0000950136-01-501667.txt : 20011030
0000950136-01-501667.hdr.sgml : 20011030
ACCESSION NUMBER: 0000950136-01-501667
CONFORMED SUBMISSION TYPE: 424B1
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20011026
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: URSTADT BIDDLE PROPERTIES INC
CENTRAL INDEX KEY: 0001029800
STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798]
IRS NUMBER: 042458042
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1031
FILING VALUES:
FORM TYPE: 424B1
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-69858
FILM NUMBER: 1768054
BUSINESS ADDRESS:
STREET 1: C/O HRE PROPERTIES INC
STREET 2: 321 RAILROAD AVENUE
CITY: GREENWICH
STATE: CT
ZIP: 06830
BUSINESS PHONE: 2038638200
MAIL ADDRESS:
STREET 1: 321 RAILROAD AVENUE
CITY: GREENWICH
FORMER COMPANY:
FORMER CONFORMED NAME: HRE PROPERTIES INC
DATE OF NAME CHANGE: 19961230
424B1
1
file001.txt
DEFINITIVE MATERIALS
Filed Pursuant to Rule 424(b)(1)
Registration File Nos.: 333-69858
333-72240
PROSPECTUS
[URSTADT BIDDLE GRAPHIC OMITTED]
4,800,000 SHARES
CLASS A COMMON STOCK
(PAR VALUE, $.01 PER SHARE)
---------------------
We are selling 4,800,000 shares of our Class A common stock. We will
receive all of the net proceeds from this sale. Our shares of Class A common
stock are listed on the New York Stock Exchange under the symbol "UBP.A". Our
most recent quarterly dividend for our Class A common stock was paid at an
annual rate of $.80 per share, representing an annual yield of 8.6%, based
upon the offering price of our Class A common stock of $9.30.
We have two classes of common equity securities: common stock and Class A
common stock. Our common stock entitles the holder to one vote per share and
our Class A common stock entitles the holder to 1/20th of one vote per share
on all matters submitted to a vote of shareholders. Each share of our Class A
common stock is also entitled to dividends in an amount equal to not less than
110% of the regular quarterly dividends paid on each share of our common
stock.
---------------------
INVESTING IN OUR CLASS A COMMON STOCK INVOLVES RISKS. YOU SHOULD READ THE
SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 10 BEFORE BUYING OUR CLASS A
COMMON STOCK.
PER SHARE TOTAL
----------- --------------
Public offering price ..................... $ 9.30 $44,640,000
Underwriting discounts .................... $ 0.48825 $ 2,343,600
Proceeds, before expenses, to us .......... $ 8.81175 $42,296,400
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
We have granted the underwriters an option to purchase an additional
720,000 shares of Class A common stock at the public offering price, less the
underwriting discounts, solely to cover over-allotments, if any.
We expect that the shares of Class A common stock will be ready for
delivery on or about October 31, 2001.
FERRIS, BAKER WATTS
Incorporated
J.J.B. HILLIARD, W.L. LYONS, INC.
ADVEST, INC.
The date of this prospectus is October 25, 2001
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus, and the documents incorporated by reference, may contain
"forward-looking" statements as described in Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements usually include words like "believes,"
"anticipates" and "expects" and describe our expectations for the future. Some
of these expectations may not be met in important ways for a variety of
reasons. We have described these reasons under the heading "Risk Factors" in
this prospectus and in the other reports we file with the Securities and
Exchange Commission, and you should review them before you make any investment
decision. We are not required to update any forward-looking statements we make
and we may not make any updates.
3
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PROSPECTUS SUMMARY
This summary highlights selected information in this prospectus. This
summary is not complete and does not contain all of the information that you
should consider before investing in our Class A common stock. You should
carefully read this entire prospectus before making an investment decision. The
information presented in this prospectus is based on the public offering price
of $9.30 per share. Unless otherwise indicated, this prospectus does not
reflect the exercise of the underwriters' over-allotment option.
OUR COMPANY
We are a self-administered real estate investment trust, or REIT, which
owns and manages income producing commercial real estate investments. We have
been in business and our common equity has been listed on the New York Stock
Exchange since 1969 and we have paid 128 consecutive quarterly cash dividends
to our shareholders since that time. Our funds from operations have increased
from $7,653,000 in fiscal 1994 to $11,914,000 in fiscal 2000.
Our primary investment focus is neighborhood and community shopping
centers which are typically anchored by grocery and drug stores and located in
suburban areas of the northeastern United States, with a primary concentration
in Fairfield County, Connecticut, and Westchester and Putnam Counties, New
York. We currently own 12 neighborhood and community shopping centers, three
mixed-use (office/retail) properties and five office buildings, one of which
contains our corporate headquarters, in these primary markets. We refer to
these 20 properties, which contain 1.8 million square feet of space, as our
"core properties." As of September 30, 2001, our core properties collectively
had 354 tenants and were 98% leased based upon square footage.
We also own four non-core properties located outside of our primary
markets consisting of one office building, one retail property and two
distribution and service properties. As of September 30, 2001, our non-core
properties were 100% leased based upon square footage. Our strategy is to sell
our non-core properties opportunistically over the next several years and
re-deploy the proceeds of sale into acquisitions of properties located
principally in our primary markets of Fairfield County, Connecticut, and
Westchester and Putnam Counties, New York.
Our investment objective is to increase the cash flow and, consequently,
the value of our properties, and to seek continued growth through (i) the
strategic re-leasing, renovation and expansion of our existing properties, and
(ii) the selective acquisition of income-producing properties, primarily
neighborhood and community shopping centers, in our targeted geographic
region. We may also invest in other types of real estate and real
estate-related assets in our targeted and other geographic regions from time
to time.
We are owners and operators of income producing real estate and not real
estate developers. We invest in properties where we believe cost-effective
expansion and renovation programs, combined with effective leasing and
operating strategies, can improve the existing properties' value while
providing superior current economic returns. We believe that investment in and
operation of commercial real estate is a local business and we focus our
investments in areas where we have strong knowledge of the local markets. Our
home office is located in Greenwich, Connecticut, at the center of the region
representing our primary investment focus. All of the members of our senior
management team and a majority of our directors live in the areas where our
core assets are located.
The areas where our core properties are located are densely populated,
affluent bedroom communities for people who work in New York City and the
surrounding areas. The population in the three counties in our target market
tends to be high-income, with a median annual household income in each of
these counties of over $55,000 compared to the national average of
approximately $37,000, based upon the 2000 U.S. National Census. We believe
these areas also have barriers to entry for competitors seeking to develop new
properties. For example, in many of these communities, it is
5
difficult to develop new shopping centers due to the lack of available land,
zoning restrictions and the anti-development bias of many local planning
boards. We generally target for purchase properties which are smaller in size
than those which are typically sought by pension funds and other large
institutional owners. Owners of commercial properties which we target for
purchase tend to be individuals, families or private real estate companies
rather than institutional owners, including other REITs. We believe our status
as a publicly traded REIT provides us with substantial advantages over
non-REIT competitors in making investments in our targeted market, especially
through our ability to offer sellers the opportunity to defer taxable gains by
exchanging their properties for partnership interests that are convertible
into our Class A common stock.
We directly manage the operations and leasing at all of our core
properties. Two of our non-core properties, representing approximately 5% of
our total revenues for our 2000 fiscal year, are net leased to single tenants
under long-term lease arrangements where property management is handled by the
tenants. Our remaining non-core properties are managed by us or property
management companies supervised by us.
When evaluating potential acquisitions, we consider such factors as:
o economic, demographic and regulatory conditions in the property's local
and regional market;
o the location, construction quality and design of the property;
o the current and projected cash flow of the property and the potential to
increase cash flow;
o the potential for capital appreciation of the property;
o the terms of tenant leases, including the relationship between the
property's current rents and market rents and the ability to increase
rents upon lease rollover;
o the occupancy and demand by tenants for properties of a similar type in
the market area;
o the potential to complete a strategic renovation, expansion or
re-leasing of the property;
o the property's current expense structure and the potential to increase
operating margins; and
o competition from comparable properties in the market area.
We believe that there are more than 250 shopping centers located in our
targeted region containing more than 20 million square feet of leaseable space
that we consider to be potentially attractive acquisition candidates.
We seek to maintain a prudent amount of leverage. Over the last ten
fiscal years, at each fiscal year end, our long-term debt averaged
approximately 28% of our total company capitalization and never exceeded 40%
of our total company capitalization. As of July 31, 2001, our long-term debt
totaled 30.1% of our total company capitalization and our earnings before
interest, taxes, depreciation and amortization ("EBITDA") to interest coverage
for the nine-months ended July 31, 2001 was 4.9 to 1.
Our shopping center tenants consist of national, regional and local
retailers. Our typical shopping center is anchored by an established major
grocery store operator in the region. The balance of our retail properties is
leased to regional drug stores, national value oriented retail stores and
other regional and local franchise stores. Two of our shopping centers, not
anchored by grocery stores, are located adjacent to large regional malls which
create substantial retail shopping traffic. Our properties generally attract
tenants who provide basic staples and convenience items to local customers. We
believe sales of these items are less sensitive to fluctuations in the
business cycle than higher priced retail items. No single retail tenant
currently represents more than 7% of the total annual base rent of our retail
properties.
MANAGEMENT
Our senior management group includes professionals with an average of 28
years of experience in real estate investment and related fields. We also have
a strong independent Board of Directors with
6
many years of experience in the real estate industry. Our Board of Directors
and senior executive officers beneficially own 47.3% of our outstanding shares
of common stock and 12.9% of our outstanding shares of Class A common stock,
which collectively represents approximately 30.6% of our total outstanding
shares of common stock and Class A common stock.
Our offices are located at 321 Railroad Avenue, Greenwich, Connecticut
06830. Our telephone number is (203) 863-8200.
RECENT DEVELOPMENTS
Since July 31, 2001, we have:
o sold approximately 4.2 acres of undeveloped land in Denver, Colorado for
$1.2 million;
o obtained from a commercial bank a $6 million seven-year first mortgage
loan with an initial disbursement of $4.8 million on October 24, 2001 at
a fixed interest rate of 6.24% with a commitment for a subsequent
disbursement of $1.2 million additional first mortgage loan over the same
seven-year term at a fixed interest rate of 2% over the then applicable
treasury note rate. The proceeds of such loan and commitment will be used
to re-finance existing debt under our revolving credit facilities;
o obtained a $5,000,000 first mortgage loan from a commercial bank. This
loan has a term of ten years, bears interest at 7.25% per annum and is
secured by a first mortgage on our shopping center in Carmel, New York.
We used the proceeds of this loan and other funds obtained from our
working capital to repay $7,500,000 outstanding under our unsecured
revolving credit facilities;
o sold the Countryside Square shopping center that was owned by our
Countryside Square Limited Partnership. Upon liquidation of this
partnership we will receive distributions of approximately $1.8 million
in cash, $1.2 million in notes issued by the purchaser of the property
which bear interest at 12.5% per annum, and 1,200,000 shares of our Class
A common stock currently held by this partnership. Upon liquidation of
this partnership, the 1,200,000 shares of Class A common stock will be
retired by us. For accounting purposes, 545,454 of these shares of Class
A common stock held by the partnership were deemed to have been retired
by us prior to the sale of the Countryside Square shopping center. In
connection with this sale, we effectively gained control of the
partnership and, as a result, the remaining 654,546 shares of Class A
common stock held by the partnership were deemed to be retired by us for
accounting purposes; and
o entered into a contract to sell our non-core service and distribution
facility located in the Dallas, Texas area for $8,000,000 in cash. The
closing of the sale of this property is currently scheduled to occur on
or around November 1, 2001.
7
THE OFFERING
Class A common stock 4,800,000 shares(1)
Class A common stock to be outstanding
after this offering 10,800,018 shares(2)(3)
New York Stock Exchange symbol for
Class A common stock UBP.A
----------
(1) 5,520,000 shares of Class A common stock if the underwriters exercise
their over-allotment option in full.
(2) 11,520,018 shares of Class A common stock if the underwriters exercise
their over-allotment option in full. Does not include (i) 120,144 shares
of Class A common stock reserved for issuance under our employee stock
option plans, (ii) 181,733 shares of Class A common stock reserved for
issuance under our dividend reinvestment and share purchase plan, (iii)
207,125 shares of Class A common stock reserved for issuance under our
restricted stock plan or (iv) 309,650 shares of Class A common stock
issuable upon redemption of outstanding partnership interests. Includes
1,200,000 shares of Class A common stock held by Countryside Square
Limited Partnership, of which we are the controlling general partner. For
accounting purposes, these shares are deemed to be retired by us but will
not actually be retired by us until we receive these shares upon the
liquidation and winding up of this partnership.
(3) Does not include 6,242,138 shares of our common stock outstanding as of
October 23, 2001.
8
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of 4,800,000 shares
of our Class A common stock in this offering will be approximately $41,196,400
after deducting underwriting discounts and commissions and the estimated
expenses of this offering. If the underwriters exercise their over-allotment
option in full, we estimate that our net proceeds will be approximately
$47,490,640.
We intend to use the net proceeds to acquire income producing properties
consistent with our current business strategy and to fund renovations on, or
capital improvements to, our existing properties, including tenant
improvements. We intend to focus our acquisition activities on neighborhood
and community shopping centers primarily located in the northeastern United
States, with a concentration on Fairfield County, Connecticut, and Westchester
and Putnam Counties, New York.
Pending the use of the net proceeds for acquisitions of properties, we
intend to use the net proceeds to reduce amounts outstanding under our
revolving credit facilities and make investments in short-term income
producing securities.
9
RISK FACTORS
An investment in our Class A common stock involves a number of risks.
Before making an investment decision, you should carefully consider all of the
risk factors described in this prospectus. If any of the risks actually occur,
our business, financial condition and results of operations could be
materially adversely affected. If this were to occur, the market price of our
Class A common stock could decline significantly and you may lose all or part
of your investment.
We may be unable to acquire or may be delayed in acquiring appropriate
properties with the proceeds of the offering.
We currently have no specific properties under contract for acquisition
and we may be unable to acquire or may be delayed in acquiring appropriate
properties with the proceeds of the offering that will generate returns
consistent with our historical returns on our other properties. Pending the
use of the net proceeds to acquire properties, we intend to use the net
proceeds to reduce outstanding indebtedness under our revolving credit
facilities, fund renovations on, capital improvements to or pay leasing costs
in connection with our existing properties and make investments in short-term
income producing securities. Reducing outstanding indebtedness and making
short-term investments generally will provide us with a lower rate of return
than investing in income producing real estate. As a result, our inability to
acquire, or delays in acquiring, appropriate properties may likely dilute the
amount of cash available per share for distributions to holders of Class A
common stock.
Our business strategy is mainly concentrated in one type of commercial property
and in one geographic location.
Our primary investment focus is neighborhood and community shopping
centers located in the northeastern United States, with a concentration in
Fairfield County, Connecticut, and Westchester and Putnam Counties, New York.
Various factors may adversely affect a shopping center's profitability. These
factors include circumstances that affect consumer spending, such as general
economic conditions, economic business cycles, rates of employment, income
growth, interest rates and general consumer sentiment. These factors could
have a more significant localized effect on the areas where our core
properties are concentrated. As a result, we may be exposed to greater risks
than if our investment focus was based on more diversified types of properties
and in more diversified geographic areas. In addition, although we generally
invest between $2 million and $25 million in property interests, we have no
limit on the size of our investments. If we were to buy larger property
interests, our portfolio would be concentrated in a smaller number of assets,
increasing the risk to shareholders.
We are dependent on anchor tenants in many of our retail properties.
Several of our retail properties are dependent on a major or anchor
tenant. If we are unable to renew any lease we have with the anchor tenant at
one of these properties upon expiration of the current lease, or re-lease the
space to another anchor tenant of similar or better quality upon expiration of
the current lease on similar or better terms, we could experience material
adverse consequences such as higher vacancy, re-leasing on less favorable
economic terms, reduced net income and reduced funds from operations. In
addition, other tenants may not be attracted to these properties without an
anchor tenant. Under certain circumstances, certain of our anchor tenants may
be able to cease operations at our properties while continuing to pay rent.
Failure to have an operating anchor tenant could reduce the attractiveness of
our properties to other prospective tenants and could adversely affect the
business of existing tenants. Similarly, if one or more of our anchor tenants
goes bankrupt, we could experience material adverse consequences like those
described above. There can be no assurance that our anchor tenants will renew
their leases when they expire or will be willing to renew on similar economic
terms.
We face potential difficulties or delays in renewing leases or re-leasing
space.
We derive most of our income from rent received from our tenants.
Although our properties currently have favorable occupancy rates, we cannot
predict that current tenants will renew their leases upon the expiration of
their terms. In addition, we cannot predict that current tenants will not
10
attempt to terminate their leases prior to the expiration of their current
terms. If this occurs, we may not be able to locate qualified replacement
tenants and, as a result, we would lose a source of revenue while remaining
responsible for the payment of our obligations. Even if tenants decide to renew
their leases, the terms of renewals or new leases, including the cost of
required renovations or concessions to tenants, may be less favorable than
current lease terms. Additionally, properties we may acquire with the proceeds
of this offering may not be fully leased and the cash flow from existing
operations may be insufficient to pay the operating expenses and debt service
associated with that property until the property is fully leased. As a result,
our ability to make distributions to our shareholders could be adversely
affected.
Leverage can reduce cash available for distribution and cause losses.
Our Articles of Incorporation do not limit the amount of indebtedness we
may incur. Using debt, whether with recourse to us generally or only with
respect to a particular property, to acquire properties creates an opportunity
for increased net income, but at the same time creates risks. For example,
variable rate debt can reduce the cash available for distribution to
shareholders in periods of rising interest rates where interest rate increases
are greater than increases in the rates of return on our investments. We use
debt to fund investments only when we believe it will enhance our
risk-adjusted returns. However, we cannot be sure that our use of leverage
will prove to be beneficial. Moreover, when our debt is secured by our assets,
we can lose those assets through foreclosure if we do not meet our debt
service obligations. While we generally attempt to minimize the use of
variable rate mortgage debt whenever possible, we could experience
circumstances where variable rate mortgage debt is our only economically
viable option.
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.
Construction risks could adversely affect our profitability.
We currently are renovating some of our properties and may in the future
renovate other properties, including tenant improvements required under
leases. Our renovation and related construction activities may expose us to
certain risks. We may incur renovation costs for a property which exceed our
original estimates due to increased costs for materials or labor or other
costs that are unexpected. We also may be unable to complete renovation of a
property on schedule, which could result in increased debt service expense or
construction costs. Additionally, the time frame required to recoup our
renovation and construction costs and to realize a return on such costs can
often be significant.
Uninsured and underinsured losses may affect the value of, or return from, our
property interests.
Our properties, and the properties securing our loans, have comprehensive
insurance in amounts we believe are sufficient to permit the replacement of
the properties in the event of a total loss, subject to applicable
deductibles. There are certain types of losses, such as earthquakes, floods
and hurricanes, that may be uninsurable or not economically insurable. Changes
in building codes and ordinances, environmental considerations and other
factors also might make it impracticable for us to use insurance proceeds to
replace a damaged or destroyed property. If any of these or similar events
occurs, it may reduce our return from an affected property and the value of
our investment.
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The real estate business is highly competitive.
We compete for real estate investments with all types of investors,
including domestic and foreign corporations, financial institutions, other real
estate investment trusts and individuals. Many of these competitors have
greater resources than we do. Our shopping centers compete for tenants with
other regional, community or neighborhood shopping centers in the respective
areas where our retail properties are located. Our office buildings compete for
tenants with office buildings throughout the areas in which they are located.
The value of our property interests depends on conditions beyond our control.
Real property investments are illiquid and subject to varying degrees of
risk. Yields from our real properties depend on their net income and capital
appreciation. We are dependent on the northeastern United States market due to
the concentration of a majority of our real estate assets in this region. Real
property income and capital appreciation may be adversely affected by general
and local economic conditions, neighborhood values, competitive overbuilding,
weather, casualty losses and other factors beyond our control. In particular,
general and local economic conditions may be adversely affected by the recent
terrorist incidents in New York and Washington D.C. There was no physical
damage to our properties as a result of these incidents. Our management is
unable to determine the long-term impact, if any, of these incidents or of any
acts of war or terrorism in the United States or worldwide on the U.S.
economy, on our Company or on the market price of our Class A common stock.
The value of our real property may also be adversely affected by factors such
as costs of complying with regulations and liability under applicable
environmental laws, interest rate changes and the availability of financing.
Income from a property will be adversely affected if a large tenant or a
significant number of tenants is unable to pay rent or if available space
cannot be rented on favorable terms. Operating and other expenses of our
properties, particularly significant expenses such as debt payments, real
estate taxes and maintenance costs, generally do not decrease when income
decreases and, even if revenues increase, operating and other expenses may
increase faster than revenues.
Our Class A common stock has less voting power than our common stock.
Our common stock is entitled to one vote per share on all matters
submitted to shareholders for a vote. Our Class A common stock is entitled to
1/20th of one vote per share on all matters submitted to shareholders for a
vote. Except as otherwise required by law or as to certain matters as to which
separate class voting rights may be granted in the future to holders of one or
more other classes or series of our capital stock, holders of common stock and
Class A common stock vote together as a single class, and not as separate
classes, on all matters voted upon by our shareholders. After giving effect to
the issuance of 4,800,000 shares of Class A common stock pursuant to this
offering, the holders of our Class A common stock, as a group, will control
7.96% of the voting power of our common equity securities and the holders of
our common stock, as a group, will control 92.04% of the voting power of our
common equity securities. Therefore, holders of our common stock have
sufficient voting power to approve or disapprove all matters voted upon by our
shareholders, including any proposal that could affect the relative dividend
or other rights of our common stock and Class A common stock.
Our Board of Directors may change our investment and operational policies
without shareholder consent.
Our Board of Directors determines our investment and operational policies
and, in particular, our investment policies. Our Board of Directors may amend
or revise our investment and operational policies, including our policies with
respect to acquisitions, growth, operations, indebtedness, capitalization and
dividends, or approve transactions that deviate from these policies without a
vote of or notice to our shareholders. Investment and operational policy
changes could adversely affect the market price of our shares of Class A
common stock and our ability to make distributions to our shareholders.
12
We are dependent on key personnel.
We depend on the services of our existing senior management to carry out
our business and investment strategies. As we expand, we will continue to need
to attract and retain qualified additional senior management. The loss of the
services of any of our key management personnel, or our inability to recruit
and retain qualified personnel in the future, could have an adverse effect on
our business and financial results.
The market value of our Class A common stock could decrease based on our
performance and market perception and conditions.
The market value of our Class A 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 Class A common stock is
influenced by the dividend on our Class A common stock relative to market
interest rates. Rising interest rates may lead potential buyers of our Class A
common stock to expect a higher dividend rate, which would adversely affect
the market price of our Class A 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 the general partner of partnerships and may become liable for the debts
and other obligations of these partnerships beyond the amount of our
investment.
Two of our properties are owned by partnerships in which we are the
general partner. As a general partner of these partnerships, we are liable for
the partnerships' debts and other obligations. If these partnerships are
unable to pay their debts and other obligations, as general partner, we will
be liable for such debts and other obligations beyond the amount of our
investment in these partnerships.
Real properties with environmental problems may create liabilities for us.
The existence of hazardous or toxic substances on a property will
adversely affect its value and our ability to sell or borrow against the
property. Contamination of a real property by hazardous substances or toxic
wastes not only may give rise to a lien on that property to assure payment of
the cost of remediation, but also can result in liability to owners, operators
or lenders for that cost. Many environmental laws impose liability whether a
person knows of, or is responsible for, the contamination. In addition, if a
property owner arranges for the disposal of hazardous or toxic substances at
another site, it may be liable for the costs of cleaning up and removing those
substances from the site, even if it neither owned nor operated the disposal
site. Environmental laws may require us to incur substantial expenses and may
materially limit our use of our properties. In addition, future or amended
laws, or more stringent interpretations or enforcement policies of existing
environmental requirements, may increase exposure to environmental liability.
Compliance with the Americans with Disabilities Act could be costly.
Under the Americans with Disabilities Act of 1990, all public
accommodations must meet federal requirements for access and use by disabled
persons. We believe that our properties substantially comply with the
requirements of the Americans with Disabilities Act. However, a determination
that these properties do not comply with the Americans with Disabilities Act
could result in liability for both governmental fines and damages to private
parties. If we were required to make unanticipated major modifications to
comply with the Americans with Disabilities Act, it could adversely affect our
ability to make distributions to shareholders.
We will be taxed as a regular corporation if we fail to maintain our REIT
status.
Since our founding in 1969, we have operated and intend to continue to
operate in a manner that enables us to qualify as a real estate investment
trust, or REIT, for federal income tax purposes. However, the federal income
tax laws governing REITs are complex. We have received an opinion of counsel
that we qualify as a REIT based on our current operations and on certain
assumptions and representations concerning future operations. Opinions of
counsel are not binding on the Internal
13
Revenue Service or any court. The opinion only represents the view of counsel
based on counsel's review and analysis of existing law. Furthermore, our
continued qualification as a REIT will depend on our satisfaction of the asset,
income, organizational, distribution and shareholder ownership requirements of
the Internal Revenue Code on a continuing basis. If we fail to qualify as a
REIT in any taxable year, we will be subject to federal income tax, including
any applicable alternative minimum tax, on our taxable income at regular
corporate rates. In addition, distributions to shareholders would not be
deductible in computing our taxable income. Corporate tax liability would
reduce the amount of cash available for distribution to shareholders which, in
turn, would reduce the market price of our shares of Class A common stock.
Unless entitled to relief under certain Internal Revenue Code provisions, we
also would be disqualified from taxation as a REIT for the four taxable years
following the year during which we ceased to qualify as a REIT.
Failure to make required distributions would subject us to tax.
In order to qualify as a REIT, each year we must distribute to our
shareholders at least 95% of our taxable income, other than any net capital
gain. For our taxable years beginning on or after November 1, 2001, we will be
required to distribute at least 90% of our taxable income annually. To the
extent that we satisfy the distribution requirement, but distribute less than
100% of our taxable income, we will be subject to federal corporate income tax
on our undistributed income. In addition, we will incur a 4% nondeductible
excise tax on the amount, if any, by which our distributions in any year are
less than the sum of:
o 85% of our ordinary income for that year;
o 95% of our capital gain net income for that year; and
o 100% of our undistributed taxable income from prior years.
We have paid out, and intend to continue to pay out, our income to our
shareholders in a manner intended to satisfy the distribution requirement and
to avoid corporate income tax and the 4% excise tax. Differences in timing
between the recognition of income and the related cash receipts or the effect
of required debt amortization payments could require us to borrow money or
sell assets to pay out enough of our taxable income to satisfy the
distribution requirement and to avoid corporate income tax and the 4% tax in a
particular year.
Gain on disposition of assets deemed held for sale in the ordinary course is
subject to 100% tax.
If we sell any of our assets, the Internal Revenue Service may determine
that the sale is a disposition of an asset held primarily for sale to
customers in the ordinary course of a trade or business. Gain from this kind
of sale generally will be subject to a 100% tax. Whether an asset is held
"primarily for sale to customers in the ordinary course of a trade or
business" depends on the particular facts and circumstances of the sale.
Although we will attempt to comply with the terms of safe-harbor provisions in
the Internal Revenue Code prescribing when asset sales will not be so
characterized, we cannot assure you that we will be able to do so.
Our ownership limitation may restrict business combination opportunities.
To qualify as a REIT under the Internal Revenue Code, no more than 50% in
value of our outstanding capital stock may be owned, directly or indirectly,
by five or fewer individuals during the last half of each taxable year. To
preserve our REIT qualification, our Articles of Incorporation generally
prohibit any person from owning more than 7.5% of the value of all of our
outstanding capital stock and provide that:
o a transfer that violates the limitation is void;
o a transferee gets no rights to the shares that violate the limitation;
o shares transferred to a shareholder in excess of the ownership
limitation are automatically converted, by operation of law, into shares
of "Excess Stock;" and
o the Excess Stock will be held by us as trustee of a trust for the
exclusive benefit of future transferees to whom the shares of capital
stock will ultimately be transferred without violating the ownership
limitation.
14
We may also redeem Excess Stock at a price which may be less than the price
paid by a shareholder.
Pursuant to authority under our Articles of Incorporation, our Board of
Directors has determined that the ownership limitation does not apply to Mr.
Charles J. Urstadt, our Chairman and Chief Executive Officer, who beneficially
owns 33.3% and 5.7% of our outstanding common stock and Class A common stock,
respectively. Such holdings represent approximately 32.0% of our outstanding
voting interests. In addition, our executive officers and directors, as a
group, hold approximately 45.8% of our outstanding voting interests through
their beneficial ownership of our common stock and Class A common stock. The
ownership limitation may discourage a takeover or other transaction that our
shareholders believe to be desirable.
Certain provisions in our Articles of Incorporation and Bylaws may prevent or
delay a change of control or limit our shareholders from receiving a premium for
their shares.
Our Articles of Incorporation and Bylaws contain the following provisions:
o Our Board of Directors is divided into three classes, with directors in
each class elected for three-year staggered terms.
o Our directors may be removed only for cause upon the vote of the holders
of two-thirds of the voting power of our common equity securities.
o Our shareholders may act by written consent only if all shareholders
execute such written consent.
o Our shareholders may call a special meeting of shareholders only if the
holders of a majority of the voting power of our common equity securities
requests such a meeting in writing.
o Our shareholders who wish to make proposals or nominate directors must
comply with certain advance notification requirements.
o Any consolidation, merger, share exchange or transfer of all or
substantially all of our assets must be approved by (a) a majority of our
directors who are currently in office or who are approved or recommended
by a majority of our directors who are currently in office (the
"Continuing Directors") and (b) the holders of two-thirds of the voting
power of our common equity securities.
o Certain provisions of our Articles of Incorporation may only be amended
by (a) a vote of a majority of our Continuing Directors and (b) the
holders of two-thirds of the voting power of our common equity
securities. These provisions relate to the election, classification and
removal of directors, the ownership limit and the shareholder vote
required for certain business combination transactions.
These provisions could delay, defer or prevent a transaction or change of
control of the Company in which our shareholders might otherwise receive a
premium for their shares above then-current market prices or might otherwise
deem to be in their best interests.
In view of the common equity securities controlled by Mr. Urstadt, Mr.
Urstadt may control a sufficient percentage of the voting power of our common
equity securities to effectively block any proposal which requires a vote of
our shareholders.
Our preferred stock may deter a change in control.
Our Articles of Incorporation authorize our Board of Directors to issue
preferred stock, to establish the preferences and rights of any preferred
stock issued, to classify any unissued preferred stock and reclassify any
previously classified but unissued preferred stock without shareholder
approval. We currently have 20,000,000 shares of preferred stock authorized,
of which 350,000 shares of Series B Senior Cumulative preferred stock are
issued and outstanding. The terms of our Series B preferred stock contain
change of control provisions which, under certain circumstances, may require
us to pay a substantial premium above the liquidation preference if we
repurchase the Series B preferred stock when a change of control occurs. This
may deter changes of control of the Company because of the increased cost for
a third party to acquire control of the Company.
15
Our shareholder rights plan could deter a change of control.
We have adopted a shareholder rights plan. This plan will generally deter
a person or a group from acquiring more than 10% of the combined voting power
of our outstanding shares of common stock and Class A common stock because,
after (i) the person acquires more than 10% of the combined voting power of
our outstanding common stock and Class A common stock, or (ii) the
commencement of a tender offer or exchange offer by any person (other than us,
any one of our wholly owned subsidiaries or any of our employee benefit plans,
or certain exempt persons), if, upon consummation of the tender offer or
exchange offer, the person or group would beneficially own 30% or more of the
combined voting power of our outstanding shares of common stock and Class A
common stock, all other shareholders will have the right to purchase
securities from us at a price that is less than their fair market value. This
would substantially reduce the value and influence of the stock owned by the
acquiring person. Our Board of Directors can prevent the plan from operating
by approving the transaction and redeeming the rights. This gives our Board of
Directors significant power to approve or disapprove of the efforts of a
person or group to acquire a large interest in the Company. The rights plan
exempts acquisitions of common stock and Class A common stock by Mr. Charles
J. Urstadt, members of his family and certain of his affiliates.
Maryland anti-takeover statutes may restrict business combination
opportunities.
As a Maryland corporation, we are subject to various provisions of
Maryland law that impose restrictions and require affected persons to follow
specified procedures with respect to certain takeover offers and business
combinations, including combinations with persons who own 10% or more of our
outstanding shares. These provisions of Maryland law could delay, defer or
prevent a transaction or change of control of the Company in which our
shareholders might otherwise receive a premium for their shares above
then-current market prices or might otherwise deem to be in their best
interests. In view of the common equity securities controlled by Mr. Charles
J. Urstadt, Mr. Urstadt may control a sufficient percentage of the voting
power of our common equity securities to effectively block a proposal
respecting a business combination under these provisions of Maryland law.
Maryland law also eliminates the voting rights of shares deemed to be "control
shares."
Under Maryland law, "control shares" are those which, when aggregated
with any other shares held by the acquiror, allow the acquiror to exercise
voting power within specified ranges. The control share provisions of Maryland
law could delay, defer or prevent a transaction or change of control of the
Company in which our shareholders might otherwise receive a premium for their
shares above then-current market prices or might otherwise deem to be in their
best interests.
We have exceptions to the "business combinations" and "control share"
provisions of Maryland law.
As permitted by Maryland law, our Articles of Incorporation and Bylaws
provide that the "control shares" and "business combinations" provisions of
Maryland law described above will not apply to transactions between the
Company and Mr. Charles J. Urstadt or any of his affiliates. Consequently,
unless such exemptions are amended or repealed, we may in the future enter
into business combinations or other transactions with Mr. Urstadt or any of
his affiliates without complying with the requirements of Maryland law.
Additional issuances of equity securities could dilute shareholder interests.
Our Articles of Incorporation authorize our Board of Directors to issue
additional shares of our common stock, Class A common stock and preferred
stock without shareholder approval. Any additional issuances of common stock,
Class A common stock or preferred stock could have the effect of diluting the
interests of our then-existing holders of Class A common stock.
16
Our change of control agreements could deter a change of control.
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 18 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 a
portion of the executive's base salary, together with medical and other
benefits. In the case of Messrs. Charles J. Urstadt, Willing L. Biddle, James
R. Moore and Raymond P. Argila, we will make a payment equal to their
respective annual salaries plus benefits. Based upon their current salary and
benefit levels, this provision would result in payments totaling $920,000 to
Messrs. Urstadt, Biddle, Moore and Argila, in the aggregate. 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.
17
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
each of the periods indicated. The financial data as of and for the five years
ended, October 31, 2000, are derived from our audited consolidated financial
statements. You should read this information along with our consolidated
financial statements and the notes to those financial statements included in
this prospectus. The selected financial data as of, and for the nine-months
ended, July 31, 2001 and 2000 is derived from our unaudited financial
statements. The selected data provided below is not necessarily indicative of
our future results of operations or financial performance, and our results for
the nine-months ended July 31, 2001 are not necessarily indicative of our
results for the year ending October 31, 2001. For further discussion of our
consolidated financial statements, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
NINE-MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
--------------------------------------------------------------------- ---------------------------
2000 1999 1998 1997 1996 2001 2000
------------- ------------- ------------- ------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
BALANCE SHEET DATA:
Total Assets .................. $ 181,100 $ 183,774 $ 165,039 $ 137,430 $ 132,160 $ 196,304 $ 180,786
Mortgage Notes Payable ........ $ 51,903 $ 51,263 $ 32,900 $ 43,687 $ 39,798 $ 54,323 $ 52,101
Preferred Stock ............... $ 33,462 $ 33,462 $ 33,462 -- -- $ 33,462 $ 33,462
OPERATING DATA:
Total Revenues ................ $ 31,254 $ 29,814 $ 25,595 $ 24,827 $ 24,432 $ 26,966 $ 23,283
Total Operating Expenses ...... $ 23,281 $ 21,596 $ 17,252 $ 16,238 $ 20,502 $ 19,215 $ 17,346
Net Income Applicable to
Common and Class A Common
Stockholders ................. $ 5,442 $ 6,043 $ 5,615 $ 8,589 $ 10,271 $ 5,059 $ 4,306
Weighted Average Number of
Shares Outstanding:
Common and Common
Equivalent ................... 5,433 5,317 5,283 5,194 5,441 5,984 5,416
Class A Common and Class A
Common Equivalent ............ 5,532 5,545 5,279 5,194 5,441 5,618 5,519
PER SHARE DATA (1):
Diluted Earnings Per Share:
Common Stock ................. $ .49 $ .54 $ .52 $ .79 $ .90 $ .43 $ .39
Class A Common Stock ......... $ .55 $ .61 $ .57 $ .86 $ .99 $ .47 $ .43
Cash Dividends on:
Common Stock ................. $ .70 $ .68 $ 1.13 $ 1.26 $ 1.22 $ .54 $ .525
Class A Common Stock ......... $ .78 $ .76 $ .19 -- -- $ .60 $ .585
--------- --------- --------- --------- --------- --------- ---------
$ 1.48 $ 1.44 $ 1.32 $ 1.26 $ 1.22 $ 1.14 $ 1.11
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
Funds from Operations (2) ..... $ 11,914 $ 11,878 $ 11,782 $ 10,189 $ 9,525 $ 11,037 $ 8,819
========= ========= ========= ========= ========= ========= =========
----------
(1) Per share data for all periods prior to 1999 have been restated to
reflect the effect of a one-for-one stock dividend in the form of a new
issue of Class A common stock distributed in August 1998. However, the
cash dividends are presented based on actual amounts paid.
(2) We have adopted the definition of Funds from Operations (FFO) suggested
by the National Association of Real Estate Investment Trusts (NAREIT) and
defined FFO as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of
properties, plus depreciation and amortization and after adjustments for
unconsolidated joint ventures. FFO does not represent net cash from
operating activities in accordance with generally accepted accounting
principles and should not be considered an alternative to net income as
an indicator of our operating performance, or for cash flows as a measure
of liquidity or ability to make distributions. For a further discussion
of FFO, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
18
OUR COMPANY
GENERAL
Urstadt Biddle Properties Inc. (formerly HRE Properties, Inc.), a
Maryland corporation, is a real estate investment trust engaged in the
acquisition, ownership and management of commercial real estate. We were
organized as Hubbard Real Estate Investments, an unincorporated business trust
under the laws of the Commonwealth of Massachusetts on July 7, 1969.
Subsequently, the trust changed its name to HRE Properties. In 1997, the
shareholders of HRE Properties approved a plan of reorganization of HRE
Properties from a Massachusetts business trust to a corporation organized in
Maryland. The plan of reorganization was effected by means of a merger of HRE
Properties into our Company. As a result of the plan of reorganization, HRE
Properties merged with and into our Company and the separate existence of HRE
Properties ceased. Our Company was the surviving entity in the merger and each
issued and outstanding common share of beneficial interest of HRE Properties
was converted into one share of our common stock. In 1998, our shareholders
approved an amendment to our Articles of Incorporation to change our name from
HRE Properties, Inc. to Urstadt Biddle Properties Inc. On June 16, 1998, our
Board of Directors reclassified 40,000,000 shares of our 70,000,000 authorized
but unissued shares of common stock into 40,000,000 shares of Class A common
stock. On that same date, our Board of Directors also declared a stock
dividend on the then existing common stock consisting of one share of Class A
common stock for each share of common stock outstanding as of the close of
business on July 31, 1998. Our purpose for the declaration and payment of this
stock dividend and the establishment of the Class A common stock was to:
o provide us with flexibility to issue common stock or Class A common
stock to raise equity capital;
o provide us with flexibility to issue Class A common stock or other
securities convertible into Class A common stock for employee
compensation purposes, in each case without significantly diluting the
voting power of our existing shareholders;
o enable our shareholders to sell portions of their equity interests
without proportionately reducing their voting interests; and
o increase our ability to make investments in our targeted market by
offering sellers the opportunity to defer taxable gains by exchanging
their properties for partnership interests that are convertible into our
Class A common stock.
OUR BUSINESS
We have been in business and our common equity has been listed on the New
York Stock Exchange since 1969, over which period we have paid 128 consecutive
quarterly cash dividends to our shareholders. Our funds from operations have
increased from $7,653,000 in fiscal 1994 to $11,914,000 in fiscal 2000.
Our primary investment focus is neighborhood and community shopping
centers which are typically anchored by grocery and drug stores and located in
suburban areas of the northeastern United States, with a primary concentration
in Fairfield County, Connecticut, and Westchester and Putnam Counties, New
York. We currently own 12 neighborhood and community shopping centers, three
mixed-use (office/retail) properties and five office buildings, one of which
contains our corporate headquarters, in these primary markets. We refer to
these 20 properties, which contain 1.8 million square feet of space, as our
"core properties." As of September 30, 2001, our core properties collectively
had 354 tenants and were 98% leased based upon square footage.
We also own four non-core properties located outside of our primary
markets consisting of one office building, one retail property and two
distribution and service properties. As of September 30, 2001, these "non-core
properties" were 100% leased based upon square footage. Our strategy is to
sell our non-core properties opportunistically over the next several years and
re-deploy the proceeds of sale into acquisitions of properties located
principally in our primary markets of Fairfield County, Connecticut, and
Westchester and Putnam Counties, New York.
19
We have elected to be treated as a real estate investment trust for
federal income tax purposes. This treatment permits us to deduct dividend
distributions to our shareholders for federal income tax purposes, thus
effectively eliminating the "double taxation" that generally results when a
corporation earns income and distributes that income to its shareholders by
way of dividend payments. In order to maintain our status as a REIT, we must
comply with a number of requirements under federal income tax law that are
discussed under "Federal Income Tax Consequences of Our Status as a REIT."
While we intend to continue to qualify as a REIT, we cannot assure you that we
will qualify as a REIT in any particular taxable year given the highly complex
nature of the rules governing REITs.
OUR PROPERTIES
We currently own or have a direct or indirect equity interest in 24
properties. These properties consist of 13 neighborhood and community shopping
centers, three mixed-use (office/retail) properties, six office buildings and
two distribution and service facilities. Our properties are located in ten
states and contain in the aggregate 2.6 million square feet of gross leaseable
area. Two of our core properties are owned through partnership structures
where we are the general partner of the limited partnership that owns the
property and the former owners are the limited partners. One of our non-core
properties is owned by a general partnership in which we have an 85% general
partnership interest. We hold a $9,000,000 mortgage note on this non-core
property which is payable on demand, bears interest at 12% per annum and is
secured by a first mortgage on this property.
The following table sets forth information as of September 30, 2001
concerning each property in which we currently own an equity interest. Except
as otherwise noted, we own 100% of our properties.
YEAR YEAR YEAR LEASABLE
LOCATION RENOVATED BUILT ACQUIRED SQUARE FEET
------------------------ ----------- ------- ---------- -------------
CORE
PROPERTIES
Retail Properties:
Springfield, MA ........ 1996 1970 1970 314,000
Meriden, CT ............ 2001 1989 1993 312,000
Danbury, CT ............ -- 1989 1995 193,000
Briarcliff, NY(1) ...... 2000 1978 1998 160,000
Carmel, NY ............. 1999 1983 1995 126,000
Wayne, NJ .............. 1992 1959 1992 102,000
Darien, CT ............. 1992 1958 1998 95,000
Somers, NY ............. -- 1991 1999 78,000
Farmingdale, NY ........ 1993 1981 1993 70,000
Eastchester, NY(2) ..... -- 1978 1997 68,000
Briarcliff, NY ......... -- 1975 2001 38,000
Somers, NY ............. -- 1987 1992 19,000
-------
1,575,000
---------
Office Properties:
Greenwich, CT .......... -- 1977 2001 11,000
Greenwich, CT .......... -- 1983 1998 20,000
Greenwich, CT .......... -- 1983 1993 10,000
Greenwich, CT .......... -- 1978 2000 10,000
Greenwich, CT .......... 1953 1994 10,000
---------
61,000
---------
Mixed-Use:
Newington, NH .......... 1994 1975 1979 102,000
Ridgefield, CT ......... 1999 1930 1998 48,000
Briarcliff, NY ......... 2001 1981 1999 29,000
---------
179,000
---------
Total Core Properties 1,815,000
=========
LOCATION TENANTS LEASED SIGNIFICANT TENANT(S)
------------------------ --------- -------- --------------------------------------------
CORE
PROPERTIES
Retail Properties:
Springfield, MA ........ 26 99% A&P Supermarket
Meriden, CT ............ 23 98% ShopRite Supermarket
Danbury, CT ............ 21 100% Barnes & Noble, Christmas Tree Shops
Briarcliff, NY(1) ...... 30 99% Stop & Shop Supermarket
Carmel, NY ............. 18 100% ShopRite Supermarket
Wayne, NJ .............. 46 100% A&P Supermarket
Darien, CT ............. 22 100% Shaw's Supermarket
Somers, NY ............. 36 100% Gristede's Supermarket
Farmingdale, NY ........ 15 100% King Kullen Supermarket
Eastchester, NY(2) ..... 8 91% Food Emporium Supermarket (Division of A&P)
Briarcliff, NY ......... 18 97% Dress Barn, Radio Shack
Somers, NY ............. 12 100% Putnam County Savings Bank
--
275
---
Office Properties:
Greenwich, CT .......... 4 100% Glenville Medical
Greenwich, CT .......... 2 100% Greenwich Hospital
Greenwich, CT .......... 3 100% Urstadt Biddle Properties Inc.
Greenwich, CT .......... 4 100% Insurance Center of Greenwich
Greenwich, CT .......... 4 100% Prescott Investors
---
17
---
Mixed-Use:
Newington, NH .......... 9 93% Linens 'N Things
Ridgefield, CT ......... 51 89% Chico's
Briarcliff, NY ......... 2 88% Westchester Community College
---
62
---
Total Core Properties 354 98%
===
----------
(1) This property is owned by a limited partnership in which we are the
general partner and have a 63.4% general partnership interest. We are
entitled to receive all of the profits of this limited partnership which
exceed a preferred return to the limited partners.
(2) This property is owned by a limited partnership in which we are the
general partner and have a 17% general partnership interest. We are
entitled to receive all of the profits of this limited partnership which
exceed a preferred return to the limited partners.
20
YEAR YEAR YEAR LEASABLE
LOCATION RENOVATED BUILT ACQUIRED SQUARE FEET TENANTS LEASED SIGNIFICANT TENANT(S)
---------------------------- ----------- ------- ---------- ------------- --------- -------- ----------------------
NON-CORE PROPERTIES
Office Property:
Southfield, MI (1) ......... -- 1973 1983 202,000 5 100% Giffels Associates
------- ---------
Retail Property:
Tempe, AZ .................. 2000 1970 1970 126,000 2 100% Mervyn's Department
------- --------- Store
Distribution and Services
Properties:
Dallas, TX(2) .............. 1989 1970 1970 253,000 1 100% DaimlerChrysler
St. Louis, MO .............. 2000 1970 1970 170,000 1 100% DaimlerChrysler
------- ---------
423,000 2
------- ---------
Total Non-Core Properties 751,000 9 100%
======= =========
----------
(1) This property is owned by a general partnership in which we are a general
partner with an 85% general partnership interest. We hold a $9,000,000
mortgage note on this non-core property which is payable on demand, bears
interest at 12% per annum and is secured by a first mortgage on this
property.
(2) On September 25, 2001, we entered into a contract to sell this property
for $8,000,000 in cash. The closing of the sale of this property is
currently scheduled to occur on or around November 1, 2001.
We also hold two fixed rate mortgage notes totaling $2,321,000. The notes
bear rates of interest of 12% and 14% per annum and are secured by first
mortgages on retail properties we sold in prior years.
BUSINESS STRATEGY
Our investment objective is to increase the cash flow and, consequently,
the value of our properties, and to seek continued growth through (i) the
strategic re-leasing, renovation and expansion of our existing properties, and
(ii) the selective acquisition of income-producing properties, primarily
neighborhood and community shopping centers, in our targeted geographic
region. We may also invest in other types of real estate and real
estate-related assets in our targeted and other geographic regions from time
to time.
We are owners and operators of income producing real estate and not real
estate developers. We invest in properties where we believe cost-effective
expansion and renovation programs, combined with effective leasing and
operating strategies, can improve the existing properties' value while
providing superior current economic returns. We believe that investment in
commercial real estate is a local business and we focus our investment in
areas where we have strong knowledge of the local markets. Our home office is
located in Greenwich, Connecticut, at the center of the region representing
our primary investment focus. All of the members of our senior management team
and a majority of our directors live in the areas where our core assets are
located.
The areas where our core properties are located are densely populated,
affluent bedroom communities for people who work in New York City and the
surrounding areas. The population in the three counties in our targeted market
tends to be high-income, with a median annual household income in each of
these counties of over $55,000 compared to the national average of
approximately $37,000, based upon the 2000 U.S. National Census. We believe
these areas also have barriers to entry for competitors seeking to develop new
properties. For example, in many of these communities, it is difficult to
develop new shopping centers due to the lack of available land, zoning
restrictions and the anti-development bias of many local planning boards. We
generally target for purchase properties which are smaller in size than those
which are typically sought by pension funds and other large institutional
owners. Owners of commercial properties which we target for purchase tend to
be individuals, families or private real estate companies rather than
institutional owners, including other REITs. We believe our status as a
publicly traded REIT provides us with substantial advantages over non-REIT
competitors in making investments in our targeted market, especially through
our ability to offer sellers the opportunity to defer taxable gains by
exchanging their properties for partnership interests that are convertible
into our Class A common stock.
We directly manage the operations and leasing at all of our core
properties. Two of our non-core properties, representing approximately 5% of
our total revenues for our 2000 fiscal year, are net leased
21
to single tenants under long-term lease arrangements where property management
is handled by the tenant. Our remaining non-core properties are managed by us
or property management companies supervised by us.
We intend to continue to invest substantially all of our assets in income
producing real properties, with a primary emphasis on neighborhood and
community shopping centers anchored by grocery stores. However, we may invest
in other types of real property and make other investments. Our core assets
include five office buildings containing approximately 61,000 square feet of
space, all of which are located in Greenwich, Connecticut. Our corporate
headquarters are located in one of these buildings. We may acquire additional
office properties in this area when investment yields are attractive. While we
are not limited to any geographic location, our current strategy is to invest
primarily in properties located in the northeastern United States, with an
emphasis on Fairfield County, Connecticut, and Westchester and Putnam
Counties, New York.
When evaluating potential acquisitions, we consider such factors as:
o economic, demographic and regulatory conditions in the property's local
and regional market;
o the location, construction quality and design of the property;
o the current and projected cash flow of the property and the potential to
increase cash flow;
o the potential for capital appreciation of the property;
o the terms of tenant leases, including the relationship between the
property's current rents and market rents and the ability to increase
rents upon lease rollover;
o the occupancy and demand by tenants for properties of a similar type in
the market area;
o the potential to complete a strategic renovation, expansion or
re-leasing of the property;
o the property's current expense structure and the potential to increase
operating margins; and
o competition from comparable properties in the market area.
We believe that there are more than 250 shopping centers located in our
targeted region containing more than 20 million square feet of leaseable space
that we consider to be potentially attractive acquisition candidates. We have
had preliminary discussions with the owners of a number of these properties
regarding the possibility of selling the properties to us and the related
terms of sale. There can be no guarantee that we will be able to reach an
agreement with the owners of any of these properties or that we will complete
the purchase of any of these properties even if we do reach an agreement with
the owners.
We seek to maintain a prudent amount of leverage. Over the last ten
fiscal years, at each fiscal quarter end, our long-term debt averaged
approximately 28% of our total company capitalization and never exceeded 40%
of our total company capitalization. As of July 31, 2001, our long-term debt
totaled 30.1% of our total company capitalization and our earnings before
interest, taxes, depreciation and amortization ("EBITDA") to interest coverage
for the nine-months ended July 31, 2001 was 4.9 to 1.
TENANTS
Our shopping center tenants consist of national, regional and local
retailers. Our typical shopping center is anchored by an established major
grocery store operator in the region. The balance of our retail properties is
leased to regional drug stores, national value oriented retail stores and
other regional and local franchise stores. Two of our shopping centers, not
anchored by grocery stores, are located adjacent to large regional malls which
create substantial retail shopping traffic. Our properties generally attract
tenants who provide basic staples and convenience items to local customers. We
believe sales of these items are less sensitive to fluctuations in the
business cycle than higher priced retail items. No single retail tenant
currently represents more than 7% of the total annual base rent of our retail
properties. The list below shows our ten largest tenants by percent of total
annual base rent of our retail properties as of September 30, 2001:
22
PERCENT OF TOTAL ANNUAL
TENANT NO. OF STORES BASE RENT OF RETAIL PROPERTIES
---------------------------------------------------- --------------- -------------------------------
Great Atlantic & Pacific Tea Company (A&P) ......... 3 6.8%
ShopRite Supermarkets .............................. 2 4.8%
Christmas Tree Shops, Inc. ......................... 1 4.5%
Stop & Shop Companies, Inc. ........................ 2 4.2%
Linens 'N Things, Inc. ............................. 2 2.9%
Shaw's Supermarkets, Inc. .......................... 1 2.6%
Kay-Bee Toys, Inc. ................................. 4 2.0%
Dress Barn, Inc. ................................... 2 1.9%
Mervyn's Inc. ...................................... 1 1.9%
Spag's Supply, Inc. ................................ 1 1.6%
Nearly all of our shopping center tenants have leases that obligate the
tenant to pay fixed base rentals monthly in advance and for the payment of a
pro-rata share of real estate taxes, insurance, utilities and common area
operating expenses of the shopping center. Our properties are typically
adaptable for varied tenant layouts and can be reconfigured to accommodate new
tenants or the changing space needs of existing tenants. In determining
whether to proceed with a renovation or expansion, we consider both the cost
of such expansion or renovation and the anticipated increase in rent
attributable to such expansion or renovation.
RECENT DEVELOPMENTS
Since July 31, 2001, we have:
o sold approximately 4.2 acres of undeveloped land in Denver, Colorado
for $1.2 million;
o obtained from a commercial bank a $6 million seven-year first mortgage
loan with an initial disbursement of $4.8 million on October 24, 2001 at
a fixed interest rate of 6.24% with a commitment for a subsequent
disbursement of $1.2 million additional first mortgage loan over the same
seven-year term at a fixed interest rate of 2% over the then applicable
treasury note rate. The proceeds of such loan and commitment will be used
to re-finance existing debt under our revolving credit facilities;
o obtained a $5,000,000 first mortgage loan from a commercial bank. This
loan has a term of ten years, bears interest at 7.25% per annum and is
secured by a first mortgage on our shopping center in Carmel, New York.
We used the proceeds of this loan and other funds obtained from our
working capital to repay $7,500,000 outstanding under our unsecured
revolving credit facilities;
o sold the Countryside Square shopping center that was owned by our
Countryside Square Limited Partnership. Upon liquidation of this
partnership we will receive distributions of approximately $1.8 million
in cash, $1.2 million in notes issued by the purchaser of the property
which bear interest at 12.5% per annum, and 1,200,000 shares of our Class
A common stock currently held by this partnership. Upon liquidation of
this partnership, the 1,200,000 shares of Class A common stock will be
retired by us. For accounting purposes, 545,454 of these shares of Class
A common stock held by the partnership were deemed to have been retired
by us prior to the sale of the Countryside Square shopping center. In
connection with this sale, we effectively gained control of the
partnership and, as a result, the remaining 654,546 shares of Class A
common stock held by the partnership were deemed to be retired by us for
accounting purposes; and
o entered into a contract to sell our non-core service and distribution
facility located in the Dallas, Texas area for $8,000,000 in cash. The
closing of the sale of this property is currently scheduled to occur on
or around November 1, 2001.
23
MARKET PRICE OF AND DISTRIBUTIONS ON OUR
CLASS A COMMON STOCK AND COMMON STOCK
Our Class A common stock and common stock trade on the New York Stock
Exchange under the symbols "UBP.A" and "UBP," respectively. The following
table sets forth the high and low sale prices of our Class A common stock and
common stock as reported by the New York Stock Exchange and dividend payments
on our Class A common stock and common stock on a quarterly basis for each of
the quarters indicated. On October 25, 2001, the closing sale prices of our
Class A common stock and common stock were $9.30 and $8.76 per share,
respectively, as reported by the New York Stock Exchange. As of October 23,
2001, there were 6,000,018 shares of Class A common stock outstanding held by
1,629 persons of record and 6,242,138 shares of common stock outstanding held
by 1,652 persons of record.
CLASS A COMMON STOCK COMMON STOCK
----------------------------------- ----------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
----------- ----------- ----------- ----------- ----------- ----------
Fiscal 2001
-----------
Fourth quarter
(through
October 25, 2001) ......... $ 9.750 $ 8.550 $ .20 $ 8.930 $ 8.020 $ .18
Third quarter .............. 9.277 8.123 .20 8.660 7.638 .18
Second quarter ............. 8.543 7.354 .20 7.848 6.987 .18
First quarter .............. 7.641 6.385 .20 7.274 6.354 .18
Fiscal 2000
-----------
Fourth quarter ............. 7.563 7.125 .195 7.188 6.750 .175
Third quarter .............. 7.563 6.750 .195 7.313 6.750 .175
Second quarter ............. 7.688 7.250 .195 7.375 6.750 .175
First quarter .............. 7.688 7.125 .195 7.438 6.750 .175
Fiscal 1999
-----------
Fourth quarter ............. 8.063 7.500 .19 7.688 6.688 .17
Third quarter .............. 8.625 7.750 .19 8.000 7.438 .17
Second quarter ............. 8.563 8.000 .19 8.250 7.500 .17
First quarter .............. 8.688 7.375 .19 8.625 7.063 .17
We have paid uninterrupted quarterly dividends since we commenced
operations as a real estate investment trust in 1969. Future dividends will be
at the discretion of our Board of Directors and will depend on a number of
factors, including our operating results and financial condition. We cannot
assure you that the historical level of dividends will be maintained.
We have made, and we intend to continue to make, timely dividend
distributions to our shareholders sufficient to satisfy the annual
distribution requirements applicable to REITs under federal income tax law
that are discussed under "Federal Income Tax Consequences of Our Status as a
REIT" and to avoid the imposition of federal income and excise taxes on us.
However, we cannot assure you that we will be able to make sufficient
distributions in any given year to maintain our REIT status and to avoid the
imposition of federal income and excise taxes on us.
24
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of 4,800,000 shares
of our Class A common stock in this offering will be approximately $41,196,400
after deducting underwriting discounts and commissions and the estimated
expenses of this offering. If the underwriters exercise their over-allotment
option in full, we estimate that our net proceeds will be approximately
$47,490,640.
We intend to use the net proceeds to acquire income producing properties
consistent with our current business strategy and to fund renovations on, or
capital improvements to, our existing properties, including tenant
improvements. We intend to focus our acquisition activities on neighborhood
and community shopping centers primarily located in the northeastern United
States, with a concentration on Fairfield County, Connecticut, and Westchester
and Putnam Counties, New York.
Pending the use of the net proceeds for acquisitions of properties, we
intend to use the net proceeds to reduce amounts outstanding under our
revolving credit facilities and make investments in short-term income
producing securities.
25
CAPITALIZATION
The following table sets forth (1) our actual, unaudited capitalization
as of July 31, 2001, and (2) our capitalization as adjusted to reflect the
sale of 4,800,000 shares of Class A common stock in this offering at a public
offering price of $9.30 per share, and the application of the net proceeds as
set forth under "Use of Proceeds." The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and the related notes
included in this prospectus.
AS OF JULY 31, 2001
---------------------------------
UNAUDITED AS ADJUSTED (1)(3)
----------- -------------------
(IN THOUSANDS)
Unsecured Revolving Credit Loans ............................. $ 11,500 $ 11,500
Long Term Debt:
Secured Revolving Credit Loans .............................. 16,819 16,819
Mortgage Notes Payable ...................................... 37,504 37,504
--------- ---------
54,323 54,323
Preferred Stock, par value $.01 per share, 20,000,000 shares
authorized; 8.99% Series B Senior Cumulative Preferred Stock
(liquidation preference of $100 per share); 350,000 shares
issued and outstanding ...................................... 33,462 33,462
Stockholders' Equity:
Excess Stock, par value $.01 per share, 10,000,000 shares
authorized; none issued and outstanding ..................... -- --
Common Stock, par value $.01 per share, 30,000,000 shares
authorized; 6,238,750 shares issued and outstanding ......... 62 62
Class A Common Stock, par value $.01 per share, 40,000,000
shares authorized; 5,451,955 and 10,251,955 shares issued and
outstanding as of July 31, 2001 and as adjusted,
respectively (2) ............................................ 54 102
Additional paid-in capital ................................... 127,866 169,014
Cumulative distributions in excess of net income ............. (34,965) (34,965)
Unamortized restricted stock compensation and notes receivable
from officers/shareholders .................................. (5,095) (5,095)
--------- ---------
Total Stockholders' Equity ................................... $ 87,922 $ 129,118
========= =========
Total Capitalization ......................................... $ 187,207 $ 228,403
========= =========
----------
(1) After deducting underwriting discounts and commissions and expenses of
this offering, estimated to be an aggregate of approximately $3,443,600,
payable by us.
(2) 10,971,955 shares of Class A common stock if the underwriters exercise
their over-allotment option in full. Does not include (i) 120,144 shares
of Class A common stock reserved for issuance under our employee stock
option plans, (ii) 187,143 shares of Class A common stock reserved for
issuance under our dividend reinvestment and share purchase plan, (iii)
207,125 shares of Class A common stock reserved for issuance under our
restricted stock plan or (iv) 309,650 shares of Class A common stock
issuable upon redemption of outstanding partnership interests.
(3) Does not reflect transactions described in "Recent Developments" in the
prospectus summary which have occurred since July 31, 2001.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion and comparison of our financial condition
and our results of operations as of and for the three years ended October 31,
2000, 1999 and 1998 and the three-month and nine-month periods ended July 31,
2001. These discussions should be read in conjunction with our consolidated
financial statements, the notes to the financial statements and the other
financial data included in this prospectus.
RESULTS OF OPERATIONS
Comparison of the three-months and nine-months ended July 31, 2001 with the
three-months and nine-months ended July 31, 2000
Revenues
For the nine-months ended July 31, 2001 our operating lease revenues
increased 12.6% to $25.3 million as compared with $22.5 million in the
corresponding nine-month period in fiscal 2000. Our revenues from operating
leases increased 17.1% to $8.6 million for the three-months ended July 31,
2001 compared with $7.4 million for the corresponding three-month period in
fiscal year 2000. The increase in our operating lease revenues results from,
among other things, new leasing of previously vacant space, higher tenant base
rent renewal rates at certain of our properties, higher recoveries of property
operating, real estate taxes and other recoverable costs and the
reclassification of rents received from properties previously accounted for
under the direct finance lease method of accounting. Our revenues from leases
previously accounted for as direct finance leases increased operating rents by
$656,000 and $228,000, respectively, in the nine-month and three-month periods
ended July 31, 2001 as a result of the reclassification of the rents received
from these properties.
During fiscal 2001 and 2000, three of our properties were accounted for
as direct finance leases in accordance with the provisions of FAS Statement
No. 13 "Accounting for Leases." Our direct financing leases are carried on the
balance sheet at the aggregate minimum lease payments to be received over the
terms of the leases, plus an estimated residual value, less unearned income.
The income component of rental payments received, which is based upon the
interest rate implicit in the lease, is reflected as financing lease revenues
and the remaining portion of the rent is reflected as a recovery of the
financing lease asset. In fiscal 2001, one of the properties accounted for as
direct finance leases was sold. The initial lease terms for the remaining two
properties expired in fiscal 2001. The leases were renegotiated and are
accounted for as operating leases under FAS Statement No. 13.
We entered into a settlement with a former tenant in bankruptcy whereby
the former tenant paid $1.21 million in satisfaction of the Company's claims
against the tenant arising from the tenant's filing a petition in bankruptcy
and rejection of its lease at one of our properties. We have reflected the
settlement in revenues in the accompanying consolidated statements of income
for the three-month and nine-month periods ended July 31, 2001.
Our core properties contain more than 1.8 million square feet of gross
leasable area and were 97% leased at July 31, 2001. At our core properties, we
leased or renewed 179,000 square feet of gross leasable area in the first nine
months of fiscal 2001 compared to 235,000 square feet of space in the
comparable period in fiscal 2000.
Expenses
For the nine-months ended July 31, 2001, our total expenses increased
10.8% to $19.2 million from $17.3 million for the comparable period in fiscal
2000. Our total expenses, including depreciation and amortization, increased
17.3% to $6.7 million in the third quarter of fiscal 2001 compared to $5.7
million in the same period in fiscal 2000. The largest expense category is
property expenses of the real estate properties. The increase in property
expenses resulted principally from increased snow removal expenses and higher
property taxes at certain of our core properties in fiscal 2001.
27
Our interest expense increased in the nine-month and three-month periods
ended July 31, 2001 from additional borrowings totaling $16.5 million on our
unsecured and secured revolving credit lines. The increases in interest
expense were offset by mortgage loans totaling $12.7 million that were
refinanced at lower interest rates during fiscal 2001 and 2000.
Our depreciation and amortization expenses increased $860,000 and
$596,000, respectively, in the nine-month and three-month periods ended July
31, 2001, respectively, compared to the same periods in fiscal 2000. The
increases resulted from additional depreciation and amortization changes
related to $12.95 million of capital improvements, tenant allowances and other
leasing costs incurred during the period and $11.4 million of properties
acquired in fiscal 2000 and 2001. In the three-month period ended July 31,
2001, we wrote off $287,000 for unamortized tenant allowances relating to a
tenant who vacated its leased space at one of our properties during the
quarter.
Comparison of fiscal 2000 with fiscal year ended 1999 ("fiscal 1999")
Revenues
Our revenues from operating leases increased $1,576,000 or 5.5% to
$30,242,000 in fiscal 2000 compared to $28,666,000 in fiscal 1999. The
increase in operating lease revenues reflects $1,867,000 of additional rental
income from properties we acquired in fiscal 1999. Operating lease revenues
for properties owned during fiscal 2000 and 1999 reflect the loss of $700,000
in rental income from several tenants at two rental properties who filed for
bankruptcy protection and vacated the premises. We subsequently signed leases
with new tenants to re-lease the vacant spaces.
Our core properties, consisting of over 1.7 million square feet of gross
leasable area, were 97% leased at October 31, 2000, an increase of 1% from the
end of fiscal 1999. During fiscal 2000, we leased or renewed 353,000 square
feet of gross leasable area compared to 293,000 square feet of gross leasable
area in the comparable period in fiscal 1999.
Expenses
Our total expenses amounted to $23,281,000 in fiscal 2000 compared to
$21,596,000 in fiscal 1999. The largest expense category is property expenses
of the real estate operating properties. The increases in property expenses in
fiscal 2000 resulted principally from the additional property expenses for
properties acquired during fiscal 1999, which increased property expenses by
$669,000.
Our property expenses for all other properties increased by 3.3% from
higher repair and maintenance expenses and real estate taxes at certain of our
core properties. Our interest expense increased as a result of a full year's
interest expense on incremental borrowings of $18.3 million in fiscal 1999.
Our depreciation and amortization expense increased principally from the
write off of unamortized tenant improvement costs and other allowances for
tenants that vacated during the year.
Comparison of fiscal 1999 with fiscal year ended 1998 ("fiscal 1998")
Revenues
Our operating lease revenue increased 20.6% from the comparable period in
fiscal 1998. The increase in operating lease revenues results principally from
additional rent income earned from the addition of properties acquired during
fiscal 1999 and 1998. Such new properties increased operating rent by $5.9
million in fiscal 1999. Lease revenues for properties owned in both fiscal
1999 and 1998 were generally unchanged in fiscal 1999 when compared to the
same period in fiscal 1998. Overall, our properties were 96% leased at October
31, 1999. During fiscal 1999, we leased or renewed 293,000 square feet of
space or 13% of our total retail and office portfolio. Our industrial
properties are leased to single tenants under long term leases.
Our interest income decreased in fiscal 1999. In fiscal 1998, we sold a
$35 million preferred stock issue and proceeds of the offering were invested
in short-term cash investments until such time as they were used to make real
estate investments and repay outstanding mortgage indebtedness later in the
year. Also, we earned additional interest income of $278,000 from the
repayment of a mortgage note receivable last year.
28
Expenses
Our total expenses amounted to $21,596,000 in fiscal 1999 compared to
$17,252,000 in fiscal 1998. The largest expense category is property expenses
of the real estate operating properties. The increase in property expenses
reflects the effect of the addition of properties acquired in fiscal 1999 and
1998. Property expenses of new properties increased operating expenses by $1.8
million. Property expenses for properties owned during both fiscal 1999 and
1998 increased by 5% compared to fiscal 1998.
Our interest expense increased from borrowings on our unsecured and
secured revolving credit facilities utilized to complete the acquisition of
certain properties in fiscal 1999 and 1998 and the addition of $25.4 million
in first mortgage loans in fiscal 1999.
Our depreciation expense increased principally from the acquisition of
the properties referred to above. General and administrative expenses
increased in fiscal 1999 from higher legal and other professional costs and
compensation expense related to restricted stock issued to certain of our key
employees.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risk primarily through our borrowing
activities. There is inherent rollover risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not
quantifiable or predictable because of the variability of future interest
rates and our future financing requirements.
As of July 31, 2001, we had approximately $28.3 million of variable rate
debt outstanding under our secured and unsecured lines of credit arrangements.
The interest rate risk related to the secured line of credit can be mitigated
by electing a fixed rate interest option at any time prior to the last year of
the credit agreement which expires in 2005. During the nine-month periods
ended July 31, 2001 and 2000, the average variable rate indebtedness
outstanding during such periods had combined weighted average interest rates
of 7.5% and 7.7%, respectively. Had the weighted average interest rate been
100 basis points higher, our net income would have been lower by approximately
$123,000 and $89,000 in the nine-month periods ended July 31, 2001 and 2000,
respectively, and approximately $52,000 and $30,000 in the three-month periods
ended July 31, 2001 and 2000, respectively.
We have not, and do not plan to, enter into any derivative financial
instruments for trading or speculative purposes. As of July 31, 2001, we have
no other material exposure to market risk.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources include cash and cash equivalents,
proceeds from bank borrowings and long-term mortgage debt, capital financings
and sales of real estate investments. We expect to meet our short-term
liquidity requirements primarily by generating net cash from the operations of
our properties. Payments of expenses related to real estate operations, debt
service, management and professional fees and dividend requirements place
demands on our short-term liquidity. We believe that our net cash provided by
operations is sufficient to fund our short-term liquidity needs in the near
term. We expect to meet our long-term liquidity requirements such as property
acquisitions, debt maturities and capital improvements through long-term
secured indebtedness, proceeds from sales of real estate investments and/or
the issuance of additional equity securities.
At July 31, 2001, we had cash and cash equivalents of $2.8 million
compared to $2.0 million at October 31, 2000. We also have a $20 million
secured revolving credit facility with a bank which expires in fiscal year
2005. The facility is secured by first mortgage liens on two retail properties
having a net book value of $30.4 million. We also have a conditional unsecured
line of credit with the same bank which was increased by $5 million to $20
million in June 2001 and expires in fiscal year 2002. The revolving credit
lines are available to finance the acquisition, management or development of
commercial real estate, refinance indebtedness and for working capital
purposes. Extensions of credit under the unsecured credit line are at the
bank's discretion and subject to the bank's satisfaction
29
of certain conditions. In fiscal 2001, we utilized borrowings from the
secured revolving credit line to repay a $1.95 million mortgage note which
matured and to finance the acquisition of real property. At July 31, 2001, our
long-term debt consisted of mortgage notes payable totaling $54.3 million,
including $16.8 million outstanding under the secured revolving credit
facility. We also had $11.5 million outstanding on the unsecured revolving
credit line at July 31, 2001. Borrowings from the secured and unsecured
revolving credit line totaling $16.45 million in fiscal 2001 were used to fund
tenant improvement costs, repay secured indebtedness of $4.1 million and
finance the acquisitions of real property.
During fiscal year 2001, we sold 200,000 shares of common stock and 5,000
shares of Class A common stock in a private placement to two entities
controlled by one of our officers. We realized $1.435 million in cash proceeds
from the equity sale.
We are the general partner in a consolidated joint venture that owns the
Arcadian Shopping Center in Briarcliff, New York. In a prior year, the limited
partners contributed the property in exchange for operating partnership units
("OPU's") in the venture. The OPU's are redeemable at the option of the
holder, into an equivalent number of shares of Class A common stock or cash,
at our option. In February 2001, pursuant to notice from a limited partner, we
redeemed 127,548 OPU's for $1.0 million, an amount that equaled our net book
value of the OPU's.
In February 2001, a tenant at our warehouse facility in Albany, Georgia
exercised its option under its lease to purchase the property at a price of
$100,000, an amount which equaled the property's net book value.
In July 2001, we obtained a commitment from a commercial bank for a $6
million seven-year first mortgage loan. The bank funded an initial
disbursement of $4.8 million on October 24, 2001 at a fixed interest rate of
6.24%. The remaining $1.2 million portion of the commitment is over the same
seven-year term at a fixed interest rate of 2% over the then applicable
treasury note rate. The proceeds of such loan and commitment will be used to
re-finance existing debt under our revolving credit facilities;
In August 2001, we sold 4.2 acres of undeveloped land in Denver, Colorado
for $1.2 million. We will report a gain on the sale of this property in the
fourth quarter of fiscal 2001.
In September 2001, we entered into a contract to sell our non-core service
and distribution facility located in the Dallas, Texas area for $8,000,000 in
cash. The closing of the sale of this property is currently scheduled to occur
on or around November 1, 2001.
In September 2001, we obtained a $5,000,000 first mortgage loan from a
commercial bank. This loan has a term of ten years, bears interest at 7.25%
per annum and is secured by a first mortgage on our shopping center in Carmel,
New York. We used the proceeds of this loan and other funds obtained from our
working capital to repay $7,500,000 outstanding under our unsecured revolving
credit facilities.
In September 2001, our Countryside Square Limited Partnership sold its
Countryside Square shopping center. Upon liquidation of this partnership we
will receive distributions of approximately $1.8 million in cash, $1.2 million
in notes issued by the purchaser of the property which bear interest at 12.5%
per annum, and 1,200,000 shares of our Class A common stock currently held by
this partnership. Upon liquidation of this partnership, the 1,200,000 shares
of Class A common stock will be retired by us. For accounting purposes,
545,454 of these shares of Class A common stock held by the partnership were
deemed to have been retired by us prior to the sale of the Countryside Square
shopping center. In connection with this sale, we effectively gained control
of the partnership and, as a result, the remaining 654,546 shares of Class A
common stock held by the partnership were deemed to be retired by us for
accounting purposes.
We expect to make real estate investments periodically. In fiscal 2001,
we effectively acquired two properties for a total purchase price of $9.5
million. One property was acquired subject to a first mortgage loan of $4.2
million. We financed the balance of the purchase prices from available cash
and
30
short-term bank borrowings. We also invested in our existing properties and, in
the first nine months of fiscal 2001, spent approximately $9.2 million to
complete tenant improvements and related tenant allowances in connection with
our core property leasing activities. We expect to spend approximately
$3.0 million to complete our leasing related costs over the next six months.
FUNDS FROM OPERATIONS
We consider Funds From Operations ("FFO") to be an appropriate
supplemental financial measure of an equity REIT's operating performance since
such measure does not recognize depreciation and amortization of real estate
assets as reductions of income from operations.
We have adopted the definition of Funds from Operations (FFO) suggested
by the National Association of Real Estate Investment Trusts (NAREIT) and
define FFO as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of properties,
plus depreciation and amortization and after adjustments for unconsolidated
joint ventures. FFO does not represent net cash from operating activities in
accordance with generally accepted accounting principles and should not be
considered an alternative to net income as an indicator of our operating
performance, or for cash flows as a measure of liquidity or ability to make
distributions. The Company considers FFO an appropriate supplemental measure
of operating performance because it primarily excludes the assumption that the
value of real estate assets diminishes predictably over time, and because
industry analysts recognize it as a performance measure. Comparison of the
Company's presentation of FFO, using the NAREIT definition, to similarly
titled measures for other REITs may not necessarily be meaningful due to
possible differences in the application of the NAREIT definition used by such
REITs. Effective January 1, 2000, NAREIT clarified the definition of the FFO
to include non-recurring items. Accordingly, amounts prior to 2000 have been
restated to conform to the new definition.
The table below provides a reconciliation of net income in accordance
with GAAP to FFO as calculated under the current NAREIT guidelines for the
nine-month periods ended July 31, 2001 and 2000, and for the three years ended
October 31, 2000, 1999 and 1998 (amounts in thousands).
NINE-MONTHS ENDED
JULY 31,
-----------------------
2001 2000
--------- -----------
Net Income Applicable to Common and Class A Common
Stockholders ............................................................ $ 5,059 $ 4,306
Plus: Real property depreciation ......................................... 3,299 3,173
Amortization of tenant improvements and allowances ...................... 1,651 899
Amortization of deferred leasing costs .................................. 464 409
Recoveries of investments in properties subject to finance leases ....... 91 734
Adjustments for unconsolidated joint venture ............................ 473 365
Less: Gains on sales of real estate investments .......................... -- (1,067)
------- --------
Funds from Operations .................................................... $11,037 $ 8,819
======= ========
YEAR ENDED OCTOBER 31,
-------------------------------------
2000 1999 1998
----------- ----------- ---------
Net Income Applicable to Common and Class A Common
Stockholders ............................................. $ 5,442 $ 6,043 $ 5,615
Plus: Real property depreciation .......................... 5,638 5,070 4,152
Amortization of tenant improvement and lease acquisition
costs .................................................. 545 585 525
Recoveries of investments in properties subject to finance
leases ................................................. 822 890 798
Adjustments for unconsolidated joint venture ............. 534 654 692
Less: Gains on sales of real estate investments ........... (1,067) (1,364) --
-------- -------- -------
Funds from Operations ..................................... $ 11,914 $ 11,878 $11,782
======== ======== =======
31
SEGMENT REPORTING
For financial reporting purposes, we have grouped our real estate
investments into two segments: equity investments and mortgage loans. Equity
investments are managed separately from mortgage loans as they require a
different operating strategy and management approach. We assess and measure
operating results for each of our segments, based on net operating income. For
equity investments, net operating income is calculated as rental revenues of
the property less its rental expenses (such as common area expenses, property
taxes, insurance, etc.) and, for mortgage loans, net operating income consists
of interest income less direct expenses, if any.
The revenue, net operating income and assets for each of the reportable
segments are summarized in the following tables for the three-month and
nine-month periods ended July 31, 2001 and 2000, and for the fiscal year ended
October 31, 2000. Non-segment assets include cash and cash equivalents,
interest receivable, and other assets. The non-segment revenues consist
principally of interest income on temporary investments. The accounting
policies of the segments are the same as those used for our other financial
statements. (In thousands)
ALL EQUITY NON
THREE-MONTHS ENDED JULY 31, PROPERTIES MORTGAGE LOANS SEGMENT TOTAL
------------------------------ ------------ ---------------- --------- -----------
2001
----
Total Revenues ............... $ 9,833 $ 74 $ 76 $ 9,983
======== ====== ====== ========
Net Operating Income ......... $ 6,880 $ 74 $ 76 $ 7,030
======== ====== ====== ========
Total Assets ................. $192,716 $2,321 $1,267 $196,304
======== ====== ====== ========
2000
----
Total Revenues ............... $ 7,402 $ 119 $ 85 $ 7,606
======== ====== ====== ========
Net Operating Income ......... $ 4,735 $ 119 $ 85 $ 4,939
======== ====== ====== ========
Total Assets ................. $175,752 $2,399 $2,635 $180,786
======== ====== ====== ========
ALL EQUITY NON
NINE-MONTHS ENDED JULY 31, PROPERTIES MORTGAGE LOANS SEGMENT TOTAL
------------------------------ ------------ ---------------- --------- ----------
2001
----
Total Revenues ............... $ 26,533 $ 229 $ 204 $ 26,966
======== ====== ====== ========
Net Operating Income ......... $ 17,771 $ 229 $ 204 $ 18,204
======== ====== ====== ========
Total Assets ................. $192,716 $2,321 $1,267 $196,304
======== ====== ====== ========
2000
----
Total Revenues ............... $ 22,782 $ 299 $ 202 $ 23,283
======== ====== ====== ========
Net Operating Income ......... $ 14,896 $ 299 $ 202 $ 15,397
======== ====== ====== ========
Total Assets ................. $175,752 $2,399 $2,635 $180,786
======== ====== ====== ========
32
ALL EQUITY NON
YEAR ENDED OCTOBER 31, PROPERTIES MORTGAGE LOANS SEGMENT TOTAL
------------------------------ ------------ ---------------- --------- ----------
2000
----
Total Revenues ............... $ 30,664 $ 376 $ 214 $ 31,254
======== ====== ====== ========
Net Operating Income ......... $ 19,800 $ 376 $ 214 $ 20,390
======== ====== ====== ========
Total Assets ................. $176,769 $2,379 $1,952 $181,100
======== ====== ====== ========
1999
----
Total Revenues ............... $ 29,282 $ 302 $ 230 $ 29,814
======== ====== ====== ========
Net Operating Income ......... $ 19,430 $ 302 $ 230 $ 19,962
======== ====== ====== ========
Total Assets ................. $179,370 $2,500 $1,904 $183,774
======== ====== ====== ========
1998
----
Total Revenues ............... $ 24,335 $ 684 $ 576 $ 25,595
======== ====== ====== ========
Net Operating Income ......... $ 16,472 $ 684 $ 576 $ 17,732
======== ====== ====== ========
Total Assets ................. $158,455 $2,607 $3,977 $165,039
======== ====== ====== ========
33
The reconciliation to net income for the combined segments and us is as
follows:
THREE-MONTHS ENDED
JULY 31,
---------------------
2001 2000
--------- ---------
Net Operating income from reportable segments ......... $7,030 $4,939
------ ------
Deductions:
Interest Expense ..................................... 609 575
Depreciation and amortization ........................ 1,123 1,062
General and administrative expenses .................. 2,087 1,491
------ ------
Total Deductions ...................................... 3,819 3,128
------ ------
Net Income ............................................ 3,211 1,811
Preferred Stock Dividends ............................ (787) (787)
------ ------
Net Income applicable to Common and Class A
Common stockholders .................................. $2,424 $1,024
====== ======
NINE-MONTHS ENDED
JULY 31,
-----------------------
2001 2000
---------- ----------
Net Operating income from reportable segments ......... $ 18,204 $ 15,397
-------- --------
Additions:
Gain on sale of real estate .......................... -- $ 1,067
-------- --------
Deductions:
Interest Expense ..................................... 2,087 2,046
Depreciation and amortization ........................ 3,269 3,183
General and administrative expenses .................. 5,429 4,569
-------- --------
Total Deductions ...................................... 10,785 9,798
-------- --------
Net Income ............................................ 7,419 6,666
Preferred Stock Dividends ............................ (2,360) (2,360)
-------- --------
Net Income applicable to Common and Class A
Common stockholders .................................. $ 5,059 $ 4,306
======== ========
YEAR ENDED OCTOBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Net Operating income from reportable segments ......... $ 20,390 $ 19,962 $ 17,732
-------- -------- --------
Additions:
Gain on sale of real estate .......................... $ 1,067 $ 1,364 --
-------- -------- --------
Deductions:
Interest Expense ..................................... 4,245 3,913 2,522
Depreciation and amortization ........................ 6,307 5,896 4,747
General and administrative expenses .................. 2,316 2,327 2,287
-------- -------- --------
Total Deductions ...................................... 12,868 12,136 9,556
-------- -------- --------
Net Income ............................................ 8,589 9,190 8,176
Preferred Stock Dividends ............................ (3,147) (3,147) (2,561)
-------- -------- --------
Net Income applicable to Common and Class A
Common stockholders .................................. $ 5,442 $ 6,043 $ 5,615
======== ======== ========
34
MANAGEMENT
Our senior management group includes professionals with an average of 28
years of experience in real estate investment and related fields. We also have
a strong independent Board of Directors with many years of experience in the
real estate industry. Detailed biographical information on our officers and
directors is set forth below.
Our Board of Directors and senior management beneficially own 47.3% of
our outstanding shares of common stock and 12.9% of our outstanding shares of
Class A common stock, which collectively represents approximately 30.6% of the
total outstanding shares of common stock and Class A common stock and 45.8% of
the aggregate voting power of the outstanding shares of common stock and Class
A common stock.
BOARD OF DIRECTORS
The following persons currently serve as members of our Board of Directors:
NAME AGE POSITION
------------------------------- ----- ---------------------------
Charles J. Urstadt ............ 72 Chairman and Director
Robert R. Douglass ............ 69 Vice Chairman and Director
Willing L. Biddle ............. 39 Director
E. Virgil Conway .............. 71 Director
Peter Herrick ................. 73 Director
George H.C. Lawrence .......... 63 Director
Charles D. Urstadt ............ 41 Director
George J. Vojta ............... 65 Director
Charles J. Urstadt has served as a Director since 1975 and as our
Chairman of the Board of Trustees/Directors and Chief Executive Officer since
1989. He is also Chairman and Director of Urstadt Property Company, Inc., a
real estate investment corporation that is not affiliated with the Company
other than through Mr. Urstadt's personal affiliation with the two companies.
Mr. Urstadt was appointed First Chairman and CEO of the Battery Park City
Authority by Governor Nelson A. Rockefeller in 1968. The Authority was created
to develop 100 acres in the Hudson River off lower Manhattan as a new
community containing six million square feet of hotel, shopping, education,
service and recreational space and he has been called the "Father of Battery
Park City." His term as Chairman expired in 1978. He was reappointed as a
member of the Authority in 1998 by Governor Pataki for a six-year term and was
elected Vice Chairman upon his appointment. As Commissioner of NYS Housing and
Community Renewal from 1967 to 1973, he was responsible for the administration
of New York State's $2.5 billion middle income housing program, its $1 billion
low income housing program, its $185 million Urban Renewal Program and State
Rent Control. This entailed the planning, construction and management of over
60,000 apartments in 144 middle income projects, 66,000 apartments in 290 low
income projects and 200,000 apartments under rent control. He was also the
chief architect of the concept for the New York State Urban Development
Corporation which was created in 1968, as well as other New York State
legislation which vitally affected housing throughout New York State between
1967 and 1973. Other significant positions of Mr. Urstadt include: Advisory
Director, Putnam Trust Company; former Trustee, Teacher's Insurance and
Annuity Association; Trustee Emeritus, Pace University; former Chairman &
President of Pearce, Urstadt, Mayer & Greer Realty Corp; and Trustee of
Historic Hudson Valley. He has served four Presidents and five New York
Governors in various appointed positions in the Housing and Real Estate areas
during his career.
Robert R. Douglass has served as a Director since 1991. Mr. Douglass is
also currently Of Counsel to Milbank, Tweed, Hadley and McCloy, the Chairman
and a Director of Cedel International and the Chairman and a Director of
Clearstream International. Other significant positions of Mr. Douglass
include: retired Vice Chairman and Director of The Chase Manhattan Corporation
(1985 to 1993); Executive Vice President, General Counsel and Secretary of The
Chase Manhattan Corporation (1976 to 1985); Trustee of Dartmouth College (1983
to 1993); Chairman of the
35
Downtown Lower Manhattan Association; Chairman of the Alliance for Downtown New
York; Director of the Business Council for the United Nations; a Member of the
Council on Foreign Relations; Member of the Board of Managers of The New York
Botanical Garden; and former Director of Gryphon Holdings, Inc.
Willing L. Biddle has served as a Director since 1997 and as our
President and Chief Operating Officer since 1996. Other significant positions
of Mr. Biddle include: our Executive Vice President from March 1996 to
December 1996; our Senior Vice President -- Management from June 1995 to March
1996; our Vice President -- Retail from April 1993 to June 1995; Commercial
Lending Officer at Chase Manhattan Bank; Certified Property Manager by IREM;
Licensed Real Estate Broker, New York; and former Executive Committee Member
of the Real Estate Finance Association.
E. Virgil Conway has served as a Director since 1989. Mr. Conway recently
retired as Chairman of the Metropolitan Transportation Authority after serving
in that capacity since 1995. Other significant positions of Mr. Conway
include: Chairman of the Financial Accounting Standards Advisory Council
(1992-1995); Financial Consultant and Corporate Director (since January 1989);
Chairman and Director of The Seamen's Bank for Savings, FSB (1969-1989);
Trustee of Consolidated Edison Company of New York, Inc.; Director of Union
Pacific Corporation; Trustee of Phoenix Duff & Phelps Mutual Funds; Trustee of
Atlantic Mutual Insurance Company; Director of Centennial Insurance Company;
Director of AccuHealth, Inc.; Chairman of the New York Housing Partnership
Development Corporation; Vice Chairman of the Academy of Political Science;
and Trustee of Pace University.
Peter Herrick has served as a Director since 1990. Other significant
positions of Mr. Herrick include: retired Vice Chairman (1990-1992) and
Director of The Bank of New York; President and Chief Operating Officer of The
Bank of New York (February 1982 to June 1990); President and Director of The
Bank of New York Company, Inc. (February 1984 to March 1992); Member of the
New York State Banking Board (June 1990 to April 1993); Director of BNY
Hamilton Funds (1992-1999); and Director of MasterCard International
(1985-1992).
George H.C. Lawrence has served as a Director since 1988. Mr. Lawrence is
also currently the Chairman, Chief Executive Officer and President of Lawrence
Investing Company, Inc. (since 1970). Other significant positions of Mr.
Lawrence include: Trustee of Sarah Lawrence College; Director of the
Westchester County Association; Senior Vice President and Director of Kensico
Cemetery; and Director of CLX Energy.
Charles D. Urstadt has served as a Director since 1997 after having
served on our Board of Consultants since 1991. Mr. Urstadt is also currently
the President and Director of Urstadt Property Company, Inc. and a Senior
Managing Director at Brown Harris Stevens, LLC. Other significant positions of
Mr. Urstadt include: former Publisher of the New York Construction News
(1984-1992); former Senior Vice President of Pearce, Urstadt, Mayer & Greer
Realty Corp. (until 1989); President and Director of the East Side Association
(since 1988); Director of Friends of Channel 13 (since 1992); Board Member of
the New York State Board for Historic Preservation (since 1996); and Former
Director of the New York Building Congress (1988-1992).
George J. Vojta has served as one of our Directors since 1999. Other
significant positions of Mr. Vojta include: retired Vice Chairman and Director
of Bankers Trust Company (1992-1999); Executive Vice President of Bankers
Trust Company (1984-1992); Member of the New York State Banking Board;
Director of the Private Export Funding Corporation; Chairman of the Wharton
Financial Institutions Center; Chairman of The Westchester Group, LLC;
President of the Financial Services Forum; Member of the Council on Foreign
Relations; and Director and Vice Chairman of St. Luke's/Roosevelt Hospital.
36
EXECUTIVE OFFICERS AND OTHER KEY MEMBERS OF MANAGEMENT
The following persons currently serve as our officers in the capacities
indicated:
NAME AGE POSITION
------------------------------ ----- ------------------------------------------------
Charles J. Urstadt ........... 72 Chief Executive Officer
Willing L. Biddle ............ 39 President and Chief Operating Officer
James R. Moore ............... 53 Executive Vice President, Chief Financial
Officer and Treasurer
Raymond P. Argila ............ 53 Senior Vice President, Chief Legal Officer and
Assistant Secretary
Thomas D. Myers .............. 50 Vice President, Secretary and Associate Counsel
John C. Merritt .............. 44 Vice President, Acquisitions
Wayne W. Wirth ............... 55 Vice President, Construction
Linda L. Imhof ............... 36 Vice President, Leasing
Joseph V. LoParrino .......... 34 Controller
Heidi Bramante ............... 35 Assistant Vice President
For biographical information for Messrs. Urstadt and Biddle, see "Board of
Directors" above.
James R. Moore has served as our Executive Vice President and Chief
Financial Officer since 1996 and served as our Senior Vice President and Chief
Financial Officer from 1989 to 1996. Mr. Moore has also served as our Treasurer
since 1987. Mr. Moore is a Certified Public Accountant in the State of New
York. Other significant positions of Mr. Moore include: former Senior Manager
of Ernst & Young; Member of the American Institute of Certified Public
Accountants; and Member of the Accounting Committee of the National Association
of Real Estate Investment Trusts (NAREIT).
Raymond P. Argila has served as our Senior Vice President and Chief Legal
Officer since 1990. Other significant positions of Mr. Argila include: former
Senior Counsel to New York Region of Cushman & Wakefield, Inc.; Vice President
and Chief Legal Officer of Pearce, Urstadt, Mayer & Greer Realty Corp.; and
Member of the New York State Bar Association.
Thomas D. Myers has served as our Vice President and Associate Counsel
since 1995 and Secretary since 1998. Other significant positions of Mr. Myers
include: Vice President and Associate General Counsel of Peoples Westchester
Savings Bank; and Member of the New York State Bar Association.
John C. Merritt has served as our Vice President and Director of
Acquisitions since 1997. Mr. Merritt previously served as our Assistant Vice
President--Management from 1995 to 1997. Other significant positions of Mr.
Merritt include: Owner of Merritt Commercial Realty, Inc.; RPA designation
from the Building Owners and Managers Association; Certified Shopping Center
Manager by ICSC; and Licensed Real Estate Broker in New York and Connecticut.
Wayne W. Wirth has served as our Vice President of Construction since
1998. Other significant positions of Mr. Wirth include: Regional Property
Manager, Newmark & Company (from 1996 to 1998); and Project and Property
Manager, Gateside Corporation (from 1988 to 1996). Prior to 1996 Mr. Wirth
owned his own construction company and was employed with the U.S. Navy.
Linda L. Imhof has served as Vice President of Leasing since 1999. Other
significant positions of Ms. Imhof include: Assistant Vice President, Apple
Bank for Savings (from 1995 to 1997); Assistant Vice President, S.L. Green
Real Estate, Inc. (from 1991 to 1995); BOMA Certified Real Property
Administrator; and Licensed Real Estate Broker, New York.
Joseph V. LoParrino has served as our Controller since 1999. Mr.
LoParrino is a Certified Public Accountant licensed in the State of New York.
Prior to joining the Company, Mr. LoParrino held the position of Accounting
Supervisor of Corporate Property Investors (a REIT) from 1993 to 1998 and
Senior Accountant for Margold, Ersken & Wang, CPA's from 1990 to 1993.
Heidi Bramante has served as Assistant Vice President - Assistant
Controller since 1997 and served in various administrative capacities with us
since 1988. Prior to joining the Company Ms. Bramante was an administrative
assistant at Investor's Business Daily. Ms. Bramante currently serves as
Co-President of the Board of St. Cecilia's School.
37
DESCRIPTION OF SECURITIES
GENERAL
Under our Articles of Incorporation we may issue up to 30,000,000 shares
of common stock, 40,000,000 shares of Class A common stock, 20,000,000 shares
of preferred stock and 10,000,000 shares of Excess Stock. At October 23, 2001,
we had outstanding 6,242,138 shares of common stock, 6,000,018 shares of Class
A common stock, 350,000 shares of Series B Senior Cumulative preferred stock
and no shares of Excess Stock. The number of shares of Class A common stock
outstanding at October 23, 2001 includes 1,200,000 shares of Class A common
stock held by Countryside Square Limited Partnership, of which we are the
controlling general partner. For accounting purposes, these shares are deemed
to be retired by us but will not actually be retired by us until we receive
these shares upon the liquidation and winding up of this partnership. In
addition, we have reserved 317,466 shares of common stock and 120,144 shares
of Class A common stock for outstanding grants and future issuance under our
employee stock option plan, 157,622 shares of common stock and 181,733 shares
of Class A common stock for issuance under our dividend reinvestment and share
purchase plan, 110,375 shares of common stock and 207,125 shares of Class A
common stock for issuance under our restricted stock plan and 309,650 shares
of Class A common stock and 54,553 shares of common stock upon redemption of
operating partnership interests.
DESCRIPTION OF COMMON STOCK AND CLASS A COMMON STOCK
Voting
Under our Articles of Incorporation, holders of our common stock are
entitled to one vote per share on all matters submitted to the common
shareholders for vote at all meetings of shareholders. Holders of our Class A
common stock are entitled 1/20th of one vote per share on all matters
submitted to the common shareholders for vote at all meetings of shareholders.
Except as otherwise required by law or as to certain matters as to which
separate class voting rights may be granted in the future to holders of one or
more other classes or series of our capital stock, holders of common stock and
Class A common stock vote together as a single class, and not as separate
classes, on all matters voted upon by our shareholders. After giving effect to
the issuance of 4,800,000 shares of Class A common stock pursuant to this
offering, the holders of our Class A common stock, as a group, will control
7.96% of the voting power of our common equity securities and the holders of
our common stock, as a group, will control 92.04% of the voting power of our
common equity securities. Therefore, holders of our common stock have
sufficient voting power to approve or disapprove all matters voted upon by our
shareholders, including any proposal that could affect the relative dividend
or other rights of our common stock and Class A common stock.
Dividends and Distributions
Subject to the requirements with respect to preferential dividends on any
of our preferred stock, dividends and distributions are declared and paid to
the holders of common stock and Class A common stock in cash, property or
other securities of the Company (including shares of any class or series
whether or not shares of such class or series are already outstanding) out of
funds legally available therefor. Each share of common stock and each share of
Class A common stock has identical rights with respect to dividends and
distributions, subject to the following: (i) with respect to regular quarterly
dividends, each share of Class A common stock entitles the holder thereof to
receive not less than 110% of amounts paid on each share of common stock, the
precise amount of such dividends on the Class A common stock being subject to
the discretion of our Board of Directors; (ii) a stock dividend on the common
stock may be paid in shares of common stock or shares of Class A common stock;
and (iii) a stock dividend on shares of Class A common stock may be paid only
in shares of Class A common stock. If a stock dividend on the common stock is
paid in shares of common stock, we are required to pay a stock dividend on the
Class A common stock in a proportionate number of shares of Class A common
stock. The dividend provisions of the common stock and Class A common stock
provide our Board of Directors with the flexibility to determine appropriate
dividend levels, if any, under the circumstances from time to time.
38
Mergers and Consolidations
In the event we merge, consolidate or combine with another entity
(whether or not we are the surviving entity), holders of shares of Class A
common stock will be entitled to receive the same per share consideration as
the per share consideration, if any, received by holders of common stock in
that transaction.
Liquidation Rights
Holders of common stock and Class A common stock have the same rights
with respect to distributions in connection with a partial or complete
liquidation of our Company.
Restrictions on Ownership and Transfer
We have the right to refuse transfers of capital stock that could
jeopardize our qualification as a REIT and to redeem any shares of capital
stock in excess of 7.5% of the value of our outstanding capital stock
beneficially owned by any person (other than an exempted person).
Transferability
The common stock and Class A common stock are freely transferable, and
except for the ownership limit and federal and state securities laws
restrictions on our directors, officers and other affiliates and on persons
holding "restricted" stock, our shareholders are not restricted in their
ability to sell or transfer shares of the common stock or Class A common
stock.
Sinking Fund, Preemptive, Subscription and Redemption Rights
Neither the common stock nor the Class A common stock carries any sinking
fund, preemptive, subscription or redemption rights enabling a holder to
subscribe for or receive shares of any class of our stock or any other
securities convertible into shares of any class of our stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock and Class A common
stock is The Bank of New York.
DESCRIPTION OF CLASS B SENIOR CUMULATIVE PREFERRED STOCK
General
In January 1998, we issued 350,000 shares of 8.99% Series B Senior
Cumulative preferred stock (the "Series B preferred stock") to three investors
in a private placement for aggregate proceeds of $35,000,000.
Maturity
The Series B preferred stock has no stated maturity and is not subject to
any sinking fund or mandatory redemption.
Rank
With respect to the payment of dividends and amounts upon liquidation,
the Series B preferred stock ranks senior to the common stock and Class A
common stock and to all equity securities we issue ranking junior to the
Series B preferred stock with respect to dividend rights or rights upon our
liquidation, dissolution or winding up and will rank equally with all equity
securities we issue which specifically provide that the equity securities rank
equally with the Series B preferred stock with respect to dividend rights or
rights upon our liquidation, dissolution or winding up. Without the
affirmative vote or consent of the holders of at least two-thirds of the
outstanding Series B preferred stock, we may not issue more than 100
additional shares of Series B preferred stock or any equity securities which
rank senior to the Series B preferred stock with respect to dividend rights or
rights upon our liquidation, dissolution or winding up.
39
Dividends
Dividends on the Series B preferred stock are cumulative from January 8,
1998, the date of original issue, and are payable quarterly on January 31,
April 30, July 31 and October 31 of each year, to shareholders of record on
the applicable record date determined each quarter by our Board of Directors
for the quarterly periods ended January 31, April 30, July 31 and October 31,
as applicable, at the rate of 8.99% per annum of the Liquidation Preference
(as defined below) (the "Initial Dividend Yield"). If we violate the Fixed
Charge Coverage Ratio Covenant (as defined below) or the Capitalization Ratio
Covenant (as defined below), and fail to cure this violation on or before the
second succeeding dividend payment date, the Initial Dividend Yield will be
increased to 2.0% over the Initial Dividend Yield (the "First Default Dividend
Yield") as of that second succeeding dividend payment date. If we remain in
violation of either the Fixed Charge Ratio Covenant or the Capitalization
Ratio Covenant on four consecutive dividend payment dates after the initial
violation of either covenant, the Dividend Yield (the "Dividend Yield") will
increase to the greater of (i) the Discount Rate (as defined below) plus 7.0%
or (ii) 15% (the "Second Default Dividend Yield") as of that fourth
consecutive dividend payment date. The First Default Dividend Yield and the
Second Default Dividend Yield will revert back to the Initial Dividend Yield
if we remain in compliance with the Fixed Charge Coverage Ratio Covenant and
the Capitalization Ratio Covenant on two consecutive dividend payment dates
after the First Default Dividend Yield or Second Default Dividend Yield takes
effect.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up
of our affairs, the holders of shares of Series B preferred stock are entitled
to be paid out of our assets legally available for distribution to our
shareholders a liquidation preference of $100 per share (the "Liquidation
Preference"), plus an amount equal to any accrued and unpaid dividends to the
date of payment.
Redemption
Except in certain circumstances relating to preservation of our status as
a REIT under the Internal Revenue Code, and to a change of control involving
the Company, the Series B preferred stock is not redeemable before January 8,
2008 (the "Tenth Anniversary Date"). On and after the Tenth Anniversary Date,
the Series B preferred stock is redeemable for cash at our option, in whole or
in part, at a redemption price of $100 per share, plus dividends accrued and
unpaid at the redemption date (whether or not declared), without interest.
Change of Control
In the event we experience a change of control, each holder of shares of
Series B preferred stock has the right, at the holder's option, to require us
to repurchase all or any part of the holder's Series B preferred stock at a
repurchase price of $100 per share, plus all accrued and unpaid dividends on
the shares, if any, up to the date fixed for repurchase, without interest,
subject to the Maryland General Corporation Law. In the event we experience a
change of control, we have the right, at our option, to redeem all or any part
of the shares of each holder of Series B preferred stock at (i) before the
Tenth Anniversary Date, the Make-Whole Price (as defined below) and (ii) on or
after the Tenth Anniversary Date, the redemption price of $100 per share, plus
all accrued and unpaid dividends on the shares, if any, without interest,
pursuant to the procedures applicable to other redemptions of shares of Series
B preferred stock.
Voting Rights
Holders of Series B preferred stock generally have no voting rights.
However, whenever dividends on any shares of Series B preferred stock are in
arrears for three or more quarterly periods within any five-year period,
whether or not the quarterly periods are consecutive, the holders of the
shares (subject to certain restrictions in the case of entities regulated by
the Bank Holding Company Act of 1956) are entitled to elect, voting separately
as a class with all other shares of Parity Preferred (as defined below) upon
which like voting rights have been conferred and are exercisable, two
additional
40
directors of our Board of Directors until all dividends accumulated on the
shares of Series B preferred stock have been fully paid or declared and a sum
sufficient for the payment of the dividends is set aside for payment. Without
the affirmative vote or consent of at least two-thirds of the outstanding
Series B preferred stock, we may not (i) effect any voluntary termination of
our status as a REIT, (ii) effect certain changes to the terms of the Series B
preferred stock that would be materially adverse to the rights of the holders
of the Series B preferred stock (including, without limitation, the issuance
of more than 100 additional shares of Series B preferred stock) or (iii) enter
into or undertake any Senior Obligations (as defined below) at any time during
which we are in violation of the Fixed Charge Ratio Covenant or the
Capitalization Ratio Covenant. Without the affirmative vote or consent of all
of the outstanding Series B preferred stock, we may not effect changes to
certain terms of the Series B preferred Stock, including among others, the
Initial Dividend Yield, the Liquidation Preference, the Dividend Payment Dates
and the Make-Whole Price (all as defined below). Moreover, without the
affirmative vote or consent of at least 85% of the outstanding Series B
preferred stock, subject to certain conditions, we may not effect changes to
certain terms of the Series B preferred stock related to the Fixed Charge
Coverage Ratio Covenant and the Capitalization Ratio Covenant.
Conversion
The Series B preferred stock is not convertible into or exchangeable for
any other securities or property of the Company.
Certain Covenants
The Articles Supplementary of the Series B preferred stock provide that
so long as any share of Series B preferred stock remains outstanding, we may
not permit (i) the Fixed Charge Coverage Ratio (as defined below) for the
period comprised of our two most recently completed fiscal quarters
immediately preceding the date of determination to be less than 1.30 (the
"Fixed Charge Coverage Ratio Covenant") or (ii) the Capitalization Ratio (as
defined below) to exceed 0.55 (the "Capitalization Ratio Covenant").
We may not enter into or undertake any Senior Obligation which results in
a violation of the Fixed Charge Coverage Ratio Covenant or the Capitalization
Ratio Covenant, compliance with the covenants being determined (i) in the case
of the Fixed Charge Coverage Ratio Covenant, after giving effect on a pro
forma basis to any such Senior Obligation as if the Senior Obligation had been
issued on the first day of the Calculation Period (as defined below), and (ii)
in the case of the Capitalization Ratio Covenant, as of the end of our fiscal
quarter immediately preceding our fiscal quarter in which the Senior
Obligation is issued or undertaken, after giving effect on a pro forma basis
to any such Senior Obligation as if the Senior Obligation had been issued on
the first day of the immediately preceding quarter.
Restrictions on Ownership and Transfer
We have the right to refuse transfers of capital stock that could
jeopardize our qualification as a REIT and to redeem any shares of capital
stock in excess of 7.5% of the value of our outstanding capital stock
beneficially owned by any person. Pursuant to a Subscription Agreement
executed between us and the initial holders of the Series B preferred stock
(the "Subscription Agreement"), we and the holders agreed that if, at any time
prior to the Listing Date (as defined below), we determine that we intend to
revoke the exemption granted to a certain initial holder of the Series B
preferred stock which permits the holder to own shares of Series B preferred
stock in excess of 7.5% of the value of outstanding capital stock (the
"Ownership Limit"), (i) we have an obligation to purchase from the holder, and
the holder has an obligation to sell to us, the shares of Series B preferred
stock in excess of the Ownership Limit at the Make-Whole Price, and (ii) we
have an obligation to purchase from each other holder of Series B preferred
stock, and each other holder has an obligation to sell to us, a pro rata
number of the shares of Series B preferred stock held by each other holder at
that time. Each and every transferee of shares of Series B preferred stock
will be required, as a condition to transfer, to agree to be bound by any
obligations of the transferor.
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In addition, the Series B preferred stock has not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws and pending the registration may not be offered or sold except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state
securities laws.
Registration Rights
Pursuant to a Registration Rights Agreement (as amended, the
"Registration Rights Agreement") between our Company and the holders of the
Series B preferred stock, we are required to use our reasonable best efforts,
on or prior to December 31, 2001, to file and cause to become effective a
Registration Statement with the Commission under the Securities Act with
respect to the Series B preferred stock.
Listing
Pursuant to the Registration Rights Agreement, the holders of 66 2/3% of
the outstanding Series B preferred stock are entitled, subject to certain
conditions, to request us to apply for listing of the Series B preferred stock
on the New York Stock Exchange, Inc. (the "NYSE") or, if the Series B
preferred stock is not then eligible for listing on the NYSE, to apply for
listing of the Series B preferred stock on the American Stock Exchange, Inc.
(the "AMEX") or, if the Series B preferred stock is not then eligible for
listing on the AMEX, to apply for quotation of the Series B preferred stock
through the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") (the date of any such listing, the "Listing
Date").
Certain Preferred Stock Definitions
"Calculation Period" means, as of any date of determination, the period
comprised of our two most recently completed fiscal quarters immediately
preceding our fiscal quarter in which that date of determination occurs.
"Capitalization Ratio" means, as of any date of determination, the ratio
obtained by dividing (i) the sum of (A) the aggregate amount of our debt and
(B) the aggregate amount of our preferred stock by (ii) the sum of (A) the
aggregate amount of our debt, (B) the aggregate amount of our preferred stock,
(C) the aggregate amount of capital (including surplus) which in accordance
with generally accepted accounting principles would be reflected on our
balance sheet in connection with our common equity securities as of the end of
the quarter immediately preceding our fiscal quarter in which that date of
determination occurs and (D) our accumulated depreciation as set forth on our
balance sheet as of the end of the quarter immediately preceding our fiscal
quarter in which that date of determination occurs.
"Discount Rate" means, as of any date of determination, the yield to
maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City
time) on the second business day preceding that date of determination on the
display designated as "Page 678" on the Telerate Access Service (or any other
display that may replace Page 678 on Telerate Access Service) for actively
traded U.S. Treasury securities having a 30-year maturity as of that date of
determination, or (ii) if the yields are not reported at that time or the
yields reported at that time are not ascertainable, the Treasury Constant
Maturity Series Yields reported for the latest day for which the yields have
been so reported as of the second business day preceding the date of
determination in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury securities
having a 30-year constant maturity as of that date of determination.
"Fixed Charge Coverage Ratio" means, as of any date of determination, the
ratio obtained by dividing (i) the sum of (A) Interest Expense for the
Calculation Period and (B) Funds From Operations for the Calculation Period by
(ii) the sum of (A) Interest Expense for the Calculation Period and (B)
Preferred Dividends for the Calculation Period; provided, however, that (x) if
we have issued any debt or preferred stock since the beginning of the
Calculation Period that remains outstanding or (y) if the transactions giving
rise to the need to calculate the Fixed Charge Coverage Ratio is an issuance
of debt or preferred stock, or both (x) and (y), Interest Expense and
Preferred
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Dividends for the Calculation Period shall be calculated after giving effect
on a pro forma basis to the debt or preferred stock as if the debt or
preferred stock had been issued on the first day of the Calculation Period and
the discharge of any other debt or preferred stock refinanced, refunded,
exchanged or otherwise discharged with the proceeds of the new debt or
preferred stock as if any such discharge had occurred on the first day of the
Calculation Period.
"Funds From Operations" means, with respect to any fiscal quarter, (a)
our net income for that quarter, plus (b) any loss resulting from the
restructuring of debt, or sale of property during that period, minus (c) any
gain resulting from the restructuring of debt, or sale of property during that
period, plus (d) depreciation and amortization of properties (including with
respect to trade fixtures and tenant allowances or improvements which are a
part thereof and capitalized leasing expenses, such as leasing commissions),
and adjusted to take into account (i) the results of operations of any
unconsolidated joint venture or partnership calculated to reflect funds from
operations on the same basis and (ii) any unusual and non-recurring items
which otherwise would materially distort the comparative measurement of Funds
From Operations for different fiscal periods. Funds From Operations shall be
determined in accordance with the March 1995 White Paper on Funds From
Operations approved by the Board of Governors of the National Association of
Real Estate Investment Trusts, as in effect on the date of issuance of the
Series B preferred stock.
"Interest Expense" means, for any period, our total interest expense,
including (i) interest expense attributable to capital leases, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest payments, (v) commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) net costs under hedging obligations (including
amortization of fees), and (vii) interest actually paid by us under any
guarantee of debt or other obligation of any other person.
"Make-Whole Price" means, for any share of Series B preferred stock, as
of any date of determination, the sum of (i) the present value as of that date
of determination of all remaining scheduled dividend payments of that share of
Series B preferred stock until the Tenth Anniversary Date, discounted by the
Discount Rate, (ii) the Liquidation Preference and (iii) all accrued and
unpaid dividends thereon to that date of determination.
"Parity Preferred" means all other series of preferred stock ranking on a
parity with the Series B preferred stock as to dividends or upon liquidation
and upon which like voting rights have been conferred and are exercisable.
"Preferred Dividends" means dividends accrued in respect of all preferred
stock held by persons other than us.
"Senior Obligations" means any (i) debt other than accounts payable
incurred in the ordinary course of our business and (ii) any equity securities
which rank senior to the Series B preferred stock with respect to the payment
of dividends or the distribution of assets upon our liquidation, dissolution or
winding up.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
To qualify as a REIT under the Internal Revenue Code, we must meet
several requirements regarding the number of our shareholders and
concentration of ownership of our shares. These requirements are described at
"Federal Income Tax Consequences of Our Status as a REIT -- Requirements for
Qualification." Our Articles of Incorporation contain provisions that restrict
the ownership and transfer of our shares to assist us in complying with these
Internal Revenue Code requirements. We refer to these restrictions as the
"ownership limit."
The ownership limit provides that, in general, no person may own more
than 7.5% of the aggregate value of all outstanding stock of the Company. It
also provides that:
o a transfer that violates the limitation is void;
o a transferee gets no rights to the shares that violate the limitation;
43
o shares transferred to a shareholder in excess of the ownership limit
are automatically converted, by operation of law, into shares of "Excess
Stock"; and
o the Excess Stock will be held by us as trustee of a trust for the
exclusive benefit of future transferees to whom the shares of capital
stock will ultimately be transferred without violating the ownership
limit.
Pursuant to authority under our Articles of Incorporation, our Board of
Directors has determined that the ownership limit does not apply to Mr.
Charles J. Urstadt, our Chairman and Chief Executive Officer, and his
affiliates and associates who currently own in the aggregate 33.3% and 5.7% of
our outstanding common stock and Class A common stock, respectively. Such
holdings represent approximately 32.0% of our outstanding voting interests.
The ownership limitation may discourage a takeover or other transaction that
some of our shareholders may otherwise believe to be desirable.
Ownership of our stock is subject to attribution rules under the Internal
Revenue Code, which may result in a person being deemed to own stock held by
other persons. The Board of Directors may waive the ownership limit if it
determines that the waiver will not jeopardize our status as a REIT. As a
condition of such a waiver, the Board of Directors may require an opinion of
counsel satisfactory to it or undertakings or representations from the
applicant with respect to preserving our REIT status. We required no such
waiver with respect to Mr. Urstadt's ownership rights, which are established
as part of our Articles of Incorporation.
Any person who acquires stock in violation of the ownership limit must
notify us immediately and provide us with any information we may request in
order to determine the effect of the acquisition on our status as a REIT. The
ownership limit will not apply if our Board of Directors determines that it is
no longer in our best interests to qualify as a REIT. Otherwise, the ownership
limit may be changed only by an amendment to our Articles of Incorporation by
a vote of two-thirds of the voting power of our common equity securities.
Our Articles of Incorporation provide that any purported transfer which
results in a direct or indirect ownership of shares of capital stock in excess
of the ownership limit or that would result in the disqualification of the
Company as a REIT shall be null and void, and the intended transferee will
acquire no rights to the shares of capital stock. The foregoing restrictions
on transferability and ownership will not apply if our Board of Directors
determines that it is no longer in our best interests to attempt to qualify,
or to continue to qualify, as a REIT. Our Board of Directors may, in its sole
discretion, waive the ownership limit if evidence satisfactory to our Board of
Directors and our tax counsel is presented that the changes in ownership will
not then or in the future jeopardize our REIT status and our Board of
Directors otherwise decides that such action is in our best interests.
Shares of capital stock owned, or deemed to be owned, or transferred to a
shareholder in excess of the ownership limit will automatically be converted
into shares of "Excess Stock" that will be transferred, by operation of law,
to us as trustee of a trust for the exclusive benefit of the transferees to
whom such shares of capital stock may be ultimately transferred without
violating the ownership limit. While the Excess Stock is held in trust, it
will not be entitled to vote, it will not be considered for purposes of any
shareholder vote or the determination of a quorum for such vote, and except
upon liquidation it will not be entitled to participate in dividends or other
distributions. Any distribution paid to a proposed transferee of Excess Stock
prior to the discovery by us that capital stock has been transferred in
violation of the provision of our Articles of Incorporation is required to be
repaid to us upon demand. The Excess Stock is not treasury stock, but rather
constitutes a separate class of our issued and outstanding stock. The original
transferee-shareholder may, at any time the Excess Stock is held by us in
trust, transfer the interest in the trust representing the Excess Stock to any
person whose ownership of shares of capital stock exchanged for such Excess
Stock would be permitted under the ownership limit, at a price not in excess
of (i) the price paid by the original transferee-stockholders for shares of
capital stock that were exchanged into Excess Stock, or (ii) if the original
transferee-shareholder did not give value for such shares (e.g., the shares
were received through a gift, devise or other transaction), the average
closing price for the class of stock from which such shares of Excess Stock
were converted for the ten days immediately preceding such sale, gift or
44
other transaction. Immediately upon the transfer to the permitted transferee,
the Excess Stock will automatically be converted back into shares of capital
stock from which it was converted. If the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the intended transferee of any shares of Excess Stock
may be deemed, at our option, to have acted as an agent on behalf of us in
acquiring the Excess Stock and to hold the Excess Stock on behalf of us.
In addition, we will have the right, for a period of 90 days during the
time any shares of Excess Stock are held by us in trust, to purchase all or
any portion of the Excess Stock from the original transferee-shareholder at
the lesser of (i) the price initially paid for such shares by the original
transferee-shareholder, or if the original transferee-shareholder did not give
value for such shares (e.g., the shares were received through a gift, devise
or other transaction), the average closing price for the class of stock from
which such shares of Excess Stock were converted for the ten days immediately
preceding such sale, gift or other transaction, and (ii) the average closing
price for the class of stock from which such shares of Excess Stock were
converted for the ten trading days immediately preceding the date we elect to
purchase such shares. The 90-day period begins on the date notice is received
of the violative transfer if the original transferee-shareholder gives notice
to us of the transfer, or, if no such notice is given, the date our Board of
Directors determines that a violative transfer has been made.
All stock certificates bear a legend referring to the restrictions
described above.
Every owner of more than 5%, or any lower percentage set by federal
income tax laws, of the outstanding common stock and Class A common stock must
file a completed questionnaire with us containing information regarding his or
her ownership. In addition, each shareholder must, upon demand, disclose in
writing any information we may request in order to determine the effect, if
any, of such shareholder's actual and constructive ownership of common stock
and Class A common stock on our status as a REIT and to ensure compliance with
the ownership limitation.
CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS,
MARYLAND LAW, OUR SHAREHOLDER RIGHTS PLAN, CHANGE OF CONTROL
AGREEMENTS AND INDEMNIFICATION AGREEMENTS
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS
Classification of Board, Vacancies and Removal of Directors
Our Articles of Incorporation provide that our Board of Directors is
divided into three classes. Directors of each class serve for staggered terms
of three years each, with the terms of each class beginning in different
years. We currently have eight directors. The number of directors in each
class and the expiration of the current term of each class is as follows:
Class I 3 directors Expires 2004
Class II 2 directors Expires 2002
Class III 3 directors Expires 2003
At each annual meeting of our shareholders, successors of the class of
directors whose term expires at that meeting will be elected for a three-year
term and the directors in the other two classes will continue in office. A
classified board may delay, defer or prevent a change in control or other
transaction that might involve a premium over the then-prevailing market price
for our common stock and Class A common stock or other attributes that our
shareholders may considerable desirable. In addition, a classified board could
prevent shareholders who do not agree with the policies of our Board of
Directors from replacing a majority of the Board of Directors for two years,
except in the event of removal for cause.
Our Articles of Incorporation provide that, subject to the rights of
holders of our preferred stock, any director may be removed (i) only for cause
and (ii) only by the affirmative vote of not less than
45
two-thirds of the common equities then outstanding and entitled to vote for the
election of directors. Our Articles of Incorporation additionally provide that
any vacancy occurring on our Board of Directors (other than as a result of the
removal of a director) shall be filled only by a majority of the remaining
directors except that a vacancy resulting from an increase in the number of
directors shall be filled by a majority of the entire Board of Directors. A
vacancy resulting from the removal of a director may be filled by the
affirmative vote of a majority of all the votes cast at a meeting of the
shareholders called for that purpose.
The provisions of our Articles of Incorporation relating to the removal
of directors and the filling of vacancies on our Board of Directors could
preclude a third party from removing incumbent directors without cause and
simultaneously gaining control of our Board of Directors, by filling, with its
own nominees, the vacancies created by such removal. The provisions also limit
the power of shareholders generally, and those with a majority interest, to
remove incumbent directors and to fill vacancies on our Board of Directors
without the support of incumbent directors.
Shareholder Action by Written Consent
Our Articles of Incorporation provide that any action required or
permitted to be taken by our shareholders may be effected by a consent in
writing signed by the holders of all of our outstanding shares of common
equity securities entitled to vote on the matter. This requirement could deter
a change of control because it could delay or deter a shareholder's ability to
take action with respect to us.
Meetings of Shareholders
Our Bylaws provide for annual shareholder meetings to elect directors.
Special shareholder meetings may be called by our Chairman, President or a
majority of the Board of Directors or may be called by our Secretary at the
written request of shareholders entitled to cast at least a majority of all
votes entitled to be cast at the meeting. This requirement could deter a
change of control because it could delay or deter a shareholder's ability to
take action with respect to us.
Shareholder Proposals and Director Nominations
Under our Bylaws, in order to have a shareholder proposal or director
nomination considered at an annual meeting of shareholders, shareholders are
generally required to deliver to us certain information concerning themselves
and their shareholder proposal or director nomination not less than 75 days
nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting (the "Anniversary Date"); provided, however, that in
the event the annual meeting is scheduled to be held on a date more than 30
days before or more than 60 days after the Anniversary Date, notice must be
delivered to us not later than the close of business on the later of (i) the
75th day prior to the scheduled date of such annual meeting or (ii) the 15th
day after public disclosure of the date of such meeting. Failure to comply
with such timing and informational requirements will result in such proposal
or director nomination not being considered at the annual meeting. The purpose
of requiring shareholders to give us advance notice of nominations and other
business, and certain related information is to ensure that we and our
shareholders have sufficient time and information to consider any matters that
are proposed to be voted on at an annual meeting, thus promoting orderly and
informed shareholder voting. Such Bylaw provisions could have the effect of
precluding a contest for the election of our directors or the making of
shareholder proposals if the proper procedures are not followed, and of
delaying or deterring a third party from conducting a solicitation of proxies
to elect its own slate of directors or to have its own proposals approved.
Authorization of Consolidations, Mergers and Sales of Assets
Our Articles of Incorporation provide that any consolidation, merger,
share exchange or transfer of all or substantially all of our assets must
first be approved by the affirmative vote of a majority of our Board of
Directors (including a majority of the Continuing Directors) and thereafter
must be approved by a vote of at least two-thirds of all the votes cast on
such matter, by holders of voting common equities voting as a single class at
a meeting of the shareholders. These provisions could make it more difficult
for us to enter into any consolidation, merger or sale of assets as described
above.
46
Amendment of Our Articles of Incorporation and Bylaws
Our Articles of Incorporation may be amended by the affirmative vote of a
majority of the vote entitled to be cast on the matter, except that provisions
relating to the directors, the ownership limit, amendments to the Articles of
Incorporation, indemnification, limitation of liability, the required
percentage vote of shareholders for certain transactions and amendment of the
Bylaws by directors may only be amended by a vote of at least two-thirds of
the common equities then outstanding and entitled to vote. Our Bylaws may be
amended only by the Board of Directors.
Indemnification; Limitation of Directors' and Officers' Liability
Our Articles of Incorporation limit the liability of our directors and
officers for money damages, except for liability resulting from:
o actual receipt of an improper benefit or profit in money, property or
services; or
o a final judgment based upon a finding of active and deliberate
dishonesty by the director that was material to the cause of action
adjudicated.
Our Articles of Incorporation authorize us, to the maximum extent
permitted by Maryland law, to indemnify, and to pay or reimburse reasonable
expenses to, any of our present or former directors or officers or any
individual who, while a director or officer and at our request, serves or has
served another entity, employee benefit plan or any other enterprise as a
trustee, director, officer, partner or otherwise. The indemnification covers
any claim or liability against the person. Our Bylaws permit us to indemnify
each director or officer who has been successful, on the merits or otherwise,
in the defense of any proceeding to which he or she is made a party by reason
of his or her service to us.
Maryland law permits a corporation to indemnify its present and former
directors and officers against liabilities and reasonable expenses actually
incurred by them in any proceeding unless:
o the act or omission of the director or officer was material to the
matter giving rise to the proceeding; and
o was committed in bad faith; or
o was the result of active and deliberate dishonesty; or
o in a criminal proceeding, the director or officer had reasonable cause
to believe that the act or omission was unlawful.
However, a Maryland corporation may not indemnify for an adverse judgment
in a derivative action. Our Bylaws and Maryland law require us, as a condition
to advancing expenses in certain circumstances, to obtain:
o a written affirmation by the director or officer of his or her good
faith belief that he or she has met the standard of conduct necessary
for indemnification; and
o a written undertaking to repay the amount reimbursed if the standard of
conduct was not met.
PROVISIONS OF MARYLAND LAW
Business Combinations
Under Maryland law, certain "business combinations" between us and any
person who beneficially owns, directly or indirectly, 10% or more of the
voting power of our shares, an affiliate of ours who, at any time within the
previous two years was the beneficial owner of 10% or more of the voting power
of our shares (who the statute terms an "interested shareholder"), or an
affiliate of an interested shareholder, are prohibited for five years after
the most recent date on which they became such persons. The business
combinations that are subject to this law include mergers, consolidations,
share exchanges or, in certain circumstances, asset transfers or issuances or
reclassifications of equity securities. After the five-year period has
elapsed, a proposed business combination must be recommended by the Board of
Directors and approved by the affirmative vote of at least:
47
o 80% of our outstanding voting shares; and
o two-thirds of the outstanding voting shares, excluding shares held by
the interested shareholder,
unless, among other conditions, the shareholders receive a fair price, as
defined by Maryland law, for their shares and the consideration is received in
cash or in the same form as previously paid by the interested shareholder for
its shares.
These provisions do not apply, however, to business combinations that the
Board of Directors approves or exempts before the time that the interested
shareholder becomes an interested shareholder or transactions between us and
Mr. Charles J. Urstadt, Chairman and Chief Executive Office of the Company or
any of his affiliates or associates.
Control Share Acquisitions
Maryland law provides that "control shares" acquired in a "control share
acquisition" have no voting rights unless approved by a vote of two-thirds of
our outstanding voting shares, excluding shares owned by the acquiror or by
officers or directors who are employees of ours. "Control shares" are voting
shares which, if aggregated with all other shares previously acquired by the
acquiring person, or in respect of which the acquiring person is able to
exercise or direct the exercise of voting power, other than by revocable
proxy, would entitle the acquiring person to exercise voting power in electing
trustees within one of the following ranges of voting power:
o one-tenth or more but less than one-third;
o one-third or more but less than a majority; or
o a majority 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 shareholder
approval. A "control share acquisition" means the acquisition of control
shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions, including an undertaking to pay
expenses, may compel our Board of Directors to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, we may present the
question at any shareholders' meeting.
If voting rights are not approved at the shareholders' meeting or if the
acquiring person does not deliver the statement required by Maryland law,
then, subject to certain conditions and limitations, we may redeem any or all
of the control shares, except those for which voting rights have previously
been approved, for fair value. Fair value is determined without regard to the
absence of voting rights for the control shares and as of the date of the last
control share acquisition or of any meeting of shareholders at which the
voting rights of the shares were considered and not approved. If voting rights
for control shares are approved at a shareholders' meeting, the acquiror may
then vote a majority of the shares entitled to vote, and all other
shareholders may exercise appraisal rights. The fair value of the shares for
purposes of these appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition. The control share
acquisition statute does not apply to shares acquired in a merger,
consolidation or share exchange if we are a party to the transaction, nor does
it apply to acquisitions approved or exempted by our Articles of Incorporation
or Bylaws.
Our Bylaws exempt from the Maryland control share statute any and all
acquisitions of our common or preferred shares by any person who, as of
December 31, 1996, owned in excess of 20% of the then outstanding shares of
common stock and preferred stock of the Company. As of December 31, 1996, only
Mr. Charles J. Urstadt, Chairman and Chief Executive Officer of the Company,
beneficially owned in excess of 20% of the outstanding common and preferred
shares of the Company. The Board of Directors has the right, however, to amend
this exemption at any time in the future.
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Dissolution Requirements
Maryland law generally permits the dissolution of a corporation if
approved (i) first by the affirmative vote of a majority of the entire Board
of Directors declaring such dissolution to be advisable and directing that the
proposed dissolution be submitted for consideration at an annual or special
meeting of shareholders, and (ii) upon proper notice being given as to the
purpose of the meeting, then by the shareholders of the corporation by the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter. This provision of the Maryland law could delay or deter our
liquidation.
Certain Recent Provisions of Maryland Law
Maryland law also provides that Maryland corporations that are subject to
the Exchange Act and have at least three outside directors can elect by
resolution of the board of directors to be subject to some corporate
governance provisions that may be inconsistent with the corporation's charter
and bylaws. Under the applicable statute, a board of directors may classify
itself without the vote of stockholders. A board of directors classified in
that manner cannot be altered by amendment to the charter of the corporation.
Further, the board of directors may, by electing into applicable statutory
provisions and notwithstanding the charter or bylaws:
o provide that a special meeting of stockholders, will be called only at
the request of stockholders, entitled to cast at least a majority of
the votes entitled to be cast at the meeting,
o reserve for itself the right to fix the number of directors,
o provide that a director may be removed only by the vote of the holders
of two-thirds of the stock entitled to vote, and
o retain for itself sole authority to fill vacancies created by the
death, removal or resignation of a director.
In addition, a director elected to fill a vacancy under this provision
will serve for the balance of the unexpired term instead of until the next
annual meeting of stockholders. A board of directors may implement all or any
of these provisions without amending the charter or bylaws and without
stockholder approval. A corporation may be prohibited by its charter or by
resolution of its board of directors from electing any of the provisions of
the statute. We are not prohibited from implementing any or all of the
statute. While certain of these provisions are already contemplated by our
Charter and Bylaws, the law would permit our Board of Directors to override
further changes to the Charter or Bylaws. If implemented, these provisions
could discourage offers to acquire our Class A common stock and could increase
the difficulty of completing an offer.
SHAREHOLDER RIGHTS PLAN
We have adopted a shareholder rights plan. Under the terms of this plan,
we can in effect prevent a person or a group from acquiring more than 10% of
the combined voting power of our outstanding shares of common stock and Class
A common stock because, after (i) the person acquires more than 10% of the
combined voting power of our outstanding common stock and Class A common
stock, or (ii) the commencement of a tender offer or exchange offer by any
person (other than us, any one of our wholly owned subsidiaries or any of our
employee benefit plans, or any Exempted Person (as defined below)), if, upon
consummation of the tender offer or exchange offer, the person or group would
beneficially own 30% or more of the combined voting power of our outstanding
shares of common stock and Class A common stock, all other shareholders will
have the right to purchase securities from us at a price that is less than
their fair market value, which would substantially reduce the value and
influence of the stock owned by the acquiring person. Our Board of Directors
can prevent the plan from operating by approving of the transaction and
redeeming the rights. This gives our Board of Directors significant power to
approve or disapprove of the efforts of a person or group to acquire a large
interest in our Company. The rights plan exempts acquisitions of common stock
and Class A common stock by Mr. Charles J. Urstadt, members of his family and
certain of his affiliates.
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CHANGE OF CONTROL AGREEMENTS
We have entered into change of control agreements with four of our senior
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 18 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 a
portion of the executive's base salary, together with medical and other
benefits. In the case of Messrs. Charles J. Urstadt, Willing L. Biddle, James
R. Moore and Raymond P. Argila, we will make a payment equal to their
respective annual salaries plus benefits. Based upon their current salary and
benefit levels, this provision would result in payments totaling $920,000 to
Messrs. Urstadt, Biddle, Moore and Argila, in the aggregate. 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.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with certain of our
directors, indemnifying them against expenses, settlements, judgments and
levies incurred in connection with any action, suit or proceeding, whether
civil or criminal, where the individual's involvement results from his or her
present or former position as a director.
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF OUR ARTICLES OF
INCORPORATION AND BYLAWS, MARYLAND LAW, SHAREHOLDER RIGHTS PLAN AND CHANGE OF
CONTROL AGREEMENTS
Certain provisions of our Articles of Incorporation and Bylaws, certain
provisions of Maryland law, our shareholder rights plan and our change of
control agreements with our officers could have the effect of delaying or
preventing a transaction or a change in control that might involve a premium
price for shareholders or that they otherwise may believe is desirable.
INTERESTS OF MR. CHARLES J. URSTADT
Mr. Charles J. Urstadt, our Chairman and Chief Executive Officer,
beneficially owns 2,135,185 shares of common stock and 344,850 shares of Class
A common stock constituting approximately 32.0% of the voting power of our
outstanding common equity securities. In view of the common equity securities
beneficially owned by Mr. Urstadt, Mr. Urstadt may control a sufficient
percentage of the voting power of our common equity securities to effectively
block certain proposals which require a vote of our shareholders. In addition,
under Maryland law, certain business combinations between us and an interested
shareholder will require the recommendation of our Board of Directors and the
affirmative vote of at least (i) 80% of the outstanding shares of our common
equity securities and (ii) two-thirds of the outstanding shares of our common
equity securities not held by such interested shareholder or its affiliates
unless, among other things, certain "fair price" and other conditions are met.
In view of the common equity securities beneficially owned by Mr. Urstadt, Mr.
Urstadt may control a sufficient percentage of the voting power of common
equity securities to effectively block a proposal respecting a business
combination under these provisions of Maryland law with an interested
shareholder.
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FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT
This section summarizes the federal income tax issues that you, as a
shareholder, may consider relevant. Because this section is a summary, it does
not address all of the tax issues that may be important to you. In addition,
this section does not address the tax issues that may be important to certain
types of shareholders that are subject to special treatment under the federal
income tax laws, such as insurance companies, tax-exempt organizations (except
to the extent discussed in "Taxation of Tax-Exempt Shareholders" below),
financial institutions or broker-dealers, and non-U.S. individuals and foreign
corporations (except to the extent discussed in "Taxation of Non-U.S.
Shareholders" below).
The statements in this section are based on the current federal income
tax laws governing qualification as a REIT. We cannot assure you that new
laws, interpretations of law, or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be inaccurate.
In connection with this offering of our Class A common stock, Coudert
Brothers is rendering an opinion, which will be filed as an exhibit to the
registration statement of which this prospectus is a part, that we qualified
to be taxed as a REIT under the federal income tax laws for our taxable years
ended October 31, 1998 through October 31, 2000, and our organization and
current and proposed method of operation will enable us to continue to qualify
as a REIT for our taxable year ending October 31, 2001 and in the future. You
should be aware that the opinion is based on current law and is not binding on
the Internal Revenue Service or any court. In addition, the opinion is based
on customary assumptions and on our representations as to factual matters, all
of which are described in the opinion. Moreover, we urge you to consult your
own tax advisor regarding the specific tax consequences to you of investing in
our Class A common stock and of our election to be taxed as a REIT.
Specifically, you should consult your own tax advisor regarding the federal,
state, local, foreign, and other tax consequences of such investment and
election, and regarding potential changes in applicable tax laws.
TAXATION
We elected to be taxed as a REIT under the federal income tax laws
beginning with our taxable year ended October 31, 1970. We believe that we
have operated in a manner qualifying us as a REIT since our election and
intend to continue so to operate. This section discusses the laws governing
the federal income tax treatment of a REIT and its shareholders. These laws
are highly technical and complex.
Our qualification as a REIT depends on our ability to meet, on a
continuing basis, qualification tests in the federal tax laws. Those
qualification tests involve the percentage of income that we earn from
specified sources, the percentages of our assets that fall within specified
categories, the diversity of our stock ownership, and the percentage of our
earnings that we distribute. We describe the REIT qualification tests in more
detail below. For a discussion of the tax treatment of us and our shareholders
if we fail to qualify as a REIT, see "Failure to Qualify."
If we qualify as a REIT, we generally will not be subject to federal
income tax on the taxable income that we distribute to our shareholders. The
benefit of that tax treatment is that it avoids the "double taxation," or
taxation at both the corporate and shareholder levels, that generally results
from owning stock in a corporation. However, we will be subject to federal tax
in the following circumstances:
o We will pay federal income tax on taxable income, including net capital
gain, that we do not distribute to shareholders during, or within a
specified time period after, the calendar year in which the income is
earned;
o We may be subject to the "alternative minimum tax" on any items of tax
preference that we do not distribute or allocate to shareholders;
o We will pay income tax at the highest corporate rate on:
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o net income from the sale or other disposition of property acquired
through foreclosure ("foreclosure property") that we hold primarily
for sale to customers in the ordinary course of business, and
o other non-qualifying income from foreclosure property.
o We will pay a 100% tax on net income from sales or other dispositions
of property, other than foreclosure property, that we hold primarily
for sale to customers in the ordinary course of business.
o If we fail to satisfy the 75% gross income test or the 95% gross income
test, as described below under "Requirements for Qualification --
Income Tests," and nonetheless continue to qualify as a REIT because we
meet other requirements, we will pay a 100% tax on:
o the gross income attributable to the greater of the amounts by which
we fail the 75% and 95% gross income tests, multiplied by,
o a fraction intended to reflect our profitability.
o If we fail to distribute during a calendar year at least the sum of:
o 85% of our REIT ordinary income for the year,
o 95% of our REIT capital gain net income for the year, and
o any undistributed taxable income from earlier periods, we will pay a
4% excise tax on the excess of the required distribution over the
amount we actually distributed.
o We may elect to retain and pay income tax on our net long-term capital
gain.
o We will be subject to a 100% excise tax on transactions with a taxable
REIT subsidiary that are not conducted on an arm's-length basis.
o If we acquire any asset from a C corporation, or a corporation that
generally is subject to full corporate-level tax, in a merger or other
transaction in which we acquire a basis in the asset that is determined
by reference either to the C corporation's basis in the asset or to
another asset, we will pay tax at the highest regular corporate rate
applicable if we recognize gain on the sale or disposition of the asset
during the 10-year period after we acquire the asset. The amount of
gain on which we will pay tax is the lesser of:
o the amount of gain that we recognize at the time of the sale or
disposition, and
o the amount of gain that we would have recognized if we had sold the
asset at the time we acquired it.
The rules described here will apply assuming that we make an election
under the Treasury regulations.
REQUIREMENTS FOR QUALIFICATION
A REIT is an entity that meets each of the following requirements:
1. It is managed by trustees or directors.
2. Its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest.
3. It would be taxable as a domestic corporation, but for the REIT
provisions of the federal income tax laws.
4. It is neither a financial institution nor an insurance company subject
to special provisions of the federal income tax laws.
5. At least 100 persons are beneficial owners of its shares or ownership
certificates.
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6. Not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer
individuals, which the federal income tax laws define to include
certain entities, during the last half of any taxable year.
7. It elects to be a REIT, or has made such election for a previous
taxable year, and satisfies all relevant filing and other
administrative requirements established by the Internal Revenue Service
that must be met to elect and maintain REIT status.
8. It meets certain other qualification tests, described below, regarding
the nature of its income and assets.
We must meet requirements 1 through 4 during our entire taxable year and
must meet requirement 5 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. If we comply with all the requirements for ascertaining the ownership
of our outstanding shares in a taxable year and have no reason to know that we
violated requirement 6, we will be deemed to have satisfied requirement 6 for
that taxable year. For purposes of determining share ownership under
requirement 6, an "individual" generally includes a supplemental unemployment
compensation benefits plan, a private foundation, or a portion of a trust
permanently set aside or used exclusively for charitable purposes. An
"individual," however, generally does not include a trust that is a qualified
employee pension or profit sharing trust under the federal income tax laws,
and beneficiaries of such a trust will be treated as holding our shares in
proportion to their actuarial interests in the trust for purposes of
requirement 6.
We have issued sufficient shares of common stock and Class A common stock
with sufficient diversity of ownership to satisfy requirements 5 and 6. In
addition, our Articles of Incorporation restrict the ownership and transfer of
the shares of common stock and Class A common stock so that we should continue
to satisfy these requirements. The provisions of our Articles of Incorporation
restricting the ownership and transfer of shares of common stock and Class A
common stock are described in "Description of Securities -- Description of
Common Stock and Class A Common Stock -- Restrictions on Ownership and
Transfer."
A corporation that is a "qualified REIT subsidiary" is not treated as a
corporation separate from its parent REIT. All assets, liabilities and items
of income, deduction and credit of a "qualified REIT subsidiary" are treated
as assets, liabilities and items of income, deduction and credit of the REIT.
A "qualified REIT subsidiary" is a corporation, all of the capital stock of
which is owned by the REIT and for which no election has been made to treat
such corporation as a "Taxable REIT Subsidiary." We have two corporate
subsidiaries, 323 Railroad Corp. and UB Darien, Inc., and own all of their
capital stock. For federal income tax purposes, 323 Railroad Corp. and UB
Darien, Inc. are ignored as separate entities, and all of their assets,
liabilities and items of income, deduction and credit are treated as our
assets, liabilities and items of income, deduction and credit.
An unincorporated domestic entity, such as a partnership, that has a
single owner, generally is not treated as an entity separate from its parent
for federal income tax purposes. An unincorporated domestic entity with two or
more owners is generally treated as a partnership for federal income tax
purposes. In the case of a REIT that is a partner in a partnership that has
other partners, the REIT is treated as owning its proportionate share of the
assets of the partnership and as earning its allocable share of the gross
income of the partnership for purposes of the applicable REIT qualification
tests. Thus, our proportionate share of the assets, liabilities and items of
income of any partnership or joint venture or limited liability company that
is treated as a partnership for federal income tax purposes in which we have
acquired or will acquire an interest, directly or indirectly (a "subsidiary
partnership"), will be treated as our assets and gross income for purposes of
applying the various REIT qualification requirements.
Tax legislation enacted in 1999 allows a REIT to own up to 100% of the
stock of a "taxable REIT subsidiary," or TRS, in taxable years beginning on or
after January 1, 2001. A TRS may earn income that would not be qualifying
income if earned directly by the parent REIT. Both the subsidiary and the REIT
must jointly elect to treat the subsidiary as a TRS. A TRS will pay income tax
at regular
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corporate rates on any income that it earns. In addition, the new rules limit
the deductibility of interest paid or accrued by a TRS to its parent REIT to
assure that the TRS is subject to an appropriate level of corporate taxation.
Further, the rules impose a 100% excise tax on transactions between a TRS and
its parent REIT or the REIT's tenants that are not conducted on an arm's-length
basis. We do not currently have any TRSs, but may form one or more TRSs in
future taxable years.
INCOME TESTS
We must satisfy two gross income tests annually to maintain our
qualification as a REIT. First, at least 75% of our gross income for each
taxable year must consist of defined types of income that we derive, directly
or indirectly, from investments relating to real property or mortgages on real
property or qualified temporary investment income. Qualifying income for
purposes of that 75% gross income test generally includes:
o rents from real property;
o interest on debt secured by mortgages on real property, or on interests
in real property;
o dividends or other distributions on, and gain from the sale of, shares
in other REITs; and
o gain from the sale of real estate assets.
Second, in general, at least 95% of our gross income for each taxable
year must consist of income that is qualifying income for purposes of the 75%
gross income test, other types of interest and dividends, gain from the sale
or disposition of stock or securities, income from certain interest rate
hedging contracts, or any combination of these. Gross income from any
origination fees is not qualifying income for purposes of either gross income
test, and gross income from our sale of property that we hold primarily for
sale to customers in the ordinary course of business is excluded from both the
numerator and the denominator in both income tests. The following paragraphs
discuss the specific application of the gross income tests to us.
A REIT will incur a 100% tax on the net income derived from any sale or
other disposition of property, other than foreclosure property, that the REIT
holds primarily for sale to customers in the ordinary course of a trade or
business. We believe that none of our assets are held primarily for sale to
customers and that a sale of any of our assets would not be in the ordinary
course of our business. Whether a REIT holds an asset "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those
related to a particular asset. Nevertheless, we will attempt to comply with
the terms of safe-harbor provisions in the federal income tax laws prescribing
when an asset sale will not be characterized as a prohibited transaction. We
cannot assure you, however, that we can comply with the safe-harbor provisions
or that we will avoid owning property that may be characterized as property
that we hold "primarily for sale to customers in the ordinary course of a
trade or business."
We will be subject to tax at the maximum corporate rate on any income
from foreclosure property, other than income that otherwise would be
qualifying income for purposes of the 75% gross income test, less expenses
directly connected with the production of that income. However, gross income
from foreclosure property will qualify under the 75% and 95% gross income
tests. "Foreclosure property" is any real property, including interests in
real property, and any personal property incident to such real property:
o that is acquired by a REIT as the result of the REIT having bid on such
property at foreclosure, or having otherwise reduced such property to
ownership or possession by agreement or process of law, after there was
a default or default was imminent on a lease of such property or on
indebtedness that such property secured;
o for which the related loan was acquired by the REIT at a time when the
default was not imminent or anticipated; and
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o for which the REIT makes a proper election to treat the property as
foreclosure property.
We have no foreclosure property as of the date of this prospectus.
However, a REIT will not be considered to have foreclosed on a property
where the REIT takes control of the property as a mortgagee-in-possession and
cannot receive any profit or sustain any loss except as a creditor of the
mortgagor. Property generally ceases to be foreclosure property at the end of
the third taxable year following the taxable year in which the REIT acquired
the property, or longer if an extension is granted by the Secretary of the
Treasury. This grace period terminates and foreclosure property ceases to be
foreclosure property on the first day:
o on which a lease is entered into for the property that, by its terms,
will give rise to income that does not qualify for purposes of the 75%
gross income test, or any amount is received or accrued, directly or
indirectly, pursuant to a lease entered into on or after such day that
will give rise to income that does not qualify for purposes of the 75%
gross income test;
o on which any construction takes place on the property, other than
completion of a building or any other improvement, where more than 10%
of the construction was completed before default became imminent; or
o which is more than 90 days after the day on which the REIT acquired the
property and the property is used in a trade or business which is
conducted by the REIT, other than through an independent contractor
from whom the REIT itself does not derive or receive any income.
Rent that we receive from real property that we own and lease to tenants
will qualify as "rents from real property," which is qualifying income for
purposes of the 75% and 95% gross income tests, only if each of the following
conditions is met:
o The rent must not be based, in whole or in part, on the income or
profits of any person, but may be based on a fixed percentage or
percentages of receipts or sales.
o Neither we nor a direct or indirect owner of 10% or more of our shares
may own, actually or constructively, 10% or more of a tenant from whom
we receive rent (other than a TRS in taxable years beginning after
December 31, 2000). Rent we receive from a TRS will qualify as "rents
from real property" if at least 90% of the leased space of the property
is rented to persons other than TRSs and 10%-owned tenants and the
amount of rent paid by the TRS is substantially comparable to the rent
paid by the other tenants of the property for comparable space.
o All of the rent received under a lease of real property will not
qualify as "rents from real property" unless the rent attributable to
the personal property leased in connection with such lease is no more
than 15% of the total rent received under the lease. Pursuant to
legislation effective January 1, 2001, the allocation of rent between
real and personal property is based on the relative fair market values
of the real and personal property.
o We generally must not operate or manage our real property or furnish or
render services to our tenants, other than through an independent
contractor who is adequately compensated and from whom we do not derive
revenue. However, we need not provide services through an independent
contractor, but instead may provide services directly, if the services
are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not considered to be provided for the
tenants' convenience. In addition, we may provide a minimal amount of
"noncustomary" services to the tenants of a property, other than
through an independent contractor, as long as our income from the
services does not exceed 1% of our income from the related property.
Further, we may own up to 100% of the stock of a TRS in taxable years
beginning after December 31, 2000. A TRS generally can provide
customary and noncustomary services to our tenants without tainting our
rental income.
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We believe that the rents we receive meet all of these conditions.
If we fail to satisfy one or both of the gross income tests for any
taxable year, we nevertheless may qualify as a REIT for that year if we
qualify for relief under certain provisions of the federal income tax laws.
Those relief provisions generally will be available if:
o our failure to meet such tests is due to reasonable cause and not due
to willful neglect;
o we attach a schedule of the sources of our income to our tax return;
and
o any incorrect information on the schedule was not due to fraud with
intent to evade tax.
We cannot predict, however, whether in all circumstances we would qualify
for the relief provisions. In addition, as discussed above in "Taxation," even
if the relief provisions apply, we would incur a 100% tax on the gross income
attributable to the greater of the amounts by which we fail the 75% and 95%
gross income tests, multiplied by a fraction intended to reflect our
profitability.
ASSET TESTS
To maintain our qualification as a REIT, we also must satisfy two asset
tests at the end of each quarter of each taxable year. First, at least 75% of
the value of our total assets must consist of:
o cash or cash items, including certain receivables;
o government securities;
o interests in real property, including leaseholds and options to acquire
real property and leaseholds;
o interests in mortgages on real property;
o stock in other REITs; and
o investments in stock or debt instruments during the one-year period
following our receipt of new capital that we raise through equity
offerings or offerings of debt with at least a five-year term.
Under the second asset test, except for securities in the 75% asset class,
securities in a TRS or qualified REIT subsidiary, and certain partnership
interests and certain debt obligations:
o not more than 5% of the value of our total assets may be represented by
securities of any one issuer;
o we may not own securities that possess more than 10% of the total
voting power of the outstanding securities of any one issuer; and
o beginning November 1, 2001, we may not own securities that have a value
of more than 10% of the total value of the outstanding securities of
any one issuer (the "10% value test").
In addition, beginning November 1, 2001, not more than 20% of the value of our
total assets may be represented by securities of one or more TRSs.
We believe that our existing assets are qualifying assets for purposes of
the 75% asset test. We also believe that any additional real property that we
acquire, loans that we extend and temporary investments that we make generally
will be qualifying assets for purposes of the 75% asset test, except to the
extent that the principal balance of any loan exceeds the value of the
associated real property or to the extent the asset is a loan that is not
deemed to be an interest in real property. We will monitor the status of our
acquired assets for purposes of the various asset tests and will manage our
portfolio in order to comply at all times with such tests. If we fail to
satisfy the asset tests at the end of a calendar quarter, we will not lose our
REIT status if:
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o we satisfied the asset tests at the end of the preceding calendar
quarter; and
o the discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets and
was not wholly or partly caused by the acquisition of one or more
non-qualifying assets.
If we did not satisfy the condition described in the first item, above,
we still could avoid disqualification by eliminating any discrepancy within 30
days after the close of the calendar quarter in which it arose.
As described above, in taxable years beginning after December 31, 2000,
we may own up to 100% of the stock of one or more TRSs. TRSs can perform
activities unrelated to our tenants, such as third-party management,
development, and other independent business activities, as well as provide
services to our tenants. We and a subsidiary must elect for the subsidiary to
be treated as a TRS. A corporation of which a TRS directly or indirectly owns
more than 35% of the voting power or value of the stock will automatically be
treated as a TRS. The deductibility of interest paid or accrued by a TRS to us
is limited to assure that the TRS is subject to an appropriate level of
corporate taxation. Further, there is a 100% excise tax on transactions
between a TRS and us or our tenants that are not conducted on an arm's-length
basis. We may not own more than 10% of the voting power or value of the stock
of a taxable subsidiary that is not treated as a TRS. Overall, no more than
20% of our assets can consist of securities of TRSs. We do not currently have
any TRSs, but may form one or more TRSs in future taxable years.
DISTRIBUTION REQUIREMENTS
Each taxable year, we must distribute dividends, other than capital gain
dividends and deemed distributions of retained capital gain, to our
shareholders in an aggregate amount at least equal to:
o the sum of
o 95% of our "REIT taxable income," computed without regard to the
dividends paid deduction and our net capital gain or loss, and
o 95% of our after-tax net income, if any, from foreclosure property,
minus
o the sum of certain items of non-cash income.
The foregoing percentages will be reduced to 90% commencing with our
taxable year beginning November 1, 2001.
We must pay such distributions in the taxable year to which they relate,
or in the following taxable year if we declare the distribution before we
timely file our federal income tax return for the year and pay the distribution
on or before the first regular dividend payment date after such declaration.
We will pay federal income tax on taxable income, including net capital
gain, that we do not distribute to shareholders. Furthermore, if we fail to
distribute during a calendar year, or by the end of January following the
calendar year in the case of distributions with declaration and record dates
falling in the last three-months of the calendar year, at least the sum of:
o 85% of our REIT ordinary income for such year,
o 95% of our REIT capital gain income for such year, and
o any undistributed taxable income from prior periods,
we will incur a 4% nondeductible excise tax on the excess of such required
distribution over the amounts we actually distribute. We may elect to retain
and pay income tax on the net long-term capital gain we receive in a taxable
year. See "Taxation of Taxable U.S. Shareholders." If we so elect, we will be
treated as having distributed any such retained amount for purposes of the 4%
excise tax described above. We have made, and we intend to continue to make,
timely distributions sufficient to satisfy the annual distribution
requirements.
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It is possible that, from time to time, we may experience timing
differences between:
o the actual receipt of income and actual payment of deductible expenses,
and
o the inclusion of that income and deduction of such expenses in arriving
at our REIT taxable income.
Under certain circumstances, we may be able to correct a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to our
shareholders in a later year. We may include such deficiency dividends in our
deduction for dividends paid for the earlier year. Although we may be able to
avoid income tax on amounts distributed as deficiency dividends, we will be
required to pay interest to the Internal Revenue Service based upon the amount
of any deduction we take for deficiency dividends.
RECORDKEEPING REQUIREMENTS
We must maintain certain records in order to qualify as a REIT. In
addition, to avoid a monetary penalty, we must request on an annual basis
information from our shareholders designed to disclose the actual ownership of
our outstanding shares. We have complied, and we intend to continue to comply,
with these requirements.
FAILURE TO QUALIFY
If we fail to qualify as a REIT in any taxable year, and no relief
provision applies, we would be subject to federal income tax and any
applicable alternative minimum tax on our taxable income at regular corporate
rates. In calculating our taxable income in a year in which we fail to qualify
as a REIT, we would not be able to deduct amounts paid out to shareholders. In
fact, we would not be required to distribute any amounts to shareholders in
that year. In such event, to the extent of our current and accumulated
earnings and profits, all distributions to shareholders would be taxable as
ordinary income. Subject to certain limitations of the federal income tax
laws, corporate shareholders might be eligible for the dividends received
deduction. Unless we qualified for relief under specific statutory provisions,
we also would be disqualified from taxation as a REIT for the four taxable
years following the year during which we ceased to qualify as a REIT. We
cannot predict whether in all circumstances we would qualify for such
statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as we qualify as a REIT, a taxable "U.S. shareholder" must take
into account as ordinary income distributions made out of our current or
accumulated earnings and profits that we do not designate as capital gain
dividends or retained long-term capital gain. A U.S. shareholder will not
qualify for the dividends received deduction generally available to
corporations. The term "U.S. shareholder" means a holder of Class A common
stock that, for United States federal income tax purposes, is:
o a citizen or resident of the United States,
o an entity created or organized under the laws of the United States or
of a political subdivision of the United States,
o an estate whose income from sources outside the United States is
includible in gross income for United States federal income tax
purposes regardless of its source, or
o any trust with respect to which
o a United States court is able to exercise primary supervision over
its administration, and
o one or more United States persons have the authority to control all
of its substantial decisions.
A U.S. shareholder generally will recognize distributions that we
designate as capital gain dividends as long-term capital gain without regard
to the period for which the U.S. shareholder has
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held its Class A common stock. A corporate U.S. shareholder, however, may be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
We may elect to retain and pay income tax on the net long-term capital
gain that we receive in a taxable year. In that case, a U.S. shareholder would
be taxed on its proportionate share of our undistributed long-term capital
gain. The U.S. shareholder would receive a credit or refund for its
proportionate share of the tax we paid. The U.S. shareholder would increase
the basis in its shares of Class A common stock by the amount of its
proportionate share of our undistributed long-term capital gain, minus its
share of the tax we paid.
A U.S. shareholder will not incur tax on a distribution in excess of our
current and accumulated earnings and profits if the distribution does not
exceed the adjusted basis of the U.S. shareholder's shares of Class A common
stock. Instead, the distribution will reduce the adjusted basis of such shares
of Class A common stock. A U.S. shareholder will recognize a distribution in
excess of both our current and accumulated earnings and profits and the U.S.
shareholder's adjusted basis in his or her shares of Class A common stock as
long-term capital gain, or short-term capital gain if the shares of Class A
common stock have been held for one year or less, assuming the shares of Class
A common stock are a capital asset in the hands of the U.S. shareholder. For
purposes of determining whether a distribution is made out of our current or
accumulated earnings and profits, our earnings and profits will be allocated
first to dividends on our preferred stock and then to dividends on our common
equity.
Shareholders may not include in their individual income tax returns any
of our net operating losses or capital losses. Instead, these losses are
generally carried over by us for potential offset against our future income.
Taxable distributions from us and gain from the disposition of the shares of
Class A common stock will not be treated as passive activity income and,
therefore, shareholders generally will not be able to apply any "passive
activity losses," such as losses from certain types of limited partnerships in
which the shareholder is a limited partner, against such income. In addition,
taxable distributions from us and gain from the disposition of shares of Class
A common stock generally will be treated as investment income for purposes of
the investment interest limitations. We will notify shareholders after the
close of our taxable year as to the portions of the distributions attributable
to that year that constitute ordinary income, return of capital and capital
gain.
TAXATION OF U.S. SHAREHOLDERS ON THE DISPOSITION OF CLASS A COMMON STOCK
In general, a U.S. shareholder who is not a dealer in securities must
treat any gain or loss realized upon a taxable disposition of his or her
shares of Class A common stock as long-term capital gain or loss if the U.S.
shareholder has held the shares of Class A common stock for more than one
year. However, a U.S. shareholder must treat any loss upon a sale or exchange
of shares of Class A common stock held by such shareholder for six-months or
less as a long-term capital loss to the extent of capital gain dividends and
other distributions from us that such U.S. shareholder treats as long-term
capital gain. All or a portion of any loss that a U.S. shareholder realizes
upon a taxable disposition of the shares of Class A common stock may be
disallowed if the U.S. shareholder purchases other shares of Class A common
stock within 30 days before or after the disposition.
CAPITAL GAINS AND LOSSES
The tax rate differential between capital gain and ordinary income for
non-corporate taxpayers may be significant. A taxpayer generally must hold a
capital asset for more than one year for gain or loss derived from its sale or
exchange to be treated as long-term capital gain or loss. The highest marginal
individual income tax rate is currently 39.1% and, under current law, is to be
reduced in the future. The maximum tax rate on long-term capital gain
applicable to non-corporate taxpayers is 20% for sales and exchanges of assets
held for more than one year. The maximum tax rate on long-term capital gain
from the sale or exchange of "section 1250 property," or depreciable real
property, is 25% to the extent that such gain would have been treated as
ordinary income if the property were "section 1245 property." With respect to
distributions that we designate as capital gain dividends and any
59
retained capital gain that we are deemed to distribute, we generally may
designate whether such a distribution is taxable to our non-corporate
shareholders at a 20% or 25% rate. In addition, the characterization of income
as capital gain or ordinary income may affect the deductibility of capital
losses. A non-corporate taxpayer may deduct capital losses not offset by
capital gains against its ordinary income only up to a maximum annual amount of
$3,000. A non-corporate taxpayer may carry forward unused capital losses
indefinitely. A corporate taxpayer must pay tax on its net capital gain at
ordinary corporate rates. A corporate taxpayer can deduct capital losses only
to the extent of capital gains, with unused losses being carried back three
years and forward five years.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
We will report to our shareholders and to the Internal Revenue Service
the amount of distributions we pay during each calendar year, and the amount
of tax we withhold, if any. Under the backup withholding rules, a shareholder
may be subject to backup withholding at a rate of 30.5% with respect to
distributions unless the holder:
o is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact; or
o provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with the
applicable requirements of the backup withholding rules.
A shareholder who does not provide us with its correct taxpayer
identification number also may be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, we may be
required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status to us. For a
discussion of the backup withholding rules as applied to non-U.S.
shareholders, see "Taxation of Non-U.S. Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts, generally are exempt from
federal income taxation. However, they are subject to taxation on their
unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the Internal Revenue Service has
issued a ruling that dividend distributions from a REIT to an exempt employee
pension trust do not constitute unrelated business taxable income so long as
the exempt employee pension trust does not otherwise use the shares of the
REIT in an unrelated trade or business of the pension trust. Based on that
ruling, amounts that we distribute to tax-exempt shareholders generally should
not constitute unrelated business taxable income. However, if a tax-exempt
shareholder were to finance its acquisition of shares of Class A common stock
with debt, a portion of the income that it receives from us would constitute
unrelated business taxable income pursuant to the "debt-financed property"
rules. Furthermore, social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts and qualified group legal services
plans that are exempt from taxation under special provisions of the federal
income tax laws are subject to different unrelated business taxable income
rules, which generally will require them to characterize distributions that
they receive from us as unrelated business taxable income. Finally, in certain
circumstances, a qualified employee pension or profit sharing trust that owns
more than 10% of our shares must treat a percentage of the dividends that it
receives as unrelated business taxable income. Such percentage is equal to the
gross income we derive from an unrelated trade or business, determined as if
we were a pension trust, divided by our total gross income for the year in
which we pay the dividends. That rule applies to a pension trust holding more
than 10% of our shares only if:
o the percentage of our dividends that the tax-exempt trust must treat as
unrelated business taxable income is at least 5%;
60
o we qualify as a REIT by reason of the modification of the rule
requiring that no more than 50% of our shares be owned by five or fewer
individuals that allows the beneficiaries of the pension trust to be
treated as holding our shares in proportion to their actuarial
interests in the pension trust; and
o either
o one pension trust owns more than 25% of the value of our shares; or
o a group of pension trusts individually holding more than 10% of the
value of our shares collectively owns more than 50% of the value of
our shares.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders are complex. This section is only a summary of such rules. We
urge non-U.S. shareholders to consult their own tax advisors to determine the
impact of federal, state, and local income tax laws on ownership of the shares
of Class A common stock, including any reporting requirements.
A non-U.S. shareholder that receives a distribution that is not
attributable to gain from our sale or exchange of U.S. real property
interests, as defined below, and that we do not designate as a capital gain
dividend or retained capital gain will recognize ordinary income to the extent
that we pay the distribution out of our current or accumulated earnings and
profits. A withholding tax equal to 30% of the gross amount of the
distribution ordinarily will apply unless an applicable tax treaty reduces or
eliminates the tax. However, if a distribution is treated as effectively
connected with the non-U.S. shareholder's conduct of a U.S. trade or business,
the non-U.S. shareholder generally will be subject to federal income tax on
the distribution at graduated rates, in the same manner as U.S. shareholders
are taxed on distributions and also may be subject to the 30% branch profits
tax in the case of a non-U.S. shareholder that is a non-U.S. corporation. We
plan to withhold U.S. income tax at the rate of 30% on the gross amount of any
distribution paid to a non-U.S. shareholder unless either:
o a lower treaty rate applies and the non-U.S. shareholder files the
required form evidencing eligibility for that reduced rate with us, or
o the non-U.S. shareholder files the required form with us claiming that
the distribution is effectively connected income.
A non-U.S. shareholder will not incur tax on a distribution in excess of
our current and accumulated earnings and profits if the distribution does not
exceed the adjusted basis of its shares of Class A common stock. Instead, the
distribution will reduce the adjusted basis of those shares of Class A common
stock. A non-U.S. shareholder will be subject to tax on a distribution that
exceeds both our current and accumulated earnings and profits and the adjusted
basis of its shares of Class A common stock, if the non-U.S. shareholder
otherwise would be subject to tax on gain from the sale or disposition of its
shares of Class A common stock, as described below. Because we generally
cannot determine at the time we make a distribution whether or not the
distribution will exceed our current and accumulated earnings and profits, we
normally will withhold tax on the entire amount of any distribution at the
same rate as we would withhold on a dividend. However, a non-U.S. shareholder
may obtain a refund of amounts that we withhold if we later determine that a
distribution in fact exceeded our current and accumulated earnings and
profits.
We must withhold 10% of any distribution that exceeds our current and
accumulated earnings and profits. Consequently, although we intend to withhold
at a rate of 30% on the entire amount of any distribution, to the extent that
we do not do so, we will withhold at a rate of 10% on any portion of a
distribution not subject to withholding at a rate of 30%.
For any year in which we qualify as a REIT, a non-U.S. shareholder will
incur tax on distributions that are attributable to gain from our sale or
exchange of "U.S. real property interests" under special provisions of the
federal income tax laws known as "FIRPTA." The term "U.S. real property
61
interests" includes interests in real property and shares in corporations at
least 50% of whose assets consist of interests in real property. Under those
rules, a non-U.S. shareholder is taxed on distributions attributable to gain
from sales of U.S. real property interests as if the gain were effectively
connected with a U.S. business of the non-U.S. shareholder. A non-U.S.
shareholder thus would be taxed on this distribution at the normal capital gain
rates applicable to U.S. shareholders, subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of a nonresident
alien individual. A non-U.S. corporate shareholder not entitled to treaty
relief or exemption also may be subject to the 30% branch profits tax on such a
distribution. We must withhold 35% of any distribution that we could designate
as a capital gain dividend. A non-U.S. shareholder may receive a credit against
our tax liability for the amount we withhold.
A non-U.S. shareholder generally will not incur tax under FIRPTA as long
as at all times non-U.S. persons hold, directly or indirectly, less than 50%
in value of our shares. We cannot assure you that that test will be met.
However, a non-U.S. shareholder that owned, actually or constructively, 5% or
less of the shares of Class A common stock at all times during a specified
testing period will not incur tax under FIRPTA if the shares of Class A common
stock are "regularly traded" on an established securities market. Because the
Class A common stock is regularly traded on an established securities market,
a non-U.S. shareholder will not incur tax under FIRPTA unless it owns more
than 5% of the Class A common stock. If the gain on the sale of the shares of
Class A common stock were taxed under FIRPTA, a non-U.S. shareholder would be
taxed on that gain in the same manner as U.S. shareholders subject to
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals, and the possible application of the 30%
branch profits tax in the case of non-U.S. corporations. Furthermore, a
non-U.S. shareholder generally will incur tax on gain not subject to FIRPTA
if:
o the gain is effectively connected with the non-U.S. shareholder's U.S.
trade or business, in which case the non-U.S. shareholder will be
subject to the same treatment as U.S. shareholders with respect to such
gain, or
o the non-U.S. shareholder is a nonresident alien individual who was
present in the U.S. for 183 days or more during the taxable year and
has a "tax home" in the United States, in which case the non-U.S.
shareholder will incur a 30% tax on his or her capital gains.
STATE AND LOCAL TAXES
We and/or our shareholders may be subject to taxation by various states
and localities, including those in which we or a shareholder transacts
business, owns property or resides. The state and local tax treatment may
differ from the federal income tax treatment described above. Consequently,
shareholders should consult their own tax advisors regarding the effect of
state and local tax laws upon an investment in the shares of Class A common
stock.
62
UNDERWRITING
Ferris, Baker Watts, Incorporated, J.J.B. Hilliard, W.L. Lyons, Inc. and
Advest, Inc. are acting as the underwriters. Subject to the terms and
conditions contained in the underwriting agreement, we have agreed to sell to
the underwriters, and the underwriters have agreed to purchase from us, the
number of shares set forth opposite their names below. The underwriting
agreement provides that the obligation of the underwriters to pay for and
accept delivery of the Class A common stock is subject to approval of certain
legal matters by counsel and to certain other conditions. The underwriters
must take and pay for all of the shares of Class A common stock, other than
those covered by the over-allotment option described below, if any of these
shares are taken.
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Ferris, Baker Watts, Incorporated .......... 1,920,000
---------
J.J.B. Hilliard, W.L. Lyons, Inc ........... 1,920,000
---------
Advest, Inc ................................ 960,000
---------
Total ...................................... 4,800,000
=========
The following table shows the per share and total underwriting discount
we will pay to the underwriters. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase 720,000
additional shares of Class A common stock.
NO EXERCISE FULL EXERCISE
------------- --------------
Per share .......... $ 0.48825 $ 0.48825
Total .............. $2,343,600 $2,695,140
The underwriters propose to offer our Class A common stock directly to
the public at $9.30 per share and to certain dealers at such price less a
concession not in excess of $0.29 per share. The underwriters may allow, and
the dealers may reallow, a concession not in excess of $0.10 per share to
certain dealers.
The shares of Class A common stock offered and sold in this offering will
be listed on the New York Stock Exchange.
We have granted the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase up to 720,000 additional shares of
Class A common stock to cover over-allotments, if any, at the public offering
price less the underwriting discounts set forth on the cover page of this
prospectus. If the underwriters exercise this option, the underwriters will
have a firm commitment, subject to certain conditions, to purchase all of the
shares of Class A common stock covered by their option exercise.
We expect to incur expenses of approximately $1,100,000 in connection
with this offering.
The expenses we expect to incur in this offering include an advisory fee
of .75% of the gross proceeds of the offering payable to Ferris, Baker Watts,
Incorporated for advisory services in connection with the evaluation, analysis
and structuring of this offering as well as expenses incurred by the
underwriters in connection with this offering.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect of those liabilities.
In connection with the offering, the underwriters may engage in certain
transactions that stabilize the price of the Class A common stock. These
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Class A common stock. If the underwriters
create a short position in the Class A common stock in connection with the
offering, that is, if they
63
sell more than 5,520,000 shares, the underwriters may reduce that short
position by purchasing our shares of Class A common stock in the open market.
In general, the purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither we nor the underwriters make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the Class A common stock. In addition, neither
we nor the underwriters make any representation that the underwriters will
engage in these transactions or that these transactions, once begun, will not
be discontinued without notice.
EXPERTS
Our consolidated balance sheets as of October 31, 2000 and 1999 and our
consolidated statements of income, cash flows and stockholders' equity for
each of the years ended October 31, 2000, 1999 and 1998, included in this
prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, whose report is included in this prospectus and given upon their
authority as experts in accounting and auditing.
LEGAL OPINIONS
The legality of the shares of Class A common stock offered in this
offering will be passed upon by Miles & Stockbridge P.C., Baltimore, Maryland.
The description of federal income tax consequences in "Federal Income Tax
Consequences of Our Status as a REIT" is based upon an opinion of Coudert
Brothers LLP. Certain legal matters relating to this offering will be passed
upon for the underwriters by Hunton & Williams. Hunton & Williams will rely as
to matters of Maryland law on the opinion of Miles & Stockbridge P.C.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information that we file with the SEC at the SEC's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may request copies of
these documents, upon payment of a copying fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for information on the operation of the public
reference room. Our SEC filings are also available to the public on the SEC
internet site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to documents we have filed with the SEC that are not included in
this prospectus. The information incorporated by reference is considered part
of this prospectus. We incorporate by reference the documents listed below:
o Our Annual Report on Form 10-K for the year ended October 31, 2000;
o Our Quarterly Reports on Form 10-Q for the quarters ended January 31,
2001, April 30, 2001 and July 31, 2001;
o Definitive Proxy Statement filed February 1, 2001;
o Registration Statement filed on Form 8-A12B filed June 17, 1998; and
o Registration Statement filed on Form 8-A12B/A filed on August 3, 1998.
64
You may request a copy of these filings, at no cost, by writing or
telephoning:
Urstadt Biddle Properties Inc.
Attn: James R. Moore
Executive Vice President and Chief Financial Officer
321 Railroad Avenue
Greenwich, Connecticut 06830
(203) 863-8200
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement to this prospectus. We have not
authorized anyone else to provide you with different information. We are not
making an offer of our shares of Class A common stock in any state where the
offer or solicitation is not authorized. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
The statements that we make in this prospectus about the contents of any
other documents are not necessarily complete, and are qualified in their
entirety by referring you to the copy of that document, which is filed as an
exhibit to our registration statement on Form S-2. You can obtain copies of
these documents from the SEC or from us, as described above.
65
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Public Accountants ........................................... F-2
Consolidated Balance Sheets at October 31, 2000 and 1999 ........................... F-3
Consolidated Statements of Income for each of the three years ended
October 31, 2000 .................................................................. F-4
Consolidated Statements of Cash Flows for each of the three years ended
October 31, 2000 .................................................................. F-5
Consolidated Statements of Stockholders' Equity for each of the three years
ended October 31, 2000 ............................................................ F-6
Notes to Consolidated Financial Statements ......................................... F-7
Consolidated Balance Sheets at July 31, 2001 (Unaudited) ........................... F-21
Consolidated Statements of Income for the Three-months and
Nine-months ended July 31, 2001 and 2000 (Unaudited) ............................ F-22
Consolidated Statements of Cash Flows for the Three-months and
Nine-months ended July 31, 2001 and 2000 (Unaudited) ............................ F-23
Consolidated Statements of Changes in Stockholders' Equity for the
Nine-months ended July 31, 2001 and 2000 (Unaudited) ............................ F-24
Notes to Consolidated Financial Statements (Unaudited) ............................. F-25
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Urstadt Biddle Properties Inc.:
We have audited the accompanying consolidated balance sheets of Urstadt Biddle
Properties Inc. and subsidiaries (the "Company"), as of October 31, 2000 and
1999, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended October
31, 2000. These financial statements and schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Urstadt Biddle Properties
Inc. and subsidiaries as of October 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the
period ended October 31, 2000 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
New York, New York
December 13, 2000, except as
to Note (14) which date is January 5, 2001
F-2
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 31,
-----------------------
2000 1999
----------- -----------
ASSETS
Real Estate Investments:
Properties owned -- at cost, net of accumulated depreciation .................. $ 146,851 $ 144,522
Properties available for sale -- at cost, net of accumulated
depreciation and recoveries ................................................. 12,158 16,966
Investment in unconsolidated joint venture .................................... 9,167 9,889
Mortgage notes receivable ..................................................... 2,379 2,500
--------- ---------
170,555 173,877
Cash and cash equivalents ...................................................... 1,952 2,758
Interest and rent receivable ................................................... 3,853 3,370
Deferred charges, net of accumulated amortization .............................. 2,824 2,418
Other assets ................................................................... 1,916 1,351
--------- ---------
$ 181,100 $ 183,774
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities: ...................................................................
Bank loans .................................................................... $ -- $ 2,000
Mortgage notes payable ........................................................ 51,903 51,263
Accounts payable and accrued expenses ......................................... 1,222 1,907
Deferred officers' compensation ............................................... 102 155
Other liabilities ............................................................. 2,090 1,810
--------- ---------
55,317 57,135
--------- ---------
Minority Interest .............................................................. 5,140 5,140
--------- ---------
Preferred Stock, par value $.01 per share; 20,000,000 shares authorized; 8.99%
Series B Senior Cumulative Preferred stock, (liquidation preference of $100
per share); 350,000 shares issued and outstanding in 2000 and 1999 ............ 33,462 33,462
--------- ---------
Stockholders' Equity: ..........................................................
Excess stock, par value $.01 per share; 10,000,000 shares authorized;
none issued and outstanding .................................................. -- --
Common stock, par value $.01 per share; 30,000,000 shares authorized;
5,557,387 and 5,531,845 issued and outstanding shares in 2000 and 1999,
respectively ................................................................. 55 55
Class A Common stock, par value $.01 per share; 40,000,000 shares
authorized;5,356,249 and 5,184,039 issued and outstanding shares in 2000
and 1999 respectively ........................................................ 54 52
Additional paid in capital .................................................... 122,448 120,964
Cumulative distributions in excess of net income .............................. (33,397) (31,127)
Unamortized restricted stock compensation and notes receivable from
officers/stockholders ......................................................... (1,979) (1,907)
--------- ---------
87,181 88,037
--------- ---------
$ 181,100 $ 183,774
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
REVENUES:
Operating leases ..................................................... $ 30,242 $ 28,666 $ 23,772
Financing leases ..................................................... 97 232 353
Interest and other ................................................... 670 532 1,260
Equity income of unconsolidated joint venture ........................ 245 384 210
-------- -------- --------
31,254 29,814 25,595
-------- -------- --------
OPERATING EXPENSES:
Property expenses ................................................... 10,413 9,460 7,696
Interest ............................................................ 4,245 3,913 2,522
Depreciation and amortization ....................................... 6,307 5,896 4,747
General and administrative expenses ................................. 2,152 2,150 2,077
Directors' fees and expenses ........................................ 164 177 210
-------- -------- --------
23,281 21,596 17,252
-------- -------- --------
OPERATING INCOME BEFORE MINORITY INTERESTS ........................... 7,973 8,218 8,343
MINORITY INTERESTS IN RESULTS OF CONSOLIDATED JOINT VENTURES ......... (451) (392) (167)
-------- -------- --------
OPERATING INCOME ..................................................... 7,522 7,826 8,176
GAINS ON SALES OF REAL ESTATE INVESTMENTS ............................ 1,067 1,364 --
-------- -------- --------
NET INCOME ........................................................... 8,589 9,190 8,176
Preferred Stock Dividends ........................................... (3,147) (3,147) (2,561)
-------- -------- --------
NET INCOME APPLICABLE TO COMMON AND CLASS A COMMON
STOCKHOLDERS ........................................................ $ 5,442 $ 6,043 $ 5,615
======== ======== ========
BASIC EARNINGS PER SHARE:
Common ............................................................... $ .50 $ .55 $ .52
======== ======== ========
Class A Common ....................................................... $ .55 $ .62 $ .57
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Common ............................................................... 5,351 5,236 5,125
======== ======== ========
Class A Common ....................................................... 5,059 5,101 5,121
======== ======== ========
DILUTED EARNINGS PER SHARE:
Common ............................................................... $ .49 $ .54 $ .52
======== ======== ========
Class A Common ....................................................... $ .55 $ .61 $ .57
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Common and Common Equivalent ......................................... 5,433 5,317 5,283
======== ======== ========
Class A Common and Class A Common Equivalent ......................... 5,532 5,545 5,279
======== ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED OCTOBER 31,
----------------------------------------
2000 1999 1998
----------- ----------- ------------
OPERATING ACTIVITIES:
Net income ...................................................... $ 8,589 $ 9,190 $ 8,176
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .................................. 6,307 5,896 4,747
Compensation recognized relating to restricted stock ........... 630 488 331
Recovery of investment in properties owned subject to
financing leases ............................................. 1,214 1,249 1,115
Equity in income of unconsolidated joint venture ............... (245) (384) (210)
Gains on sales of real estate investments ...................... (1,067) (1,364) --
(Increase) decrease in interest and rent receivable ............ (481) (925) 204
(Decrease) increase n accounts payable and accrued expenses..... (684) 780 (380)
(Increase) in other assets and other liabilities, net .......... (371) (507) (82)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................... 13,892 14,423 13,901
--------- --------- ---------
INVESTING ACTIVITIES:
Acquisitions of properties ..................................... (1,627) (9,717) (29,592)
Improvements to properties and deferred charges ................ (6,642) (3,985) (2,196)
Net proceeds from sales of properties .......................... 3,921 2,765 --
Investment in unconsolidated joint venture ..................... (535) (635) (340)
Distributions received from unconsolidated joint venture ....... 1,500 600 --
Payments received on mortgage notes receivable ................. 121 107 998
Miscellaneous .................................................. -- 309 --
--------- --------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES ........................ (3,262) (10,556) (31,130)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from sale of preferred stock .......................... -- -- 33,462
Proceeds from mortgage notes payable and bank loans ............ 6,500 19,000 33,028
Payments on mortgage notes payable and bank loans .............. (7,861) (15,039) (37,815)
Dividends paid -- Common and Class A Common shares ............. (7,712) (7,471) (6,784)
Dividends paid -- Preferred Stock .............................. (3,147) (3,147) (2,561)
Sales of additional Common and Class A Common shares ........... 2,713 2,232 351
Purchases of Common and Class A Common shares .................. (1,929) (584) (474)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ............ (11,436) (5,009) 19,207
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............ (806) (1,142) 1,978
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 2,758 3,900 1,922
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 1,952 $ 2,758 $ 3,900
========= ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
COMMON STOCK CLASS A COMMON STOCK
------------------------ ------------------------
OUTSTANDING OUTSTANDING
NUMBER OF PAR NUMBER OF PAR
SHARES VALUE SHARES VALUE
------------- ---------- ------------- ----------
BALANCES -- OCTOBER 31, 1997 ........... 5,167,495 $51 -- --
Net Income Applicable to Common and
Class A common stockholders ........... -- -- -- --
One-for-one stock split effected in the
form of a dividend of a new issue of
Class A common stock .................. -- -- 5,226,991 52
Cash dividends paid:
Common stock ($1.13 per share)......... -- -- -- --
Class A common stock ($.19 per
share) ............................... -- -- -- --
Sale of additional shares under dividend
reinvestment plan ..................... 14,983 -- 4,359 --
Exercise of stock options .............. 5,874 -- 5,000 --
Shares issued under restricted stock
plan -- net ........................... 47,750 1 -- --
Amortization of restricted stock
compensation .......................... -- -- -- --
Purchases of shares .................... (14,500) -- (42,700) --
--------- ---- --------- ---
BALANCES -- OCTOBER 31, 1998 ........... 5,221,602 52 5,193,650 52
Net Income Applicable to Common and
Class A common stockholders ........... -- -- -- --
Cash dividends paid:
Common stock ($.68 per share).......... -- -- -- --
Class A common stock ($.76 per
share) ............................... -- -- -- --
Deemed repurchase of Class A Common
stock and reissuance of Common
stock ................................. 272,727 3 (272,727) (3)
Sale of additional shares .............. 32,000 -- 212,000 2
Sale of additional shares under dividend
reinvestment plan ..................... 17,816 -- 18,616 --
Shares issued under restricted stock
plan .................................. 46,500 1 46,500 1
Amortization of restricted stock
compensation .......................... -- -- -- --
Purchases of shares .................... (58,800) (1) (14,000) --
--------- ----- --------- ----
BALANCES -- OCTOBER 31, 1999 ........... 5,531,845 55 5,184,039 52
Net Income Applicable to Common and
Class A common stockholders ........... -- -- -- --
Cash dividends paid:
Common stock ($.70 per share).......... -- -- -- --
Class A common stock ($.78 per
share) ............................... -- -- -- --
Sale of additional shares .............. 64,400 -- 256,400 3
Sale of additional shares under dividend
reinvestment plan ..................... 21,367 -- 22,035 --
Shares issued under restricted stock
plan .................................. 48,375 1 48,375 1
Amortization of restricted stock
compensation .......................... -- -- -- --
Purchases of shares .................... (108,600) (1) (154,600) (2)
--------- ------ --------- -----
BALANCES -- OCTOBER 31, 2000 ........... 5,557,387 $55 5,356,249 $54
========= ===== ========= =====
UNAMORTIZED
RESTRICTED
(CUMULATIVE STOCK
ADDITIONAL DISTRIBUTIONS COMPENSATION
PAID IN IN EXCESS OF AND NOTES
CAPITAL NET INCOME) RECEIVABLE TOTAL
----------- --------------- ------------- ----------
BALANCES -- OCTOBER 31, 1997 ........... $117,763 $ (28,530) $ (994) $ 88,290
Net Income Applicable to Common and
Class A common stockholders ........... -- 5,615 -- 5,615
One-for-one stock split effected in the
form of a dividend of a new issue of
Class A common stock .................. (52) -- -- --
Cash dividends paid:
Common stock ($1.13 per share)......... -- (5,848) -- (5,848)
Class A common stock ($.19 per
share) ............................... -- (936) -- (936)
Sale of additional shares under dividend
reinvestment plan ..................... 270 -- -- 270
Exercise of stock options .............. 81 -- -- 81
Shares issued under restricted stock
plan -- net ........................... 970 -- (971) --
Amortization of restricted stock
compensation .......................... -- -- 331 331
Purchases of shares .................... (474) -- -- (474)
-------- --------- -------- --------
BALANCES -- OCTOBER 31, 1998 ........... 118,558 (29,699) (1,634) 87,329
Net Income Applicable to Common and
Class A common stockholders ........... -- 6,043 -- 6,043
Cash dividends paid:
Common stock ($.68 per share).......... -- (3,511) -- (3,511)
Class A common stock ($.76 per
share) ............................... -- (3,960) -- (3,960)
Deemed repurchase of Class A Common
stock and reissuance of Common
stock ................................. -- -- -- --
Sale of additional shares .............. 1,943 -- -- 1,945
Sale of additional shares under dividend
reinvestment plan ..................... 287 -- -- 287
Shares issued under restricted stock
plan .................................. 759 -- (761) --
Amortization of restricted stock
compensation .......................... -- -- 488 488
Purchases of shares .................... (583) -- -- (584)
-------- --------- -------- --------
BALANCES -- OCTOBER 31, 1999 ........... 120,964 (31,127) (1,907) 88,037
Net Income Applicable to Common and
Class A common stockholders ........... -- 5,442 -- 5,442
Cash dividends paid:
Common stock ($.70 per share).......... -- (3,748) -- (3,748)
Class A common stock ($.78 per
share) ............................... -- (3,964) -- (3,964)
Sale of additional shares .............. 2,406 -- -- 2,409
Sale of additional shares under dividend
reinvestment plan ..................... 304 -- -- 304
Shares issued under restricted stock
plan .................................. 700 -- (702) --
Amortization of restricted stock
compensation .......................... -- -- 630 630
Purchases of shares .................... (1,926) -- -- (1,929)
-------- --------- -------- --------
BALANCES -- OCTOBER 31, 2000 ........... $122,448 $ (33,397) $ (1,979) $ 87,181
======== ========= ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Urstadt Biddle Properties Inc., (Company), a real estate investment trust,
is engaged in the acquisition, ownership and management of commercial real
estate, primarily neighborhood and community shopping centers in the
northeastern part of the United States. Other assets include office and retail
buildings and industrial properties. The Company's major tenants include
supermarket chains, other retailers who sell basic necessities and
multi-national industrial corporations. At October 31, 2000, the Company owned
or had interests in 25 properties. The Company was organized in 1969 as a
Massachusetts business trust (Trust) and, in 1997, pursuant to a plan of
reorganization, reorganized from a Massachusetts business trust to a Maryland
corporation. The plan of reorganization was effected by means of a merger of
the Trust into the Company. As a result of the merger, the separate existence
of the Trust ceased and each issued and outstanding common share of beneficial
interest of the Trust was converted into one share of common stock, par value
$.01 per share, of the Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, and joint ventures in which the
Company has the ability to control the affairs of the venture. The
unconsolidated joint venture is accounted for by the equity method of
accounting. Under the equity method, only the Company's net investment and
proportionate share of income or loss of the unconsolidated joint venture is
reflected in the financial statements. All significant intercompany
transactions and balances have been eliminated in consolidation.
ACCOUNTING FOR LEASES
The Company accounts for its leases of real property in accordance with
the provisions of Financial Accounting Standards Statement No. 13, "Accounting
for Leases," as amended. This Statement sets forth specific criteria for
determining whether a lease should be accounted for as an operating lease or a
direct financing lease. In general, the financing lease method applies where
property is under long-term lease to a creditworthy tenant and the present
value of the minimum required lease payments at the inception of a lease is at
least 90% of the market value of the property leased. Other leases are
accounted for as operating leases.
Direct financing leases, which are included in Properties Available for
sale, are carried at the aggregate minimum lease payments to be received over
the terms of the leases, plus an estimated residual value, less unearned
income. The income component of rental payments received, which is based upon
the interest rate implicit in the lease, is reflected as financing lease
revenues and the remaining portion of the rent is reflected as a recovery of
the financing lease asset.
FEDERAL INCOME TAXES
The Company believes it qualifies and intends to continue to qualify as a
real estate investment trust (REIT) under Sections 856-860 of the Internal
Revenue Code (IRC). Under those sections, a REIT, among other things, that
distributes at least 95% (90% for tax years beginning after December 31, 2000)
of its real estate trust taxable income will not be taxed on that portion of
its taxable income which is distributed. The Company intends to distribute all
of its taxable income for the fiscal years through 2000 in accordance with the
provisions of Section 858 of the IRC. Accordingly, no provision has been made
for Federal income taxes in the accompanying consolidated financial
statements.
Taxable income of the Company prior to the dividends paid deduction for
the years ended October 31, 2000, 1999 and 1998 was approximately $11,936,000,
$8,600,000 and $9,800,000
F-7
respectively. The difference between net income for financial reporting
purposes and taxable income results from, among other things, differences in
adjusted bases for capital gains and losses and different methods of accounting
for leases, depreciable lives related to the properties owned and investments
in joint ventures.
DEPRECIATION AND AMORTIZATION
The Company uses the straight-line method for depreciation and
amortization. Properties owned and properties available for sale are
depreciated over the estimated useful lives of the properties, which range
from 30 to 40 years. Tenant improvements and deferred leasing costs are
amortized over the life of the related leases. All other deferred charges are
amortized over the terms of the agreements to which they relate.
PROPERTIES AVAILABLE FOR SALE
A property is classified as available for sale upon determination by the
Board of Directors that the property is to be marketed for sale in the normal
course of business over the next several years.
REAL ESTATE INVESTMENT IMPAIRMENT
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows,
undiscounted and without interest, expected to be generated by the asset. If
such assets are considered impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. It is the Company's
policy to reclassify properties available for sale as assets to be disposed of
upon determination that such properties will be sold within one year.
CAPITALIZATION
Acquisition of real estate investments, including brokerage, legal and
other external costs incurred in acquiring new properties are capitalized as
incurred. Additions, renovations and improvements that enhance and/or extend
the useful life of a property are also capitalized. Direct leasing
commissions, legal and other leasing related costs expended in connection with
the Company's successful leasing activities are capitalized as incurred.
Expenditures for ordinary maintenance, repairs and improvements that do not
materially prolong the normal useful life of an asset are charged to
operations as incurred.
INCOME RECOGNITION
Revenues from operating and finance leases include revenues from
properties owned and properties available for sale. Rental income is generally
recognized based on the terms of leases entered into with tenants. Rental
income from leases with scheduled rent increases is recognized on a
straight-line basis over the lease term. Additional rents which are provided
for in leases, are recognized as income when earned and their amounts can be
reasonably estimated. Interest income is recognized as it is earned. Gains and
losses on sales of properties are recorded when the criteria for recognizing
such gains or losses under generally accepted accounting principles have been
met.
Percentage rent is recognized when a specific tenant's sales breakpoint
is achieved. Property operating cost recoveries from tenants of common area
maintenance, real estate taxes, and other recoverable costs are recognized in
the period the related expenses are incurred.
F-8
STATEMENTS OF CASH FLOWS
The Company considers short-term investments with original maturities of
90 days or less to be cash equivalents.
USE OF ESTIMATES
The preparation of financial statements requires management to make use
of estimates and assumptions that affect amounts reported in the financial
statements as well as certain disclosures. Actual results could differ from
those estimates.
F-9
EARNINGS PER SHARE
Basic earnings per share ("EPS") excludes the impact of dilutive shares
and is computed by dividing net income applicable to Common and Class A common
stockholders by the weighted number of Common shares and Class A Common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue Common shares or Class A
Common shares were exercised or converted into Common shares or Class A Common
shares and then shared in the earnings of the Company. Since the cash
dividends declared on the Company's Class A common stock are higher than the
dividends declared on the common stock, basic and diluted EPS have been
calculated using the "two-class" method. The two-class method is an earnings
allocation formula that determines earnings per share for each class of common
stock according to the weighted average of the dividends declared, outstanding
shares per class and participation rights in undistributed earnings. The
following table sets forth the reconciliation between basic and diluted EPS
(in thousands):
2000 1999 1998
--------- --------- ---------
NUMERATOR
---------
Net income applicable to common stockholders -- basic ...... $2,650 $2,893 $2,674
Effect of dilutive securities:
Operating partnership units ............................... 28 -- 80
------ ------ ------
Net income applicable to common stockholders -- diluted..... $2,678 $2,893 $2,754
====== ====== ======
DENOMINATOR
Denominator for basic EPS -- weighted averages common
shares .................................................... 5,351 5,236 5,125
Effect of dilutive securities:
Stock options and awards .................................. 82 81 103
Operating partnership units ............................... -- -- 55
------ ------ ------
Denominator for diluted EPS -- weighted average
Common
equivalent shares ......................................... 5,433 5,317 5,283
====== ====== ======
NUMERATOR
---------
Net income applicable to Class A common
stockholders -- basic ..................................... $2,792 $3,150 $2,941
Effect of dilutive securities:
Operating partnership units ............................... 246 218 87
------ ------ ------
Net income applicable to Class A common stockholders --
diluted ................................................... $3,038 $3,368 $3,028
====== ====== ======
DENOMINATOR
-----------
Denominator for basic EPS -- weighted average Class A
Common shares ............................................. 5,059 5,101 5,121
Effect of dilutive securities:
Stock options and awards .................................. 90 104 103
Operating partnership units ............................... 383 340 55
------ ------ ------
Denominator for diluted EPS -- weighted average Class A
Common equivalent shares .................................. 5,532 5,545 5,279
====== ====== ======
The weighted average Common equivalent shares and Class A Common
equivalent shares for the year ended October 31, 2000 and 1999 each exclude
54,553 shares. These shares were not included in the calculation of diluted EPS
because the effect would be anti-dilutive.
F-10
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
generally requires that all derivative instruments be reflected in the
financial statements at their estimated fair value. The Company does not
generally enter into derivative contracts for either investment or hedging
purposes. The Company expects to adopt the provisions of this Statement No.
133 in the first quarter of its fiscal 2001, and is reviewing its long term
contracts to determine if any terms may be deemed to be embedded derivatives
requiring such valuation.
(2) REAL ESTATE INVESTMENTS
The Company's investments in real estate were composed of the following
at October 31, 2000 and 1999 (in thousands):
PROPERTIES INVESTMENT IN MORTGAGE
PROPERTIES AVAILABLE FOR UNCONSOLIDATED NOTES 2000 1999
OWNED SALE JOINT VENTURE RECEIVABLE TOTALS TOTALS
------------ --------------- ---------------- ------------ ----------- -----------
Retail ................... $130,039 $ 2,090 $9,167 $2,379 $143,675 $145,653
Office/Mixed Use ......... 16,508 6,725 -- -- 23,233 22,788
Industrial ............... -- 2,543 -- -- 2,543 4,332
Undeveloped Land ......... 304 800 -- -- 1,104 1,104
-------- ------- ------ ------ -------- --------
$146,851 $12,158 $9,167 $2,379 $170,555 $173,877
======== ======= ====== ====== ======== ========
The Company's investments at October 31, 2000, consisted of equity
interests in 25 properties, which are located in various regions throughout
the United States and mortgage notes. The following is a summary of the
geographic locations of the Company's investments at October 31, 2000 and 1999
(in thousands):
2000 1999
----------- -----------
Northeast .......... $148,461 $145,886
Southeast .......... 9,368 12,777
Midwest ............ 8,782 9,743
Southwest .......... 3,944 5,471
-------- --------
$170,555 $173,877
======== ========
(3) PROPERTIES OWNED
The components of properties owned were as follows (in thousands):
2000 1999
------------ ------------
Land ................................ $ 29,592 $ 29,104
Buildings and improvements .......... 144,644 138,152
--------- ---------
174,236 167,256
Accumulated depreciation ............ (27,385) (22,734)
--------- ---------
$ 146,851 $ 144,522
========= =========
Space at properties owned by the Company is generally leased to various
individual tenants under short and intermediate term leases which are
accounted for as operating leases.
Minimum rental payments on noncancellable operating leases become due as
follows: 2001 -- $19,648,000; 2002 -- $18,422,000; 2003 -- $17,054,000; 2004
-- $15,404,000; 2005 -- $13,884,000 and thereafter -- $67,083,000.
In addition to minimum rental payments, certain tenants are required to
pay additional rental amounts based on increases in property operating
expenses and/or their share of the costs of
F-11
maintaining common areas. Certain of the Company's leases provide for the
payment of additional rent based on a percentage of the tenant's revenues. Such
additional percentage rents are included in rental income and aggregated
approximately $148,000, $165,000, and $422,000, in 2000, 1999, and 1998
respectively.
The Company is the general partner in a consolidated limited partnership
formed in 1997 to acquire and manage the Eastchester Mall, in Eastchester, New
York. The limited partner is entitled to preferential distributions of cash
flow from the property and, after a period of three years from the formation
of the partnership, may put its interest to the Company for a fixed number of
shares of common stock and Class A common stock of the Company, or at its
option, the Company may redeem the interest for cash. The Company has the
option to purchase the limited partner's interest after a certain period. The
partnership agreement, among other things, restricts the sale or refinancing
of the property without the limited partner's consent.
The Company is also the general partner in a consolidated limited
partnership formed in 1998 to acquire and manage the Arcadian Shopping Center
in Briarcliff, New York. The limited partners contributed the property subject
to a $6.3 million first mortgage in exchange for operating partnership units
(OPU's). The OPU's are exchangeable into an equivalent number of shares of
Class A common stock or cash, at the option of the general partner. The
limited partners are entitled to preferential distributions of cash flow from
the property. The Limited Partners, after a period of three years from the
formation of the partnership may put the remainder of their partnership
interests to the Company, for, at the option of the general partner, either
cash or units of Class A common stock of the Company at a unit price as
defined in the partnership agreement. The Company has the option to purchase
the limited partners interest after a certain period. The partnership
agreement, among other things, places certain restrictions on the sale or
refinancing of the property without the limited partners' consent for a
specified period; thereafter the partnership agreement imposes no such
restrictions.
The limited partners interests in both partnerships are reflected in the
accompanying consolidated financial statements as minority interest. The
acquisition of the interest in the Arcadian Shopping Center and the assumption
of the first mortgage by the partnership represent noncash investing and
financing activities and therefore are not included in the accompanying 1999
Consolidated Statement of Cash Flows.
In fiscal 2000, the Company purchased an office property in Greenwich,
Connecticut for $1.65 million.
In fiscal 1999, the Company acquired interests in three properties for
total consideration of $23 million, including the Towne Centre Shopping Center
in which the Company assumed a first mortgage of $4.1 million. The assumption
of the first mortgage represents a noncash financing activity and is therefore
not included in the accompanying 1999 Consolidated Statement of Cash Flows.
(4) PROPERTIES AVAILABLE FOR SALE
The Board of Directors authorized a plan to sell all of the non-core
properties of the Company over a period of several years. The non-core
properties, which have been classified as Properties Available for Sale,
consist of all of the Company's distribution and service properties and
certain of its office and retail properties located outside of the Northeast
region of the United States.
At October 31, 2000 and 1999, properties available for sale consisted of
the following (in thousands):
2000 1999
--------- ----------
Properties available for sale subject to:
Operating leases ................................... $ 9,615 $13,210
Direct financing leases ............................ 2,543 3,756
------- -------
$12,158 $16,966
======= =======
F-12
OPERATING LEASES
The components of properties available for sale subject to operating
leases were as follows (in thousands):
2000 1999
----------- -----------
Land ................................ $ 2,292 $ 2,545
Buildings and improvements .......... 15,706 18,666
-------- --------
17,998 21,211
Accumulated depreciation ............ (8,383) (8,001)
-------- --------
$ 9,615 $ 13,210
======== ========
Minimum rental payments on non-cancelable operating leases become due as
follows: 2001 -- $5,442,000, 2002 -- $4,602,000; 2003 -- $3,985,000; 2004 --
$4,100,000; 2005 -- $4,288,000 and thereafter $7,009,000.
DIRECT FINANCING LEASES
The components of properties available for sale subject to direct
financing leases were as follows (in thousands):
2000 1999
------------- -----------
Total minimum lease payments to be received ........................... $ 442 $ 1,752
Assumed residual values of leased property ............................ 2,107 2,107
Unearned income ....................................................... (6) (103)
--------- -------
Investment in property subject to direct financing leases ............. $ 2,543 $ 3,756
======== =======
Original cost of property subject to direct financing leases .......... $16,276 $16,276
======== =======
Assumed residual values are based upon a depreciated cost concept using
estimated useful lives and thus do not contain an element of appreciation which
may result by reason of inflation or other factors.
The remaining minimum lease payments receivable on direct financing leases
are due in 2001.
SALES OF PROPERTIES
In fiscal 2000, the Company sold two of its non-core properties and
realized net gains on the sales of the properties of $1,067,000.
In fiscal 1999, the Company sold one of its non-core properties and
realized a net gain on the sale of the property of $1,364,000.
During the years ended October 31, 2000 and 1999 the Company sold
properties for net gains on the sales of $1,067,000 and $1,364,000 (none in
1998). The net operating income in fiscal 2000, 1999 and 1998 of the
properties sold was $190,000, $685,000 and $710,000. At October 31, 2000 and
1999, the Company has not made a determination to sell any specific property
currently available for sale.
(5) INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
The Company is the sole general partner in Countryside Square Limited
Partnership (the "Partnership"), which owns the Countryside Square Shopping
Center in Clearwater, Florida. In 1997, the Company contributed the shopping
center at its net carrying amount, and the limited partners contributed
600,000 Common shares of the Company. The Partnership received 600,000 Class A
Common Shares pursuant to the stock dividend declared in August 1998 (see Note
9) and in 1999 exchanged 600,000 Common Shares that it held with an affiliate
for an equivalent number of Class A Common Shares (the "Exchange"). The
partnership agreement provides for the limited partners to
F-13
receive an annual cash preference from available cash of the Partnership, as
defined. Upon liquidation, proceeds from the sale of the partnership assets are
to be distributed to the partners in accordance with the terms of the
partnership agreement. The property may be sold at any time after the third
year of operation and the Company has a right of first refusal on the sale of
the property. The partners are not obligated to make any additional capital
contributions.
The Company has accounted for its proportionate interest in the Class A
Common shares owned by the Partnership as a deemed purchase and, accordingly,
reduced its investment in unconsolidated joint venture and shareholders'
equity in an amount equal to the fair value of the shares repurchased. As a
result of the Exchange, the consolidated statement of shareholders' equity for
the year ended October 31, 1999 reflects a deemed reissuance of the Company's
proportionate share of the Common shares formerly held by the Partnership and
a deemed retirement of its proportionate share of the additional Class A
Common shares which the Partnership received. The Company's equity in earnings
of the Partnership is reflected after eliminating its proportionate share of
dividend income in the Common and Class A Common Shares of the Company
recorded by the Partnership.
(6) MORTGAGE NOTES RECEIVABLE
Mortgage notes receivable consist of fixed rate mortgages. The components
of the mortgage notes receivable at October 31, 2000 and 1999 were as follows
(in thousands):
2000 1999
--------- ---------
Remaining principal balance ............................. $2,897 $3,059
Unamortized discounts to reflect market interest rates at
time of acceptance of notes ............................ (518) (559)
------ ------
$2,379 $2,500
====== ======
At October 31, 2000, principal payments on mortgage notes receivable
become due as follows: 2001 -- $111,000; 2002 -- $100,000; 2003 -- $109,000;
2004 -- $119,000; 2005 -- $130,000 thereafter -- $2,328,000.
At October 31, 2000, the remaining principal balance consists of mortgage
notes from two borrowers. The amount due from the largest individual borrower
was $1,915,000. The contractual interest rate on mortgage notes receivable is
9%.
(7) MORTGAGE NOTES PAYABLE AND LINES OF CREDIT
At October 31, 2000, the Company has seven nonrecourse mortgage notes
payable totaling $40,034,000 ($38,394,000 at October 31, 1999) due in
installments over various terms extending to the year 2010 and which bear
interest at rates ranging from 7.38% to 9.75%. The mortgage notes payable are
collateralized by real estate investments having a net carrying value of $60.7
million as of October 31, 2000.
Scheduled principal payments during the next five years and thereafter
are as follows: 2001 -- $6,836,000; 2002 -- $2,481,000; 2003 -- $673,000; 2004
-- $727,000; 2005 -- $783,000 and thereafter -- $28,534,000.
The Company has a $20 million secured revolving credit loan agreement
(the "Agreement") with a bank. The Agreement which expires in October 2005 is
secured by first mortgage liens on two properties. Interest on outstanding
borrowings are at the prime + 1/2% or LIBOR + 1.5%. However, the Company can
elect a fixed rate option at any time prior to the last year of the Agreement.
The Agreement requires the Company to maintain certain debt service coverage
ratios during the term of the agreement and provides for a permanent reduction
in the revolving credit loan amount of $625,000 annually, commencing in 2001.
At October 31, 2000, the Company had outstanding borrowings of $11,869,000
($12,869,000 at October 31, 1999). Outstanding borrowings are included in
mortgage notes payable in the accompanying consolidated balance sheets. The
Company also has a
F-14
$10 million unsecured line of credit arrangement with a bank (which was
increased to $15 million in December, 2000). The line of credit expires in
fiscal 2002 and is available, among other things, to acquire real estate,
refinance indebtedness and for working capital needs. Extensions of credit
under the arrangement are at the bank's discretion and subject to the bank's
satisfaction of certain conditions. Outstanding borrowings bear interest at the
prime rate plus 1/2% or LIBOR plus 21/2%. The Company pays an annual fee of
1/4% on unused amounts. There were no borrowings outstanding under this line of
credit.
Interest paid for the years ended October 31, 2000, 1999, and 1998 was
$4,245,000, $4,038,000, and $2,397,000 respectively.
(8) PREFERRED STOCK
In fiscal 1998 the Company sold 350,000 shares of 8.99% Series B Senior
Cumulative preferred stock, par value $.01 per share, with a liquidation
preference of $100 per share ("Series B Preferred Stock"). Holders of the
Series B Preferred Stock are entitled to receive cumulative preferential cash
dividends equal to 8.99% per annum, payable quarterly in arrears and subject
to adjustment under certain circumstances.
The Series B Preferred Stock has no stated maturity, will not be subject
to any sinking fund or mandatory redemption and will not be convertible into
other securities or property of the Company. On or after January 8, 2008, the
Series B Preferred Stock may be redeemed by the Company at its option, in
whole or in part, at a redemption price of $100 per share, plus all accrued
dividends. Upon a Change in Control of the Company (as defined), (i) each
holder of Series B Preferred Stock shall have the right, at such holder's
option, to require the Company to repurchase all or any part of such holder's
Series B Preferred Stock for cash at a repurchase price of $100 per share,
plus all accrued and unpaid dividends, and (ii) the Company shall have the
right, at the Company's option, to redeem all or any part of the Series B
Preferred Stock at (a) prior to January 8, 2008, the Make-Whole Price (as
defined) and (b) on or subsequent to January 8, 2008, the redemption price of
$100 per share, plus all accrued and unpaid dividends.
The Series B Preferred Stock contains covenants which require the Company
to maintain certain financial coverages relating to fixed charge and
capitalization ratios. Shares of the Series B Preferred Stock are non-voting;
however, under certain circumstances (relating to non-payment of dividends or
failure to comply with the financial covenants) the preferred stockholders
will be entitled to elect two directors.
(9) STOCKHOLDERS' EQUITY
In fiscal 1998, the Board of Directors declared and paid a special stock
dividend on the Company's common stock consisting of one share of a newly
created class of Class A common stock, par value $.01 per share for each share
of the Company's common stock. The Class A common stock entitles the holder to
1/20 of one vote per share. Each share of common stock and Class A common
stock have identical rights with respect to dividends except that each share
of Class A common stock will receive not less than 110% of the regular
quarterly dividends paid on each share of common stock. All references to the
number of common shares, except authorized shares, and per share amounts
elsewhere in the consolidated financial statements have been adjusted to
reflect the effect of the stock dividend for all periods presented.
The Company has a shareholders rights plan, which expires on November 12,
2008. The rights are not currently exercisable. When they are exercisable, the
holder will be entitled to purchase from the Company one one-hundredth of a
share of a newly-established Series A Participating Preferred Stock at a price
of $65 per one one-hundredth of a preferred share, subject to certain
adjustments. The distribution date for the rights will occur 10 days after a
person or group either acquires or obtains the right to acquire 10%
("Acquiring Person") or more of the combined voting power of the Company's
Common Shares, or announces an offer the consummation of which would result in
such person or
F-15
group owning 30% or more of the then outstanding Common Shares. Thereafter,
shareholders other than the Acquiring Person will be entitled to purchase
original common shares of the Company having a value equal to two times the
exercise price of the right.
If the Company is involved in a merger or other business combination at
any time after the rights become exercisable, and the Company is not the
surviving corporation or 50% or more of the Company assets are sold or
transferred, the rights agreement provides that the holder other than the
Acquiring Person will be entitled to purchase a number of shares of common
stock of the acquiring company having a value equal to two times the exercise
price of each right.
The Company's articles of incorporation provide that if, any person
acquires more than 7.5% of the outstanding shares of any class of stock,
except, among other reasons, as approved by the Board of Directors, such
shares in excess of this limit shall automatically be exchanged for an equal
number of shares of Excess Stock. Excess Stock have limited rights, may not be
voted and are not entitled to any dividends.
The Company has a Restricted Stock Plan (Plan) which provides for the
grant of restricted stock awards to key employees of the Company. The Plan, as
amended, allows for restricted stock awards of up to 350,000 shares of common
stock or Class A common stock. During 2000, the Company awarded 48,375 Common
shares (46,500 Common Shares in 1999) and 48,375 Class A Common Shares (46,500
Class A shares in 1999) to participants as an incentive for future services.
The shares vest after five years. Dividends on vested and non-vested shares
are paid as declared. The market value of shares awarded has been recorded as
unamortized restricted stock compensation and is shown as a separate component
of stockholders' equity. Unamortized restricted stock compensation is being
amortized to expense over the five year vesting period. For the years ended
October 31, 2000, 1999 and 1998, $630,000, $488,000, and $331,000
respectively, was charged to expense.
The Company's Board of Directors has authorized a program to purchase up
to a total of one million shares of the Company's common stock and Class A
common stock. As of October 31, 2000, the Company purchased and retired
223,600 Common shares and 211,300 Class A Common shares under this program.
F-16
(10) STOCK OPTION PLAN
The Company has a stock option plan under which 824,093 Common shares and
743,003 Class A Common shares are reserved for issuance to key employees and
non-employee Directors of the Company. Options are granted at fair market
value on the date of the grant, have a duration of ten years from the date of
grant and are generally exercisable in installments over a maximum period of
four years from the date of grant.
A summary of stock option transactions during the periods covered by
these financial statements is as follows:
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------- ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXCERCISE OF EXERCISE OF EXERCISE
SHARES PRICES SHARES PRICES SHARES PRICES
------------- ----------- ----------- ---------- ----------- ---------
COMMON STOCK:
Balance at beginning of period ......... 412,750 $7.04 410,750 $ 7.09 416,562 $6.98
Granted ................................ 593,000 $6.81 6,000 $ 7.69 7,000 $9.03
Exercised .............................. -- -- -- -- (5,874) $6.93
Canceled ............................... (301,500) $6.91 (4,000) $12.70 (6,938) $8.86
-------- ----- ------- ------ ------- -----
Balance at end of period ............... 704,250 $6.91 412,750 $ 7.04 410,750 $7.09
Exercisable ............................ 111,250 387,062 347,375
CLASS A COMMON STOCK:
Balance at beginning of period ......... 412,750 $7.10 410,750 $ 7.09 416,562 $6.98
Granted ................................ -- -- 6,000 $ 8.18 7,000 $9.03
Exercised .............................. -- -- -- -- (5,874) $6.97
Canceled ............................... (301,500) $6.96 (4,000) $12.79 (6,938) $8.92
-------- ----- ------- ------ ------- -----
Balance at end of period ............... 111,250 $7.48 412,750 $ 7.10 410,750 $7.09
Exercisable ............................ 111,250 387,062 347,375
Weighted average fair value of options
granted during the year
-- Common stock ..................... $ 0.18 $ 0.55 $ 1.16
-- Class A Common Stock ............. $ 0.12 $ 0.59 $ 1.16
In connection with the Class A common stock dividend each outstanding
incentive stock option to purchase common stock was modified to permit the
optionee to purchase an equal number of Class A common stock. Each outstanding
non-qualified stock option was modified to permit the optionee to purchase a
number of shares of either common stock, Class A common stock or a combination
of both based on the fair market values of the respective shares determined at
the stock dividend distribution date. In July 2000, an officer of the Company
was awarded stock options, to purchase 593,000 shares of common stock, Class A
common stock or a combination of both classes of common stock as shall total
the number of shares subject to the options. At October 31, 2000, exercise
prices of Common Shares and Class A Common Shares under option ranged from
$6.29 to $9.03, for the Common Shares and $6.33 to $9.09, for the Class A
Common Shares. Option expiration dates range for both classes of stock from
November 2003 through July 2010 and the weighted average remaining contractual
life of these options is 4.9 years.
F-17
The fair value for these options was estimated as of the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for the years ended October 31, 2000, 1999 and 1998:
YEAR ENDED OCTOBER 31,
-------------------------------------
2000 1999 1998
------------ ---------- ---------
Risk-free interest rate .............. 6.17% 5.65% 5.88%
Expected dividend yields ............. 9.8%-10.9% 9.1% 7.1%
Expected volatility .................. 15.1% 23.6% 24.3%
Weighted average option life ......... 10 Years 10 Years 10 Years
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock
volatility. Because the Company's stock option plan has characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of the above stock option
plan.
Stock appreciation rights may be issued in tandem with the stock options,
in which case, either the option or the right can be exercised. Such rights
entitle the grantee to payment in cash or a combination of common shares and
cash equal to the increase in the value of the shares covered by the option to
which the stock appreciation right is related. The plan limits the value of
the stock appreciation rights to 150% of the option price for the related
shares. The excess of the market price of the shares over the exercise price
of vested options is charged to expense. For the three years ended October 31,
2000, 1999 and 1998 there were no amounts charged to expense.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). Accordingly, no compensation expense has been
recognized for the options described above. Had compensation cost for these
options been determined based on the fair value on the grant date consistent
with the provisions of SFAS 123, the effect on the Company's net income and
earnings per share for the three years ended October 31, 2000, 1999 and 1998
would have been immaterial.
Certain officers have exercised stock options and provided full recourse
promissory notes to the Company in the amount of $267,000. In fiscal 2000, the
promissory notes were amended to extend the term of the notes to 10 years from
the date of the original note and to fix the interest rate at 2% over a U.S.
treasury note rate. The notes are collateralized by the stock issued upon
exercise of the stock options. Interest is payable quarterly and the principal
is due in 2007. Such notes are shown in stockholders' equity in the
accompanying balance sheet as notes receivable from officers/shareholders.
(11) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgement is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Company could realize on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash and cash equivalents, rents and interest receivable, accounts
payable, accrued expenses, other liabilities and certain borrowings except as
noted below are carried at amounts which reasonably approximate their fair
values.
The estimated fair value of mortgage notes receivable collateralized by
real property is based on discounting the future cash flows at a year-end risk
adjusted lending rate that the Company would utilize for loans of similar risk
and duration. At October 31, 2000 and 1999, the estimated aggregate fair value
of the mortgage notes receivable was $2,586,000 and $2,703,000 respectively.
F-18
Mortgage notes payable with aggregate carrying values of $40,034,000 and
$38,391,000 have estimated aggregate fair values of $41,301,000 and
$38,407,000 at October 31, 2000 and 1999 respectively. Estimated fair value is
based on discounting the future cash flows at a year-end risk adjusted lending
rate currently available to the Company for issuance of debt with similar
terms and remaining maturities.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements and
current estimates of fair value may differ significantly from the amounts
presented herein.
(12) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended October
31, 2000 and 1999 are as follows (in thousands, except per share data):
YEAR ENDED OCTOBER 31, 2000 YEAR ENDED OCTOBER 31, 1999
------------------------------------------ -------------------------------------------
QUARTER ENDED QUARTER ENDED
------------------------------------------ -------------------------------------------
JAN 31 APR 30 JULY 31 OCT 31 JAN 31 APR 30 JULY 31 OCT 31
-------- -------- --------- -------- -------- -------- --------- ---------
Revenues .......................... $7,812 $7,865 $7,606 $7,971 $6,933 $7,651 $7,266 $7,964
====== ====== ====== ====== ====== ====== ====== ======
Net Income (1) .................... $1,787 $3,067 $1,811 $1,924 $1,747 $2,036 $1,809 $3,598
Preferred Stock Dividends ......... 786 787 787 787 786 787 787 787
------ ------ ------ ------ ------ ------ ------ ------
Net Income Applicable to
Common and Class A ...............
common stockholders .............. $1,001 $2,280 $1,024 $1,137 $ 961 $1,249 $1,022 $2,811
====== ====== ====== ====== ====== ====== ====== ======
Basic Earnings per Share:
Common ............................ $ .09 $ .21 $ .09 $ .11 $ .09 $ .12 $ .09 $ .25
Class A Common .................... $ .10 $ .23 $ .10 $ .12 $ .10 $ .12 $ .11 $ .29
Diluted Earnings per Share:
Common ............................ $ .09 $ .20 $ .09 $ .11 $ .09 $ .12 $ .09 $ .24
Class A Common .................... $ .10 $ .23 $ .10 $ .12 $ .10 $ .12 $ .11 $ .28
----------
(1) Quarters ended April 30, 2000 and October 31, 1999 include gains on sales
of real estate investments of $1,067,000 and $1,364,000 respectively.
(13) SEGMENT REPORTING
For financial reporting purposes, the Company has grouped its real estate
investments into two segments: equity investments and mortgage loans. Equity
investments are managed separately from mortgage loans as they require a
different operating strategy and management approach. The Company assesses and
measures operating results for each of its segments, based on net operating
income. For equity investments, net operating income is calculated as rental
revenues of the property less its rental expenses (such as common area
expenses, property taxes, insurance, etc.) and, for mortgage loans, net
operating income consists of interest income less direct expenses, if any.
The revenues, net operating income and assets for each of the reportable
segments are summarized in the following tables for the years ended October
31, 2000, 1999 and 1998. Non-segment assets include cash and cash equivalents,
interest receivable, and other assets. The non-segment revenues consist
principally of interest income on temporary investments. The accounting
policies of the segments are the same as those described in Note 1. (In
thousands)
F-19
EQUITY MORTGAGE NON
YEAR ENDED OCTOBER 31, INVESTMENTS LOANS SEGMENT TOTAL
------------------------------ ------------- ---------- --------- ----------
2000
Total Revenues ............... $ 30,664 $ 376 $ 214 $ 31,254
======== ====== ====== ========
Net Operating Income ......... $ 19,800 $ 376 $ 214 $ 20,390
======== ====== ====== ========
Total Assets ................. $176,769 $2,379 $1,952 $181,100
======== ====== ====== ========
1999
Total Revenues ............... $ 29,282 $ 302 $ 230 $ 29,814
======== ====== ====== ========
Net Operating Income ......... $ 19,430 $ 302 $ 230 $ 19,962
======== ====== ====== ========
Total Assets ................. $179,370 $2,500 $1,904 $183,774
======== ====== ====== ========
1998
Total Revenues ............... $ 24,335 $ 684 $ 576 $ 25,595
======== ====== ====== ========
Net Operating Income ......... $ 16,472 $ 684 $ 576 $ 17,732
======== ====== ====== ========
Total Assets ................. $158,455 $2,607 $3,977 $165,039
======== ====== ====== ========
The reconciliation to net income for the combined reportable segments and
for the Company is as follows:
YEAR ENDED OCTOBER 31, 2000 1999 1998
---------------------------------------- ---- ---- ----
Net Operating Income from Reportable
Segments .............................. $ 20,390 $ 19,962 $ 17,732
-------- -------- --------
Addition:
Gains on sales of real estate
investments ......................... 1,067 1,364 -
-------- -------- --------
Deductions:
Interest expense ...................... 4,245 3,913 2,522
Depreciation and amortization ......... 6,307 5,896 4,747
General, administrative and other
expenses ............................ 2,316 2,327 2,287
-------- -------- --------
Total Deductions ....................... 12,868 12,136 9,556
-------- -------- --------
Net Income ............................. 8,589 9,190 8,176
Preferred stock dividends .............. (3,147) (3,147) (2,561)
-------- -------- --------
Net Income Applicable to
Common and Class A Common
Shareholders .......................... $ 5,442 $ 6,043 $ 5,615
======== ======== ========
(14) SUBSEQUENT EVENTS
In November 2000, the Company entered into a contract to purchase an
office building property in Greenwich, Connecticut at a purchase price of
$2,375,000.
On January 5, 2001, the Company sold 200,000 shares of common stock and
5,000 shares of Class A common stock for aggregate proceeds of approximately
$1.5 million in a private placement issue to two entities controlled by an
officer of the Company.
F-20
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JULY 31, OCTOBER 31,
2001 2000
ASSETS ------------ ------------
(UNAUDITED)
Real Estate Investments:
Properties owned -- at cost, net of accumulated depreciation ......... $ 159,717 $146,851
Properties available for sale -- at cost, net of accumulated
depreciation and recoveries ........................................ 11,099 12,158
Properties held for sale ............................................. 746 --
Investment in unconsolidated joint venture ........................... 8,537 9,167
Mortgage notes receivable ............................................ 2,321 2,379
--------- --------
182,420 170,555
Cash and cash equivalents ............................................. 2,779 1,952
Interest and rent receivable, net ..................................... 5,185 3,853
Deferred charges, net of accumulated amortization ..................... 3,560 2,824
Other assets .......................................................... 2,360 1,916
--------- --------
$ 196,304 $181,100
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unsecured Revolving Credit Loans ..................................... $ 11,500 $ --
Mortgage notes payable ............................................... 54,323 51,903
Accounts payable and accrued expenses ................................ 2,608 1,222
Deferred officers' compensation ...................................... 181 102
Other liabilities .................................................... 2,181 2,090
--------- --------
70,793 55,317
--------- --------
Minority Interests .................................................... 4,127 5,140
--------- --------
Preferred Stock, par value $.01 per share; 20,000,000 shares
authorized; 8.99% Series B Senior Cumulative Preferred stock,
(liquidation preference of $100 per share); 350,000 shares issued
and outstanding in 2001 and 2000 ..................................... 33,462 33,462
--------- --------
Stockholders' Equity:
Excess stock, par value $.01 per share; 10,000,000 shares authorized;
none issued and outstanding ........................................ -- --
Common stock, par value $.01 per share; 30,000,000 shares
authorized; 6,238,750 and 5,557,387 issued and outstanding shares
in 2001 and 2000, respectively ..................................... 62 55
Class A Common stock, par value $.01 per share; 40,000,000 shares
authorized; 5,451,955 and 5,356,249 issued and outstanding shares
in 2001 and 2000, respectively ..................................... 54 54
Additional paid in capital ........................................... 127,866 122,448
Cumulative distributions in excess of net income ..................... (34,965) (33,397)
Unamortized restricted stock compensation and notes receivable
from officers/stockholders ......................................... (5,095) (1,979)
--------- --------
87,922 87,181
--------- --------
$ 196,304 $181,100
========= ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-21
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
----------------------- ---------------------
2001 2000 2001 2000
---------- ---------- --------- ---------
REVENUES:
Operating leases .................................. $25,279 $22,455 $8,611 $7,353
Lease termination proceeds ........................ 1,137 -- 1,137 --
Interest and other ................................ 572 605 249 242
Equity in income of unconsolidated joint
venture ......................................... (22) 223 (14) 11
------- ------- ------ ------
26,966 23,283 9,983 7,606
------- ------- ------ ------
OPERATING EXPENSES:
Property expenses ................................. 8,430 7,548 2,847 2,554
Interest .......................................... 3,269 3,183 1,123 1,062
Depreciation and amortization ..................... 5,429 4,569 2,087 1,491
General and administrative expenses ............... 1,984 1,921 580 541
Directors' fees and expenses ...................... 103 125 29 34
------- ------- ------ ------
19,215 17,346 6,666 5,682
------- ------- ------ ------
OPERATING INCOME BEFORE MINORITY INTERESTS ......... 7,751 5,937 3,317 1,924
MINORITY INTERESTS IN RESULTS OF CONSOLIDATED
JOINT VENTURES .................................... 332 338 106 113
------- ------- ------ ------
OPERATING INCOME ................................... 7,419 5,599 3,211 1,811
GAINS ON SALES OF REAL ESTATE INVESTMENTS .......... -- 1,067 -- --
------- ------- ------ ------
NET INCOME ......................................... 7,419 6,666 3,211 1,811
Preferred Stock Dividends ......................... 2,360 2,360 787 787
------- ------- ------ ------
NET INCOME APPLICABLE TO COMMON AND CLASS
A COMMON STOCKHOLDERS ............................. $ 5,059 $ 4,306 $2,424 $1,024
======= ======= ====== ======
BASIC EARNINGS PER SHARE:
Common ............................................. $ .44 $ .39 $ .21 $ .09
======= ======= ====== ======
Class A Common ..................................... $ .48 $ .44 $ .23 $ .10
======= ======= ====== ======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Common ............................................. 5,840 5,342 5,995 5,326
======= ======= ====== ======
Class A Common ..................................... 5,192 5,054 5,208 5,028
======= ======= ====== ======
DILUTED EARNINGS PER SHARE:
Common ............................................. $ .43 $ .39 $ .20 $ .09
======= ======= ====== ======
Class A Common ..................................... $ .47 $ .43 $ .22 $ .10
======= ======= ====== ======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Common and Common Equivalent ....................... 5,984 5,416 6,176 5,393
======= ======= ====== ======
Class A Common and Class A Common
Equivalent ........................................ 5,618 5,519 5,611 5,485
======= ======= ====== ======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-22
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
JULY 31,
-------------------------
2001 2000
----------- -----------
OPERATING ACTIVITIES:
Net income ............................................................ $ 7,419 $ 6,666
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................................ 5,429 4,569
Compensation expense relating to issuance of grants of restricted
stock .............................................................. 573 465
Recovery of investment in properties owned subject to financing
leases ............................................................. 191 1,024
Equity in loss (income) of unconsolidated joint venture .............. 22 (223)
Gains on sales of real estate investments ............................ -- (1,067)
(Increase) in interest and rent receivable ........................... (1,332) (293)
Increase (decrease) in accounts payable and accrued expenses ......... 1,386 (348)
(Increase) in other assets and other liabilities, net ................ (303) (679)
--------- --------
Net Cash Provided by Operating Activities ............................ 13,385 10,114
--------- --------
INVESTING ACTIVITIES:
Acquisition of minority interest ..................................... (1,013) --
Acquisitions of properties ........................................... (5,606) --
Deposits on acquisitions ............................................. -- (100)
Improvements to properties and deferred charges ...................... (9,222) (3,728)
Investment in unconsolidated joint venture ........................... (392) (366)
Distributions received from unconsolidated joint venture ............. 1,000 1,200
Payments received on mortgage notes receivable ....................... 58 101
Net proceed from sales of properties ................................. 100 3,921
--------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .................. (15,075) 1,028
--------- --------
FINANCING ACTIVITIES:
Sales of additional Common and Class A Common shares ................. 1,736 1,387
Payments on mortgage notes payable and bank loans .................... (6,682) (7,662)
Proceeds from mortgage notes payable and bank loans .................. 16,450 6,500
Dividends paid -- Common and Class A Common shares ................... (6,627) (5,783)
Dividends paid -- Preferred Stock .................................... (2,360) (2,360)
Purchases of Common and Class A Common shares ........................ -- (1,929)
--------- --------
Net Cash Provided by (Used in) Financing Activities .................. 2,517 (9,847)
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................. 827 1,295
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 1,952 2,758
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 2,779 $ 4,053
========= ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-23
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
COMMON STOCK CLASS A COMMON STOCK
----------------------- -----------------------
OUTSTANDING OUTSTANDING
NUMBER OF PAR NUMBER OF PAR
SHARES VALUE SHARES VALUE
------------- --------- ------------- ---------
BALANCES -- OCTOBER 31, 1999 ........ 5,531,845 $55 5,184,039 $52
Net Income Applicable to
Common and Class A
Common stockholders ................ -- -- -- --
Cash dividends paid:
Common Stock ($.525 per
share) ............................ -- -- -- --
Class A Common Stock
($.585 per share).................. -- -- -- --
Sales of shares ..................... 29,400 -- 123,400 1
Sales of shares under dividend
reinvestment plan .................. 15,987 -- 16,266 --
Shares issued under restricted
stock plan ......................... 48,375 1 48,375 1
Amortization of restricted stock
compensation ....................... -- -- -- --
Purchases of Common and Class
A Common shares .................... (108,600) (1) (154,600) (2)
--------- --- --------- ---
BALANCES -- JULY 31, 2000 ........... 5,517,007 $55 5,217,480 $52
========= === ========= ===
BALANCES -- OCTOBER 31, 2000 ........ 5,557,387 $55 5,356,249 $54
Net Income Applicable to
Common and
Class A Common stockholders......... -- -- -- --
Cash dividends paid:
Common Stock ($.54 per
share) ............................ -- -- -- --
Class A Common Stock ($.60
per share) ........................ -- -- -- --
Sales of shares ..................... 200,000 2 5,000 --
Sales of shares under dividend
reinvestment plan .................. 14,363 -- 17,847 --
Shares issued under restricted
stock plan ......................... 48,000 -- 48,000 --
Exercise of stock options ........... 419,000 5 24,859 --
Amortization of restricted stock..... -- -- -- --
Note from officer from exercise
of stock options ...................
--------- --- --------- ---
BALANCES -- JULY 31, 2001 ........... 6,238,750 $62 5,451,955 $54
========= === ========= ===
UNAMORTIZED
RESTRICTED
(CUMULATIVE STOCK
ADDITIONAL DISTRIBUTION COMPENSATION
PAID IN IN EXCESS OF AND NOTES
CAPITAL NET INCOME) RECEIVABLE TOTAL
----------- -------------- ------------- ----------
BALANCES -- OCTOBER 31, 1999 ........ $120,964 $ (31,127) $ (1,907) $ 88,037
Net Income Applicable to
Common and Class A
Common stockholders ................ -- 4,306 -- 4,306
Cash dividends paid:
Common Stock ($.525 per
share) ............................ -- (2,818) -- (2,818)
Class A Common Stock
($.585 per share).................. -- (2,965) -- (2,965)
Sales of shares ..................... 1,159 -- -- 1,160
Sales of shares under dividend
reinvestment plan .................. 227 -- -- 227
Shares issued under restricted
stock plan ......................... 700 -- (702) --
Amortization of restricted stock
compensation ....................... -- -- 465 465
Purchases of Common and Class
A Common shares .................... (1,926) -- -- (1,929)
-------- --------- -------- --------
BALANCES -- JULY 31, 2000 ........... 121,124 $ (32,604) $ (2,144) $ 86,483
======== ========= ======== ========
BALANCES -- OCTOBER 31, 2000 ........ $122,448 $ (33,397) $ (1,979) $ 87,181
Net Income Applicable to
Common and
Class A Common stockholders......... -- 5,059 -- 5,059
Cash dividends paid:
Common Stock ($.54 per
share) ............................ -- (3,364) -- (3,364)
Class A Common Stock ($.60
per share) ........................ -- (3,263) -- (3,263)
Sales of shares ..................... 1,433 -- -- 1,435
Sales of shares under dividend
reinvestment plan .................. 256 -- -- 256
Shares issued under restricted
stock plan ......................... 686 -- (686) --
Exercise of stock options ........... 3,043 -- -- 3,048
Amortization of restricted stock..... -- -- 573 573
Note from officer from exercise
of stock options ................... (3,003) (3,003)
-------- --------- -------- --------
BALANCES -- JULY 31, 2001 ........... $127,866 $ (34,965) $ (5,095) $ 87,922
======== ========= ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-24
URSTADT BIDDLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Business
Urstadt Biddle Properties Inc., (the "Company") is a Maryland corporation
that has elected to be treated as a real estate investment trust (REIT) under
the Internal Revenue Code, as amended. A REIT, among other things, that
distributes at least 95% (90% for taxable years beginning on or after January
1, 2001) of its REIT taxable income will not be taxed on that portion of its
taxable income which is distributed. The Company believes it qualifies and
intends to continue to qualify as a REIT. The Company is engaged in the
acquisition, ownership and management of commercial real estate, primarily
neighborhood and community shopping centers in the northeastern part of the
United States. Other assets include office and retail buildings and industrial
properties. The Company's major tenants include supermarket chains and other
retailers who sell basic necessities. As of July 31, 2001, the Company owned
25 properties containing a total of 2.8 million gross leasable square feet.
Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries, and joint ventures in
which the Company has the ability to control the affairs of the venture. All
significant intercompany transactions and balances have been eliminated. The
Company's investment in an unconsolidated joint venture in which it does not
exercise control is accounted for by the equity method of accounting. The
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Results of operations for the nine-month period ended July 31, 2001
are not necessarily indicative of the results that may be expected for the
year ending October 31, 2001. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year ended
October 31, 2000. The preparation of financial statements requires management
to make use of estimates and assumptions that affect amounts reported in the
financial statements as well as certain disclosures. Actual results could
differ from those estimates.
Income Recognition
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), to provide
guidance on the recognition, presentation and disclosure of revenue in
financial statements. Specifically, SAB No. 101, among other things, provides
guidance on lessors' accounting for contingent rent. SAB No. 101 did not
require the Company to change existing revenue recognition policies and
therefore had no impact on the Company's financial position or results of
operations.
Earnings Per Share
Basic EPS excludes the impact of dilutive shares and is computed by
dividing net income applicable to Common and Class A Common stockholders by
the weighted number of Common shares and Class A Common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue Common shares or Class A Common shares
were exercised or converted into Common shares or Class A Common shares and
then shared in the earnings of the Company. Since the cash dividends declared
on the Company's Class A Common stock are higher than the dividends declared
on the Common Stock, basic and diluted EPS have been calculated using the
"two-class" method. The two-class method is an earnings allocation
F-25
formula that determines earnings per share for each class of common stock
according to the weighted average of the dividends declared, outstanding shares
per class and participation rights in undistributed earnings.
The following table sets forth the reconciliation between basic and
diluted EPS (in thousands):
NINE MONTHS THREE MONTHS
JULY 31, JULY 31,
--------------------- -----------------------
2001 2000 2001 2000
--------- --------- ------------ --------
NUMERATOR
Net incomeapplicable to Common stockholders
-- basic ......................................... $2,546 $2,099 $1,233 $ 499
Effect of dilutive securities:
Operating partnership units ...................... 13 14 (5) 13
------ ------ ------ ------
Net income applicable to Common Stockholders
-- diluted ....................................... $2,559 $2,113 $1,228 $ 512
====== ====== ====== ======
DENOMINATOR
Denominator for basic EPS -- weighted average
Common shares .................................... 5,840 5,342 5,995 5,326
Effect of dilutive securities:
Stock options and awards ......................... 144 74 181 67
------ ------ ------ ------
Denominator for diluted EPS -- weighted
average Common equivalent shares ................. 5,984 5,416 6,176 5,393
====== ====== ====== ======
NUMERATOR
Net income applicable to Class A Common
stockholders -- basic ............................ $2,513 $2,207 $1,191 $ 525
Effect of dilutive securities:
Operating partnership units ....................... 155 192 50 55
------ ------ ------ ------
Net income applicable to Class A Common
stockholders -- diluted .......................... $2,668 $2,399 $1,241 $ 580
====== ====== ====== ======
DENOMINATOR
Denominator for basic EPS -- weighted average
Class A Common shares ............................ 5,192 5,054 5,208 5,028
Effect of dilutive securities:
Stock options and awards ......................... 124 82 148 74
Operating partnership units ...................... 302 383 255 383
------ ------ ------ ------
Denominator for diluted EPS -- weighted
average Class A Common equivalent shares ......... 5,618 5,519 5,611 5,485
====== ====== ====== ======
The weighted average Common equivalent shares and Class A Common
equivalent shares for the nine months and three months ended July 31, 2001 and
2000 each exclude 54,553 shares. These shares were not included in the
calculation of diluted EPS because the effect would be anti-dilutive.
Derivative Instruments and Hedging Activities
The Company adopted the provisions of Financial Accounting Standards
Board Statement # 133, "Accounting for Derivative Instruments and Hedging
Activities" in the first quarter of fiscal 2001. The statement generally
requires that all derivative instruments be reflected in the financial
statements at their estimated fair value. The Company does not generally enter
into derivative contracts for either investment or hedging purposes and
accordingly there was no effect on the Company's financial position or results
of operations as a result of the adoption of this statement.
F-26
2. PROPERTIES OWNED
During fiscal 2001, the Company entered into separate Purchase Agreements
to acquire an office property in Greenwich, Connecticut and a shopping center
in Briarcliff Manor, New York (the "Properties") for purchase prices of
$2,330,000 and $7,167,000, respectively. Pursuant to the safe harbor
provisions for tax-deferred reverse like-kind exchanges under Section 1031 of
the Internal Revenue Code, the Properties were conveyed to single member
limited liability companies controlled by unrelated title insurance companies
(the "LLCs") until such time as the Company completes the sale of one or more
of its currently owned properties (the "Relinquished Properties"). Pursuant to
certain Exchange Agreements between the Company and the LLCs (the "Exchange
Agreements"), the Company loaned the net purchase prices of the respective
Properties to the LLCs to complete the purchase of the Properties. The loans
which total $5,622,000 are secured by mortgages on the Properties. The loans
are payable monthly with interest at interest rates of 8% and 9% per annum and
are due six months from the date of the assignment of the Purchase Agreements.
The LLCs have net leased the Properties to the Company for lease payments
equal to the debt service due on the mortgage each month. The Exchange
Agreements also provide that on the earlier of the closing of the sale of the
Relinquished Properties or six months from the date of the assignment of the
Purchase Agreements, and at the election of the Company, the LLCs will either
assign their interests in the LLCs to the Company or convey the Properties
directly to the Company in satisfaction of the loans.
In connection with the acquisition of the shopping center property, the
Company assumed a first mortgage of $4.2 million. The assumption of the first
mortgage represents a non-cash investing activity and is therefore not
included in the accompanying 2001 consolidated statement of cash flows.
As the Company has effectively all the risks and rewards of ownership,
the net leases and mortgage loans with the LLCs referred to above have been
given no accounting recognition and the transactions have been recorded as
purchases of the properties. Accordingly, the properties are reflected at
their respective purchase costs and are included in "Properties Owned" in the
accompanying consolidated balance sheet at July 31, 2001.
The Company has entered into a settlement agreement whereby a former
tenant agreed to pay $1.21 million to the Company in satisfaction of all
claims against the tenant arising from the tenant's filing of a petition in
bankruptcy and the tenant's rejection of its lease at one of the Company's
properties. The settlement amount has been reflected in revenues in the
accompanying consolidated statements of income for the three month and nine
month periods ended July 31, 2001.
3. PROPERTIES AVAILABLE FOR SALE
In fiscal 2001, the Company sold a warehouse facility to the property's
sole tenant for $100,000, an amount which equaled the property's net book
carrying amount at the date of sale. The property was sold pursuant to a
purchase option contained in the tenant's lease on the property.
In the nine month ended period July 31, 2000, the Company sold two
properties for net gains on the sales of $1,067,000.
The net operating income in the nine month and three month periods ended
July 31, 2001 and 2000 of the properties sold was not material.
4. PROPERTIES HELD FOR SALE
At July 31, 2001, properties held for sale consists of one distribution
and service property located in Dallas, Texas. The Company is in negotiations
to sell this distribution and service property. Properties held for sale are
carried at the lower of cost or fair value less costs to sell. Depreciation
and amortization are suspended during the period held for sale. It is the
Company's policy to classify properties available for sale as properties held
for sale upon determination that such properties will be sold within one year.
F-27
5. MORTGAGE NOTES PAYABLE AND LINES OF CREDIT
During fiscal 2001, the Company repaid two mortgage notes payable
totaling $6.1 million secured by two of the Company's properties which matured
during the period.
The Company has a $20 million secured revolving credit loan agreement
which expires in October 2005 and is secured by first mortgage liens on two
properties. At July 31, 2001, the Company had borrowings of $16.8 million
outstanding under this agreement.
The Company also has a conditional unsecured line of credit arrangement
with a bank which was increased to $20 million in June 2001. The line of
credit expires in fiscal 2002 and outstanding borrowings bear interest at
LIBOR + 2.5%. Extensions of credit under the arrangement are at the bank's
discretion and subject to the bank's satisfaction of certain conditions. At
July 31, 2001, the Company had borrowings of $11.5 million outstanding and
interest on outstanding borrowings currently bear interest at an average
annual rate of 6.4%.
6. MINORITY INTERESTS
The Company is the general partner in Scarborough Associates LP, a
consolidated joint venture that owns the Arcadian Shopping Center in
Briarcliff, New York. In a prior year, the limited partners contributed the
property to the joint venture in exchange for operating partnership units
(OPUs) of the joint venture. The OPUs are exchangeable into an equivalent
number of shares of the Company's Class A Common Stock or cash, at the option
of the Company, after a certain period of years or upon the occurrence of
certain events. In February 2001, the Company redeemed 127,548 OPUs for
approximately $1.0 million, which represented the Company's net book value of
such OPUs as reflected in the caption "Minority Interest" in the accompanying
consolidated balance sheets.
7. STOCKHOLDERS EQUITY
In January 2001, the Company sold 200,000 shares of Common Stock and
5,000 shares of Class A Common Stock for total cash proceeds of $1.435 million
in a private placement to two entities controlled by an officer of the
Company.
In January 2001, an officer of the Company exercised non-qualified stock
options to purchase 419,000 shares of Common Stock and 19,000 shares of Class
A Common Stock at various exercise prices ranging from $6.81 per share to
$7.71 per share. The officer signed a note in the amount of $3,003,000 to the
Company to purchase the shares. The note bears interest at a fixed rate of
6.92%, is due in 2011 and is secured by the shares issued upon exercise of the
stock options. The note is shown as a reduction in stockholders equity as
"Notes receivable from officers/stockholders". The exercise of the stock
options and the note receivable from officer represent non-cash financing
activities and are therefore not included in the accompanying 2001
consolidated statement of cash flows.
The Company has a Restricted Stock Plan (Plan) which provides for the
grant of restricted stock awards to key employees and directors of the
Company. The Plan, as amended, allows for restricted stock awards of up
350,000 shares each of Class A Common Stock and Common Stock. During the nine
months ended July 31, 2001, the Company awarded 48,000 shares each of Class A
Common Stock and Common Stock (48,375 shares each of Class A Common Stock and
Common Stock in fiscal 2000) to participants in the Plan as an incentive for
future services. The shares vest after five years. Dividends on vested and
non-vested shares are paid as declared. The market value of shares awarded has
been recorded as unamortized restricted stock compensation and is shown as a
separate component of stockholders equity. Unamortized restricted stock
compensation is being amortized to expense over the five year vesting period.
8. SEGMENT REPORTING
For financial reporting purposes, the Company has grouped its real estate
investments into two segments: equity investments and mortgage loans. Equity
investments are managed separately from mortgage loans as they require a
different operating strategy and management approach. The
F-28
Company assesses and measures operating results for each of its segments, based
on net operating income. For equity investments, net operating income is
calculated as rental revenues of the property less its rental expenses (such as
common area expenses, property taxes, insurance, etc.) and, for mortgage loans,
net operating income consists of interest income less direct expenses, if any.
The revenues, net operating income and assets for each of the reportable
segments are summarized in the following tables for the nine month and three
month periods ended July 31, 2001 and 2000. Non-segment assets include certain
cash and cash equivalents, interest receivable, and other assets. The
non-segment revenues consist principally of interest income on temporary
investments. The accounting policies of the segments are the same as those
described in Note 1. (In thousands)
EQUITY MORTGAGE NON
THREE MONTHS ENDED JULY 31, INVESTMENTS LOANS SEGMENT TOTAL
------------------------------ ------------- ---------- --------- -----------
2001
Total Revenues ............... $ 9,833 $ 74 $ 76 $ 9,983
======== ====== ====== ========
Net Operating Income ......... $ 6,880 $ 74 $ 76 $ 7,030
======== ====== ====== ========
Total Assets ................. $192,716 $2,321 $1,267 $196,304
======== ====== ====== ========
2000
Total Revenues ............... $ 7,402 $ 119 $ 85 $ 7,606
======== ====== ====== ========
Net Operating Income ......... $ 4,735 $ 119 $ 85 $ 4,939
======== ====== ====== ========
Total Assets ................. $175,752 $2,399 $2,635 $180,786
======== ====== ====== ========
NINE MONTHS ENDED JULY 31,
------------------------------
2001
Total Revenues ............... $ 26,533 $ 229 $ 204 $ 26,966
======== ====== ====== ========
Net Operating Income ......... $ 17,771 $ 229 $ 204 $ 18,204
======== ====== ====== ========
Total Assets ................. $192,716 $2,321 $1,267 $196,304
======== ====== ====== ========
2000
Total Revenues ............... $ 22,782 $ 299 $ 202 $ 23,283
======== ====== ====== ========
Net Operating Income ......... $ 14,896 $ 299 $ 202 $ 15,397
======== ====== ====== ========
Total Assets ................. $175,752 $2,399 $2,635 $180,786
======== ====== ====== ========
F-29
The reconciliation to net income for the combined segments and for the
Company is as follows:
NINE MONTHS THREE MONTHS
ENDED JULY 31, ENDED JULY 31,
----------------------- ---------------------
2001 2000 2001 2000
---------- ---------- --------- ---------
Net operating income from reportable
segments .......................................... $18,204 $15,397 $7,030 $4,939
------- ------- ------ ------
Addition:
Gains on sales of real estate investments ......... -- 1,067 -- --
------- ------- ------ ------
Deductions:
General and administrative expenses ............... 2,087 2,046 609 575
Interest expense .................................. 3,269 3,183 1,123 1,062
Depreciation and amortization ..................... 5,429 4,569 2,087 1,491
------- ------- ------ ------
Total Deductions: .................................. 10,785 9,798 3,819 3,128
------- ------- ------ ------
Net Income ......................................... 7,419 6,666 3,211 1,811
Preferred Stock Dividends ......................... 2,360 2,360 787 787
------- ------- ------ ------
Net Income Applicable to Common and
Class A Common Stockholders ....................... $ 5,059 $ 4,306 $2,424 $1,024
======= ======= ====== ======
9. SUBSEQUENT EVENTS AND COMMITMENTS
Countryside Square Limited Partnership, an unconsolidated joint venture
in which the Company has an interest, has contracted to sell its Countryside
Square shopping center. The Company will record its proportionate share of the
gain upon the closing of the sale of the property.
We received commitments from two major commercial banks for $11 million
in first mortgage loans to be secured by five office properties in Greenwich,
Connecticut and one shopping center in Carmel, New York. We will use the
proceeds of these mortgage loans to repay amounts outstanding under our
short-term credit facilities. The loans will have terms of seven and ten years
and will bear interest at a fixed rate of 2% over certain treasury note rates.
We expect these transactions to close in September 2001.
On August 24, 2001, the Company sold approximately 4.2 acres of
undeveloped land in Denver, Colorado for $1.2 million. The Company will report
a gain on the sale of the property in the fourth quarter of fiscal 2001.
F-30
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING
NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED
REPRESENTATIONS OR INFORMATION. THIS PROSPECTUS IS AN OFFER TO SELL ONLY THE
COMMON SHARES OFFERED HEREBY, AND ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
PROSPECTUS SUMMARY ................... 5
RISK FACTORS ......................... 10
SELECTED FINANCIAL DATA .............. 18
OUR COMPANY .......................... 19
MARKET PRICE OF AND DISTRIBUTIONS
ON OUR CLASS A COMMON STOCK
AND COMMON STOCK .................. 24
USE OF PROCEEDS ...................... 25
CAPITALIZATION ....................... 26
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ......... 27
MANAGEMENT ........................... 35
DESCRIPTION OF SECURITIES ............ 38
CERTAIN PROVISIONS OF OUR ARTICLES
OF INCORPORATION AND BYLAWS,
MARYLAND LAW, OUR SHAREHOLDER
RIGHTS PLAN, CHANGE OF CONTROL
AGREEMENTS AND INDEMNIFICATION
AGREEMENTS ........................ 45
FEDERAL INCOME TAX CONSEQUENCES
OF OUR STATUS AS A REIT ........... 51
UNDERWRITING ......................... 63
EXPERTS .............................. 64
LEGAL OPINIONS ....................... 64
WHERE YOU CAN FIND MORE
INFORMATION ....................... 64
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS ........................ F-1
[GRAPHIC OMITTED]
4,800,000 SHARES
CLASS A COMMON STOCK
-----------------------------------------------------
PROSPECTUS
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FERRIS, BAKER WATTS
Incorporated
J.J.B. HILLIARD, W.L. LYONS, INC.
ADVEST, INC.
OCTOBER 25, 2001
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