Filed Pursuant to Rule 424(b)(5)
Registration No.: 333-72210
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 18, 2001)
$36,933,000
SIZELER PROPERTY INVESTORS, INC.
9.0% Convertible Subordinated Debentures due
July 15, 2009, Series 5/8/02 and/or
9.75% Series B Cumulative Redeemable Preferred Stock
----------------
The debentures and the Series B preferred stock are being offered to the
public in this cash offering.
. Descriptions of the debentures and the Series B preferred stock can be
found under "Summary," "Terms of the Debentures" and "Terms of the
Series B Preferred Stock" in this prospectus supplement.
. Upon completion of the offering, we intend to list the debentures, the
Series B preferred stock and the common stock issuable upon conversion
of the debentures on the New York Stock Exchange.
. In connection with our offering of securities, we have retained Cohen &
Steers Capital Advisors, LLC as our placement agent. Cohen & Steers has
no commitment to purchase securities and will act only as an agent in
the obtaining of indications of interest on the securities from certain
investors in various jurisdictions. Cohen & Steers has made no
commitment as to the amount of securities that will be sold in the
offering. Cohen & Steers is a "statutory underwriter" within the
meaning of the Securities Act of 1933, as amended, in connection with
the placement of the debentures and Series B preferred stock. See "Plan
of Distribution."
. We expect that the debentures will be ready for delivery in book-entry
form only through The Depository Trust Company, and the Series B
preferred stock in book-entry or certificated form, on or about May 10,
2002.
Proceeds
Offering Price to
to Public Sizeler
-------------- --------
Per share of Series B preferred stock................... $ 25.00 $ 24.25
Per $1,000 principal amount of debenture................ $1,000.00 $970.00
You are urged to carefully read the "Risk Factors" section beginning on
page S-13 in this prospectus supplement and page 2 of the accompanying
prospectus, where specific risks associated with us and the offering are
described, before you make your investment decision.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined
if this prospectus supplement or accompanying prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
----------------
May 6, 2002
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
SUMMARY................................................................... S-6
THE COMPANY............................................................... S-6
Sizeler Property Investors, Inc......................................... S-6
Recent Developments..................................................... S-6
THE OFFERING.............................................................. S-7
Summary Description of the Debentures................................... S-7
Summary Description of the Series B Preferred Stock..................... S-8
SUMMARY FINANCIAL INFORMATION............................................. S-10
Summary Historical Financial Data....................................... S-10
Summary Pro Forma Balance Sheet Data.................................... S-11
Ratio of Earnings to Fixed Charges...................................... S-11
Ratio of EBITDA to Combined Fixed Charges and Preference Dividends...... S-12
RISK FACTORS.............................................................. S-13
Risks Associated with the Debentures.................................... S-13
Risks Associated with the Series B Preferred Stock...................... S-13
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS........................... S-14
USE OF PROCEEDS........................................................... S-14
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS...... S-15
CAPITALIZATION............................................................ S-16
SELECTED FINANCIAL DATA................................................... S-17
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS..................... S-19
ABOUT SIZELER PROPERTY INVESTORS, INC..................................... S-23
TERMS OF THE DEBENTURES................................................... S-23
TERMS OF THE SERIES B PREFERRED STOCK..................................... S-27
Maturity................................................................ S-27
Rank.................................................................... S-27
Dividends............................................................... S-27
Liquidation Preference.................................................. S-29
Redemption.............................................................. S-29
Procedures for Redemption............................................... S-29
Voting Rights........................................................... S-30
Conversion.............................................................. S-31
Restrictions on Ownership and Transfer.................................. S-32
Transfer and Dividend Paying Agent...................................... S-32
DESCRIPTION OF CAPITAL STOCK.............................................. S-32
BOOK-ENTRY; DELIVERY AND FORM............................................. S-32
General................................................................. S-32
Definitive Registered Debentures........................................ S-33
Description of Book-Entry System........................................ S-34
Payments on the Global Debentures....................................... S-34
Redemption of Global Debentures......................................... S-35
Transfers............................................................... S-35
Action by Owners of Book-Entry Interests................................ S-35
S-2
Page
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Reports.................................................................. S-36
Notices.................................................................. S-36
Business Day............................................................. S-36
Action by Book-Entry Depositary.......................................... S-36
Resignation of Book-Entry Depositary..................................... S-36
Expenses of Book-Entry Depositary........................................ S-36
Amendment and Termination of the Deposit Agreement....................... S-37
Information Concerning DTC, Euroclear and Clearstream.................... S-37
Global Clearance and Settlement Under Book-Entry System.................. S-38
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES..................... S-38
PLAN OF DISTRIBUTION....................................................... S-39
LEGAL MATTERS.............................................................. S-39
PROSPECTUS
ABOUT THIS PROSPECTUS...................................................... 1
WHERE YOU CAN FIND MORE INFORMATION........................................ 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
ABOUT SIZELER PROPERTY INVESTORS, INC...................................... 2
RISK FACTORS............................................................... 2
Real Estate Industry Risks............................................... 2
Risks Associated with our Properties..................................... 3
Financing Risks.......................................................... 5
Other Risks.............................................................. 5
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................ 7
USE OF PROCEEDS............................................................ 7
RATIO OF EARNINGS TO FIXED CHARGES......................................... 8
DESCRIPTION OF DEBT SECURITIES............................................. 8
General.................................................................. 8
Denomination, Interest, Registration and Transfer........................ 10
Merger, Consolidation or Sale............................................ 11
Certain Covenants........................................................ 12
Events of Default, Notice and Waiver..................................... 12
Modification of the Indentures........................................... 14
Conversion Rights........................................................ 14
Redemption of Securities................................................. 15
Subordination............................................................ 15
Subrogation.............................................................. 15
Global Securities........................................................ 15
DESCRIPTION OF CAPITAL STOCK............................................... 15
General.................................................................. 15
Description of Common Stock.............................................. 16
Description of Preferred Stock........................................... 17
Description of Stockholder Rights Plan................................... 18
S-3
Page
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DESCRIPTION OF WARRANTS.................................................... 19
General.................................................................. 19
Exercise of Warrants..................................................... 20
Amendments and Supplements to Warrant Agreement.......................... 20
Common Stock Warrant Adjustments......................................... 20
CERTAIN PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BY-LAWS............. 21
The Board of Directors................................................... 21
Amendment of Charter and Bylaws.......................................... 21
Business Combinations.................................................... 22
Control Share Acquisitions............................................... 22
Advance Notice of Director Nominations and New Business.................. 22
Meetings of Stockholders................................................. 23
Recent Maryland Legislation.............................................. 23
Prohibited Transactions.................................................. 24
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES..................... 25
Introductory Notes....................................................... 25
Taxation of Us as a REIT................................................. 25
Requirements for Qualification........................................... 27
Qualified REIT Subsidiaries.............................................. 28
Taxable REIT Subsidiaries................................................ 28
Income Tests............................................................. 28
Asset Tests.............................................................. 29
Annual Distribution Requirements......................................... 30
Failure to Qualify....................................................... 31
Tax Aspects of Our Investments in Partnerships........................... 31
Taxation of Stockholders................................................. 32
Taxation of U.S. Debenture Holders....................................... 35
Taxation of Non-U.S. Debenture Holders................................... 38
Backup Withholding Tax and Information Reporting......................... 38
PLAN OF DISTRIBUTION....................................................... 39
LEGAL MATTERS.............................................................. 40
EXPERTS.................................................................... 40
S-4
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering of debentures and Series
B preferred stock and also adds to and updates information contained in the
accompanying prospectus and the documents incorporated by reference into the
prospectus. The second part is the accompanying prospectus, which gives more
general information, some of which may not apply to the debentures and Series
B preferred stock. To the extent there is a conflict between the information
contained in this prospectus supplement, on the one hand, and the information
contained in the accompanying prospectus or any document incorporated by
reference, on the other hand, the information in this prospectus supplement
will control.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with information that is different
from that contained or incorporated by reference in this prospectus supplement
or the accompanying prospectus. We are offering to sell the debentures and the
Series B Preferred Stock only where offers and sales are permitted. The
information contained in or incorporated by reference in this prospectus
supplement and the accompanying prospectus is accurate only as of the date of
this prospectus supplement and the date of the prospectus, respectively,
regardless of the time of delivery of this prospectus supplement or of any
sale of the debentures and Series B preferred stock.
S-5
SUMMARY
This summary highlights information from this prospectus supplement. It may
not contain all of the information that is important to you in deciding whether
to invest in us. To understand this offering fully, you should read the entire
prospectus supplement and prospectus carefully, including the risk factors and
financial statements, as well as the documents we have filed with the
Securities and Exchange Commission which are incorporated by reference.
THE COMPANY
Sizeler Property Investors, Inc.
We are a self-administered and self-managed equity real estate investment
trust that invests in income-producing shopping centers and apartment
communities in the Gulf Coast region of the southeastern United States. We are
a self-administered REIT in that we provide our own investment and
administrative services internally through our own employees. We are also self-
managed as we internally provide, through a wholly-owned subsidiary, the
management, leasing and development services that our properties require. Our
investment objective is to acquire and develop high-quality properties at
attractive initial yields with potential for future growth in cash flows. As of
December 31, 2001, our existing portfolio contained 15 retail shopping centers
with approximately 2.6 million square feet of gross leasable area and 14
apartment properties containing approximately 3,400 units. Our properties are
located in Louisiana (15), Florida (10) and Alabama (4). As of December 31,
2001, our retail and apartment properties were approximately 91% and 95%
leased, respectively. Our principal executive offices are located at 2542
Williams Boulevard, Kenner, Louisiana 70062. Our telephone number is (504) 471-
6200.
Recent Developments
Exchange Offer. We recently completed an exchange offer pursuant to which we
exchanged 9.0% convertible subordinated debentures due July 15, 2009 and/or the
Series B preferred stock for our outstanding 8% convertible subordinated
debentures due July 15, 2003. New debentures were exchanged for old debentures
of equal principal amount and 40 shares of Series B preferred stock were
exchanged for each $1,000 principal amount of old debentures. We accepted
tenders from holders of a total of $28,067,000 in aggregate principal amount of
the old debentures. Of the old debentures tendered pursuant to the exchange
offer, $27,299,000 in principal amount was tendered for new debentures and
$768,000 in principal amount was tendered for Series B preferred stock.
The primary purpose of this public offering is to refinance the old
debentures that remain outstanding after the exchange offer. The total amount
of debentures and Series B preferred stock to be offered in this offering will,
in no event, be greater than $36,933,000 in aggregate amount of securities.
Operating Results. On May 3, 2002, we announced our results for the quarter
ended March 31, 2002. The following is a summary of those results:
Quarter Ended
March 31, 2002
--------------
Funds from operations(1)......................................... $ 3,860,000
Net income....................................................... 1,191,000
Net income per share............................................. 0.10
Weighted average shares outstanding.............................. 12,236,000
Operating revenue................................................ $13,135,000
Net operating income(2).......................................... 8,685,000
Interest expense................................................. 3,306,000
Depreciation and amortization.................................... 2,823,000
Dividends paid................................................... 2,802,000
--------
(1) See Note (1) under "Summary Historical Financial Data" for a description of
funds from operations.
(2) See Note (2) under "Summary Historical Financial Data" for a description of
net operating income.
S-6
THE OFFERING
Issuer...................... Sizeler Property Investors, Inc.
Securities offered.......... Up to $29,300,000 in aggregate principal amount
of 9.0% convertible subordinated debentures due
July 15, 2009, Series 5/8/02 and up to 306,000
shares of 9.75% Series B cumulative redeemable
preferred stock.
Use of proceeds............. We intend to use the proceeds from this offering
to redeem or purchase outstanding 8% convertible
subordinated debentures due July 15, 2003 that
were not retired in the exchange offer. See "Use
of Proceeds" and "The Company--Recent
Developments."
No established markets...... Although we intend to apply to list the
debentures, the Series B preferred stock and the
common stock issuable upon conversion of the
debentures on the New York Stock Exchange, we
cannot assure you that such listing will occur or
that any active trading markets in the debentures
or the Series B preferred stock will develop.
Summary Description of the Debentures
9.0% Convertible Subordinated Debentures due July 15, 2009, Series 5/8/02
Debentures offered.......... Up to $29,300,000 in aggregate principal amount
available in the offering.
Maturity.................... July 15, 2009.
Offering price.............. $1,000 per $1,000 principal amount of debenture.
Ranking..................... The debentures will rank in right of payment
behind our senior indebtedness and all of our
other existing and future senior debt, but equal
with our 8% convertible subordinated debentures
due July 15, 2003 and 9.0% convertible
subordinated debentures due July 15, 2009
currently outstanding and any future subordinated
debentures issued by us. The debentures will be
unsecured. The debentures will rank senior to the
Series B preferred stock.
Interest payments........... Interest payments will be made on the debentures
semi-annually on July 15th and January 15th of
each year. The first interest payment will be
prorated from the date of issue.
Automatic conversion........ On July 15, 2002, without any further action by
you or us, the debentures will automatically
convert into an equal principal amount of our
9.0% Convertible Subordinated Debentures due July
15, 2009. As of that date, the terms of the 9.0%
Convertible Subordinated Debentures due July 15,
2009 will be identical to the terms of the
debentures offered in this public offering.
Conversion.................. The debentures are convertible at any time prior
to maturity, unless previously redeemed, into our
common stock at a price of $11.00 per share,
subject to adjustments.
Optional redemption......... We may redeem the debentures at any time after
May 1, 2005, in whole or in part, for 100% of
their principal amount plus accrued and unpaid
interest, if any, up to the date of redemption,
on at least 30 days' prior written notice by
mail.
Covenants................... The debentures will include limitations on our
ability, and certain of our subsidiaries'
ability, to:
S-7
. pay dividends on stock or repurchase stock
after an event of default has occurred and is
continuing or would exist immediately after;
. merge, consolidate or transfer all or
substantially all of our assets unless the
successor entity expressly assumes all
obligations under the indenture governing the
debentures.
Events of default........... The following are events of default under the
indenture governing the debentures:
. our failure to pay principal at maturity when
such failure continues for five business
days;
. our failure to pay interest when due and such
failure continues for 30 days;
. our failure to comply with any other covenant
for 60 days after written notice; or
. certain events of bankruptcy, insolvency or
reorganization.
Listing..................... We intend to apply to list the debentures on the
New York Stock Exchange. On July 15, 2002, the
debentures will automatically convert into our
9.0% Convertible Subordinated Debentures due July
15, 2009, which are listed on the New York Stock
Exchange under the symbol "SIZ09".
Summary Description of the Series B Preferred Stock
9.75% Series B Cumulative Redeemable Preferred Stock.
Preferred stock offered..... Up to 306,000 shares of 9.75% Series B cumulative
redeemable preferred stock, par value $0.0001 per
share.
Offering price.............. $25.00 per share.
Ranking..................... The Series B preferred stock, with respect to
dividend rights and rights upon liquidation, will
rank: (i) senior to our common stock and our
Series A preferred stock, (ii) equal with all
other classes of our preferred stock, and (iii)
junior to the debentures to be issued in this
offering, our currently outstanding 9.0%
Convertible Subordinated Debentures, due July 15,
2009 our currently outstanding 8% convertible
subordinated debentures due July 15, 2003, any
other indebtedness of ours or our subsidiaries
and any other shares of our stock ranking senior.
From time to time we may issue additional shares
of Series B preferred stock for any corporate
purpose. The additional shares may be sold for
cash, exchanged for our outstanding securities,
or for real property or other assets that we
desire to acquire. All such additional shares of
Series B preferred stock will rank equally with
the shares of Series B preferred stock issued in
this offering.
Liquidation preference...... Upon any voluntary or involuntary liquidation,
dissolution or winding up of us, before any
payment to the holders of common stock, the
holders of the preferred stock will be entitled
to receive a liquidation preference of $25.00 per
share, plus an amount equal to all accrued and
unpaid dividends (whether or not earned or
declared) to the date of final distribution to
such holders.
S-8
Dividends................... $0.609375 per share payable in cash on the 15th
day of February, May, August and November of each
year (equivalent to $2.4375 per share annually or
9.75% of the liquidation preference of $25.00 per
share), when, as and if declared by the Board of
Directors. Such dividends will be cumulative from
the issue date, whether or not the dividends are
declared or paid in any period. The dividend
record date will be not less than 10 days prior
to the payment date nor more than 60 days prior
to the payment date each quarter and will be
publicly announced each quarter by us. We
anticipate that the record date will be
approximately two weeks prior to the payment
date. So long as the shares of Series B preferred
stock are outstanding, no dividends will be
declared and paid on our common stock unless all
dividends accrued and unpaid on the shares of
Series B preferred stock have been paid in full.
Optional redemption......... We may redeem the shares of Series B preferred
stock at a price equal to the liquidation
preference at any time following the fifth
anniversary of the issue date. In addition, we
will pay accrued and unpaid dividends, if any, up
to the date of the redemption.
Mandatory redemption........ None.
Covenants................... The shares of Series B preferred stock will
include limitations on our ability to:
. authorize, create or increase the authorized
or issued amount of any class of capital
stock ranking senior to the Series B
preferred stock; and
. amend, alter or repeal the provisions of our
Charter, including the Articles Supplementary
establishing the Series B preferred stock, so
as to materially and adversely affect any
right, preference or privilege of the shares
of Series B preferred stock.
Conversion.................. The shares of Series B preferred stock will not
be convertible into our common stock or any of
our other securities.
Voting for directors........ If six quarterly dividends (whether or not
consecutive) on the shares of Series B preferred
stock are in arrears, whether or not declared,
the number of directors constituting our Board of
Directors will be increased by two and the
holders of the shares of Series B preferred stock
(including any other classes or series of
preferred stock holding similar voting rights)
will be entitled to elect the two additional
directors to serve on the Board of Directors.
Listing..................... We intend to apply to list the Series B preferred
stock on the New York Stock Exchange.
For additional information regarding the terms of the debentures and the
Series B preferred stock, see "Terms of the Debentures" and "Terms of the
Series B Preferred Stock" beginning on pages S-23 and S-27, respectively.
Your investment in the debentures and Series B preferred stock will involve
certain risks. For a discussion of some of these risks, please see "Risk
Factors," beginning on page S-13 of this prospectus supplement and page 2 of
the accompanying prospectus, before deciding whether an investment in the
debentures and Series B preferred stock is suitable for you.
S-9
SUMMARY FINANCIAL INFORMATION
Summary Historical Financial Data
We have derived the summary historical financial data as of and for each of
the five years ended December 31, 2001, 2000, 1999, 1998 and 1997 from our
audited consolidated financial statements. The summary historical data below
should be read in conjunction with "Selected Financial Data," and our
consolidated financial statements and related notes incorporated by reference
in the accompanying prospectus.
Years Ended December 31,
------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
In thousands except per share, units and
percentages
Operating Data:
Total revenue............... $ 52,556 $ 51,441 $ 49,969 $ 47,791 $ 46,443
Property operating
expenses................... 19,764 19,442 18,971 17,905 17,139
-------- -------- -------- -------- --------
Net operating income (NOI)
(2)........................ 32,792 31,999 30,998 29,886 29,304
Depreciation and
amortization............... 11,409 11,173 10,845 10,145 9,621
Interest expense............ 15,240 15,850 15,018 14,554 14,608
Administrative expense...... 4,446 2,648 2,788 2,431 2,520
Gain on sale of real estate
(4)........................ 506 -- -- -- --
-------- -------- -------- -------- --------
Net income.................. $ 2,203 $ 2,328 $ 2,347 $ 2,756 $ 2,555
======== ======== ======== ======== ========
Net income per share........ 0.27 0.29 0.30 0.33 0.30
Common stock cash
distributions paid......... $ 7,601 $ 7,234 $ 6,938 $ 7,330 $ 7,413
Balance Sheet Data:
Real estate owned, at cost.. $349,437 $348,759 $338,389 $328,477 $310,312
Investment in real estate
partnership................ 847 916 917 913 904
Total assets................ 278,034 285,417 284,943 284,935 275,485
Mortgage notes payable...... 111,223 113,163 84,712 89,869 90,615
Notes payable............... 2,390 35,716 59,988 49,178 32,342
Convertible subordinated
debentures................. 61,878 61,878 61,878 62,878 62,878
Total liabilities........... 183,355 218,298 213,990 208,718 190,958
Shareholders' equity........ $ 94,679 $ 67,119 $ 70,953 $ 76,217 $ 84,527
Other Data:
Funds from operations
attributable to shares of
common stock (1)........... $ 13,694 $ 12,907 $ 12,603 $ 12,284 $ 11,509
Net operating income (2).... $ 32,792 $ 31,999 $ 30,998 $ 29,886 $ 29,304
Weighted average shares of
common stock outstanding... 8,313 7,950 7,888 8,331 8,423
Cash Flows:
Net cash provided by
operating activities....... $ 11,338 $ 14,010 $ 13,193 $ 12,456 $ 12,945
Net cash used in investing
activities................. (2,067) (10,496) (9,925) (16,966) (6,757)
Net cash provided by (used
in) financing activities... (9,939) (2,955) (3,081) 4,532 (5,528)
Apartments Segment:
Gross investment............ $139,213 $136,870 $134,092 $129,510 $113,446
Total units................. 3,398 3,398 3,397 3,341 3,157
Percent leased.............. 95% 97% 96% 96% 97%
Operating revenue........... $ 23,978 $ 22,954 $ 21,947 $ 20,353 $ 19,883
Operating expenses.......... $ 9,569 $ 9,432 $ 9,026 $ 8,190 $ 7,874
Net operating income (2).... $ 14,409 $ 13,522 $ 12,921 $ 12,163 $ 12,009
Percent of total NOI........ 44% 42% 42% 41% 41%
Retail Properties Segment:
Gross investment (3)........ $210,224 $212,805 $205,214 $199,880 $197,770
Total square footage........ 2,572 2,680 2,720 2,668 2,668
Percent leased.............. 91% 92% 95% 95% 95%
Operating revenue........... $ 28,578 $ 28,487 $ 28,022 $ 27,438 $ 26,560
Operating expenses.......... $ 10,195 $ 10,010 $ 9,945 $ 9,715 $ 9,265
Net operating income (2).... $ 18,383 $ 18,477 $ 18,077 $ 17,723 $ 17,295
Percent of total NOI........ 56% 58% 58% 59% 59%
S-10
--------
(1) Funds from operations has been an industry-wide standard used to measure
operating performance of a REIT since its adoption by the National
Association of Real Estate Investment Trusts in 1991. In October 1999
NAREIT revised the definition of funds from operations. The revision had no
effect on our calculation of funds from operations. We calculate funds from
operations as net income, excluding gains or losses from sales of property
and those items defined as extraordinary under accounting principles
generally accepted in the United States of America (GAAP), plus
depreciation on real estate assets, and after adjustments for
unconsolidated partnerships to reflect funds from operations on the same
basis. Funds from operations should not be considered as an alternative to
net earnings or any other GAAP measurement of performance or as an
alternative to cash flow from operating, investing or financing activities
as a measure of liquidity. The funds from operations measure presented by
us, while consistent with NAREIT's definition, will not be comparable to
similarly titled measure of other REITs that do not compute funds from
operations in a manner consistent with ours.
(2) Net operating income (NOI) is another measurement of financial performance
utilized by us, and is based on the operating revenues and operating
expenses directly associated with the operations of the real estate
properties (excluding administrative expenses, depreciation and
amortization and interest expense). NOI is calculated as operating revenues
less operating expenses directly related to the operations of the real
estate properties, before administrative expenses, depreciation and
amortization and interest expense.
(3) Includes our investment in an unconsolidated real estate entity.
(4) In 2001, we recorded a gain related to the sale of one of our real estate
properties.
Summary Pro Forma Balance Sheet Data
The following information is derived from our audited consolidated balance
sheets. The pro forma consolidated balance sheet as of December 31, 2001 was
prepared on the basis that the exchange offer and this public offering had
occurred on December 31, 2001. The summary data below should be read in
conjunction with "Unaudited Pro Forma Consolidated Financial Statements," and
our consolidated financial statements and related notes incorporated by
reference in this prospectus.
December 31, 2001
Pro Forma
-----------------
Total Assets........................................... $281,156,000
Mortgage Notes Payable................................. 111,223,000
Notes Payable.......................................... 2,390,000
Convertible Subordinated Debentures.................... 56,599,000
Total Liabilities...................................... 178,076,000
Shareholders' Equity................................... 103,080,000
Ratio of Earnings to Combined Fixed Charges and Preference Dividends
Our ratio of earnings to combined fixed charges and preference dividends for
the years ended December 31, 2001, 2000, 1999, 1998 and 1997 was 1.07, 1.11,
1.14, 1.16 and 1.17, respectively. For purposes of computing these ratios,
earnings have been calculated by adding fixed charges, excluding capitalized
interest, to pre-tax income from continuing operations. Fixed charges consist
of interest costs, whether expensed or capitalized, the estimated interest
component of rental expenses, amortization of debt issuance costs, and
preferred stock dividends.
S-11
Ratio of EBITDA to Combined Fixed Charges and Preference Dividends
Our ratio of EBITDA to combined fixed charges and preference dividends for
the years ended December 31, 2001, 2000, 1999, 1998 and 1997 was 1.76, 1.78,
1.84, 1.83 and 1.82, respectively. See "Ratio of Earnings to Combined Fixed
Charges and Preference Dividends." "EBITDA," as used here, is earnings before
interest expense, income taxes, depreciation and amortization. We have included
information concerning EBITDA because we believe that EBITDA is generally
accepted as providing useful information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation as a
substitute for net income, cash flows or other consolidated or cash flow data
prepared in accordance with accounting principles generally accepted in the
United States or as a measure of a company's profitability or liquidity. While
EBITDA is frequently used as a measure of operations and ability to meet debt
service requirements, it is not necessarily comparable to similarly titled
captions of other companies due to differences in methods of calculation.
S-12
RISK FACTORS
Before you decide to invest in the debentures or the Series B preferred
stock, you should consider carefully the risks described below and in the
accompanying prospectus under the heading "Risk Factors" beginning on page 2,
together with the information provided in the other parts of this prospectus
supplement and the accompanying prospectus. From time to time, we may make
forward-looking statements (within the meaning of Section 27A of the
Securities Act and Section 21F of the Exchange Act) in documents filed under
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934,
as amended, press releases or other public statements. If we make forward-
looking statements, we assume no obligation to update forward-looking
statements. Stockholders should not place undue reliance on forward-looking
statements as they involve numerous risks and uncertainties that could cause
actual results to differ materially from the results stated or implied in the
forward-looking statements. In addition to specific factors that may be
disclosed simultaneously with any forward-looking statement, some of the
factors related to us and our businesses that could cause actual results to
differ materially from a forward-looking statement are set forth below.
Risks Associated with the Debentures
The debentures will rank in right of payment behind our senior debt, both
existing and incurred in the future. If we default on our senior debt, we may
not be able to fulfill our obligations under the debentures. We may not pay
any principal, or any other amounts owing on, or purchase, redeem or otherwise
retire the debentures, if principal or interest on our senior debt is not paid
when due. In addition, the owners of our senior debt will be entitled to
receive payment of all amounts due to them before the owners of the debentures
upon any payment or distribution of our assets to our creditors upon our
bankruptcy or liquidation or other insolvency or reorganization proceedings.
The terms of the debentures, our Charter and our Bylaws do not limit the
amount of senior indebtedness that we may incur.
We may not be able to repay or refinance the debentures when they become
due for payment. We can give no assurance that we will have the cash resources
required to meet our obligations to repay the debentures when they are due.
Our ability to service our indebtedness following this exchange offer,
including our payment obligations under the debentures and other financial
obligations, will depend upon our future operating performance, which in turn
is subject to market conditions and other factors, including factors beyond
our control.
Risks Associated with the Series B Preferred Stock
The market value of the Series B preferred stock could be substantially
affected by general market conditions, including changes in interest rates,
government regulatory action and changes in tax laws. An increase in market
interest rates may lead purchasers of the Series B preferred stock to require
a higher annual dividend yield on the Series B preferred stock as a percentage
of the purchase price, which could adversely affect the market price of the
Series B preferred stock. Moreover, numerous other factors, such as government
regulatory action and changes in tax laws could have a significant impact on
the future market price of the Series B preferred stock or other securities.
S-13
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements with respect to our financial
condition, results of operations and business and on the expected impact of
this exchange offer on our financial performance. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions as they relate to us or our management, are intended to identify
forward-looking statements. These statements indicate that we have used
assumptions that are subject to a number of risks and uncertainties which
could cause our actual results or performance to differ materially from those
projected, including:
. the effect of regional economic conditions, particularly with regard to
retail shopping center and multifamily apartment property occupancy and
rental growth in Alabama, Florida and Louisiana;
. our ability to identify and secure additional properties and sites that
meet our criteria for acquisition or development;
. the acceptance of our financing plans by the capital markets and the
effect of prevailing market interest rates and the pricing of our stock;
and
. other factors discussed under the heading "Risk Factors" and as
described from time to time in our filings with the SEC.
We undertake no obligation to release publicly any updates or revisions to
any forward-looking statements contained in this prospectus supplement and the
information incorporated by reference into this prospectus supplement to
reflect any change in our expectations or any change in events, conditions or
circumstances on which the statement is based.
In evaluating whether to invest in this offering, you should carefully
consider the discussion of risks and uncertainties in the section entitled
"Risk Factors" on page S-13 of this prospectus supplement and on pages 2 to 7
of the accompanying prospectus.
USE OF PROCEEDS
The net proceeds to us from the sale of debentures and Series B preferred
stock in this offering will be approximately $35,300,000 after deducting the
estimated expenses of this offering. We intend to use the net proceeds to
redeem or purchase outstanding 8% convertible subordinated debentures due July
15, 2003 that were not retired in the exchange offer.
S-14
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS
Our ratio of earnings to combined fixed charges and preference dividends
for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 was 1.07,
1.11, 1.14, 1.16 and 1.17, respectively. For purposes of computing these
ratios, earnings have been calculated by adding fixed charges, excluding
capitalized interest, to pre-tax income from continuing operations. Fixed
charges consist of interest costs, whether expensed or capitalized, the
estimated interest component of rental expenses, amortization of debt issuance
costs, and preferred stock dividends.
Ratio of EBITDA to Combined Fixed Charges and Preference Dividends. Our
ratio of EBITDA to combined fixed charges and preference dividends for the
years ended December 31, 2001, 2000, 1999, 1998 and 1997 was 1.76, 1.78, 1.84,
1.83 and 1.82, respectively. "EBITDA," as used here, is earnings before
interest expense, income taxes, depreciation and amortization. We have
included information concerning EBITDA because we believe that EBITDA is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation as a substitute for net income, cash flows or other consolidated or
cash flow data prepared in accordance with accounting principles generally
accepted in the United States or as a measure of a company's profitability or
liquidity. While EBITDA is frequently used as a measure of operations and
ability to meet debt service requirements, it is not necessarily comparable to
similarly titled captions of other companies due to differences in methods of
calculation.
S-15
CAPITALIZATION
We recently completed an exchange offer pursuant to which we exchanged 9.0%
convertible subordinated debentures due July 15, 2009 and/or 9.75% Series B
preferred stock for our outstanding 8% convertible subordinated debentures due
July 15, 2003. We accepted tenders from holders of a total of $28,067,000
aggregate principal amount of old debentures.
The following table sets forth our capitalization as of December 31, 2001
(i) on a historical basis and (ii) on a pro forma basis assuming $61,878,000
principal amount of the old debentures are refinanced by the issuance of
$56,599,000 principal amount of new debentures and 336,040 shares of Series B
preferred stock in the exchange offer and this public offering. You should
read this information in conjunction with our consolidated financial
information and accompanying notes, which are incorporated by reference into
the accompanying prospectus.
As of December 31, 2001
(unaudited)
-----------------------
Historical Pro Forma(1)
---------- ------------
(in thousands)
Indebtedness
Notes payable........................................ $ 2,390 $ 2,390
Mortgage indebtedness................................ 111,223 111,223
Convertible subordinated debentures.................. 61,878 56,599
Shareholders' Equity
Series A preferred stock, 40,000 shares authorized,
none issued......................................... -- --
Series B preferred stock, liquidation preference $25
per share, 2,476,000 shares authorized, none
issued.............................................. -- 1
Common stock, par value $0.0001 per share, 51,484,000
shares authorized, 12,013,000 shares issued and
outstanding......................................... 1 1
Excess stock, par value $0.0001 per share, 16,000,000
shares authorized, none issued...................... -- --
Additional paid-in capital........................... 152,266 160,666
Cumulative net income................................ 41,920 41,920
Cumulative distributions paid........................ (99,508) (99,508)
-------- --------
Total Shareholders' Equity......................... 94,679 103,080
-------- --------
Total capitalization............................... $270,170 $273,292
======== ========
--------
(1) See Notes A through E to Unaudited Pro Forma Consolidated Financial
Statements for information on the pro forma financial data.
S-16
SELECTED FINANCIAL DATA
The following table sets forth our selected historical consolidated
financial and operating data as of and for each of the periods indicated. The
consolidated financial data as of and for each of the five years ended
December 31, 2001 was derived from our audited financial statements. The
selected financial data should be read in conjunction with our consolidated
financial statements and related notes incorporated by reference in the
accompanying prospectus.
Years Ended December 31,
--------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
In thousands except per share, units and
percentages
Operating Data:
Total revenue.................... $ 52,556 $ 51,441 $ 49,969 $ 47,791 $ 46,443
Property operating expenses (1).. 19,764 19,442 18,971 17,905 17,139
-------- -------- -------- -------- --------
Net operating income (NOI) (2)... 32,792 31,999 30,998 29,886 29,304
Depreciation and amortization.... 11,409 11,173 10,845 10,145 9,621
Interest expense................. 15,240 15,850 15,018 14,554 14,608
Administrative expense (3)....... 4,446 2,648 2,788 2,431 2,520
Gain on sale of real estate (4).. 506 -- -- -- --
-------- -------- -------- -------- --------
Net income....................... $ 2,203 $ 2,328 $ 2,347 $ 2,756 $ 2,555
======== ======== ======== ======== ========
Common stock cash distributions
paid............................ $ 7,601 $ 7,234 $ 6,938 $ 7,330 $ 7,413
Per Share Data (5):
Basic and diluted earnings per
share (5)....................... $ 0.27 $ 0.29 $ 0.30 $ 0.33 $ 0.30
Cash dividends to shareholders... $ 0.92 $ 0.91 $ 0.88 $ 0.88 $ 0.88
Weighted average common shares
outstanding--basic and diluted.. 8,313 7,950 7,888 8,331 8,423
Balance Sheet Data:
Real estate investments, at
cost............................ $349,437 $348,759 $338,389 $328,477 $310,312
Investment in real estate
partnership..................... 847 916 917 913 904
Total assets..................... 278,034 285,417 284,943 284,935 275,485
Mortgage notes payable........... 111,223 113,163 84,712 89,869 90,615
Notes payable.................... 2,390 35,716 59,988 49,178 32,342
Convertible subordinated
debentures...................... 61,878 61,878 61,878 62,878 62,878
Total liabilities................ 183,355 218,298 213,990 208,718 190,958
Shareholders' equity............. $ 94,679 $ 67,119 $ 70,953 $ 76,217 $ 84,527
Number of shares of common stock
outstanding..................... 12,013 8,063 7,909 7,990 8,425
Other Data:
Computation of Funds from
Operations (6):
Net income....................... $ 2,203 $ 2,328 $ 2,347 $ 2,756 $ 2,555
Adjustments:
Depreciation on real estate
investments..................... 10,771 10,579 10,256 9,528 8,954
Other items (3)(4)............... 720 -- -- -- --
-------- -------- -------- -------- --------
Funds from operations
attributable to shares of common
stock--basic.................... 13,694 12,907 12,603 12,284 11,509
Interest on convertible
subordinated debentures......... 4,950 4,950 5,017 5,030 5,030
Amortization of debenture
issuance cost................... 244 244 248 248 248
-------- -------- -------- -------- --------
Funds from operations
attributable to shares of common
stock--diluted.................. $ 18,888 $ 18,101 $ 17,868 $ 17,562 $ 16,787
======== ======== ======== ======== ========
Weighted average common shares
outstanding--diluted............ 13,150 12,787 12,725 13,168 13,260
Dividend payout ratio--basic
(9)............................. 56% 56% 55% 60% 64%
Dividend payout ratio--diluted
(10)............................ 64% 64% 62% 66% 70%
S-17
Years Ended December 31,
------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
In thousands except per share data and
percentages
Cash Flows:
Net cash provided by
operating activities....... $ 11,338 $ 14,010 $ 13,193 $ 12,456 $ 12,945
Net cash used in investing
activities................. (2,067) (10,496) (9,925) (16,966) (6,757)
Net cash (used in) provided
by financing activities.... $ (9,939) $ (2,955) $ (3,081) $ 4,532 $ (5,528)
Apartments Segment:
Gross investment............ $139,213 $136,870 $134,092 $129,510 $113,446
Total units................. 3,398 3,398 3,397 3,341 3,157
Percent leased (7).......... 95% 97% 96% 96% 97%
Operating revenue........... $ 23,978 $ 22,954 $ 21,947 $ 20,353 $ 19,883
Operating expenses (11)..... $ 9,569 $ 9,432 $ 9,026 $ 8,190 $ 7,874
Net operating income (3).... $ 14,409 $ 13,522 $ 12,921 $ 12,163 $ 12,009
Percent of total NOI........ 44% 42% 42% 41% 41%
Retail Properties Segment:
Gross investment (8)........ $210,224 $212,805 $205,214 $199,880 $197,770
Total square footage........ 2,572 2,680 2,720 2,668 2,668
Percent leased (7).......... 91% 92% 95% 95% 95%
Operating revenue........... $ 28,578 $ 28,487 $ 28,022 $ 27,438 $ 26,560
Operating expenses (11)..... $ 10,195 $ 10,010 $ 9,945 $ 9,715 $ 9,265
Net operating income (3).... $ 18,383 $ 18,477 $ 18,077 $ 17,723 $ 17,295
Percent of total NOI........ 56% 58% 58% 59% 59%
--------
(1) Property operating expenses consist of management and leasing fees,
utilities, real estate taxes, operations and maintenance and other
operating expenses.
(2) Net operating income (NOI) is another measurement of financial performance
utilized by us, and is based on the operating revenues and operating
expenses directly associated with the operations of the real estate
properties (excluding administrative expenses, depreciation and
amortization and interest expense). NOI is calculated as operating revenues
less operating expenses directly related to the operations of the real
estate properties, before administrative expenses, depreciation and
amortization and interest.
(3) In 2001, we recorded a non recurring charge of approximately $1.2 million
related to the acquisition of Sizeler Real Estate Management Co., Inc.
(4) In 2001, we recorded a gain related to the sale of one of our real estate
properties.
(5) Basic EPS is computed by dividing net income by the weighted average number
of shares of common stock outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in our earnings.
For the year ended December 31, 2001 there were options to purchase shares
of common stock with exercise prices less than the average market price,
however, the effect of the inclusion in the calculation of EPS is
immaterial. For all other periods presented, the options to purchase shares
of common stock were excluded in the computation of diluted EPS because the
options' exercise prices were greater than the average market prices of
common stock. Our outstanding debentures are also excluded from the
computation for all periods presented due to their anti-dilutive effect.
Accordingly, there is no effect on net income in the calculation of diluted
EPS for the periods presented.
(6) Funds from operations has been an industry-wide standard used to measure
operating performance of a REIT since its adoption by the National
Association of Real Estate Investment Trusts in 1991. In October 1999
NAREIT revised the definition of funds from operations. The revision had no
effect on our calculation of funds from operations. We calculate funds from
operations as net income, excluding gains or losses from sales of property
and those items defined as extraordinary under accounting principles
generally accepted in the United States of America (GAAP), plus
depreciation on real estate assets, and after adjustments for
unconsolidated partnerships to reflect funds from operations on the same
basis. Funds from operations should not be considered as an alternative to
net earnings or any other GAAP measurement of performance or as an
alternative to cash flow from operating, investing or financing activities
as a measure of liquidity. The funds from operations measure presented by
us, while consistent with NAREIT's definition, will not be comparable to
similarly titled measure of other REITs that do not compute funds from
operations in a manner consistent with ours.
(7) Represents the average percent leased for the respective period.
(8) Includes our investment in an unconsolidated real estate entity.
(9) Dividend payout ratio is calculated based on cash dividends paid to
shareholders as a percentage of funds from operations attributable to
shares of common stock.
(10) The computation of dividend payout ratio--diluted reflects adjustments to
the weighted average shares outstanding and cash dividends to shareholders
based on the assumption that our convertible subordinated debentures were
converted into common stock on the first day of the period presented. In
making this computation, we increase the weighted average shares
outstanding by the number of shares that would have been outstanding had
the convertible subordinated debentures been converted into shares of
common stock at the beginning of the period. We also increased the cash
dividends paid by the amount of dividends that would have been paid during
the period had this conversion been effected at the beginning of the
period. As interest paid on the convertible subordinated debentures is not
reflected in funds from operations, no adjustment to interest expense is
made.
(11) Does not include an allocation of administrative expenses.
S-18
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
We have set out our unaudited pro forma consolidated financial statements
on the following pages.
Our unaudited pro forma consolidated balance sheet as of December 31, 2001
was prepared on the basis that the exchange offer and this public offering
(based on the assumptions described below) had occurred on December 31, 2001.
The unaudited pro forma combined statements of operations for the year ended
December 31, 2001 have been prepared on the basis that these transactions had
occurred on January 1, 2001.
You should read this information in conjunction with our consolidated
financial information and the accompanying notes and Management's Discussion
and Analysis of Financial Condition and Results of Operations, which are
included in our Annual Report on Form 10-K for the year ended December 31,
2001 incorporated by reference into the accompanying prospectus. The unaudited
pro forma consolidated financial data does not purport to represent what our
results of operations would actually have been if the exchange offer occurred
on the dates specified, or purport to project our results of operations for
any future period or date. The pro forma adjustments are based on available
information and certain adjustments that our management believes are
reasonable. In the opinion of our management, all adjustments have been made
that are necessary to present fairly the unaudited pro forma consolidated
data. We can give you no assurances that the transactions referred to in the
assumptions will take place or, if they do take place, that they will take
place on the terms specified in the assumptions.
The public offering described in this prospectus supplement is part of our
plan to refinance our outstanding 8% convertible subordinated debentures due
July 15, 2003. We recently completed an exchange offer pursuant to which we
exchanged $27,299,000 principal amount of 9.0% convertible subordinated
debentures due July 15, 2009 and 30,720 shares of 9.75% Series B preferred
stock for $28,067,000 principal amount of our outstanding old debentures. We
will use the net proceeds of this public offering, if any, to redeem or
purchase old debentures that are currently outstanding. This public offering
includes the issuance of $29,300,000 principal amount of 9.0% convertible
subordinated debentures due July 15, 2009 Series 5/8/02 and 305,320 shares of
9.75% Series B preferred stock. Accordingly, we have assumed that $61,878,000
of old debentures are refinanced through the issuance of $56,599,000 principal
amount of new debentures and 336,040 shares of Series B preferred stock in the
exchange offer and this public offering.
S-19
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, Adjustments for
2001 the Transactions Pro Forma
------------ ---------------- ------------
ASSETS
Real estate investments:
Land........................... $ 52,859,000 $ 52,859,000
Buildings and improvements..... 210,798,000 210,798,000
------------ ------------
263,657,000 263,657,000
Cash, cash equivalents and
receivables and other assets.... 14,377,000 $3,122,000 (A) 17,499,000
------------ ------------
Total Assets................. $278,034,000 $281,156,000
============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
LIABILITIES
Mortgage notes payable........... $111,223,000 $111,223,000
Notes payable, accounts payable
and other liabilities........... 10,254,000 10,254,000
------------ ------------
121,477,000 121,477,000
Convertible subordinated
debentures...................... 61,878,000 (61,878,000)(B) 56,599,000
56,599,000 (C)
------------ ------------
Total Liabilities............ 183,355,000 178,076,000
SHAREHOLDERS' EQUITY
Series A preferred stock, 40,000
shares authorized, none issued.. -- --
Series B preferred stock,
liquidation preference $25 per
share, 2,476,000 shares
authorized, none issued ........ -- 1,000 (D) 1,000
Common stock, par value $0.0001
per share, 51,484,000 shares
authorized, 12,013,000 shares
issued and outstanding.......... 1,000 1,000
Excess stock, par value $0.0001
per share, 16,000,000 shares
authorized, none issued......... -- --
Additional paid-in capital....... 152,266,000 8,400,000 (D) 160,666,000
Cumulative net income ........... 41,920,000 41,920,000
Cumulative distributions paid.... (99,508,000) (99,508,000)
------------ ------------
Total Shareholders' Equity... 94,679,000 103,080,000
------------ ------------
Total Liabilities and
Shareholders' Equity........ $278,034,000 $281,156,000
============ ============
S-20
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Year Ended Adjustments for
December 31, 2001 the Transactions Pro Forma
----------------- ---------------- -----------
OPERATING REVENUE
Rents and other income....... $52,556,000 $52,556,000
OPERATING EXPENSES
Utilities.................... 2,230,000 2,230,000
Real estate taxes............ 4,076,000 4,076,000
Administrative expenses...... 4,446,000 4,446,000
Operations & maintenance..... 7,946,000 7,946,000
Other operating expenses..... 5,512,000 5,512,000
Depreciation and
amortization................ 11,409,000 11,409,000
----------- -----------
Total Operating Expenses....... 35,619,000 35,619,000
----------- -----------
INCOME FROM OPERATIONS......... 16,937,000 16,937,000
Interest expense............... 15,240,000 $144,000 (E) 15,384,000
----------- -----------
NET INCOME BEFORE GAIN ON SALE
OF REAL ESTATE................ $ 1,697,000 $ 1,553,000
Gain on sale of real estate.... 506,000 506,000
----------- -----------
NET INCOME..................... $ 2,203,000 $ 2,059,000
=========== ===========
BASIC AND DILUTED EARNINGS PER
SHARE......................... $ 0.27 $ 0.25
=========== ===========
Weighted average shares of
common stock outstanding...... 8,313,000 8,313,000
=========== ===========
S-21
Notes to Unaudited Pro Forma Consolidated Financial Statements
(A) Reflects the cash remaining and deferred financing costs from the public
offering subsequent to retirement of the old debentures.
(B) Reflects the retirement of $61,878,000 principal amount of 8% convertible
subordinated debentures due July 15, 2003 pursuant to the exchange offer
and this public offering.
(C) Reflects the issuance of an aggregate of $56,599,000 principal amount of
9.0% convertible subordinated debentures due July 15, 2009 and 9%
convertible subordinated debentures due July 15, 2009, Series 5/8/02
pursuant to the exchange offer and this public offering.
(D) Reflects the issuance of 336,040 shares of Series B preferred stock
pursuant to the exchange offer and this public offering. Annual dividends
will be $819,000.
(E) Reflects a net increase in interest expense of $144,000 attributable to
an increase of $5,094,000 in interest on the new debentures offset by a
decrease in interest on the old debentures of $4,950,000.
Pro Forma Funds from Operations
We and real estate industry analysts utilize the concept of funds from
operations ("FFO") as an important analytical measure of a real estate
investment trust's financial performance, with FFO being defined by us and the
National Association of Real Estate Investment Trusts ("NAREIT") as net
income, excluding gains or losses from sales of property and those items
defined as extraordinary under accounting principles generally accepted in the
United States of America ("GAAP"), plus depreciation on real estate assets,
and after adjustments for unconsolidated partnerships to reflect funds from
operations on the same basis. Our management believes the following additional
adjustments are relevant to evaluating our future operating performance. The
following additional adjustments that eliminate the impact of certain items,
are based on estimates and assumptions made and believed by us to be
reasonable and are inherently uncertain and subject to change. The
supplemental adjustments do not comply with the regulations published by the
Securities and Exchange Commission relating to the presentation of pro forma
financial data. The following calculations should not be viewed as indicative
of actual or future results. Pro forma FFO was calculated as follows assuming
that the exchange offer and this public offering had occurred on January 1,
2001:
Year Ended Weighted
December 31, Average
2001 Shares
------------ ---------
Basic FFO as reported............................... $13,694,000 8,313,000
Increased interest expense.......................... (144,000)
----------- ---------
Pro forma FFO available to shares of common stock... $13,550,000 8,313,000
=========== =========
S-22
ABOUT SIZELER PROPERTY INVESTORS, INC.
We are a self-administered and self-managed equity real estate investment
trust that invests in income-producing shopping centers and apartment
communities in the Gulf Coast region of the southeastern United States. Our
investment objective is to acquire and develop quality properties at
attractive initial yields with potential for future growth in cash flows. As
of December 31, 2001, our existing portfolio contained 15 retail shopping
centers with approximately 2.6 million square feet of gross leasable area and
14 apartment properties containing approximately 3,400 units. As of December
31, 2001, our retail and apartment properties were approximately 91% and 95%
leased, respectively. Our principal executive offices are located at 2542
Williams Boulevard, Kenner, Louisiana 70062. Our telephone number is (504)
471-6200.
TERMS OF THE DEBENTURES
The following is a summary of the terms of the debentures that we propose
to issue in this offering. The debentures will be issued under an Indenture
(the "Indenture") between us and J.P. Morgan Trust Company, National
Association (the "Trustee").
The terms of the debentures include those stated in the debentures and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). A copy of the form of the
Indenture is filed as an exhibit to the Registration Statement of which the
accompanying prospectus is a part and is incorporated herein by reference. The
following is a summary of certain provisions of the Indenture and does not
purport to be complete and is qualified in its entirety by reference to the
detailed provisions of the Indenture, including the definitions of certain
terms therein to which reference is hereby made for a complete statement of
such provisions. Wherever particular articles, sections of the Indenture or
terms defined therein are referred to herein, such provisions or definitions
are incorporated herein by reference. All section references are to the
Indenture unless otherwise indicated. We urge you to read the Indenture in its
entirety. You may obtain a copy of the Indenture from us. See "Where You Can
Find More Information" in the accompanying prospectus.
General. The debentures are unsecured general obligations of ours, subject
to the rights of holders of our Senior Indebtedness. The debentures mature on
July 15, 2009. The debentures are limited to $29,300,000 aggregate principal
amount. The debentures bear interest semiannually on January 15 and July 15 of
each year and at the rate of 9% per annum. We will pay interest on the
debentures to the persons who are registered holders of debentures at the
close of business on the January 1 or July 1 preceding the interest payment
date (Paragraphs 1 and 2 of the debentures). We may pay principal and interest
by check and may mail an interest check to a holder's registered address.
Holders must surrender debentures to a Paying Agent to collect final principal
payments (Section 2.04). The first payment of interest on the debentures will
be made on July 15, 2002 to registered holders as of July 1, 2002.
The debentures will be in registered form without coupons in denominations
of $1,000 and multiples of $1,000 (Section 2.02). A holder may transfer or
exchange debentures in accordance with the Indenture. No service charge will
be made for any registration of transfer, exchange or conversion of
debentures, except for any tax or other governmental charges that may be
imposed in connection therewith. The Registrar need not transfer or exchange
any debentures selected for redemption. Also, in the event of a partial
redemption, it need not transfer or exchange any debentures for a period of 15
days before selecting debentures to be redeemed (Section 2.06). The Indenture
does not contain any provisions requiring us to repurchase the debentures at
the option of the holders thereof in the event of a leveraged buyout,
recapitalization or similar restructuring of the Company, even though our
credit worthiness and the market value of the debentures may decline
significantly as a result of such transaction. The Indenture does not protect
holders of the debentures against any decline in credit quality, whether
resulting from any such transaction or from any other cause. The registered
holder of a debenture may be treated as its owner for all purposes.
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J.P. Morgan Trust Company, National Association acts as Paying Agent,
Registrar and Conversion Agent for the debentures. We may change any Paying
Agent, Registrar, Conversion Agent or co-registrar without notice and may act
in any such capacity ourselves (Section 2.03).
Automatic Conversion to Our 9.0% Convertible Subordinated Debentures due
July 15, 2009. At 12:01 a.m. on July 15, 2002 (the "Change Date"), without any
further action by the Company, the Trustee or any holder of the debentures,
and without the necessity of delivery of substitute or replacement
instruments, the debentures will convert into an equal principal amount of our
9.0% Convertible Subordinated Debentures due July 15, 2009 (the "Sister
Securities"). From and after the Change Date, the obligations of the
debentureholders, the Company and the Trustee shall be governed by the
indenture relating to the Sister Securities.
Conversion. The holders of the debentures are entitled at any time prior to
maturity, subject to prior redemption, to convert the debentures or portions
thereof (which are $1,000 or multiples thereof) into shares of common stock at
the conversion price of $11.00 per share (subject to adjustments described
below) (Section 11.01). No payment or adjustment will be made for accrued
interest on a converted debenture subsequent to conversion. If any debenture
not called for redemption is converted between a record date for the payment
of interest and the next succeeding interest payment date, such debenture must
be accompanied by funds equal to the interest payable to the registered holder
on such interest payment date on the principal amount so converted (Section
11.03). We will not issue fractional interests in shares of common stock upon
conversion of debentures and, instead will deliver a check for the fractional
share based upon the market value of the common stock on the last trading day
prior to the conversion date (Section 11.08). If the debentures are called for
redemption, conversion rights will expire at the close of business on the
redemption date, unless we default in payment due upon such redemption
(Section 11.01).
To protect our status as a REIT, a holder may not convert any debenture,
and such debenture will not be convertible by any holder, if as a result of
such conversion any Person would then be deemed to beneficially own, directly
or indirectly, 9.9% or more (in value or in number, whichever is more
restrictive) of our shares of equity stock.
The conversion price is subject to adjustments, as set forth in the
Indentures, in certain events, including the payment of dividends or
distributions on our Capital Stock (Section 1.01) in shares of common stock;
subdivisions or combinations of the common stock into a greater or smaller
number of shares; reclassification of the shares of common stock resulting in
an issuance of any shares of Capital Stock; distribution of rights or warrants
to substantially all holders of common stock entitling them to purchase common
stock at less than the then current price at that time; and the distribution
to substantially all holders of common stock of our assets or evidences of our
indebtedness, excluding certain cash dividends and distributions. No
adjustment in the conversion price need be made unless such adjustment would
require a change of at least 1% in the conversion price; however, any
adjustment that would otherwise be required to be made will be carried forward
and taken into account in any subsequent adjustment. A conversion price
adjustment made according to the provisions of the debentures (or the absence
of provision for such an adjustment) might result in a constructive
distribution to the holders of debentures or holders of shares that would be
subject to taxation as a dividend. We may, at our option, make such reductions
in the conversion price, in addition to those set forth above, as our Board of
Directors deems advisable to avoid or diminish any income tax to holders of
shares of common stock resulting from any dividend or distribution of equity
securities (or rights to acquire equity securities) or from any event treated
as such for income tax purposes or for any other reason. The Board of
Directors will also have the power to resolve any ambiguity or correct any
error in the provisions relating to the adjustment of the conversion price of
the debentures and its actions in so doing will be final and conclusive
(Section 11.04).
If we combine or merge with, or sell or transfer substantially all of our
assets to, another unaffiliated corporation or trust, the holders of the
debentures then outstanding will be entitled thereafter to convert such
debentures into the kind and amount of shares of capital stock, other
securities, cash or other assets that they would have owned immediately after
such event had such debentures been converted before the effective date of the
transaction (Section 11.10).
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Subordination of Debentures. The indebtedness evidenced by the debentures
will be subordinated and junior in right of payment to the extent set forth in
the Indenture to the prior payment in full of amounts then due on all Senior
Indebtedness (as defined). No payment will be made by us on account of
principal of (or premium, if any) or interest on the debentures or on account
of the purchase or other acquisition of debentures, if there has occurred and
is continuing a default with respect to any Senior Indebtedness permitting the
holders to accelerate the maturity thereof, or with respect to the payment of
any Senior Indebtedness and such default will be the subject of a judicial
proceeding or we have received notice of such default from any holder of Senior
Indebtedness, unless and until such default or event of default has been cured
or waived or has ceased to exist. By reason of these provisions, in the event
of default on any Senior Indebtedness, whether now outstanding or hereafter
issued, payments of principal of (and premium, if any) and interest on the
debentures may not be permitted to be made until such Senior Indebtedness is
paid in full, or the event of default on such Senior Indebtedness is cured or
waived (Section 10.02).
Upon any acceleration of the principal of the debentures or any distribution
of our assets upon any receivership, dissolution, winding-up, liquidation,
reorganization, or similar proceedings, whether voluntary or involuntary, or in
bankruptcy or insolvency, all amounts due or to become due upon all Senior
Indebtedness must be paid in full before the holders of the debentures or the
Trustee are entitled to receive or retain any assets so distributed in respect
of the debentures (Section 10.02). By reason of this provision, in the event of
insolvency, holders of the debentures may recover less, ratably, than holders
of Senior Indebtedness.
"Senior Indebtedness" is defined to mean the principal, premium, if any,
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not a
claim for post-filing interest is allowed in such proceeding), fees, charges,
expenses, reimbursement and indemnification obligations, and all other amounts
payable under or in respect of Indebtedness (as defined) of us for money
borrowed, whether any such Indebtedness exists as of the date of the Indenture
or is created, incurred, assumed or guaranteed after such date. The terms of
the debentures do not limit the amount of Senior Indebtedness that we may incur
(Section 1.01).
"Indebtedness" with respect to any Person is defined to mean:
(i) any debt (a) for money borrowed, or (b) evidenced by a bond, note,
debenture, or similar instrument (including purchase money obligations)
given in connection with the acquisition of any business, property or
assets, whether by purchase, merger, consolidation or otherwise, but shall
not include any account payable or other obligation created or assumed by a
Person in the ordinary course of business in connection with the obtaining
of materials or services, or (c) which is a direct or indirect obligation
which arises as a result of banker's acceptances or bank letters of credit
issued to secure obligations of such Person, or to secure the payment of
revenue bonds issued for the benefit of such Person, whether contingent or
otherwise;
(ii) any debt of others described in the preceding clause (i) which such
Person has guaranteed or for which it is otherwise liable;
(iii) the obligation of such Person as lessee under any lease of
property which is reflected on such Person's balance sheet as a capitalized
lease; and
(iv) any deferral, amendment, renewal, extension, supplement or
refunding of any liability of the kind described in any of the preceding
clauses (i), (ii) and (iii);
provided, however, that, in computing the "Indebtedness" of any Person, there
will be excluded any particular indebtedness if, upon or prior to the maturity
thereof, there has been deposited with a depository in trust money (or evidence
of indebtedness if permitted by the instrument creating such indebtedness) in
the necessary amount to pay, redeem or satisfy such indebtedness as it becomes
due, and the amount so deposited will not be included in any computation of the
assets of such Person (Section 1.01).
Optional Redemption. The debentures are subject to redemption, as a whole or
in part, at any time or from time to time commencing May 1, 2005, at our option
on at least 30 days' prior notice by mail at a redemption price equal to 100%
of the principal amount thereof, plus interest accrued to the date of
redemption. The
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debentures will not be redeemable prior to the above indicated date; provided,
however, the debentures will be subject to redemption, in whole or in part, at
any time for certain reasons intended to protect our status as a REIT, at our
option on at least 30 days' prior notice by mail at a redemption price equal to
100% of the principal amount, plus interest accrued to the date of redemption
(Section 3.01). We may exercise our redemption powers solely with respect to
the securities of the security holder or holders which pose a threat to our
REIT status and only to the extent deemed necessary by our Board of Directors
to preserve such status. We may at any time buy debentures on the open market
or through negotiated transactions at prices which may be greater or less than
the optional redemption price listed above (Paragraph 5 of the Debentures).
Dividends, Distributions, and Acquisitions of Common Stock. We will not (i)
declare or pay any dividend, or make any distribution on our common stock to
our stockholders (other than dividends or distributions payable in our common
stock) or (ii) purchase, redeem, or otherwise acquire or retire for value any
of our common stock, or any warrants, rights, or options to purchase or acquire
any shares of our common stock (other than the debentures or any other
convertible indebtedness of ours that is neither secured nor subordinated to
the debentures), if at the time of such action an Event of Default has occurred
and is continuing or would exist immediately after such action. The foregoing,
however, will not prevent (i) the payment of any dividend within 60 days after
the date of declaration when the payment would have complied with the foregoing
provision on the date of declaration; or (ii) the retirement of any of our
shares of common stock by exchange for, or out of the proceeds of the
substantially concurrent sale of, other shares of our common stock (Section
4.06).
Merger or Consolidation. We may not consolidate with, or merge into, or
transfer or lease all or substantially all of our assets to another Person
unless such Person is a company or trust; such Person assumes by supplemental
indenture all our obligations under the debentures and the Indenture; and,
immediately after the transaction no Default or Event of Default exists.
Defaults and Remedies. An Event of Default is (i) default in the payment of
interest on the debentures when due and payable, which continues for 30 days;
(ii) default in the payment of principal of (and premium, if any) on the
debentures when due, at maturity, upon redemption or otherwise, which continues
for five business days; (iii) failure to perform any other covenant of ours
contained in the Indenture or the debentures which continues for 90 days after
written notice to us as provided in the Indenture; (iv) default under any bond,
debenture, note or other Indebtedness of ours or under any mortgage, indenture
or other instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness of ours, whether any such Indebtedness
exists as of the date of the Indentures or is thereafter created, if (a) either
(x) such event of default results from the failure to pay any such Indebtedness
at maturity or (y) as a result of such event of default, the maturity of such
Indebtedness has been accelerated prior to its expressed maturity and such
acceleration shall not be rescinded or annulled or the accelerated amount paid
within ten days after notice to us of such acceleration, or such Indebtedness
having been discharged, and (b) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal or interest thereon, or the maturity of which has
been so accelerated, aggregates $1,000,000 or more; and (v) certain events of
bankruptcy, insolvency or reorganization relating to us (Section 6.01). If an
Event of Default occurs and is continuing, the Trustee or the holders of a
majority in aggregate principal amount of the outstanding debentures may
declare the debentures immediately due and payable (Section 6.02).
Within 90 days after the occurrence of any Default or Event of Default, the
Trustee will give to the holders of debentures notice of all Defaults or Events
of Default known to it, but the Trustee will be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
the interest of such holders, except in the case of a default in the payment of
the principal of (or premium, if any) or interest on any of the debentures
(Section 7.05). Holders of a majority in aggregate principal amount of the
outstanding debentures may direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee (Section 6.05). The right of a holder to
institute a proceeding with respect to the Indenture is subject to certain
conditions precedent including notice and indemnity to the Trustee, but the
holder has an absolute right to receipt of principal of (and premium, if any)
and interest on such holder's debenture on or after the respective due dates
expressed in the debentures, and to institute suit for the enforcement of any
such payments (Section 6.06).
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The holders of a majority in aggregate principal amount of the outstanding
debentures may on behalf of the holders of all debentures waive certain past
defaults, except a default in payment of the principal of (or premium, if any)
or interest on any debentures or in respect of certain provisions to the
Indenture which cannot be modified or amended without the consent of the holder
of each outstanding debenture affected thereby (Section 9.02). We will be
required to furnish to the Trustee annually a statement of certain officers of
ours stating whether or not they know of any Default or Events of Default and,
if they have knowledge of a Default or Event of Default, a description of the
efforts to remedy the same (Section 4.05).
Modification of the Indenture. We and the Trustee may amend the Indenture or
the debentures with the written consent of the holders of 66 2/3% in principal
amount of the outstanding debentures. However, without the consent of each
holder of debentures affected, an amendment may not: (i) reduce the amount of
debentures whose holders must consent to an amendment; (ii) reduce the rate or
change the time of payment of interest on any debenture; (iii) reduce the
principal of or change the fixed maturity of any debenture; (iv) make any
debenture payable in money other than that stated in the debenture; (v) change
the provisions of the Indentures regarding the right of a majority of the
holders of debentures to waive defaults under the Indenture or impair the right
of any holder of debentures to institute suit for the enforcement of any
payment of principal and interest on the debentures on and after their
respective due dates; or (vi) make any change that adversely affects the right
to convert any debenture (Section 9.02).
TERMS OF THE SERIES B PREFERRED STOCK
The following summary of the terms and provisions of the Series B preferred
stock does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the Charter, including the Articles
Supplementary to the Charter creating the Series B preferred stock (the
"Articles Supplementary"), each of which is available from us.
Maturity
The Series B preferred stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption.
Rank
The Series B preferred stock will, with respect to dividend rights and
rights upon our liquidation, dissolution or winding up, rank (i) senior to all
classes or series of our common stock, our Series A preferred stock and to all
equity securities ranking junior to the Series B preferred stock with respect
to dividend rights or rights upon our liquidation, dissolution or winding up;
(ii) on a parity with all equity securities issued by us the terms of which
specifically provide that such equity securities rank on a parity with the
Series B preferred stock with respect to dividend rights or rights upon our
liquidation, dissolution or winding up; and (iii) junior to all equity
securities issued by us the terms of which specifically provide that such
equity securities rank prior or senior to the Series B preferred stock as to
the payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, as well as all our existing and future indebtedness.
The term "equity securities" does not include convertible debt securities,
which will rank senior to the Series B preferred stock prior to conversion.
Dividends
Holders of shares of the Series B preferred stock are entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for the payment of dividends, preferential cumulative preferential
cash dividends at the rate of 9.75% per annum of the liquidation preference per
share (equivalent to a fixed annual amount of $2.4375 per share).
Dividends on the Series B preferred stock will be cumulative from the date
of original issue and will be payable quarterly in arrears on the fifteenth day
of February, May, August and November of each year, or, if not a business day,
the next succeeding business day (each, a "Dividend Payment Date"). Dividends
will be payable to holders of record as they appear in our stock records at the
close of business on the applicable record date,
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which shall be the last business day of January, April, July and October,
respectively, or on such other date designated by the Board of Directors for
the payment of dividends that is not more than 30 nor less than 10 days prior
to the applicable Dividend Payment Date (each, a "Dividend Record Date"). The
first Dividend Record Date for determination of stockholders entitled to
receive dividends on the Series B preferred stock is expected to be on or
about July 31, 2002.
No dividends on shares of Series B preferred stock will be declared by the
Board of Directors or paid or set apart for payment by us at such time as the
terms and provisions of any agreement of ours, including any agreement
relating to our indebtedness, prohibits such declaration, payment or setting
apart for payment or provides that such declaration, payment or setting apart
for payment would constitute a breach thereof or a default thereunder, or if
such declaration or payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series B preferred stock
will accrue whether or not we have earnings, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. Accrued but unpaid dividends on the Series B preferred
stock will not bear interest and holders of the shares of Series B preferred
stock will not be entitled to any distributions in excess of full cumulative
distributions described above.
If for any taxable year, we elect to designate as "capital gain dividends"
(as defined in Section 857 of the Internal Revenue Code of 1986, as amended
(the "Code"), with respect to any transaction that occurred while any shares
of Series B preferred stock are outstanding, any portion (the "Capital Gains
Amount") of the dividends (as determined for federal income tax purposes) paid
or made available for the year to holders of all classes of stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that will be
allocable to the holders of shares of Series B preferred stock will be the
amount that the total dividends (as determined for federal income tax
purposes) paid or made available to the holders of shares of the Series B
preferred stock for the year bears to the Total Dividends.
Except as set forth in the next sentence, no dividends will be declared or
paid or set apart for payment on any capital stock of ours (including Series A
preferred stock, if any) or any other series of preferred stock ranking, as to
dividends, on a parity with or junior to the Series B preferred stock (other
than a dividend in shares of our common stock or in shares of any other class
of stock ranking junior to the Series B preferred stock as to dividends and
upon liquidation) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Series B preferred
stock for all past dividend periods and the then current dividend period. When
dividends are not paid in full (or a sum sufficient for such full payment is
not so set apart) upon the Series B preferred stock and the shares of any
other series of preferred stock ranking on a parity as to dividends with the
Series B preferred stock, all dividends declared upon the Series B preferred
stock and any other series of preferred stock ranking on a parity as to
dividends with the Series B preferred stock will be declared pro rata so that
the amount of dividends declared per share of Series B preferred stock and
such other series of preferred stock will in all cases bear to each other the
same ratio that accrued dividends per share on the Series B preferred stock
and such other series of preferred stock (which will not include any accrual
in respect of unpaid dividends for prior dividend periods if such preferred
stock does not have a cumulative dividend) bear to each other.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series B preferred stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for payment for all past dividend periods and
the then current dividend period, no dividends (other than in shares of common
stock or other shares of capital stock ranking junior to the Series B
preferred stock as to dividends and upon liquidation) will be declared or paid
or set aside for payment nor will any other distribution be declared or made
upon the common stock or any other capital stock of ours, such as the Series A
preferred stock, ranking junior to or on a parity with the Series B preferred
stock as to dividends or upon liquidation, nor will any shares of common
stock, or any other shares of capital stock of ours ranking junior to or on a
parity with the Series B preferred stock as to dividends or upon liquidation,
be redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for
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the redemption of any such shares) by us (except by conversion into or
exchange for other capital stock of ours ranking junior to the Series B
preferred stock as to dividends and upon liquidation or redemptions for the
purpose of preserving our qualification as a REIT). Holders of shares of the
Series B preferred stock will not be entitled to any dividend, whether payable
in cash, property or stock, in excess of full cumulative dividends on the
Series B preferred stock as provided above. Any dividend payment made on
shares of the Series B preferred stock will first be credited against the
earliest accrued but unpaid dividend due with respect to such shares which
remains payable.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of shares of Series B preferred stock
are entitled to be paid out of our assets legally available for distribution
to our stockholders the liquidation preference of $25.00 per share, plus an
amount equal to any accrued and unpaid dividends to the date of payment, but
without interest, before any distribution of assets is made to holders of
shares of common stock or any other class or series of capital stock of ours
that ranks junior to the Series B preferred stock as to liquidation rights.
Holders of Series B preferred stock will be entitled to written notice of any
event triggering the right to receive such liquidation preference. After
payment of the full amount of the liquidation preference, plus any accrued and
unpaid dividends to which they are entitled, the holders of Series B preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other trust or entity or the
consolidation or merger of any other corporation with or into us, or the sale,
lease or consolidation, conveyance of all or substantially all of our property
or business, will not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
Redemption
Other than in the event a stockholder acquires shares in excess of the
ownership limitation as described under "--Restrictions on Ownership and
Transfer", the Series B preferred stock is not redeemable prior to the fifth
anniversary of the issue date. However, in order to ensure that we will
continue to meet the stock ownership requirements for qualification as a REIT,
the Series B preferred stock will be subject to provisions in the Charter
pursuant to which any class of our equity stock owned by a stockholder in
excess of the ownership limitation will be transferred to a trust and the
stockholder will have the right to receive certain compensation for such
shares of stock. See "--Restrictions on Ownership and Transfer." On and after
the fifth anniversary of the issue date, we, at our option upon not less than
30 nor more than 60 days' written notice, may redeem shares of the Series B
preferred stock, in whole or in part, at any time or from time to time, for
cash at a redemption price of $25.00 per share, plus all accrued and unpaid
dividends thereon to the date fixed for redemption, without interest.
Procedures for Redemption
Holders of shares Series B preferred stock to be redeemed will surrender
such shares of Series B preferred stock at the place designated in such notice
and will be entitled to the redemption price and any accrued and unpaid
dividends payable upon such redemption following such surrender. If notice of
redemption of any shares of Series B preferred stock has been given and if the
funds necessary for such redemption have been set aside by us in trust for the
benefit of the holders of any shares of Series B preferred stock so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such shares of Series B preferred stock, such shares of Series B
preferred stock will no longer be deemed outstanding and all rights of the
holders of such shares will terminate, except the right to receive the
redemption price. If less than all of the outstanding shares of Series B
preferred stock are to be redeemed, the shares of Series B preferred stock to
be redeemed will be selected pro rata (as nearly as may be practicable without
creating fractional shares) or by any other equitable method determined by the
us. Our ability to redeem the shares of Series B preferred stock is subject to
the limitations on distributions in the Maryland General Corporation Law.
Unless full cumulative dividends on all shares of Series B preferred stock
will have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for
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payment for all past dividend periods and the then current dividend period, no
shares of Series B preferred stock will be redeemed unless all outstanding
shares of Series B preferred stock are simultaneously redeemed and we will not
purchase or otherwise acquire directly or indirectly any shares of Series B
preferred stock (except by exchange for our capital stock ranking junior to
the shares of Series B preferred stock as to dividends and upon liquidation);
provided, however, that the foregoing will not prevent our redemption of
shares of stock in order to ensure that we continue to meet the requirements
for qualification as a REIT, or the purchase or acquisition of shares of
Series B preferred stock pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Series B preferred stock.
So long as no dividends are in arrears, we will be entitled at any time and
from time to time to repurchase shares of Series B preferred stock in open-
market transactions duly authorized by the Board of Directors and effected in
compliance with applicable laws or private negotiations.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week
for two successive weeks commencing not less than 30 nor more than 60 days
prior to the redemption date. We will mail a similar notice, postage prepaid,
not less than 30 nor more than 60 days prior to the redemption date, addressed
to the respective holders of record of the shares of Series B preferred stock
to be redeemed at their respective addresses as they appear on our stock
transfer records. No failure to give such notice or any defect therein or in
the mailing thereof will affect the validity of the proceedings for the
redemption of any shares of Series B preferred stock except as to the holder
to whom notice was defective or not given. Each notice shall state: (i) the
redemption date; (ii) the redemption price; (iii) the number of shares of
Series B preferred stock to be redeemed; (iv) the place or places where shares
of the Series B preferred stock are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date. If less than all of the shares of
Series B preferred stock held by any holder is to be redeemed, the notice
mailed to such holder will also specify the number of shares of Series B
preferred stock held by such holder to be redeemed.
Immediately prior to any redemption of shares of Series B preferred stock,
we will pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a Dividend Record Date
and prior to the corresponding Dividend Payment Date, in which case each
holder of shares of Series B preferred stock at the close of business on such
Dividend Record Date will be entitled to the dividend payable on such shares
on the corresponding Dividend Payment Date notwithstanding the redemption of
such shares before such Dividend Payment Date.
The shares of Series B preferred stock have no stated maturity and will not
be subject to any sinking fund or mandatory redemption. However, in order to
ensure that we continue to meet the requirements for qualification as a REIT,
Series B preferred stock acquired by a stockholder in excess of the ownership
limitation will automatically be transferred to a trust and the stockholder
will have the right to receive certain compensation for such stock from us.
Voting Rights
Holders of the shares of Series B preferred stock will not have any voting
rights, except as set forth below or as otherwise from time to time required
by law.
Whenever dividends on any shares of Series B preferred stock or Parity
Preferred stock (as defined below) are in arrears for six or more quarters
(whether consecutive or not) (a "Preferred Dividend Default"), the holders of
such shares of Series B preferred stock (voting separately as a voting group
with all other series of preferred stock ranking on a parity with the Series B
preferred stock as to dividends or upon liquidation upon which like voting
rights have been conferred and are exercisable ("Parity Preferred stock"))
will be entitled to vote separately as a voting group for the election of a
total of two additional directors to serve on our Board of Directors (the
"Preferred Stock Directors") at a special meeting called on the written
request of the holders entitled to cast at least a majority of all the votes
entitled to be cast at the meeting (unless such request is received less than
90 days before the date fixed for the next annual or special meeting of
stockholders) or at the next
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annual meeting of stockholders, and at each subsequent annual meeting until
all dividends accumulated on such shares of Series B preferred stock for the
past dividend periods and the dividend for the then current dividend period
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment. A quorum for any such meeting will exist if at least a
majority of the outstanding shares are represented in person or by proxy at
such meeting. Such Preferred Stock Directors will be elected upon the
affirmative vote of a plurality of the shares of Series B preferred stock and
such Parity Preferred stock present and voting in person or by proxy at a duly
called and held meeting at which a quorum is present. If and when all
accumulated dividends and the dividend for the then current dividend period on
the shares of Series B preferred stock have been paid in full or set aside for
payment in full, the holders thereof will be divested of the foregoing voting
rights (subject to revesting whenever dividends on any shares of Series B
preferred stock are in arrears for six or more quarters (whether consecutive
or not)) and, if all accumulated dividends and the dividend for the then
current dividend period have been paid in full or declared and set aside for
payment in full on all series of Parity Preferred stock, the term of office of
each Preferred Stock Director so elected will terminate. In the event the term
of a Preferred Director terminates, the right of the holders of Series B
preferred stock to elect Preferred Stock Directors until another Preferred
Dividend Default will exist. The Preferred Stock Directors will each be
entitled to one vote per director on any matter.
So long as any shares of Series B preferred stock remain outstanding, we
will not without the affirmative vote or consent of the holders of at least
two-thirds of the shares of the Series B preferred stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking senior to the
shares of Series B preferred stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any of our authorized capital stock into such shares, or create,
authorize, or issue any obligation or security convertible into or evidencing
the right to purchase any such shares; or (ii) amend, alter or repeal the
provisions of our Charter, including the Articles Supplementary, whether by
merger, consolidation or otherwise (an "Event"), so as to materially and
adversely affect any right, preference, privilege or voting power of the
shares of Series B preferred stock or the holders thereof provided, however,
with respect to the occurrence of any Event set forth in (ii) above, so long
as the shares of Series B preferred stock remain outstanding with the terms
thereof materially unchanged, taking into account that upon the occurrence of
an Event we may not be the surviving entity, the occurrence of any such Event
will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of the shares of Series B
preferred stock and provided further that (a) any increase in the amount of
the authorized preferred stock or the creation or issuance of any other series
of preferred stock; or (b) any increase in the amount of authorized shares of
such series, in each case ranking on a parity with or junior to the shares of
Series B preferred stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
In addition to the above, under Maryland law and the Articles
Supplementary, the holders of shares of Series B preferred stock will be
entitled to vote as a separate voting group to approve a dividend payable in
shares of Series B preferred stock to the holders of another class of our
stock or to approve a dividend payable in shares of our stock other than
shares of Series B preferred stock to the holders of shares of Series B
preferred stock.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required will
be effected, all outstanding shares of Series B preferred stock have been
redeemed or called for redemption upon proper notice and sufficient funds have
been deposited in trust to effect such redemption.
Conversion
The shares of Series B preferred stock are not convertible into or
exchangeable for any other property or securities of ours, except that the
shares of Series B preferred stock may be exchanged for shares of excess stock
in order to ensure that we remain qualified as a REIT for federal income tax
purposes. See "--Restrictions on Ownership and Transfer" below.
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Restrictions on Ownership and Transfer
For us to qualify as a REIT under the Code, certain restrictions apply to
the ownership of our capital stock. Because the Board of Directors believes it
is essential for us to continue to qualify as a REIT, the Charter restricts
the ownership, acquisition and transfer of our capital stock, including shares
of Series B preferred stock.
Our Charter provides that if, at any time when we are qualified as a REIT,
a transfer of any of our capital stock (including common stock or Series B
preferred stock), would result in (i) any person acquiring directly or
indirectly beneficial ownership of 9.9% or more of the total outstanding
equity stock of all classes (in value or in number, whichever is more
restrictive); (ii) our outstanding capital stock being constructively or
beneficially owned by fewer than 100 persons; or (iii) our being "closely
held" within the meaning of Section 856 of the Code, then at our sole option:
(A) any proposed transfer will be void from the beginning and will not be
recognized by us; (B) we will have the right to redeem the shares proposed to
be transferred; and (C) the shares proposed to be transferred will be
automatically converted into and exchanged for shares of a separate class of
stock, excess stock, having no dividend or voting rights. Holders of excess
stock do have certain rights in the event of our liquidation, dissolution or
winding up. The Charter further provides that the excess stock will be held by
us as trustee for the person or persons to whom the shares are ultimately
transferred, until such time as the shares are re-transferred to a person or
persons in whose hands the shares would not be excess stock and certain price-
related restrictions are satisfied.
Transfer and Dividend Paying Agent
The Bank of New York will act as the transfer and dividend payment agent in
respect of the shares of Series B preferred stock.
DESCRIPTION OF CAPITAL STOCK
Please see the summary description of certain terms and provisions of our
capital stock included in the accompanying prospectus under the heading
"Description of Capital Stock." You should refer to our Charter and Bylaws for
the complete provisions thereof.
BOOK-ENTRY; DELIVERY AND FORM
General
The debentures will be represented initially by one or more global
debentures in bearer form without interest coupons. We will issue the global
debentures in denominations equal to the outstanding principal amount of the
debentures that they represent.
On the closing date of this exchange offer, we will deposit the global
debentures with DTC as the book-entry depositary. We will make this deposit
pursuant to the terms of the debenture deposit agreement, to be dated the
closing date of this exchange offer, between the book-entry depositary and us,
for the limited purposes set forth in the deposit agreement.
The book-entry depositary will issue a certificateless interest for each
global debenture to DTC. The certificateless interest for each global
debenture will represent a 100% interest in the underlying global debenture.
The book-entry depositary will record the interest in its books and records in
the name of Cede & Co., as a nominee of DTC. The records that DTC, with
respect to its participants, and its participants maintain in book-entry form
will show the beneficial interests in the global debentures. Any transfer of
the global debentures will only be effected through these records. In this
prospectus, we refer to the beneficial interests in the global debentures as
"book-entry interests."
All interests in the global debentures will be subject to the procedures
and requirements of DTC.
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Definitive Registered Debentures
Under the terms of the deposit agreement and the Indenture, you, as an
owner of book-entry interests in the global debentures, will receive
definitive registered debentures only if any of the three following events
occurs:
. DTC notifies us or the book-entry depositary in writing that it, or its
respective nominee, is unwilling or unable to continue to act as a
depositary registered under the Securities Exchange Act of 1934 and we
do not appoint a successor depositary registered as a clearing agency
under the Securities Exchange Act of 1934 within 90 days.
. At any time if we determine that the global debentures, in whole but
not in part, should be exchanged for definitive registered debentures,
but only if, such exchange is required by any applicable law, any event
beyond our control, or payments of interest on any global debenture,
depositary interest or book-entry interest are, or would become,
subject to any deduction or withholding for taxes.
. The book-entry depositary is at any time unwilling or unable to
continue as book-entry depositary and we do not appoint a successor
book-entry depositary within 90 days.
In addition to those circumstances, during the continuance of an event of
default, you, as a holder of book entry interests, will be entitled to request
and receive definitive registered debentures. We will issue the definitive
registered debentures to you, and register them in your name, or as you
direct, only if we receive a request in writing by the book-entry depositary,
based upon the instructions of DTC.
In the event that definitive registered debentures are issued, and if
required by applicable law, we will appoint J.P. Morgan Trust Company,
National Association, or another suitable person, as an independent transfer
agent for the new debentures.
In no event will we issue definitive securities in bearer form. Any
definitive registered debentures we issue will be fully registered in
denominations of $1,000 in principal amount, and integral multiples of $1,000.
The trustee will register the definitive registered debentures in the name or
names that DTC will instruct the trustee to use, through the book-entry
depositary. We expect that DTC will base its instructions on directions it
receives from participants, including Euroclear and Clearstream, reflecting
the beneficial ownership of book-entry interests. To the extent permitted by
law, we, the trustee and any paying agent will be entitled to treat the person
in whose name any definitive registered debenture is registered as the
absolute owner of the debenture.
While any global debenture for the debentures is outstanding, you may
exchange any definitive registered debenture you may have for a corresponding
book-entry interest in the global debenture by surrendering your definitive
registered debentures to the book-entry depositary and providing the
certificates and opinions that the Indenture requires. The book-entry
depositary will make the appropriate adjustments to the global debenture
underlying that book-entry interest to reflect any issue or surrender of
definitive registered debentures. The Indenture contains provisions relating
to the maintenance by a registrar of registers reflecting ownership of
definitive registered debentures, if any, and other provisions customary for a
registered debt security. We will pay principal and interest on each
definitive registered debenture to the holder appearing on the applicable
register at his or her address at the close of business on the record date.
If a mutilated definitive registered debenture is surrendered to the
registrar or if the holder of a debenture claims that such debenture has been
lost, destroyed or wrongfully taken, we will issue and the trustee will
authenticate a replacement debenture if the holder satisfies any reasonable
requirements of the trustees, the registrar or us. If required by the trustee,
the registrar or us such holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of us, the registrar and the trustee, to
protect us, the trustee and any agent from any loss which any of them may
suffer if the debenture is replaced. We may charge such holder for reasonable,
out-of-pocket expenses in replacing a debenture, including reasonable fees and
expenses of counsel.
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Description of Book-Entry System
When the book-entry depositary receives the global debentures, it will
issue the certificateless interest for each of the global debentures to DTC
representing a 100% interest in the respective underlying global debenture.
The book-entry depositary will issue the certificateless interest by recording
the interest in its books and records in the name of Cede & Co., as a nominee
of DTC. Ownership of book-entry interests will be limited to persons who have
accounts with DTC, including Euroclear and Clearstream, or persons who have
accounts through organizations that are participants. When the book-entry
depositary issues such interests in the global debentures to DTC, DTC will
credit, on its internal book-entry registration and transfer system, its
participants' accounts with the respective interests owned by each
participant. Ownership of book-entry interests will be shown on, and the
transfer of such ownership will be effected only through, records maintained
by DTC or its nominee with respect to interests of participants and the
records of participants with respect to interests of indirect participants. No
beneficial owner of an interest in the global debentures will be able to
transfer that interest except in accordance with DTC's procedures, in addition
to those provided for under the Indenture with respect to the global
debentures.
The laws of some countries and some states in the United States may require
that some purchasers of securities take physical delivery of the securities in
definitive form. These limits and laws may impair the ability to own, transfer
or pledge the book-entry interests in the global debentures.
So long as DTC, or its nominee, is the holder of the global debentures, the
book-entry depositary or its nominee, as the case may be, will be considered
the sole holder of the global debentures for all purposes under the Indenture
and the debentures. Except as we mentioned earlier in this section,
participants or indirect participants will not:
. Be entitled to have debentures or book-entry interests registered in
their names;
. Receive or be entitled to receive physical delivery, of debentures or
book-entry interests in definitive bearer or registered form; or
. Be considered the owners or holders of the debentures or book-entry
interests under the Indenture.
Accordingly, each person owning a book-entry interest must rely on the
procedures of the book-entry depositary and DTC to exercise any rights and
remedies of a holder under the Indenture. If a person is an indirect
participant in DTC, it must also rely on the procedures of the participant in
DTC, through which that person owns its interest. If we issue any definitive
debentures to participants or indirect participants, we will issue them in
registered form, as described above. Unless and until book-entry interests are
exchanged for definitive registered debentures, the certificateless interest
that DTC holds may not be transferred except as a whole between DTC or
nominees of DTC, between nominees of DTC by DTC, or any such nominee to a
successor of DTC or a successor of such nominee.
Payments on the Global Debentures
We will make any payments we owe in respect of the global debentures
through one or more paying agents to the book-entry depositary as the holder
of the global debentures. The paying agent will be appointed under the
Indenture, and initially the paying agent will be the trustee for the
debentures. Payment by us to the holder of the relevant debentures will
validly discharge the relevant payment obligation in respect of those
debentures for all purposes. All amounts payable under the debentures will be
payable in United States dollars. Upon receipt of any payment amounts in
respect of the global debentures, the book-entry depositary will pay those
amounts to DTC or its nominee in proportion to their interests, as shown on
the book-entry depositary's records.
We expect that when DTC or its nominee receives any payment made in respect
of the global debentures, it will credit its participants' accounts with those
payments in amounts proportionate to the participants' respective interest in
the principal amount of that global debenture as shown on the records of DTC
or its nominee. We expect that payments by participants to owners of book-
entry interests held through those participants will be
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governed by standing customer instructions and customary practices, as is now
the case with the securities held for the account of customers in bearer form
or registered in street name, and will be the responsibility of such
participants.
Neither we, the trustee, the book-entry depositary, nor any paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of book-entry interests or for
maintaining, supervising or reviewing all records relating to such book-entry
interests or beneficial ownership interests.
Investors may be subject to foreign exchange risks as to payments of
principal and interest that may have important economic and tax consequences
to them.
Redemption of Global Debentures
In the event that we redeem any global debenture, or any portion of it, the
book-entry depositary will, through DTC, redeem, from the amount it receives
in respect of the redemption of that global debenture, an equal amount of the
book-entry interests in that global debenture. The redemption price payable in
connection with the redemption of the book-entry interest will be equal to the
amount the book-entry depositary receives in connection with the redemption of
the global debenture, or any portion of it. We understand that under existing
DTC practices, if fewer than all of the global debentures are to be redeemed
at any time, DTC will credit debenture participants' accounts on a
proportionate basis or by lot or on such other basis as DTC deems fair and
appropriate. However, no beneficial interests of less than $1,000 in principal
amount at maturity may be redeemed in part.
Transfers
J.P. Morgan Trust Company, National Association has agreed that the global
debentures will not be transferred except to the successor to the book-entry
depositary.
All transfers of book-entry interests between participants in DTC will be
effected by DTC pursuant to customary procedures established by DTC and its
participants.
Action by Owners of Book-Entry Interests
As soon as practicable after the book-entry depositary receives notice of
any solicitation of consents or request for a waiver of other action by the
holders of debentures, or of any offer to purchase the debentures upon a
change of control, the book-entry depositary will mail to DTC a notice
containing:
. the information contained in the notice the book-entry depositary
received;
. a statement that at the close of business on a specified record date
DTC will be entitled to instruct the book-entry depositary as to the
consent, waiver or other action, if any, pertaining to those
debentures; and
. a statement as to the manner in which those instructions may be given.
In addition, the book-entry depositary will forward to DTC all materials
pertaining to any such solicitation, request, offer or other action. Upon the
written request of DTC, the book-entry depositary will take all reasonable
steps regarding the requested consent, waiver, offer or other action in
respect of the debentures in accordance with any instructions set forth in the
request. DTC may grant proxies or otherwise authorize DTC participants or
indirect participants to provide such instructions to the book-entry
depositary so that it may exercise any rights of a holder or take any other
actions which a holder is entitled to take under the Indenture.
Under its usual procedures, DTC would mail an omnibus proxy to us and the
book-entry depositary assigning Euroclear's and Clearstream's consenting or
voting rights to those DTC participants to whose accounts
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such book-entry interests are credited on a record date. It would mail the
omnibus proxy as soon as possible after that record date. The book-entry
depositary will not exercise any discretion in granting consents or waivers or
taking any other action relating to the Indenture.
We understand that DTC will take any action that a holder of debentures is
permitted to take, including the presentation of debentures for exchange as
described above, only:
. At the direction of one or more participants to whose account the DTC
interests in the global debentures are credited; and
. In respect of the portion of the aggregate principal amount of
debentures as to which the participant or participants has or have
given direction.
Reports
The book-entry depositary will immediately send to DTC a copy of any
notices, reports and other communications received relating to us, the
debentures or the book-entry interests.
Notices
So long as the debentures are listed on the New York Stock Exchange or
other national exchange, all notices to holders of the debentures, including
any notices with respect to the redemption of all or a portion of the
debentures by us or notices with respect to the redemption of all or a portion
of the debentures by us or notices with respect to this exchange offer, will
be given by publication in a daily newspaper in New York City or appropriate
city.
Business Day
If the day for any payment of principal, premium, if any, or interest is
not a business day in the location of each payment agent, that payment will be
made on the next following day that is a business day in each location.
Action by Book-Entry Depositary
If a default occurs with respect to the debentures, or in connection with
any other right of the holder of a global debenture under the Indenture, and
if the DTC so requests in writing, the book-entry depositary will take any
action as will be requested in that notice. The book-entry depositary must be
offered reasonable security or indemnity, against the costs, expenses and
liabilities that might be incurred by it in compliance with such request by
the owners of book-entry interests.
Resignation of Book-Entry Depositary
The book-entry depositary may resign at any time as book-entry depositary
by written notice to us and DTC. This resignation would become effective upon
the appointment of a successor book-entry depositary, in which case the global
debentures will be delivered to that successor. If we have not appointed a
successor within 90 days, the book-entry depositary may request that we issue
definitive registered debentures as described earlier in this section.
If at any time DTC is unwilling or unable to continue as a depositary for
the book-entry interests and we do not appoint a successor depositary within
90 days, DTC may request that we issue definitive registered debentures in
exchange for the book-entry interests.
Expenses of Book-Entry Depositary
We have agreed to indemnify the book-entry depositary against certain
liabilities incurred by it and pay the charges of the book-entry depositary as
agreed between us and the book-entry depositary.
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Amendment and Termination of the Deposit Agreement
We and the book-entry depositary may amend the deposit agreement without
notice to or consent of DTC or any owner of a book-entry interest to:
. cure any ambiguity, defect or inconsistency, so long as such amendment
or supplement does not adversely affect the rights of DTC or any holder
of book-entry interests;
. evidence the succession of another person to us, when a similar
amendment with respect to the Indenture is being executed, and the
assumption by any such successor of our covenants in the Indenture;
. evidence or provide for a successor book-entry depositary;
. make any amendment, change or supplement that does not adversely affect
DTC or any owner of book-entry interests;
. add to our covenants or the covenants of the book-entry depositary;
. add a guarantor when a guarantor is made a party, to the Indenture
pursuant to the Indenture; or
. comply with the United States federal securities laws.
Except as provided in the relevant deposit agreement, no amendment that
adversely affects DTC, and no amendment that adversely affects the holders of
book-entry interests may be made without the consent of a majority of the
aggregate principal amount of book-entry interests outstanding in respect of
the debentures. Upon the issuance of definitive registered debentures in
exchange for book-entry interests constituting the entire principal amount of
debentures, the deposit agreement will terminate. The deposit agreement may be
terminated upon the resignation of the book-entry depositary if we do not
appoint a successor within 90 days as described earlier in this section.
Information Concerning DTC, Euroclear and Clearstream
We understand as follows with respect to DTC, Euroclear and Clearstream:
DTC is:
. a limited purpose trust company organized under the New York Banking
Law;
. a banking organization within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a clearing corporation within the meaning of the New York Uniform
Commercial Code; and
. a clearing agency registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934.
DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of transactions among its participants in those
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers,
including the initial purchasers, banks, trust companies, clearing
corporations and certain other organizations, some of whom own DTC. Access to
the DTC book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of an owner of
a book-entry interest to pledge its interest to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of its
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that some persons take physical
S-37
delivery of securities in definitive form. Consequently, the ability to
transfer book-entry interests to those persons may be limited. In addition,
beneficial owners of book-entry interests through the DTC system will receive
distributions attributable to the global debentures only through DTC
participants.
Euroclear and Clearstream hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in
accounts of such participants. Euroclear and Clearstream provide to their
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. As participants in DTC, Euroclear and Clearstream
provide an interface between non-U.S. investors and the United States
securities markets. Euroclear and Clearstream participants are financial
institutions such as underwriters, securities brokers and dealers, banks,
trust companies and certain other organizations. Indirect access to Euroclear
or Clearstream is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodian relationship with a
Euroclear or Clearstream participant, either directly or indirectly.
Global Clearance and Settlement Under Book-Entry System
Initial settlement. Initial settlement for the new debentures will be made
in United States dollars.
Book-entry interests owned through DTC, other than through accounts at
Euroclear or Clearstream, will follow the settlement applicable to United
States corporate debt obligations. The securities custody accounts of
investors will be credited with their holdings against payment in same-day
funds on the settlement date.
Book-entry interests owned through Euroclear or Clearstream accounts will
follow the settlement procedures applicable to conventional eurobonds in
registered form. Book-entry interests will be credited to the securities
custody accounts of Euroclear and Clearstream holders on the business day
following the settlement date against payment for value on the settlement
date.
Secondary market trading. The book-entry interests will trade in DTC's
Same-Day Funds Settlement System, and secondary market trading activity in
such book-entry interests will therefore settle in same-day funds.
Since the purchaser determines the place of delivery, it is important to
establish at the time of trading of any book-entry interests where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired value date.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
A summary of the material Federal income tax considerations of the
ownership and disposition of the debentures, Series B preferred stock and
common stock is contained in the accompanying prospectus under the heading
"Material United States Federal Income Tax Consequences" and all prospective
investors should read this material in its entirety. The discussion is based
on current law. The discussion is not exhaustive of all possible tax
considerations and does not give a detailed discussion of any state, local, or
foreign tax considerations. It also does not discuss all of the aspects of
Federal income taxation that may be relevant to a prospective debentureholder
or stockholder in light of his or her particular circumstances or to certain
types of stockholders or debentureholders (including insurance companies, tax-
exempt entities, financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) who are subject to special treatment under the Federal income tax
laws.
EACH PERSON CONSIDERING INVESTING IN EITHER DEBENTURES OR SERIES B
PREFERRED STOCK IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION,
OWNERSHIP AND SALE OF SECURITIES OF AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST,
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INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF
SUCH ACQUISITION, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
We will sell the debentures and Series B preferred stock offered hereby in
a public offering for cash. It is anticipated that Cohen & Steers Capital
Advisors, LLC will obtain indications of interest from potential investors in
various jurisdictions in connection with the sale of the debentures and Series
B preferred stock offered hereby. Cohen & Steers has no commitment to take or
purchase any of the securities in this offering and will act only as an agent
in the sales of the securities, where permitted by applicable state securities
laws. Cohen & Steers will be paid a placement fee in the amount of
approximately 3% of the aggregate amount of debentures and Series B preferred
stock sold in this offering to such institutional investors. The foregoing fee
is contingent upon the consummation of this offering. Cohen & Steers is an
underwriter within the meaning of the Securities Act of 1933, as amended, in
connection with the placement of the new debentures and Series B preferred
stock.
The maximum commission or discount to be received by any NASD member or
independent broker-dealer in connection with this offering, if any, will not
exceed 8.0% of the gross proceeds of the securities sold by that NASD member
or broker-dealer.
In addition, we will reimburse Cohen & Steers for its out-of-pocket
expenses, whether or not this offering is consummated. We have also agreed to
indemnify Cohen & Steers against certain liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments Cohen & Steers
may be required to make in respect thereof.
Cohen & Steers and Imperial Capital, LLC have entered into a sub-placement
agent agreement whereby Imperial Capital will act as a sub-placement agent in
connection with this offering. As sub-placement agent, Imperial Capital will
receive a portion of the placement fee.
In the ordinary course of business, Cohen & Steers and/or its affiliates
have engaged and may in the future engage in financial advisory, investment
banking and other transactions with us for which customary compensation has
been, and will be, received.
LEGAL MATTERS
The legality of the securities and certain other legal matters have been
passed upon for us by Jaeckle Fleischmann & Mugel, LLP, Buffalo, New York.
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Prospectus
$100,000,000
SIZELER PROPERTY INVESTORS, INC.
DEBT SECURITIES, COMMON STOCK, PREFERRED STOCK, WARRANTS
We may use this prospectus to offer and sell securities from time to time.
The types of securities we may sell include:
. senior debt securities;
. subordinated debt securities;
. shares of common stock;
. shares of preferred stock; or
. warrants to purchase debt securities, preferred stock or common stock.
We will provide the specific terms of these securities in supplements to this
prospectus in connection with each offering. These terms may include:
In the case of In the case of In the case of In the case
any debt preferred of warrants:
securities: securities: stock: . the
.. offering . interest . dividends types of
price; rate; rights; securities
.. size of . maturity; . liquidation that may
offering; . ranking; preferences; be
.. underwriting . redemption acquired
discounts; provisions; upon
. redemption exercise;
provisions;
.. limitations and . conversion
on direct . additional privileges; . expiration
or covenants. and date;
beneficial . voting and . exercise
ownership; other price;
and rights. and
.. restrictions . terms of
on exercisability.
transfer.
The securities offered will contain other significant terms and conditions.
Please read this prospectus and the applicable prospectus supplement carefully
before you invest.
An investment in securities involves a high degree of risk. See "Risk
Factors" beginning on page 2 of this prospectus for a discussion of risk
factors that you should consider in connection with an investment in the
securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------
The date of this prospectus is December 18, 2001
TABLE OF CONTENTS
Page
----
ABOUT THIS PROSPECTUS...................................................... 1
WHERE YOU CAN FIND MORE INFORMATION........................................ 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
ABOUT SIZELER PROPERTY INVESTORS, INC...................................... 2
RISK FACTORS............................................................... 2
Real Estate Industry Risks............................................... 2
Risks Associated with our Properties..................................... 3
Financing Risks.......................................................... 5
Other Risks.............................................................. 5
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................ 7
USE OF PROCEEDS............................................................ 7
RATIO OF EARNINGS TO FIXED CHARGES......................................... 8
DESCRIPTION OF DEBT SECURITIES............................................. 8
General.................................................................. 8
Denomination, Interest, Registration and Transfer........................ 10
Merger, Consolidation or Sale............................................ 11
Certain Covenants........................................................ 12
Events of Default, Notice and Waiver..................................... 12
Modification of the Indentures........................................... 14
Conversion Rights........................................................ 14
Redemption of Securities................................................. 15
Subordination............................................................ 15
Subrogation.............................................................. 15
Global Securities........................................................ 15
DESCRIPTION OF CAPITAL STOCK............................................... 15
General.................................................................. 15
Description of Common Stock.............................................. 16
Description of Preferred Stock........................................... 17
Description of Stockholder Rights Plan................................... 18
DESCRIPTION OF WARRANTS.................................................... 19
General.................................................................. 19
Exercise of Warrants..................................................... 20
Amendments and Supplements to Warrant Agreements......................... 20
Common Stock Warrant Adjustments......................................... 20
CERTAIN PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BY-LAWS............. 21
The Board of Directors................................................... 21
Amendment of Charter and By-Laws......................................... 21
Business Combinations.................................................... 22
Control Share Acquisitions............................................... 22
Advance Notice of Director Nominations and New Business.................. 22
Meetings of Stockholders................................................. 23
Recent Maryland Legislation.............................................. 23
Prohibited Transactions.................................................. 24
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES..................... 25
Introductory Notes....................................................... 25
Taxation of Us as a REIT................................................. 25
Requirements for Qualification........................................... 27
i
Page
----
Qualified REIT Subsidiaries.............................................. 28
Taxable REIT Subsidiaries................................................ 28
Income Tests............................................................. 28
Asset Tests.............................................................. 29
Annual Distribution Requirements......................................... 30
Failure to Qualify....................................................... 31
Tax Aspects of Our Investments in Partnerships........................... 31
Taxation of Stockholders................................................. 32
Taxation of U.S. Debenture Holders....................................... 35
Taxation of Non-U.S. Debenture Holders................................... 38
Backup Withholding Tax and Information Reporting......................... 38
PLAN OF DISTRIBUTION....................................................... 39
LEGAL MATTERS.............................................................. 40
EXPERTS.................................................................... 40
ii
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. You should read this prospectus and
the applicable prospectus supplement together with the additional information
described under the heading "Where You Can Find More Information" in this
prospectus. The registration statement that contains this prospectus and the
exhibits to that registration statement contain additional important
information about us and the securities offered under this prospectus.
Specifically, we have filed certain legal documents that control the terms of
the securities offered by this prospectus as exhibits to the registration
statement. We will file certain other legal documents that control the terms of
the securities offered by this prospectus as exhibits to reports we file with
the SEC. That registration statement and the other reports can be read at the
SEC website or at the SEC offices mentioned under the heading "Where You Can
Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the Securities Act
with respect to the securities offered hereunder. As permitted by the SEC's
rules and regulations, this prospectus does not contain all the information set
forth in the registration statement. For further information regarding our
company and our securities, please refer to the registration statement and the
contracts, agreements and other documents filed as exhibits to the registration
statement. Additionally, we file annual, quarterly and special reports, proxy
statements and other information with the SEC.
You may read and copy all or any portion of the registration statement or
any other materials that we file with the SEC at the SEC's public reference
rooms in Washington, D.C., Chicago, Illinois, and New York, New York. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the registration statement,
are also available to you on the SEC's website (http://www.sec.gov). We also
have a website (www.sizeler.net) through which you may access our SEC filings.
Please note that our website contains various financial data and analyses
computed or prepared by third parties and that we may not have verified and
confirmed the accuracy of all such data. Therefore, we disclaim all
responsibility for its accuracy. In addition, you may look at our SEC filings
at the offices of the New York Stock Exchange, Inc., which is located at 20
Broad Street, New York, New York 10005. Our SEC filings are available at the
NYSE because our common stock is listed and traded on the NYSE under the symbol
"SIZ".
Information contained on our website is not a part of this prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information contained in
documents that we file with them: that means we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, after the initial filing of
the registration statement that contains this prospectus and before we sell all
the securities offered by this prospectus.
. Our Annual Report on Form 10-K for the year ended December 31, 2000.
. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
1
. Our Quarterly Report on Form 10-Q for the quarter ended September 30,
2001.
. Our Current Report on Form 8-K, as filed with the SEC on June 26, 2001.
. Our Current Report on Form 8-K, as filed with the SEC on December 3,
2001.
. Our Registration Statement on Form 8-A, as filed with the SEC on August
26, 1998.
. Our Registration Statement on Form 8-A/A, as filed with the SEC on
December 18, 2001.
You may request a free copy of these filings (other than exhibits, unless
they are specifically incorporated by reference in the documents) by writing or
telephoning us at the following address and telephone number:
Sizeler Property Investors, Inc.
Attention: Chief Financial Officer
2542 Williams Boulevard
Kenner, Louisiana 70062
(504) 471-6200
ABOUT SIZELER PROPERTY INVESTORS, INC.
We are a self-administered and self-managed equity real estate investment
trust that acquires, develops, owns and operates income-producing retail
shopping centers and apartment properties in the southeastern region of the
United States. We are a self-administered REIT in that we provide our own
investment and administrative services internally through our own employees. We
are also self-managed as we internally provide, through a wholly-owned
subsidiary, the management, leasing and development services that our
properties require. Our investment objective is to acquire and develop high-
quality properties at attractive initial yields with potential for future
growth in cash flows. As of September 30, 2001, our existing portfolio
contained 15 retail shopping centers with approximately 2.6 million square feet
of gross leasable area and 14 apartment properties containing approximately
3,400 units. During the nine month period ended September 30, 2001, our retail
and apartment properties were, on average, approximately 92% and 97% leased,
respectively. Our principal executive offices are located at 2542 Williams
Boulevard, Kenner, Louisiana 70062. Our telephone number is (504) 471-6200.
RISK FACTORS
Set forth below are the risks that we believe are important to investors in
our common stock, preferred stock, debt securities or other securities, which
we refer to collectively as our "securities." We refer to investors in our
securities as our "security holders." Before you decide to purchase our
securities, you should consider carefully the risks described below, together
with the information provided in the other parts of this prospectus and any
related prospectus supplement. From time to time, we may make forward-looking
statements (within the meaning of Section 27A of the Securities Act and Section
21F of the Exchange Act) in documents filed under the Securities Act, the
Exchange Act, press releases or other public statements. If we make forward-
looking statements, we assume no obligation to update forward-looking
statements. Potential investors should not place undue reliance on forward-
looking statements as they involve numerous risks and uncertainties that could
cause actual results to differ materially from the results stated or implied in
the forward-looking statements. In addition to specific factors that may be
disclosed simultaneously with any forward-looking statement, some of the
factors related to us and our businesses that could cause actual results to
differ materially from a forward-looking statement are set forth below.
Real Estate Industry Risks
We face risks associated with local real estate conditions in areas where we
own properties. We may be affected adversely by general economic conditions and
local real estate conditions. For example, an oversupply of retail space or
apartments in a local area or a decline in the attractiveness of our properties
to shoppers, tenants or residents would have a negative effect on us.
2
Other factors that may affect general economic conditions or local real
estate conditions include:
. population and demographic trends;
. employment and personal income trends;
. income tax laws;
. changes in interest rates and availability and costs of financing;
. construction costs; and
. weather conditions that may increase or decrease energy costs.
We may be unable to compete with our larger competitors and other
alternatives available to tenants or potential tenants of our properties. The
real estate business is highly competitive. We compete for interests in
properties with other real estate investors and purchasers, many of whom have
greater financial resources, revenues, and geographical diversity than we have.
Furthermore, we compete for tenants with other property owners. All of our
shopping center and apartment properties are subject to significant local
competition. We also compete with a wide variety of institutions and other
investors for capital funds necessary to support our investment activities and
asset growth. In addition, our portfolio of retail properties faces competition
from other properties within each submarket where they are located. Our
apartment portfolio competes with providers of other forms of housing, such as
single family housing. Competition from single family housing increases when
low interest rates make mortgages more affordable.
We are subject to significant regulation that inhibits our activities. Local
zoning and use laws, environmental statutes and other governmental requirements
restrict our expansion, rehabilitation and reconstruction activities. These
regulations may prevent us from taking advantage of economic opportunities.
Legislation such as the Americans with Disabilities Act may require us to
modify our properties. Future legislation may impose additional requirements.
We cannot predict what requirements may be enacted or what changes may be
implemented to existing legislation.
Risks Associated with our Properties
We may be unable to renew leases or relet space as leases expire. When a
lease expires, a tenant may elect not to renew it. We may not be able to relet
the property on similar terms, if we are able to relet the property at all.
With respect to our retail properties, our inability to renew a lease of space
to an anchor tenant, or relet the space quickly to another anchor tenant, could
have a material adverse effect on the retail center. We have established an
annual budget for renovation and reletting expenses that we believe is
reasonable in light of each property's operating history and local market
characteristics. This budget, however, may not be sufficient to cover these
expenses.
We have been and may continue to be affected negatively by tenant
bankruptcies and leasing delays. At any time, a shopping center tenant may
experience a downturn in its business that may weaken its financial condition.
Similarly, a general decline in the economy may result in a decline in the
demand for apartments. As a result, our commercial and residential tenants may
delay lease commencement, fail to make rental payments when due, or declare
bankruptcy. Any such event could result in the termination of that tenant's
lease and losses to us.
We receive a substantial portion of our shopping center income as rents
under long-term leases. If retail tenants are unable to comply with the terms
of their leases because of rising costs or falling sales, we may deem it
advisable to modify lease terms to allow tenants to pay a lower rental or a
smaller share of operating costs, taxes and insurance.
3
Development and Construction Risks Could Impact our Profitability.
We intend to continue to develop and construct apartment communities and
retail properties. Development activities may be conducted through wholly-owned
affiliated companies or through joint ventures with unaffiliated parties. Our
development and construction activities may be exposed to the following risks:
. we may be unable to obtain, or face delays in obtaining, necessary
zoning, land-use, building, occupancy, and other required governmental
permits and authorizations, which could result in increased development
costs;
. we may incur construction costs for a property that exceed original
estimates due to increased materials, labor or other costs, which could
make completion of the property uneconomical, and we may not be able to
increase rents to compensate for the increase in construction costs;
. we may abandon development opportunities that we have already begun to
explore, and we may fail to recover expenses already incurred in
connection with exploring those opportunities;
. we have been and may continue to be unable to complete construction and
lease-up of a property on schedule and meet financial goals for
development projects;
. because occupancy rates and rents at a newly developed property may
fluctuate depending on a number of factors, including market and
economic conditions, we may be unable to meet our profitability goals
for that property; and
. construction costs have been increasing in our existing markets, and
may continue to increase in the future and, in some cases, the costs of
upgrading existing or newly acquired properties have exceeded, and may
continue to exceed, original estimates and we may be unable to charge
rents that would compensate for these increases in costs.
Coverage under our existing insurance policies may be inadequate to cover
losses. We generally maintain insurance policies related to our business,
including casualty, general liability and other policies covering our business
operations, employees and assets. However, we would be required to bear all
losses that are not adequately covered by insurance. Although we believe that
our insurance programs are adequate, we cannot assure you that we will not
incur losses in excess of our insurance coverage, or that we will be able to
obtain insurance in the future at acceptable levels and reasonable cost.
We face risks due to lack of geographic diversity. All of our properties are
located in Louisiana, Florida and Alabama. A downturn in general economic
conditions and local real estate conditions in these geographic regions would
have a particularly strong adverse effect on us.
We face possible environmental liabilities. Current and former real estate
owners and operators may be required by law to investigate and clean up
hazardous substances released at the properties they own or operate. They may
also be liable to the government or to third parties for substantial property
damage, investigation costs and cleanup costs. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs the government incurs in connection with the contamination.
Contamination may affect adversely the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral.
We have no way of determining at this time the magnitude of any potential
liability to which we may be subject arising out of unknown environmental
conditions or violations with respect to the properties we formerly owned.
Environmental laws today can impose liability on a previous owner or operator
of a property that owned or operated the property at a time when hazardous or
toxic substances were disposed of, or released from, the property. A conveyance
of the property, therefore, does not relieve the owner or operator from
liability.
We are not currently aware of any environmental liabilities relating to our
investment properties which would have a material adverse effect on our
business, assets, or results of operations. However, we cannot assure you that
environmental liabilities will not arise in the future.
4
Financing Risks
We face risks generally associated with our debt. We finance a portion of
our investments in real estate through debt. Although we have never missed a
required payment of principal or interest or otherwise defaulted on a required
payment related to our indebtedness, this debt creates risks, including:
. rising interest rates on our floating rate debt;
. failure to repay or refinance existing debt as it matures, including
our outstanding convertible debentures, which may result in forced
disposition of properties on disadvantageous terms;
. refinancing terms less favorable than the terms of existing debt; and
. failure to meet required payments of principal and/or interest.
We face risks associated with the use of debt to fund acquisitions and
developments, including refinancing risk. We are subject to the risks normally
associated with debt financing, including the risk that our cash flow will be
insufficient to meet required payments of principal and interest. We anticipate
that a portion of the principal of our debt will not be repaid prior to
maturity. Therefore, we will likely need to refinance at least a portion of our
outstanding debt as it matures. There is a risk that we may not be able to
refinance existing debt or that the terms of any refinancing will not be as
favorable as the terms of the existing debt. If principal payments due at
maturity cannot be refinanced, extended or repaid with proceeds from other
sources, such as new equity capital or sales of properties, our cash flow will
not be sufficient to repay all maturing debt in years when significant
"balloon" payments come due.
We may amend our business policies without your approval. Our Board of
Directors determines our growth, investment, financing, capitalization,
borrowing, REIT status, operating and distribution policies. Although the Board
of Directors has no present intention to amend or revise any of these policies,
these policies may be amended or revised without notice to stockholders.
Accordingly, stockholders may not have control over changes in our policies. We
cannot assure you that changes in our policies will serve fully the interests
of all stockholders.
Other Risks
The market value of our common stock could decrease based on our performance
and market perception and conditions. The market value of our common stock may
be based primarily upon the market's perception of our growth potential and
current and future cash dividends, and may be secondarily based upon the real
estate market value of our underlying assets. The market price of our common
stock is influenced by the dividend on our common stock relative to market
interest rates. Rising interest rates may lead potential buyers of our common
stock to expect a higher dividend rate, which would adversely affect the market
price of our common stock. In addition, rising interest rates would result in
increased expense, thereby adversely affecting cash flow and our ability to
service our indebtedness and pay dividends.
We are subject to restrictions that may impede our ability to effect a
change in control. Certain provisions contained in our Charter and By-Laws, our
Shareholder Rights Agreement, certain provisions of Maryland law and severance
agreements with our executive officers may have the effect of discouraging a
third party from making an acquisition proposal for us and thereby inhibit a
change in control. These provisions include the following:
. Our Charter provides for three classes of directors with the term of
office of one class expiring each year, commonly referred to as a
"staggered board." By preventing stockholders from voting on the
election of more than one class of directors at any annual meeting of
stockholders, this provision may have the effect of keeping the current
members of our Board of Directors in control for a longer period of
time than stockholders may desire.
. Our Charter generally limits any holder from acquiring more than 9.9%
(in value or in number, whichever is more restrictive) of our
outstanding equity stock (defined as all of our classes of capital
stock, except our excess stock). While this provision is intended to
assure our ability to remain a qualified REIT for Federal income tax
purposes, the ownership limit may also limit the opportunity for
stockholders to receive a premium for their shares of common stock that
might otherwise exist if an investor were attempting to assemble a
block of shares in excess of 9.9% of the outstanding shares of equity
stock or otherwise effect a change in control.
5
. In August 1998, our Board of Directors adopted a shareholder rights
plan. Under the terms of the plan, we declared a dividend of rights on
our common stock. The rights issued under the plan will be triggered,
with certain exceptions, if and when any person or group acquires, or
commences a tender offer to acquire, 15% or more of our shares. The
rights plan is intended to prevent abusive hostile takeover attempts by
requiring a potential acquiror to negotiate the terms with our Board of
Directors. However, it could have the effect of deterring or preventing
our acquisition, even if a majority of our stockholders were in favor
of such acquisition, and could have the effect of making it more
difficult for a person or group to gain control of us or to change
existing management.
. We have entered into change of control agreements with each of our
executives providing for the payment of money to these executives upon
the occurrence of a change of control of the Company as defined in
these agreements. If, within 24 months following a change of control,
the Company terminates the executive's employment other than for cause,
or if the executive elects to terminate his employment with the Company
for reasons specified in the agreement, we will make a severance
payment equal to three times the executive's base salary, together with
the executive's bonus, deferred compensation and medical and other
benefits. These agreements may deter changes of control of the Company
because of the increased cost for a third party to acquire control of
the Company.
We may fail to qualify as a REIT. If we fail to qualify as a REIT, we will
not be allowed to deduct distributions to stockholders in computing our taxable
income and will be subject to Federal income tax, including any applicable
alternative minimum tax, at regular corporate rates. In addition, we might be
barred from qualification as a REIT for the four years following
disqualification. The additional tax incurred at regular corporate rates would
reduce significantly the cash flow available for distribution to stockholders
and for debt service.
Furthermore, we would no longer be required by the Internal Revenue Code of
1986, as amended (the "Code") to make any distributions to our stockholders as
a condition to REIT qualification. Any distributions to stockholders that
otherwise would have been subject to tax as capital gain dividends would be
taxable as ordinary income to the extent of our current and accumulated
earnings and profits. Corporate distributees, however, may be eligible for the
dividends received deduction on the distributions, subject to limitations under
the Code.
To qualify as a REIT, we must comply with certain highly technical and
complex requirements. We cannot be certain we have complied with these
requirements because there are few judicial and administrative interpretations
of these provisions. In addition, facts and circumstances that may be beyond
our control may affect our ability to qualify as a REIT. We cannot assure you
that new legislation, regulations, administrative interpretations or court
decisions will not change the tax laws significantly with respect to our
qualification as a REIT or with respect to the federal income tax consequences
of qualification. We believe that we have qualified as a REIT since our
inception and intend to continue to qualify as a REIT. However, we cannot
assure you that we are qualified or will remain qualified.
We may be unable to comply with the strict income distribution requirements
applicable to REITs. To obtain the favorable tax treatment associated with
qualifying as a REIT, among other requirements, we are required each year to
distribute to our stockholders at least 90% of our REIT taxable income. We will
be subject to corporate income tax on any undistributed REIT taxable income. In
addition, we will incur a 4% nondeductible excise tax on the amount by which
our distributions in any calendar year are less than the sum of (i) 95% of our
ordinary income for the year, (ii) 95% of our capital gain net income for the
year, and (iii) any undistributed taxable income from prior years. We could be
required to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT (and to avoid corporate income tax and the 4% excise tax),
even if conditions were not favorable for borrowing. As of this date, we have
not needed to incur such borrowings.
6
Notwithstanding our status as a REIT, we are subject to various federal,
state, local and foreign taxes on our income and property. For example, we will
be taxed at regular corporate rates on any undistributed taxable income,
including undistributed net capital gains, provided, however, that properly
designated undistributed capital gains will effectively avoid taxation at the
stockholder level. We may be subject to other federal income taxes as more
fully described in "Material United States Federal Income Tax Consequences--
Taxation of Us as a REIT." We may also have to pay some state income or
franchise taxes because not all states treat REITs in the same manner as they
are treated for federal income tax purposes.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements with respect to our financial
condition, results of operations and business and on the expected impact of
this exchange offer on our financial performance. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions as they relate to us or our management, are intended to identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties, including
those described under "Risk Factors" in this prospectus, that could cause
actual results to differ materially from the results contemplated by the
forward-looking statements. The safe harbor for forward-looking statements
provided for in the Private Securities Litigation Reform Act of 1995 does not
apply to statements made in connection with this offering.
In evaluating the securities offered by this prospectus, you should
carefully consider the discussion of risks and uncertainties in the section
entitled "Risk Factors" on pages 2 to 7 of this prospectus.
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds of any sale of securities for general corporate
purposes, including, without limitation, the repayment of debt and the
development and acquisition of additional properties.
7
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the years ended December 31,
2000, 1999, 1998, 1997 and 1996 was 1.11, 1.14, 1.16, 1.17 and 1.15,
respectively. For the nine months ended September 30, 2001 and 2000, our ratio
of earnings to fixed charges was 1.15 and 1.10, respectively. For purposes of
computing these ratios, earnings have been calculated by adding fixed charges,
excluding capitalized interest, to pre-tax income from continuing operations.
Fixed charges consist of interest costs, whether expensed or capitalized, the
estimated interest component of rental expenses and amortization of debt
issuance costs. There were no shares of preferred stock outstanding for any of
the periods shown above. Accordingly, the ratio of earnings to combined fixed
charges and preferred stock dividends are identical to the ratio of earnings to
fixed charges.
Ratio of EBITDA to Fixed Charges. Our ratio of EBITDA to fixed charges for
the years ended December 31, 2000, 1999, 1998, 1997 and 1996 was 1.78, 1.84,
1.83, 1.82 and 1.73, respectively. For each of the nine months ended September
30, 2001 and 2000, our ratio of EBITDA to fixed charges was 1.84 and 1.75,
respectively. "EBITDA," as used here, is earnings before interest expense,
income taxes, depreciation and amortization. We have included information
concerning EBITDA because we believe that EBITDA is generally accepted as
providing useful information regarding a company's ability to service and/or
incur debt. EBITDA should not be considered in isolation as a substitute for
net income, cash flows or other consolidated or cash flow data prepared in
accordance with accounting principles generally accepted in the United States
or as a measure of a company's profitability or liquidity. While EBITDA is
frequently used as a measure of operations and ability to meet debt service
requirements, it is not necessarily comparable to similarly titled captions of
other companies due to differences in methods of calculation.
DESCRIPTION OF DEBT SECURITIES
The following is a general description of the debt securities that we may
offer from time to time. The particular terms of the debt securities being
offered and the extent to which such general provisions may apply will be set
forth in the applicable indenture or in one or more indenture supplements and
described in the applicable prospectus supplement.
The debt securities will be issued under one or more separate indentures, as
amended or supplemented from time to time, between us and a trustee to be
selected by us. A copy of a form of indenture is filed as an exhibit to this
prospectus and will be available for inspection at the corporate offices of the
trustee, or as described under the heading "Where You Can Find More
Information" in this prospectus. The indentures will be subject to, and
governed by, the Trust Indenture Act of 1939, as amended. We will execute the
applicable indenture when and if we issue debt securities. The following
summary of certain provisions of the debt securities and the indentures does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to all of the provisions of the indentures, including the
definitions of certain terms and the applicable prospectus supplement. You
should read the indentures carefully to fully understand the terms of the debt
securities.
General
The debt securities will be our direct, unsecured obligations and may be
either senior debt securities or subordinated debt securities.
The indebtedness represented by the senior debt securities will rank equally
with our other senior debt that may be outstanding from time to time. The
payment of principal, premium, if any, and interest on indebtedness represented
by subordinated debt securities will be subordinated, to the extent provided in
a subordinated indenture, in right of payment to the prior payment in full of
our senior debt.
Each indenture will provide that the debt securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time (i) in or pursuant to authority
8
granted by a resolution of the Board of Directors; (ii) as established in the
applicable indenture; or (iii) as may be established in one or more
supplemental indentures to the applicable indenture. All debt securities of one
series need not be issued at the same time. Unless otherwise provided, a series
may be reopened for issuances of additional debt securities of that series.
This may be done without the consent of the holders of that series.
Each indenture may provide that there may be more than one trustee, each
with respect to one or more series of debt securities. Any trustee under an
indenture may resign or be removed with respect to one or more series of debt
securities. A successor trustee may be appointed to act with respect to that
series. If two or more persons are acting as trustee with respect to different
series of debt securities, each of those trustees will be a trustee of a trust
under the applicable indenture separate from the trust administered by any
other trustee of that series. Except as otherwise indicated, any action
described to be taken by each trustee may be taken by each trustee with respect
to, and only with respect to, the one or more series of debt securities for
which it is trustee under the applicable indenture.
The prospectus supplement relating to any series of debt securities being
offered will contain the specific terms of that series, including the
following:
(i) the title of such series of debt securities;
(ii) the classification of such series of debt securities as senior debt
securities or subordinated debt securities;
(iii) the aggregate principal amount of such series of debt securities and
any limit on the aggregate principal amount;
(iv) the percentage of the principal amount at which such series of debt
securities will be issued and, if other than the principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity of such series of debt
securities;
(v) if convertible in whole or in part into shares of common stock or
shares of preferred stock, the terms on which such series of debt
securities are convertible, including the initial conversion price
or rate (or method for determining the same), the portion that is
convertible and the conversion period, and any applicable
limitations on the ownership or transferability of the shares of
common stock or shares of preferred stock receivable on conversion;
(vi) the date or dates, or the method for determining the date or dates,
on which the principal of such series of debt securities will be
payable;
(vii) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates will be determined, at which such series of
debt securities will bear interest, if any;
(viii) the date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any
interest will be payable, the Regular Record Dates for the Interest
Payment Dates, or the method by which the dates will be determined,
the person to whom the interest will be payable, and the basis upon
which interest will be calculated if other than that of a 360-day
year of twelve 30-day months;
(ix) the place or places where the principal, premium, if any, and
interest on the debt securities will be payable, where the debt
securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon us in
respect of the debt securities and the applicable indenture may be
served;
(x) the period or periods within which, the price or prices at which and
the other terms and conditions upon which the debt securities may be
redeemed, in whole or in part, at our option, if we were to have
that option;
(xi) our obligation, if any, to redeem, repay or purchase the debt
securities pursuant to any sinking fund or analogous provision or at
the option of a holder of the debt securities, and the period or
periods
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within which or the date and dates on which, the price or prices at
which and the other terms and conditions upon which such debt
securities will be redeemed, repaid or purchased, in whole or in part,
pursuant to the obligation;
(xii) if other than U.S. dollars, the currency or currencies in which the
debt securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating
thereto;
(xiii) whether the amount of payments of principal, premium, if any, or
interest on the debt securities may be determined with reference to
an index, formula or other method (which index, formula or method
may, but need not be, based on a currency, currencies, currency
unit or units or composite currency or currencies) and the manner
in which those amounts will be determined;
(xiv) any additions to, modifications of or deletions from the terms of
the debt securities with respect to Events of Default or covenants
set forth in the applicable indenture;
(xv) whether such debt securities will be issued in certificated or
book-entry form;
(xvi) whether such debt securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than
$1,000 and any integral multiple thereof and, if in bearer form,
the denominations thereof and terms and conditions relating
thereto;
(xvii) the applicability, if any, of the defeasance and covenant
defeasance provisions of the applicable indenture;
(xviii) if such debt securities are to be issued upon the exercise of
warrants, the time, manner and place for such debt securities to be
authenticated and delivered; and
(xix) any other terms of such debt securities not inconsistent with the
provisions of the applicable indenture.
The debt securities may provide for less than the entire principal amount
to be payable upon declaration of acceleration of the maturity of such debt
securities. Special federal income tax, accounting and other considerations
applicable to Original Issue Discount Securities will be described in the
applicable prospectus supplement.
The indentures will not contain any provisions that would limit our ability
to incur indebtedness or that would afford holders of debt securities
protection in the event of a highly leveraged or similar transaction in which
we are involved or in the event of a change in control, unless otherwise
specified in the applicable prospectus supplement. Restrictions on ownership
and transfers of our common stock and shares of preferred stock are designed
to preserve our status as a REIT and, therefore, may act to prevent or hinder
a change of control. See "Description of Capital Stock--General" and "Risk
Factors--Other Risks." You should read the applicable prospectus supplement
carefully for information with respect to any deletions from, modifications of
or additions to our Events of Default. The applicable prospectus supplement
may also contain changes to the covenants described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
Denomination, Interest, Registration and Transfer
Unless otherwise described in the applicable prospectus supplement, the
debt securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Unless otherwise specified in the applicable prospectus supplement, the
principal, applicable premium and interest on any series of debt securities
will be payable at the corporate trust office of the applicable trustee. The
address of that trustee will be stated in the applicable prospectus
supplement. However, at our option, payment of interest may be made by check
mailed to the address of the person entitled thereto as it appears in
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the applicable register for such debt securities. Such payment may also be made
by wire transfer of funds to that person at an account maintained within the
United States.
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a debt security will from that time cease to be
payable to the holder on the applicable regular record date. It may be paid to
the person in whose name the debt security is registered at the close of
business on a special record date for the payment of that interest which record
date will be fixed by the applicable trustee. Notice of the payment will be
given to the holder of that debt security not less than ten days before the
record date. It may also be paid at any time in any other lawful manner, all as
more completely described in the applicable indenture.
Subject to certain limitations imposed upon debt securities issued in book-
entry form, the debt securities of any series will be exchangeable for other
debt securities of the same series upon surrender of the debt securities at the
corporate trust office of the applicable trustee. In addition, subject to
certain limitations imposed upon debt securities issued in book-entry form, the
debt securities of any series may be surrendered for conversion or registration
of transfer or exchange at the corporate trust office of the applicable
trustee. Every debt security surrendered for conversion, registration of
transfer or exchange must be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any debt securities, but we may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith. If the applicable prospectus supplement refers to any
transfer agent (in addition to the applicable trustee) initially designated by
us with respect to any series of debt securities, we may at any time rescind
the designation of that transfer agent or approve a change in the location
through which any of those transfer agents act. However, we will be required to
maintain a transfer agent in each place of payment for that series. We may at
any time designate additional transfer agents with respect to any series of
debt securities.
We will not nor will any trustee be required to do any of the following:
. issue, register the transfer of or exchange debt securities of any
series during a period beginning at the opening of business 15 days
before any selection of debt securities of that series to be redeemed
and ending at the close of business on the day of mailing of the
relevant notice of redemption;
. register the transfer of or exchange any debt security, or portion of
any debt security, called for redemption, except the unredeemed portion
of any debt security being redeemed in part;
. exchange any bearer security so selected for redemption, except to
exchange such bearer security for a registered security of that series
of like tenor when immediately surrendered for redemption; or
. issue, register the transfer of or exchange any debt security which has
been surrendered for repayment at the option of the holder, except the
portion, if any, of such debt security not to be so repaid.
Merger, Consolidation or Sale
We will be permitted to consolidate with, or sell, lease or convey all or
substantially all of our assets to, or merge with or into, any other entity,
if:
. either we will be the continuing entity, or the successor entity (if
other than us) formed by or resulting from any such consolidation or
merger or which has received the transfer of such assets will expressly
assume payment of the principal, premium, if any, and interest on all
of the debt securities and the due and punctual performance and
observance of all of the covenants and conditions contained in each
indenture;
. immediately after giving effect to the transaction, no Event of Default
under the applicable indenture has occurred and is continuing; and
. an officer's certificate and legal opinion covering such conditions
will be delivered to each trustee.
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Certain Covenants
Existence. Except as described above under "--Merger, Consolidation or
Sale," we are required to do or cause to be done all things necessary to
preserve and keep in full force and effect our existence.
Payment of Dividends. We will not be permitted to declare or pay any
dividends or make any distributions to holders of our capital stock (other than
dividends or distributions necessary to maintain our REIT status), or purchase,
redeem or otherwise acquire or retire any of our capital stock if at the time
of such action an event of default has occurred and is continuing or would
exist immediately after giving effect to such action. See "Events of Default,
Notice and Waiver" below.
Provision of Financial Information. We will, to the extent permitted under
the Exchange Act, file with the Securities and Exchange Commission the annual
reports, quarterly reports and other documents, which we refer to as the
Financial Information, which we may be required to file with the Commission
pursuant to Sections 13 or 15(d) of the Exchange Act on or before the
respective dates by which we may be required so to file those documents. We
will also, within 15 days of each Required Filing Date, to all holders of debt
securities, as their names and addresses appear in the Security Register, mail
copies of the annual reports and quarterly reports. These reports will be sent
without cost to each holder of debt securities. We will also file with the
trustees copies of the Financial Information. If our filing of such documents
with the Commission is not permitted under the Exchange Act, we will promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of these documents to any prospective holder of debt
securities.
Additional Covenants And/or Modifications to The Covenants Described Above.
Any additional covenants and/or modifications to the covenants we have
described above with respect to any debt securities or series of debt
securities will be set forth in the applicable indenture or an indenture
supplemental to the applicable indenture and described in the prospectus
supplement relating to those debt securities. These covenants will include any
covenants relating to limitations on incurrence of indebtedness or other
financial covenants.
Events of Default, Notice and Waiver
The following will be Events of Default under the applicable indenture with
respect to the debt securities of any series: (i) default for 30 days in the
payment of any installment of interest on any debt security of that series;
(ii) default in the payment of principal of (and premium, if any, on) any debt
security of that series at its maturity, upon redemption or otherwise; (iii)
default in making any sinking fund payment as required for any debt security of
that series; (iv) default in the performance or breach of any other of our
covenants or warranties contained in the applicable indenture (other than a
covenant added to the indenture solely for the benefit of a series of debt
securities issued thereunder other than that series), that continues for 60
days after written notice as provided in the applicable indenture; (v) default
in the payment of an aggregate principal amount exceeding $1,000,000 of any of
our indebtedness, mortgage, indenture or other instrument under which that
indebtedness is issued or by which the indebtedness is secured. However, the
default must have occurred after the expiration of any applicable grace period
and must have resulted in the acceleration of the maturity of the indebtedness,
but only if that indebtedness is not discharged or the acceleration is not
rescinded or annulled within a specified period of time; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company; and (vii) any other Event of Default
provided with respect to a particular series of debt securities.
If an Event of Default under any indenture with respect to debt securities
of any series at the time outstanding occurs and is continuing, then the
applicable trustee or the holders of not less than 25% of the principal amount
of the outstanding debt securities of that series will have the right to
declare the principal amount (or, if the debt securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the debt
securities of that series to be due and payable immediately by written notice
to us (and to the applicable trustee if given by the holders). However, at any
time after that declaration of acceleration with respect to debt securities of
that series
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(or of all debt securities then outstanding under any indenture, as the case
may be) has been made, but before a judgment or decree for payment of the money
due has been obtained by the applicable trustee, the holders of not less than a
majority in principal amount of outstanding debt securities of that series (or
of all debt securities then outstanding under the applicable indenture, as the
case may be) may rescind and annul such declaration and its consequences. This
rescission may occur if:
. we have deposited with the applicable trustee all required payments of
the principal, premium, if any, and interest on the debt securities of
the series (or of all debt securities then outstanding under the
applicable indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of the applicable trustee; and
. all Events of Default, other than the non-payment of accelerated
principal (or specified portion thereof), with respect to debt
securities of such series (or of all debt securities then outstanding
under the applicable indenture, as the case may be) have been cured or
waived as provided in the indenture.
Each indenture will provide that the holders of not less than a majority in
principal amount of the outstanding debt securities of any series (or of all
debt securities then outstanding under the applicable indenture, as the case
may be) may waive any past default with respect to such series and its
consequences. This waiver does not apply to the following:
. a default in the payment of the principal of, premium, if any, or
interest on any debt security of the series; or
. a covenant or provision contained in the applicable indenture that
cannot be modified or amended without the consent of the holder of each
outstanding debt security affected by that default.
Each indenture will provide that no holders of debt securities of any series
may institute any proceedings, judicial or otherwise, with respect to that
indenture or for any remedy allowed under the indenture. However, proceedings
may be instituted in the cases of failure of the applicable trustee, for 60
days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the holders of not less than 25% in
principal amount of the outstanding debt securities of the series, as well as
an offer of indemnity reasonably satisfactory to it. However, this provision
will not prevent any holder of debt securities from instituting suit for the
enforcement of payment of the principal of, premium, if any, and interest on,
and any additional amounts in respect of those debt securities at the
respective due dates.
Subject to provisions in each indenture relating to its duties in case of
default, no trustee will be under any obligation to exercise any of its rights
or powers under an indenture at the request or direction of any holders of any
series of debt securities then outstanding under that indenture. However, if
such holders have offered to the trustee reasonable security or indemnity the
trustee is obligated to exercise its rights or powers under the applicable
indenture. The holders of not less than a majority in principal amount of the
outstanding debt securities of any series (or of all debt securities then
outstanding under an indenture, as the case may be) will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable trustee exercising any trust or power conferred
upon that trustee. However, a trustee may refuse to follow any direction which
is in conflict with any law or the applicable indenture, which may involve that
trustee in personal liability or which may be unduly prejudicial to the holders
of debt securities of that series not joining therein.
Within 120 days after the close of each fiscal year, we will be required to
deliver to each trustee a certificate, signed by one of several specified
officers. This certificate will state whether or not the officer has knowledge
of any default under the applicable indenture. If the officer has this
knowledge, the certificate will specify each default and the nature and status
of that default.
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Modification of the Indentures
Modifications and amendments of an indenture will not be permitted to be
made unless the consent of the holders of not less than a majority in principal
amount of all outstanding debt securities issued under that indenture which are
affected by the modification or amendment is obtained. However, none of these
modifications or amendments may, without the consent of the holder of each such
debt security affected thereby, do any of the following things:
. change the stated maturity of the principal of, or any installment of
interest, or premium on any such debt security;
. reduce the principal amount of, or the rate or amount of interest on
any such debt security;
. reduce any premium payable on redemption of, any such debt security;
. reduce the amount of principal of an Original Issue Discount Security
that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely
affect any right of repayment of the holder of any such debt security;
. change the place of payment, or the coin or currency, for payment of
principal or premium, if any, or interest on any such debt security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any such debt security;
. reduce the stated percentage of outstanding debt securities of any
series necessary to modify or amend the applicable indenture, to waive
compliance with certain provisions of that indenture or certain
defaults and consequences thereunder;
. reduce the quorum or voting requirements set forth in the applicable
indenture;
. modify any of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action; or
. to provide that certain other provisions may not be modified or waived
without the consent of the holder of such debt security.
The holders of not less than a majority in principal amount of outstanding
debt securities of each series affected by those covenants in the indenture
will have the right to waive compliance by us with certain covenants in the
indenture.
We may amend and modify each indenture and substitute the respective trustee
thereunder without the consent of any holder of debt securities for any of the
following purposes:
. to evidence the succession of another entity to us as obligor under the
applicable indenture;
. to add or change any provisions of an indenture to facilitate the
issuance of, or to liberalize certain terms of, debt securities in
bearer form, or to permit or facilitate the issuance of debt securities
in uncertificated form, provided that such action will not adversely
affect the interests of the holders of the debt securities of any
series in any material respect; or
. to cure any ambiguity, defect or inconsistency in an indenture,
provided that such action will not adversely affect the interests of
holders of debt securities of any series issued under such indenture in
any material respect.
Conversion Rights
The terms and conditions, if any, upon which the debt securities are
convertible into shares of common stock or shares of preferred stock will be
set forth in the applicable prospectus supplement relating thereto. The terms
will include:
. whether such debt securities are convertible into shares of common
stock or shares of preferred stock;
14
. the conversion price (or manner of calculation thereof);
. the conversion period;
. provisions as to whether conversion will be at the option of the
holders or the Company; and
. the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such
debt securities and any restrictions on conversion, including
restrictions directed at maintaining our REIT status.
Redemption of Securities
Each indenture will provide that our debt securities may be redeemed at any
time at our option, in whole or in part, at a stated redemption price, except
as may otherwise be provided in connection with any debt securities or series
of debt securities under the applicable indenture.
Subordination
The payment of the principal of, or premium, if any, and interest on any
subordinated debt securities will be expressly subordinated, to the extent and
in the manner set forth in an indenture governing such subordinated debt
securities, in right of payment to the prior payment in full of all of our
senior debt. Such subordination provisions will be described in detail in the
applicable prospectus supplement.
Subrogation
Subject to the payment in full in cash of all amounts then due (whether by
acceleration of the maturity thereof or otherwise) on account of all senior
debt at the time outstanding, the holders of a subordinated debt security will
be subrogated to the rights of the holders of senior debt to receive payments
or distributions of cash, property or securities of the Company applicable to
the senior debt until the principal of (and premium, if any) and interest on
the subordinated debt securities is paid in full.
Global Securities
The debt securities of a series may be issued in whole or in part in the
form of one or more Global securities that will be deposited with, or on behalf
of, a depositary identified in the applicable prospectus supplement relating to
that series. Global securities, if any, issued in the United States are
expected to be deposited with the Depository Trust Company. Global securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect
to a series of debt securities will be described in the applicable prospectus
supplement relating to such series.
DESCRIPTION OF CAPITAL STOCK
The following description is only a summary of certain terms and provisions
of our capital stock. You should refer to our Charter and By-Laws for the
complete provisions thereof.
General
The total number of shares of capital stock of all classes that we are
authorized to issue is 70,000,000. Currently, the Charter authorizes the
issuance of 51,484,000 shares of common stock, par value $.0001 per share,
40,000 shares of Series A preferred stock, par value $.0001 per share,
2,476,000 shares of Series B preferred stock, par value $.0001 per share, and
16,000,000 shares of excess stock, par value $.0001 per share. As of November
23, 2001, 8,420,000 shares of common stock were issued and outstanding. The
outstanding common stock is currently listed on the New York Stock Exchange
under the symbol "SIZ". We intend to apply to the New York Stock Exchange to
list any additional shares of common stock pursuant to any prospectus
supplement, and we anticipate that such shares will be so listed.
15
Our Board of Directors is authorized by the Charter, to classify and
reclassify any of our unissued shares of capital stock, by, among other
alternatives, setting, altering or eliminating the designation, preferences,
conversion or other rights, voting powers, qualifications and terms and
conditions of redemption of, limitations as to dividends and any other
restrictions on, our capital stock. The power of the Board of Directors to
classify and reclassify any of the shares of capital stock includes the
authority to classify or reclassify such shares into a class or classes of
preferred stock or other stock.
Pursuant to the provisions of the Charter, if a transfer of stock occurs
such that any person would own, beneficially or constructively (applying the
applicable attribution rules of the Code), more than 9.9% (in value or in
number, whichever is more restrictive) of our outstanding equity stock
(excluding shares of excess stock), then the amount in excess of the 9.9% limit
will automatically be converted into shares of excess stock, any such transfer
will be void from the beginning, and we will have the right to redeem such
stock. These restrictions also apply to any transfer of stock that would result
in our being "closely held" within the meaning of Section 856(h) of the Code or
otherwise failing to qualify as a REIT for federal income tax purposes. Upon
any transfer that results in excess stock, such excess stock shall be held in
trust for the exclusive benefit of one or more charitable beneficiaries
designated by us. Upon the satisfaction of certain conditions, the person who
would have been the record holder of equity stock if the transfer had not
resulted in excess stock may designates a beneficiary of an interest in the
trust. Upon such transfer of an interest in the trust, the corresponding shares
of excess stock in the trust shall be automatically exchanged for an equal
number of shares of equity stock of the same class as such stock had been prior
to it becoming excess stock and shall be transferred of record to the
designated beneficiary. Excess stock has no voting rights, except as required
by law, and any vote cast by a purported transferee in respect of shares of
excess stock prior to the discovery that shares of equity stock had been
converted into excess stock shall be void from the beginning. Excess stock
shall be entitled to dividends equal to the dividends declared on any class of
equity stock from which the excess stock has been converted, which dividends
shall be held in trust for the benefit of the charitable beneficiary. Any
dividend paid prior to our discovery that equity stock has been converted to
excess stock shall be paid to the trustee of the trust upon demand. In the
event of our liquidation, each holder of excess stock shall be entitled to
receive that portion of our assets that would have been distributed to the
equity stock in respect of which such excess stock was issued. The trustee of
the trust holding excess stock shall distribute such assets to the
beneficiaries of such trust. These restrictions will not prevent the settlement
of a transaction entered into through the facilities of any interdealer
quotation system or national securities exchange upon which shares of our
capital stock are traded. Notwithstanding the prior sentence, certain
transactions may be settled by providing shares of excess stock.
Our board of directors, upon at least 15 days' written notice from a
transferee prior to a proposed transfer that would result in the intended
transferee "beneficially owning" (after the application of the applicable
attribution rules of the Code) equity stock in excess of the 9.9% ownership
limit and the satisfaction of such other conditions as the board of directors
may direct, may in its sole and absolute discretion exempt a person from the
ownership limit. Our board of directors may in its sole and absolute discretion
exempt a person from the limitation on a person "constructively owning" equity
stock in excess of the 9.9% ownership limit if (x) such person does not and
represents that it will not directly or "constructively own" (after the
application of the applicable attribution rules of the Code) more than a 9.9%
interest in a tenant of ours; (y) we obtain such representations and
undertakings as are reasonably necessary to ascertain this fact; and (z) such
person agrees that any violation or attempted violation of such
representations, undertakings and agreements will result in such equity stock
in excess of the ownership limit being converted into and exchanged for excess
stock. Our board of directors may from time to time increase or decrease the
9.9% limit, provided that the 9.9% limit may be increased only if five persons
could "beneficially own" or "constructively own" (applying the applicable
attribution rules of the Code) no more than 50.0% in value of the shares of
equity stock then outstanding.
Description of Common Stock
Distributions. Subject to the preferential rights of any shares of preferred
stock currently outstanding or subsequently classified and to the provisions of
our Charter regarding restrictions on transfer and ownership of
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shares of common stock, as a holder of our common stock, you will be entitled
to receive distributions, if, as and when declared by our board of directors,
out of our assets that we may legally use for distributions to stockholders and
to share ratably in our assets that we may legally distribute to our
stockholders in the event of our liquidation, dissolution or winding-up after
payment of, or adequate provision for, all of our known debts and liabilities.
We currently pay regular quarterly distributions on our common stock.
Relationship to Preferred Stock and Other Shares of Common Stock. Your
rights as a holder of shares of common stock will be subject to, and may be
adversely affected by, the rights of holders of preferred stock that have been
issued and that may be issued in the future. Our board of directors may cause
preferred stock to be issued to obtain additional capital, in connection with
acquisitions, to our officers, directors and employees pursuant to benefit
plans or otherwise and for other corporate purposes.
As a holder of our common stock, you will have no preferences, conversion,
sinking fund, redemption rights or preemptive rights to subscribe for any of
our securities. Subject to the provisions of our charter regarding restrictions
on ownership and transfer, all shares of common stock have equal distribution,
liquidation, voting and other rights.
Voting Rights. Subject to the provisions of our charter regarding
restrictions on transfer and ownership of shares of common stock, as a holder
of common stock, you will have one vote per share on all matters submitted to a
vote of stockholders, including the election of directors. Except as provided
with respect to any other class or series of shares of capital stock, the
holders of common stock will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a plurality of the outstanding shares of common stock can elect
all of the directors then standing for election and the holders of the
remaining shares of common stock, if any, will not be able to elect any
directors, except as otherwise provided for any series of our preferred stock.
Stockholder Liability. Under Maryland law applicable to Maryland
corporations, you will not be liable as a shareholder for our obligations
solely as a result of your status as a stockholder.
Transfer Agent. The registrar and transfer agent for shares of our common
stock is The Bank of New York.
Description of Preferred Stock
General. Shares of preferred stock may be issued from time to time, in one
or more series, as authorized by the Board of Directors. Before issuance of
shares of each series, the Board is required to fix for each such series,
subject to the provisions of Maryland law and our Charter, the powers,
designations, preferences and relative, participating, optional or other
special rights of such series and qualifications, limitations or restrictions
thereof, including such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and such other matters as may be fixed by resolution of the Board of
Directors or a duly authorized committee thereof. The Board could authorize the
issuance of shares of preferred stock with terms and conditions which could
have the effect of discouraging a takeover or other transaction which holders
of some, or a majority of, shares of common stock might believe to be in their
best interests, or in which holders of some, or a majority of, shares of common
stock might receive a premium for their shares of common stock over the then
market price of such shares. The shares of preferred stock will, when issued,
be fully-paid and non-assessable and will have no preemptive rights.
The prospectus supplement relating to any shares of preferred stock offered
thereby will contain the specific terms, including:
(i) The title and stated value of such shares of preferred stock;
(ii) The number of such shares of preferred stock offered, the
liquidation preference per share and the offering price of such
shares of preferred stock;
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(iii) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such shares of preferred stock;
(iv) The date from which dividends on such shares of preferred stock will
accumulate, if applicable;
(v) The procedures for any auction and remarketing, if any, for such
shares of preferred stock;
(vi) The provision for a sinking fund, if any, for the shares of
preferred stock;
(vii) The provisions for redemption, if applicable, of the shares of
preferred stock;
(viii) Any listing of the shares of preferred stock on any securities
exchange;
(ix) The terms and conditions, if applicable, upon which the shares of
preferred stock will be convertible into shares of common stock of
the Company, including the conversion price (or manner of
calculation thereof);
(x) A discussion of federal income tax considerations applicable to such
shares of preferred stock;
(xi) The relative ranking and preferences of such shares of preferred
stock as to dividend rights and rights upon liquidation, dissolution
or winding up of our affairs;
(xii) Any limitations on issuance of any series of shares of preferred
stock ranking senior to or on a parity with such series of shares of
preferred stock as to dividend rights and rights upon liquidation,
dissolution or winding up of our affairs;
(xiii) Any limitations on direct or beneficial ownership and restrictions
on transfer of such shares of preferred stock, in each case as may
be appropriate to preserve our status as a REIT; and
(xiv) Any other specific terms, preferences, rights, limitations or
restrictions of such shares of preferred stock.
The Registrar and Transfer Agent for the shares of preferred stock will be
set forth in the applicable prospectus supplement.
The description of the provisions of the shares of preferred stock set forth
in this prospectus and in the related prospectus supplement is only a summary,
does not purport to be complete and is subject to, and is qualified in its
entirety by, reference to the definitive Articles Supplementary to our Charter
relating to such series of shares of preferred stock. You should read these
documents carefully to fully understand the terms of the shares of preferred
stock. In connection with any offering of shares of preferred stock, Articles
Supplementary will be filed with the SEC as an exhibit or incorporated by
reference in the Registration Statement.
Description of Stockholder Rights Plan
Our board of directors has adopted a stockholder rights plan. As a result,
we issued one right for each outstanding share of common stock. One right will
be issued for each additional share of common stock that we issue, including
any shares of common stock issued under this prospectus. Each right entitles
the holder to purchase on one-thousandth of a share of our Series A preferred
stock at an exercise price of $40. The rights become exercisable 10 business
days after any party acquires or announces an offer to acquire 15% or more of
our common stock or certain similar event. The rights expire on August 27,
2008, unless earlier redeemed. The rights are redeemable at $0.01 per right at
any time before 10 business days following the time that any party acquires 15%
or more of our common stock, commences a tender offer for 15% or more of our
common stock, or our board of directors determines that a substantial
stockholder's ownership may be adverse to the interests of our other
stockholders or our qualification as a REIT. In certain circumstances, the
rights will be exercisable for the stock of any entity into which we merge or
to which we convey a substantial portion of our assets.
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DESCRIPTION OF WARRANTS
General
We may issue warrants for the purchase of debt securities, shares of
preferred stock or shares of common stock. Warrants may be issued independently
or together with any other securities offered by any prospectus supplement and
may be attached to or separate from such securities. Each series of warrants
will be issued under a separate warrant agreement to be entered into between us
and a warrant agent specified in the applicable prospectus supplement. The
warrant agent will act solely as our agent in connection with the warrants of
such series and will not assume any obligation or relationship of agency or
trust for or with any holders or beneficial owners of warrants. The following
summary of certain provisions of the securities warrant agreement and the
warrants does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the securities warrant
agreement and the securities warrant certificates relating to each series of
warrants which will be filed with the SEC and incorporated by reference as an
exhibit to the Registration Statement of which this prospectus is a part at or
before the time of the issuance of that series of warrants.
If warrants are offered, the applicable prospectus supplement will describe
the terms of those warrants, including, in the case of warrants for the
purchase of debt securities, the following:
. the offering price;
. the denominations and terms of the series of debt securities
purchasable upon exercise of such warrants;
. the designation and terms of any series of debt securities with which
such warrants are being offered and the number of such warrants being
offered with such debt securities;
. the date, if any, on and after which such warrants and the related
series of debt securities will be transferable separately;
. the principal amount of the series of debt securities purchasable upon
exercise of each such securities warrant and the price at which such
principal amount of debt securities of such series may be purchased
upon such exercise;
. the date on which the right to exercise such warrants shall commence
and the date on which such right will expire;
. whether the warrants will be issued in registered or bearer form;
. any special United States Federal income tax consequences;
. the terms, if any, on which we may accelerate the date by which the
warrants must be exercised; and
. any other material terms of such warrants.
In the case of warrants for the purchase of shares of preferred stock or
shares of common stock, the applicable prospectus supplement will describe the
terms of those warrants, including the following where applicable:
. the offering price;
. the type and aggregate number of shares purchasable upon exercise of
the warrants, the exercise price, and in the case of warrants for
shares of preferred stock, the designation, aggregate number and terms
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of the series of shares of preferred stock with which the warrants are
being offered, if any, and the number of such warrants being offered with
the shares of preferred stock;
. the date, if any, on and after which the warrants and the related
series of shares of preferred stock, if any, or shares of common stock
will be transferable separately;
. the date on which the right to exercise such warrants shall commence
and the date on which such right will expire;
. any special United States Federal income tax consequences; and
. any other material terms of the warrants.
Warrant certificates may be exchanged for new warrant certificates of
different denominations, may (if in registered form) be presented for
registration of transfer, and may be exercised at the corporate trust office of
the warrant agent or any other office indicated in the applicable prospectus
supplement. Before the exercise of any securities warrant to purchase debt
securities, holders of such warrants will not have any of the rights of holders
of the debt securities purchasable upon such exercise, including the right to
receive payments of principal, premium, if any, or interest, if any, on such
debt securities or to enforce covenants in the applicable indenture. Before the
exercise of any warrants to purchase shares of preferred stock or shares of
common stock, holders of such warrants will not have any rights of holders of
such shares of preferred stock or shares of common stock, including the right
to receive payments of dividends, if any, on such shares of preferred stock or
shares of common stock, or to exercise any applicable right to vote.
Exercise of Warrants
Each warrant will entitle the holder thereof to purchase such principal
amount of debt securities or number of shares of preferred stock or shares of
common stock, as the case may be, at such exercise price as shall in each case
be set forth in, or calculable from, the prospectus supplement relating to the
offered warrants. After the close of business on the expiration date (or such
later date to which such expiration date may be extended by us), unexercised
warrants will become void.
Warrants may be exercised by delivering to the warrant agent payment as
provided in the applicable prospectus supplement of the amount required to
purchase the shares of common stock purchasable upon such exercise, together
with certain information set forth on the reverse side of the securities
warrant certificate. Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within five
(5) business days, of the securities warrant certificate evidencing such
warrants. Upon receipt of such payment and the securities warrant certificate
properly completed and duly executed at the corporate trust office of the
securities warrant agent or any other office indicated in the applicable
prospectus supplement, we will, as soon as practicable, issue and deliver the
shares of common stock purchasable upon such exercise. If fewer than all of the
warrants represented by such securities warrant certificate are exercised, a
new securities warrant certificate will be issued for the remaining amount of
warrants.
Amendments and Supplements to Warrant Agreements
The warrant agreements may be amended or supplemented without the consent of
the holders of the warrants issued under the warrant agreement to effect
changes that are not inconsistent with the provisions of the warrants and that
do not adversely affect the interests of the holders of the warrants.
Common Stock Warrant Adjustments
Unless otherwise indicated in the applicable prospectus supplement, the
exercise price of, and the number of shares of common stock covered by, a
common stock warrant will be subject to adjustment in certain events,
including:
. payment of a dividend on the shares of common stock payable in shares
of common stock and stock splits, combinations or reclassifications of
the shares of common stock;
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. issuance to all holders of shares of common stock of rights or warrants
to subscribe for or purchase shares of common stock at less than their
current market price (as defined in the warrant agreement for that
series of shares of common stock warrants); and
. certain distributions of evidences of indebtedness or assets (including
securities but excluding cash dividends or distributions paid out of
consolidated earnings or retained earnings), or of subscription rights
and warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of shares of common
stock covered by, a common stock warrant will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from consolidated earnings or
retained earnings. No adjustment will be required unless such adjustment would
require a change of at least 1% in the exercise price then in effect. Except as
stated above, the exercise price of, and the number of shares of common stock
covered by, a common stock warrant will not be adjusted for the issuance of
shares of common stock or any securities convertible into or exchangeable for
shares of common stock, or carrying the right or option to purchase or
otherwise acquire the foregoing, in exchange for cash, other property or
services.
In the event of any (i) consolidation or merger of the Company with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
common stock); (ii) sale, transfer, lease or conveyance of all or substantially
all of the assets of the Company; or (iii) reclassification, capital
reorganization or exchange of the shares of common stock (other than solely a
change in par value or from par value to no par value), then any holder of a
common stock warrant will be entitled, on or after the occurrence of any such
event, to receive on exercise of such common stock warrant the kind and amount
of shares or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's common stock warrant immediately before the occurrence of such event.
If the consideration to be received upon exercise of the common stock warrant
following any such event consists of shares of common stock of the surviving
entity, then from and after the occurrence of such event, the exercise price of
such common stock warrant will be subject to the same anti-dilution and other
adjustments described in the second preceding paragraph, applied as if such
common stock warrant were shares of common stock.
CERTAIN PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BY-LAWS
The following paragraphs summarize certain provisions of Maryland law and
our Charter and Bylaws. The summary does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and the
Charter, including any Articles Supplementary, and Bylaws. You should read
these documents carefully to fully understand the terms of Maryland law, our
Charter and our Bylaws.
The Board of Directors
Our Board of Directors is currently comprised of eight directors. Our Bylaws
provide that the Board may alter the number of directors to a number not
exceeding 15 nor below the minimum permitted in our Bylaws. Our Charter
provides that the members of the Board shall be divided, as evenly as possible,
into three classes, with approximately one-third of the directors elected by
the stockholders annually. Each director is to serve for a three year term or
until his or her successor is duly elected and has qualified. Holders of shares
will have no right to cumulative voting in the election of directors. We have
elected to be governed by the recent Maryland law described below as it relates
to a classified board.
Amendment of Charter and By-Laws
Our Charter generally may be amended only by the affirmative vote of the
holders of a majority of the votes entitled to be cast on the matter. However,
any amendment relating to our REIT qualification restrictions,
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our Series A Preferred Stock (issued in connection with our stockholder rights
plan), our board of directors, our election to be exempt from the Maryland
business combination statute, indemnification and limitation of liability or
charter amendments requires the advice and recommendation of at least 75% of
our board of directors. In addition, charter amendments regarding our
classified board of directors, by-law amendments, our election under the
Maryland business combination statute, indemnification and limitation of
liability and amendments require the affirmative approval of 75% of the votes
entitled to be cast on the matter. This 75% vote is also required to amend the
Charter to provide for cumulative voting in the election of directors.
Our bylaws may be amended only by the board of directors or by 75% of the
aggregate voting power of all classes of capital stock.
Business Combinations
As a Maryland corporation, we are subject to certain restrictions concerning
certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between us and an "interested
stockholder." Interested stockholders are persons (i) who beneficially own 10%
or more of the voting power of our shares or (ii) are affiliates or associates
of us 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 our
shares. Such business combinations are prohibited for 5 years after the most
recent date on which the interested stockholder became an interested
stockholder. Thereafter, any such business combination must be recommended by
the Board of Directors and approved by the affirmative vote of at least (i) 80%
of the votes entitled to be cast by holders of our outstanding voting shares
and (ii) 66 2/3% of the votes entitled to be cast by holders of our outstanding
voting shares other than shares held by the interested stockholder or an
affiliate or associate of the interested stockholder with whom the business
combination is to be effected, unless, among other things, the corporation's
stockholders receive a minimum price 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. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the Board of
Directors prior to the time that the interested stockholder becomes an
interested stockholder.
Control Share Acquisitions
Maryland law provides that, with certain exceptions, "control shares" of a
corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by the stockholders by the affirmative vote of
two-thirds, excluding shares of stock owned by the acquiring person or by
officers or directors who are employees of the corporation. "Control shares"
are shares of voting stock which, if aggregated with all other such shares
previously acquired by such a person, would entitle the acquiring person to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) 10% or more but less than 33 1/3%, (ii) 33 1/3% or more
but less than a majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A "control
share acquisition" means, subject to certain exceptions, the acquisition of,
ownership of or the power to direct the exercise of voting power with respect
to, control shares.
As permitted under Maryland law, our Bylaws contain a provision opting out
of the control share acquisition statute.
Advance Notice of Director Nominations and New Business
Pursuant to our Bylaws, a stockholder seeking to nominate persons for
election to our Board of Directors or propose other business to be conducted at
an annual meeting of stockholders or to nominate persons for
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election of directors at any special meeting of stockholders called for the
purpose of electing directors must provide the required notice to our chairman
of the board (i) in the case of an annual meeting, generally not less than 90
days nor more than 120 days prior to the first anniversary of the date of
mailing of the notice for the preceding year's annual meeting and (ii) in the
case of a special meeting, not later than the earlier of the 10th day following
the day on which notice of the special meeting was mailed or public disclosure
of the date of the special meeting.
The purpose of requiring such advance notice by stockholders is to provide
the Board of Directors a meaningful opportunity to consider the qualifications
of the proposed nominees or the advisability of the other proposed business
and, to the extent deemed necessary or advisable by the Board of Directors, to
inform stockholders and make recommendations about such qualifications or
business, as well as to provide a more orderly procedure for conducting
meetings of stockholders. Although our Bylaws do not give the Board of
Directors any power to disapprove of stockholder nominations or proposals for
action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper
procedures are not followed. In addition, these provisions may discourage or
deter a third party from conducting a solicitation of proxies to elect its own
slate of directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or in the best
interests of the Company and its stockholders. The provisions in our Bylaws
regarding advance notice provisions could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
shares of common stock 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 interests.
Meetings of Stockholders
Under our Bylaws, annual meetings of stockholders are to be held in May of
the following year at a date and time as determined by our board, the Chairman
of the Board or the President. Special meetings of stockholders may be called
only by a majority of the directors then in office, by the Chairman or the
President and must be called by the Secretary upon the written request of the
holders of a majority of the shares of our common stock entitled to vote at a
meeting. Only matters set forth in the notice of the meeting may be considered
and acted upon at such a meeting. Our Bylaws provide that any action required
or permitted to be taken at a meeting of stockholders may be taken without a
meeting by unanimous written consent, if that consent sets forth that action
and is signed by each stockholder entitled to vote on the matter and a written
waiver of any right to dissent is signed by each stockholder entitled to notice
of the meeting but not entitled to vote at that meeting.
Recent Maryland Legislation
In 1999, Maryland enacted legislation which allows publicly held Maryland
corporations to elect to be governed by all or any part of Maryland law
provisions relating to extraordinary actions and unsolicited takeovers. The
election to be governed by one or more of these provisions can be made by a
Maryland corporation in its articles or bylaws or by resolution adopted by its
board of directors so long as the corporation has at least three directors who,
at the time of electing to be subject to the provisions, are not:
. officers or employees of the corporation;
. persons seeking to acquire control of the corporation;
. directors, officers, affiliates or associates of any person seeking to
acquire control; or
. nominated or designated as directors by a person seeking to acquire
control.
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Articles supplementary must be filed with the Maryland State Department of
Assessments and Taxation if a Maryland corporation elects to be subject to any
or all of the provisions by board resolution or bylaw amendment. Stockholder
approval is not required for the filing of articles supplementary.
The Maryland legislation provides that a corporation can elect to be subject
to all or any portion of the following provisions, notwithstanding any contrary
provisions contained in that corporation's existing charter documents:
. Classified Board: The corporation may divide its board into three
classes which, to the extent possible, will have the same number of
directors, the terms of which will expire at the third annual meeting
of stockholders after the election of each class;
. Two-thirds Stockholder Vote to Remove Directors Only for Cause: The
stockholders may remove any director only by the affirmative vote of at
least two-thirds of all votes entitled to be cast by the stockholders
generally in the election of directors, but a director may not be
removed without cause;
. Size of Board Fixed by Vote of Board: The number of directors will be
fixed only by resolution of the board;
. 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 director, may be filled only by the
affirmative vote of a majority of the remaining directors even if they
do not constitute a quorum. Directors elected to fill vacancies will
hold office for the remainder of the full term of the class of
directors in which the vacancy occurred, as opposed to until the next
annual meeting of stockholders, and until a successor is elected and
qualifies; and
. Stockholder Calls of Special Meetings: Special meetings of stockholders
may be called by the secretary of the corporation only upon the written
request of stockholders 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 MGCL.
We have not elected to be governed by the specific provisions of the 1999
legislation other than regarding removal of directors. However, our charter
and/or Bylaws, as applicable, already provide for a classified board, that the
number of directors is to be determined by a resolution of the board, subject
to a minimum number, and that our secretary must call a special meeting of
stockholders only upon the written request of the holders of a majority of our
outstanding securities entitled to vote. In addition, we can elect to be
governed by any or all of the provisions of the Maryland legislation at any
time in the future.
Prohibited Transactions
Our Charter prohibits us from entering into certain transactions, such as
the following:
. Investing more than 10% of our assets in unimproved real property or
mortgage loans on unimproved real property;
. Investing in commodities or commodity futures contracts, other than
interest rate futures used solely for hedging purposes;
. Issuing equity securities redeemable at the option of the holder
thereof;
. Subject to certain exceptions, issuing options and warrants to purchase
common stock at an exercise price of less than the fair market value of
the common stock;
. Investing in real estate contracts for sale, unless the real estate
contracts are in recordable form and appropriately recorded in the
chain of title;
. Investing in mortgage loans unless an appraisal is obtained for the
underlying property; and
. Allowing our aggregate borrowing to exceed 300% of our net assets,
unless the independent directors on our board of directors determine
that a higher level of borrowing is appropriate.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Introductory Notes
The following is a description of the material Federal income tax
considerations to a holder of our common stock and our debentures. An
applicable prospectus supplement will contain information about additional
Federal income tax considerations, if any, relating to particular offerings of
our common stock, preferred stock, debt securities or warrants. The following
discussion is not exhaustive of all possible tax considerations and does not
provide a detailed discussion of any state, local or foreign tax
considerations, nor does it discuss all of the aspects of Federal income
taxation that may be relevant to a prospective stockholder in light of his or
her particular circumstances or to stockholders (including insurance companies,
tax-exempt entities, financial institutions or broker-dealers, foreign
corporations, and persons who are not citizens or residents of the United
States) who are subject to special treatment under the Federal income tax laws.
Jaeckle Fleischmann & Mugel, LLP has provided an opinion to the effect that
this discussion, to the extent that it contains descriptions of applicable
Federal income tax law, is correct in all material respects and fairly
summarizes the Federal income tax laws referred to herein. This opinion is
filed as an exhibit to the registration statement of which this prospectus is a
part. This opinion, however, does not purport to address the actual tax
consequences of the purchase, ownership and disposition of our common stock or
any of our other securities to any particular holder. The opinion, and the
information in this section, is based on the Code, current, temporary and
proposed Treasury regulations, the legislative history of the Code, current
administrative interpretations and practices of the Internal Revenue Service,
and court decisions. The reference to Internal Revenue Service interpretations
and practices includes Internal Revenue Service practices and policies as
endorsed in private letter rulings, which are not binding on the Internal
Revenue Service except with respect to the taxpayer that receives the ruling.
In each case, these sources are relied upon as they exist on the date of this
prospectus. No assurance can be given that future legislation, regulations,
administrative interpretations and court decisions will not significantly
change current law, or adversely affect existing interpretations of existing
law, on which the opinion and the information in this section are based. Any
change of this kind could apply retroactively to transactions preceding the
date of the change. Moreover, opinions of counsel merely represent counsel's
best judgment with respect to the probable outcome on the merits and are not
binding on the Internal Revenue Service or the courts. Accordingly, even if
there is no change in applicable law, no assurance can be provided that such
opinion, or the statements made in the following discussion, will not be
challenged by the Internal Revenue Service or will be sustained by a court if
so challenged.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OR HER OWN TAX ADVISOR, REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF SECURITIES
OF AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
ACQUISITION, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of Us as a REIT
General. We have elected to be taxed as a REIT under Sections 856 through
859 of the Code, commencing with our taxable year which ended December 31,
1987. Our qualification and taxation as a REIT depends upon our ability to meet
on a continuing basis, through actual annual operating results, distribution
levels and diversity of stock ownership, the various qualification tests and
organizational requirements imposed under the Code, as discussed below. We
believe that we are organized and have operated in such a manner as to qualify
under the Code for taxation as a REIT since our inception, and we intend to
continue to operate in such a manner. No assurances, however, can be given that
we will operate in a manner so as to qualify or remain qualified as a REIT. See
"--Failure to Qualify" below.
25
The following is a general summary of the material Code provisions that
govern the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the regulations
promulgated thereunder ("Treasury Regulations"), and administrative and
judicial interpretations thereof.
Jaeckle Fleischmann & Mugel, LLP has provided to us an opinion to the effect
that we have been organized and have operated in conformity with the
requirements for qualification and taxation as a REIT, effective for each of
our taxable years ended December 31, 1997 through December 31, 2000, and our
current and proposed organization and method of operation will enable us to
continue to meet the requirements for qualification and taxation as a REIT for
taxable year 2001 and thereafter. This opinion is filed as an exhibit to the
registration statement of which this prospectus is a part. It must be
emphasized that this opinion is conditioned upon certain assumptions and
representations made by us to Jaeckle Fleischmann & Mugel, LLP as to factual
matters relating to our organization and operation and that of our
subsidiaries. In addition, this opinion is based upon our factual
representations concerning our business and properties as described in the
reports filed by us under the federal securities laws.
Qualification and taxation as a REIT depends upon our ability to meet on a
continuing basis, through actual annual operating results, the various
requirements under the Code described in this prospectus with regard to, among
other things, the sources of our gross income, the composition of our assets,
our distribution levels, and our diversity of stock ownership. Jaeckle
Fleischmann & Mugel, LLP will not review our operating results on an ongoing
basis. While we intend to operate so that we qualify as a REIT, given the
highly complex nature of the rules governing REITs, the ongoing importance of
factual determinations, and the possibility of future changes in our
circumstances, no assurance can be given that we satisfy all of the tests for
REIT qualification or will continue to do so.
If we qualify for taxation as a REIT, we generally will not be subject to
Federal corporate income taxes on net income that we currently distribute to
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a corporation.
Notwithstanding our REIT election, however, we will be subject to Federal
income tax in the following circumstances. First, we will be taxed at regular
corporate rates on any undistributed taxable income, including undistributed
net capital gains, provided, however, that properly designated undistributed
capital gains will effectively avoid taxation at the shareholder level. Second,
under certain circumstances, we may be subject to the "alternative minimum tax"
on any items of tax preference and alternative minimum tax adjustments. Third,
if we have (i) net income from the sale or other disposition of "foreclosure
property" (which is, in general, property acquired by foreclosure or otherwise
on default of a loan secured by the property) that is held primarily for sale
to customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, we will be subject to tax at the highest
corporate rate on such income. Fourth, if we have net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to customers
in the ordinary course of business), such income will be subject to a 100% tax
on prohibited transactions. Fifth, if we should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), and have
nonetheless maintained our qualification as a REIT because certain other
requirements have been met, we will be subject to a 100% tax equal to the gross
income attributable to the greater of either (i) the amount by which 75% of our
gross income exceeds the amount qualifying under the 75% test for the taxable
year or (ii) the amount by which 90% of our gross income exceeds the amount of
our income qualifying under the 95% test for the taxable year, multiplied in
either case by a fraction intended to reflect our profitability. Sixth, if we
should fail to distribute during each calendar year at least the sum of (i) 85%
of our REIT ordinary income for such year; (ii) 95% of our REIT capital gain
net income for such year (for this purpose such term includes capital gains
which we elect to retain but which we report as distributed to our
stockholders. See "--Annual Distribution Requirements" below); and (iii) any
undistributed taxable income from prior years, we would be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if we acquire any asset from a C corporation
(i.e., a corporation generally subject to full corporate level tax) in a
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset (or any other property) in the
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hands of the C corporation, and we recognize gain on the disposition of such
asset during the 10-year period beginning on the date on which such asset was
acquired by us, then, to the extent of such property's built-in gain (the
excess of the fair market value of such property at the time of acquisition by
us over the adjusted basis of such property at such time), such gain will be
subject to tax at the highest regular corporate rate applicable assuming that
we made or would make an election pursuant to Notice 88-19 or Treasury
Regulations that were promulgated in 2000. Eighth, we would be subject to a
100% penalty tax on amounts received (or on certain expenses deducted by a
taxable REIT subsidiary) if arrangements among us, our tenants and a taxable
REIT subsidiary were not comparable to similar arrangements among unrelated
parties.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (i) which is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (iii) which would be taxable as a domestic corporation but
for Code Sections 856 through 859; (iv) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) of
which not more than 50% in value of the outstanding capital stock is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of each taxable year after
applying certain attribution rules; (vii) that makes an election to be treated
as a REIT for the current taxable year or has made an election for a previous
taxable year which has not been revoked and (viii) which meets certain other
tests, described below, regarding the nature of its income and assets. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. Condition (vi) must be met during the last half of
each taxable year other than the first taxable year for which an election to
become a REIT is made. For purposes of determining stock ownership under
condition (vi), a supplemental unemployment compensation benefits plan, a
private foundation or a portion of a trust permanently set aside or used
exclusively for charitable purposes generally is considered an individual.
However, a trust that is a qualified trust under Code Section 401(a) generally
is not considered an individual, and beneficiaries of a qualified trust are
treated as holding shares of a REIT in proportion to their actuarial interests
in the trust for purposes of condition (vi). Conditions (v) and (vi) do not
apply until after the first taxable year for which an election is made to be
taxed as a REIT. We have issued sufficient common stock with sufficient
diversity of ownership to allow us to satisfy requirements (v) and (vi). In
addition, our Charter contains restrictions regarding the transfer of our stock
and the issuance of excess stock intended to assist in continuing to satisfy
the stock ownership requirements described in (v) and (vi) above. See
"Description of Capital Stock--General." These restrictions, however, may not
ensure that we will be able to satisfy these stock ownership requirements. If
we fail to satisfy these stock ownership requirements, we will fail to qualify
as a REIT.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. Our taxable year is the calendar year.
To qualify as a REIT, we cannot have at the end of any taxable year any
undistributed earnings and profits that are attributable to a non-REIT taxable
year. We believe that we have complied with this requirement. In particular, we
should not succeed to the earnings and profits of Sizeler Real Estate
Management Co. Inc. as a result of our acquisition of that entity in October
2001 because we intend to make a Code Section 338(h)(10) election, which will
cause us to be treated as acquiring the assets rather than the stock of such
entity.
For our tax years beginning prior to January 1, 1998, pursuant to applicable
Treasury Regulations, to be taxed as a REIT, we were required to maintain
certain records and request on an annual basis certain information from our
stockholders designed to disclose the actual ownership of our outstanding
shares. We have complied with such requirements. For our tax years beginning
January 1, 1998 and after, these records and informational requirements are no
longer a condition to REIT qualification. Instead, a monetary penalty will be
imposed for failure to comply with these requirements. If we comply with these
regulatory rules, and we do not know, or exercising reasonable diligence would
not have known, whether we failed to meet requirement (vi) above, we will be
treated as having met the requirement.
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Qualified REIT Subsidiaries
If a REIT owns a corporate subsidiary that is a "qualified REIT subsidiary,"
the separate existence of that subsidiary will be disregarded for federal
income tax purposes. Generally, a qualified REIT subsidiary is a corporation,
other than a taxable REIT subsidiary, all of the capital stock of which is
owned by the REIT. All assets, liabilities and items of income, deduction and
credit of the qualified REIT subsidiary will be treated as assets, liabilities
and items of income, deduction and credit of the REIT itself. A qualified REIT
subsidiary of ours will not be subject to federal corporate income taxation,
although it may be subject to state and local taxation in some states.
Taxable REIT Subsidiaries
A "taxable REIT subsidiary" is an entity taxable as a corporation in which
we own stock and that elects with us to be treated as a taxable REIT subsidiary
under Section 856(l) of the Code. In addition, if one of our taxable REIT
subsidiaries owns, directly or indirectly, securities representing more than
35% of the vote or value of a subsidiary corporation, that subsidiary will also
be treated as a taxable REIT subsidiary of ours. A taxable REIT subsidiary is
subject to federal income tax, and state and local income tax where applicable,
as a regular "C" corporation.
Generally, a taxable REIT subsidiary can perform impermissible tenant
services without causing us to receive impermissible tenant services income
under the REIT income tests. However, several provisions regarding the
arrangements between a REIT and its taxable REIT subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary is limited in its
ability to deduct interest payments made to us. In addition, we will be
obligated to pay a 100% penalty tax on some payments that we receive or on
certain expenses deducted by the taxable REIT subsidiary if the economic
arrangements among us, our tenants and the taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties. We currently do not
have any taxable REIT subsidiaries.
Income Tests
In order for us to maintain qualification as a REIT, certain separate
percentage tests relating to the source of our gross income must be satisfied
annually. First, at least 75% of our gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property," gain, and, in certain
circumstances, interest) or from certain types of temporary investments.
Second, at least 95% of our gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property investments described above, dividends, interest and gain from the
sale or disposition of stock or securities, some payments under hedging
instruments, or from any combination of the foregoing.
Rents received by us will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income
or profits of any person. However, amounts received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales.
Second, rents received from a tenant will not qualify as "rents from real
property" if we, or a direct or indirect owner of 10% or more of our stock,
actually or constructively owns 10% or more of such tenant (a "Related Party
Tenant"). We may, however, lease our properties to a taxable REIT subsidiary
and rents received from that subsidiary will not be disqualified from being
"rents from real property" by reason of our ownership interest in the
subsidiary if at least 90% of the property in question is leased to unrelated
tenants and the rent paid by the taxable REIT subsidiary is substantially
comparable to the rent paid by the unrelated tenants for comparable space.
Third, if rent attributable to personal property that is leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." Under prior
law, this 15% test was based on relative
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adjusted tax basis of both the real and personal property. For taxable years
beginning after December 31, 2000, the test is based on relative fair market
value of the real and personal property.
Generally, for rents to qualify as "rents from real property" for the
purposes of the gross income tests, we are only allowed to provide services
that are both "usually or customarily rendered" in connection with the rental
of real property and not otherwise considered "rendered to the occupant."
Income received from any other service will be treated as "impermissible tenant
service income" unless the service is provided through an independent
contractor that bears the expenses of providing the services and from whom we
derive no revenue or through a taxable REIT subsidiary, subject to specified
limitations. The amount of impermissible tenant service income we receive is
deemed to be the greater of the amount actually received by us or 150% of our
direct cost of providing the service. If the impermissible tenant service
income exceeds 1% of our total income from a property, then all of the income
from that property will fail to qualify as rents from real property. If the
total amount of impermissible tenant service income from a property does not
exceed 1% of our total income from that property, the income will not cause the
rent paid by tenants of that property to fail to qualify as rents from real
property, but the impermissible tenant service income itself will not qualify
as rents from real property.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for such year if we are
entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet such tests was
due to reasonable cause and not due to willful neglect, if we attach a schedule
of the sources of our income to our federal income tax return for such years,
and if any incorrect information on the schedules was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these relief provisions.
As discussed above in "--General," even if these relief provisions were to
apply, a tax would be imposed with respect to the excess net income.
Asset Tests
At the close of each quarter of our taxable year, we must satisfy six tests
relating to the nature of our assets.
1. At least 75% of the value of our total assets must be represented by
"real estate assets," cash, cash items and government securities. Our real
estate assets include, for this purpose, our allocable share of real estate
assets held by the partnerships in which we own an interest, and the non-
corporate subsidiaries of these partnerships, as well as stock or debt
instruments held for less than one year purchased with the proceeds of an
offering of shares or long term debt.
2. Not more than 25% of our total assets may be represented by securities,
other than those in the 75% asset class.
3. Except for certain investments in REITs, qualified REIT subsidiaries, and
taxable REIT subsidiaries, the value of any one issuer's securities owned by us
may not exceed 5% of the value of our total assets.
4. Except for certain investments in REITs, qualified REIT subsidiaries and
taxable REIT subsidiaries, we may not own more than 10% of any one issuer's
outstanding voting securities.
5. Except for certain investments in REITs, qualified REIT subsidiaries and
taxable REIT subsidiaries, we may not own more than 10% of the total value of
the outstanding securities of any one issuer, other than securities that
qualify as "straight debt" under the Internal Revenue Code.
6. Not more than 20% of our total assets may be represented by the
securities of one or more taxable REIT subsidiaries.
For purposes of these asset tests, any shares of qualified REIT subsidiaries
are not taken into account, and any assets owned by the qualified REIT
subsidiary are treated as owned directly by the REIT.
Securities, for purposes of the assets tests, may include debt we hold.
However, debt we hold in an issuer will not be taken into account for purposes
of the 10% value test if the debt securities meet the "straight debt" safe
harbor and either (1) the issuer is an individual, (2) the only securities of
the issuer that we hold are straight debt or (3) if the issuer is a
partnership, we hold at least a 20 percent profits interest in the partnership.
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Debt will meet the "straight debt" safe harbor if the debt is a written
unconditional promise to pay on demand or on a specified date a sum certain in
money (1) which is not convertible, directly or indirectly, into stock and (2)
the interest rate (or the interest payment dates) of which is not contingent on
the profits, the borrower's discretion or similar factors.
With respect to each issuer in which we currently own an interest that does
not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT
subsidiary, we believe that our pro rata share of the value of the securities,
including unsecured debt, of any such issuer does not exceed 5% of the total
value of our assets and that we comply with the 10% voting securities
limitation and 10% value limitation (taking into account the "straight debt"
exceptions with respect to certain issuers). With respect to our compliance
with each of these asset tests, however, we cannot provide any assurance that
the Internal Revenue Service might not disagree with our determinations.
After initially meeting the asset tests after the close of any quarter, we
will not lose our status as a REIT if we fail to satisfy the 25%, 20% or 5%
asset tests or the 10% value limitation at the end of a later quarter solely by
reason of changes in the relative values of our assets. If the failure to
satisfy the 25%, 20%, or 5% asset tests or the 10% value limitation results
from an increase in the value of our assets after the acquisition of securities
or other property during a quarter, the failure can be cured by a disposition
of sufficient non-qualifying assets within 30 days after the close of that
quarter. We have maintained and intend to continue to maintain adequate records
of the value of our assets to ensure compliance with the asset tests and to
take any available actions within 30 days after the close of any quarter as may
be required to cure any noncompliance with the 25%, 20%, or 5% asset tests or
the 10% value limitation. We cannot ensure that these steps always will be
successful. If we were to fail to cure the noncompliance with the asset tests
within this 30 day period, we could fail to qualify as a REIT.
Annual Distribution Requirements
We, in order to qualify as a REIT, are required to distribute dividends
(other than capital gain dividends) to our stockholders in an amount at least
equal to (i) the sum of (a) 90% of our "REIT taxable income" (computed without
regard to the dividends paid deduction and our net capital gain) and (b) 90% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of noncash income. Such distributions generally must be
paid in the taxable year to which they relate. Dividends may be paid in the
following year in two circumstances. First, dividends may be declared in the
following year if the dividends are declared before we timely file our tax
return for the year and if made before the first regular dividend payment made
after such declaration. Second, if we declare a dividend in October, November
or December of any year with a record date in one of these months and pay the
dividend on or before January 31 of the following year, we will be treated as
having paid the dividend on December 31 of the year in which the dividend was
declared. To the extent that we do not distribute all of our net capital gain
or distribute at least 90%, but less than 100%, of our "REIT taxable income,"
as adjusted, we will be subject to tax on the nondistributed amount at regular
capital gains and ordinary corporate tax rates. Furthermore, if we should fail
to distribute during each calendar year at least the sum of (i) 85% of our REIT
ordinary income for such year; (ii) 95% of our REIT capital gain income for
such year; and (iii) any undistributed taxable income from prior periods, we
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
We may elect to retain and pay tax on net long-term capital gains and
require our stockholders to include their proportionate share of such
undistributed net capital gains in their income. If we make such election,
stockholders would receive a tax credit attributable to their share of the
capital gains tax paid by us, and would receive an increase in the basis of
their shares in us in an amount equal to the stockholder's share of the
undistributed net long-term capital gain reduced by the amount of the credit.
Further, any undistributed net long-term capital gains that are included in the
income of our stockholders pursuant to this rule will be treated as distributed
for purposes of the 4% excise tax.
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We have made and intend to continue to make timely distributions sufficient
to satisfy the annual distribution requirements. It is possible, however, that
we, from time to time, may not have sufficient cash or liquid assets to meet
the distribution requirements due to timing differences between the actual
receipt of income and actual payment of deductible expenses and the inclusion
of such income and deduction of such expenses in arriving at our taxable
income, or if the amount of nondeductible expenses such as principal
amortization or capital expenditures exceeds the amount of noncash deductions.
In the event that such timing differences occur, in order to meet the
distribution requirements, we may arrange for short-term, or possibly long-
term, borrowing to permit the payment of required dividends. If the amount of
nondeductible expenses exceeds noncash deductions, we may refinance our
indebtedness to reduce principal payments and may borrow funds for capital
expenditures.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for
dividends paid for the earlier year. Thus, we may avoid being taxed on amounts
distributed as deficiency dividends; however, we will be required to pay
interest to the Internal Revenue Service based upon the amount of any deduction
taken for deficiency dividends.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year and no
relief provisions apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we fail to qualify will not
be deductible by us, nor will such distributions be required to be made. In
such event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled
to such statutory relief.
Tax Aspects of Our Investments in Partnerships
General. Many of our investments are held through subsidiary partnerships
and limited liability companies in which we own a 99% interest and a third
party owns a 1% interest. This structure may involve special tax
considerations. These tax considerations include the following:
1. the status of each subsidiary partnership and limited liability company
as a partnership (as opposed to an association taxable as a corporation)
for income tax purposes; and
2. the taking of actions by any of the subsidiary partnerships or limited
liability companies that could adversely affect our qualification as a
REIT.
We believe that each of the subsidiary partnerships and each of the limited
liability companies that are not disregarded entities for federal income tax
purposes will be treated for tax purposes as partnerships (and not as
associations taxable as corporations). If any of the partnerships were to be
treated as a corporation, it 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, which could preclude us from satisfying the asset tests
and possibly the income tests, and in turn prevent us from qualifying as a
REIT. In addition, if any of the partnerships were treated as a corporation, it
is likely that we would hold more than 10% of the voting power or value of the
entity and would fail to qualify as a REIT. See "Material United States Federal
Income Tax Consequences--Asset Tests."
A REIT that is a partner in a partnership will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to earn
its proportionate share of the partnership's income. In addition, the assets
and gross income of the partnership retain the same character in the hands of
the REIT for purposes of the gross income and asset tests applicable to REITs.
Thus, our proportionate share of the assets and items of
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income of each subsidiary partnership and limited liability company that is
treated as a partnership for federal income tax purposes is treated as our
assets and items of income for purposes of applying the asset and income tests.
We have control over all of the subsidiaries that are treated as partnerships
for federal income tax purposes and intend to operate them in a manner that is
consistent with the requirements for our qualification as a REIT.
Taxation of Stockholders
Taxation of Taxable U.S. Stockholders. As used in the remainder of this
discussion, the term "U.S. Stockholder" means a beneficial owner of common
stock that is for United States federal income tax purposes:
1. a citizen or resident, as defined in Section 7701(b) of the Code, of the
United States;
2. a corporation or partnership, or other entity treated as a corporation
or partnership for federal income tax purposes, created or organized in
or under the laws of the United States or any state or the District of
Columbia;
3. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
4. in general, a trust subject to the primary supervision of a United
States court and the control of one or more United States persons.
Generally, in the case of a partnership that holds our common stock, any
partner that would be a U.S. Stockholder if it held the common stock directly
is also a U.S. Stockholder. As long as we qualify as a REIT, distributions made
to our taxable U.S. Stockholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends or retained capital
gains) will be taken into account by them as ordinary income, and corporate
stockholders will not be eligible for the dividends received deduction as to
such amounts. Distributions in excess of current and accumulated earnings and
profits will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of such stockholder's common stock, but rather will
reduce the adjusted basis of such shares as a return of capital. To the extent
that such distributions exceed the adjusted basis of a stockholder's common
stock, they will be included in income as long-term capital gain (or short-term
capital gain if the shares have been held for one year or less), assuming the
shares are a capital asset in the hands of the stockholder. In addition, any
dividend declared by us in October, November or December of any year payable to
a stockholder of record on a specific date in any such month shall be treated
as both paid by us and received by the stockholder on December 31 of such year,
provided that the dividend is actually paid by us during January of the
following calendar year. For purposes of determining what portion of a
distribution is attributable to current or accumulated earnings and profits,
earnings and profits will first be allocated to distributions made to holders
of the shares of preferred stock. Stockholders may not include in their
individual income tax returns any net operating losses or capital losses of
ours.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a long-
term capital gain or loss if the shares have been held for more than one year,
otherwise as short-term capital gain or loss. However, any loss upon a sale or
exchange of common stock by a stockholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
long-term capital loss to the extent of distributions from us required to be
treated by such stockholder as long-term capital gain.
Distributions that we properly designate as capital gain dividends will be
taxable to stockholders as gains (to the extent that they do not exceed our
actual net capital gain for the taxable year) from the sale or disposition of a
capital asset held for greater than one year. If we designate any portion of a
dividend as a capital gain dividend, a U.S. Stockholder will receive an
Internal Revenue Service Form 1099-DIV indicating the amount that will be
taxable to the stockholder as capital gain. However, stockholders that are
corporations may be required to treat up to 20% of certain capital gain
dividends as ordinary income. A portion of capital gain dividends received by
noncorporate taxpayers may be subject to tax at a 25% rate to the extent
attributable
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to certain gains realized on the sale of real property. In addition,
noncorporate taxpayers are generally taxed at a maximum rate of 20% on net
long-term capital gain (generally, the excess of net long-term capital gain
over net short-term capital loss) attributable to gains realized on the sale of
property held for greater that one year.
Distributions we make and gain arising from the sale or exchange by a
stockholder of shares of our stock will not be treated as passive activity
income, and, as a result, stockholders generally will not be able to apply any
"passive losses" against such income or gain. Distributions we make (to the
extent they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or other disposition of our stock (or distributions
treated as such) will not be treated as investment income under certain
circumstances.
Upon any taxable sale or other disposition of our stock, a U.S. Stockholder
will recognize gain or loss for federal income tax purposes on the disposition
of our stock in an amount equal to the difference between
. the amount of cash and the fair market value of any property received
on such disposition; and
. the U.S. Stockholder's adjusted basis in such stock for tax purposes.
Gain or loss will be capital gain or loss if the stock has been held by the
U.S. Stockholder as a capital asset. The applicable tax rate will depend on the
stockholder's holding period in the asset (generally, if an asset has been held
for more than one year it will produce long-term capital gain) and the
stockholder's tax bracket. A U.S. Stockholder who is an individual or an estate
or trust and who has long-term capital gain or loss will be subject to a
maximum capital gain rate of 20%. U.S. Stockholders that acquire, or are deemed
to acquire, stock after December 31, 2000 and who hold the stock for more than
five years and certain low income taxpayers may be eligible for a lower long-
term capital gains rate. However, to the extent that the capital gain realized
by a non-corporate stockholder on the sale of REIT stock corresponds to the
REIT's "unrecaptured Section 1250 gain," such gain would be subject to tax at a
rate of 25%. Stockholders are advised to consult with their own tax advisors
with respect to their capital gain tax liability.
Taxation of Tax-Exempt Stockholders. Provided that a tax-exempt stockholder
has not held its common stock as "debt financed property" within the meaning of
the Internal Revenue Code, the dividend income from us will not be unrelated
business taxable income, referred to as UBTI, to a tax-exempt stockholder.
Similarly, income from the sale of common stock will not constitute UBTI unless
the tax-exempt stockholder has held its stock as debt financed property within
the meaning of the Internal Revenue Code or has used the common stock in a
trade or business. However, for a tax-exempt stockholder that is a social club,
voluntary employee benefit association, supplemental unemployment benefit
trust, or qualified group legal services plan exempt from federal income
taxation under Internal Revenue Code Sections 501(c)(7), (c)(9), (c)(17) and
(c)(20), respectively, or a single parent title-holding corporation exempt
under Section 501(c)(2) the income of which is payable to any of the
aforementioned tax-exempt organizations, income from an investment in us will
constitute UBTI unless the organization properly sets aside or reserves such
amounts for purposes specified in the Internal Revenue Code. These tax exempt
stockholders should consult their own tax advisors concerning these "set aside"
and reserve requirements.
A "qualified trust" (defined to be any trust described in Code Section
401(a) and exempt from tax under Code Section 501(a)) that holds more than 10%
of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five
or fewer individuals (the "five or fewer requirement") only by relying on a
special "look-through" rule under which shares held by qualified trust
stockholders are treated as held by the beneficiaries of such trusts in
proportion to their actuarial interests therein; and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is "predominantly held" by
qualified trusts if either (i) a single qualified trust holds more than 25% of
the value of the REIT shares, or (ii) one or more qualified trusts, each owning
more than 10% of the value of the REIT shares, hold in the aggregate more than
50% of the value of the REIT shares. If the foregoing requirements are met, the
percentage of any REIT dividend treated as UBTI to a
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qualified trust that owns more than 10% of the value of the REIT shares is
equal to the ratio of (i) the UBTI earned by the REIT (computed as if the REIT
were a qualified trust and therefore subject to tax on its UBTI) to (ii) the
total gross income (less certain associated expenses) of the REIT for the year
in which the dividends are paid. A de minimis exception applies where the ratio
set forth in the preceding sentence is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the "look-through" rule. The restrictions
on ownership of stock in our Charter should prevent application of the
foregoing provisions to qualified trusts purchasing our stock, absent a waiver
of the restrictions by the Board of Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own
tax advisors to determine the impact of U.S. Federal, state and local income
tax laws with regard to an investment in common stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
us of U.S. real property interests and not designated by us as capital gain
dividends or retained capital gains will be treated as dividends of ordinary
income to the extent that they are made out of our current or accumulated
earnings and profits. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces such rate. However, if income from the investment
in our stock is treated as effectively connected with the Non-U.S.
Stockholder's conduct of a U.S. trade or business, the Non-U.S. Stockholder
generally will be subject to a tax at graduated rates in the same manner as
U.S. stockholders are taxed with respect to such dividends (and may also be
subject to a branch profits tax of up to 30% if the stockholder is a foreign
corporation). We expect to withhold U.S. income tax at the rate of 30% on the
gross amount of any dividends paid to a Non-U.S. Stockholder that are not
designated as capital gain dividends, unless (i) a lower treaty rate applies
and the Non-U.S. Stockholder files an IRS Form W-8BEN evidencing eligibility
for that reduced rate is filed with us or (ii) the Non-U.S. Stockholder files
an IRS Form W-8ECI with us claiming that the distribution is income treated as
effectively connected to a U.S. trade or business.
Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's stock, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's shares, they will give rise to tax liability
if the Non-U.S. Stockholder would otherwise be subject to tax on any gain from
the sale or disposition of his or her stock as described below. We may be
required to withhold U.S. income tax at the rate of at least 10% on
distributions to Non-U.S. Stockholders that are not paid out of current or
accumulated earnings and profits unless the Non-U.S. Stockholders provide us
with withholding certificates evidencing their exemption from withholding tax.
If it cannot be determined at the time that such a distribution is made whether
or not such distribution will be in excess of current and accumulated earnings
and profits, the distribution will be subject to withholding at the rate
applicable to dividends. However, the Non-U.S. Stockholder may seek a refund of
such amounts from the Service if it is subsequently determined that such
distribution was, in fact, in excess of our current and accumulated earnings
and profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will be
taxed on such distributions at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case
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of nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Stockholder not entitled to treaty relief or exemption. We are required by
applicable Treasury Regulations to withhold 35% of any distribution that could
be designated by us as a capital gain dividend. This amount is creditable
against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon the sale or exchange of our
stock generally would not be subject to United States taxation unless:
. the investment in our stock is effectively connected with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as domestic
stockholders with respect to any gain;
. the Non-U.S. Stockholder is a non-resident alien individual who is
present in the United States for 183 days or more during the taxable
year and has a tax home in the United States, in which case the non-
resident alien individual will be subject to a 30% tax on the
individual's net capital gains for the taxable year; or
. our stock constitutes a U.S. real property interest within the meaning
of FIRPTA, as described below.
Our stock will not constitute a United States real property interest if we
are a domestically-controlled REIT. We will be a domestically-controlled REIT
if, at all times during a specified testing period, less than 50% in value of
our stock is held directly or indirectly by Non-U.S. Stockholders.
We believe that, currently, we are a domestically controlled REIT and,
therefore, that the sale of our stock would not be subject to taxation under
FIRPTA. Because our stock is publicly traded, however, we cannot guarantee that
we are or will continue to be a domestically-controlled REIT.
Even if we do not qualify as a domestically-controlled REIT at the time a
Non-U.S. Stockholder sells our stock, gain arising from the sale still would
not be subject to FIRPTA tax if:
. the class or series of shares sold is considered regularly traded under
applicable Treasury regulations on an established securities market,
such as the NYSE; and
. the selling Non-U.S. Stockholder owned, actually or constructively, 5%
or less in value of the outstanding class or series of stock being sold
throughout the five-year period ending on the date of the sale or
exchange.
If gain on the sale or exchange of our stock were subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to regular U.S. income tax
with respect to any gain in the same manner as a taxable U.S. Stockholder,
subject to any applicable alternative minimum tax and special alternative
minimum tax in the case of non-resident alien individuals.
State and Local Taxes. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in
which we or they transact business or reside (although U.S. Stockholders who
are individuals generally should not be required to file state income tax
returns outside of their state of residence with respect to our operations and
distributions). The state and local tax treatment of us and our stockholders
may not conform to the Federal income tax consequences discussed above.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in our common
stock.
Taxation of U.S. Debenture Holders
Stated Interest. This discussion assumes that any debentures will be treated
as debt, not equity, for federal income tax purposes. Each U.S. holder of a
debenture and the Company must report the debenture as debt for such purposes.
The stated interest on a debenture therefore will be taxable to a U.S. holder
as ordinary interest income at the time it either accrues or is received,
depending on such U.S. holder's method of accounting for federal income tax
purposes.
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Original Issue Discount. Generally, a debenture will bear original issue
discount ("OID") if and to the extent of any excess of the debenture's "stated
redemption price at maturity" over its "issue price." The "stated redemption
price at maturity" of a debt instrument is the sum of its principal amount plus
all other payments required thereunder, other than payments of "qualified
stated interest" (defined generally as stated interest that is unconditionally
payable in cash or in property (other than debt instruments of the issuer) at
least annually at a single fixed rate). The "issue price" of a debenture will
be the fair market value of the debenture on the date of issuance if the
debentures are deemed to be "traded on an established securities market" under
the Code and as provided in Treasury Regulations. If the debentures are not so
traded, the "issue price" of a debenture will be its "stated redemption price
at maturity." Holders should consult their tax advisor regarding whether the
debentures will be considered "traded on an established market" under the
applicable regulations.
OID would not be includible in a U.S. holder's income, however, if the U.S.
holder is treated as having acquired the debenture at a "premium."
A U.S. holder will be treated as having acquired a debenture at a "premium"
if the adjusted basis of the debenture in the hands of the U.S. holder on the
date of issuance exceeds the sum of all amounts payable on the debenture other
than payments of qualified stated interest.
If a U.S. holder's adjusted basis in a debenture is less than or equal to
the debenture's adjusted issue price, the U.S. holder must include OID in
income as it accrues (and may be subject to the market discount rules discussed
below). The amount of accrued OID includible in income by such a U.S. holder
would be the sum of the "daily portions" of OID with respect to the debenture
for each day during the taxable year or portion of the taxable year in which
such U.S. holder held such debenture ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. The "accrual period" for a
debenture may be of any length and may vary in length over the term of the
debenture, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs on the first day or the
final day of an accrual period. The amount of OID allocable to any accrual
period is an amount equal to the excess, if any, of (i) the product of the
debenture's adjusted issue price at the beginning of such accrual period and
its yield to maturity (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the accrual period)
over (ii) the amount of any qualified stated interest allocable to the accrual
period. OID allocable to a final accrual period is the difference between the
amount payable at maturity (other than a payment of qualified stated interest)
and the adjusted issue price at the beginning of the final accrual period. The
"adjusted issue price" of a debenture at the beginning of any accrual period is
equal to its issue price increased by the accrued OID for each prior accrual
period (determined without regard to the amortization of any acquisition or
bond premium) and reduced by any payments made on such debenture (other than
qualified stated interest) on or before the first day of the accrual period.
Special rules will apply for calculating OID for an initial short accrual
period. As OID accrues and is included in a U.S. holder's income, it is added
to the U.S. holder's tax basis in the debentures.
Market Discount. Generally, the market discount rules discussed below will
apply to any debenture if the U.S. holder's tax basis in the debenture is less
than the debenture's "adjusted issue price." If the debentures do not have OID,
the market discount rules generally will apply if the stated redemption price
at maturity exceeds the holder's initial tax basis in the debentures.
Gain recognized on the disposition (including a redemption) of a debenture
that has accrued market discount will be treated as ordinary income, not
capital gain, to the extent of the accrued market discount, provided that the
amount of market discount exceeds a statutory de minimis amount. "Market
discount" is defined as the excess, if any, of (i) the stated redemption price
at maturity (or, in the case of a debt obligation with OID, the adjusted issue
price) over (ii) the tax basis of the debt obligation in the hands of the U.S.
holder immediately after its acquisition.
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Unless a U.S. holder elects otherwise, the accrued market discount would be
the amount calculated by multiplying the market discount by a fraction, the
numerator of which is the number of days the obligation has been held by the
U.S. holder and the denominator of which is the number of days after the U.S.
holder's acquisition of the obligation up to and including its maturity date. A
U.S. holder of a debenture acquired at market discount may also be required to
defer the deduction of all or a portion of the interest on any indebtedness
incurred or maintained to carry the debenture until it is disposed of in a
taxable transaction.
If a U.S. holder of a debenture acquired at market discount disposes of such
debenture in any transaction other than a sale, exchange or involuntary
conversion, even though otherwise nontaxable (e.g., a gift), such U.S. holder
will be deemed to have realized an amount equal to the fair market value of the
debenture and would be required to recognize as ordinary income any accrued
market discount to the extent of the deemed gain.
A U.S. holder of a debenture acquired at market discount may elect to
include the market discount in income as it accrues, either on a straight-line
basis or, if elected, on a constant interest rate basis. The current income
inclusion election would apply to all market discount obligations acquired by
the electing U.S. holder on or after the first day of the first taxable year to
which the election applies. The election may be revoked only with the consent
of the Internal Revenue Service. If a U.S. holder of a debenture so elects to
include market discount in income currently, the rules discussed above with
respect to ordinary income recognition resulting from sales and certain other
disposition transactions and to deferral of interest deductions would not
apply.
Amortizable Bond Premium. Generally, a U.S. holder who acquires a debenture
will have amortizable bond premium to the extent of the excess, if any, of its
basis in the debenture over the amount payable on maturity of the debenture (or
on an earlier call date if use of the earlier call date results in a smaller
amortizable bond premium).
A U.S. holder may elect to amortize any bond premium under Section 171 of
the Code on a constant yield basis over the period from the acquisition date to
the maturity date of the debenture (or, in certain circumstances, until an
earlier call date) and, except as future Treasury Regulations may otherwise
provide, reduce the amount of interest included in income in respect of the
debenture by such amount. A U.S. holder who elects to amortize bond premium
must reduce its adjusted basis in the debenture by the amount of such allowable
amortization. An election to amortize the bond premium would apply to all
amortizable bond premium on all taxable bonds held at or acquired after the
beginning of the U.S. holder's taxable year as to which the election is made,
and may be revoked only with the consent of the Internal Revenue Service.
The amount of amortizable bond premium does not include any amount
attributable to the conversion feature of the debenture. The value of the
conversion feature for purposes of the amortization of bond premium may be
determined under any reasonable method.
The amortized bond premium deduction is treated as an offset to interest
income on the related security for Federal income tax purposes and is limited
to the purchaser's investment income from the debt instrument for the year. No
deduction of unamortized bond premium will be allowed on conversion of a
debenture into our common stock. Each U.S. holder is urged to consult its tax
advisors as to the consequences of the treatment of such premium as an offset
to interest income for Federal income tax purposes. If an election to amortize
the bond premium is not made, a U.S. holder must include the full amount of
each interest payment in income in accordance with its regular method of
accounting and will generally receive a tax benefit from the bond premium only
upon computing its gain or loss upon the sale or other disposition or payment
of the principal amount of the debenture.
Election to Treat All Interest as Original Issue Discount. A U.S. holder may
elect to include in gross income all interest that accrues on the debentures
using the constant-yield method with the modifications described below. For
this purpose, interest includes stated interest, OID, market discount and de
minimis market discount, as adjusted by an acquisition premium or amortizable
bond premium. In applying the constant-yield method, the issue price of the
debenture will equal the electing U.S. holder's adjusted basis in the debenture
immediately after its acquisition, the issue date of the debenture will be the
date of its acquisition by the electing U.S. holder and no payments on the
debenture will be treated as payments of qualified stated interest.
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Sale or Redemption. Unless a nonrecognition provision applies, the sale,
exchange, redemption (including pursuant to an offer by us) or other
disposition of a debenture will be a taxable event for Federal income tax
purposes. In such event, a U.S. holder will recognize gain or loss equal to the
difference between (i) the amount of cash plus the fair market value of any
property received upon such sale, exchange, redemption or other taxable
disposition (other than in respect of accrued and unpaid interest thereon,
which will be taxable as ordinary income) and (ii) the U.S. holder's adjusted
tax basis therein (as increased by any market discount previously included in
income by the U.S. holder and decreased by any amortizable bond premium
deducted over the term of the debenture by the U.S. holder). Subject to the
discussion under "--Market Discount," such gain or loss should be capital gain
or loss and will be long-term capital gain or loss if the debenture had been
held by the U.S. holder for more than one year at the time of such sale,
exchange, redemption or other disposition.
Taxation of Non-U.S. Debenture Holders
Interest and OID on New Debentures. Neither interest paid by us to a non-
U.S. holder nor any original issue discount will be subject to U.S. Federal
income or withholding tax if (i) such interest is not effectively connected
with the conduct of a trade or business within the United States by such non-
U.S. holder, (ii) the non-U.S. holder does not actually or constructively own
10% or more of the total combined voting power of all of our classes of stock
entitled to vote, (iii) the non-U.S. holder is not a controlled foreign
corporation with respect to which we are a "related person" within the meaning
of the Code, and (iv) either (a) the non-U.S. holder certifies to us, under
penalties of perjury, that the non-U.S. holder is not a U.S. person and
provides the beneficial owner's name and address on a U.S. Treasury Form W-8
(or suitable substitute form) or (b) a securities clearing organization, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business and holds the debenture certifies, under
penalties of perjury, that such Form W-8 (or suitable substitute form) has been
received from the non-U.S. holder by it or by such a financial institution
between it and the non-U.S. holder and furnishes the payor with a copy thereof.
If the foregoing exceptions do not apply, payments on the debentures may be
subject to U.S. withholding tax at a rate of 30% (or such lower rate as may be
applied under an applicable tax treaty).
Backup Withholding Tax and Information Reporting
U.S. Holders. In general, information-reporting requirements will apply to
certain U.S. holders with regard to payments of dividends on our stock, OID,
interest, and payments of the proceeds of the sale of our stock and debentures,
unless an exception applies.
The payor will be required to withhold tax on such payments at the rate of
30.5% (scheduled to be reduced incrementally to 28% by 2006) if (i) the payee
fails to furnish a taxpayer identification number, or TIN, to the payor or to
establish an exemption from backup withholding, or (ii) the Internal Revenue
Service notifies the payor that the TIN furnished by the payor is incorrect.
In addition, a payor of interest on our debentures or dividends on our stock
will be required to withhold tax at a rate of 30.5% (scheduled to be reduced
incrementally to 28% by 2006) if (i) there has been a notified payee under-
reporting with respect to interest, dividends or original issue discount
described in Section 3406(c) of the Code, or (ii) there has been a failure of
the payee to certify under the penalty of perjury that the payee is not subject
to backup withholding under the Internal Revenue Code.
Some holders, including corporations, may be exempt from backup withholding.
Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a credit against the holder's United States Federal
income tax and may entitle the holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
Non-U.S. Holders. Generally, information reporting will apply to payments of
dividends on our stock, interest, including OID, and backup withholding as
described above for a U.S. holder, unless the payee certifies that it is not a
U.S. person or otherwise establishes an exemption.
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The payment of the proceeds from the disposition of our stock or debentures
to or through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and backup withholding as described above for U.S.
holders unless the non-U.S. holder satisfies the requirements necessary to be
an exempt non-U.S. holder or otherwise qualifies for an exemption. The proceeds
of a disposition by a non-U.S. holder of stock or debentures to or through a
foreign office of a broker generally will not be subject to information
reporting or backup withholding. However, if the broker is a U.S. person, a
controlled foreign corporation for U.S. tax purposes, a foreign person 50% or
more of whose gross income from all sources for specified periods is from
activities that are effectively connected with a U.S. trade or business, a
foreign partnership if partners who hold more than 50% of the interests in the
partnership are U.S. persons, or a foreign partnership that is engaged in the
conduct of a trade or business in the U.S., then information reporting
generally will apply as though the payment was made through a U.S. office of a
U.S. or foreign broker.
Applicable Treasury Regulations provide presumptions regarding the status of
holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. Under these Treasury
Regulations, some holders are required to provide new certifications with
respect to payments made after December 31, 2000. Because the application of
these Treasury Regulations varies depending on the stockholder's particular
circumstances, you are advised to consult your tax advisor regarding the
information reporting requirements applicable to you.
PLAN OF DISTRIBUTION
We may sell securities to one or more underwriters for public offer and sale
by them or may sell securities offered hereby to the public directly or through
agents. Any underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement.
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at
prices related to the prevailing market prices at the time of sale or at
negotiated prices (any of which may represent a discount from the prevailing
market prices). We also may, from time to time, authorize underwriters acting
as our agents to offer and sell the securities upon the terms and conditions as
are set forth in the applicable prospectus supplement. In connection with the
sale of securities, underwriters may be deemed to have received compensation
from us in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of securities for whom they may act as
agent. Underwriters may sell securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of securities and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable prospectus supplement. Underwriters, dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with us, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable prospectus supplement, we will authorize
the underwriters, dealers or other persons acting as our agents to solicit
offers by certain institutions to purchase securities from us at the public
offering price set forth in that prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on the date or dates
stated in such prospectus supplement. Each contract will be for an amount not
less than, and the aggregate principal amount of securities sold pursuant to
contracts will not be less than nor greater than, the respective amounts stated
in the applicable prospectus supplement. Institutions with whom contracts, when
authorized, may be made include commercial and savings banks, insurance
39
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of us. Contracts will not be subject to any conditions except that (i)
the purchase by an institution of the securities covered by its contract will
not at the time of delivery be prohibited under the laws of any jurisdiction in
the United States to which such institution is subject; and (ii) if the
securities are being sold to underwriters, we have sold to such underwriters
the total principal amount of the securities less the principal amount thereof
covered by the contracts.
Some of the underwriters and their affiliates may be customers of, engage in
transactions with and perform services for us and our subsidiaries in the
ordinary course of business.
The maximum commission or discount to be received by any NASD member or
independent broker-dealer in connection with any offering of securities under
this prospectus will not exceed 8.0% of the gross proceeds of the offering.
LEGAL MATTERS
The legality of the securities has been passed upon for us by Hogan &
Hartson L.L.P. The discussion of legal matters under "Material United States
Federal Income Tax Consequences" is based upon an opinion of Jaeckle
Fleischmann & Mugel, LLP.
EXPERTS
The consolidated financial statements and schedules of Sizeler Property
Investors, Inc. and subsidiaries as of December 31, 2000 and 1999, and for each
of the years in the three-year period ended December 31, 2000, have been
incorporated by reference herein in reliance upon the report of KPMG LLP,
independent accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
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