of which is payable to any of the aforementioned tax-exempt
organizations, income from an investment in us will constitute UBTI unless the
organization properly sets aside or reserves such amounts for purposes specified
in the Internal Revenue Code. These tax exempt stockholders should consult their
own tax advisors concerning these "set aside" and reserve requirements.
A "qualified trust" (defined to be any trust described in Code Section
401(a) and exempt from tax under Code Section 501(a)) that holds more than 10%
of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
26
requirement that not more than 50% of the value of its shares be held by five or
fewer individuals (the "five or fewer requirement") only by relying on a special
"look-through" rule under which shares held by qualified trust stockholders are
treated as held by the beneficiaries of such trusts in proportion to their
actuarial interests therein; and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is "predominantly held" by qualified trusts if either
(i) a single qualified trust holds more than 25% of the value of the REIT
shares, or (ii) one or more qualified trusts, each owning more than 10% of the
value of the REIT shares, hold in the aggregate more than 50% of the value of
the REIT shares. If the foregoing requirements are met, the percentage of any
REIT dividend treated as UBTI to a qualified trust that owns more than 10% of
the value of the REIT shares is equal to the ratio of (i) the UBTI earned by the
REIT (computed as if the REIT were a qualified trust and therefore subject to
tax on its UBTI) to (ii) the total gross income (less certain associated
expenses) of the REIT for the year in which the dividends are paid. A de minimis
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the "look-through" rule. The restrictions
on ownership of stock in our charter should prevent application of the foregoing
provisions to qualified trusts purchasing our stock, absent a waiver of the
restrictions by the Board of Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. Federal, state and local income tax
laws with regard to an investment in our Common Stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
us of U.S. real property interests and not designated by us as capital gain
dividends or retained capital gains will be treated as dividends of ordinary
income to the extent that they are made out of our current or accumulated
earnings and profits. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces such rate. However, if income from the investment
in our stock is treated as effectively connected with the Non-U.S. Stockholder's
conduct of a U.S. trade or business, the Non-U.S. Stockholder generally will be
subject to a tax at graduated rates in the same manner as U.S. stockholders are
taxed with respect to such dividends (and may also be subject to a branch
profits tax of up to 30% if the stockholder is a foreign corporation). We expect
to withhold U.S. income tax at the rate of 30% on the gross amount of any
dividends paid to a Non-U.S. Stockholder that are not designated as capital gain
dividends, unless (i) a lower treaty rate applies and the Non-U.S. Stockholder
files an IRS Form W-8BEN evidencing eligibility for that reduced rate is filed
with us or (ii) the Non-U.S. Stockholder files an IRS Form W-8ECI with us
claiming that the distribution is income treated as effectively connected to a
U.S. trade or business.
27
Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's stock, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's shares, they will give rise to tax liability
if the Non-U.S. Stockholder would otherwise be subject to tax on any gain from
the sale or disposition of his or her stock as described below. We may be
required to withhold U.S. income tax at the rate of at least 10% on
distributions to Non-U.S. Stockholders that are not paid out of current or
accumulated earnings and profits unless the Non-U.S. Stockholders provide us
with withholding certificates evidencing their exemption from withholding tax.
If it cannot be determined at the time that such a distribution is made whether
or not such distribution will be in excess of current and accumulated earnings
and profits, the distribution will be subject to withholding at the rate
applicable to dividends. However, the Non-U.S. Stockholder may seek a refund of
such amounts from the Service if it is subsequently determined that such
distribution was, in fact, in excess of our current and accumulated earnings and
profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a corporate Non-U.S. Stockholder not entitled to treaty relief or
exemption. We are required by applicable Treasury Regulations to withhold 35% of
any distribution that could be designated by us as a capital gain dividend. This
amount is creditable against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon the sale or exchange of our
stock generally would not be subject to United States taxation unless:
• the investment in our stock is effectively connected with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as domestic
stockholders with respect to any gain;
• the Non-U.S. Stockholder is a non-resident alien individual who is
present in the United States for 183 days or more during the taxable
year and has a tax home in the United States, in which case the
non-resident alien individual will be subject to a 30% tax on the
individual's net capital gains for the taxable year; or
• our stock constitutes a U.S. real property interest within the meaning
of FIRPTA, as described below.
Our Common Stock will not constitute a United States real property interest
if we are a domestically-controlled REIT. We will be a domestically-controlled
REIT if, at all times during
28
a specified testing period, less than 50% in value of our stock is held directly
or indirectly by Non-U.S. Stockholders.
We believe that, currently, we are a domestically controlled REIT and,
therefore, that the sale of our Common Stock would not be subject to taxation
under FIRPTA. Because our Common Stock is publicly traded, however, we cannot
guarantee that we are or will continue to be a domestically-controlled REIT.
Even if we do not qualify as a domestically-controlled REIT at the time a
Non-U.S. Stockholder sells our Common Stock, gain arising from the sale still
would not be subject to FIRPTA tax if:
• the class or series of shares sold is considered regularly traded
under applicable Treasury regulations on an established securities
market, such as the NYSE; and
• the selling Non-U.S. Stockholder owned, actually or constructively, 5%
or less in value of the outstanding class or series of stock being
sold throughout the five-year period ending on the date of the sale or
exchange.
If gain on the sale or exchange of our Common Stock were subject to
taxation under FIRPTA, the Non-U.S. Stockholder would be subject to regular U.S.
income tax with respect to any gain in the same manner as a taxable U.S.
Stockholder, subject to any applicable alternative minimum tax and special
alternative minimum tax in the case of non-resident alien individuals.
State and Local Taxes. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
we or they transact business or reside (although U.S. Stockholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to our operations and
distributions). The state and local tax treatment of us and our stockholders may
not conform to the Federal income tax consequences discussed above.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in our Common
Stock.
Backup Withholding Tax and Information Reporting
U.S. Holders. In general, information-reporting requirements will apply to
certain U.S. holders with regard to payments of dividends on our stock, OID,
interest, and payments of the proceeds of the sale of our Common Stock, unless
an exception applies.
The payor will be required to withhold tax on such payments at the rate of
28% (i) the payee fails to furnish a taxpayer identification number, or TIN, to
the payor or to establish an exemption from backup withholding, or (ii) the
Internal Revenue Service notifies the payor that the TIN furnished by the payor
is incorrect.
In addition, a payor of dividends on our Common Stock will be required to
withhold tax at a rate of 28% if (i) there has been a notified payee
under-reporting with respect to interest, dividends or original issue discount
described in Section 3406(c) of the Code, or (ii) there has
29
been a failure of the payee to certify under the penalty of perjury that the
payee is not subject to backup withholding under the Internal Revenue Code.
Some holders, including corporations, may be exempt from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against the holder's United
States Federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.
Non-U.S. Holders. Generally, information reporting will apply to payments
of dividends on our Common Stock, interest, including OID, and backup
withholding as described above for a U.S. holder, unless the payee certifies
that it is not a U.S. person or otherwise establishes an exemption.
The payment of the proceeds from the disposition of our Common Stock to or
through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and backup withholding as described above for U.S. holders
unless the non-U.S. holder satisfies the requirements necessary to be an exempt
non-U.S. holder or otherwise qualifies for an exemption. The proceeds of a
disposition by a non-U.S. holder of stock to or through a foreign office of a
broker generally will not be subject to information reporting or backup
withholding. However, if the broker is a U.S. person, a controlled foreign
corporation for U.S. tax purposes, a foreign person 50% or more of whose gross
income from all sources for specified periods is from activities that are
effectively connected with a U.S. trade or business, a foreign partnership if
partners who hold more than 50% of the interests in the partnership are U.S.
persons, or a foreign partnership that is engaged in the conduct of a trade or
business in the U.S., then information reporting generally will apply as though
the payment was made through a U.S. office of a U.S. or foreign broker.
Applicable Treasury Regulations provide presumptions regarding the status
of holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. Under these Treasury
Regulations, some holders are required to provide new certifications with
respect to payments made after December 31, 2000. Because the application of
these Treasury Regulations varies depending on the stockholder's particular
circumstances, you are advised to consult your tax advisor regarding the
information reporting requirements applicable to you.
30
PLAN OF DISTRIBUTION
The Selling Shareholders may offer their Common Stock at various times in
one or more of the following transactions:
• in transactions on the Nasdaq Stock Market or such other markets on
which our Common Stock may be listed at the time of such sale;
• in privately negotiated transactions; or
• through a combination of these or other methods.
The Selling Shareholders may offer their Common Stock at fixed prices or
prices which may be changed, at market prices prevailing at the time of the
sale, at prices related to such market prices or at negotiated prices.
The Selling Shareholders may use broker-dealers to sell their Common Stock.
If this occurs, broker-dealers will either receive discounts or commission from
the Selling Shareholders, or they will receive commissions from the purchasers
of Common Stock. Broker-dealers may act as brokers by purchasing any or all of
the shares covered by this prospectus as agents for others or as dealers by
purchasing any or all of the shares covered by this prospectus as principals for
their own accounts and reselling such securities under the prospectus.
The Selling Shareholders and any broker-dealers or other persons acting on
the behalf of parties that participate in the distribution of the shares may be
considered underwriters under the Securities Act. As such, any commissions or
profits they receive on the resales of the shares may be considered underwriting
discounts and commissions under the Securities Act.
As of the date of this prospectus, we are not aware of any agreement,
arrangement or understanding between any broker or dealer and the Selling
Shareholders with respect to the offer to sell the Common Stock under this
prospectus. If we become aware of any agreement, arrangement or understanding,
to the extent required under the Securities Act, we will file a supplemental
prospectus to disclose:
• names of such broker-dealers;
• the number of shares involved;
• the price at which such shares are to be sold;
• the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable; and
• other facts material to the transaction.
Each Selling Shareholder may also transfer the Common Stock held by it by
gift or other non-sale related transfer, in which case the donees, transferees
or other successors-in-interest will be deemed to be Selling Shareholders. In
that event, the number of shares offered by each of
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TIAA-CREF Real Estate Securities Fund and TIAA Life Real Estate Securities Fund
will decrease as and when it takes any of the above actions, although the
aggregate number of Common Stock offered under this prospectus will remain
unchanged. The plan of distribution will also remain unchanged. In addition, any
Common Stock covered by this prospectus that qualify for sale pursuant to Rule
144 under the Securities Act may be sold by any Selling Shareholder under Rule
144 rather than pursuant to this prospectus.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for us by Eugene W. Landy. The discussion of legal matters
under "Material United States Federal Income Tax Consequences" is based upon an
opinion of Blackwell Sanders Peper Martin LLP.
EXPERTS
The financial statements and schedule of Monmouth Real Estate Investment
Corporation as of September 30, 2003 and 2002, and for each of the years in the
three-year period ended September 30, 2003, have been incorporated by reference
herein in reliance upon the report of KPMG LLP, independent accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
32
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized statement of estimated expenses to be paid by
the Registrant in connection with the issuance and sale of the securities being
registered.
Securities and Exchange Commission registration fee.......... $ 586
Accounting fees and expenses................................. 4,500*
Printing fees................................................ -0-
Legal fees and expenses...................................... 5,000*
Transfer agent, registrar and trustee fees................... -0-
Miscellaneous................................................ 5,000*
----------
Total................................................. $ 15,086*
==========
*Estimated
Item 15. Indemnification of Directors and Officers
Monmouth Real Estate Investment Corporation (the "Company") is organized in
the State of Maryland. The Maryland General Corporation Law ("MGCL") permits a
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (i) actual receipt of an improper personal
benefit or profit in money, property or services or (ii) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action.
The MGCL requires a corporation to indemnify its present and former
directors or officers who have been successful, on the merits or otherwise, in
the defense of any proceeding to which the person is made a party by reason of
his or her service in that capacity. The MGCL permits a corporation to indemnify
its present and former directors and officers in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
(a) was committed in bad faith or (b) was the result of active and deliberate
dishonesty, (ii) the indemnified party actually received an improper personal
benefit in money, property or services or (iii) in the case of any criminal
proceeding, the indemnified party had reasonable cause to believe that the act
or omission was unlawful.
The indemnification may be against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by the director or officer in
connection with the proceeding; provided, however, that if the proceeding is one
by or in the right of the Maryland corporation, indemnification may not be made
in respect of any proceeding in which the director or officer has been adjudged
to be liable to the corporation.
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In addition, a director or officer of a Maryland corporation may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction or upon a plea of nolo contendere or
its equivalent or an entry of an order of probation prior to judgment creates a
rebuttal presumption that the director or officer did not meet the requisite
standard of conduct required for permitted indemnification. The termination of
any proceeding by judgment, order or settlement, however, does not create a
presumption that the director or officer did not meet the requisite standard of
conduct for permitted indemnification.
As a condition to advancing expenses to a director who is a party to a
proceeding, the MGCL requires the Company to obtain (a) a written affirmation by
the director or officer of his or her good faith belief that he or she has met
the standard of conduct necessary for indemnification by the Company and (b) a
written statement by or on his or her behalf to repay the amount paid or
reimbursed by the Company if it is ultimately determined that the standard of
conduct was not met.
The Company's Articles of Incorporation provide that the Company must
indemnify its directors and officers, whether serving the Company or at its
request any other entity, to the full extent required or permitted by Maryland
law, including the advance of expenses under the procedures and to the full
extent permitted by law. The Company's Articles of Incorporation contain a
provision which limits a director's or officer's liability for monetary damages
to the Company or its stockholders.
The Company has entered into Indemnification Agreements with its directors
and certain officers which generally provide that the Company is required to
indemnify any director or officer who was, is or becomes a party to or witness
or other participant in: (i) any threatened, pending or completed action, suit
or proceeding in which such director or officer may be or may have been
involved, as a party or otherwise, by reason of the fact that the director or
officer was acting in his or her capacity as a director or officer of the
Company; or (ii) any inquiry, hearing or investigation that such director or
officer in good faith believes might lead to the institution of any such action,
suit or proceeding against any and all expenses, to the fullest extent permitted
by law.
Item 16. Exhibits.
Exhibit Description of Exhibit
Number Filed herewith:
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(4.1) Articles of Incorporation of Monmouth Real Estate Investment
Corporation (incorporated by reference from Appendix B of
Monmouth Real Estate Investment Corporation's Definitive Proxy
Statement, filed with the SEC on April 7, 2003).
(4.2) Bylaws of Monmouth Real Estate Investment Corporation
(incorporated by reference from Appendix C of Monmouth Real
Estate Investment
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Corporation's Definitive Proxy Statement, filed with the SEC on
April 7, 2003).
(5) Opinion of Eugene W. Landy.
(8) Opinion of Blackwell Sanders Peper Martin LLP.
(23.1) Consent of Eugene W. Landy (included in Exhibit 5).
(23.2) Consent of Blackwell Sanders Peper Martin LLP (included in
Exhibit 8).
(23.3) Consent of KPMG LLP.
(24) Power of Attorney.
Item 17. Undertakings.
The Registrant hereby undertakes:
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.
(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 thereto) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement,
including (but not limited to) any addition or deletion of a managing
underwriter;
Provided, however, that paragraphs 1(i) and (1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and 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 Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement
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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.
4. The undersigned Registrant hereby undertakes that, for purposes of
determining liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
shall be deemed to be the initial bona fide offering thereof.
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
[The remainder of this page is intentionally left blank.]
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Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Freehold, State of New Jersey on the 12th day of
March, 2004:
Monmouth Real Estate Investment Corporation
By: /s/ Eugene W. Landy
--------------------------------
Printed Name: Eugene W. Landy
Title: Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 12th day of March, 2004.
/s/ Eugene W. Landy /s/ Matthew I. Hirsch
--------------------------------------- ---------------------------------------
Eugene W. Landy Matthew I. Hirsch
Chairman of the Board, Director
President and Director
(Principal Executive Officer)
/s/ Cynthia J. Morgenstern /s/ Charles P. Kaempffer
--------------------------------------- ---------------------------------------
Cynthia J. Morgenstern Charles P. Kaempffer
Executive Vice President and Director Director
/s/ Ernest V. Bencivenga /s/ Samual A. Landy
--------------------------------------- ---------------------------------------
Ernest V. Bencivenga Samuel A. Landy
Treasurer and Director Director
/s/ Anna T. Chew /s/ John R. Sampson
--------------------------------------- ---------------------------------------
Anna T. Chew John R. Sampson
Chief Financial Officer and Director Director
(Principal Financial and Accounting Officer)
/s/ Daniel D. Cronheim /s/ Peter J. Weidhorn
--------------------------------------- ---------------------------------------
Daniel D. Cronheim Peter J. Weidhorn
Director Director
/s/ Stephen B. Wolgin
---------------------------------------
Stephen B. Wolgin
Director
Index to Exhibits
Exhibit Description of Exhibit
Number Filed herewith:
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(4.1) Articles of Incorporation of Monmouth Real Estate Investment
Corporation (incorporated by reference from Appendix B of
Monmouth Real Estate Investment Corporation's Definitive Proxy
Statement, filed with the SEC on April 7, 2003).
(4.2) Bylaws of Monmouth Real Estate Investment Corporation
(incorporated by reference from Appendix C of Monmouth Real
Estate Investment Corporation's Definitive Proxy Statement, filed
with the SEC on April 7, 2003).
(5) Opinion of Eugene W. Landy.
(8) Opinion of Blackwell Sanders Peper Martin LLP.
(23.1) Consent of Eugene W. Landy (included in Exhibit 5).
(23.2) Consent of Blackwell Sanders Peper Martin LLP (included in
Exhibit 8).
(23.3) Consent of KPMG LLP.
(24) Power of Attorney.