As Filed With the Securities and Exchange Commission on April 23, 2004
Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Acadia Realty Trust
(Exact Name of Registrant as Specified in Its Charter)
Maryland 23-2715194
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
Organization)
1311 Mamaroneck Avenue, Suite 260, White Plains, NY 10605
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Kenneth F. Bernstein With copies to:
Chief Executive Officer Mark Schonberger, Esq.
Acadia Realty Trust Paul, Hastings, Janofsky & Walker LLP
1311 Mamaroneck Avenue, Suite 260 75 East 55th Street
White Plains, New York 10605 New York, New York 10022
(914) 288-8100 (212) 318-6000
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Agent For Service)
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /_/
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
registration statement number of the earlier 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
================================================================================
Proposed
Title of maximum Proposed
securities offering maximum
to be Amount to be price aggregate Amount of
registered registered per share offering price registration fee
--------------------------------------------------------------------------------
Common Shares
of Beneficial
Interest 312,013 $12.33 (2) $3,847,120.20 $487.43
shares(1)
--------------------------------------------------------------------------------
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended,
this Registration Statement also covers such additional securities as may
hereinafter be offered or issued to prevent dilution resulting from share split,
share dividends, recapitalization or certain other capital adjustments.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(h) of the Securities Act, on the basis of
the average of the high and low prices of the Company's common shares as
reported by the New York Stock Exchange on April 22, 2004, which was within five
business days of the filing of the initial Registration Statement.
PROSPECTUS
312,013 COMMON SHARES OF BENEFICIAL INTEREST OF
ACADIA REALTY TRUST
We are Acadia Realty Trust ("Acadia" or the "Company"), a statutory real
estate investment trust formed under the laws of the State of Maryland. Our
common shares of beneficial interest ("Common Shares") which are the subject of
this prospectus may be offered and sold from time to time by the person listed
under the "Selling Shareholder" section of this prospectus.
The Selling Shareholder may sell its Common Shares directly or
indirectly in one or more transactions on any stock exchange or stock market on
which the Common Shares may be listed at the time of the sale, in privately
negotiated transactions, or through a combination of such methods. These sales
may be at fixed prices (which may be changed), at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices.
Our Common Shares are listed on the New York Stock Exchange under the
symbol "AKR." On April 22, 2004, the last reported sale price for our Common
Shares was $12.38 per share.
This prospectus has been prepared for the purpose of registering the
Common Shares which are the subject of this prospectus under the Securities Act
to allow for future sales by the Selling Shareholder to the public. The Selling
Shareholder may sell Common Shares directly to purchasers or through brokers or
dealers, which may act as agents or principals, or pursuant to a distribution by
one or more underwriters on a firm commitment or best efforts basis. Such
brokers or dealers may receive compensation in the form of commissions,
discounts or concessions from the Selling Shareholder and/or purchasers of the
Common Shares, or both (which compensation as to a particular broker or dealer
may be in excess of customary commissions). In connection with such sales, the
Selling Shareholder and any participating broker or dealer may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
they receive and the proceeds of any sale of Common Shares may be deemed to be
underwriting discounts and commissions under the Securities Act. We will not
receive any proceeds from the sale of the Common Shares by the Selling
Shareholder. See "Plan of Distribution," herein.
---------------
Investing in our Common Shares involves various risks. In considering
whether to purchase our Common Shares, you should carefully consider the matters
discussed under "Risk Factors" beginning on page 4 of this prospectus.
---------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offence.
This prospectus does not constitute an offer to sell securities in any
state to any person to whom it is unlawful to make such offer in such state.
The date of this prospectus is , 2004.
TABLE OF CONTENTS
-----------------
Page
----
PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................4
USE OF PROCEEDS................................................................4
SELLING SHAREHOLDER............................................................4
PLAN OF DISTRIBUTION...........................................................6
DESCRIPTION OF OUR COMMON SHARES...............................................8
RESTRICTIONS ON TRANSFERS OF CAPITAL SHARES AND ANTI-TAKEOVER PROVISIONS......12
FEDERAL INCOME TAX CONSIDERATIONS.............................................14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................25
LEGAL MATTERS.................................................................25
EXPERTS...................................................................... 25
AVAILABLE INFORMATION.........................................................25
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................25
-i-
PROSPECTUS SUMMARY
This summary highlights information included elsewhere in or
incorporated by reference in this prospectus. It may not contain all of the
information that is important to you. You should read the following summary
together with the more detailed information included or incorporated by
reference in this prospectus, including risk factors regarding our business and
the Common Shares being offered hereby.
In this prospectus, we refer to Acadia together with its subsidiaries
(unless the context otherwise requires) as "we," "us," "our," or "our Company."
Our Company
Overview
We are Acadia Realty Trust, a Maryland real estate investment trust
("REIT") formed on March 4, 1993. We are a fully integrated, self-managed and
self-administered equity REIT focused primarily on the ownership, acquisition,
redevelopment and management of neighborhood and community shopping centers. All
of our assets are held by, and all of our operations are conducted through,
Acadia Realty Limited Partnership, a Delaware limited partnership, and its
majority-owned subsidiaries. We refer to Acadia Realty Limited Partnership and
its majority-owned subsidiaries as the "Operating Partnership" throughout this
prospectus.
As of the date of this prospectus, we controlled 98% of the Operating
Partnership as the sole general partner. As the general partner, we are entitled
to share, in proportion to our percentage interest, in the cash distributions
and profits and losses of the Operating Partnership. The limited partners
represent entities or individuals who contributed their interests in certain
properties or partnerships to the Operating Partnership in exchange for common
or preferred units of limited partnership interest, which we refer to as "OP
Units." The common OP Units are exchangeable for our Common Shares on a
one-for-one basis, subject to adjustment for certain events.
As of the date of this prospectus, we operate 62 properties which we own
or have an ownership interest in, consisting of 60 neighborhood and community
shopping centers and two multifamily properties, all of which are located in the
Northeast, Mid-Atlantic and Midwest United States, totaling approximately 9.0
million square feet.
Our primary business objective is to acquire and manage commercial
retail properties that will provide cash for distributions to our shareholders
while also creating the potential for capital appreciation to enhance investor
returns. Currently, the primary conduit for our acquisition program is through a
joint venture, Acadia Strategic Opportunity Fund, LP ("AKR Fund I"), which we
and four of our institutional shareholders formed in September 2001. Initially,
the investors committed $70 million. We committed an additional $20 million of
investor capital to the venture and are entitled to receive standard management,
construction and leasing fees with respect to properties acquired by the joint
venture. In addition, we are entitled to an asset management fee equal to 1.5%
of the capital committed as well as an incentive payment of 20% after the return
of all investor capital with a 9% preferred return. As of the date of this
prospectus, this joint venture has invested in $166 million of properties and we
and the investors have contributed equity to the joint venture in the amount of
$10.5 million and $36.5 million, respectively.
Our Common Shares are traded on the New York Stock Exchange under the
symbol "AKR."
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Tax Status
We have elected to be treated as a REIT for federal income tax purposes.
This treatment permits us to deduct dividend distributions to our shareholders
for federal income tax purposes, thus effectively eliminating the "double
taxation" that generally results when a corporation earns income and distributes
that income to its shareholders by way of dividends. In order to maintain our
status as a REIT, we must comply with a number of requirements under federal
income tax law. See "Risk Factors" and "Federal Income Tax Considerations"
beginning on pages 4 and 15, respectively, of this prospectus.
Our Offices
Our principal executive offices are located at 1311 Mamaroneck Avenue,
Suite 260, White Plains, NY 10605, and our telephone number is (914) 288-8100.
Recent Developments
Secondary Offering by our Shareholders
On March 31, 2004, two of our shareholders completed a secondary public
offering of an aggregate of 5.75 million of our Common Shares of beneficial
interest at $13.75 per Common Share. Yale University and its affiliates sold
approximately 4.19 million Common Shares and Ross Dworman, our former Chairman
and Chief Executive Officer, sold approximately 1.56 million Common Shares. We
did not participate in the offering, nor did we receive any proceeds from the
offering.
Corporate Governance Initiatives--Board Restructuring
On March 18, 2004, we announced the next phase of our corporate
governance initiatives. In connection with our efforts to transition to a more
independent board of trustees, we announced that the following four individuals
will not stand for re-election at our next annual meeting of shareholders:
o Martin L. Edelman of the law firm Paul Hastings Janofsky and Walker, our
Company's outside general counsel;
o Gregory White of Prima Advisors, who is a member of the board of
trustees of a competing retail REIT (who subsequently resigned on April
1, 2004);
o Marvin Levine of the law firm Wachtel & Masyr, which actively represents
us in transactions; and
o Lawrence J. Longua, an original member of Mark Center Trust's board of
trustees who is currently with Newmark & Company.
We also announced that Ross Dworman, our former Chairman and Chief
Executive Officer, had resigned as a trustee.
At the next annual meeting of shareholders on May 6, 2004, four of our
current independent trustees will stand for re-election: Lee Wielansky, Douglas
Crocker II, Alan Forman and Lorrence Kellar. Our only management trustee,
Kenneth F. Bernstein, our President and Chief Executive Officer, will also stand
for re-election. In addition, our Nominating/Corporate Governance Committee
recommended, and our board of trustees approved, two new independent candidates
to stand for election, Wendy Luscombe and Suzanne Hopgood, bringing the size of
our board to seven members. Assuming all expected trustees are elected to the
board by shareholders, six of the seven board members will be independent under
New York Stock Exchange requirements.
2
Acquisition of Mortgage Loan
On March 11, 2004, AKR Fund I, in conjunction with our long-time
investment partner, Hendon Properties ("Hendon"), purchased a $9.6 million first
mortgage loan from New York Life Insurance Company for $5.5 million. The loan is
secured by a 235,000 square foot shopping center in Aiken, South Carolina and is
currently in default. AKR Fund I and Hendon have recently obtained the fee title
to this property. AKR Fund I provided 90% of the equity capital and Hendon
provided the remaining 10% of the equity capital used to acquire the loan.
Hendon is entitled to receive profit participation in excess of its
proportionate equity interest. The property is currently anchored by a Kroger
supermarket and is only 56% occupied due to the vacancy of a former Kmart store.
Declaration of Dividends
On February 26, 2004, our board of trustees declared a quarterly
dividend of $0.16 per share payable April 15, 2004 to common shareholders and
holders of common OP Units of record on March 31, 2004.
Venture with Klaff Realty, L.P.
On January 27, 2004, we entered into a new venture with Klaff Realty,
L.P. ("Klaff") and Klaff's long-time capital partner Lubert-Adler Management,
Inc. ("Lubert-Adler") for the purpose of making investments in surplus or
underutilized properties owned or controlled by retailers ("RCP Venture"). The
initial size of the RCP Venture is targeted to be approximately $300 million in
equity, based on anticipated investments of approximately $1 billion. The RCP
Venture is currently exploring investment opportunities, but has not yet made
any investments. Each participant in the RCP Venture has the right to opt out of
any potential investment.
We also acquired Klaff's contractual rights to provide asset management,
leasing, disposition, development and construction services ("Retail Services
Business") for an existing portfolio of retail properties and/or leasehold
interests comprised of approximately 10 million square feet of retail space
located throughout the United States (the "Klaff Properties"). The acquisition
involves only the Retail Services Business associated with operating the Klaff
Properties and does not include equity interests in the assets owned by Klaff or
Lubert-Adler. The Operating Partnership issued $4.0 million of Series B
Preferred OP Units to Klaff in consideration of the Retail Services Business.
These management activities will be conducted through a taxable REIT subsidiary.
The Preferred OP Units are convertible into 312,013 Common OP Units which may be
exchanged for 312,013 Common Shares, subject to a three-year lock-up. The
312,013 Common Shares are the subject of this prospectus.
Securities That May Be Offered
This prospectus relates to the offer and sale from time to time by the
person listed under the "Selling Shareholder" section of this prospectus of up
to 312,013 Common Shares which may be issued upon exchange of OP Units held by
the Selling Shareholder. We are registering the Common Shares covered by this
prospectus to satisfy our obligations under a registration rights agreement with
the Selling Shareholder.
We will not receive any cash proceeds from the sale of our Common Shares
by the Selling Shareholder.
3
Risk Factors
Investing in our Common Shares involves various risks. In considering
whether to purchase our Common Shares, you should carefully consider the matters
discussed under "Risk Factors" beginning on page 4 of this prospectus.
RISK FACTORS
Investing in our securities involves risks that could affect us and our
business as well as the real estate industry generally. Please see the risk
factors described in our Annual Report on Form 10-K for the year ended December
31, 2003, which is incorporated by reference into this prospectus. Much of the
business information as well as the financial and operational data contained in
our risk factors is updated in our periodic reports, which are also incorporated
by reference into this prospectus. Although we have tried to discuss key
factors, please be aware that other risks may prove to be important in the
future. New risks may emerge at any time and we cannot predict such risks or
estimate the extent to which they may affect our financial performance. Before
purchasing our securities, you should carefully consider the risks discussed in
our Annual Report on Form 10-K for the year ended December 31, 2003 and the
other information in this prospectus, as well as the documents incorporated by
reference herein. Each of the risks described could result in a decrease in the
value of our securities and your investment therein.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Common Shares
which may be sold pursuant to this prospectus for the account of the Selling
Shareholder. All such proceeds, net of brokerage commissions, if any, will be
received by the Selling Shareholder. See "Selling Shareholder," below, and "Plan
of Distribution," beginning on page 6 of this prospectus.
SELLING SHAREHOLDER
This prospectus covers offers and sales from time to time by the Selling
Shareholder of up to 312,013 Common Shares which may be issued to the Selling
Shareholder upon exchange of OP Units held by the Selling Shareholder. Under
Rule 416 of the Securities Act, the Selling Shareholder may also offer and sell
Common Shares issued to the Selling Shareholder as a result of, among other
events, stock splits, stock dividends and similar events that affect the number
of Common Shares held by the Selling Shareholder.
The following table sets forth certain information as to the beneficial
ownership of our Common Shares as of April 22, 2004 for the Selling
Shareholder:
---------------------- ----------------- ------------- ----------------- ------------------
Name Common Shares Common Common Shares Percentage of
Beneficially Shares Beneficially Common Shares to
Owned Before Offered Owned After be Owned After
Offering(1) Offering Offering
---------------------- ----------------- ------------- ----------------- ------------------
Klaff Realty, L.P. 312,013 (2) %
---------------------- ----------------- ------------- ----------------- ------------------
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(1) The number of shares beneficially owned is determined under rules
promulgated by the Commission and includes outstanding Common Shares or
restricted Common Shares and options for Common Shares that have vested or will
vest within 60 days.
5
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale from time to time by the
person listed under the "Selling Shareholder" section of this prospectus of up
to 312,013 Common Shares. As used in this section of the prospectus, the term
"Selling Shareholder" includes the Selling Shareholder named in the table above
and any of their donees, pledgees, transferees or other successors in interest
who receive shares offered hereby from a Selling Securityholder as a gift,
pledge, or other non-sale related transfer and who subsequently sell any of such
shares after the date of this prospectus. We have registered the Selling
Shareholder's Common Shares for resale to provide the Selling Shareholder with
freely tradeable Common Shares. However, registration of the Selling
Shareholder's Common Shares does not necessarily mean that the Selling
Shareholder will offer or sell any of their shares. We will not receive any
proceeds from the offering or sale of the Selling Shareholder's shares.
The Selling Shareholder may sell our Common Shares to which this
prospectus relates from time to time on the New York Stock Exchange, where our
Common Shares are listed for trading, in other markets where our Common Shares
may be traded, in negotiated transactions, through underwriters or dealers,
directly to one or more purchasers, through agents or in a combination of such
methods of sale. The Selling Shareholder may sell our Common Shares at prices
which are current when the sales take place or at other prices to which they
agree. All costs, expenses and fees in connection with the registration of the
Common Shares offered hereby will be borne by us. Brokerage commissions and
similar selling expenses, if any, attributable to the sale of Common Shares
offered hereby will be borne by the Selling Shareholder.
The Selling Shareholder may effect such transactions by selling the
Common Shares offered hereby directly to purchasers or through broker-dealers,
which may act as agents or principals, or pursuant to a distribution by one or
more underwriters on a firm commitment or best-efforts basis. The methods by
which the Common Shares which are the subject of this prospectus may be sold
include: (a) a block trade in which the broker-dealer will attempt to sell
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker-dealer as principal and
resale by the broker-dealer for its account; (c) ordinary brokerage transactions
and transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of the New York Stock Exchange; (e)
privately negotiated transactions; and (f) underwritten transactions.
The Selling Shareholder may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with those
transactions, broker-dealers and other financial institutions may engage in
short sales of our Common Shares in the course of hedging the related positions
they assume. The Selling Shareholder may also sell our Common Shares short and
redeliver the Common Shares covered by this prospectus to close out the short
positions. In addition, the Selling Shareholder may enter into option or other
transactions with broker-dealers or other financial institutions which require
the delivery to the broker-dealers or other financial institutions of Common
Shares offered by this prospectus, which shares the broker-dealers or other
financial institutions may resell pursuant to this prospectus (as supplemented
or amended to reflect the transaction).
Broker-dealers may receive compensation in the form of discounts,
concessions, or commissions from the Selling Shareholder and/or the purchasers
of the Common Shares offered hereby for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). In
connection with an underwritten offering, underwriters or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholder or from purchasers of the shares which are the subject of
this prospectus for whom they may act as agents, and underwriters may sell the
shares which
6
are the subject of this prospectus to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents.
We will file a supplement to this prospectus, if required, pursuant to
Rule 424(b) under the Securities Act upon being notified by the Selling
Shareholder that any material arrangements have been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange or secondary distribution or a purchase by a broker-dealer.
In addition, upon receiving notice from the Selling Shareholder that a
donee, pledgee or transferee or other successor in interest intends to sell more
than 500 shares covered by this prospectus, we will file a supplement to this
prospectus pursuant to Rule 424(b) under the Securities Act to identify the
non-sale transferee who may sell the shares which are the subject of this
prospectus.
The Selling Shareholder and any underwriters, dealers or agents
participating in the distribution of the shares which are the subject of this
prospectus may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of such shares by the Selling
Shareholder and any commissions received by any such broker-dealers may be
deemed to be underwriting commissions under the Securities Act.
7
DESCRIPTION OF OUR COMMON SHARES
The following description of our Common Shares does not purport to be
complete and is qualified in its entirety by reference to our declaration of
trust and bylaws, each as amended and restated, copies of which are exhibits to
the registration statement of which this prospectus is a part. See "Available
Information" on page 25 of this prospectus.
General
Under our declaration of trust, we have authority to issue 100,000,000
Common Shares, par value $0.001 per share. All Common Shares, when issued, are
duly authorized, fully paid and nonassessable. This means that the full price
for the shares has been paid at the time of issuance and consequently that any
holder of such shares will not later be required to pay us any additional money
for the same. As of December 31, 2003, 27,409,141 Common Shares were issued and
outstanding, as were 1,139,017 common OP Units which are convertible into the
same number of Common Shares. In addition, 2,212 Series A Preferred OP Units
were issued at a price of $1,000 per Unit to certain selling shareholders on
November 18, 1999. These Series A Preferred OP Units are convertible into common
OP Units at a conversion price of $7.50 per common Unit, have a distribution
preference and entitle the holder to a 9.0% dividend yield. A total of 1,580
Series A Preferred OP Units were outstanding as of December 31, 2003, following
the conversion of 632 Series A Preferred OP Units during 2003.
On January 27, 2004, 4,000 Series B Preferred OP Units were issued in
connection with the acquisition of the rights to provide asset management,
leasing, disposition, development and construction services for an existing
portfolio of retail properties from Klaff. These Units have a stated value of
$1,000 per Unit and are entitled to a quarterly preferred distribution of the
greater of (i) $13.00 (5.2% annually) per Unit or (ii) the quarterly
distribution attributable to a Preferred OP Unit if such Unit were converted
into a common OP Unit. The Series B Preferred OP Units are convertible into
common OP Units based on the stated value of $1,000 divided by $12.82 at any
time. Additionally, the holder of the Series B Preferred OP Units may redeem
them at par for either cash or common OP Units (at our option) after the earlier
of the third anniversary of their issuance, or the occurrence of certain events,
including a change in control of our Company. Finally, after the fifth
anniversary of the issuance, we may redeem the Series B Preferred OP Units and
convert them into common OP Units at market value as of the redemption date. In
response to a subsequent request from Klaff, our Board of Trustees approved a
waiver on February 24, 2004 which allows Klaff to redeem 1,500 Series B
Preferred OP Units at any time.
Our Common Shares have equal dividend, liquidation and other rights, and
have no preference, exchange or appraisal rights, except for any appraisal
rights provided by Maryland law. Holders of our Common Shares have no
conversion, sinking fund or redemption rights, or preemptive rights to subscribe
for any of our securities.
Distributions
Holders of our Common Shares may receive distributions out of assets
that we can legally use to pay distributions, when and if they are authorized
and declared by our board of trustees. Each common shareholder shares in the
same proportion as other common shareholders out of the assets that we can
legally use to pay distributions after we pay or make adequate provision for all
of our known debts and liabilities in the event we are liquidated, dissolved or
our affairs are wound up.
Voting Rights
Holders of Common Shares have the power to vote on all matters presented
to our shareholders, including the election of trustees, except as otherwise
provided by Maryland law. Our declaration of trust
8
prohibits us from merging or selling all or substantially all of our assets
without the approval of two-thirds of the outstanding shares that are entitled
to vote on such matters. Holders of Common Shares are entitled to one vote per
share.
There is no cumulative voting in the election of our trustees, which
means that holders of more than 50% of the Common Shares voting for the election
of trustees can elect all of the trustees if they choose to do so and the
holders of the remaining shares cannot elect any trustees.
Restrictions on Transfer
To qualify as a REIT under the Internal Revenue Code of 1986, we must
satisfy certain ownership requirements. Specifically, not more than 50% in value
of our outstanding Common Shares may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Internal Revenue Code of 1986 to include
certain entities) during the last half of a taxable year, and the Common Shares
must 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. We must also satisfy certain income requirements to maintain our
REIT status. One such requirement is that at least 75% of our company's gross
income for each calendar year must consist of rents from real property and
income from certain other real property investments. This is complicated by the
fact that the rents received by the operating partnership will not qualify as
rents from real property if we own, actually or constructively, 10% or more of
the ownership interests in our lessees, within the meaning of section
856(d)(2)(B) of the Internal Revenue Code of 1986, as amended. See "Federal
Income Tax Considerations--General" beginning on page 15 of this prospectus.
Because our board of trustees believes it is essential for us to
continue to qualify as a REIT, our declaration of trust contains provisions
aimed at satisfying the requirements described above. In regard to the ownership
requirements, the declaration of trust provides that subject to certain
exceptions, no person may own, or be deemed to own by virtue of the attribution
provisions of the Internal Revenue Code of 1986, more than 4% of our outstanding
Common Shares. The Trustees may waive this 4% limitation if evidence
satisfactory to them or our tax counsel is presented that such ownership will
not jeopardize our status as a REIT. As a condition of such waiver, the Trustees
may require opinions of counsel satisfactory to them and/or an undertaking from
the applicant with respect to preserving our REIT status.
The trustees of Mark Centers Trust waived the 4% ownership limitation in
August, 1998 when certain affiliates of RD Capital, Inc. received shares in
consideration of their contribution to Mark Center Limited Partnership. On two
subsequent occasions, our trustees permitted investors owing in excess of 4% of
the trust's outstanding shares to acquire additional shares through open market
purchases transacted during specified three-month windows.
In addition, our declaration of trust provides that any purported
transfer or issuance of shares or securities transferable into shares which
would (i) violate the 4% limitation described above, (ii) result in shares being
owned by fewer than 100 persons for purposes of the REIT provisions of the
Internal Revenue Code of 1986, (iii) result in our Company being "closely held"
with the meaning of Section 856(h) of the Internal Revenue Code of 1986, or (iv)
otherwise jeopardize our REIT status under the Internal Revenue Code (including
a transfer which would cause us to own, actually or constructively, 9.8% or more
of the ownership interests in one of our lessees) will be null and void ab
initio (from the beginning). Moreover, Common Shares transferred, or proposed to
be transferred, in contravention of the above will be subject to purchase by us
at a price equal to the lesser of (i) the price stipulated in the challenged
transaction and (ii) the fair market value of such shares (determined in
accordance with the rules set forth in our declaration of trust).
All certificates representing the Common Shares bear a legend referring
to the restrictions described above.
9
The ownership limitations described above could have the effect of
delaying, deferring or preventing a takeover or other transaction in which
holders of some, or a majority, of Common Shares might receive a premium for
their shares over the then prevailing market price or which such holders might
believe to be otherwise in their best interest.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Shares is American Stock
Transfer & Trust Company which has an address at 40 Wall Street, New York, NY
10005.
Declaration of Trust and Bylaw Provisions and Certain Provisions of Maryland Law
Number of Trustees; Election of Trustees, Removal of Trustees, the
Filling of Vacancies. Our declaration of trust provides that the board of
trustees will consist of not less than two nor more than fifteen persons, and
that the number of trustees will be set by the trustees then in office. Our
board currently consists of eight trustees, each of whom serves until the next
annual meeting of shareholders and until his successor is duly elected and
qualified. Election of each trustee requires the approval of a plurality of the
votes cast by the holders of Common Shares in person or by proxy at our annual
meeting. The board of trustees does not have a nominating committee. Our bylaws
provide that the shareholders may, at any time, remove any trustee, with or
without cause, by the affirmative vote of a majority of all the votes entitled
to be cast on the matter and may elect a successor to fill any resulting vacancy
for the balance of the term of the removed trustee. Any vacancy (including a
vacancy created by an increase in the number of trustees) will be filled, at any
regular meeting or at any special meeting called for that purpose, by a majority
of the trustees.
Limitation of Liability and Indemnification of Trustees and Officers.
Our bylaws and declaration of trust authorize our company, to the extent
permitted under Maryland law, to indemnify its trustees and officers in their
capacity as such. Section 8-301(15) of the Maryland General Corporation Law
("MGCL") permits a Maryland REIT to indemnify or advance expenses to trustees
and officers to the same extent as is permitted for directors and officers of a
Maryland corporation under the MGCL. The MGCL requires a Maryland corporation
(unless its charter provides otherwise, which our declaration of trust does not)
to indemnify a director or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. The MGCL permits a Maryland corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of
liability on the basis that a personal benefit was improperly received, unless
in either case a court orders indemnification and then only for expenses. In
addition, the MGCL permits a corporation to advance reasonable expenses to a
director or officer upon the corporation's receipt of 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 corporation and a
written undertaking by such director or officer on his or her behalf to repay
the amount paid or reimbursed by the corporation if it shall ultimately be
determined that the standard of conduct was not met.
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Our bylaws also permit us, subject to the approval of our board of
trustees, to indemnify and advance expenses to any person who served as a
predecessor of us in any of the capacities described above and to any employee
or agent of us or a predecessor of us.
In addition to the above, we have purchased and maintains insurance on
behalf of all of its trustees and executive officers against liability asserted
against or incurred by them in their official capacities with us, whether or not
we are required or has the power to indemnify them against the same liability.
Business Combinations. Section 8-301(14) of the MGCL permits a Maryland
REIT to enter to a business combination (including a merger, consolidation,
share exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) on the same terms as a Maryland
corporation under the MGCL. Under the MGCL, certain business combinations
between a Maryland corporation and any person who beneficially owns 10% or more
of the voting power of such corporation's shares, or an affiliate of such
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting shares of such corporation (an "Interested Stockholder")
or an affiliate thereof, are prohibited for five years after the most recent
date on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of such corporation and (b) two-thirds of the votes entitled to be
cast by holders of shares of voting stock of such corporation other than the
shares held by the Interested Stockholder with whom (or with whose affiliate)
the business combination is to be affected, unless, among other conditions, the
corporation's common shareholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares.
Control Share Acquisitions. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquirer, by
officers or by directors who are employees of the corporation. "Control Shares"
are voting shares of stock which, if aggregated with all other such shares of
stock previously acquired by the acquirer, or in respect of which the acquirer
is able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquirer to exercise voting
power in electing directors within one of the following ranges of voting power:
(i) one-tenth or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority or more of all voting power. Control Shares
do not include shares which the acquiring person is then entitled to vote as a
result of having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors of the corporation to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined, without regard
to the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquirer or of any meeting of stockholders
at which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquirer becomes entitled to vote a
11
majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquirer in the control share acquisition, and certain limitations and
restrictions otherwise applicable to the exercise of dissenters' rights do not
apply in the context of a control share acquisition.
The foregoing does not apply to shares acquired in a merger,
consolidation or share exchange, if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation. Pursuant to the MGCL, we have exempted control share
acquisitions involving our trustees and employees and any person approved by our
trustees in their sole discretion.
Amendments to Our Declaration of Trust. In general, the declaration of
trust may be amended by the affirmative vote or written consent of the holders
of not less than a majority of the Common Shares then outstanding and entitled
to vote thereon. However, amendments with respect to certain provisions relating
to the ownership requirements, reorganizations and certain mergers or
consolidations or the sale of substantially all of our assets, which amendments
require the affirmative vote or written consent of the holders of not less than
two-thirds of the Common Shares then outstanding and entitled to vote thereon.
The Trustees of our company, by a two-thirds vote, may amend the provisions of
the declaration of trust from time to time to effect any change deemed necessary
by the Trustees to allow us to qualify and continue to qualify as a REIT.
Dissolution of Our Company or its REIT Status. The declaration of trust
permits the termination and the discontinuation of our operations by the
affirmative vote of the holders of not less than a majority of the outstanding
shares entitled to vote at a meeting of shareholders called for that purpose. In
addition, the declaration of trust permits the Trustees to terminate our REIT
status at any time.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust. The limitation on ownership of Common Shares set forth in
our declaration of trust, as well as the provisions of the MGCL dealing with
business combinations and control share acquisitions could have the effect of
discouraging offers to acquire our Company or of hampering the consummation of a
contemplated acquisition.
RESTRICTIONS ON TRANSFERS OF CAPITAL SHARES AND ANTI-TAKEOVER PROVISIONS
Maryland Law
Maryland law includes certain other provisions which may also discourage
a change in control of management. Maryland law provides that, unless an
exemption applies, we may not engage in any "business combination" with an
"interested shareholder" or any affiliate of an interested shareholder for a
period of five years after the interested shareholder became an interested
shareholder, and thereafter may not engage in a business combination with such
interested shareholder unless the combination is recommended by our board of
trustees and approved by the affirmative vote of at least (i) 80% of the votes
entitled to be cast by the holders of all of our outstanding voting shares, and
(ii) 66 2/3% of the votes entitled to be cast by all holders of outstanding
voting shares other than voting shares held by the interested shareholder. An
"interested shareholder" is defined, in essence, as any person owning
beneficially, directly or indirectly, 10% or more of the outstanding voting
shares of a Maryland real estate investment trust. The voting requirements do
not apply at any time to business combinations with an interested shareholder or
its affiliates if approved by our board of trustees prior to the time the
interested shareholder first became an interested shareholder. Additionally, if
the business combination involves the receipt of consideration by our
shareholders in exchange for Common Shares that satisfies certain "fair price"
conditions, such supermajority voting requirements do not apply.
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As an additional anti-takeover defense, Maryland law permits
publicly-held Maryland statutory real estate investment trusts ("REITs") to
elect to be governed by all or any part of Maryland law provisions relating to
unsolicited takeovers. The election to be governed by one or more of these
provisions can be made by a publicly held Maryland REIT in its declaration of
trust or bylaws ("charter documents") or by resolution adopted by its board of
trustees so long as the REIT has at least three trustees who, at the time of
electing to be subject to the provisions, are not officers or employees of the
REIT, are not persons seeking to acquire control of the REIT, are not trustees,
officers, affiliates or associates of any person seeking to acquire control, and
were not nominated or designated as trustees by a person seeking to acquire
control.
If the charter documents do not already contain these provisions, the
REIT may adopt one or more by a board resolution or a bylaw amendment, following
which it must file articles supplementary to its declaration of trust with the
Maryland State Department of Assessments and Taxation. Shareholder approval is
not required for the filing of these articles supplementary. We have not filed
such articles supplementary.
Maryland law permits a REIT to elect to be subject to all or any portion
of the following provisions, notwithstanding any contrary provisions in the
REIT's charter documents:
Classified Board: The REIT may divide its board into three classes
which, to the extent possible, will have the same number of trustees, the terms
of which will expire at the third annual meeting of shareholders after the
election of each class, with the first class term expiring one year after
adoption, the second class term expiring two years later, and the third class
term expiring three years later;
Two-thirds Shareholder Vote to Remove Trustees Only for Cause: The
shareholders may remove any trustee only by the affirmative vote of at least
two-thirds of all votes entitled to be cast by the shareholders generally in the
election of trustees, but a trustee may not be removed without cause;
Size of Board Fixed by Vote of Board: The number of trustees will be
fixed only by resolution of the board, but the number cannot be less than three
trustees;
Board Vacancies Filled by the Board for the Remaining Term: Vacancies
that result from an increase in the size of the board, or the death,
resignation, or removal of a trustee, may be filled only by the affirmative vote
of a majority of the remaining trustees even if they do not constitute a quorum.
Trustees elected to fill vacancies will hold office for the remainder of the
full term of the class of trustees in which the vacancy occurred, as opposed to
until the next annual meeting of shareholders, and until a successor is elected
and qualified; and
Shareholder Calls of Special Meetings: Special meetings of shareholders
may be called by the secretary of the REIT only upon the written request of
shareholders entitled to cast at least a majority of all votes entitled to be
cast at the meeting and only in accordance with procedures set out in the
Maryland General Corporation Law.
13
FEDERAL INCOME TAX CONSIDERATIONS
You are advised to assume that the information in this prospectus is
accurate only as of their respective dates.
The following discussion summarizes the material federal income tax
considerations to you as a prospective holder of our shares. Paul, Hastings,
Janofsky & Walker LLP has acted as our tax counsel, has reviewed this summary,
and is of the opinion that the discussion contained herein fairly summarizes the
federal income tax considerations that are likely to be material to a holder of
our Common Shares. However, the following discussion is for general information
purposes only, is not exhaustive of all possible tax considerations and is not
intended to be and should not be construed as tax advice. For example, this
summary does not give a detailed discussion of any state, local or foreign tax
considerations. In addition, this discussion is intended to address only those
federal income tax considerations that are generally applicable to all our
security holders. It does not discuss all of the aspects of federal income
taxation that may be relevant to you in light of your particular circumstances
or to certain types of security holders who are subject to special treatment
under the federal income tax laws including, without limitation, insurance
companies, tax-exempt entities (except as discussed in " - Taxation of
Tax-Exempt Shareholders"), financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States
(except as discussed in " - Taxation of Non-U.S. Shareholders".
The information in this section is based on the Internal Revenue Code of
1986, as amended, which is referred to as the Code, existing, temporary and
proposed regulations under the Code, the legislative history of the Code,
current administrative rulings and practices of the IRS and court decisions, all
as of the date hereof. 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
current law. Any such change could apply retroactively to transactions preceding
the date of the change. In addition, we have not received, and do not plan to
request, any rulings from the IRS concerning our tax treatment. Thus no
assurance can be provided that the statements set forth herein (which do not
bind the IRS or the courts) will not be challenged by the IRS or that such
statements will be sustained by a court if so challenged.
EACH PROSPECTIVE PURCHASER OF SHARES IS ADVISED TO CONSULT WITH HIS OR
HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES OF AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of our Company
General. We elected to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with our taxable year ended December 31, 1993. We
believe that we have been organized, and have operated, in such a manner so as
to qualify for taxation as a REIT under the Code and intend to conduct our
operations so as to continue to qualify for taxation as a REIT. No assurance,
however, can be given that we have operated in a manner so as to qualify or will
be able to operate in such a manner so as to remain qualified as a REIT.
Qualification and taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results, the required
distribution levels, diversity of share ownership and the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by counsel. Given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changes in our
14
circumstances, no assurance can be given that the actual results of our
operations for any one taxable year have satisfied or will continue to satisfy
such requirements.
In the opinion of Paul, Hastings, Janofsky & Walker LLP, based on
certain assumptions and our factual representations that are described in this
section and in an officer's certificate, commencing with our taxable year ended
December 31, 1996, we have been organized and operated in conformity with the
requirements for qualification as a REIT and our current and proposed method of
operation will enable us to continue to meet the requirements for qualification
and taxation as a REIT. It must be emphasized that this opinion is based on
various assumptions and is conditioned upon certain representations made by us
as to factual matters including, but not limited to, those set forth herein, and
those concerning our business and properties as set forth in this prospectus. An
opinion of counsel is not binding on the IRS or the courts.
The following is a general summary of the Code provisions that govern
the federal income tax treatment of a REIT and its shareholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
If we qualify for taxation as a REIT, we generally will not be subject
to federal corporate income taxes on our net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, we will be subject to federal income tax
as follows:
o First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
o Second, under certain circumstances, we may be subject to the
"alternative minimum tax" on our items of tax preference.
o Third, if we have (a) net income from the sale or other
disposition of "foreclosure property", which is, in general,
property acquired on foreclosure or otherwise on default on a
loan secured by such real property or a lease of such property,
which is held primarily for sale to customers in the ordinary
course of business or (b) other nonqualifying income from
foreclosure property, we will be subject to tax at the highest
corporate rate on such income.
o Fourth, if we have net income from "prohibited transactions" such
income will be subject to a 100% tax. Prohibited transactions
are, in general, certain sales or other dispositions of property
held primarily for sale to customers in the ordinary course of
business other than foreclosure property.
o Fifth, if we should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), but nonetheless
maintain our qualification as a REIT because certain other
requirements have been met, we will be subject to a 100% tax on
an amount equal to (a) the gross income attributable to the
greater of (1) the amount by which we fail the 75% gross income
test or (2) the amount by which 90% of our gross income exceeds
the amount of income qualifying under the 95% gross income test
multiplied, in each case, by (b) a fraction intended to reflect
our profitability.
o Sixth, if we should fail to distribute during each calendar year
at least the sum of (a) 85% of our REIT ordinary income for such
year, (b) 95% of our REIT capital gain net income for such year,
and (c) any undistributed taxable income from prior periods, we
would be
15
subject to a 4% nondeductible excise tax on the excess of such
required distribution over the amounts actually distributed.
o Seventh, assuming we do not elect to instead be taxed at the time
of the acquisition, 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, we would
be subject to tax at the highest corporate rate if we dispose of
such asset during the 10-year period beginning on the date that
we acquired that asset, to the extent of such property's
"built-in gain" (the excess of the fair market value of such
property at the time of our acquisition over the adjusted basis
of such property at such time).
o Eighth, we will incur a 100% excise tax on transactions with a
taxable REIT subsidiary that are not conducted on an arm's-length
basis.
Requirements for Qualification. A REIT is a corporation, trust or
association (1) that is managed by one or more trustees or directors, (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) that would be taxable as a
domestic corporation, but for Sections 856 through 859 of the Code, (4) that is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) that has the calendar year as its taxable year, (6)
the beneficial ownership of which is held by 100 or more persons, (7) during the
last half of each taxable year (after the first REIT taxable year) not more than
50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities), and (8) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(1) through (5), inclusive, must be met during the entire taxable year and that
condition (6) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months
(other than the first year of a REIT).
We may redeem, at our option, a sufficient number of shares or restrict
the transfer thereof to bring or maintain the ownership of the shares in
conformity with the requirements of the Code. In addition, our declaration of
trust includes restrictions regarding the transfer of our shares that are
intended to assist us in continuing to satisfy requirements (6) and (7).
Moreover, if we comply with regulatory rules pursuant to which we are required
to send annual letters to our shareholders requesting information regarding the
actual ownership of our shares, and we do not know, or exercising reasonable
diligence would not have known, whether we failed to meet requirement (7) above,
we will be treated as having met the requirement. See "See "Description of Our
Common Shares" and "Restrictions on Transfers of Capital Shares and
Anti-Takeover Provisions" beginning on pages 9 and 13, respectively, of this
prospectus.
The Code allows a REIT to own wholly-owned subsidiaries which are
"qualified REIT subsidiaries." The Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and items of income, deduction and credit of the REIT. Thus, in
applying the requirements described herein, our qualified REIT subsidiaries will
be ignored, and all assets, liabilities and items of income, deduction and
credit of such subsidiaries will be treated as our assets, liabilities and items
of income, deduction and credit.
A REIT may also hold any direct or indirect interest in a corporation
that qualifies as a "taxable REIT subsidiary", as long as the REIT's aggregate
holdings of taxable REIT subsidiary securities do not exceed 20% of the value of
the REIT's total assets. A taxable REIT subsidiary is a fully taxable
16
corporation that generally is permitted to engage in businesses, own assets, and
earn income that, if engaged in, owned, or earned by the REIT, might jeopardize
REIT status or result in the imposition of penalty taxes on the REIT. To qualify
as a taxable REIT subsidiary, the subsidiary and the REIT must make a joint
election to treat the subsidiary as a taxable REIT subsidiary. A taxable REIT
subsidiary also includes any corporation (other than a REIT) in which a taxable
REIT subsidiary directly or indirectly owns more than 35% of the total voting
power or value. See "-- Asset Tests" below. A taxable REIT subsidiary will pay
tax at regular corporate income rates on any taxable income it earns. Moreover,
the Code contains rules, including rules requiring the imposition of taxes on a
REIT at the rate of 100% on certain reallocated income and expenses, to ensure
that contractual arrangements between a taxable REIT subsidiary and its parent
REIT are at arm's-length.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of each of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and items of gross income of the partnership will retain
the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income and assets tests (as discussed
below). Thus, our proportionate share of the assets, liabilities, and items of
gross income of the partnerships in which we own an interest are treated as our
assets, liabilities and items of gross income for purposes of applying the
requirements described herein.
Income Tests. In order to maintain qualification as a REIT, we must
satisfy annually certain gross income requirements. First, at least 75% of our
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain types of
qualified 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, dividends, interest and gain
from the sale or disposition of stock or securities.
Rents received by us will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if the
following conditions are met:
o First, the amount of rent must not be based in whole or in part
on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
o Second, the Code provides that rents received from a tenant will
not qualify as "rents from real property" in satisfying the gross
income tests if we, or an owner of 10% or more of our shares,
actually or constructively own 10% or more of such tenant.
o Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of
the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents
from real property."
o Finally, in order for rents received to qualify as "rents from
real property," we generally must not operate or manage the
property (subject to a de minimis exception as described below)
or furnish or render services to the tenants of such property,
other than through an independent contractor from whom we derive
no revenue or through a taxable REIT subsidiary. We may, however,
directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the
occupant" of the property ("Permissible Services").
17
Rents received generally will qualify as rents from real property
notwithstanding the fact that we provide services that are not Permissible
Services so long as the amount received for such services meets a de minimis
standard. The amount received for "impermissible services" with respect to a
property (or, if services are available only to certain tenants, possibly with
respect to such tenants) cannot exceed one percent of all amounts received,
directly or indirectly, by us with respect to such property (or, if services are
available only to certain tenants, possibly with respect to such tenants). The
amount that we will be deemed to have received for performing "impermissible
services" will be the greater of the actual amounts so received or 150% of the
direct cost to us of providing those services.
We believe that substantially all of our rental income will be
qualifying income under the gross income tests, and that our provision of
services will not cause the rental income to fail to be qualifying income under
those tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if
such failure was due to reasonable cause and not willful neglect, we disclosed
the nature and amounts of our items of gross income in a schedule attached to
our Federal income tax return, and any incorrect information on the schedule was
not due to fraud with intent to evade tax. It is not possible, however, to state
whether in all circumstances we would be entitled to the benefit of this relief
provision. Even if this relief provision applied, a 100% penalty tax would be
imposed on the greater of (1) the amount by we fail the 75% gross income test or
(2) the amount by which 90% of our gross income exceeds the amount of income
qualifying under the 95% gross income test multiplied, in each case, by a
fraction intended to reflect our profitability.
Subject to certain safe harbor exceptions, any gain realized by us on
the sale of any property held as inventory or other property held primarily for
sale to customers in the ordinary course of business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction income may also have an adverse effect upon our ability
to satisfy the income tests for qualification as a REIT. Under existing law,
whether property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on all
the facts and circumstances with respect to the particular transaction.
Asset Tests. At the close of each quarter of our taxable year, we must
also satisfy the following tests relating to the nature of our assets. At least
75% of the value of our total assets must be represented by real estate assets,
including (1) our allocable share of real estate assets held by partnerships in
which we own an interest or held by our qualified REIT subsidiaries and (2)
stock or debt instruments held for not more than one year purchased with the
proceeds of an offering of equity securities or a long-term (at least five
years) debt offering by us, cash, cash items and government securities. In
addition, not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class. Not more than 20% of the value of our
total assets may be represented by securities of one or more taxable REIT
subsidiaries (as defined above under "-Requirements for Qualification"). Except
for investments included in the 75% asset class, securities in a taxable REIT
subsidiary or qualified REIT subsidiary and certain partnership interests and
debt obligations, (1) not more than 5% of the value of our total assets may be
represented by securities of any one issuer, (2) we may not hold securities that
possess more than 10% of the total voting power of the outstanding securities of
a single issuer and (3) we may not hold securities that have a value of more
than 10% of the total value of the outstanding securities of any one issuer
(excluding certain "straight debt" securities).
We believe that substantially all of our assets consist and, after the
offering, will consist of (1) real properties, (2) stock or debt investments
that earn qualified temporary investment income, (3) other qualified real estate
assets, and (4) cash, cash items and government securities. We may also invest
in securities of other entities, provided that such investments will not prevent
us from satisfying the asset and income tests for REIT qualification set forth
above.
18
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we
inadvertently fail one or more of the asset tests at the end of a calendar
quarter because we acquire securities or other property during the quarter, we
can cure this failure by disposing of sufficient nonqualifying assets within 30
days after the close of the calendar quarter in which it arose.
Annual Distribution Requirement. With respect to each taxable year, we
must distribute to our shareholders as dividends (other than capital gain
dividends) at least 90% of our taxable income. Specifically, we must distribute
an amount equal to (1) 90% of the sum of our "REIT taxable income" (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain) and any after-tax net income from foreclosure property, minus (2)
the sum of certain items of "excess noncash income" such as income attributable
to leveled stepped rents, cancellation of indebtedness and original issue
discount. REIT taxable income is generally computed in the same manner as
taxable income of ordinary corporations, with several adjustments, such as a
deduction allowed for dividends paid, but not for dividends received.
We will be subject to tax on amounts not distributed at regular United
States federal corporate income tax rates. In addition, a 4% nondeductible
excise tax is imposed on the excess of (1) 85% of our ordinary income for the
year plus 95% of capital gain net income for the year and the undistributed
portion of the required distribution for the prior year over (2) the actual
distribution to shareholders during the year (if any). Net operating losses
generated by us may be carried forward (but not carried back) and used by us for
15 years (or 20 years in the case of net operating losses generated in our tax
years commencing on or after January 1, 1998) to reduce REIT taxable income and
the amount that we will be required to distribute in order to remain qualified
as a REIT. As a REIT, our net capital losses may be carried forward for five
years (but not carried back) and used to reduce capital gains.
In general, a distribution must be made during the taxable year to which
it relates to satisfy the distribution test and to be deducted in computing REIT
taxable income. However, we may elect to treat a dividend declared and paid
after the end of the year (a "subsequent declared dividend") as paid during such
year for purposes of complying with the distribution test and computing REIT
taxable income, if the dividend is (1) declared before the regular or extended
due date of our tax return for such year and (2) paid not later than the date of
the first regular dividend payment made after the declaration, but in no case
later than 12 months after the end of the year. For purposes of computing the 4%
nondeductible excise tax, a subsequent declared dividend is considered paid when
actually distributed. Furthermore, any dividend that is declared by us in
October, November or December of a calendar year, and payable to shareholders of
record as of a specified date in such quarter of such year will be deemed to
have been paid by us (and received by shareholders) on December 31 of such
calendar year, but only if such dividend is actually paid by us in January of
the following calendar year.
For purposes of complying with the distribution test for a taxable year
as a result of an adjustment in certain of our items of income, gain or
deduction by the IRS, we may be permitted to remedy such failure by paying a
"deficiency dividend" in a later year together with interest and a penalty. Such
deficiency dividend may be included in our deduction of dividends paid for the
earlier year for purposes of satisfying the distribution test. For purposes of
the 4% excise tax, the deficiency dividend is taken into account when paid, and
any income giving rise to the deficiency adjustment is treated as arising when
the deficiency dividend is paid.
We believe that we have distributed and intend to continue to distribute
to our shareholders in a timely manner such amounts sufficient to satisfy the
annual distribution requirements. However, it is possible that timing
differences between the accrual of income and its actual collection, and the
need to make non-deductible expenditures (such as capital improvements or
principal payments on debt) may cause us to recognize taxable income in excess
of our net cash receipts, thus increasing the difficulty of
19
compliance with the distribution requirement. In order to meet the distribution
requirement, we might find it necessary to arrange for short-term, or possibly
long-term, borrowings.
Failure to Qualify. If we fail to qualify as a REIT for any taxable
year, and if certain relief provisions of the Code do not apply, we would be
subject to federal income tax (including applicable alternative minimum tax) on
our taxable income at regular corporate rates. Distributions to shareholders in
any year in which we fail to qualify will not be deductible by us nor will they
be required to be made. As a result, our failure to qualify as a REIT would
reduce the cash available for distribution by us to our shareholders. In
addition, if we fail to qualify as a REIT, all distributions to domestic
non-corporate shareholders will be taxable at capital gain rates, to the extent
of our current and accumulated earnings and profits. Subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction.
If our failure to qualify as a REIT is not due to reasonable cause but
results from willful neglect, we would not be permitted to elect REIT status for
the four taxable years after the taxable year for which such disqualification is
effective. In the event we were to fail to qualify as a REIT in one year and
subsequently requalify in a later year, we might be required to recognize
taxable income based on the net appreciation in value of our assets as a
condition to requalification. In the alternative, we may be taxed on the net
appreciation in value of our assets if we sell properties within ten years of
the date we requalify as a REIT under federal income tax laws.
Taxation of Taxable U.S. Shareholders
As used herein, the term "U.S. shareholder" means a holder of shares who
(for United States federal income tax purposes) (1) is a citizen or resident of
the United States, (2) is a corporation, 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 of any political
subdivision thereof (unless, in the case of a partnership, Treasury Regulations
are adopted that provide otherwise), (3) is an estate the income of which is
subject to United States federal income taxation regardless of its source or (4)
is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust or a trust that has
a valid election to be treated as a U.S. person in effect.
As long as we qualify as a REIT, distributions made to our U.S.
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and corporate shareholders will not be eligible for the
dividends-received deduction as to such amounts. For purposes of computing our
earnings and profits, depreciation for depreciable real estate will be computed
on a straight-line basis over a 40-year period. REIT dividends generally will
not be eligible for reduced tax rates applicable to dividends paid by regular
corporations to most domestic non-corporate shareholders. See "- Recent
Developments."
Distributions that are properly designated as capital gain dividends
will be taxed as gains from the sale or exchange of a capital asset held for
more than one year (to the extent they do not exceed our actual net capital gain
for the taxable year) without regard to the period for which the shareholder has
held its shares. However, corporate shareholders may be required to treat up to
20% of certain capital gain dividends as ordinary income under the Code. Capital
gain dividends, if any, will be allocated among different classes of shares in
proportion to the allocation of earnings and profits discussed above.
Distributions in excess of our current and accumulated earnings and
profits will constitute a non-taxable return of capital to a shareholder to the
extent that such distributions do not exceed the adjusted basis of the
shareholder's shares, and will result in a corresponding reduction in the
shareholder's basis in the shares. Any reduction in a shareholder's tax basis
for its shares will increase the amount of taxable gain or decrease the
deductible loss that will be realized upon the eventual disposition of the
shares. We
20
will notify shareholders at the end of each year as to the portions of the
distributions which constitute ordinary income, capital gain or a return of
capital. Any portion of such distributions that exceeds the adjusted basis of a
U.S. shareholder's shares will be taxed as capital gain from the disposition of
shares, provided that the shares are held as capital assets in the hands of the
U.S. shareholder.
Aside from the different income tax rates applicable to ordinary income
and capital gain dividends, regular and capital gain dividends from us will be
treated as dividend income for most other federal income tax purposes. In
particular, such dividends will be treated as "portfolio" income for purposes of
the passive activity loss limitation and shareholders generally will not be able
to offset any "passive losses" against such dividends. Dividends will be treated
as investment income for purposes of the investment interest limitation
contained in Section 163(d) of the Code, which limits the deductibility of
interest expense incurred by noncorporate taxpayers with respect to indebtedness
attributable to certain investment assets.
In general, dividends paid by us will be taxable to shareholders in the
year in which they are received, except in the case of dividends declared at the
end of the year, but paid in the following January, as discussed above.
In general, a domestic shareholder will realize capital gain or loss on
the disposition of shares equal to the difference between (1) the amount of cash
and the fair market value of any property received on such disposition and (2)
the shareholder's adjusted basis of such shares. Such gain or loss will
generally be short-term capital gain or loss if the shareholder has not held
such shares for more than one year and will be long-term capital gain or loss if
such shares have been held for more than one year. Loss upon the sale or
exchange of shares by a shareholder who has held such shares for six months or
less (after applying certain holding period rules) will be treated as long-term
capital loss to the extent of distributions from us required to be treated by
such shareholder as long-term capital gain.
We may elect to retain and pay income tax on net long-term capital
gains. If we make such an election, you, as a holder of shares, will (1) include
in your income as long-term capital gains your proportionate share of such
undistributed capital gains and (2) be deemed to have paid your proportionate
share of the tax paid by us on such undistributed capital gains and thereby
receive a credit or refund for such amount. As a holder of shares you will
increase the basis in your shares by the difference between the amount of
capital gain included in your income and the amount of tax you are deemed to
have paid. Our earnings and profits will be adjusted appropriately.
Backup Withholding
We will report to our domestic shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any, with respect thereto. Under the backup withholding rules, a shareholder may
be subject to backup withholding with respect to dividends paid unless such
holder (a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with the applicable requirements of the backup withholding
rules. Amounts withheld as backup withholding will be creditable against the
shareholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions made to any shareholders who fail to
certify their non-foreign status to us. See "-- Taxation of Non-U.S.
Shareholders" below. Additional issues may arise pertaining to information
reporting and backup withholding with respect to non-U.S. shareholders (persons
other than U.S. shareholders, also further described below). Non-U.S.
shareholders should consult their tax advisors with respect to any such
information and backup withholding requirements.
21
Taxation of Non-U.S. Shareholders
The following discussion is only a summary of the rules governing United
States federal income taxation of non-U.S. shareholders such as nonresident
alien individuals, foreign corporations, foreign partnerships or other foreign
estates or trusts. Prospective non-U.S. shareholders should consult with their
own tax advisors to determine the impact of federal, state and local income tax
laws with regard to an investment in shares, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges
by us of United States real property interests and not designated by us as
capital gains dividends 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 or eliminates that tax. Certain tax treaties limit the extent to
which dividends paid by a REIT can qualify for a reduction of the withholding
tax on dividends. Distributions in excess of our current and accumulated
earnings and profits will not be taxable to a non-U.S. shareholder to the extent
that they do not exceed the adjusted basis of the shareholder's shares, but
rather will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a non-U.S. shareholder's shares, they
will give rise to tax liability if the non-U.S. shareholder would otherwise be
subject to tax on any gain from the sale or disposition of his shares, as
described below.
For withholding tax purposes, we are generally required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a non-U.S. shareholder. We would
not be required to withhold at the 30% rate on distributions we reasonably
estimate to be in excess of our current and accumulated earnings and profits. If
it cannot be determined at the time a distribution is made whether 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
ordinary dividends. However, the non-U.S. shareholder may seek from the IRS a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of our current or accumulated earnings and
profits, and the amount withheld exceeded the non-U.S. shareholder's United
States tax liability, if any, with respect to the distribution.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of United States real
property interests will be taxed to a non-U.S. shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, a non-U.S. shareholder is taxed as if such gain were effectively
connected with a United States business. Non-U.S. shareholders would thus be
taxed at the normal capital gain rates applicable to U.S. shareholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of non-resident 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. shareholder not entitled to treaty relief or exemption. We are required
by applicable regulations to withhold 35% of any distribution that could be
designated by us as a capital gains dividend regardless of the amount actually
designated as a capital gain dividend. This amount is creditable against the
non-U.S. shareholder's FIRPTA tax liability.
Gain recognized by a non-U.S. shareholder upon a sale of shares
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the shares was held directly or
indirectly by foreign persons. It is anticipated that we will continue to be a
"domestically controlled REIT" after the offering. Therefore, the sale of shares
will not be subject to taxation under FIRPTA. However, because our Common Shares
are publicly traded, no assurance can be given that we will continue to qualify
as a "domestically controlled REIT." In addition, a non-U.S. shareholder that
owns, actually or constructively, 5% or less of a class of our shares through a
specified testing period will not recognize
22
taxable gain on the sale of its shares under FIRPTA if the shares are traded on
an established securities market. If the gain on the sale of shares were to be
subject to taxation under FIRPTA, the non-U.S. shareholder would be subject to
the same treatment as U.S. shareholders with respect to such gain (subject to
applicable alternative minimum tax, special alternative minimum tax in the case
of nonresident alien individuals and possible application of the 30% branch
profits tax in the case of foreign corporations) and the purchaser would be
required to withhold and remit to the IRS 10% of the purchase price. Gain not
subject to FIRPTA will be taxable to a non-U.S. shareholder if (1) investment in
the shares is effectively connected with the non-U.S. shareholder's United
States trade or business, in which case the non-U.S. shareholder will be subject
to the same treatment as U.S. shareholders with respect to such gain, or (2) the
non-U.S. shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and such nonresident
alien individual has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While investments
in real estate may generate UBTI, the IRS has issued a published ruling to the
effect that dividend distributions by a REIT to an exempt employee pension trust
do not constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension trust.
Based on that ruling and on our intention to invest our assets in a manner that
will avoid the recognition of UBTI, amounts distributed by us to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of our shares with debt, a portion of its
income from us, if any, will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under specified provisions of
the Code are subject to different UBTI rules, which generally will require them
to characterize distributions from us as UBTI.
In addition, a pension trust that owns more than 10% of our shares is
required to treat a percentage of the dividends from us as UBTI (the "UBTI
Percentage") in certain circumstances. The UBTI Percentage is our gross income
derived from an unrelated trade or business (determined as if we were a pension
trust) divided by our total gross income for the year in which the dividends are
paid. The UBTI rule applies only if (i) the UBTI Percentage is at least 5%, (ii)
we qualify as a REIT by reason of the modification of the 5/50 Rule that allows
the beneficiaries of the pension trust to be treated as holding our shares in
proportion to their actuarial interests in the pension trust, and (iii) either
(A) one pension trust owns more than 25% of the value of our shares or (B) a
group of pension trusts individually holding more than 10% of the value of our
capital shares collectively owns more than 50% of the value of our capital
shares.
Other Tax Considerations
Entity Classification. A significant number of our investments are held
through partnerships. If any such partnerships were treated as an association,
the entity would be taxable as a corporation and therefore would be subject to
an entity level tax on its income. In such a situation, the character of our
assets and items of gross income would change and might preclude us from
qualifying as a REIT.
We believe that each partnership in which we hold a material interest
(either directly or indirectly) is properly treated as a partnership for tax
purposes (and not as an association taxable as a corporation).
23
Tax Allocations with Respect to the Properties. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as "Book-Tax Difference"). Special
rules under Section 704(c) of the Code and the Treasury Regulations thereunder
require special allocations of income, gain, loss and deduction with respect to
contributed property, which tend to eliminate the Book-Tax Difference over the
depreciable lives of such property, but which may not always entirely eliminate
the Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed
properties in the hands of the partnership could cause us (i) to be allocated
lower amounts of depreciation and other deductions for tax purposes than would
be allocated to us if all properties were to have a tax basis equal to their
fair market value at the time the properties were contributed to the
partnership, and (ii) possibly to be allocated taxable gain in the event of a
sale of such contributed properties in excess of the economic or book income
allocated to us as a result of such sale.
Recent Developments
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act"),
which has been enacted into law, reduces the tax rates imposed on dividends paid
by C corporations to most domestic non-corporate shareholders in order to limit
"double taxation" on dividends, and such reduced rates are effective from
January 1, 2003 through December 31, 2008. In addition, the capital gains tax
rates are also reduced, and such reduced rates are effective with respect to
transactions after May 5, 2003 through December 31, 2008.
A REIT's non-corporate shareholders generally would not benefit from the
Act with respect to dividends paid by a REIT because such dividends are
generally not subject to taxation at the REIT level. However, there are limited
circumstances in which a REIT non-corporate shareholders will be subject to tax
at the reduced rate with respect to REIT dividends. The reduced tax rates would
apply to an amount equal to the excess of a REIT's income subject to corporate
level income taxes (less such tax liability). This could occur, for example, if
a REIT did not distribute 100% of its taxable income as a dividend. The reduced
rates would also apply to capital gains dividends and to dividends attributable
to dividends a REIT receives from non-REIT corporations.
The Act could cause investors to view investments in common and
preferred stock of REITs, including the Common Shares being offered by this
prospectus, less favorably in comparison to investments in common and preferred
stock of C corporations, the dividends for which would be subject to a reduced
tax rate under the Act.
24
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the information incorporated herein by reference
contain certain statements and other written material and oral statements made
from time to time by us do not relate strictly to historical or current facts.
As such, they are considered "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, beliefs and
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and are subject to risks, uncertainties and other factors,
some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements. These risks and uncertainties are described in "Risk
Factors" and elsewhere in this prospectus. We caution you not to place undue
reliance on these forward-looking statements, which reflect our view only as of
the respective date of this prospectus or other dates which are specified
herein.
LEGAL MATTERS
The validity of the securities has been passed upon for us by Berliner,
Corcoran & Rowe L.L.P., Washington, DC.
EXPERTS
Our consolidated financial statements included in our Annual Report
(Form 10-K) for the year ended December 31, 2003, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 which requires us to file reports and other information
with the Securities and Exchange Commission. You can inspect and copy reports,
proxy statements and other information filed by us at the public reference
facility maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. You can obtain copies of this material by mail from the Public Reference
Section of the SEC at 450 West Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. You can also obtain such reports, proxy statements and other
information from the web site that the SEC maintains at http://www.sec.gov.
Reports, proxy statements and other information concerning us may also
be obtained electronically at our website, http://www.acadia.com and through a
variety of databases, including, among others, the SEC's Electronic Data
Gathering and Retrieval ("EDGAR") program, Knight-Ridder Information Inc.,
Federal Filing/Dow Jones and Lexis/Nexis.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information. We
incorporate
25
by reference the documents listed below and any future filings we will make with
the Commission under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934:
o Our Annual Report on Form 10-K for the fiscal year ended December
31, 2003, filed with the Commission on March 15, 2004 (Commission
File No. 001-12002);
o Our Current Report on Form 8-K, filed with the Commission on
January 29, 2004 (Commission File No. 001-12002);
o Our Current Report on Form 8-K, filed with the Commission on
March 18, 2004 (Commission File No. 001-12002);
o Our Current Report on Form 8-K, filed with the Commission on
March 22, 2004 (Commission File No. 001-12002);
o Our Current Report on Form 8-K, filed with the Commission on
March 26, 2004 (Commission File No. 001-12002); and
o Our Definitive Proxy Statement dated April 9, 2004 on Schedule
14A prepared in connection with our Annual Meeting of
Shareholders held on May 6, 2003.
You may request a copy of these filings (not including the exhibits to such
documents unless the exhibits are specifically incorporated by reference in the
information contained in this prospectus), at no cost, by writing or telephoning
us at the following address:
Acadia Realty Trust
1311 Mamaroneck Avenue, Suite 260
White Plains, New York 10605
Attn: Robert Masters
Telephone requests may be directed to (914) 288-8100.
This prospectus is part of a registration statement we filed with the
Commission. You should rely only on the information or representations provided
in this prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
Statements contained in this prospectus as to the contents of any
contract or document are not necessarily complete and in each instance reference
is made to the copy of that contract or document filed as an exhibit to the
registration statement or as an exhibit to another filing, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto.
26
312,013 COMMON SHARES OF
ACADIA REALTY TRUST
PROSPECTUS
, 2004
27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the offering are as follows:
Securities and Exchange Commission
registration fee.................................. $ 487.43
Accounting fees and expenses...................... 5,000.00
Legal fees and expenses........................... 5,000.00
Miscellaneous..................................... 5,000.00
-----------
TOTAL...................................... $15,487.43
===========
Item 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Company's bylaws and declaration of trust authorize the Company, to
the extent permitted under Maryland law, to indemnify its trustees and officers
in their capacity as such. Section 8-301(15) of the Maryland General Corporation
Law ("MGCL") permits a Maryland REIT to indemnify or advance expenses to
trustees and officers to the same extent as is permitted for directors and
officers of a Maryland corporation under the MGCL. The MGCL requires a Maryland
corporation (unless its charter provides otherwise, which the Company's
declaration of trust does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, for reasonable expenses incurred in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a Maryland corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation for a judgment of liability on the basis that the
officer or director shall have been adjudged to be liable to the Company or that
a personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of 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 corporation and a written undertaking by
such director or officer on his or her behalf to repay the amount paid or
reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met.
The Company's bylaws also permit the Company, subject to the approval of
its board of trustees, to indemnify and advance expenses to any person who
served as a predecessor of the Company in any of the capacities described above
and to any employee or agent of the Company or a predecessor of the Company.
1
In addition to the above, the Company has purchased and maintains
insurance on behalf of all of its trustees and executive officers against
liability asserted against or incurred by them in their official capacities with
the Company, whether or not the Company is required or has the power to
indemnify them against the same liability.
Item 16. EXHIBITS
Exhibit No. Description
--------------------------------------------------------------------------------
4.1 Registration Rights Agreement (previously filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 2003)
5.1 Opinion of Berliner, Corcoran & Rowe, L.L.P. (filed herewith)
23.1 Consent of Ernst & Young LLP (filed herewith)
23.2 Consent of Berliner, Corcoran & Rowe, L.L.P. (filed herewith)
24.1 Power of Attorney (included on signature page hereto)
99.1 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (previously filed with the Company's
Registration Statement on Form S-3 filed on March 3, 2000)
99.2 First and Second Amendments to the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (previously filed
with the Company's Registration Statement on Form S-3 filed on March
3, 2000)
99.3 Third Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (previously filed with the
Company's Annual Report on Form 10-K, filed on March 15, 2004)
99.4 Fourth Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (previously filed with the
Company's Annual Report on Form 10-K, filed on March 15, 2004)
2
Item 17. UNDERTAKINGS
The Company hereby undertakes:
The undersigned 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 thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of a
prospectus pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(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;
Provided, however, that paragraphs (1)(i) and (1)(ii) 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 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 relating to the securities offering 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions referred to in Item 15 of this
Registration Statement, or otherwise, the registrant has been advised that in
the opinion of the SEC 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,
3
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 as to 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.
4
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 of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of White Plains, State of New York, on this 19th day of
April, 2004.
ACADIA REALTY TRUST
A Maryland real estate investment trust (Registrant)
By: /s/ Kenneth F. Bernstein
------------------------
Kenneth F. Bernstein
Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints
Kenneth F. Bernstein, his true and lawful attorney-in-fact with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement (or any registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933) and to cause the same to be filed, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
whatsoever requisite or desirable to be done in and about the premises, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorney-in-fact
and agent, or its substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Kenneth F. Bernstein Chief Executive Officer, April 19 , 2004
--------------------------- President and Trustee (Principal
Kenneth F. Bernstein Executive Officer)
/s/ Michael Nelsen Senior Vice President and April 19 , 2004
--------------------------- Chief Financial Officer
Michael Nelsen (Principal Financial and Account
Officer)
/s/ Douglas Crocker, II Trustee April 19 , 2004
---------------------------
Douglas Crocker, II
/s/ Martin L. Edelman Trustee April 19 , 2004
---------------------------
Martin L. Edelman
/s/ Alan S. Forman Trustee April 19 , 2004
---------------------------
Alan S. Forman
/s/ Lorrence T. Kellar Trustee April 19 , 2004
---------------------------
Lorrence T. Kellar
/s/ Marvin Levine Trustee April 19 , 2004
---------------------------
Marvin L. Levine
/s/ Lawrence Longua Trustee April 19 , 2004
---------------------------
Lawrence Longua
5
/s/ Lee S. Wielansky Trustee April 19 , 2004
---------------------------
Lee S. Wielansky
6
INDEX TO EXHIBITS
ACADIA REALTY TRUST
-------------------
Exhibit No. Description
--------------------------------------------------------------------------------
4.1 Registration Rights Agreement (previously filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 2003)
5.1 Opinion of Berliner, Corcoran & Rowe, L.L.P. (filed herewith)
23.1 Consent of Ernst & Young LLP (filed herewith)
23.2 Consent of Berliner, Corcoran & Rowe, L.L.P. (filed herewith)
24.1 Power of Attorney (included on signature page hereto)
99.1 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (previously filed with the Company's
Registration Statement on Form S-3 filed on March 3, 2000)
99.2 First and Second Amendments to the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (previously filed
with the Company's Registration Statement on Form S-3 filed on March
3, 2000)
99.3 Third Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (previously filed with the
Company's Annual Report on Form 10-K, filed on March 15, 2004)
99.4 Fourth Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (previously filed with the
Company's Annual Report on Form 10-K, filed on March 15, 2004)